NDR Auto Components Ltd:Annual Report 2023-24 Analysis

NDR Auto Components Ltd.: A Comprehensive Overview #

About the Company #

NDR Auto Components Ltd. is a prominent Indian automotive component manufacturer.

Year of Establishment and Founding History #

Established in 1995.

Headquarters Location and Global Presence #

Headquartered in Bahadurgarh, Haryana, India. Operates domestically.

Company Vision and Mission #

• Vision: To be a leading and trusted global supplier of automotive components, known for quality, innovation, and customer satisfaction.
• Mission: To consistently deliver high-performance automotive components through advanced manufacturing processes, a skilled workforce, and a commitment to sustainable practices, thereby creating value for all stakeholders.

Key Milestones in Their Growth Journey #

• 1995: Establishment of NDR Auto Components Ltd.
• Expansion through capacity additions and technology upgrades over the years.
• Focus on forging business relationships with OEMs and Tier 1 suppliers.

Stock Exchange Listing Details and Market Capitalization #

Listed on the Bombay Stock Exchange (BSE) with the code 539550.

Recent Financial Performance Highlights #

• Revenue: Reported INR 223 crore in FY23, up from INR 179 crore in FY22
• Profit: Reported a net profit of INR 5.6 crore in FY23
• EPS: Reported diluted EPS of INR 1.28 in FY23

Management Team and Leadership Structure #

• Chairman & Managing Director: Mr. Anoop Kumar Narang
• Chief Financial Officer: Mr. Ashish Sharma

Any Notable Awards or Recognitions #

Details on any awards or recognitions are currently not available.

Their Products #

Complete Product Portfolio with Categories #

NDR Auto Components Ltd. specializes in manufacturing a variety of automotive components, including:

• Forged and Machined Components: Including parts for engines, transmissions, and axles.
• Fabricated Assemblies: Including chassis and structural parts.
• Sheet Metal Components: Pressed and welded parts.

Flagship or Signature Product Lines #

Forged and machined components are one of the flagship products.

Key Technological Innovations or Patents #

Focuses on process innovation in forging and machining to improve efficiency and quality.

Manufacturing Facilities and Production Capacity #

Operates multiple manufacturing plants in Bahadurgarh, Haryana.

Quality Certifications and Standards #

Certified to ISO 9001:2015.

Any Unique Selling Propositions or Technological Advantages #

• In-house tool room and die-making facilities provide flexibility and control over production.
• Expertise in hot, warm, and cold forging processes.

Recent Product Launches or R&D Initiatives #

Focuses on expanding its product range and capacity through R&D initiatives.

Primary Customers #

Target Industries and Sectors #

Primarily serves the automotive industry, including passenger vehicles, commercial vehicles, and off-highway vehicles.

Geographic Markets (Domestic vs. International) #

Primarily focused on the Indian domestic market.

Major Client Segments (agricultural, industrial, residential, etc.) #

Key client segments include OEMs (Original Equipment Manufacturers) and Tier 1 automotive suppliers.

Distribution Network and Sales Channels #

Direct sales to OEMs and Tier 1 suppliers.

Major Competitors #

Direct Competitors in India and Globally #

Identified competitors include:

• Bharat Forge
• Ramkrishna Forgings

Competitive Advantages and Disadvantages #

• Advantages: Strong domestic presence, established customer relationships.
• Disadvantages: Limited global presence compared to larger competitors.

How They Differentiate From Competitors #

Focuses on providing cost-effective solutions and customized components.

Industry Challenges and Opportunities #

• Challenges: Fluctuations in raw material prices, changing automotive industry trends.
• Opportunities: Growing automotive market in India, increasing demand for lightweight and fuel-efficient components.

Market Positioning Strategy #

Positions itself as a reliable supplier of quality automotive components at competitive prices.

Future Outlook #

Expansion Plans or Growth Strategy #

Focuses on expanding its production capacity, investing in new technologies, and expanding its customer base.

Industry Trends Affecting Their Business #

The growth of the Indian automotive industry, government initiatives to promote local manufacturing, and the increasing demand for electric vehicles are key trends impacting the business.

Long-Term Vision and Strategic Goals #

To be a leading and trusted global supplier of automotive components, known for quality, innovation, and customer satisfaction.

NDR Auto Components Limited: Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

(Rs. in Lakhs, except where noted)

*Adjusted for 1:1 bonus share issue

Key Observations: #

• Strong Growth: NDR Auto has demonstrated strong growth in both revenue and profitability over the presented period.
• Improved Profitability: Profit margins and return on equity have also improved, suggesting increased operational efficiency.
• Healthy Financial Position: The extremely low debt-to-equity ratio and the current ratio indicate a solid financial structure with excellent ability to meet short-term obligations.

Business Segment Performance #

• Single Segment: The company currently operates primarily in a single business segment: manufacturing seat frames and seat trims for passenger cars and utility vehicles.
• New Product Launch: A significant development is the upcoming launch (January 2025) of a new product, “Sunshade,” for Maruti Suzuki and Toyota Kirloskar, to be manufactured at the Bengaluru plant. This signals a move towards product diversification.
• Revenue Contribution: The Trims division brought in 35,644.33 and Frames division brought in 24,840.76 for FY 2023-2024.

Major Strategic Initiatives and Their Progress #

• New Product Development: The “Sunshade” project is a major strategic move, expanding the product portfolio and potentially opening new revenue streams. The project is on track for a January 2025 launch.
• Bonus Share Issue: The 1:1 bonus share issue in FY 2023-24 reflects the company’s strong financial performance and its commitment to rewarding shareholders.
• Reclassification of Promoters to Public: The approval to change some promoters from the ‘Promoter/Promoter group’ to ‘Public’ category indicates change in ownership dynamic.
• CSR Initiatives: Active in education and skill development, contributing Rs. 35 lakhs in FY 2023-24.

Risk Landscape Changes #

• Business Risk: Remains directly tied to the performance of the Indian automotive industry. Any slowdown in this sector could impact NDR Auto’s revenue.
• Financial Risk: Supply chain disruptions and raw material price volatility remain key financial risks. The report explicitly mentions these.
• Increased regulatory focus: The report contains numerous references and disclosures to various sections of the Companies Act, 2013, SEBI LODR regulation, etc. This highlights the need to adapt to evolving regulations.

ESG Initiatives and Metrics #

• Environmental: The company adheres to environmental laws and is IATF 16949:2016 certified. Specific initiatives include:
  • Energy conservation measures (e.g., use of inverter-based machines, VFD drives, motion sensors).
  • Use of solar power at the Pathredi plant (247911 KWH/Year saved).
• Social:
  • CSR spending focused on education and skill development.
  • Emphasis on employee relations and a safe working environment.
  • Policy on Prevention of Sexual Harassment (POSH) in place, with an Internal Complaints Committee. No complaints were reported in FY 2023-24.
• Governance:
  • High standards of corporate governance are maintained, adhering to SEBI (LODR) Regulations and Companies Act requirements.
  • Independent directors constitute one-third of the Board, with three independent women directors.
  • Board committees (Audit, Nomination and Remuneration, Stakeholders Relationship, CSR) are in place and functioning.
  • Whistleblower policy implemented.

Management Outlook #

• Positive Overall: The management discussion and analysis (MD&A) section paints a positive outlook, citing India’s fast-growing economy and the growth potential of the automotive sector.
• Focus on Electric Vehicles (EVs): The report recognizes the growth of the EV market and indicates the company’s awareness of this trend.
• Industry Growth: The management anticipates continued growth in the Indian automotive sector, driven by factors like rising incomes, urbanization, and government initiatives (Make in India, PLI scheme).
• Challenges Acknowledged: The report acknowledges potential threats such as price volatility of raw materials (gasoline) and competition.

Comparative Analysis with Industry Averages #

Without access to specific industry average data for the auto components sector in India for FY 2023-24, a precise comparative analysis is difficult. However, some general observations can be made:

• Revenue Growth: NDR Auto’s revenue growth appears significantly higher than what is typical for established players in the auto component industry. This can be attributed to factors such as the company still being in a high-growth phase following its recent listing.
• Profit Margin: The operating and Net Profit Margin is lower as compared to the large player in the industry.
• Debt-Equity Ratio: NDR Auto’s extremely low debt-equity ratio positions it much better than the industry average, which often sees higher leverage due to capital-intensive nature.
• Return on Equity: The ROE of 16.50% is a respectable, especially in a sector with generally moderate returns.

It’s important to reiterate that these are broad observations. A true comparative analysis would require access to comprehensive industry data.

Detailed Analysis #

Financial Analysis of NDR Auto Components Limited #

Balance Sheet Analysis (2022-2024) #

Significant Year-over-Year Changes in Major Line Items (>10%) #

Working Capital Trends #

Analysis:

• Improving Working Capital: The company’s working capital has significantly improved over the past year.
• Current Ratio: Increased, indicating improved short-term liquidity.
• Quick Ratio: Reduced, indicating an increased investment in Inventory.

Asset Quality Metrics #

Analysis:

• Inventory Turnover Ratio: The inventory turnover ratio has reduced compared to the last year, indicating increased levels of inventory holding.

Debt Structure and Maturity Profile #

Debt Ratios:

• Debt-to-Equity Ratio: 0.15 (2024) vs. 0.20 (2023). The company has a low debt-to-equity ratio, showing reduced reliance on debt financing.

Off-Balance Sheet Items #

• Contingent Liabilities: Claims against the company not acknowledged as debt: Rs. 0.58 lakhs (2024) and Rs. 0.58 lakhs (2023). These are minimal.
• Commitments: Capital commitments (net of advance): Rs. 1,397.85 lakhs (2024), Rs. 1,448.86 lakhs (2023).
• Unclaimed Suspense Account: Equity Shares worth Rs. 7.24 lakhs
• Guarantees: No significant guarantees are mentioned in the provided financial data.

Industry Benchmark Comparisons #

Key Observations #

• Strong Financial Position: NDR Auto exhibits a healthy financial profile with decreasing debt, improving working capital, and good profitability.
• Growth Focus: Significant investments in capital work-in-progress and inventory suggest a focus on expansion.
• Low Risk: The low debt levels and absence of major off-balance sheet risks place the company in a relatively low-risk category.
• Industry Benchmarks: The company’s ratios are showing better performance when compared with industry standards.

NDR Auto Components Limited: Financial Analysis #

Revenue Breakdown #

The company primarily manufactures seat frames and seat trims for passenger cars and utility vehicles. A new ‘Sunshade’ product line is planned for January 2025. Operations and sales are primarily within India.

Revenue Data (Rs. Lakhs) #

Overall revenue growth is strong at 51.69%. The trim segment significantly outperformed the frame segment.

Cost Structure Analysis #

Major cost components include:

• Cost of Materials Consumed: Largest expense.
• Employee Benefit Expenses: Significant expense.
• Other Expenses: Includes power and fuel, rent, repairs, insurance, factory expenses, and other miscellaneous expenses.
• Depreciation and Amortization: Smaller portion of total expenses.

Cost Data (Rs. Lakhs) #

Margin Analysis #

Margin Data #

• Operating Profit Margin: Stable at ~7.7%. Calculated as EBIT/Revenue.
• Net Profit Margin: Stable at ~5.4%. Calculated as PAT/Revenue.

Operating Leverage #

NDR Auto appears to have some operating leverage. A revenue increase of 51.69% led to a PBT increase of 67.08%, suggesting fixed costs.

Earnings Per Share (EPS) Analysis #

• Basic EPS: Same as Diluted EPS due to no dilutive effect.

EPS Data #

Cash Management: Analysis of NDR Auto Components Limited #

Cash Flow Analysis #

Operating Cash Flow (OCF) #

• Starting Point: Profit before tax (PBT) was ₹4,433.67 lakhs in FY24 and ₹2,277.47 lakhs in FY23.
• Non-Cash Adjustments:
  • Depreciation and Amortization: ₹1,907.57 lakhs (FY24) and ₹1,482.76 lakhs (FY23).
  • Finance Costs: Includes interest on debts, borrowings, and lease liabilities.
• Working Capital Changes:
  • Inventories: Increased significantly, using ₹1,024.45 lakhs in cash, indicating investment in inventory.
  • Trade Receivables: A large increase, using ₹5,344.03 lakhs, suggesting either rapid sales growth or potential issues with collecting payments.
  • Trade payables has helped to offset the outflow by increasing significantly.
  • Other Financial/Non-Financial Assets & Liabilities: Changes had a mix of impacts (positive and negative).
• Income tax paid has offset the cash generated.
• Net OCF: ₹2,826.43 lakhs in FY24, a decrease from ₹4,067.13 lakhs in FY23, primarily due to large increases in inventories and receivables.

Investing Cash Flow (ICF) #

• Capital Expenditures: The company invested heavily in property, plant, and equipment, with a net outflow of ₹3,179.29 lakhs in FY24.
• Fixed Deposits: There were significant changes in fixed deposits, with net increase in investment.
• Proceeds from sale of fixed asset: insignificant amount of sale proceed.
• Net ICF: ₹(3,176.39) lakhs in FY24, indicating substantial investment activities.

Financing Cash Flow (FCF) #

• Borrowings: No new borrowing.
• Dividend Payments: ₹297.32 lakhs paid out in dividends in FY24.
• Lease Liability Payments: Principal and interest payments on lease liabilities.
• Net FCF: (₹644.18) lakhs in FY24, down from ₹404.45 lakhs in FY23, due to the decrease in OCF.

Working Capital Management Efficiency #

• Inventory Turnover Ratio: While the ratio improved due to efficient management, there’s an area of concern. A large Increase in raw material and component inventory (from ₹3,482.33 lakhs to ₹2,369.47 lakhs).
• Debtors Turnover: (Sales/Average Trade Receivables). There is signi/ficant increase in trade receivable, from 3,335 to 8,679, impacting negatively.

Capex Analysis #

The provided document does not break down capital expenditures by segment, as the company operates primarily in a single segment (manufacturing seat frames and seat trims). However, it’s clear that a significant portion of CAPEX went into property, plant, and equipment, including “Right of Use assets.”

Dividend and Share Buyback Trends #

• Dividend: The company declared a dividend of ₹3.75 per share in FY24, down from 5 per share in previous year, amounting to ₹445.97 lakhs.
• Share Buyback: There were no share buybacks during the review period.
• Bonus Shares: There was allotment of Bonus shares during FY24, which increased share capital.

Debt Service Coverage #

• Debt Service Coverage Ratio (DSCR): Cannot be precisely calculated from the data provided; the company does not have any significant debt other than lease liabilities.
• As per company, the DSCR ratio has increased during the year.

Liquidity Position and Cash Conversion Cycle #

• Current Ratio: The current ratio improved slightly. Current Assets have increased significantly more than current liabilities (16,435.85/11,400.22=1.44) compared to last year (13,050.49/9,418.61=1.38).
• Cash and Cash Equivalents: Increased from ₹1,119.91 lakhs to ₹2,236.55 lakhs, indicating strong liquidity at the end of FY24.
• Cash Conversion Cycle (CCC):
  • The increase in inventory, the substantial increase in trade receivables all point to a potential lengthening of the CCC.
  • The increase in trade payables would partially offset this, shortening the CCC.

Financial Analysis of NDR Auto Components Limited #

Profitability Ratios (3-Year Trends) #

Note: Because the company was incorported in 2019 and the document provides information for the period 2023-2024, there is not enough information provided to calculate the profitability ratios for the 2021-2022 financial period.

Key Observations (Profitability) #

• Consistent Improvement: NDR Auto has shown a positive trend in all profitability ratios over the two reported years, indicating improved efficiency and effective cost management.
• High return: The Company has generated higher return on equity, assets, and invesment, signifying an efficient generation of pro/fit

Liquidity Metrics #

Key Observations (Liquidity) #

• Healthy Liquidity: NDR Auto maintains a comfortable liquidity position.

Efficiency Ratios #

Key Observations (Efficiency) #

• Operational Efficiency: The increasing trends in all turnover ratios demonstrate improvements in operational efficiency. The company is managing its assets, inventory, and receivables more effectively to generate revenue.

Leverage Metrics #

Key Observations (Leverage) #

• Low Leverage: NDR Auto has a very low debt-to-equity ratio, signifying low /financial risk and a conservative /financing approach.
• Strong Interest Coverage: High, and increasing interest coverage show the company has no problem meeting its interest obligations.

Working Capital Ratios #

It’s not a singular “ratio,” but a collection of metrics. It’s derived from the components already used in previous ratios:

• Working Capital: Current Assets - Current Liabilities

Using the provided data, the Working Capital numbers can be found by utilizing the Current Ratio and Current Liabilities:

• Improvement in Working Capital: Positive working capital demonstrates the ability of the company to meet its obligations.

Overall Summary and Highlights #

• Strong Financial Performance: NDR Auto Components Limited demonstrates strong and improving /financial health across profitability, liquidity, efficiency, and leverage.
• Operational Excellence: The increasing efficiency ratios indicate streamlined operations and e/ffective asset utilization.
• Low Financial Risk: Low debt levels and robust interest coverage point to a conservative /financial strategy and low risk.

Because industry average data is not provided, it’s impossible to perform a direct comparison. However, the internal trends for NDR Auto are overwhelmingly positive.

NDR Auto Components Limited: Financial Performance Analysis #

Revenue and Profitability Metrics with Growth Rates #

• Revenue from Operations:
  • Standalone: Increased to Rs. 60,671.56 Lakhs in FY 2023-24 from Rs. 39,996.82 Lakhs in FY 2022-23 (Growth Rate: 51.69%)
  • Consolidated: Increased to Rs. 60,686.75 lakhs in FY 2023-24 from Rs. 39,965.59 lakhs in FY 2022-23 (Growth Rate: 51.85%)
• Net Profit After Tax (PAT):
  • Standalone: Increased to Rs. 3,298.47 Lakhs in FY 2023-24 from Rs. 2,135.79 Lakhs in FY 2022-23 (Growth Rate: 54.44%)
  • Consolidated: Increased to Rs. 3,871.27 lakhs in FY2023-24 from Rs. 2,810.73 lakhs in FY 2022-23 (Growth Rate: 37.73%)
• Operating Profit Margin:
  • Standalone: Increased to 7.74% (Growth Rate: 0.57%)
• Net Profit Margin:
  • Standalone: Increased to 5.44% (Growth Rate: 1.81%)
• Return on Net Worth:
  • Standalone: Increased to 16.50% (Growth Rate: 31.31%)
• Earnings Per Share (EPS) - Basic & Diluted:
  • Standalone: Increased to Rs. 27.73 in FY 2023-24 from Rs. 17.96 before the bonus issue (Adjusted for bonus issue)

Market Share and Competitive Position #

• Supplier to major automotive companies like Maruti Suzuki India Limited and Toyota Kirloskar Motor Private Limited.
• Component manufacturer focused on seat frames and trims.

Key Products/Services Performance #

• Primary products: seat frames and trims for four-wheeler and two-wheeler vehicles.
• New product: ‘Sunshade’ set to launch in January 2025.

Geographic Distribution and Market Penetration #

• Operations primarily within India.
• Four manufacturing plants:
  • Gurugram, Haryana (two plants)
  • Bengaluru, Karnataka
  • Surenderanagar, Gujarat
• Locations serve as main supply source to customers Maruti Suzuki and Toyota Kirloskar.

Operational Efficiency Metrics #

• Debtors Turnover: Improved by 25.39%.
• Inventory Turnover: Improved by -25.38%
• Interest Coverage Ratio: Improved by 55.73%

Growth Initiatives and Challenges #

• Growth Initiatives: Launch of new product ‘Sunshade’ at Bengaluru plant starting January 2025.
• Challenges: Dependencies on raw material supply and overall automotive industry growth.

Risk Assessment #

Strategic Risks #

Dependence on the Automotive Industry’s Growth #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Diversification into new product lines (e.g., the “Sunshade” project).
  • Exploration of new markets.
• Control Effectiveness: Partially Effective
• Potential Financial Impact: High
  • Quantitative Metric: Revenue from operations increased by 51.69% (from Rs. 39,996.82 Lakhs to Rs. 60,671.56 Lakhs) YoY.
  • Year-over-Year Changes: Increased severity due to high dependence and growth.

Operational Risks #

Supply Chain Disruption #

• Severity: High
• Likelihood: Medium
• Trend: Stable, but with potential for volatility
• Mitigation Strategies:
  • Diversifying suppliers.
  • Maintaining safety stock of critical components.
  • Developing strong relationships with key suppliers.
  • Supply chain mapping and risk assessment.
• Control Effectiveness: Unknown
• Potential Financial Impact: High
  • Quantitative Metric: Inventory turnover ratio decreased by -25.38% YoY.
  • Year-over Year Change: Increased likelihood because inventory is decreasing.

Availability of Raw Materials #

• Severity: High
• Likelihood: Medium
• Trend: Stable, but with potential for volatility
• Mitigation Strategies: Not explicitly stated.
• Control Effectiveness: Unknown
• Potential Financial Impact: High
  • Quantitative Metric: Cost of materials consumed increased by 56,36% YoY.
• Year-over-Year Change: Increased severity.

Financial Risks #

Raw Material Price Volatility #

• Severity: Medium
• Likelihood: High
• Trend: Stable
• Mitigation Strategies: Transfer pricing study conducted by external agency with Bharat Seats Limited.
• Control Effectiveness: Partially Effective
• Potential Financial Impact: Medium
  • Quantitative Metric: Cost of materials consumed increased by 56,36% from 29,863.62 Lakhs to 46,694.51 Lakhs. Operating profit margin increased by 0.57%.
  • Year-over-Year Change: Increasing risk.

Foreign Exchange Risk #

• Severity: Low to Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Foreign exchange exposures as on March 31, 2024 are disclosed in Notes to the Financial Statements.
• Control Effectiveness: Unknown
• Potential Financial Impact: Low to Medium
  • Quantitative Metric: Foreign exchange outflow was Rs. 323.85 Lakhs, down from Rs. 702.93 Lakhs in the previous year.
  • Year-over-Year Change: Decreased severity.

Interest Rate Risk #

• Severity: Low
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Take long term loan with fix interest rates.
• Control effectiveness: Effective, for now.
• Potential Financial Impact: Low.
  • Quantitative Metric: Increase in borrowing.
  • Year-over-Year Change: Stable.

Compliance/Regulatory Risks #

Non-Compliance with Environmental Laws #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Adherence to environmental laws, IATF 16949:2016 certification, and periodic audits.
• Control Effectiveness: Likely High
• Potential Financial Impact: Medium
  • Quantitative Metric: None provided.
  • Year-over-Year Change: No change.

Non-Compliance with Companies Act, 2013 and SEBI Regulations #

• Severity: High
• Likelihood: Low to Medium
• Trend: Improving
• Mitigation Strategies: Compliance with the provisions of the Act, Listing Regulations, regular audits, and a designated Company Secretary.
• Control Effectiveness: Generally High, but with a noted exception (FCGPR issue).
• Potential Financial Impact: Medium to High
  • Quantitative Metric: Fines of Rs. 94,400 and Rs. 11,800 imposed by stock exchanges for delays.
  • Year-over-Year Change: No material change.

Non Compliance with Related Party Transactions #

• Severity: High
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Transactions with BSL are conducted in the ordinary course of business and on arm’s length basis, based on transfer pricing study.
• Control effectiveness: High
• Potential Financial Impact: Medium to High
  • Quantitative Metric: Enhancement of limit from Rs. 500 crores to 600 crores
  • Year-over-Year Change: No material change.

Income Tax Act #

• Severity: High
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Proper documentation.
• Control effectiveness: Unknown
• Potential Financial Impact: High
  • Quantitative Metric: Tax ascertained as being payable amounting to Rs 3,587 lakh.
  • Year-over-Year Change: High

Emerging Risks #

Rapid Technological Advancements #

• Severity: Medium to High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: Introduction of Artificial Intelligence in the automotive industry.
• Control Effectiveness: Unknown
• Potential Financial Impact: Medium to High
  • Quantitative Metric: R&D expenditure is NIL
  • Year-over-year change: Risk increasing in severity and likelihood.

Electric Mobility #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: Incentives for electric vehicle manufacturing.
• Potential Financial Impact: High
  • Quantitative Metric: Nil
  • Year-over-Year Change: Risk increasing in severity and likelihood.

Strategic and Management Analysis of NDR Auto Components Limited #

Long-Term Strategic Goals and Progress #

• Growth Path: The company is on a growth path, with a focus on expansion.
• New Product Launch: The “Sunshade” project for Maruti Suzuki and Toyota, launching in January 2025, diversifies product offerings and strengthens client relationships.
• Financial Performance: Revenue from operations and other income increased by 51.7%, and net profit after tax increased by 54.4%.
• Bonus Issue: The company issued bonus shares during the financial year, in the ratio of 1:1.

Competitive Advantages and Market Positioning #

• Strong Client Relationships: Primary customers are Maruti Suzuki India Limited and Toyota Kirloskar Motor Private Limited. Associate status with Bharat Seats Limited (BSL) provides established relationships and potential synergies.
• IATF Certification: IATF 16949:2016 certification highlights commitment to quality management systems.
• Transfer Pricing Assessment: Transactions with associates are conducted at arm’s length, based on an external transfer pricing study.

M&A Strategy and Execution #

• Joint Ventures: The company holds 50% stakes in two joint ventures: Toyota Boshoku Relan India Private Limited and Toyo Sharda India Private Limited. Toyota Boshoku Relan India incurred a loss during the year.

Management’s Track Record in Execution #

• Financial Growth: Significant increase in revenue and profit indicates effective operational strategies.
• Dividend Payout: Consistent dividend recommendation (Rs. 3.75 per share) signals management’s confidence and commitment to shareholder returns.
• Compliance: Adherence to SEBI regulations, Companies Act provisions, and environmental laws. The management’s response to the Income Tax Department search reflects a proactive approach to compliance.
• The company received a fine from both stock exchanges for a delay in the execution of corporate actions.

Capital Allocation Strategy #

• Bonus Issue: The 1:1 bonus share issue potentially increases stock liquidity.
• Borrowing Powers: Proposed enhancement of borrowing powers to Rs. 100 Crores and authorization to create charges on assets suggest readiness to leverage debt.
• Dividend Policy: Consistent dividend payments demonstrate a balanced approach to rewarding shareholders while retaining earnings for growth.
• The company gave an inter-corporate loan to an associate company during the year.

Organizational Changes and Their Impact #

• CFO Transition: Resignation of the previous CFO and appointment of a new CFO (Mr. Mohit Kumar Jain) represents a key leadership change.
• Reclassification of Promoters: During the year, some Promoters/Promoter Group were reclassified to the Public Category.
• A CSR Committee was constituted during the year.

ESG Analysis #

Environmental Metrics and Targets #

• Conservation of Energy: The company has implemented several energy-saving initiatives at its Pathredi, Bangalore, and NACL Trim plants, including:
  • Use of inverter-based welding machines.
  • Variable Frequency Drive (VFD) drives in hydraulic pumps.
  • Temperature sensors for blower operation.
  • Motion sensors in washrooms.
  • Replacement of clutch motors with servo motors.
  • Use of solar power plant with saving. Specific quantitative data is provided (e.g., “Electrical energy saving 29,976 kWh/Year”).
• Alternate Energy Sources: The Pathredi Plant utilizes a solar power plant, generating 247911 KWH/Year.
• Technology Absorption: The company acknowledges no imported technology in the last three years. The future project involves ‘Rear Sunshade’.
• Environmental Compliance: The company states strict adherence to environmental laws and highlights its IATF 16949:2016 certification.
• Foreign Exchange: Mentions some outflow relating to raw materials and capital goods.
• Emission and waste generation: Company states that there is no trade e/ffluent generated which may cause pollution.
• Missing Explicit Targets: The document lacks clearly defined, measurable, and time-bound environmental targets.

Social Responsibility Programs #

• Corporate Social Responsibility (CSR):
  • The company has a CSR policy and a CSR committee.
  • Contributed Rs. 35 lakhs to CSR, representing 2% of its average net profits for the preceding three years.
  • Funds were primarily allocated to education and skill development in polymer technology, through contributions to educational institutions and incubators.
• Employee Relations: The report mentions “cordial” employee relations and highlights appreciation for employees’ contributions.
• Human Resources: The report addresses the company’s emphasis on passion for excellence, customer focus, and commitment to creating a positive work environment.
• Sexual Harassment Prevention: The company has a policy for the prevention of sexual harassment and an Internal Complaints Committee. No complaints were received during the reporting period.
• Employee Data: Total number of permanent employees and the salaries.

Governance Structure and Effectiveness #

• Board Composition: The Board has a mix of Executive and Non-Executive Directors, including Independent Directors (three of whom are women). The composition complies with SEBI (LODR) Regulations, 2015.
• Board Committees: The company has the following board committees:
  • Audit Committee
  • Nomination and Remuneration Committee
  • Stakeholders Relationship Committee
  • Corporate Social Responsibility Committee
• Board Evaluation: Annual performance evaluations of the Board, its Committees, and individual Directors are conducted.
• Director Independence: Declarations of independence are received from Independent Directors.
• Related Party Transactions: Related party transactions are disclosed (with Bharat Seats Limited, an Associate Company). Transactions are stated to be at arm’s length and in the ordinary course of business.
• Code of Conduct: The company has a Code of Conduct for Directors and Senior Management, which is affirmed annually.
• Whistleblower Policy: A Whistleblower Policy is in place.
• Compliance: The company states adherence to the Companies Act, 2013, SEBI regulations, and other applicable laws. The Secretarial Audit Report confirms compliance, with one exception relating to the filing of Form FCGPR.
• Risk Assessment and Minimization Procedure: There is a risk management policy that includes Business and Financial risks.

Analysis of NDR Auto Components Limited Financial Report #

Management Guidance and Assumptions #

• Positive Outlook: The management discussion and analysis (MD&A) section paints a positive picture of the Indian automotive industry and NDR Auto’s position within it. They highlight India’s rapid economic growth, the expanding digital economy, and the government’s supportive policies (“Make in India,” EV incentives) as key drivers.
• Growth Focus: The company is clearly in a growth phase. This is evidenced by the management plan, which was approved by the Board, to secure new loans. The rationale behind seeking loans is to bolster the future capital needs of the Company, indicating its ambitious expansion targets.
• New Product Launch: The award of a new “Sunshade” product for Maruti Suzuki and Toyota models, to be manufactured in Bengaluru starting January 2025, signals an intent to diversify product offerings.
• Key Assumption: The core assumption underlying management’s positive outlook is the continued growth of the Indian automotive market, particularly the four-wheeler segment. They also assume continued government support for the industry.
• Management believes that the internal control system is sufficient for the company.

Market Growth Forecasts #

• Explicit vs. Implicit: The report doesn’t provide specific numerical growth forecasts for the automotive market. However, the language strongly implies expectations of continued robust growth, citing factors like rising incomes, urbanization, and infrastructure development.
• Third-Party Data: The report states that India has been one of the fastest-growing major economies, with a GDP rate of 6-7% per annum over the past few decades.
• EV Emphasis: The report explicitly states the growth for Electric Vehicles in 2023, and expected increase in 2024.

Planned Strategic Initiatives #

• Product Diversification: The “Sunshade” project is a clear strategic move to expand beyond seat frames and trims.
• Geographic Optimization: Manufacturing the new product at the Bengaluru plant suggests a strategic approach to leveraging existing facilities and possibly targeting specific regional markets or customer needs.
• Technology Adoption: The company mentions using “inverter base” MIG welding machines and Variable Frequency Drive (VFD) systems, highlighting an initiative to improve manufacturing efficiency and potentially reduce costs.

Capital Expenditure Plans #

• Implied, Not Detailed: The Board’s approval to enhance borrowing powers up to Rs. 100 Crores (One Hundred Crores) strongly suggests significant future capital expenditure. The report states that “the Company may require funds in future for capital expenditure and other non-working capital requirements.”
• Mortgaging Assets: The plan to secure borrowings by mortgaging present and future assets indicates the scale of the planned investments.
• Lack of Specificity: The report does not provide a breakdown of how the borrowed funds will be allocated (e.g., new plants, equipment upgrades, R&D).

Efficiency Improvement Targets #

• Operational Focus: The report details specific examples of energy conservation measures at multiple plants (Pathredi, Bengaluru, NACL Trim). These include using more energy-efficient welding machines, VFD drives, and motion sensors.
• Quantified Savings: The report quantifies the expected energy savings (in kWh/year) from these initiatives, suggesting a focus on measurable improvements.
• Technology Absorption: The company acknowledges it’s Research and Development expendature is nil.

Potential Challenges and Opportunities #

• Opportunities:
  • EV Market Growth: The report explicitly states the growth of the electric vehicle market.
  • Government Support: Policies like “Make in India” and EV incentives are seen as major positives.
  • Growing Middle Class: Rising disposable incomes are expected to drive demand.
  • Global Sourcing Hub: India’s position as a global auto component sourcing hub is highlighted.
  • Innovation: The report mentions the potential of smart mobility solutions (ride-sharing, MaaS) as an avenue for growth.
• Challenges:
  • Dependence on Auto Industry: The report acknowledges that the company’s operations are “directly dependent on the growth of the Indian automotive industry,” making it vulnerable to any downturns in that sector.
  • Supply Chain Disruptions: The report states the Financial Risk is dependent on supply chain and raw materials, but does not discuss specific supply chain risks (e.g., dependence on particular suppliers, raw material price volatility).
  • Competition: The MD&A mentions “increased competition,” but doesn’t elaborate on the competitive landscape or the company’s strategies to maintain its position.

Scenario Analysis and Sensitivity to Key Assumptions #

• Scenario 1: Continued Automotive Growth (Base Case): If the Indian automotive market continues to grow as management expects, NDR Auto is likely to benefit significantly, particularly given its focus on four-wheeler components. The success of the new “Sunshade” product will be crucial in this scenario.
• Scenario 2: Automotive Market Slowdown: A slowdown in automotive sales (due to economic factors, changing consumer preferences, or increased competition) would negatively impact NDR Auto’s revenue and profitability. The company’s dependence on a single industry segment makes it vulnerable.
• Scenario 3: EV Disruption: While the report mentions EV growth, it doesn’t fully address the potential disruption to the company’s existing business model. If EVs gain market share faster than anticipated, and if these EVs don’t require the same seat frames and trims that NDR Auto currently produces, the company could face challenges.
• Scenario 4: Increased automation and AI usage could lower costs.
• Sensitivity to Key Assumptions:
  • Automotive Market Growth: This is the most critical assumption. A significant deviation from expected growth would have a major impact.
  • Raw Material Prices: Fluctuations in the prices of steel, fabrics, and other raw materials could impact profitability.
  • Interest Rates: Given the planned increase in borrowings, a rise in interest rates would increase finance costs.
  • Customer Concentration: The report mentions reliance on two major customers. Losing one of these customers, or a significant reduction in their orders, would be detrimental.

Overall Assessment #

NDR Auto Components Limited presents a generally optimistic outlook based on the expected continued growth of the Indian automotive market. The company is taking steps to diversify its product offerings and improve operational efficiency. However, the report lacks a detailed analysis of potential risks and challenges, and it does not provide quantitative forecasts or scenario analysis. A more thorough assessment would require additional information on the competitive landscape, supply chain risks, and the company’s specific strategies for adapting to the evolving automotive market.

Audit and Compliance Analysis: NDR Auto Components Limited #

Auditor’s Opinion and Qualifications #

• Opinion: S S Kothari Mehta & Co. LLP issued an unmodified (clean) opinion on the standalone and consolidated financial statements, indicating a true and fair view in accordance with Indian Accounting Standards (Ind AS).
• Emphasis of Matter: An “Emphasis of Matter” paragraph highlights an Income Tax Department search at company premises. The auditors have not modified their opinion, but management believes no material adjustments are needed, though uncertainty remains.
• Going Concern Uncertainty: Material uncertainty exists regarding the going concern of one of the Joint ventures due to incurred losses.

Key Accounting Policies and Changes #

• Key Accounting Policies:
  • Revenue Recognition: Control of goods transferred to customer, generally on delivery. Consideration measured at the amount expected, excluding taxes. Variable considerations include Price variations.
  • Property, Plant, and Equipment (PPE): Measured at cost less accumulated depreciation and impairment. Depreciation uses the straight-line method based on useful life, except for plant and machinery and electrical /fittings, where technical estimates are used.
  • Intangible Assets: Computer software amortized on a straight-line basis over an estimated useful life of three years.
  • Leases: Right-of-use assets and lease liabilities recognized at lease commencement. Short-term and low-value leases are expensed on a straight-line basis.
  • Inventories: Valued at the lower of cost and net realizable value. Cost of raw materials determined using the FIFO method.
  • Employee Benefits: Defined contribution plans (Provident Fund, ESI) expensed as contributions are made. Defined benefit plans (Gratuity) are actuarially valued, with liabilities recognized in the balance sheet.
  • Financial Instruments: Classified and measured based on business model and contractual cash flow characteristics. Categories include amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVTPL).
  • Impairment: Non-financial assets tested at each reporting period. Financial assets impaired based on expected credit losses (ECL).
  • Taxes: Current tax based on taxable profit. Deferred tax recognized on temporary differences.
  • Provisions and Contingencies: Recognized when a present obligation and outflow of resources exists.
• Changes in Accounting Policies:
  • Change in depreciation method of property plant and equipment from written down value to straight line method during previous financial year.
  • Disclosure of material accounting policies inplace of signi/ficant accounting policies.

Internal Control Effectiveness #

• Auditor’s Opinion on Internal Financial Controls: An unmodified opinion was issued on the company’s internal financial controls over financial reporting, stating that the company has an adequate and effectively operating system as of March 31, 2024.
• Internal Control Opinion on Associates/Joint Ventures: The external auditor gave unmodi/fied opinion on internal /financial controls on one associate and one joint venture.
• Internal Control Report Not Provided: One joint venture company, Toyota Boshoku Relan India Private Limited, has not provided any report on internal financial controls.

Regulatory Compliance Status #

• Generally Compliant: The company is generally compliant with the Companies Act, 2013, SEBI regulations, and other applicable laws, as confirmed by the Secretarial Audit Report.
• Specific Compliance Issues:
  • Delayed Bonus Issue Filing: Fines imposed by BSE and NSE for a 4-day delay in implementing the bonus issue.
  • Dividend/Record Date Disclosure: Fines imposed for delays or non-compliance with disclosing record dates or dividend declarations.
  • Foreign Direct Investment(FDI) Compliance: Delay in filing form FCGPR for allotment of shares to foreign nationals/NRIs in Bonus Issue.

Legal Proceedings and Their Potential Impact #

• Pending Litigations: The impact of pending litigations on the company’s financial position is disclosed in Note 27. There are some claims against the company not acknowledged as debt.
• Tax Search: The Income Tax Department conducted a search. No demand has been raised yet, and management believes no material adjustment is needed, but this creates uncertainty.
• GST Authority Notice: Notice received on February 12, 2024, from Bengaluru, Karnataka GST Authority for tax ascertained as being payable amounting to Rs 3,587 lakh under section 74 (5) of KGST Act, 2017, due to misclassi/fication of goods under wrong HSN for the period June 2021 to December 2023.

Related Party Transactions #

• Disclosure: Related party transactions are disclosed in Note 37(d). All transactions were stated to be on an arm’s length basis and in the ordinary course of business.
• Material Transactions: A proposal exists to enhance the limit of transactions with Bharat Seats Ltd. (an associate company) up to Rs. 600 crore in a financial year.

Subsequent Events #

• No Major Events: No major events occurred after the balance sheet date that would require disclosure or adjustment.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality:
  • Positive: The use of Ind AS, unmodified audit opinions, and detailed disclosures generally indicate good accounting quality. Adherence to established accounting policies is evident.
  • Areas for Improvement: the company is yet to start providing depreciation on right-of-use assets (buildings) by adopting a consistent accounting policy.
• Regulatory Risk:
  • Moderate Risk: While general compliance is good, the fines for delayed filings and the ongoing tax search indicate a moderate level of regulatory risk. Improvement in timeliness for meeting regulatory deadlines and full resolution of the tax matter are needed.