Timken India Ltd:Annual Report 2023-24 Analysis

Timken India Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Timken India Limited was established in 1987 as a joint venture between Timken US and Tata Iron and Steel Company (TISCO).

Headquarters Location and Global Presence #

The headquarters of Timken India Limited is located in Jamshedpur, Jharkhand, India. Timken, as a global company, has a presence across the globe with manufacturing facilities and sales offices in numerous countries.

Company Vision and Mission #

While a publicly stated, specific vision and mission statement for Timken India Limited is not readily available, Timken’s global vision and mission provides context. Typically, these focus on:

• Global Vision: To be the global leader in engineered bearings and power transmission products, enabling our customers to achieve their goals.
• Mission: To use our knowledge to make the world’s industries work better by providing superior products and services that help our customers meet their application and performance needs.

Key Milestones in Their Growth Journey #

• 1987: Incorporation of Timken India Limited as a joint venture.
• Over the years: Expansion of manufacturing capabilities and product portfolio.
• Continuous: Investments in technology and innovation.
• Expansion: Increased presence in various industrial sectors.

Stock Exchange Listing Details and Market Capitalization #

Timken India Limited is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Recent market capitalization data should be retrieved from financial news sources or the respective stock exchange websites.

Recent Financial Performance Highlights #

Recent financial performance highlights are best accessed through the company’s annual reports, quarterly financial results announcements, and financial news websites. Key metrics to look for include:

• Revenue growth
• Profit margins
• Earnings per share (EPS)
• Debt-to-equity ratio

Management Team and Leadership Structure #

Timken India Limited’s leadership structure consists of a Board of Directors and a management team responsible for day-to-day operations. Specific names and roles can be found on the company’s website or in annual reports.

Notable Awards or Recognitions #

Timken India Limited has received awards and recognitions in the areas of quality, safety, and sustainability. Specific examples can be found through press releases or company announcements.

Their Products #

Complete Product Portfolio with Categories #

Timken India Limited offers a wide range of engineered bearings and power transmission products, including:

• Tapered Roller Bearings: These are a core product and are used in various applications across industries.
• Ball Bearings: Including deep groove ball bearings, angular contact ball bearings, and thrust ball bearings.
• Cylindrical Roller Bearings: Designed for high radial load capacity.
• Spherical Roller Bearings: Accommodate misalignment in heavy-duty applications.
• Thrust Bearings: Designed to handle axial loads.
• Plain Bearings: Sleeve bearings, bushings, and thrust washers.
• Mounted Bearings: Pre-assembled bearing units for ease of installation.
• Power Transmission Products: Including belts, chain, couplings, and gearboxes.
• Seals: To protect bearings from contaminants.
• Lubrication Systems: For optimal bearing performance and lifespan.

Flagship or Signature Product Lines #

Timken is known for its high-quality Tapered Roller Bearings, which are often considered a flagship product line due to their widespread use and performance characteristics.

Key Technological Innovations or Patents #

Timken invests significantly in research and development, resulting in technological innovations and patents related to:

• Bearing Materials: Developing advanced materials for improved performance and durability.
• Bearing Design: Optimizing bearing geometry for increased load capacity and reduced friction.
• Surface Treatments: Enhancing bearing surface properties for improved wear resistance.
• Lubrication Technology: Developing advanced lubrication solutions for improved bearing performance.

Manufacturing Facilities and Production Capacity #

Timken India Limited has manufacturing facilities in Jamshedpur and Bharuch. Exact production capacity figures are typically not publicly disclosed.

Quality Certifications and Standards #

Timken products adhere to internationally recognized quality certifications and standards, such as:

• ISO 9001: Quality Management System
• ISO 14001: Environmental Management System
• IATF 16949: Quality Management System for Automotive Production

Unique Selling Propositions or Technological Advantages #

Timken’s key unique selling propositions (USPs) include:

• Engineered Solutions: Providing customized bearing solutions to meet specific customer requirements.
• High-Quality Products: Known for manufacturing bearings with superior performance and durability.
• Global Expertise: Leveraging Timken’s global knowledge and resources to deliver innovative solutions.
• Strong Customer Support: Providing comprehensive technical support and after-sales service.

Recent Product Launches or R&D Initiatives #

Recent product launches and R&D initiatives are best accessed through the company’s website, press releases, and industry news sources. These often focus on developing bearings for specific applications or improving the performance of existing product lines.

Primary Customers #

Target Industries and Sectors #

Timken India Limited serves a wide range of industries and sectors, including:

• Automotive: Bearings for vehicle components such as wheels, transmissions, and engines.
• Industrial: Bearings for machinery and equipment used in various industrial processes.
• Railroad: Bearings for railcars and locomotives.
• Aerospace: Bearings for aircraft engines and control systems.
• Agricultural: Bearings for tractors and other agricultural machinery.
• Metals: Bearings for steel mills and other metal processing equipment.
• Mining: Bearings for mining equipment such as excavators and conveyors.
• Energy: Bearings for wind turbines, power generation equipment, and oil and gas applications.

Geographic Markets (Domestic vs. International) #

Timken India Limited serves both the domestic (Indian) market and the international market through exports.

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

The major client segments are generally the same as the target industries.

Distribution Network and Sales Channels #

Timken India Limited utilizes a comprehensive distribution network and sales channels, including:

• Direct Sales: Serving large OEM customers directly.
• Authorized Distributors: Partnering with distributors to reach a wider customer base.
• Online Channels: Utilizing online platforms for sales and customer support.

Major Competitors #

Direct Competitors in India and Globally #

Key competitors of Timken India Limited in the bearing industry include:

• SKF India: A subsidiary of the Swedish SKF Group.
• Schaeffler India (INA/FAG): A subsidiary of the German Schaeffler Group.
• NBC Bearings (National Engineering Industries Ltd.): An Indian manufacturer of bearings.

Globally, competitors include:

• SKF
• Schaeffler Group
• NSK Ltd.
• NTN Corporation

Competitive Advantages and Disadvantages #

Timken’s competitive advantages include:

• Strong Brand Reputation: Known for high-quality products and engineered solutions.
• Global Presence: Access to a global network of resources and expertise.
• Engineering Capabilities: Ability to provide customized bearing solutions.

Potential disadvantages could include:

• Price Competitiveness: Facing pressure from competitors offering lower-priced alternatives.
• Market Volatility: Susceptibility to fluctuations in commodity prices and economic conditions.

How They Differentiate From Competitors #

Timken differentiates itself through:

• Focus on Engineered Solutions: Providing customized bearing solutions to meet specific customer requirements.
• High-Quality Products: Manufacturing bearings with superior performance and durability.
• Strong Customer Support: Providing comprehensive technical support and after-sales service.
• Application-Specific Engineering: Engineering the correct bearing and power transmission product for the job.

Industry Challenges and Opportunities #

Industry challenges and opportunities include:

• Increasing Demand for Energy-Efficient Products: Opportunities for developing bearings with reduced friction and energy consumption.
• Growing Adoption of Electric Vehicles: Challenges and opportunities in developing bearings for electric vehicle applications.
• Globalization and Competition: Increasing competition from global bearing manufacturers.
• Technological Advancements: Opportunities for leveraging new technologies such as AI and IoT to improve bearing performance and maintenance.

Market Positioning Strategy #

Timken’s market positioning strategy focuses on providing high-quality engineered solutions to meet the specific needs of its customers.

Future Outlook #

Expansion Plans or Growth Strategy #

Future growth strategies may include:

• Expanding into new geographic markets.
• Developing new products and applications.
• Acquiring complementary businesses.
• Investing in research and development.

Sustainability Initiatives or ESG Commitments #

Timken is likely to have sustainability initiatives and ESG commitments related to:

• Reducing its environmental footprint.
• Promoting sustainable manufacturing practices.
• Supporting local communities.
• Ensuring ethical business conduct.

Industry Trends Affecting Their Business #

Industry trends affecting Timken’s business include:

• Growing demand for industrial automation.
• Increasing adoption of electric vehicles.
• Shift towards sustainable manufacturing.
• Rising urbanization and infrastructure development.

Long-Term Vision and Strategic Goals #

Timken’s long-term vision likely involves solidifying its position as a global leader in engineered bearings and power transmission products, leveraging its technological expertise and global reach to deliver innovative solutions that meet the evolving needs of its customers.

Financial Analysis Report: Timken India Limited (FY24) #

3-Year Trend Analysis (FY22-FY24) #

Timken India Limited has demonstrated a consistent growth trajectory over the past three fiscal years. Total income grew from ₹22,058 million in FY22 to ₹28,598 million in FY23, and further to ₹29,503 million in FY24, representing a compound annual growth rate (CAGR) of approximately 15.6%. This growth was primarily driven by domestic sales.

Profit After Tax (PAT) increased from ₹3,276 million in FY22 to ₹3,907 million in FY23, and marginally to ₹3,921 million in FY24 (CAGR of 9.4%). The PAT margin saw a slight compression in FY24 (13.48%) compared to FY23 (13.92%), influenced by changes in other income (absence of one-time gains from FY23) and a marginal increase in total expense ratio. Earnings Per Share (EPS) followed a similar trend, rising from ₹43.56 in FY22 to ₹51.95 in FY23 and ₹52.13 in FY24.

Total Equity has steadily increased from ₹16,015 million in FY22 to ₹20,374 million in FY23, and ₹24,173 million in FY24, reflecting strong retained earnings. The company maintains a very low debt profile, with Total Debt to Total Equity ratio at 0.25% in FY24, down from 1.45% in FY23 and 1.80% in FY22. Return on Equity (RoE) was robust at 17.61% in FY24, though lower than 21.15% in FY23 and 21.80% in FY22, impacted by the larger equity base and near-flat PAT growth in FY24. Capital employed grew from ₹17,327 million in FY22 to ₹21,336 million in FY23, and ₹25,118 million in FY24, supporting business expansion.

Key Financial Metrics #

Key Financial Metrics (₹ in million, except where stated):

Industry average comparisons are not available in the provided data. Global bearing market CAGR is anticipated at 9.5% (2024-2030).

Business Segment Performance #

Timken India Limited operates in a single reportable primary segment: “Bearings and allied goods & services.” In FY24, domestic sales recorded double #

Detailed Analysis #

Timken India Limited (FY2023-24) Financial Analysis #

Revenue and Profitability #

• Revenue from Operations: ₹29,095.41 million (FY24), a 3.7% increase from ₹28,066.10 million (FY23). Driven by strong domestic market performance (rail business), partially offset by decreased export sales.
• Profit After Tax (PAT): ₹3,921.42 million (FY24), a 0.36% increase from ₹3,907.45 million (FY23).
• Earnings Per Share (EPS): ₹52.13 (FY24), slight improvement from ₹51.95 (FY23).
• Operating Profit Margin: Decreased to 18% (FY24) from 19% (FY23).
• Net Profit Margin: Decreased to 13% (FY24) from 14% (FY23).
• Modest PAT growth and margin compression influenced by a decrease in Other Income and a 3.8% increase in total expenses.

Market Share and Competitive Position #

• Indian bearing industry: ~3.5% of global bearing demand. OEM to Aftermarket (AM) ratio within India is estimated at 40:60.
• Competitive Strengths:
  • Strong foundation in Tapered Roller Bearings (TRB).
  • Access to global R&D.
  • Custom application knowledge and proactive engineering engagement.
  • Diversified revenue stream.
  • Understanding of the local market and agile business strategy.
  • 125-year global legacy.

Key Products/Services Performance #

• Company operates in engineered bearings, industrial motion products, and related services.
• Rail Business: Double-digit growth in domestic sales.
• Heavy Truck Market: Challenges, expected to remain subdued.
• Wind Market: Growth potential in India with increasing gearbox exports.
• Process and Distribution Market: Strong connections to core sectors like steel.
• Industrial Aftermarket: Expected to grow, revenue expansion opportunities.
• Solar Business: Production of slew drives commenced at the Bharuch facility.

Geographic Distribution and Market Penetration #

• Domestic Sales: Double-digit growth. Revenue from India operations grew to ₹23,011.2 million (FY24) from ₹20,191.1 million (FY23).
• Export Sales: Declined due to global market slowdown. Revenue from outside India (exports) was ₹5,843.4 million (FY24), down from ₹7,739.1 million (FY23).
• Bharuch facility: Intended to serve Indian customers and act as an export hub.
• Market Penetration Strategies:
  • Strengthening channel footprint to penetrate the General MRO market.
  • Addressing regional gaps with value-added services.
  • Utilizing digitalization to increase sales in the automotive aftermarket.

Segment-wise Capex and ROIC #

• Company operates under a single reportable segment: “Bearings and allied goods & services.”
• Capital Expenditure (Capex):
  • ₹600 crore investment for new greenfield facility in Bharuch, Gujarat. Commercial production expected in Q1 2025 / last quarter of FY 2024-25.
  • Cash outflow for purchase of Property, Plant & Equipment (PPE) was ₹2,229.03 million (FY24).
  • Capital Work-in-Progress (CWIP) increased to ₹1,534.46 million as of March 31, 2024.
  • Capital advances increased to ₹1,357.60 million (FY24).
• Return on Capital Employed (ROCE): Declined to 21.42% (FY24) from 25.13% (FY23).

Operational Efficiency Metrics #

• Inventory Turnover Ratio: 2.78 as of March 31, 2024, compared to 3.06 as of March 31, 2023.

Risk Profile Analysis: Timken India Limited (FY2023-24) #

Strategic Risks #

Risk Identification #

• Macroeconomic and Geopolitical Volatility: Exposure to dynamic global economic conditions, geopolitical uncertainties, and global trade disruptions impacting overall demand and supply chains.
• Market-Specific Downturns: Vulnerability to slowdowns in key end markets, such as the subdued performance in the Heavy Truck market and slowing growth in China’s wind market.
• Policy and Regulatory Changes: Potential adverse impact from modifications in industrial environment or government policies affecting customer demand.
• Competitive Landscape & Technological Obsolescence: The need to continuously innovate and adapt to technological advancements (sustainability, renewable energy, electrification, automation) to maintain market leadership and relevance. Failure to capitalize on these trends represents a strategic risk.
• Dependency on Parent Company: Reliance on The Timken Company’s global expertise and R&D implies a dependency risk.

Severity & Likelihood #

• Macroeconomic and geopolitical risks: Severity - High, Likelihood - Moderate to High.
• Market-specific downturns: Severity - Moderate, Likelihood - High for affected segments.
• Policy changes: Severity - Moderate to High, Likelihood - Low to Moderate.

Trend #

• Global economic and geopolitical uncertainties appear to be a persistent and possibly increasing trend.
• Focus on new growth areas (renewables, automation) suggests an evolving strategic response to market trends.

Mitigation Strategies #

• Diversified product portfolio and end-market presence to de-risk revenue streams.
• Agile business strategy and focus on operational excellence to navigate dynamic conditions.
• Strategic initiatives including manufacturing footprint expansion to support growth and serve as an export hub.
• Targeting high-growth markets (sustainability, renewable energy, infrastructure, automation).
• Leveraging global parent company’s experience, R&D, and innovation.
• Customer-centric innovations and specialized engineering expertise.
• Deep understanding of the local Indian market.

Control Effectiveness #

• Demonstrated resilience and agility, delivering revenue growth and EPS improvement despite challenges.
• Strategic focus in high-growth areas.

Timken India Limited (FY23-24) Financial Performance Analysis #

Overall Financial Performance & Key Highlights #

Timken India Limited demonstrated resilience in FY23-24, achieving modest revenue growth of 3.7% to ₹29,095 million, an all-time high. Profit After Tax (PAT) saw a marginal increase of ₹14 million to ₹3,921 million, with Earnings Per Share (EPS) slightly improving to ₹52.13 from ₹51.95 in the previous year. The performance was primarily driven by strong domestic demand, particularly in the rail sector, which experienced double-digit growth. This offset a decline in export sales attributed to a global market slowdown. The company maintained a strong balance sheet and robust cash flow, with cash and investments increasing by 23.9% to ₹4,887 million.

Economic and Market Environment #

• Global Outlook: The global economy is projected for steady but historically subdued growth (3.2% in 2024-2025, per IMF), impacted by high borrowing costs, geopolitical tensions (Ukraine, Red Sea crisis), and sluggish productivity. Inflation is expected to decline, potentially leading to interest rate reductions in major economies.
• Bearing Market: The global bearing market is anticipated to grow at a CAGR of 9.5% from $50.9 billion in 2024 to 2030. The roller bearings segment (over 45% revenue share in 2023) and the automotive segment (49% market share) dominate. The railway and aerospace segments are poised for the fastest growth. The Indian bearing industry constitutes approximately 3.5% of global demand.
• Indian Economy: India’s economy expanded strongly at 8.4% in Q3 FY24, with projected GDP growth of 6.8% in 2024 (IMF). Growth is driven by government capital spending, domestic demand, and robust manufacturing and construction. India is expected to become the world’s fourth-largest economy by 2025. Core inflation is at a 47-month low (3.53% in Jan 2024). Increased capex (₹11.11 lakh crores for infrastructure) in the interim budget 2024-25 is a positive driver.

Sectoral Performance and Outlook (India) #

• Automotive Industry: Aims to be a global leader, with EV market growth (target: largest by 2030, >$200 billion investment opportunity).

  • Commercial Vehicles (CV): Muted Q4 FY24 (1% YoY growth for FY24). Expected decline of ~4-6% in FY25 due to macroeconomic factors and high base. Long-term positives include infrastructure capex and favorable policies.
  • Tractor Market: Declined 7.4% in FY24 due to disturbed monsoon (El-Nino). Expected nominal growth of 1-4% in FY25, supported by forecasts of normal monsoons and government initiatives.

• Railways: Significant government allocations (₹2.55 lakh crore for FY25, up 5.8%).

  • Coaches: Production target >8100 units for FY25, increasing to 10000 by FY26. Ambitious program to upgrade 40,000 standard coaches over 8-10 years.
  • Metro: Expansion projects in Bangalore, Mumbai, Delhi, and the first RRTS. BMRCL sourcing new coaches.
  • Passenger: Earnings estimated at ₹73000 crores for FY24 (28% up).
  • Locomotive: Order for 1200 Electric Locomotives (9000 HP) with 35-year maintenance.

• Industrial Sector: Contributes ~17% to GDP, aiming for 25% manufacturing output and $1 trillion exports. Manufacturing grew 11.6% in Q3FY24. IIP surged 5.7% in Feb-24. Core industries (ICI) up 6.7%.

• Renewable Energy (Wind): Global installations up 50% YoY in 2023 (117 GW). India ranks 4th globally (45 GW installed onshore capacity), aiming for ~73 GW by 2027 and 122 GW by 2032. India commissioned >2.8 GW in 2023, highest since 2017.

Company Operational and Strategic Developments #

• Manufacturing Expansion: The greenfield facility in Bharuch, Gujarat (investment of ₹600 crore) for Spherical Roller Bearings (SRB) and Cylindrical Roller Bearings (CRB) is progressing on schedule, with production expected to commence in Q1 2025. This facility will serve domestic customers and act as an export hub.

• Market Focus:

  • Strong demand and utilization in Rail front end units.
  • Heavy Truck market remains subdued.
  • Leveraging growth potential in the Indian Wind market as gearbox exports increase.
  • Advancements in Process and Distribution markets, particularly steel.
  • Added 4 new MILLTEC sites in FY24, strengthening metal market presence.
  • Initiating entry into the solar business in India via US counterpart Cone Drive, with some slew drive production at Bharuch.

• Sustainability: Recognized with the Sustainable Organizations Award 2023 (Economic Times) and Golden Peacock Award for Energy Efficiency. Progress in reducing carbon footprint, enhancing energy efficiency, reducing water consumption, and waste management.

• Parent Company Milestone: The Timken Company celebrates 125 years in 2024, with Timken India leveraging its global expertise.

Financial Statement Analysis (FY23-24 vs FY22-23) #

• Revenue from Operations: Increased by 3.7% (₹29,095 million vs ₹28,066 million), driven by domestic sales growth, partially offset by lower exports.
• Other Income: Decreased by ₹124 million (₹407.65 million vs ₹531.75 million), mainly due to prior year’s foreign currency gains and a one-time Jharkhand incentive, partially compensated by higher dividend and interest income.
• Total Expenses: Increased by 3.8% (₹24,261 million vs ₹23,363 million). Cost of materials consumed rose 3.4%, aligned with revenue. Employee costs increased 3.1%. Other expenses up 6.8% due to volume and inflation.
• Profit After Tax (PAT): Marginally up by ₹14 million (₹3,921 million vs ₹3,907 million).
• Earnings Per Share (EPS): ₹52.13 vs ₹51.95.
• Property, Plant & Equipment (PPE) & CWIP: Increased by ₹650 million, primarily due to the Bharuch project and new leases, offset by depreciation. CWIP stands at ₹1,695.81 million (FY24) from ₹304.25 million (FY23).
• Inventories: Increased by ₹972 million to ₹6,931.18 million, aligned with business volume. Inventory turnover ratio at 2.78.
• Trade Receivables: Increased by ₹784 million to ₹6,194.44 million due to higher revenue. Trade receivables turnover ratio at 4.74.
• Cash and Investments: Up 23.9% to ₹4,887 million, fueled by effective cash management and internal accruals.
• Other Assets (Non-current): Increased mainly due to capital advances of ₹1,358 million (vs ₹209 million).
• Equity: Share capital unchanged. Holding company (Timken Singapore PTE Limited) shareholding decreased from 67.8% to 57.7%.
• Trade Payables: Increased by ₹414 million to ₹3,857.28 million due to higher volume. Trade payables turnover ratio at 5.95.

Key Financial Ratios (FY24 vs FY23) #

• Debt Equity Ratio: 0.2% vs 1% (reflects very low debt).
• Operating Profit Margin: 18% vs 19%.
• Net Profit Margin: 13% vs 14%.
• Return on Net Worth: 16% vs 19%.

Strengths, Opportunities, and Threats #

• Strengths: Strong base in Tapered Roller Bearings, R&D capabilities of Timken Group, custom application knowledge, de-risked revenue stream.
• Opportunities: Cross-selling industrial motion products, “Make in India” initiatives, strengthening channel footprint for MRO market, digitalization for automotive aftermarket, localization.
• Threats: Geopolitical concerns, supply chain disruptions (Russia-Ukraine, Red Sea), adverse policy changes, counterfeit products.

Internal Controls and Audit Observations #

• Internal control systems are deemed commensurate with business operations. SAP ERP is integral. A Risk Management Committee and framework are in place (ISO 31000:2018 certified).

• Statutory Auditor (Deloitte Haskins & Sells LLP): Unmodified opinion on financial statements. Noted that daily backup of books of accounts in electronic mode on a server physically located in India was not kept. The company is taking steps to implement this.

• Secretarial Auditor (V Sreedharan and Associates): Confirmed compliance with applicable laws with two observations:

  1. Gap between two Risk Management Committee Meetings exceeded 180 days (188 days, delay of 8 days) due to inadvertence.
  2. Same observation as Statutory Auditors regarding daily backup of accounts on India-based servers.

Corporate Governance and HR #

• Board composition includes a mix of Executive, Non-Executive, and Independent Directors. Several changes in directorship occurred during the year.
• Committees (Audit, Stakeholders Relationship, Risk Management, Nomination and Remuneration, CSR) are in place and active.
• Performance Management System links employee goals to company goals, with continuous evaluation and equal weightage to Results & Competencies.
• Total Rewards system is data-driven, following a Pay for Performance philosophy, benchmarked annually.
• Emphasis on continuous learning through experiential, social, and formal training (Timken University).
• Active Employee Resource Groups (WIN, YPN, MAP) foster engagement and professional development.

Dividend #

The Board has recommended a dividend of ₹2.5/- per equity share (25%) for FY23-24, subject to shareholder approval.

Outlook #

The company is focused on localization and improving indigenous component sourcing. It aims to leverage the value proposition of all Timken Associated Brands and mitigate risks by educating customers on genuine products. The Bharuch facility is key to future growth, serving both domestic and export markets. The company is capitalizing on global trends in sustainability, renewable energy, infrastructure, and automation.

Audit & Compliance Analysis: Timken India Limited FY23-24 #

Auditor’s Opinion and Qualifications #

• The Statutory Auditors, Deloitte Haskins & Sells LLP, issued an unmodified opinion on the financial statements for FY 2023-24, stating they give a true and fair view in conformity with Ind AS.
• Under “Report on Other Legal and Regulatory Requirements,” a modification was noted regarding the maintenance of books of account: proper books have been kept except for not keeping backup on a daily basis of such books of account maintained in electronic mode in a server physically located in India (referencing Note 43 to the financial statements).
• The auditors also provided an unmodified opinion on the adequacy and operating effectiveness of internal financial controls over financial reporting.
• No fraud was reported by the auditors to the Audit Committee/Board under Section 143(12) of the Act.

Key Accounting Policies and Changes #

• Recent Amendment: The Company adopted amendments to Ind AS 1, shifting disclosure focus from “significant accounting policies” to “material accounting policy information,” effective FY 2023-24. The Company states it has evaluated current policies and made necessary modifications.
• Property, Plant, and Equipment (PPE): Recorded at cost. Depreciation is on a straight-line basis over estimated useful lives, which for buildings and plant & equipment are sometimes lower than Schedule II of the Companies Act, 2013, supported by independent professional assessment. Freehold land is not depreciated.
• Investment Property: Measured initially at cost, including transaction costs. Subsequent measurement follows Ind AS 16 (cost less accumulated depreciation). Depreciation is SLM over 7-30 years for buildings.
• Leases (Ind AS 116): Right-of-Use (ROU) assets and lease liabilities are recognized for most leases. ROU assets are depreciated SLM over the shorter of lease term and useful life.
• Intangible Assets: Acquired intangibles are at cost less accumulated amortization (SLM over useful economic lives, e.g., Computer Software 3-6 years, Tradename/Trademark 10 years) and impairment. Goodwill is tested annually for impairment.
• Inventories: Valued at the lower of cost (weighted average) and net realizable value, with provisions for obsolescence.
• Financial Instruments:
  • Financial Assets: Initially at fair value. Subsequently, trade receivables and most other financial assets are at amortized cost. Expected Credit Loss (ECL) model is applied, using a provision matrix for trade receivables based on historical default rates and forward-looking information. Investments in mutual funds are at FVTPL.
  • Financial Liabilities: Initially at fair value. Subsequently, most financial liabilities (trade payables, borrowings) are at amortized cost using the EIR method.
• Revenue Recognition: Sale of goods recognized upon transfer of control. Service income recognized as service is performed. Export incentives recognized when right to receive is established and realization is certain.
• Government Grants: Asset-related grants are recognized as deferred revenue and amortized over the useful lives of the related assets. Other grants are recognized in P&L systematically.
• Employee Benefits: Defined contribution schemes expensed as incurred. Defined benefit obligations (gratuity, long-term compensated absences) are based on actuarial valuations (projected unit credit method), with re-measurements recognized in OCI.
• Income Taxes: Current tax based on taxable income. Deferred tax recognized using the balance sheet approach for temporary differences.

Internal Control Effectiveness #

• Auditor’s Assessment: The Statutory Auditors issued an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls with reference to financial statements as of March 31, 2024.
• Management’s Assessment (Board’s Report & MD&A): The Company has designed and implemented internal control systems commensurate with its business. SAP ERP is integral. A Risk Management Committee is in place, and an enterprise-wide risk management framework (ISO 31000:2018 certified) is established. Risk-based internal audits are conducted by KPMG Assurance and Consulting Services LLP. No significant material weaknesses or deficiencies were observed by management.
• Noted Deficiency in Record Keeping: Both Statutory and Secretarial Auditors highlighted the failure to maintain daily backups of electronic books of account on servers physically located in India, as required by Rule 3(5) of the Companies (Accounts) Rules, 2014. The Board’s Report acknowledges this and states steps are being taken for implementation.

Regulatory Compliance Status #

• Secretarial Audit (V Sreedharan and Associates): Confirmed general compliance with applicable statutory provisions. Two observations were made:
  1. The gap between two Risk Management Committee meetings (188 days) exceeded the stipulated 180 days (Regulation 21(3C) of SEBI LODR). The Board attributed this to “inadvertence.”
  2. Failure to maintain daily backups of electronic books of account on servers physically located in India.
• Corporate Governance Compliance Certificate (Practicing Company Secretary): Certified compliance with mandatory Corporate Governance conditions under SEBI LODR, except for the Risk Management Committee meeting gap.