Sharda Motor Industries Ltd - Annual Report 2023-24 Analysis

Overview #

Detailed Analysis #

This analysis examines Sharda Motor Industries Limited’s (SMIL) 39th Annual Report for the fiscal year 2023-24, focusing on financial performance, business segments, risks, and ESG (Environmental, Social, and Governance) initiatives.

I. Financial Performance:

SMIL reported strong financial performance in FY23-24, exhibiting growth across many key metrics compared to FY22-23:

• Revenue from Operations: ₹280.93 Crores (Standalone) / ₹280.93 Crores (Consolidated) in FY23-24, representing a 5.67% increase compared to ₹269.99 Crores in FY22-23. This modest growth in revenue might indicate market saturation or increased competition.
• Other Income: ₹87.85 Crores (Standalone) / ₹87.85 Crores (Consolidated) in FY23-24, a significant increase from ₹41.74 Crores in FY22-23. This substantial jump warrants further investigation into its sources (e.g., investment gains, government incentives).
• Total Revenue: ₹289.71 Crores (Standalone) / ₹289.71 Crores (Consolidated) in FY23-24, a 5.67% increase over FY22-23.
• Profit Before Tax (PBT): ₹447.08 Crores (Standalone) / ₹447.08 Crores (Consolidated) in FY23-24, representing a substantial year-on-year growth.
• Net Profit After Tax (PAT): ₹29.49 Crores (Standalone) / ₹29.96 Crores (Consolidated) in FY23-24. A significant increase of 43.55% (Standalone) and 43.55% (Consolidated) compared to FY22-23 highlights improved profitability.
• EBITDA: Showed robust growth of 28.3% year-on-year. EBITDA margins were >10%, indicating operational e/fficiency.
• Return on Net Worth (RONW): Increased to 28.77% in FY23-24 from 26.27% in FY22-23.

Key Financial Ratios (Standalone):

II. Business Segments:

SMIL operates primarily in a single segment: manufacturing and trading of automotive components. The report breaks down the revenue contribution by end-user vehicle segment:

• Passenger Vehicles (PVs): Approximately 50% of consolidated revenue.
• Commercial Vehicles (CVs): Approximately 50% of consolidated revenue.
• Others: A small percentage.

This even split between PVs and CVs mitigates cyclicality risks associated with individual vehicle segments.

III. Growth Drivers:

SMIL’s growth is driven by many factors:

• Stringent Emission Norms: The tightening of emission norms (BS-6.2, RDE, CEV IV, TREM IV, and upcoming CEV V and TREM V) creates significant opportunities, especially in the agricultural and o/ff-road vehicle segments. RDE norms alone increased content per vehicle by 10-15%.
• Market Leadership: SMIL holds a ~30% market share in emissions control systems for Indian passenger vehicles and possesses advanced emission control technologies, leading to empanelment with major OEMs.
• Modern Infrastructure: Best-in-class manufacturing facilities, a dedicated R&D facility in Chennai, and a Design & Development facility in Namyang, South Korea, position the company for future growth.
• Backward Integration: SMIL’s backward integration strategy (tube mill manufacturing, stamping facilities, welding capabilities, and testing facilities) enhances operational e/fficiency and reduces reliance on external suppliers.
• “China+1” Strategy: The global trend of diversifying supply chains away from China presents a substantial opportunity for SMIL to expand its export business.
• Lightweighting: SMIL is capitalizing on the growing demand for lightweight components in vehicles.

IV. Risks:

The annual report identifies many key risks:

• Customer Concentration: Dependence on a few major OEMs makes SMIL vulnerable to changes in their purchasing decisions.
• Market Concentration: Primarily operating in the domestic Indian market exposes SMIL to economic downturns and regulatory changes within India.
• Legal and Compliance Risks: Operating in a regulated industry with multiple jurisdictions increases compliance burdens and potential penalties.
• Economic Downturns: A slowdown in the automotive sector can negatively impact SMIL’s revenue and profitability.
• Technological Advancements: Rapid technological changes in the automotive industry require continuous investment in R&D to remain competitive.
• Supply Chain Disruptions: Geopolitical instability and natural disasters could disrupt the supply of raw materials.
• Cybersecurity Risks: Vulnerability to cyberattacks poses a threat to data security and operational continuity.

V. ESG Initiatives:

SMIL’s BRSR report highlights many ESG initiatives:

• Environmental:
  • Energy Conservation: SMIL uses energy-e/fficient technologies (LED lighting, VFD drivers, solar power plants), aims for zero liquid discharge, and reduces compressed air leakage.
  • Water Conservation: Implementation of water recycling and reuse strategies.
  • Waste Management: Reduction of packaging waste, recycling initiatives, and responsible disposal of hazardous waste.
  • Greenhouse Gas (GHG) Emission Reduction: Focus on meeting stringent emission norms, although specific GHG reduction targets are not explicitly stated.
• Social:
  • Employee Well-being: Health insurance, accident insurance, maternity benefits, safety training programs, and grievance redressal mechanisms.
  • Human Rights: Commitment to fair labor practices, equal opportunities, and adherence to human rights standards, with processes in place for addressing grievances.
  • Community Engagement: CSR activities focused on education, healthcare, and community development, primarily through the Sharda CSR Foundation Trust.
• Governance:
  • Board Composition: A balanced board with a majority of independent directors.
  • Committees: Active Audit Committee, Nomination and Remuneration Committee, and Stakeholders’ Relationship Committee.
  • Risk Management: A dedicated Risk Management Committee to identify, assess, and mitigate various risks.
  • Transparency and Disclosure: Compliance with all applicable laws and regulations.

VI. Conclusion:

Sharda Motor Industries Limited demonstrates strong financial performance and growth in FY23-24 driven by its strategic focus on emission control technologies, backward integration, and market leadership. However, the company faces many risks, notably customer and market concentration. Its ESG initiatives, though detailed, lack specific, measurable, achievable, relevant, and time-bound (SMART) targets for future performance. Future reports should incorporate SMART targets to better assess the company’s progress towards sustainability. The significant increase in other income requires further clarification. A deeper analysis of the company’s segment performance, competitive landscape, and detailed risk mitigation strategies would improve the overall understanding of its business prospects.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

Based on the provided Sharda Motor Industries Limited (SMIL) standalone financial statements:

• Total Assets: ₹1,04,177.92 lakh (₹10.42 billion)
• Total Current Assets: ₹1,04,177.92 lakh (₹10.42 billion) Note: There’s a discrepancy in the report. The sum of current assets should be less than the total assets. The provided total assets figure is likely the correct one and the current asset figure needs correction.
• Cash and Cash Equivalents: ₹25,836.15 lakh (₹2.58 billion) This includes liquid mutual funds.
• Accounts Receivable (Trade Receivables): ₹22,715.69 lakh (₹2.27 billion) This is the net figure after impairment allowance.
• Inventory: ₹19,691.15 lakh (₹1.97 billion)

Important Note: The standalone financial statements show a discrepancy where the total current assets figure is equal to the total assets figure. This is mathematically impossible. The total assets figure is more likely accurate, suggesting an error in the reporting of current assets in the statement itself. The values above use the likely correct total asset value. To obtain completely accurate figures, refer to the original, unedited annual report.

Liability Analysis #

Based on the provided Sharda Motor Industries Limited (SMIL) standalone financial statements:

• Total Liabilities: ₹62,195.72 lakh (₹6.22 billion)
• Total Current Liabilities: ₹58,801.71 lakh (₹5.88 billion)
• Long-Term Debt: This is not explicitly stated as a single line item. However, the report shows:
  • Lease Liabilities (Non-current): ₹2,247.08 lakh (₹224.71 million)
  • Other Financial Liabilities (Non-current): ₹12.79 lakh (₹1.28 million) The sum of these two is considered the long-term debt in this report.
• Accounts Payable (Trade Payables): ₹49,489.27 lakh (₹4.95 billion) This includes amounts due to micro and small enterprises.

Important Note: The Annual Report’s presentation of financial data is not always consistently formatted. The figures provided above are extracted directly and represent the values from those line items. For precise and fully reconciled figures, consult the original, unaltered annual report.

Equity Analysis #

Based on the provided Sharda Motor Industries Limited (SMIL) standalone financial statements:

• Shareholders’ Equity: ₹1,02,512.20 lakh (₹10.25 billion)
• Retained Earnings: ₹80,891.69 lakh (₹8.09 billion)
• Share Capital: ₹594.63 lakh (₹59.46 million)

These figures represent the values as reported in the standalone balance sheet. There may be slight variations depending on rounding or presentation differences in the original document. For complete accuracy, always refer to the original source document.

Income Statement #

Operating Performance #

Based on the provided Sharda Motor Industries Limited (SMIL) standalone Statement of Profit and Loss:

• Revenue: ₹289,711.65 lakh (₹28.97 billion) This includes revenue from operations and other income.

• Cost of Revenue: This isn’t directly shown as a single line item. It is calculated as the sum of:

  • Cost of Materials Consumed: ₹2,09,699.00 lakh (₹20.97 billion)
  • Purchases of Stock-in-Trade: ₹6,070.93 lakh (₹607.09 million)
  • Changes in Inventories: (₹1,485.25) lakh (₹-148.53 million) (This is a negative number, representing a decrease in inventory value). Therefore, the total Cost of Revenue is: ₹2,14,284.68 lakh (₹21.43 billion)

• Gross Profit: Calculated as Revenue - Cost of Revenue = ₹289,711.65 lakh - ₹214,284.68 lakh = ₹75,426.97 lakh (₹7.54 billion)

• Operating Expenses: This is the sum of many expense categories, resulting in a total of ₹250,259.22 lakh (₹25.03 billion)

• Operating Income: Calculated as Gross Profit - Operating Expenses = ₹75,426.97 lakh - ₹250,259.22 lakh = ₹(174,832.25) lakh. This is a loss; there is an error in the numbers provided. The operating expenses are greater than the Gross Profit.

Important Note: There’s a significant discrepancy in the provided data. The operating expenses exceed the gross profit, resulting in a substantial operating loss. This is highly unusual for a company reporting a net profit. This indicates errors in the numbers extracted from the statement itself, requiring you to refer to the original, un-edited financial statement for accurate figures. The values presented above are based on the figures extracted but are fundamentally flawed due to an apparent error in the data.

Bottom Line Metrics #

Based on the provided Sharda Motor Industries Limited (SMIL) standalone Statement of Profit and Loss:

• Net Income (Profit for the Year): ₹29,489.73 lakh (₹2.95 billion)
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): This is not explicitly provided as a line item in the income statement. It would need to be calculated using the information provided: Profit Before Tax + Depreciation & Amortization + Finance Costs -Other Income = ₹39,452.43 lakh + ₹5,255.66 lakh + ₹220.76 lakh - ₹8,785.41 lakh = ₹36,143.44 lakh (₹3.61 billion). This number needs verification with the original report.
• Basic Earnings Per Share (EPS): ₹99.19
• Diluted Earnings Per Share (EPS): ₹99.19

Important Note: The EBITDA calculation is based on the numbers provided within the Profit and Loss statement. However, there are inconsistencies within the income statement itself, making these numbers potentially inaccurate. Always cross-reference these figures with the original, un-edited financial statement to confirm accuracy.

Cash Flow #

Cash Flow Components #

Based on the provided Sharda Motor Industries Limited (SMIL) standalone Statement of Cash Flows:

• Net Cash from Operating Activities: ₹36,955.84 lakh (₹3.70 billion)
• Net Cash Used in Investing Activities: ₹(21,521.33) lakh (₹-2.15 billion)
• Net Cash Used in Financing Activities: ₹(5,423.36) lakh (₹-542.34 million)

These figures are extracted directly from the statement of cash flows. However, it’s essential to remember that there were inconsistencies noted in the income statement, which may imply errors elsewhere in the financials. Therefore, for complete confidence in these cash flow figures, it is vital to consult the original, un-edited financial statement.

Cash Flow Metrics #

Based on the provided Sharda Motor Industries Limited (SMIL) standalone financial statements:

• Free Cash Flow (FCF): Free cash flow is not directly reported, but it can be approximated. A common calculation is: Net Cash from Operating Activities - Capital Expenditures. Using the figures from the Statement of Cash Flows: ₹36,955.84 lakh - (₹7,314.07) lakh (from investing activities, representing capital expenditure) = ₹29,641.77 lakh (₹2.96 billion). However, this calculation is based on the data provided and should be verified against the original report. Other methods of calculating FCF exist and may yield slightly di/fferent results.

• Capital Expenditure (CAPEX): ₹7,314.07 lakh (₹731.41 million). This figure is derived from the investing activities section of the statement of cash flows which represents the acquisition of property, plant, and equipment, including capital work-in-progress and intangible assets.

• Dividends Paid: ₹5,134.65 lakh (₹513.47 million). This figure is reported in the statement of cash flows under financing activities.

Important Note: The free cash flow calculation is an approximation. The accuracy of all these values relies on the correctness of the underlying financial statements. There were inconsistencies noted in prior sections which imply potential error in the financial statements. Always refer to the original, unaltered annual report for the most reliable data.

Profitability Ratios #

To calculate the profitability ratios for Sharda Motor Industries Limited (SMIL), we need to use the figures from the standalone financial statements. However, as previously noted, there are inconsistencies in the provided data (operating expenses exceeding gross profit), making precise ratio calculation unreliable. The figures below are derived from the data provided, but their accuracy cannot be guaranteed. It’s strongly recommended to use the original, unedited financial statements for accurate calculations.

Based on the provided but potentially flawed data:

• Revenue: ₹289,711.65 lakh
• Cost of Revenue (approximated): ₹214,284.68 lakh
• Gross Profit (approximated): ₹75,426.97 lakh
• Operating Expenses: ₹250,259.22 lakh
• Operating Income (approximated): ₹(174,832.25) lakh This is a loss; the provided numbers are inconsistent
• Net Income: ₹29,489.73 lakh
• Total Assets: ₹104,177.92 lakh
• Shareholders’ Equity: ₹102,512.20 lakh

Using these potentially inaccurate figures:

• Gross Profit Margin (GPM): (Gross Profit / Revenue) * 100 = (₹75,426.97 lakh / ₹289,711.65 lakh) * 100 ≈ 26.04%

• Operating Profit Margin (OPM): (Operating Income / Revenue) * 100 = (₹-174,832.25 lakh / ₹289,711.65 lakh) * 100 ≈ -60.34% This indicates significant error in the provided data

• Net Profit Margin (NPM): (Net Income / Revenue) * 100 = (₹29,489.73 lakh / ₹289,711.65 lakh) * 100 ≈ 10.18%

• Return on Equity (ROE): (Net Income / Shareholders’ Equity) * 100 = (₹29,489.73 lakh / ₹102,512.20 lakh) * 100 ≈ 28.77%

• Return on Assets (ROA): (Net Income / Total Assets) * 100 = (₹29,489.73 lakh / ₹104,177.92 lakh) * 100 ≈ 28.31%

Conclusion: Due to the inconsistencies in the provided financial data, the calculated operating margin and operating income are likely incorrect. To obtain reliable profitability ratios, it is essential to use the data from the original, verified annual report. The other ratios are calculated using the figures in the provided statements, but should still be verified.

Liquidity Ratios #

To calculate the liquidity ratios for Sharda Motor Industries Limited (SMIL), we’ll use the figures from the standalone financial statements. Remember, however, that there were inconsistencies previously noted (current assets equaling total assets), so the results below may be inaccurate. It’s strongly recommended to use data from the original, verified annual report for accurate calculations.

Based on the potentially flawed standalone financial statements data:

• Total Current Assets: ₹104,177.92 lakh (Inconsistent with the total assets figure)
• Total Current Liabilities: ₹58,801.71 lakh

Using these potentially inaccurate figures:

• Current Ratio: (Current Assets / Current Liabilities) = ₹104,177.92 lakh / ₹58,801.71 lakh ≈ 1.77

• Quick Ratio: The quick ratio calculation requires Current Assets less Inventory. Using the potentially incorrect current assets number and the correct inventory value: (₹104,177.92 lakh - ₹19,691.15 lakh) / ₹58,801.71 lakh ≈ 1.44

• Cash Ratio: This ratio uses only cash and cash equivalents. (Cash and Cash Equivalents / Current Liabilities) = ₹25,836.15 lakh / ₹58,801.71 lakh ≈ 0.44

Conclusion: Because of the inconsistencies in the provided data (current assets figure), the liquidity ratios calculated above are unreliable. Refer to the original, un-edited annual report for accurate calculations of these ratios.

Efficiency Ratios #

Calculating efficiency ratios for Sharda Motor Industries Limited (SMIL) requires data from both the income statement and balance sheet. As there were inconsistencies noted in the provided financial statements (current assets equalling total assets), the calculations below may be inaccurate. It’s essential to use data directly from the original, verified annual report for reliable results.

Using the potentially flawed data provided:

• Revenue: ₹289,711.65 lakh
• Average Total Assets: To calculate this, we need the total assets at the beginning and end of the year. Only the end-of-year figure is provided in the report. We cannot calculate the ratio without this missing information.
• Average Inventory: Similar to total assets, we need both beginning and end-of-year inventory values to determine the average. Only the end-of-year figure is available (₹19,691.15 lakh). We cannot calculate this ratio without the beginning-of-year inventory figure.
• Average Accounts Receivable (Trade Receivables): Similar to the above, we’d need the beginning and end-of-year values to calculate the average for a precise receivables turnover calculation. The report only contains the year-end figure (₹22,715.69 lakh). This calculation cannot be performed accurately without the beginning of year data.

Therefore, using the incomplete data provided, we cannot accurately calculate the asset turnover, inventory turnover, and receivables turnover ratios. To obtain correct values, refer to the complete and accurate figures from the original, un-edited annual report and use the standard formulas:

• Asset Turnover: Revenue / Average Total Assets
• Inventory Turnover: Cost of Goods Sold / Average Inventory
• Receivables Turnover: Revenue / Average Accounts Receivable

Leverage Ratios #

Calculating use ratios for Sharda Motor Industries Limited (SMIL) requires data from both the balance sheet and income statement. Given the inconsistencies previously observed in the provided financial statements, the calculations below are based on the available but potentially flawed data. It’s essential to consult the original, verified annual report for reliable results.

Using the potentially flawed data:

• Total Debt (approximated): ₹2,366.54 Lakh (Lease Liabilities, from the balance sheet). The report doesn’t clearly define other long-term debt, making a precise calculation impossible without additional information from the complete report. This number needs verification.
• Total Shareholders’ Equity: ₹102,512.20 lakh
• Total Assets: ₹104,177.92 lakh

Based on these potentially inaccurate values:

• Debt-to-Equity Ratio: Total Debt / Shareholders’ Equity = ₹2,366.54 lakh / ₹102,512.20 lakh ≈ 0.023

• Debt-to-Assets Ratio: Total Debt / Total Assets = ₹2,366.54 lakh / ₹104,177.92 lakh ≈ 0.023

• Interest Coverage Ratio: This calculation requires the Earnings Before Interest and Taxes (EBIT). The income statement figures are inconsistent. A reliable calculation is not possible without verified numbers from the original report.

Conclusion: Due to the inconsistencies and missing data in the provided financial statements, the use ratios calculated are unreliable. The debt calculation is incomplete and needs verification. Always use the original, un-edited annual report for accurate calculations of these ratios. The calculation for Interest Coverage Ratio requires further information not provided.

Market Analysis #

Market Metrics #

The provided document is an annual report, containing the company’s financial statements. Crucially, it does not contain market-based metrics like market capitalization, P/E ratio, P/B ratio, dividend yield, and dividend payout ratio. These ratios require the company’s share price and the number of outstanding shares, which are not included in the annual report itself. These figures would need to be obtained from a financial website (like Google Finance, Yahoo Finance, Bloomberg, etc.) that tracks stock market data. Once the market cap and share price are available from a reliable source, you can calculate the ratios using the following formulas:

• Market Capitalization (Market Cap): Current Share Price * Number of Outstanding Shares

• Price-to-Earnings Ratio (P/E Ratio): Current Market Price per Share / Earnings Per Share (EPS)

• Price-to-Book Ratio (P/B Ratio): Current Market Price per Share / Book Value per Share (BVPS) Book value is typically calculated as total shareholders’ equity / number of outstanding shares

• Dividend Yield: (Annual Dividend per Share / Current Market Price per Share) * 100

• Dividend Payout Ratio: Annual Dividends Paid / Net Income

In summary, the annual report gives you the company’s financial performance, but you need to look to external sources (financial data websites) for the market’s valuation of that performance.

Business Analysis #

Segment Analysis #

The Sharda Motor Industries Limited (SMIL) annual report indicates that the company operates primarily within a single business segment: the manufacturing and trading of automotive components. A more detailed breakdown of segments is not provided. Therefore, a precise response regarding individual segment names, growth rates, etc. is not possible based solely on this document.

The report does offer some related information:

• End-User Vehicle Segment Revenue Breakdown (Consolidated): The report states that revenue is approximately evenly split between Passenger Vehicles (PVs) and Commercial Vehicles (CVs), with a small portion attributed to “Others.” Exact percentage breakdowns are not given. This implies that PVs and CVs could be considered sub-segments within the broader automotive component segment.

• Key Products: The report highlights many key product categories:

  • Exhaust Systems: Holding a significant market share (~30% in passenger vehicles).
  • Suspension Systems: A notable presence in the market, although market share is not precisely specified.
  • Specialized Roof Systems: A growing segment through a technical partnership.
  • Sheet Metal Components/Pressed Parts: A key part of their offerings but with no specific market share provided.

• Geographic Presence: SMIL has a significant presence across India, with multiple manufacturing units in many states. There is also a minor international presence in the United States. The exact revenue breakdown by geographic location isn’t provided.

• Growth Rates, Operating Margins, and Market Shares: The annual report does not furnish detailed data on growth rates and operating margins for each product category or geographic region. While overall growth rates and EBITDA margins are provided, these are consolidated figures and don’t give specific segment-level details. Similarly, market share figures are provided for exhaust systems, but not other product lines.

In conclusion: While the annual report provides a general overview of SMIL’s business activities and key products, it lacks the granular detail necessary for a detailed segment-level analysis (individual segment names, precise revenue figures, growth rates, operating margins, and market shares for each product or geographic location). To obtain this more in-depth analysis, additional information beyond this annual report would be needed.

Risk Assessment #

Sharda Motor Industries Limited’s (SMIL) annual report highlights many key risk factors. While the report doesn’t explicitly categorize them or provide a numerical assessment of impact severity and likelihood (e.g., using a risk matrix), it does describe the risks and the mitigation strategies employed. Based on the report’s descriptions, we can infer potential severity and likelihood levels. Trends are inferred based on the risk descriptions and the current business environment.

Key Risk Factors:

Note: The “Potential Impact Severity” and “Potential Likelihood” are qualitative assessments based on the description of risks in the annual report and general industry trends, not specific quantitative scores provided by the company. Mitigation strategies are also based on the information presented in the report. The trends are inferred observations. For a truly detailed risk analysis, a deeper dive into the company’s internal risk assessment documentation would be needed.

Strategic Overview #

Management Assessment #

Sharda Motor Industries Limited’s (SMIL) management highlights many key strategies, competitive advantages, market conditions, challenges, and opportunities in its annual report.

I. Key Strategies:

• Focus on Emission Control Systems: Capitalizing on the increasing demand for advanced emission control systems driven by stricter government regulations (BS-6.2, RDE, CEV-V, TREM-V).
• Backward Integration: Strengthening vertical integration by controlling key aspects of the production process (tube mills, stamping, welding, and testing) to improve e/fficiency and reduce costs.
• Product Diversification: Expanding the product portfolio beyond exhaust systems into suspension systems, and specialized roof systems, to reduce reliance on any single product category and spread risk.
• Market Expansion: Targeting new market segments (agricultural equipment, o/ff-road vehicles) and geographic regions (global exports leveraging the “China+1” strategy) to drive growth.
• Strategic Partnerships & Acquisitions: Collaborating with technology providers (e.g., Bestop Inc., Eberspacher) and exploring inorganic growth opportunities to accelerate innovation and expand market reach.
• Lightweighting: Investing in and expanding the lightweighting vertical starting with control arms and suspension assemblies, catering to the growing demand for lighter vehicles.
• Leveraging Debt-Free Status: Utilizing the company’s strong financial position (debt-free status and surplus cash) to fund growth initiatives and potential acquisitions.

II. Competitive Advantages:

• Technological Leadership: Possessing advanced emission control technologies that comply with global standards.
• Market Share: Significant market share in exhaust systems for passenger vehicles in India.
• Backward Integration: Enhanced cost e/fficiency and control over the supply chain.
• Strong Customer Relationships: Established relationships with major OEMs.
• Modern Infrastructure: Best-in-class manufacturing facilities and dedicated R&D capabilities.

III. Market Conditions:

• Stringent Emission Regulations: The Indian government’s increasing focus on cleaner vehicles is creating both challenges and opportunities.
• Growth in Automotive Sector: Overall growth in the Indian automotive market, although the rate of growth varies by vehicle segment.
• “China+1” Trend: The global shi/f_t away from reliance on China for manufacturing is creating new opportunities for Indian component suppliers.
• Demand for Lightweight Components: Growing preference for lightweight vehicles due to fuel e/fficiency and emission concerns.

IV. Challenges:

• Competition: Intense competition from both domestic and international players.
• Raw Material Price Volatility: Fluctuations in the prices of raw materials can impact profitability.
• Economic Slowdown: A potential downturn in the overall economy could a/ffect demand for automotive components.
• Regulatory Changes: Frequent changes in emission norms and other regulations require continuous adaptation.
• Supply Chain Disruptions: Dependence on external suppliers makes SMIL vulnerable to supply chain disruptions.

V. Opportunities:

• Growth in Emission Control Systems: The increasing demand driven by stricter regulations.
• Expansion into New Vehicle Segments: Targeting the agricultural and o/ff-road vehicle markets.
• Global Export Market: Capitalizing on the “China+1” strategy to expand international business.
• Lightweighting Technology: Meeting growing demand for lighter vehicles.
• Strategic Partnerships: Collaborating with technology providers and OEMs to accelerate innovation.
• Acquisitions: Acquiring companies to expand capabilities and market share.

In summary, SMIL’s management is strategically positioned to capitalize on significant growth opportunities in the Indian and global automotive markets. However, the company must effectively address challenges related to competition, regulatory changes, supply chain risks, and economic uncertainty to realize its full potential.

ESG Ratings #

The provided annual report does not include ESG ratings from any external rating agencies. While the report details SMIL’s ESG initiatives and performance extensively, it does not provide any scores or rankings from organizations such as MSCI, Sustainalytics, Refinitiv, etc. To find ESG ratings, you would need to consult independent ESG rating agencies’ websites directly or utilize financial data providers that include ESG scores in their databases.

ESG Initiatives #

Sharda Motor Industries Limited’s (SMIL) annual report details various Environmental, Social, and Governance (ESG) initiatives. However, it’s important to note that the report often lacks specific, quantifiable metrics and targets, making a precise assessment challenging.

I. Environmental Initiatives:

• Energy Conservation: SMIL has implemented many energy-saving measures, including the use of LED lighting, Variable Frequency Drives (VFDs) in machinery, and the installation of solar power plants. However, precise energy consumption reduction figures or targets are not explicitly stated.
• Water Conservation: The report mentions water recycling and reuse initiatives, but doesn’t specify the percentage of water recycled or the overall water consumption reduction.
• Waste Management: SMIL emphasizes waste reduction, recycling, and responsible disposal, especially focusing on reducing packaging waste through the use of reusable trolleys. However, specific waste reduction targets or quantities of waste recycled are not provided.
• Air Emission Reduction: The report highlights compliance with emission standards (notably BS6 and BS6.2), showcasing their advanced emission control technologies. Specific emission reduction figures or targets are missing.

II. Carbon Footprint:

The report provides data on Scope 1 and Scope 2 GHG emissions (258.96 tCO2eq and 23,48,054.20 tCO2eq/MwH respectively for FY23-24). However, it omits Scope 3 emissions and lacks a clear statement of its overall carbon footprint or reduction targets. The data also requires context and comparison with previous years to demonstrate reduction.

III. Social Initiatives:

SMIL’s social initiatives primarily focus on community development and employee well-being. The key activities include:

• Community Development: Support for education, healthcare, and environmental conservation in local communities, largely through the Sharda CSR Foundation Trust. Specific programs involve building medical clinics, organizing health camps, and providing educational resources to underprivileged children. Quantifiable impact data on beneficiaries and the specific amounts invested in these initiatives are not clearly stated.
• Employee Well-being: Initiatives focus on health and safety. The report mentions health insurance, accident insurance, maternity benefits, safety training, and grievance redressal mechanisms. However, specific metrics like employee satisfaction scores, safety incident rates, or turnover rates are largely absent.

IV. Governance Practices:

• Board Composition: SMIL’s board has a mix of executive and independent directors to provide balanced perspectives.
• Committees: The company has active Audit, Nomination & Remuneration, Stakeholders’ Relationship, and Risk Management Committees, highlighting a commitment to good governance. However, the report does not mention the specifics of their meetings or actions taken by these committees.
• Risk Management: SMIL has a Risk Management Committee and policy in place to identify and mitigate risks. The report does not however mention the specifics of risks addressed or any risk assessment undertaken.
• Compliance: The report emphasizes adherence to legal and regulatory requirements, but lacks specific details on compliance measures implemented or any non-compliance incidents.

V. Sustainability Goals:

SMIL’s annual report doesn’t explicitly state specific, measurable, achievable, relevant, and time-bound (SMART) sustainability goals. While the report mentions a commitment to sustainability and responsible business practices, these are primarily qualitative statements and lack quantitative targets and timelines.

Overall Assessment:

The annual report demonstrates SMIL’s awareness and commitment to various ESG areas. However, the lack of clear, quantifiable metrics and targets makes it challenging to evaluate their actual progress and the e/ffectiveness of their initiatives. Future reports should include concrete data and SMART goals to provide greater transparency and accountability regarding their ESG performance. This lack of quantified data limits the ability to make a complete assessment of their success in these areas.

Additional Information #

Operational Metrics #

Based on the provided Sharda Motor Industries Limited (SMIL) annual report:

• R&D Expenditure: ₹443.84 lakh (₹44.38 million) for the fiscal year 2023-24 (standalone). The report shows this as revenue expenditure, indicating that no R&D was capitalized in this financial year.

• Employee Count: The report states there were 800 total employees (including both permanent and non-permanent) at the end of the fiscal year 2023-24 (standalone). The breakdown is 679 permanent employees and 121 non-permanent employees. The report also indicates that there were 2,500 total workers (238 permanent and 2262 non-permanent).

It’s important to note that these figures are from the standalone financial statements. The consolidated figures may be slightly di/fferent, as they include the employees and workers from the company’s subsidiaries and joint ventures. Always refer to the original, unaltered annual report to verify the accuracy of these numbers.

Key Events #

The Sharda Motor Industries Limited (SMIL) annual report mentions many significant events during the fiscal year 2023-24:

• Amendment to Joint Venture Agreement: An amendment was made to the Joint Venture Agreement with Purem International GmbH (formerly Eberspacher Exhaust Technology International GmbH) to clarify JV product details.
• Share Buyback: The company completed a share buyback program, repurchasing 10,27,777 equity shares. This significantly reduced the issued share capital.
• Appointment of Key Personnel: Vikas Khokha was appointed as the Chief Human Resource O/fficer. Deepak Bhasker’s employment ceased during the year. The report notes additional changes to senior management, but doesn’t specify all the details in the same way.
• Dividend Payment: A final dividend of ₹17.27 per equity share was paid for the financial year 2022-23.
• CSR Activities: The report details significant CSR spending and the transfer of unspent CSR funds to a designated account. The report focuses on ongoing CSR projects under the Sharda Unnati initiative. The opening of the Sharda CSR Medical Clinic in Nashik is also mentioned.
• Technology and Product Development: The report highlights many technological advancements and new product developments that comply with stricter emission norms. It also mentioned an increase in content per vehicle of 10-15% as a result of the shift to stricter norms.

The report doesn’t provide a detailed list of all events, just those deemed significant by the management. For a complete record of events, one would have to refer to the company’s internal records or other official communications.

Audit Information #

The auditor’s opinion on Sharda Motor Industries Limited’s (SMIL) standalone and consolidated financial statements is unqualified. This means the auditors found the financial statements to be presented fairly, in accordance with Indian Accounting Standards (Ind AS) and generally accepted accounting principles in India. There are no material misstatements identified by the auditor.

Key Accounting Policies (Summary):

The report outlines many key accounting policies, including but not limited to the following:

• Revenue Recognition: Revenue is recognized when control of goods or services is transferred to the customer, in accordance with Ind AS 115. Specific considerations are given for variable consideration and warranty obligations.

• Property, Plant, and Equipment (PPE): Measured at cost less accumulated depreciation and impairment losses. Depreciation is calculated using the written-down value method, with useful lives determined based on technical estimates, and assets costing less than ₹5,000 are depreciated at 100%.

• Intangible Assets: Measured at cost less accumulated amortization and impairment losses. Amortization is calculated using the straight-line method over the estimated useful life of each asset.

• Research and Development (R&D) Costs: Revenue expenditure on R&D is expensed, while development costs meeting specific criteria are capitalized.

• Foreign Currency Translation: Transactions are recorded at the spot rate at the transaction date, and monetary assets and liabilities are translated at the year-end rate. Exchange di/fferences are recognized in profit and loss.

• Inventories: Valued at the lower of cost or net realizable value. Cost is determined using the FIFO (First-In, First-Out) method.

• Leases: A single recognition and measurement approach is applied for all leases except short-term and low-value asset leases. Right-of-use assets and lease liabilities are recognized.

• Employee Benefits: Short-term employee benefits are expensed, while post-employment benefits are recognized using the projected unit credit method for defined benefit plans.

• Financial Instruments: Classified and measured based on the business model and contractual terms (amortized cost, FVTOCI, FVTPL). The expected credit loss (ECL) model is used for impairment.

• Income Taxes: Current and deferred tax are recognized in accordance with the Income Tax Act, 1961.

• Operating Segments: The company operates in one reportable segment.

Important Note: This is a summary of the key accounting policies. For a complete and detailed understanding, consult the “Summary of Material Accounting Policies” section within the original, un-edited annual report.