ZF Commercial Vehicle Control System India Ltd:Annual Report 2023-24 Analysis

ZF Commercial Vehicle Control Systems India Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: ZF Commercial Vehicle Control Systems India Ltd. (formerly known as Wabco India Ltd.) was established in 1962 as a joint venture between Sundaram-Clayton and Clayton Dewandre Holdings Limited, U.K. In 2020, ZF Friedrichshafen AG acquired Wabco globally, including Wabco India, leading to the company’s rebranding as ZF Commercial Vehicle Control Systems India Ltd.

Headquarters Location and Global Presence: The headquarters are located in Chennai, India. As part of the global ZF Group, the company benefits from a worldwide presence and network.

Company Vision and Mission: (Specific information regarding ZF Commercial Vehicle Control Systems India Ltd.’s precise vision and mission needs further research. Generic ZF vision includes enabling next generation mobility.)

Key Milestones in Their Growth Journey:

• 1962: Established as Wabco India Ltd.
• Various decades: Expansion of product portfolio and establishment of manufacturing facilities.
• 2020: Acquisition by ZF Friedrichshafen AG and rebranding to ZF Commercial Vehicle Control Systems India Ltd.

Stock Exchange Listing Details and Market Capitalization: The company is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). (Information on the exact market capitalization would need real-time data retrieval from the exchanges.)

Recent Financial Performance Highlights: (Recent financial performance information requires access to latest annual reports or quarterly results announcements.)

Management Team and Leadership Structure: (Current, detailed information on the specific management team and leadership structure needs to be verified from ZF’s investor relations section and official website.)

Any Notable Awards or Recognitions: (Awards and recognitions achieved would need further research through company press releases, industry publications, and award websites.)

Their Products #

Complete Product Portfolio with Categories: ZF Commercial Vehicle Control Systems India Ltd. offers a broad portfolio of products and systems for commercial vehicles, encompassing:

• Air Brake Systems: Compressors, valves, actuation systems, air dryers.
• Electronic Braking Systems (EBS): Electronic stability control (ESC), anti-lock braking systems (ABS).
• Suspension Control Systems: Electronically controlled air suspension (ECAS).
• Transmission Control Systems: Automated manual transmission (AMT) systems.
• Steering Systems: Power steering systems.
• Other Products: Disc brakes, actuators.

Flagship or Signature Product Lines: Electronic braking systems (EBS) and air brake systems are considered core product lines.

Key Technological Innovations or Patents: (Details of specific patents require further research using patent databases and company information.) Innovations generally include advancements in safety, efficiency, and automation of commercial vehicle control systems.

Manufacturing Facilities and Production Capacity: The company has multiple manufacturing facilities in India. (Specific production capacity information is not readily available publicly.)

Quality Certifications and Standards: ZF Commercial Vehicle Control Systems India Ltd. adheres to various quality certifications and standards, including ISO 9001, ISO 14001, and IATF 16949.

Any Unique Selling Propositions or Technological Advantages:

• Integrated Systems Approach: Offers complete control systems rather than just individual components.
• Global Technology, Local Adaptation: Leverages ZF’s global technology while tailoring solutions for the Indian market.

Recent Product Launches or R&D Initiatives: (Information requires further research through press releases, company announcements, and industry news.) R&D is likely focused on electric vehicle components and advanced driver-assistance systems (ADAS) for commercial vehicles.

Primary Customers #

Target Industries and Sectors:

• Commercial vehicle manufacturers (trucks, buses, trailers)
• Original equipment manufacturers (OEMs)
• Aftermarket service providers

Geographic Markets (Domestic vs. International): Primarily focused on the Indian domestic market, with some export activities.

Major Client Segments (agricultural, industrial, residential, etc.): Clients mainly operate in the transportation and logistics sectors.

Distribution Network and Sales Channels: A well-established distribution network throughout India, with authorized distributors and service centers.

Major Competitors #

Direct Competitors in India and Globally:

• WABCO: (Even though now part of ZF, other companies in the Wabco legacy product space may still exist)
• Knorr-Bremse
• Meritor
• Brakes India
• Other local players in India

Competitive Advantages and Disadvantages:

• Advantages: Global technology from ZF, strong brand reputation, established distribution network.
• Disadvantages: Competition from established players and potential cost pressures from local manufacturers.

How they differentiate from competitors: Integration with ZF Group, focus on technological innovation, and strong customer service network.

Industry challenges and opportunities:

• Challenges: Increasing regulatory requirements (safety, emissions), rising raw material costs, competition.
• Opportunities: Growth in the commercial vehicle market, demand for advanced safety features, and increasing electrification of vehicles.

Market Positioning Strategy: Positioned as a leading provider of advanced control systems for commercial vehicles, focusing on safety, efficiency, and connectivity.

Future Outlook #

Expansion Plans or Growth Strategy: Focusing on expanding its product portfolio to include components for electric vehicles and advanced driver-assistance systems (ADAS).

Upcoming Products or Innovations: Development of advanced braking systems, steering systems, and autonomous driving technologies for commercial vehicles.

Sustainability Initiatives or ESG Commitments: (Information on specific sustainability initiatives requires further research. ZF, as a global company, typically has robust ESG commitments.)

Industry Trends Affecting Their Business:

• Electrification of commercial vehicles.
• Increasing demand for autonomous driving technologies.
• Stringent safety regulations.

Long-Term Vision and Strategic Goals: To be a leading provider of integrated control systems for commercial vehicles, contributing to a safer, more efficient, and sustainable transportation industry.

Comprehensive Performance Overview #

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

• Revenue Growth: Revenue from operations increased from INR 2,543.35 Cr. in FY22 to INR 3,783.71 Cr. in FY24.
• Profitability: Profit before tax improved from INR 195.74 Cr. in FY22 to INR 544.42 Cr. in FY24. Profit after tax also showed a strong upward trend, rising from INR 142.07 Cr. to INR 404.78 Cr. during the same period.
• EBITDA: EBITDA as a percentage of sales increased from 11.4% in FY22 to 17.4% in FY24.
• EPS: Earnings Per Share (EPS) increased from INR 74.9 in FY22 to INR 213.4 in FY24.
• ROCE: Return on capital employed (ROCE) grew from 9.4% in FY22 to 19.4% in FY24.
• RONW: Return on net worth (RONW) improved from 6.9% in FY22 to 15.6% in FY24.
• CAPEX: Capital Expenditure exhibited significant growth, increasing from 88.9cr in 2023 to 185.31cr in 2024.

Business Segment Performance #

• The company operates primarily in manufacturing advanced braking systems, conventional braking products and related air assisted technologies and systems for the automotive components sector.
• The company has generated 49cr of revenue from products designed for electric vehicles.

Major Strategic Initiatives and Their Progress #

• New Plant at Oragadam: Commissioned new manufacturing lines for e-Mobility products (Hydraulic ESCs, e-Compressors).
• Footprint strategy: The Jamshedpur and Lucknow plants are to create agile deliveries, supporting “Just in time” deliveries for specific OEM.
• Renewable Energy Adoption: Increased renewable energy utilization from 15% to 45% through rooftop solar installations and power purchase agreements.
• Digital Manufacturing Platform (DMP): Implementation of ZF’s DMP to enhance data collection, real-time insights, and data-driven decision-making.
• Localization: Adaptation of global technology products for the Indian market.
• Diversity: ZF CVCS India Ltd. has set a goal to achieve 30% women representation across all manufacturing by 2026.

Risk Landscape Changes #

• Increased Geopolitical Risks: Mentioned as a factor influencing the global economic outlook, potentially affecting steel demand and supply chain.
• Cybersecurity: Addressed through the implementation of global ZF IT security policies and a 24x7 Security Operations Centre (SOC).
• Labor relations: are handled weekly and monthly, with union settlements and negotiations completed.

ESG Initiatives and Metrics #

Environmental #

• Renewable energy usage increased from 15% to 45%.
• Scope 1 and Scope 2 emissions reduced by ~50% in FY24.
• Energy conserved by 15.2% in FY24.
• Target of 100% green electricity by FY26.
• Zero Liquid Discharge (ZLD) maintained at all plants.
• Waste reduction initiatives with supply chain partners, aiming for zero waste to landfill/incineration.
• Water consumption is being monitored, with targets to achieve annual reduction in consumption.
• Signed 5 PPAs with 3 rd party for RE procurement.

Social #

• 14% women workforce, with a target to increase to 30% across all manufacturing facilities by 2026.
• Employee engagement index of 79%.
• Zero lost-time injury frequency rate for employees.
• CSR spending of INR 4.69 Cr. in FY24, impacting over 80,000 lives.
• Road safety awareness programs for drivers and mechanics.

Governance #

• Implementation of ZF Code of Conduct and Whistle Blower Policy.
• No instances of corruption, bribery, child labour, or forced labour reported.
• Risk Management Committee to assess ESG risks and opportunities.

Management Outlook #

• Expectation of continued demand for Autonomous, Connected, and Electrified (ACE) solutions in the Indian commercial vehicle market.
• Focus on material productivity, and continuous improvement systems to enhance profitability.
• Commitment to increase renewable energy consumption to 80% with wind and solar.
• Further investment in digitalization and smart automation in manufacturing.
• Continued focus on sustainability, aiming for 90% reduction in Scope 1 and Scope 2 emissions before 2027.
• Expansion of product portfolio.
• Continuous improvements in operations.

Detailed Analysis #

Financial Position Analysis #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity #

Standalone Basis #

Consolidated Basis #

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

Standalone Basis #

• Increase:

  • Current Investments: Increased from INR 10,013.88 lakhs to INR 2,328.66 lakhs (-76.7%).
  • Trade Receivables: Increased from INR 75,786.19 lakhs to INR 93,456.28 lakhs (23.31%).
  • Cash and Cash Equivalents: Increased from INR 8,577.33 lakhs to INR 10,890.36 lakhs (26.97%).
  • Non-current Bank Balances: Increased from INR 108,292.53 lakhs to 118,290.86 lakhs.(9.23%).
  • Deferred tax assets increased by about 31.5%.
  • Loans: increased by 1,000 lakhs.

• Decrease:

  • Other current financial assets decreased by 100% to 0.
  • Other financial liabilities Decreased from INR 7,771.10 to INR 4,367.55 (-43.80%).
  • Current Tax Liabilities : Decreased from 1,075.79 to INR 247.04 (-77.03%).

Consolidated Basis #

• Increase:

  • Trade Receivables: Increased from INR 75,755.60 lakhs to INR 93,633.13 lakhs (23.60%).
  • Cash and Cash Equivalents: Increased from INR 8,648.27 lakhs to INR 11,445.79 lakhs (32.34%).

• Decrease:

  • Other Financial Assets: Decreased by 100% to 0.
  • Other financial liabilities: Decreased from INR 7,895.38 lakhs to 4,477.39 lakhs (-43.29%)
  • Current Tax Liabilities : Decreased from 1,075.93 to INR 247.04 (-77.03%).

Working Capital Trends #

• Current Ratio (Current Assets / Current Liabilities):
  • FY24: 4.94 (Standalone), 4.85 (Consolidated)
  • FY23: 4.19 (Standalone), 4.18(Consolidated)
  • FY22: 3.9 (Standalone)

Asset Quality Metrics #

• Property, Plant and Equipment (PPE) Turnover (Revenue from Operations / Net Fixed Assets):

  • FY24: 5.2(Standalone), 4.9 (Consolidated)
  • FY23: 5.3(Standalone), 5.1 (Consolidated)
  • FY22: 4.6(Standalone)

Debt Structure and Maturity Profile #

The Company has stated that it has no borrowings and no debt, making the debt structure and maturity analysis not applicable. Lease liabilities are present, but are excluded from this analysis as they are separate from traditional debt obligations:

Off-Balance Sheet Items #

• Contingent Liabilities:
  • FY24: INR 68.46 lakhs (specified matters)
  • FY23: INR 1,305

ZF Commercial Vehicle Control Systems India Limited: Financial Analysis #

Revenue Breakdown #

Product Segments (FY 2023-24) #

• Air Assist and Full Air Actuation and Accessories Systems: 76.49% of total revenue.
• Spares: 12.65% of total revenue.
• Software Services/Research & Development/Business Services: 9.11%.

Geographical Segments #

• FY 2023-24:
  • India: INR 235,168.63 lakhs
  • Others: INR 143,202.22 lakhs
• FY 2022-23:
  • India: INR 207,107.94 lakhs
  • Others: INR 137,350.66 lakhs

Customer Concentration #

• Top 10 customers: 80% of revenue in FY 2023-24, 78% in FY 2022-23 (indicating customer concentration risk).

Cost Structure Analysis #

• Cost of Materials Consumed (FY 2023-24): INR 232,415.38 lakhs (Standalone), INR 235,042.76 lakhs (Consolidated)
• Employee Benefits Expense (FY 2023-24): INR 46,396.59 lakhs (Standalone), INR 46,513.98 lakhs (Consolidated)
• Other Expenses (FY 2023-24): INR 43,554.22 lakhs (Standalone), INR 43,709.37 lakhs (Consolidated)

Margin Analysis #

• Net Profit Margin:
  • FY 2023-24: 10.70% (Standalone), 10.4% (Consolidated)
  • FY 2022-23: 9.22% (Standalone), 9.0% (Consolidated)
• EBITDA Margin:
  • FY 2024: 17.4%
  • FY 2023: 15.6%
• EBITDA Growth:
  • 11.54% YoY Growth.

EPS Analysis #

• FY 2023-24:
  • Basic EPS: INR 213.41 (Standalone)
  • Diluted EPS: INR 213.41 (Standalone)
  • Consolidated EPS: INR 214.28
• FY 2022-23:
  • Basic EPS: INR 167.48 (Standalone)
  • Diluted EPS: INR 167.48 (Standalone)

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, FCF Components #

Operating Cash Flow (OCF) #

• FY 2023-24: INR 19,269.14 lakhs.
• FY 2022-23: INR 29,874.61 lakhs.
• Major drivers of OCF included profit before tax and adjustments for non-cash items like depreciation, finance costs, and interest income.
• OCF decreased during the year because there is significant increase in trade receivables.

Investing Cash Flow (ICF) #

• FY 2023-24: INR (13,559.69) lakhs.
• FY 2022-23: INR (27,104.41) lakhs.
• Key drivers of ICF were the purchase of property, plant, equipment and intangible assets, and changes in investments, specifically mutual funds and bank deposits, and sale proceeds of assets.

Financing Cash Flow (FCF) #

• FY 2023-24: INR (3,411.56) lakhs.
• FY 2022-23: INR (3,106.97) lakhs.
• FCF was primarily affected by dividend payments and payments of lease liabilities.

Working Capital Management Efficiency #

Working Capital Turnover #

• FY 2023-24: 1.9 times.
• FY 2022-23: 2.0 times.

Debtors Turnover Ratio #

• FY 2023-24: 4.5 times.
• FY 2022-23: 4.8 times.

Inventory Turnover Ratio #

• FY 2023-24: 14.7 times.
• FY 2022-23: 15.0 times.

Capex Analysis #

Total CAPEX #

• FY2023-24: 185.31cr
• FY2022-23: 88.9cr

Dividend and Share Buyback Trends #

Dividend per Share (DPS) #

• FY 2023-24: INR 17.0.
• FY 2022-23: INR 13.0.
• FY 2021-22: INR 12.0

Dividend Payout (amount) #

• FY 2023-24: INR 3,224.49 lakhs.
• FY 2022-23: INR 2,465.79 lakhs.

Debt Service Coverage #

Debt Service Coverage Ratio #

• FY 2023-24: 54.91
• FY 2022-23: 51.53.

Liquidity Position and Cash Conversion Cycle #

Current Ratio #

• FY 2023-24: 4.9.
• FY 2022-23: 4.2.

Cash and Cash Equivalents #

• FY 2023-24: INR 10,890.36 lakhs.
• FY 2022-23: INR 8,577.33 lakhs.
• Cash Conversion Cycle: Not directly provided, but can be inferred from turnover ratios. The components (debtors, inventory) turnover ratios are available, but not the combined cycle.

Financial Performance Analysis: 3-Year Trend #

Profitability Ratios #

Return on Equity (ROE) #

• FY24: 15.6%
• FY23: 14.0%
• FY22: 6.9%

ROE has shown a significant and consistent upward trend over the three years, indicating improved profitability relative to shareholders’ equity.

Return on Capital Employed (ROCE) #

• FY24: 19.4%
• FY23: 17.6%
• FY22: 9.4%

ROCE has consistently increased, indicating improved efficiency in utilizing capital to generate profits.

Gross Profit Margin (EBITDA as % of sales) #

• FY24: 17.4%
• FY23: 15.6%
• FY22: 11.4%

Gross profit margin has steadily increased over the three-year period, demonstrating enhanced operational efficiency and/or better pricing power.

Net Profit Margin (PAT as % of total income) #

• FY24: 10.4%
• FY23: 9.0%
• FY22: 5.6%

Net profit margin shows a sustained increase over the three-year period reflecting the enhanced operations efficiency of the company.

Liquidity Metrics #

Current Ratio #

• FY24: 4.9
• FY23: 4.2
• FY22: 3.9

The current ratio has improved consistently, indicating a strengthening liquidity position and a greater ability to meet short-term obligations.

Efficiency Ratios #

Fixed Assets Turnover #

• FY24: 5.2
• FY23: 5.3
• FY22: 4.6

The fixed asset turnover decreased slightly, this is because the company has invested heavily in CAPEX during the current year.

Inventory Turnover Ratio #

• FY24: 14.7
• FY23: 15.0
• FY22: 13.1

The inventory turnover shows that the inventory management is efficient.

Debtors Turnover Ratio #

• FY24: 4.5
• FY23: 4.8
• FY22: 4.1

The debtors turnover ratio are consistent over the periods.

Working Capital Turnover #

• FY24: 1.9
• FY23: 2.0
• FY22: 2.4

The working capital turnover shows a decrease, indicating company has invested in CAPEX.

Leverage Metrics #

Debt/Equity Ratio #

• FY24: Nil
• FY23: Nil
• FY22: Nil

The Company has remained debt-free over the three-year period, signifying a very conservative capital structure.

Revenue and Profitability #

• Overall Revenue increased from INR 3,444.59 Cr. in FY 2022-23 to INR 3783.71 Cr. in FY 2023-24, a YoY growth of 9.85%.
• EBITDA as % of Sales grew from 15.6% in the previous FY to 17.4%, an 11.54% YoY increase.
• Profit After Tax (PAT) increased from INR 317.67 Cr. to INR 404.78 Cr., a YoY increase of 27.42%.
• Service Income increased with global support; headcount went up by 139.
• e-compressor and Electronic Braking System Revenue: INR 49 Cr in the current year.

Market Share and Competitive Position #

• The Company holds a market leadership position in advanced braking systems, conventional braking products, and related air-assisted technologies and systems.
• Market outperformance stands at 9.5% despite a slump in commercial vehicle sales.

Key Products/Services Performance #

• Product Portfolio: Added Electronic Controlled Air Processing units and Electronic Control Air Suspension to the portfolio to support EV manufacturing.
• R&D Revenue: Generated INR 45 Cr. from R&D.
• New Product Variants: 184 new product variants released.

Geographic Distribution and Market Penetration #

• Manufacturing Facilities: Six facilities located in Chennai (Ambattur), Jharkhand, Mahindra World City, Pantnagar, Lucknow, and Oragadam, India.
• Export Sales: 37.86% of the total turnover.
• Ambattur plant accounts for more than 60% of ZF CVS India’s total capacity.

CAPEX and ROIC #

• Total CAPEX increased from INR 88.9 Cr. in the previous FY to INR 185.31 Cr., a YoY growth of 108.45%.
• Major CAPEX Investment: The Oragadam plant, with 100% renewable energy and plans for water neutrality, with INR 108.45 Cr invested in FY24.
• ROCE increased from 11.9% in FY 2019-20 to 19.4% in FY 2023-24.

Operational Efficiency #

• Inventory Turnover improved from 12.9 times in FY 2018-19 to 14.7 times in FY 2023-24.
• Debtors’ Turnover remained stable at around 4.5 times.
• Energy intensity reduced by 5%.
• Energy Savings: 15.2% energy was conserved.

Growth Initiatives and Challenges #

• Growth Initiatives: Focused on Autonomous, Connected, and Electric (ACE) solutions.
• Challenges are around managing shift management, overtime, and workforce development.
• Strategic Focus: Prioritizing expansion in global growth markets, investments in profitable products and technologies, and organizational efficiency.
• Digitalization: Deployment of Power Apps for tracking CAPEX projects, SAP in the wholly-owned subsidiary.

Risk Assessment #

Strategic Risks #

• Severity: High, due to the potential impact on long-term market position and revenue growth from the reliance on OEMs and specific vehicle segments.
• Likelihood: Medium. The cyclical nature of the commercial vehicle industry and dependence on customer’s business objectives pose constant threats.
• Trend: Stable, risks are inherent to the industry but fluctuating based on economic cycles and customer demand.
• Mitigation Strategies: Product portfolio diversification, focusing on aftermarket, and expansion into Autonomous, Connected, and Electric (ACE) solutions.
• Control Effectiveness: Partially effective. New product development and aftermarket focus indicate mitigation efforts.
• Potential Financial Impact: A decrease was seen, with a 9.5% market outperformance. However, a potential negative impact exists if OEM demand drops significantly.

Operational Risks #

• Severity: Medium to High. Manufacturing capacity, quality control, and supply chain management are critical.
• Likelihood: Medium. Digitalization, smart automation, and the implementation of the ZF Production System aim to control operational variability, but dependency on production processes is high.
• Trend: Improving. Investments in digitalization and smart automation are increasing.
• Mitigation Strategies: Digital Manufacturing Platform implementation, smart automation, employee training, and “Six Lean Principles” application.
• Control Effectiveness: Moderately Effective. 45% utilization of renewable energy, 15.2% energy conservation, and TPM Excellence Awards indicate some control.
• Potential Financial Impact: The potential for increased operational costs and inefficiencies is demonstrated by energy consumption and waste generation data.

Financial Risks #

• Severity: Medium. Revenue concentration, material costs, and foreign exchange rates are key factors.
• Likelihood: Medium. The global nature of the supply chain and economic conditions maintain consistent exposure.
• Trend: Stable.
• Mitigation Strategies: Revenue diversification, supplier negotiations for cost control, and hedging strategies (although specific hedging activities are not detailed).
• Control Effectiveness: Partially effective. While there is no long-term debt (reducing debt-related risks), financial risk management is an ongoing process.
• Potential Financial Impact: Fluctuations in revenue, profit margins, and EPS were observed in FY 2023-24, with total income increasing 10% from previous year.

Compliance / Regulatory Risks #

• Severity: Medium to High. Changes in emission norms (BS VI), safety regulations (ESC, ADAS), and labor laws carry substantial non-compliance costs.
• Likelihood: Medium. The regulatory environment is dynamic, with constant updates to standards.
• Trend: Increasing, with a move toward stricter emission and safety standards.
• Mitigation Strategies: Engagement with regulatory bodies, implementation of compliant technologies, and adherence to code of conduct.
• Control Effectiveness: Effective, as indicated by zero cases of non-compliance related to corruption, bribery, anti-competitive behavior, child labor, forced labor, sexual harassment, discrimination, or wages.
• Potential Financial Impact: No financial penalties related to non-compliance are reported.

Emerging Risks #

• Severity: Medium to High. Rapid technological changes in the automotive industry (electric vehicles, autonomous driving) and the rise in sustainable materials and solutions.
• Likelihood: High, the automotive sector is undergoing transformation, and disruption is likely.
• Trend: Increasing. Technological advancements and sustainability demands are accelerating.
• Mitigation Strategies: Investment in R&D for ACE technologies, collaboration with OEMs on new product development, and focus on sustainable manufacturing.
• Control Effectiveness: Developing, with INR 45 Cr. revenue generated from R&D related to e-compressor and Electronic Braking System, indicating growing effectiveness.
• Potential Financial Impact: The scope 3 emissions target and 2040 climate neutrality goal highlight the potential.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• The Company aims for climate neutrality by 2040, with an interim target of 80% reduction in Scope 1 and 2 emissions by 2030 (baseline 2019).
• Renewable energy utilization increased from 15% to 45% which aided scope 1 and 2 emission reduction by ~50%.
• The company targets to achieve 30% representation of women in workforce across all our manufacturing facilities by 2026.
• Signed a 5 MW group captive solar energy PPA and implemented on-site solar roof installations, targeting 100% green electricity by FY 2026.

Competitive Advantages and Market Positioning #

• The Company is a market leader in advanced braking systems and related technologies for commercial vehicles in India.
• Holds a distinctive position with its ‘Next Generation Mobility’ strategy, focusing on sustainable technologies.
• The market out performance stands at 9.5% despite slump in the commercial vehicle sales.

Innovation Initiatives and R&D Effectiveness #

• R&D spending for FY 2023-24 was INR 58 Cr, with 1037 R&D headcount.
• Developed and released 184 new product variants.
• Generated INR 45 Cr in revenue from R&D activities during the reporting period.
• Focused on localizing global technology products and adapting them for the Indian market.
• Launched key products to support electric vehicle adoption, such as e-compressors and Electronic Braking Systems.

Management’s Track Record in Execution #

• Successfully completed union settlements across all five manufacturing plants.
• Achieved an employee engagement index of 79, with targeted action plans initiated based on survey insights.
• Maintained a zero Lost-Time Injury Frequency Rate (LTIFR) for employees.
• Awarded for excellence in execution, including recognitions from key customers like Ashok Leyland, TATA Motors, and VE Commercial Vehicles.

Capital Allocation Strategy #

• CAPEX investment for FY 2023-24 was INR 185.31 Cr, with a significant portion allocated to the new Oragadam plant.
• Investments made in renewable energy projects, including roof solar installations and group captive power agreements.
• Dividend per share increased from INR 9 in FY 2018-19 to INR 17 in FY 2023-24.
• Financial subsidy from the Government: Tax deductions and tax credits INR 135,922,658 and financial incentives INR 24,429,398

Organizational Changes and Their Impact #

• Increased global supporting headcount by 139, contributing to improved global billing.
• SAP implemented in the wholly-owned subsidiary, to improve efficiency.
• Successful integration of the Oragadam plant into the manufacturing footprint, contributing to production capacity.

ESG Framework #

Environmental Metrics and Targets #

• Energy Consumption: Total energy utilized in FY 2023-24 was 122.41 TJ. 45% of the total energy was sourced from renewable sources. Energy conserved in FY 2023-24 increased by 15.2%.
• Energy Efficiency Programs: 89 projects related to energy conservation were completed, resulting in 15.2% energy saved during the year and total energy savings of 3,985,350 kWh.
• GHG Emissions: Scope 1 emissions were 1817.32 metric tons, and Scope 2 emissions were 9626.76 metric tons for FY 2023-24. Scope 2 emissions reduced by 50% compared to the previous financial year.
• Renewable Energy Usage: Renewable energy usage increased from 15% in FY23 to 45% in FY24 and 5 PPAs were signed with 3rd parties for RE Procurement.
• Emission Reduction Targets: The Company targets an 80% reduction in Scope 1 and Scope 2 emissions by 2030 (baseline 2019) and a 40% reduction in Scope 3 emissions by 2030 (baseline 2019). Climate neutrality is targeted by 2040.
• Renewable Energy Target: The company aims to achieve 100% green energy by FY26.
• Water Stewardship: Total water withdrawn in FY 2023-24 was 92,255 KL, with all plants being zero liquid discharge. Water conservation efforts at the Ambattur plant have resulted in savings of 15 KL per day.
• Waste Management: Total waste recycled in FY 2023-24 was 4433.297 metric tons. Waste reduction projects (19 in total) were completed. 261 MT of one-way packaging waste was avoided.

Social Responsibility Programs #

• CSR Expenditure: INR 4.69 Cr. was spent on CSR initiatives in FY 2023-24, impacting over 80,000 lives.
• Focus Areas: CSR activities are centered around road safety, environmental sustainability, skills development, and community development.
• Road Safety Programs: Over 6,000 drivers and mechanics have been trained in road safety awareness programs. Programs include braking system integration in State Transport Undertakings (STUs).
• Environmental Initiatives: Over 6,450 trees have been planted in the last three years. Solar-based streetlights and traffic signals have been installed.
• Community support: Medical equipments were donated to hospitals to benefit over 200,000 underpriveleged patients.
• Skill Development: Centers of Excellence have been established in partnership with educational institutions to provide training in automotive technologies, Industry 4.0, IoT, and robotic automation.

Governance Structure and Effectiveness #

• Board Composition: As of March 31, 2024, the Board consisted of seven directors, with an optimal mix of executive and non-executive roles, including two women directors. Six were non-executive, and four of those were independent.
• Board Committees: The Board has several committees, including Audit, Risk Management, Nomination and Remuneration, Stakeholders Relationship, and Corporate Social Responsibility.
• Code of Conduct: The Company adheres to the ZF Code of Conduct, with annual certifications from employees and directors.
• Whistle Blower Policy: A vigil mechanism is in place for reporting concerns, with direct access to the Audit Committee Chairman.
• Policy Framework: A comprehensive set of policies are in place, including a Corporate Governance Policy, Code of Conduct, and CSR Policy, accessible on the company website.
• Conflict of Interest: There were Zero conflict of interest as declared by the board of directors.
• Board Evaluation: The Board adopted a formal mechanism for evaluating its performance and that of its committees and individual directors, including the Chairman.

Sustainability Investments and ROI #

• CAPEX: FY 2023-24 saw a CAPEX investment of INR 185.31 Cr., with a significant portion allocated to a new plant in Oragadam, Tamil Nadu, focused on chassis and electric components.
• Renewable Energy Investment: A 5 MW group captive solar energy PPA was signed, with an investment of INR 1.75 crore in equity. Onsite solar roof installations at the Mahindra World City and Oragadam plants were completed.
• Energy Efficiency Savings: Energy conservation initiatives led to savings of approximately INR 319 lakhs in FY 2023-24.

Regulatory Compliance and Future Preparations #

• Compliance: All manufacturing facilities are compliant with IATF 16949, ISO 14001, ISO 45001, and ISO 50001 certifications.
• No Non-Compliance: No penalties or strictures were imposed by stock exchanges, SEBI, or other statutory authorities on capital market-related matters during the reporting period.
• Zero Liquid Discharge: All plants maintain zero liquid discharge status.
• Future Preparations: The Company is focused on achieving 100% renewable energy by 2026 and achieving zero Scope 1 and Scope 2 emissions by 2027. Supplier workshops are planned to promote sustainability within the supply chain.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The auditors, B S R & Co. LLP, issued an unmodified opinion on the standalone and consolidated financial statements, indicating a true and fair view in conformity with generally accepted accounting principles in India.
• The audit report contains a qualification relating to the maintenance of accounts; specifically, the audit trail was not enabled at the database level for the accounting software, and daily backups of electronic books of account were not kept on servers physically located in India. There is another qualification about the subsidiary company in consolidated financials.
• The auditors reported that, for the subsidiary company, the lack of an independent auditor’s report on controls at the service organization for the accounting software, operated by a third-party provider, made them unable to comment on the audit trail’s enablement and operation.

Key Accounting Policies and Changes #

• The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS) under Section 133 of the Companies Act, 2013.
• The statements are presented on a historical cost basis, except for certain financial assets and liabilities, and defined benefit plan assets.
• Revenue from the sale of goods is recognized upon the transfer of control to the customer.
• There were no new standards or amendments to existing standards applicable to the Company for the year ended 31 March 2024 notified by the Ministry of Corporate Affairs (MCA).

Internal Control Effectiveness #

• The auditor’s report, in Annexure B, states that the Company has adequate internal financial controls with reference to financial statements, and these controls were operating effectively.
• Risk Management Committee is available to review the risk management periodically.
• 52 potential risks are identified, and actions for mitigating the risk are communicated to Board of Directors.
• A Whistle Blower Policy is in place to report concerns about unethical behavior, fraud, or violations of the Company’s Code of Conduct.
• The Management Discussion and Analysis Report included in the Annual Report indicates the Company has a robust ERP system and well-networked locations, ensuring adequate controls.

Regulatory Compliance Status #

• The Company has complied with the provisions of the Listing Regulations concerning corporate governance.
• The Company affirms compliance with the Code of Business Conduct and Ethics.
• The Company is stated to have systems in place to ensure compliance with all applicable laws, and the Board reviews declarations of compliance on a quarterly basis.
• The Statutory, Cost, and Secretarial Auditors have not reported any instances of fraud by the Company’s Officers or Employees.
• There were no non-compliances, penalties, or strictures imposed by regulatory authorities (Stock Exchanges, SEBI) on capital market-related matters.
• The Company has made appropriate filings and disclosures as required.

Legal Proceedings and their Potential Impact #

• The Company disclosed the impact of pending litigations as at March 31, 2024, in its standalone financial statements (Note 35(A)).
• Contingent liabilities exist for various matters, including CENVAT, service tax, income tax, property tax, sales tax, GST, labor law disputes, and property matters. Management’s view, based on legal advice, is that these claims are not tenable.

Related Party Transactions #

• All related party transactions during the financial year were conducted on an arm’s length basis and in the ordinary course of business.
• Material related party transactions with M/s. ZF CV Systems Global GmbH & M/s. ZF CV Systems North America LLC, fellow subsidiaries, were approved by shareholders.
• Prior approval of shareholders for proposed material related party transactions for the financial year 2024-25 with M/s. ZF CV Systems Global GmbH was obtained.
• Details of related party transactions are disclosed in Note 37 of the standalone financial statements.

Subsequent Events #

• The Board of Directors proposed a final dividend of INR 17 per share for the year 2023-24, subject to shareholder approval at the ensuing Annual General Meeting.

Analysis of Accounting Quality and Regulatory Risk #

Accounting Quality: #

• The adoption of Ind AS and the unqualified audit opinion suggest a high quality of financial reporting.
• There are areas where the Company may need to improve internal controls over financial reporting. (Refer to Audit opinion point 1 and 2)
• Detailed disclosures on various aspects, such as related party transactions, and segment reporting enhance transparency.
• The reporting of contingent liabilities adheres to accounting standards but indicates potential financial risks.
• Re-measurement changes are recognised in the OCI (Other comprehensive income)

Regulatory Risk: #

• The primary identified regulatory risk pertains to the qualification in the audit report regarding the accounting software’s audit trail and backup location, although this is limited to the database level.
• The existence of pending litigations (tax matters, labor law, etc.) poses a regulatory and financial risk, though the Company’s management believes these claims are not tenable.
• Compliance with SEBI’s Listing Regulations and the Companies Act demonstrates a proactive approach to regulatory adherence.
• The lack of reported fraud or non-compliance penalties by regulatory authorities suggests a generally strong compliance culture.
• No cases were filed regarding unfair trade practices or anti-competitive behavior.
• There were zero cases of child labor, forced labor, sexual harassment, or discrimination, and zero monetary or non-monetary penalties related to ethical issues.