Apollo Tyres Ltd:Annual Report 2023-24 Analysis

Apollo Tyres Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Apollo Tyres Ltd. was established in 1972 in Gurgaon, Haryana, India.

Headquarters Location and Global Presence:

The company’s headquarters are located in Gurgaon, Haryana, India. Apollo Tyres has a significant global presence with manufacturing units in India, Hungary, and the Netherlands. They also have a wide distribution network across Asia, Europe, Africa, and the Americas.

Company Vision and Mission:

• Vision: To be a premium global tyre brand of choice.
• Mission: To deliver superior value to our customers and stakeholders through innovative products, sustainable practices and an engaged workforce.

Key Milestones in Their Growth Journey:

• 1972: Incorporation of Apollo Tyres Ltd.
• 1977: Started production at its Perambra Plant (Kerala, India).
• 1995: Acquisition of Premier Tyres Limited.
• 2009: Acquisition of Vredestein Banden B.V. (Netherlands).
• 2016: Commissioned its greenfield plant in Hungary.

Stock Exchange Listing Details and Market Capitalization:

Apollo Tyres is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India.

Recent Financial Performance Highlights:

• Details available in the quarterly and annual reports of the company. Check their investor relations page for current financial metrics.

Management Team and Leadership Structure:

• Chairman: Onkar S Kanwar
• Managing Director: Neeraj Kanwar

Any Notable Awards or Recognitions:

• Apollo Tyres has received numerous awards and recognitions for its products, sustainability initiatives, and corporate governance. (Specific awards can be researched on their official website or through industry publications.)

Their Products #

Complete Product Portfolio with Categories:

Apollo Tyres offers a comprehensive range of tyres across various categories:

• Passenger Car Tyres: For hatchbacks, sedans, and SUVs.
• Truck and Bus Tyres: For commercial vehicles and public transport.
• Light Truck Tyres: For pickup trucks and vans.
• Two-Wheeler Tyres: For motorcycles and scooters.
• Off-Highway Tyres: For agricultural and industrial vehicles (tractors, construction equipment, etc.).

Flagship or Signature Product Lines:

• Apollo Apterra: A popular line of SUV tyres known for their durability and performance.
• Apollo Alnac: A range of car tyres designed for comfort and fuel efficiency.
• Vredestein Ultrac Vorti: UHP tires designed for sports cars and high-performance vehicles.

Key Technological Innovations or Patents:

• Apollo Tyres invests in R&D to develop innovative tyre technologies, including improved tread compounds, optimized tyre designs for better grip and handling, and technologies to reduce rolling resistance for fuel efficiency.

Manufacturing Facilities and Production Capacity:

Apollo Tyres has manufacturing facilities in:

• India (multiple locations)
• Hungary
• Netherlands

Quality Certifications and Standards:

Apollo Tyres adheres to international quality standards such as:

• ISO 9001 (Quality Management System)
• ISO 14001 (Environmental Management System)
• IATF 16949 (Automotive Quality Management System)

Any Unique Selling Propositions or Technological Advantages:

• A strong focus on R&D and innovation, leading to technologically advanced tyres.
• Wide range of tyres catering to diverse vehicle segments and applications.

Recent Product Launches or R&D Initiatives:

• Check the latest press releases or news section on the Apollo Tyres website for the most up-to-date information.

Primary Customers #

Target Industries and Sectors:

• Automotive Industry (OEMs and aftermarket)
• Transportation and Logistics
• Agriculture
• Construction

Geographic Markets (domestic vs. international):

• India (Significant domestic market share)
• Europe (Growing presence through the Vredestein brand)
• Asia
• Africa
• Americas

Distribution Network and Sales Channels:

• Extensive network of dealers and distributors.
• Direct sales to OEMs.
• Online sales channels (e-commerce platforms).

Major Competitors #

Direct Competitors in India and Globally:

• India: MRF, CEAT, JK Tyres, TVS Srichakra
• Globally: Michelin, Bridgestone, Goodyear, Continental

Competitive Advantages and Disadvantages:

• Advantages: Strong brand recognition in India, established distribution network, increasing presence in the European market through Vredestein.
• Disadvantages: Higher brand recognition and market share of some global players in certain international markets.

How They Differentiate from Competitors:

• By offering a wide range of tyres at competitive prices.
• By focusing on innovation and technology.
• By building strong relationships with OEMs and channel partners.

Market Positioning Strategy:

Apollo Tyres positions itself as a premium tyre brand that offers quality, performance, and value.

Future Outlook #

Expansion Plans or Growth Strategy:

• Expanding its presence in key international markets.
• Investing in R&D to develop new and innovative tyre technologies.
• Strengthening its relationships with OEMs and channel partners.

Upcoming Products or Innovations:

• Check the latest press releases or news section on the Apollo Tyres website for the most up-to-date information.

Sustainability Initiatives or ESG Commitments:

• Reducing its environmental footprint through energy efficiency, waste reduction, and responsible sourcing of materials.
• Promoting social responsibility through community development programs.

Industry Trends Affecting Their Business:

• Increasing demand for fuel-efficient tyres.
• Growing popularity of electric vehicles and the need for specialized EV tyres.
• Rise of autonomous vehicles and the demand for tyres with advanced sensor technologies.

3-Year Trend Analysis of Key Financial Metrics #

• Revenue from operations exhibited a fluctuating trend, increasing from ₹168,170 million in FY23 to ₹172,526 million in FY24.
• EBITDA (excluding other income) showed improvement, rising from ₹24,320 million in FY23 to ₹31,099 million in FY24.
• Net Profit significantly increased from ₹5,736 million in FY23 to ₹11,051 million in FY24.
• Net Debt/Equity ratio improved, decreasing from 0.42 in FY23 to 0.30 in FY24.
• Return on equity increased from 5.96% to 10.62%

Business Segment Performance #

Geographical Segmentation #

• India consistently contributed the majority of revenue, accounting for 87% in FY23 and 87% in FY24.
• The “Rest of the World” segment saw a slight decrease in its revenue share, from 14.87% in FY23 to 12.43% in FY24.

Customer Segmentation #

• The Replacement segment consistently dominated, representing 73% of revenue in FY23 and 75% in FY24.
• OEM (Original Equipment Manufacturer) sales showed an increase from 19% in FY23 to 18% in FY24.
• “Others” segment showed a small contribution, 8% in FY23 and 7% FY24.

Product Segmentation #

• Truck and Bus tyres were the largest product segment, although slightly decreasing.
• Passenger vehicle tyres increased slightly.
• Off-Highway, Light Truck, and “Others” segments represented smaller, relatively stable portions of revenue.

Major Strategic Initiatives #

• The stated objective is maintaining their position through, “better efficiency, stronger sales mix and well-timed pricing actions”
• The company is transforming, “stay at the forefront of the industry. Embracing cuttingedge technologies and adopting globally acclaimed practices.”
• Capex strategy: The report indicates a focus on “judicious” capital expenditure, aiming for sustainable and profitable growth.

Risk Landscape Changes #

• The primary risks mentioned are related to market volatility, including foreign currency exchange rates and interest rate fluctuations. The company uses derivative instruments to manage these exposures.
• Credit risk is managed through customer creditworthiness assessments, advances, letters of credit, and bank guarantees.
• Commodity risk (price volatility and supply of raw materials) is addressed through strategic decision-making.

ESG Initiatives and Metrics #

• The company highlights its “strong commitment towards ESG,” with a relentless focus on “cultivating a greener tomorrow.”
• Apollo Tyres received several awards related to sustainability, including the SEEM National Energy Management Award for power-saving projects and ISO 46001:2019 certification for water usage optimization at the Chennai Plant.

Management Outlook #

• Management will continue to be cautious with capital expenditure, and expects sustainable growth in the coming years.

Detailed Analysis #

Financial Position: Apollo Tyres Ltd #

Balance Sheet Analysis #

3-Year Comparative Analysis (Consolidated) #

(H Million)

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

• Non-current Borrowings: Decreased by 29.7% (from H 37,179 million to H 26,119 million).
• Current Borrowings: Decreased by 29% (from H 17,746 million to H 12,528 million).
• Other Equity: increased by 10.5%(From H 125,563 million to H 138,763 million).

Working Capital Trends #

(H Million)

Inventories decreased,Trade receivables increased. Trade payables decreased.

Debt Structure and Maturity Profile #

(H Million) Presented values are outstanding values.

Note A: All the long-term loans are secured by a pari-passu charge on the movable fixed assets of the Company. For specific NCD ( H 5,000 Million at 8.75% p.a), an exclusive charge on the immovable property of the Company’s registered office in Kochi has been created. Note B: Apollo Tyres (NL) B.V has provided a guarantee secured by a pledge on movable tangible assets and a mortgage of its real estate in the Netherlands. Apollo Tyres (Hungary) Kft. has also provided a guarantee secured by a pledge of fixed assets and movable tangible assets.

Off-Balance Sheet Items #

• Contingent Liabilities (FY24): H 10,534 million (primarily related to sales tax, income tax, and excise/customs/service tax/GST disputes)
• Corporate Guarantee given by Apollo Tyres Limited for its wholly-owned subsidiary Apollo Tyres Cooperatief U.A is: H 1,000 Million.

Apollo Tyres Ltd Financial Analysis: FY24 #

Revenue Breakdown by Segment/Geography with Growth Rates: #

• India: FY24 Revenue: ₹150,898.56 million; FY23 Revenue: ₹142,865.79 million. Growth Rate: 5.62%.
• Rest of the World: FY24 Revenue: ₹21,562.22 million; FY23 Revenue: ₹25,267.68 million. Growth Rate: -14.66%.
• APMEA (Asia Pacific, Middle East, and Africa): FY24 Revenue: ₹174,331.61 million. FY23 Revenue: ₹166,937.03 million. Growth Rate: 4.43%.
• Europe: FY24 revenue: ₹69,850.28 million, FY23 Revenue: ₹72,123.95 million. Growth Rate: -3.15%.
• Others: FY24 Revenue: ₹6,434.91 Million. FY23 Revenue: ₹2,555.78 million. Growth rate: 151.78%
• Total Revenue Growth (Consolidated): FY24 Revenue from operations was ₹172,460.78 million compared to FY23’s ₹168,133.47 million, Growth Rate: 2.57%.

Cost Structure Analysis: #

• Cost of Materials Consumed: Represented 50.74% of total revenue in FY24, Compared to 54.76% in FY23.
• Employee Benefit Expense: Represented 9.79% of total revenue in FY24.
• Finance Costs: 2.06% of total revenue in FY24.
• Depreciation and Amortization: 4.31% of total revenue in FY24
• Other expenses: 25.5% of total revenue in FY24

Margin Analysis (Consolidated): #

• Operating Margin: Other operating income constituted 1.13% of Total Revenue.
• Net Profit Margin: FY24 Net Profit was ₹11,053.30 million representing 6.4% of total revenue. FY23 Net Profit was ₹5,754.30, representing 3.42% of Total Revenue.

Operating Leverage: #

• FY24 data reveals a mix of fixed and variable costs. The significant portion of the cost of materials consumed suggests a variable cost structure, with a substantial portion attributed to employee benefits, finance costs, and depreciation, which include both fixed and variable elements.

Non-Recurring Items: #

• Exceptional Items (FY24): ₹757.93 million, primarily from employee reorganization costs and provision.
• Exceptional Items(FY23): ₹225.77 million.
• Ministry of Environment, Forest and Climate Change notification provisions.

EPS Analysis: #

• Basic and Diluted EPS (FY24): ₹17.40.
• Basic and Diluted EPS (FY23): ₹9.06.

Cash Flow and Liquidity Analysis #

Operating, Investing, and Free Cash Flow #

• OCF: Increased from ₹33,714 million to ₹42,286 million.
• ICF: Net cash used in investing activities in FY24 was ₹(31,079) million.
• FCF: Improved from ₹(5,848) million to ₹11,207 million.

Working Capital Management #

• Trade receivables increased from ₹24,157 million to ₹26,856 million.
• Inventories decreased from ₹44,540 million to ₹42,289 million.
• Trade payables decreased from ₹33,428 million to ₹29,954 million.

Capital Expenditure (CAPEX) #

• Total capital expenditure outflow amounts to ₹25,770 million for FY24.

Dividends and Share Buybacks #

• Dividend: A final dividend of ₹6.00 per share (₹3,810.61 million total) was proposed for FY24, subject to shareholder approval.

Liquidity Position #

• Cash and cash equivalents were ₹9,193 million as of March 31, 2024, up from ₹8,340 million the previous year.

Financial Analysis of Apollo Tyres Ltd #

Profitability Ratios (3-Year Trends) #

Return on Equity (ROE) #

• FY24: 13.1% (17,407.43 / 139,265.28 *100)
• FY23: 8.4% (`10,967.59 / 125,619.16 *100)

Return on Assets (ROA) #

• FY24: 6.4% (17,407.43 / 269,673.31 *100)
• FY23: 4.0% (10967.59 / 273,217.45 *100)

Return on Invested Capital (ROIC) #

• FY24: 12.95% (23,466.16/(139,265.28+39,427.30-9,167.36)*100)
• FY23: 8.76% (14839.26/(125,619.16+55,201.25-8,285.99)*100)

EBITDA Margin #

• FY24: 15.3% (38,416.38 / 250,932.28 * 100)
• FY23: 12.6% (30,486.93 / 241,298.75 * 100)

Net Profit Margin #

• FY24: 6.9% (17,407.43 / 250,932.28 * 100)
• FY23: 4.5% (10,967.59 / 241,298.75 * 100)

Liquidity Metrics #

Current Ratio #

• FY24: 1.28 (90,511.39 / 70,335.59)
• FY23: 1.1 (87,598.29 / 80,232.01)

Quick Ratio #

• FY24: 0.68 (90,511.39 - 42,548.87) / 70,335.59
• FY23: 0.54 (87,598.29 - 44,720.13) / 80,232.01

Cash Ratio #

• FY24: 0.19 ((9,167.36 + 4,821.46) / 70,335.59)
• FY23: 0.16 ((8,285.99+4,291.83)/ 80,232.01)

Efficiency Ratios #

Asset Turnover #

• FY24: 0.93 (250,932.28 / 269,673.31)
• FY23: 0.88 (241,298.75 / 273,217.45)

Inventory Turnover #

• FY24: 3.17 (137314.48 / ((42,548.87+44,720.13) / 2)
• FY23: 3.19 (142943.07/ ((44,720.13+ 45513.85)/2))

Receivables Turnover #

• FY24: 9.6 (250,932.28 / ((26,967.59+24,984.22) / 2))
• FY23: 10.06 (241,298.75 / ((24,984.22 + 23,176.05) / 2))

Leverage Metrics #

Debt/Equity Ratio #

• FY24: 0.28 (39,427.30 / 139,265.28)
• FY23: 0.44 (55,201.25 / 125,619.16)

Interest Coverage Ratio #

• FY24: 6.98 (23,466.16 / 3,359.76)
• FY23: 6.7 (14,839.26 / 2,208.07)

Segment-wise ROIC #

APMEA #

• FY24: 13.1% (16673/(76359.97+55641.28-4851.71)*100)
• FY23: 8.99% (12004.93/ (73039.03+63083.56-4892.32)*100)

Europe #

• FY24: 10.39% (6934.48/(55412.18+12203.98-2407.76)*100)
• FY23: 1.25% (813.94/ (50777.15 +14173.05-1029.78)*100)

Others #

• FY24: 24.2% (4116.4/(8734.39+9275.82-1707.89)*100)
• FY23: 19.07% (3127.6/(11564.61 + 5748.61 -954.75)*100)

Working Capital Ratios #

Working Capital #

• FY24: 20,175.8 (90,511.39 - 70,335.59)
• FY23: 7,366.28 (87,598.29 - 80,232.01)

Industry Comparison and Deviations #

• Profitability: Increased ROE and ROA are positive.
• ROIC: Increased ROIC in all the region.
• Liquidity: Ratios above 1 are generally considered.
• Efficiency: Relatively Good turnover
• Leverage: Debt/Equity below 1 indicates lower financial risk. Improved year on Year.

Apollo Tyres Ltd Business Segment Analysis #

Segment Performance Analysis #

Revenue and Profitability Metrics with Growth Rates #

• APMEA: Revenue increased from ₹174.76 billion in FY23 to ₹178.86 billion in FY24, a growth of 2.35%. Segment result improved from ₹16.64 billion to ₹21.86 billion, representing a 31.37% growth.
• Europe: Revenue decreased from ₹72.26 billion to ₹69.85 billion a decline of 3.34%. The segment result show improvement from profit ₹3.34 billion to ₹4.42 billion, representing a 32.68% growth.
• Others: Revenue increased from ₹8.55 billion to ₹9.74 billion a growth of 13.87%.The segment result show increase in loss from ₹3.71 billion to ₹4.28 billion, representing a 15.53% growth.

Key Products/Services Performance #

• Revenue segmentation by product shows that Passenger Vehicle tyres are the largest contributor, followed by Truck and Bus tyres.

Geographic Distribution and Market Penetration #

• India accounts for the largest portion of revenue (87% in FY24, decreasing slightly from 84% in FY23).
• “Rest of the World” (excluding Europe) shows a decrease in revenue contribution, from 15% in FY23 to 12% in FY24.
• Europe represent small revenue in FY 24.

Segment-wise CAPEX and ROIC #

• The report indicates a total capital expenditure outflow of ₹38.01 billion in FY24, down from ₹40.86 billion in FY23.
• Capital work-in-progress increased from 1.3 billion to 2.4 billion

Growth Initiatives and Challenges #

• Growth Initiatives: The company states a focus on sustainable and profitable growth, indicating investments in technology and a “judicious” CAPEX strategy. Specific growth initiatives are not detailed in the provided information, except for the mention of transformation and efficiency improvements.
• Challenges: Macro-economic uncertainties are acknowledged as a challenge.

Risk Assessment Framework #

Strategic Risks #

• Severity: High (due to potential impact on long-term revenue and market position).
• Likelihood: Medium (uncertainties exist, but the company demonstrates adaptability).
• Trend: Stable (based on the company’s transformation strategies and focus, there is no immediate indication of increasing strategic risk).
• Mitigation Strategies: Diversified product portfolio (Apollo and Vredestein brands), focus on multiple customer segments (OEM, replacement, etc.), geographic diversification (India, Europe, Rest of the World), and “Driving Progress, Together” corporate identity suggests an emphasis on partnerships and innovation.
• Control Effectiveness: Moderately High, evidenced by their awards and accolades, robust financial performance, and a maintained Net Debt/EBITDA and Net Debt/Equity Ratio.
• Potential Financial Impact: Revenue segmentation reveals reliance on the replacement market (71%) and the Indian geography (60%), indicating any significant shift could affect.

Operational Risks #

• Severity: Medium (disruptions can impact production and sales).
• Likelihood: Medium (due to reliance on manufacturing plants and supply chains).
• Trend: Stable
• Mitigation Strategies: Multiple manufacturing facilities across India and Europe, and focus on sustainable and profitable growth, and Awards for Energy Management and water usage optimization (ISO 46001:2019 certification) suggest operational risk management.
• Control Effectiveness: Moderately High. The SEEM National Energy Management Awards and ISO 46001:2019 certification indicate good operational controls.
• Potential Financial Impact: Inventory write-downs were reported (₹429.26 million in FY24, ₹336.25 million in FY23), showing some level of operational inefficiency or market fluctuation impacting asset values.

Financial Risks #

• Severity: Medium (due to exposure to currency, interest rate, and credit risks).
• Likelihood: Medium (inherent in international operations and financing activities).
• Trend: Improved.
• Mitigation Strategies: Hedging activities using derivative instruments (interest rate swaps, foreign exchange forward contracts), matching import/export exposures for natural hedge, and credit risk management policies.
• Control Effectiveness: Moderately High, as reflected by Financial instrument C13.
• Potential Financial Impact:
  • Net Debt/EBITDA ratio improved from 1.31 to 0.98, indicating reduced financial leverage.
  • Net Debt/Equity is holding 0.29.
  • Currency risk exposure is quantified for USD, Euro, and GBP, with +/- 5% sensitivity analysis provided.
  • Provision is made for sales-related obligations such as incentives, discounts and warranties.

Compliance/Regulatory Risks #

• Severity: High (penalties and legal challenges can have significant financial and reputational repercussions).
• Likelihood: Medium (due to operations in multiple jurisdictions with varying regulations).
• Trend: Stable, but with ongoing challenges.
• Mitigation Strategies: Engagement with legal counsel and adherence to accounting standards (Ind AS).
• Control Effectiveness: Moderate
• Potential Financial Impact:
  • Significant contingent liabilities disclosed for sales tax, income tax, excise/customs duty, and other claims, totaling ₹8,672 million in FY24.
  • Ongoing litigation with the Competition Commission of India (CCI) regarding an alleged violation in 2011-12, with a potential penalty of ₹4,255.30 million, though the company believes it has a strong case.
  • Provision Recognized for EPR, and related to that provision, amounts disclosed as exceptional items.

Emerging Risks #

• Severity: Medium
• Likelihood: Low
• Trend: stable
• Mitigation Strategies: Ongoing R&D spending.
• Control Effectiveness: Moderate
• Potential Financial Impact: Amount allocated to R&D suggests ongoing changes in the industry.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• The Group’s long term goal focuses on safeguarding the Company’s ability to meet its liquidity requirements and repaying loans.
• Transformation is viewed as a core element of corporate DNA and natural progression.
• The company continues to operate as a long term value creator, and kept a close watch on core markets.
• Focus is also placed on sustainable and profitable growth.

Competitive Advantages and Market Positioning #

• Apollo Tyres ranks among the world’s top-tier tyre manufacturers.
• The company holds a diversified product portfolio with key brands, Apollo and Vredestein. These cater to multiple segments: commercial, passenger vehicles, two-wheelers, farm, and industrial.
• The company received multiple awards and accolades related to sustainability, Leadership, Energy Management, Innovation and overall workplace.

Innovation Initiatives and R&D Effectiveness #

• Apollo Tyres was conferred the Open Innovation Leader Award.
• R&D expenditure totaled ₹1,891.94 million, comprised of ₹1,418.70 million in revenue expenditure and ₹473.24 million classified as capital expenditure (includes development expenditure for intangible assets).
• R&D activities focus on bringing cutting-edge technology and innovation to tyre manufacturing.

M&A Strategy and Execution #

• Capital reserve generated on the Apollo (Mauritius) Holdings Private Limited (AMHPL) merger.
• Goodwill and other indefinite-life intangibles related to the acquisition of Reifencom GmbH are subject to annual impairment testing.

Management’s Track Record in Execution #

• Management has provided representations regarding compliance with regulations, specifically concerning fund advancements, loans, and investments.
• The Board of Directors proposed final dividend for the year.
• The Management has the ability to continuously monitor forecasts and actual cashflows.
• The Management successfully completed its greenfield project in Gyöngyöshalász, Hungary.

Capital Allocation Strategy #

• Capital expenditure outflow was ₹38.35 billion.
• The company kept a judicious capex strategy.
• The capital structure is managed in light of economic conditions and financial covenants, with adjustments potentially including dividend payments, return of capital, or new share issuance. The gearing ratio is at 0.28.

Organizational Changes and Their Impact #

• An employee re-organization exercise was carried out, with payments to employees opting for the scheme totaling ₹460.88 million, disclosed as an exceptional item.
• One of the subsidary companies had a employee re-organization.

ESG Framework: Apollo Tyres Analysis #

Environmental Metrics and Targets #

• Apollo Tyres’ manufacturing facilities in Perambra, Chennai, and Kalamassery received the SEEM National Energy Management Award for implementing power-saving projects.
• The Chennai plant earned ISO 46001:2019 certification for optimizing water usage.
• Provision has been made towards Extended Producer Responsibility (EPR) for waste tyre Regulations. Obligation for FY 23-24 is J 684.92, and provision for FY 22-23 amounting to J 312.16 recognized in FY 23-24.

Social Responsibility Programs #

• Apollo Tyres has been re-certified as a “Great Place To Work.”
• The Company was listed as one of the Top 30 Leadership Factories of India.
• Employee re-organization exercise for its employees. amount paid to employees who opted for this scheme aggregated to J 445.77.

Governance Structure and Effectiveness #

• The board of directors benefits from an experienced and accomplished leadership.

Sustainability Investments and ROI #

• Research and Development expenditure, Year ended March 31, 2024. Revenue expenditure, 1,390.76.
• Received “Open Innovation Leader Award.”

Regulatory Compliance and Future Preparations #

• Fully compliant with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• Financial statements prepared in accordance with Indian Accounting Standards (Ind AS).
• Adoption of amendments to Ind AS, including Ind AS 1 (Disclosure of Accounting Policies) and Ind AS 12 (Deferred Tax related to Assets and Liabilities arising from a Single Transaction).
• Outstanding tax litigations and claims are mentioned.
• The Company has complied with the provision of Section 45-IA of the Reserve Bank of India Act 1934.

Future Outlook: Projections and Guidance #

Management Guidance and Assumptions #

• Management aims for sustainable and profitable growth, emphasizing a judicious capex strategy.
• Actual results may differ materially from forward-looking statements due to various assumptions.
• Assumptions are based in good faith but are subject to uncertainties in the macroeconomic environment.
• The capital structure is managed in light of changes in economic conditions and financial covenants.
• Credit risk is mitigated by dealing with creditworthy customers, securing advances, or utilizing letters of credit/bank guarantees.
• Liquidity risk is managed by maintaining reserves, monitoring cash flows, and matching maturity profiles of assets and liabilities.
• The Group mitigates risk from raw materials price volatility by taking strategic decisions.

Market Growth Forecasts #

• Growth rates used for impairment testing align with industry and country growth, referencing internal/external information.

Planned Strategic Initiatives #

• Continued focus on efficiency, sales mix, and pricing actions.
• Transformation remains core to the business, adapting to the global business landscape.
• Collaboration with partners to deliver best-in-class products.
• Continued use of derivative financial instruments to hedge risk.
• The discount rates for impairment testing consider market and specific risk factors of the cash-generating unit.
• Fulfillment of ESG, EPR, and other regulatory obligations.
• Investment in employees.

Capital Expenditure Plans #

• The company will be judicious about its capex strategy.
• Estimated amount of contracts to be executed on capital account not provided for: ₹1,908.75 million (Consolidated).

Efficiency Improvement Targets #

• The growth rates applied in annual impairment testing are congruent with industry and country expansion rates and are consistent with internal/external information origins.

Potential Challenges and Opportunities #

Challenges #

• Exposure to foreign currency exchange rate fluctuations and interest rate changes.
• Tax-related litigations and claims with tax authorities require management judgment.
• Potential financial loss due to counterparty default on contractual obligations.
• Competition Commission of India (“CCI”) Order.
• Outstanding tax-related litigations and claims.
• Waste recycling regulatory targets.

Opportunities #

• Investment promotion subsidies from the Government of Tamil Nadu and the Government of Andhra Pradesh.
• Benefits under the Export Promotion Capital Goods (EPCG) scheme.
• Continue to rank among the top tire manufacturers in the world.

Scenario Analysis and Sensitivity to Key Assumptions #

• Currency Risk: A +/- 5% sensitivity in currency exposure is presented for USD, Euro, and GBP.
• Interest Rate Risk: A 1% sensitivity analysis is provided for variable-rate borrowings.
• Goodwill & Trademarks Impairment Sensitivity.
• Gratuity and Long Term Compensated Absences Discount Rate and Future Salary Increase

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• S.R. Batliboi & Co. LLP issued an unmodified opinion on both the standalone and consolidated financial statements, stating that they give a true and fair view in conformity with generally accepted accounting principles in India.
• The audit report on consolidated financial statements includes an ‘Other Matter’ paragraph, stating that financial information of 14 subsidiaries and 1 associate are audited by other auditors and that the opinion is based solely on their reports. Some of these entities are located outside of India, and while their financials were prepared per local GAAP, the Holding Company’s management converted them to Indian GAAP, and these conversions have been audited.
• Qualification under CARO is not applicable.

Key Accounting Policies and Changes #

• The company adopted amendments to Ind AS 1 (Disclosure of Accounting Policies), Ind AS 8 (Definition of Accounting Estimates), and Ind AS 12 (Deferred Tax related to Assets and Liabilities arising from a Single Transaction) effective April 1, 2023.
• The amendment to Ind AS 1 impacted disclosures of accounting policies but not measurement, recognition, or presentation.
• The amendment to Ind AS 8 had no material impact.
• The amendment to Ind AS 12 resulted in the recognition of a separate deferred tax liability and impacted opening retained earnings as of April 1, 2022, with further impacts disclosed in the statement of profit and loss for the years ended March 31, 2023, and March 31, 2024. EPS for respective years is lower by H 0.14 and H 0.93.

Internal Control Effectiveness #

• The auditor’s report states that the Group, its subsidiaries, and its associate, which are companies incorporated in India, maintained adequate internal financial controls with reference to consolidated financial statements, and that these controls were operating effectively as of March 31, 2024.
• A limitation exists: a concurrent real-time audit trail does not exist for direct changes using privileged user accounts in the database.

Regulatory Compliance Status #

• The financial statements comply with Accounting Standards specified under Section 133 of the Companies Act, 2013, and the Companies (Indian Accounting Standards) Rules, 2015.
• Managerial remuneration complied with Section 197 read with Schedule V of the Act.
• No delays were reported in transferring amounts to the Investor Education and Protection Fund.
• The company reported the usage of accounting software with an audit trail (edit log), but there is no real-time audit trail for changes using privileged user accounts.
• Related party transactions complied with Sections 177 and 188 of the Companies Act, 2013.
• Sections 185 and 186 of Companies Act, 2013 have been complied with.
• Sections 45-IA of the Reserve Bank of India Act, 1934, is not applicable to the company.

Legal Proceedings and Their Potential Impact #

• The company disclosed pending litigations and their potential financial impact in Note C22.
• Significant litigation involves a penalty imposed by the Competition Commission of India (CCI) of H 4,255.30 Million related to alleged contraventions of the Competition Act, 2002. The matter is under appeal, and the company believes it has a strong case, so no provision has been made.
• There are various Sales Tax, Income Tax, Excise duty, Custom duty, Service tax and Goods & service tax contingent liabilities.
• No proceedings were reported against the Group for holding Benami property.

Related Party Transactions #

• Details of related party transactions are disclosed as per Ind AS 24. Transactions included sales, purchases, royalty payments, reimbursements, and lease rent with subsidiaries, associates, and entities in which directors are interested.
• Transactions are stated to be conducted in the ordinary course of business and at arm’s length.
• Key Management Personnel’s (KMP) compensation, sitting fees, and commissions are disclosed.

Subsequent Events #

• The Board of Directors recommended a final dividend of H 6.00 per share, subject to shareholder approval.

Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: Generally high, evidenced by the unmodified audit opinion and compliance with Ind AS. However, the lack of a real-time audit trail for database changes using privileged user accounts introduces a potential, albeit limited, risk of unauthorized modifications. The CCI case presents the only exception.
• Regulatory Risk: Moderate. While the company is compliant with most regulations, the significant outstanding matter with the CCI represents a substantial potential financial risk.