Sundram Fasteners Ltd Management Discussions

Industry structure and developments

India remains one of the fastest-growing major economies, with the GDP estimated to grow by 6.5% in 2024-25 and projected to grow at the same rate in 2025-26. The growth is driven primarily by the services and agriculture sectors, as improvement in agricultural output has boosted rural demand. A weak global demand has put pressure on the manufacturing industry. However, consistent domestic demand has led to stability in private consumption. With a GDP exceeding USD 4 trillion, India is the fifth-largest economy globally and is on track to become the fourth-largest by 2025-26. The budget for 2025-26 emphasizes four key development areas—agriculture, micro, small, and medium enterprises (MSMEs), investments, and exports—as catalysts for growth. Significant funding is allocated for infrastructure development, including 1.5 lakh crore in interest-free loans to States for major projects. The output of coal, fertilizer, steel, and cement has increased, propelling the expansion of the eight core sectors, which account for 40% of the Index of Industrial output.

Retail inflation has softened from 5.4% in 2023-24 to 4.6% in 2024-25. With inflation at its lowest since 2018-19, an enabling environment has been created for sustainable growth. This trajectory underscores resilience and commitment to ensuring price stability without compromising development goals. Improved expenditure management and tax revenue have enabled the Government to control the fiscal deficit. The consumption trend remains strong, as GST collections exceeded 22.08 trillion for the year.

During the year, INR depreciated and closed at 85.47 against the USD, declining from 83.40 on March 31,2024. The GDP, which was initially forecasted to grow at 7.0%, moderated to 6.5% due to extreme weather conditions, lengthy general elections, elevated food inflation, and rear-ended infrastructure spending. In addition, higher FDI repatriation and equity outflows by Foreign Institutional Investors also caused the INR to decline.

A good monsoon helped the nation recover from the near drought caused by El Nino. It replenished water farms and reservoirs, increasing rural income, boosting consumption, and fuelling general economic growth.

Auto Industry Performance

Passenger Vehicles (PV) segment

• The PV segment recorded its highest-ever sales at 4.3 million units, with a growth of 2% over 2023-24. The modest growth can be attributed to the high base effect.

• Sports Utility Vehicles (SUVs), which accounted for 65% of all PV sales, saw double-digit growth. The trend will likely continue, with multiple new SUV models scheduled for release in the upcoming year.

• The PV sales also reported its highest-ever exports of 0.77 million units in 2024-25, registering a growth of 14.6% over 2023-24. New model launches with modern designs rich in features and supported with attractive discounts and promotions sustained the growth momentum.

• Electric vehicle (EV) sales continue to gain traction, with new EV launches by several manufacturers providing the impetus for the growth of this segment. The EV registrations have scaled 1 lakh units, registering an impressive increase of 18.2%.

Commercial Vehicles (CV) segment

• CV segment has registered a decline of (1.20%) in sales during the financial year 2024-25.

• The truck segment also experienced a slight degrowth in volumes. Fleet operators have shifted to larger gross vehicle weight (GVW) vehicles to address the capacity constraints. The growing network of highways and expressways is essential for improving regional connectivity and lowering logistics costs, which bodes well.

• The bus segment reported impressive growth numbers in 2024-25. By offering grants for constructing capital assets, including e-buses, and establishing a charging station network, the government hopes to encourage widespread e-mobility through the PM E-DRIVE Scheme.

• In addition, the PM E-DRIVE Scheme aims to provide incentives to encourage the purchase of e-2W, e-3W, e-ambulances, and e-trucks.

Tractors and Two-wheeler segment

• The tractor industry had a modest decline of (1.04%) compared to the previous year. The first quarter showed weakness, but the segment began to recover in September 2024 leading to strong growth during the festive season in October and November.

• Two-wheeler (2W) sales reached 19.6 million units during 2024-25, registering a growth of 9.1%. Growth is led by improved rural and semi-urban connectivity and the availability of newer models with enhanced features. The penetration of EVs in the two-wheeler segment increased to about 6% in 2024-25.

Segment-wise or Product Wise Performance

The following table depicts the production trend of various segments in the automotive industry.

Source: Society of Indian Automobile Manufacturers

Revenues

Domestic Sales:

Domestic sales of the Company grew at 3.56% from 3,339.20 Crores in the previous year to 3,457.95 Crores for the year ended March 31,2025.

Export Sales:

Buoyed by favourable customer demand, the Company has registered exports of 1,584.09 crores in comparison to 1,409.43 Crores in the previous year recording a growth of 12.39%.

Operating Revenues:

The operating revenue of the Company was at 5,209.74 Crores (PY: 4,905.65 Crores).

Financial Performance:

Steel is one of the principal raw materials used by the Company. During the year under review, steel prices has softened in the domestic market in comparison to previous year. The Company mitigates its raw material price risks through identification of alternate sources of suppliers, alternate usage of materials, and price negotiations. Further, the yield improvement projects have helped to reduce raw material consumption.

The Company continues to procure cost effective renewable sources of power under group captive scheme. Further the Company has installed roof-top solar panels in its factories to optimise the power cost. The renewable power constitutes 50.65% of the power consumed in the current financial year.

During the financial year 2024-25, PBIDT (Profit before interest, foreign exchange fluctuation, depreciation, exceptional income and tax) was at 863.59 crores as against 825.37 Crores in the previous year.

Finance costs amounted to 19.70 Crores (PY: 17.99 Crores).

Profit before tax was higher at 680.59 Crores (PY: 639.07 Crores). After providing for taxes, the Profit after Tax amounted to 517.01 Crores (PY: 479.71 Crores).

Summary of Operating Results:

in Crores

Details of significant changes in key financial ratios:

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof:

Due to higher net worth compared to the previous year, the return on net worth was lower.

Consolidated Performance

The total revenue of the Company and its subsidiaries on a consolidated basis during the year under review was at 5,983.74 Crores as against 5,720.47 Crores.

Capacities and Capital Expenditure:

The Company has incurred a capital expenditure of 376.43 crores in line with its planned capital expenditure program for the financial year 2024-25. These investments will help the Company scale in non-auto, EV, hybrid and adjacent spaces.

Awards:

During the year under review, the Company received Awards for its various units as given hereunder:-

Total Quality Management, Human Resources, Learning and Development. Industrial Relations:

The Company continues to follow the principles of Total Quality Management (TQM). During the Financial Year 2024-25, the Company has focused on sustaining the strong manufacturing processes through the "Cant make the defect" concept to ensure robust process control, strengthen the training and evaluation to ensure 100% SOP adherence in the processes to improve its internal quality besides the existing Total Quality Management (TQM) practices. This has aided the Company to reduce the complaints from customers and a decline in internal rejections.

The Companys Human Resources Development framework includes Workforce planning, Employee engagement, Performance, and rewards, Learning and Development, Career and Succession Planning and Organization Development, which have a structured approach, policies and standard operating procedures that are reviewed and updated periodically.

Emphasizing the importance of continuous learning and development, the Company invests significantly in educational programs tailored to enhance employee skills and expertise. Leveraging the expertise and experience of internal trainers, who are subject matter experts, the Company focuses on upskilling employees to meet higher responsibilities. The Companys strategic approach identifies key competencies essential to organizational growth, with individual development plans tailored for high-potential employees, grooming them for future leadership roles through targeted leadership development programs.

The Company is dedicated to fostering an environment conducive to attracting, nurturing and retaining talent while cultivating a positive workplace environment. Employees are involved and contribute towards continuous improvements.

Various programs are in place to bolster overall employee well-being, encompassing mental, physical, and financial health wellness. Each employee participates in giving back to the community by actively participating in both monetary contributions and volunteering activities, enriching not only the community but also nurturing strong engagement among employees. The Company places great value on its workforce, recognizing them as invaluable assets essential to its success.

Across all manufacturing units, industrial relations remain harmonious, fostering a work environment conducive to productivity and growth.

Health, Safety and Environment:

Ensuring the safety and well-being of the employees remains paramount for the Company, with various measures in place to uphold this commitment. The business processes are meticulously designed with full regard and adherence to health and safety protocols. Comprehensive safety training is provided to all employees, underscoring Companys dedication to maintaining a secure work environment.

Furthermore, all the manufacturing facilities are equipped with round-the-clock medical facilities.

Recognizing the importance of mental health, the Company offers robust support through an Employee Assistance Program, providing access to counsellors to ensure the well-being of the workforce. Mental wellness programs are regularly conducted.

All the Companys manufacturing facilities comply with occupational health and management safety systems. All locations except one are ISO 45001 certified underscoring Companys commitment to safety of the employees.

Internal Control Systems:

The internal control systems of the company have been designed in such a way that the maker-checker concept is embedded into it, which ensures that all the transactions of the company are carried out seamlessly. SAP S4 HANA has been implemented across all units of the company through which all transactions relating to major processes, i.e. sourcing, procurement, production, sub-contracting, sales and dispatch, costing and finance are handled. This integrated system backed by relevant policies and robust Standard Operating Procedures ensure consistency in working. Benchmarking of Internal controls has been done with the standards defined for the industry. Continuous monitoring, periodical review is done to improve the quality and effectiveness of checks and controls. Internal controls relating to key areas, financial records, reporting of financials and compliance with requirements under various statutes, are reviewed by the Audit Committee for adherence and adequacy. The present internal control framework covers the requirement of the business and provides assurance to the management that internal control systems are in place / effective.

Prospects, Risks and Concerns:

The countrys real GDP growth is targeted at 6.5% during 2025-26 despite global uncertainties brought on by protectionist trade policies and trade tensions. The higher allocation towards capital expenditure in the budget would provide impetus for growth. In addition, the lower personal income tax rates, complemented by a calibrated policy rate reduction by the Reserve Bank of India (RBI), have set the tone for the economys growth. Geopolitical risks remain elevated due to ongoing conflicts, which pose significant risks to the global economic outlook. These risks can influence growth, inflation, financial markets, and supply chains.

According to RBI and IMF projections, consumer price inflation will gradually approach the RBIs target in 2025-26. In the absence of any additional external or policy shocks and a normal monsoon, the RBI projects headline inflation to touch 4.2% in 2025-26. A possible further easing of monetary policy during 2025-26, with RBI potentially lowering rates further, is expected to impact the interest rate environment favourably. RBI has provided adequate INR liquidity to the economy under the USDINR currency swap. The transmission of monetary policy is expected to support the broader economic growth.

The rupee has rebounded against USD due to the prevailing economic uncertainty in the USA. However, the USDINR exchange rates may experience volatility in 2025-26.

The country would benefit from another year of good monsoon. A good crop yield and higher Minimum Support Price (MSP) will translate into higher purchasing power and spur rural demand, which would propel the growth of the automotive sector, especially in the two-wheeler and tractor segment. The cost of ownership of tractors may rise because of Bharat Stage TREM V emission norms coming into effect from April 1,2026. Consequently, this segment is expected to witness pre-buying during 2025-26.

Auto Industry Forecast

Passenger Vehicle Segment

• Because of the high base impact, the PV segment may have moderate growth in 2025-26. The growth could be impacted due to potential price hikes because of new safety regulations mandating six airbags.

• The governments incentives to set up charging infrastructure and initiatives to completely exempt customs duty on battery components would improve EV penetration on the back of an 18.2% growth in the previous year.

Commercial Vehicle Segment

• The CV segment may witness a moderate growth of 3-5% year-on-year in 2025-26 on the backdrop of higher allocation towards capital expenditure of about 11 trillion proposed in the Union budget.

• The growth in the construction segment would also support demand creation in the CV segment.

• The replacement demand for trucks acquired prior to 2019 would also spur growth.

• The strong e-commerce industry and the need for last-mile connectivity will increase the demand for Light Commercial Vehicles (LCVs).

The downside risks to the positive outlook are extreme temperatures, monsoon failures, trade tensions, supply chain disruption and commodity price inflation. Despite these challenges, India, with its talent pool, is well-placed to offer sustainable growth in future.

Cautionary Statement

Statements in this management discussion and analysis describing the Companys objectives, projections, estimates, and expectations may be ‘forward-looking statements within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Significant developments that could affect the Companys operations include global or domestic or both fronts, substantial changes in the political and economic environment in India or key markets abroad, tax laws, litigation, labour relations, foreign currency fluctuations and interest costs.