3M India Ltd:Annual Report 2023-24 Analysis

3M India Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

3M India Ltd. was established in 1987 as a subsidiary of 3M Company, a global science-based technology company headquartered in the United States. The parent company, 3M, was founded in 1902 in Two Harbors, Minnesota.

Headquarters Location and Global Presence #

3M India’s headquarters are located in Bengaluru, Karnataka, India. As a subsidiary of 3M Company, it benefits from the parent company’s global presence, operating in over 70 countries.

Company Vision and Mission #

While 3M India’s specific vision and mission statement might not be publicly available as a separate entity, it aligns with 3M Company’s overall vision which generally centers on:

• Vision: To advance every company, enhance every home, and improve every life.
• Mission: To solve problems innovatively.

Key Milestones in Their Growth Journey #

• 1987: Establishment of 3M India Ltd.
• Subsequent Years: Gradual expansion of product portfolio and manufacturing capabilities within India.
• Continuous Growth: Leveraging 3M’s global technology platform to introduce innovative solutions in the Indian market.

Stock Exchange Listing Details and Market Capitalization #

3M India Ltd. is listed on the Bombay Stock Exchange (BSE: 523375) and the National Stock Exchange (NSE: 3MINDIA).

Recent Financial Performance Highlights #

(To be updated with most current publicly available financial data.) 3M India reported a revenue of INR 3,991 Cr in the fiscal year ending March 31, 2023. Their operating income increased from INR 618 Cr in FY22 to INR 726 Cr in FY23. Net Income for the year stands at INR 518 Cr.

Management Team and Leadership Structure #

The leadership team consists of experienced professionals with expertise in various fields. Key positions include:

• Managing Director: Mr. Ramesh Ramadurai

Notable Awards or Recognitions #

(To be updated with any recent and relevant awards) 3M India has been recognized in the past for their contributions to sustainable development.

Their Products #

Complete Product Portfolio with Categories #

3M India offers a diverse range of products categorized as follows:

• Industrial: Abrasives, adhesives, tapes, personal safety equipment.
• Healthcare: Medical tapes, bandages, wound care solutions, dental products, sterilization products.
• Safety and Graphics: Reflective materials, traffic safety products, commercial graphics, personal protection equipment.
• Consumer: Scotch tape, Post-it notes, Scotch-Brite cleaning products.
• Electronics and Energy: Electrical tapes, connectors, insulators.

Flagship or Signature Product Lines #

• Scotch-Brite: Household cleaning products.
• Post-it: Adhesive notes.
• Scotch: Adhesive tapes.
• 3M Abrasives: Industrial abrasives and grinding solutions.

Key Technological Innovations or Patents #

3M leverages its parent company’s extensive patent portfolio. Key technological innovations are often centered around:

• Adhesive technology
• Material science
• Microreplication technology
• Nonwoven technology

Manufacturing Facilities and Production Capacity #

3M India has manufacturing facilities located in:

• Bengaluru
• Pune
• Ahmedabad
• Gurgaon

Quality Certifications and Standards #

3M products generally adhere to global quality standards, including:

• ISO 9001 (Quality Management System)
• ISO 14001 (Environmental Management System)

Any Unique Selling Propositions or Technological Advantages #

• Innovation: Strong focus on R&D and new product development.
• Quality: Reputation for high-quality and reliable products.
• Brand Recognition: Well-established and trusted brand name.
• Diverse Portfolio: Wide range of products catering to various industries.

Recent Product Launches or R&D Initiatives #

(To be updated with recent launches) In 2023, 3M India launched several innovative products in the industrial and safety sectors.

Primary Customers #

Target Industries and Sectors #

• Manufacturing
• Healthcare
• Automotive
• Electronics
• Construction
• Consumer Goods
• Infrastructure

Geographic Markets (Domestic vs. International) #

3M India primarily focuses on the domestic Indian market but also serves export markets to some extent.

Major Client Segments (Agricultural, Industrial, Residential, etc.) #

• Industrial clients
• Healthcare providers
• Construction companies
• Retail consumers

Distribution Network and Sales Channels #

3M India utilizes a multi-channel distribution strategy, including:

• Direct sales force
• Distributors
• Retail partners
• E-commerce platforms

Major Competitors #

Direct Competitors in India and Globally #

• Pidilite Industries
• Asian Paints
• Hindustan Unilever
• Avery Dennison
• Saint-Gobain

Competitive Advantages and Disadvantages #

• Advantages: Global brand, diverse product portfolio, strong R&D capabilities.
• Disadvantages: Price competitiveness compared to local players, dependence on imported technology.

How they differentiate from competitors #

3M India differentiates itself through its focus on innovation, premium quality, and a broad product portfolio.

Future Outlook #

Expansion Plans or Growth Strategy #

3M India’s future growth strategy is likely to involve:

• Expanding its presence in high-growth sectors like healthcare and infrastructure.
• Introducing new and innovative products based on 3M’s global technology platforms.
• Strengthening its distribution network and market reach.
• Focusing on localization and manufacturing in India to reduce costs.

Sustainability Initiatives or ESG Commitments #

(To be updated with the latest information) 3M has global sustainability goals which are likely to be adopted by 3M India as well. These typically focus on:

• Reducing greenhouse gas emissions
• Improving water quality
• Promoting waste reduction and recycling

Industry Trends Affecting Their Business #

• Growing demand for sustainable and eco-friendly products.
• Increasing automation and digitalization in manufacturing.
• Government initiatives promoting domestic manufacturing (Make in India).

3-Year Trend Analysis of Key Financial Metrics (Standalone) #

Revenue Growth #

Revenue from operations exhibited a growth of 5.18% in FY 2023-24, an improvement, compared to a negative growth of -11.5% from the operations for the FY 2021-22.

Profitability #

Profit Before Tax (PBT) increased by 28.09% in FY 2023-24, a significant increase in comparison to FY 2021-22. PBT margin improved to 17.98% in FY 2023-24 from 14.77% in FY 2022-23 and from 11.55% from FY 2021-22. Profit After Tax (PAT) also showed robust growth of 28.87% in FY 2023-24 and 59.56% compared to FY 2021-22.

Earnings Per Share (EPS) #

Basic and diluted EPS increased to 476.05 in FY 2023-24, an increase of 28.87% over the previous year.

Return on Net Worth (RONW) #

Increased from 10.69% reported in 2021-22 to 22.63% in FY 2023-24.

Net Worth #

Increased from 248,878 in FY 2021-22 to 237,020 in FY 2023-2024.

Debt to Total Equity Ratio #

It is reduced from 1.37 reported for FY 2022-23 to 0.76 in FY 2023-24

Business Segment Performance (Standalone) #

Safety and Industrial #

Revenue increased by 1.53% in FY 2023-24, with new Cubitron 3™ Performance Abrasives Portfolio.

Transportation & Electronics #

Revenue grew by 5.70%, driven by graphics solutions and growth in the automotive industry.

Health Care #

Revenue showed strong growth of 14.51% in FY 2023-24, in hospitals and dental clinics.

Consumer #

Revenue increased by 4.46%, supported by growth in modern trade and e-commerce channels, and new product launches.

Others (Export Sales) #

Decreased by 28.63% in FY 23-24.

Major Strategic Initiatives and Their Progress #

Automotive and Manufacturing Focus #

The Company is prioritizing emerging opportunities in the automotive and manufacturing sectors, with specific solutions for electric vehicles (EVs) and collaborations with key customers.

Infrastructure Investments #

The Company is leveraging government infrastructure spending, particularly in roads, railways, metros, and airports.

Manufacturing Capabilities #

Investments in technical capabilities and market coverage, including a new Robotics Lab in Bangalore, are supporting growth in the manufacturing sector.

Healthcare Transition #

Post the spin-off of 3M Company’s Health Care business, 3M India will serve as a licensed manufacturer, reseller, and distributor for Solventum’s healthcare products in India.

Risk Landscape Changes #

Geopolitical Risks #

The Company is monitoring geopolitical tensions affecting global transportation and supply chains, especially in the Red Sea region.

Competitive Pressure #

The Company operates in highly competitive markets, facing pressure on both top and bottom lines from both domestic and international companies.

Currency and Commodity Fluctuations #

Rupee depreciation and fluctuating oil and commodity prices continue to pose risks.

ESG Initiatives and Metrics #

Environmental Goals #

The Company’s Electronic City plant transitioned to 100% renewable electricity, and the Ranjangaon facility expanded its solar capacity to 1,000 kWp, generating 13,15,000 kW annually.

Plastic Reduction #

The Company reduced virgin plastic consumption by 11.1 metric tonnes by using recycled LDPE.

Water Conservation #

85-90% of process water is recycled in the manufacturing of 3M™ Interam™ products, demonstrating commitment to water efficiency.

Social #

3M India is supporting underserved communities through education (STEM initiatives like Nanhi Kali and Wonder Tinkering labs), community well-being, and environmental programs.

Governance #

3M Company has been recognized for 10 consecutive years as one of the World’s Most Ethical Companies by Ethisphere®, reflecting strong corporate governance practices.

Management Outlook #

• The outlook for the Indian economy is strong, supported by multiple initiatives across various sectors.
• The Company anticipates leveraging growth opportunities in automotive, manufacturing, and infrastructure.
• Maintaining operational discipline, cost management, and supply chain resilience are priorities.
• Sustained investments in R&D and innovation are expected to drive future growth.

Detailed Analysis #

Financial Analysis of 3M India Limited #

3-Year Comparative Analysis (Consolidated) #

( INR in Lakhs )

Significant Changes in Major Line Items (>10% YoY) #

(Consolidated)

• Current Assets: Increased by 25.43%, primarily due to the increase in cash and cash equivalents.
• Non-Current Liabilities: Decreased by 26.09%, majorly contributed from lease liabilities.
• Other Equity: Increased by 28.16%, significantly due to increase in retained profits.
• Total Equity: Increased by 27.98%.

Working Capital Trends (Consolidated) #

( INR in Lakhs )

• Trend: Working capital has increased significantly, primarily due to the increase in current assets.

Asset Quality Metrics (Consolidated) #

( INR in Lakhs )

• Property, Plant, and Equipment (PPE) Turnover:
  • PPE Turnover = Revenue from Operations / Average PPE
• Not fully calculable because Average PPE requires beginning and end of year figures.
  • FY24: 418,936.24 / 31,176.49 = 13.44

Debt Structure and Maturity Profile (Consolidated) #

( INR in Lakhs )

• The majority of debt is short-term, represented by current lease liabilities.
• The company shows reduction in its lease liability obligations, indicating the payment of debts without much refinancing.

3M India Limited: Financial Analysis #

Revenue Breakdown by Segment with Growth Rates (Standalone) #

• Safety and Industrial: FY 23-24 revenue of ₹125,057.93 lakhs, a 1.53% increase from FY 22-23.
• Transportation & Electronics: FY 23-24 revenue of ₹163,964.78 lakhs, a 5.70% increase from FY 22-23.
• Health Care: FY 23-24 revenue of ₹59,179.78 lakhs, a 14.51% increase from FY 22-23.
• Consumer: FY 23-24 revenue of ₹42,795.93 lakhs, a 4.46% increase from FY 22-23.
• Others (including Export Sales): FY 23-24 revenue of ₹1,678.01 Lakhs.
• Export Sales decreased by 28.63%, at ₹1,562.08 Lakhs.
• Total Revenue increased by 5.18%.

Revenue Breakdown by Segment with Growth Rates (Consolidated) #

• Safety & Industrial: FY23-24: ₹133,328.70 Crores, Increased.
• Transportation & Electronics: FY23-24: ₹164,940.62 Crores, Increased.
• Health Care: FY 23-24: ₹76,092.59 Crores, Increased.
• Consumer: FY 23-24: ₹42,795.93 Crores, Increased.
• Others: FY23-24: ₹1,778.40 Crores.
• Total Revenue increased by 5.81%.

Geographical Breakdown #

• The Company primarily serves the domestic Indian market.
• Export Sales: FY 23-24: ₹ 1,562.08 lakhs, a 28.63% decrease year-over-year due to lower global market demand.

Cost Structure Analysis (Standalone) #

• Cost of Materials Consumed: Decreased to 37.52% of Total Revenue in FY 23-24 from 41.23% in FY 22-23.
• Employee Benefit Expense: Decreased to 8.98% of Total Revenue as compared to 9.63% the previous year.
• Finance costs: significantly decreased.
• Other expenses slightly increased.

Margin Analysis (Standalone) #

• Operating Margin: Increased to 19.36% in FY 23-24 from 16.43% in FY 22-23.
• Profit Before Tax (PBT) Margin: Increased to 17.98% of Total Income in FY 23-24 from 14.77% in FY 22-23.
• Net Profit Margin (PAT to Total Income): Increased to 13.43% in FY 23-24 from 10.96% in FY 22-23.

Operating Leverage (Standalone) #

• PBITDA Increased by 23.93%, Revenue growth by 5.18%.

EPS Analysis (Standalone) #

• Basic and Diluted EPS: Increased to ₹476.05 per share in FY 23-24 from ₹369.41 per share in FY 22-23, representing a 28.87% growth.

Cash Management: 3M India Limited Financial Analysis #

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, FCF Components (Consolidated) #

• Operating Cash Flow (OCF): Increased to ₹64,303.49 lakhs in FY 23-24 from ₹46,547.66 lakhs in FY 22-23, driven primarily by higher profit before tax and favorable changes because of increase in trade payable.
• Investing Cash Flow (ICF): Net cash used in investing activities was ₹(26,937.59) lakhs in FY 23-24, up from ₹(1,546.93) lakhs in the prior year. This was primarily because of increase in purchase of fixed deposits and investments in purchase of property, plant and equipment.
• Financing Cash Flow (FCF): Net cash used in financing activities decreased to ₹(12,757.56) lakhs in FY23-24 compared to 97,966.64 in the previous year, majorly because of decrease in dividend payout.
• Free cash flow increased in FY 23-24 on account of higher net cash generated from operating activities, and lower capital expenditure.

Working Capital Management Efficiency #

• Inventory Turnover: The inventory ratio increased slightly to 77 days in FY 23-24 from 89 days in FY 22-23 (Standalone).
• Debtors Turnover: Debtors’ turnover ratio increased to 63 days in FY 23-24 from 58 days in FY 22-23 (Standalone).
• Trade Payable days: Increased from 106 days to 123 days.

Capex Analysis by Segment #

• Safety & Industrial: ₹666.44 lakhs in FY 23-24, down from ₹2,230.70 lakhs in FY 22-23.
• Transportation & Electronics: ₹969.72 lakhs in FY 23-24, down from ₹1,386.20 lakhs in FY 22-23.
• Health Care: ₹902.44 lakhs in FY 23-24, down from ₹935.77 lakhs in FY 22-23.
• Consumer: ₹364.48 lakhs in FY 23-24, down from ₹490.92 lakhs in FY 22-23.
• Unallocated: ₹238.34 lakhs in FY 23-24, down from ₹978.77 lakhs in FY 22-23. Total capex during FY 23-24 decreased compared to last year.

Dividend and Share Buyback Trends #

• Dividends: FY 23-24 proposed dividend of ₹685 per share (including a special dividend of ₹525 per share). FY 22-23 total dividend payout was lower, with payments totaling.
• Share Buyback: No share buyback activity reported during the analyzed periods.

Debt Service Coverage #

• The debt service coverage ratio increased to 39.62. The debt component comprises exclusively of lease liabilities.

Liquidity Position and Cash Conversion Cycle #

• Current Ratio: Increased to 2.38 in FY 23-24, from 2.04, indicating improved short-term liquidity (Standalone).
• Cash and Bank Balances: Increased to ₹85,903.81 lakhs as of March 31, 2024, from ₹63,198.06 lakhs in the previous year (Standalone).
• Cash conversion cycle: It’s increasing because of increase in debtor’s turnover and trade payable days.

Free Cash Flow Yield Trends #

Free cash flow yield is increasing because of increase in the free cash flow and reduction in market capitalization.

Financial Analysis of 3M India Limited #

Profitability Ratios (3-Year Trend) #

Standalone Data #

• RONW, ROCE, ROE increased significantly between FY22 and FY24, indicating improved profitability and efficiency in utilizing capital and equity.
• Both PBT and PAT margins show a continuous upward trend, with PBT margin reaching 17.98% and PAT margin 13.43% in FY24.

Consolidated Data #

Consolidated operating and net profit margins improved, FY 24 witnessed strong profitabilty, where Operating Profit Margin and Net Profit Margin reaching 19.62% and 13.67%.

Liquidity Metrics #

• The current ratio, while fluctuating, remains above 2.0, indicating a strong ability to meet short-term obligations.

Efficiency Ratios #

• Inventory turnover days improved.
• Debtors turnover days increased.

Leverage Metrics #

• The debt-to-equity ratio increased from previous year but reduced this year.
• Interest coverage ratio dramatically improved, showing strong ability to handle interest payments.

Segment-wise ROIC (Return on Invested Capital) #

(ROIC is PBT/Capital Employed, Only FY23-24 calculations shown. Prior years segment capital employed not fully available.)

• Transportation & Electronics segment and consumer shows highest return.

Working Capital Ratios #

Working capital data provided for Standalone.

• Working Capital to Sales decreased this year.

3M India Limited Business Segment Analysis #

Segment Performance Analysis #

Revenue and Profitability Metrics with Growth Rates (Standalone Basis) #

• Safety and Industrial: Revenue increased by 1.53% to ₹125,057.93 lakhs in FY 23-24. Profit Before Interest & Tax (PBIT) was ₹15,712.15 lakhs, showing significant growth from the previous year’s ₹12,056.87 lakhs.
• Transportation & Electronics: Revenue grew by 5.70% to ₹163,964.78 lakhs. PBIT showed a substantial increase to ₹36,806.38 lakhs from ₹23,661.33 lakhs in the prior year.
• Health Care: Revenue increased by 14.51% to ₹59,179.78 lakhs. PBIT was ₹4,101.35 lakhs in comparison to previous year’s PBIT of 5,438.34 lakhs.
• Consumer: Revenue grew by 4.46% to ₹42,795.93 lakhs. PBIT was reported as 8,083.50, with comparison of 8,255.56 from the previous year.

Market Share and Competitive Position #

• The Company has a portfolio of products protected by intellectual Property Rights of the Parent Company.
• 3M is a recognized brand, it featured on Interbrand’s top 100 list of global best brands in 2022.

Key Products/Services Performance #

• Safety and Industrial:
  • Abrasives: The new Cubitron™ 3 Performance Abrasives Portfolio was introduced, enhancing productivity and safety.
  • Electrical Products: Gained new business in the solar renewable energy sector.
  • Automotive Aftermarket: Sustained growth with new products like Ceramic Coating and Gloss Boost.
  • Industrial Adhesives & Tapes Division: Successful in developing new applications for EV batteries, that will deliver future growth.
  • Personal Safety Division: Growth witnessed from Pharma & Heavy Machinery Segment.
• Health Care:
  • Growth was driven by the increase in elective surgeries and dental procedures.
  • Strong partnerships with professional bodies (CAHO, INS, IDA, AORN) were leveraged to upgrade medical practices.
• Transportation and Electronics:
  • Graphics solutions saw sustained demand in transportation, fleet, and corporate branding.
  • The automotive industry delivered strong growth, with opportunities created by premiumisation.
• Consumer:
  • Increased penetration of the Scouring portfolio.
  • Strong growth in Q-commerce channels.
  • Growth in Scotch® Mounting tapes and Command™ Hooks.

Geographic Distribution and Market Penetration #

• The Company primarily serves the domestic Indian market. Export sales decreased by 28.63% during FY 23-24.
• Manufacturing facilities are located in Ahmedabad, Bengaluru, and Pune. The corporate office and R&D center are in Bengaluru.
• A nationwide sales network.

Segment-wise CAPEX and ROIC #

• Capital Investment: The total capital investment for FY 23-24 was ₹3,133.33 lakhs, a decrease of 47.86% year-on-year.

Operational Efficiency Metrics #

• Cost of Goods Sold: The percentage of cost of raw materials consumed against sales decreased by 2.57%, to 59.04% in FY 23-24.
• Employee Cost: Employee cost as a percentage of sales decreased to 8.98% in FY 23-24 from 9.63% in the previous year.
• Inventory Ratio: Increased to 77 days as at March 31, 2024, from 89 days in the previous year.
• Debtors Turnover Ratio: 63 days in FY 23-24, compared to 58 days in the previous year.

Growth Initiatives and Challenges #

• Growth Initiatives:

  • Focus on emerging growth opportunities in automotive, manufacturing, and infrastructure sectors.
  • Investment in technical capabilities and increased market coverage in the manufacturing sector, including a new Robotics Lab in Bangalore.
  • New product launches in the consumer segment catering to cleaning, mounting, and stationery needs.
  • Continued efforts to upgrade medical practices and upskill medical professionals in the healthcare segment.
  • CSR initiatives focused on STEM education, community well-being, and environmental initiatives.

• Challenges:

  • Navigating a complex global environment and economic climate.
  • Supply constraints.
  • Fluctuation in the prices of oil and commodities.

Risk Framework #

Safety and Industrial Business #

Strategic Risks #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Mitigation: Product diversification.
• Control Effectiveness: Moderate
• Potential Financial Impact: Revenue growth of 1.53% in FY 23-24.

Operational Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation: Zero Lost Time Injuries maintained, EHS Facility plan, EHS self-assessment, and CAMMS.
• Control Effectiveness: High
• Potential Financial Impact: Positive due to productivity enhancements, offset by potential costs of safety incidents.

Financial Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation: Cost optimization.
• Control Effectiveness: Moderate
• Potential Financial Impact: Segment revenue increased by 1.53%.

Compliance/Regulatory Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Mitigation: Adherence to ISO 14001:2015 and ISO 45001:2018.
• Control Effectiveness: High
• Potential Financial Impact: Potential, but no financial penalties incurred.

Emerging Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Increasing
• Mitigation: R&D investments, focus on automation.
• Control Effectiveness: Moderate
• Potential Financial Impact: Potential for future growth, but current financial impact is uncertain.

Transportation and Electronics Business #

Strategic Risks #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Mitigation: New solutions development.
• Control Effectiveness: Moderate
• Potential Financial Impact: Segment revenue grew by 5.70% in FY 23-24.

Operational Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Mitigation: Focus on long-term infrastructure projects.
• Control Effectiveness: Moderate
• Potential Financial Impact: Sustained demand in transportation, fleet, and corporate branding segments.

Financial Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Mitigation: Focus on diverse market segments (transportation, fleet, corporate branding).
• Control Effectiveness: Moderate
• Potential Financial Impact: Profit Before Interest & Tax increased significantly year-over-year.

Compliance/Regulatory Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Mitigation: Continued monitoring of regulatory changes and adaptation of products.
• Control Effectiveness: High
• Potential Financial Impact: Minimal

Emerging Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation: Active participation in new technology areas (e.g., EV batteries).
• Control Effectiveness: Moderate
• Potential Financial Impact: Significant growth potential, but with upfront investment risks.

Healthcare Business #

Strategic Risks #

• Severity: High
• Likelihood: High
• Trend: Increasing
• Mitigation: Licensed Manufacturer and Reseller agreement.
• Control Effectiveness: Moderate
• Potential Financial Impact: Revenue increased by 14.51% in FY 23-24.

Operational Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Mitigation: Partnerships with organizations like CAHO, INS, IDA, and AORN.
• Control Effectiveness: High
• Potential Financial Impact: Continued growth in the hospital-facing and dental businesses.

Financial Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation: Strong partnerships.
• Control Effectiveness: Moderate
• Potential Financial Impact: Profit Before Interest & Tax increased significantly year-over-year.

Compliance/Regulatory Risks #

• Severity: High
• Likelihood: Low
• Trend: Stable
• Mitigation: Focus on maintaining high standards, adherence to stringent regulations.
• Control Effectiveness: High
• Potential Financial Impact: Costs of compliance, but also mitigation of potential fines or penalties.

Emerging Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation: The exclusive agreement.
• Control Effectiveness: Moderate
• Potential Financial Impact: Increased market penetration and revenue, but subject to the success of the new arrangement.

Consumer Business #

Strategic Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation: Trade-up programs and partnerships.
• Control Effectiveness: Moderate
• Potential Financial Impact: Revenue increase of 4.46% in FY 23-24.

Operational Risks #

• Severity: Low
• Likelihood: Low
• Trend: Stable
• Mitigation: Strong partnerships in modern trade and e-commerce.
• Control Effectiveness: High
• Potential Financial Impact: Minimal

Financial Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation: Diversified product categories.
• Control Effectiveness: Moderate
• Potential Financial Impact: Profit Before Interest & Tax was stable.

Compliance/Regulatory Risks #

• Severity: Low
• Likelihood: Low.
• Trend: Stable.
• Mitigation: Standard product compliance and safety measures.
• Control Effectiveness: High
• Potential Financial Impact: Minimal

Emerging Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable.
• Mitigation: Product innovation.
• Control Effectiveness: Moderate
• Potential Financial Impact: Continued growth through new product offerings.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• Safety and Industrial: Aligned with India’s commitment to carbon neutrality, positioning for growth through new technologies and solutions in automotive and manufacturing.
• Healthcare: Post-spin-off of 3M’s Healthcare business, operating as a licensed manufacturer, reseller, and distributor for Solventum’s healthcare products.
• Transportation and Electronics: Capitalizing on government infrastructure spending in roads, railways, metros, and airports.
• Consumer: Increased penetration for homecare, including scrub sponges, tapes, and unboxing scissors.

Competitive Advantages and Market Positioning #

• Safety and Industrial: Benefits from 3M’s globally recognized brand, known for innovation, quality, and trust, supporting premium pricing and customer loyalty.
• Healthcare: Leverages partnerships with professional bodies (CAHO, INS, IDA, AORN) to upgrade medical practices.
• Transportation & Electronics: New applications for bonding of dissimilar low surface energy materials.
• Consumer: Investments in creating and launching products have resulted in growth across all products.

Innovation Initiatives and R&D Effectiveness #

• Safety and Industrial: New Robotics Lab in Bangalore and re-engineered Precision-Shaped Grain for 3M™ Cubitron™ Performance Abrasives enhance productivity and worker safety.
• Automotive Aftermarket: Positioned as a go-to solutions provider with training centers and digital facilities.
• Transportation and Electronics: Advanced photometry lab at the R&D Centre in Bengaluru enhances road safety product visibility and efficiency. Investment in wet-laid ceramic mat manufacturing technology (Interam™) targets the automotive market.
• Consumer: Revamping of traditional scrub pads, weather-resistant tape, and unboxing scissors.

M&A Strategy and Execution #

• The planned amalgamation of 3M Electro & Communication India Private Limited (3M E&C) with 3M India Limited is a strategic move to consolidate operations, though it is still pending with the NCLT Bengaluru for final orders.
• Post the spin off 3M India Limited will be an exclusive licensed manufacturer and reseller, as well as independent distributor, for most of Solventum’s healthcare products.

Management’s Track Record in Execution #

• Consistent revenue and profit before tax (PBT) growth. Revenue growth was 5.8%, and PBT growth was 28.6% on a consolidated basis.
• Effective cost management and a stable cash position.
• Disciplined execution supported strong underlying margins.

Capital Allocation Strategy #

• Capital investments for FY 23-24 were ’ 3,133.33 lakhs, focusing on strategic areas, including manufacturing technology for automotive applications (Interam™).
• The spin-off of 3M India’s Healthcare business into Solventum may potentially create a new growth vector.
• The Board recommended a dividend of ’ 685 per equity share, reflecting a balance between rewarding shareholders and retaining earnings for future growth.

Organizational Changes and Their Impact #

• The spin-off of 3M’s Healthcare business into Solventum, with 3M India acting as a licensed manufacturer and distributor, streamlines operations and focuses on core business segments.
• The Board of Directors made new appointments based on the recommendations of the Nomination and Remuneration Committee.
• The Work Your Way hybrid model implementation and focus on Diversity & Inclusion initiatives improve employee engagement and workplace culture.

ESG Initiatives at 3M India #

Environmental Metrics and Targets #

• 3M India’s Electronic City plant transitioned to 100% renewable electricity.
• Ranjangaon, Pune facility expanded on-site solar capacity to 1,000 kWp, generating 13,15,000 kW annually (12% of plant’s total energy).
• Process water recycling at the Electronics City plant reached 85-90% in the production of 3M™ Interam™ products.
• Virgin plastic consumption reduced by 11.1 metric tonnes via post-consumer recycled LDPE.
• All manufacturing sites maintain zero water discharge status.
• Switched from propane to natural gas at Ranjangaon and optimised shop floor design for daylight.

Social Responsibility Programs #

• 3M Wonder Tinkering Labs Programme benefited over 5,800 students in Pune and Bengaluru, promoting STEM education.
• Project Nanhi Kali supported over 2,800 girls in Ambegaon, rural Pune, increasing graduates and higher education pursuit, decreasing dropout rates.
• Visiting Wizards programme reached over 1,000 students, promoting STEM interest.
• STEM scholarships introduced for academically gifted girls from underprivileged backgrounds.

Governance Structure and Effectiveness #

• Board of Directors oversees Executive Directors and Senior Management, ensuring ethical operations and compliance.
• Global compliance culture supported by business conduct principles, awareness campaigns, evaluations, global helpline, and investigation expertise.
• “Speak Up” programme fosters transparency with whistleblower protection, multiple reporting channels, and non-retaliation policy.
• Recognized as one of the World’s Most Ethical Companies by Ethisphere® for ten consecutive years.

Sustainability Investments and ROI #

• 3M Company, USA allocates approximately 5%-6% of sales to global Research & Development.

ESG Ratings and Peer Comparison #

• 3M Company, USA recognition in 2023: Top 50 Most Innovative Companies (Boston Consulting Group), Top 50 World’s Most Admired Companies (Fortune), World’s Best Companies of 2023 (Time), and World’s Most Ethical Companies® Honoree List (Ethisphere).

Regulatory Compliance and Future Preparations #

• 3M India maintains ISO 14001:2015 and ISO 45001:2018 certifications across all three manufacturing plants.
• Aiming for full compliance with new Extended Producer Responsibility (EPR) norms.

3M India Limited: Segment-Wise Financial Analysis #

Management Guidance and Assumptions #

• Prioritizes consistent and profitable sales growth.
• Considers the Indian market attractive and growing, with 3M technologies providing significant headroom for growth.
• Uses multiple innovative tools for product and service development and execution of growth opportunities.
• Continued arrangement with 3M Global Service Center Management Company, USA for services, aiming to benefit from operational efficiencies, cost savings, and economies of scale.
• Consistent investment in R&D will provide several solutions, and innovation will be the heart of business.

Market Growth Forecasts #

• Automotive: Increased adoption of SUVs and focus on enabling EV adoption.
• Infrastructure: Government allocation to infrastructure at over 3% of GDP, with investments in roads, railways, metros, and airports.
• Manufacturing: Growth due to the entry of global players and impetus from Production Linked Incentives.
• Consumer: Catering to consumer’s demand and launch of products.
• Renewable Energy: Government aims to invite bids for 50 GW of renewable energy capacity annually from FY 23-24 to FY 27-28, including 10 GW of wind power capacity per year.
• Healthcare: Shifting reimbursement models, increasingly rigorous patient standards, and innovative approaches to care delivery.

Planned Strategic Initiatives #

• Automotive: Collaboration with key customers, focusing on emerging trends.
• Infrastructure: Capitalize on government investments.
• Manufacturing: Invest in building technical capabilities and increasing market coverage, leveraging the new Robotics Lab in Bangalore.
• Consumer: Investment in products catering to consumer needs across cleaning, mounting, and stationery categories.
• Healthcare: Upgrading medical practices in hospitals, dental clinics, and upskilling medical professionals, focusing on prioritized market segments and product portfolios, reinforced by collaborating with various industry partners.
• Sustainability: Alignment with 3M’s global ESG commitments, including accelerating climate solutions, decarbonizing industry, and strengthening the circular economy.

Capital Expenditure Plans #

• FY 23-24: Capital Investments of ’ 3,133.33 lakhs (net of capital work-in-progress and capital advances).
• Strategic Investment: Investment in advanced wet-laid ceramic mat manufacturing technology (Interam™) for automotive applications with a dedicated plant in Pune.

Efficiency Improvement Targets #

• Operational Discipline: Maintaining a stable cash position, managing costs, and implementing strategic price adjustments.
• Supply Chain: Continued monitoring of markets and optimization of costs across goods and services.
• ESG Commitments: Reduce water usage, increase energy efficiency, and increase renewable energy.
• Manufacturing: Two-thirds of the incremental growth delivered over the last six years was contributed by increase in manufacturing activities. Locally manufactured products contributed 52.9% to total sales as at March 31, 2014. The contribution of locally manufactured product increased to 61.5% of total sales as at March 31, 2024.

Potential Challenges and Opportunities #

• Challenges:
  • Geopolitical issues, global economic volatility, and supply chain constraints.
  • Competition from technologically oriented companies, both domestically and internationally.
  • Fluctuations in currency exchange rates, oil prices, and raw material costs.
• Opportunities:
  • Emerging growth opportunities in the automotive, manufacturing, and infrastructure sectors.
  • India’s commitment to carbon neutrality and adoption of new technologies.
  • Leveraging 3M’s global capabilities, technologies, and brand.
  • Growing domestic consumption and expansion of modern trade and e-commerce channels.
  • Government policy initiatives like the Product Linked Incentive (PLI) schemes.
  • Leveraging access to 3M Company’s intellectual property, product portfolios and the 3M Brand.

Segment-Specific Analysis #

Safety and Industrial #

• Guidance: Focus on industrial adhesives, tapes, abrasives, and personal safety products.
• Strategies: Launch of new Cubitron™ 3 Performance Abrasives, support for robotic and automation solutions, and new applications for EV batteries.
• Opportunities: Increased focus on worker safety and automation in manufacturing.

Transportation & Electronics #

• Guidance: Target the growing transportation and infrastructure sectors.
• Strategies: Leveraging graphics solutions in transportation, fleet, and corporate branding. Capitalizing on growth in the automotive industry.
• Opportunities: Government investments in infrastructure (roads, railways, airports).

Healthcare #

• Guidance: Focus on elective surgeries, dental procedures, and partnerships with professional healthcare organizations.
• Strategies: Leveraging partnerships to upgrade medical practices and upskill professionals. Exclusive licensed manufacturer and reseller as well as independent distributor for Solventum’s healthcare products.
• Opportunities: Transformation of the healthcare landscape in India, standardization of procedures.

Consumer #

• Guidance: Focus on home care, office supply, stationery, home improvement, and consumer healthcare products.
• Strategies: Increasing penetration of scouring products, growing in modern trade and e-commerce, and promoting mounting solutions.
• Opportunities: Increased domestic consumption and growth in modern trade and e-commerce channels.

Scenario Analysis and Sensitivity #

• Scenario Analysis: Qualitative scenarios could be developed around:
  • Optimistic Scenario: Strong Indian economic growth, successful new product launches, effective cost management.
  • Pessimistic Scenario: Economic slowdown, increased competition, supply chain disruptions.
  • Base Case: Moderate economic growth, continued execution of existing strategies.
• Sensitivity to Key Assumptions:
  • Foreign Exchange Rates: Significant fluctuations (especially USD) can impact material costs and profitability. A 1% weakening of the USD against all other currencies would result in a decrease in profit or loss by ’ 545.83 lakhs.
  • Raw Material Prices: Fluctuations in the cost of raw materials have a direct impact on the cost of goods sold and margins.
  • Royalty expenses: ‘94 crores include approx ’ 6 crores of Royalty for activities attributable to 3M Electro & Communication India Private Limited, a wholly owned subsidiary of the company, in view of anticipated merger of the subsidiary with the Company during the year. In the event of merger not happening during the period of validity of the aforesaid resolution, the limits shall be not utilised by 3M India Limited.
  • Government Policies: The success of certain strategies (e.g., infrastructure) is highly dependent on continued government support and investment.

3M India Limited: Audit and Compliance Analysis (FY 2023-24) #

Auditor’s Opinion and Qualifications #

• B S R & Co. LLP issued an unmodified opinion on the standalone and consolidated financial statements.
• The auditor’s report includes qualifications related to:
  • Revenue recognition due to pressure to achieve targets.
  • Modification of accounts.
  • Not keeping a backup server in India.

Key Accounting Policies and Changes #

• The financial statements comply with Indian Accounting Standards (Ind AS) under Section 133 of the Companies Act, 2013.
• No new accounting standards were adopted.
• Revenue recognition occurs upon transfer of control of goods, net of discounts and taxes.
• Property, plant, and equipment are depreciated using the straight-line method, with useful lives differing from Schedule II of the Companies Act, 2013 for some assets, justified by management.

Internal Control Effectiveness #

• The auditors’ report references a separate report on internal financial controls over financial reporting (“Annexure B”).
• The Company maintains an internal audit function reporting to the Audit Committee.
• Internal controls are aligned with 3M Global’s framework (COSO 2013).

Regulatory Compliance Status #

• The Company has complied with mandatory Corporate Governance requirements as per the Listing Regulations.
• The Company has a Business Conduct Concern Reporting Policy (Whistle Blower Policy).
• The Company complies with the Sexual Harassment of Women at Workplace Act, 2013.
• The Company paid the requisite listing fees.
• Secretarial Audit was performed, and there were no qualifications.
• No non-compliance instances or penalties related to capital markets were imposed during the last three years.
• There are certain instances of non-compliances in respect of operation of audit trail feature of accounting software.

Legal Proceedings and Their Potential Impact #

• The Company disclosed the impact of pending litigations.
• Significant claims not acknowledged as debts exist, primarily related to income tax, customs duty, sales tax, service tax, excise duty, and goods and service tax.
• No frauds were reported by the Auditor.

Related Party Transactions #

• All Related Party Transactions (RPTs) were conducted on an arm’s length basis.
• The Company obtains prior omnibus approval from the Audit Committee for repetitive RPTs.
• Material RPTs are with 3M Company, USA (Holding Company), and 3M Innovation Singapore Pte Ltd.
• Member’s approval will be sought at the 37th Annual General Meeting.

Subsequent Events #

• On April 1, 2024, 3M Company, USA, completed the spin-off of its Healthcare business, forming Solventum Corporation. 3M India Limited will be an exclusive licensed manufacturer and reseller, as well as an independent distributor, for Solventum’s healthcare products in India.
• The Scheme of Amalgamation of 3M Electro & Communication India Private Limited (a wholly-owned subsidiary) with 3M India Limited is pending with the National Company Law Tribunal, Bengaluru, for orders.
• The Board recommended a dividend of ’ 685 per equity share, subject to shareholder approval.
• There are no other material subsequent events after the balance sheet date that have significant impact on the financial statements.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: Consistent application of accounting policies and the unmodified audit opinion suggests a generally high level of accounting quality. The identified control issue related to backup server may indicate a potential gap, pending management’s action, and it is considered a material weakness.
• Regulatory Risk: The pending litigations, while disclosed, represent a significant potential financial risk. The prompt resolution of audit findings and demonstrated compliance with disclosure requirements mitigate regulatory risk.