Sundaram Clayton - AR Summary
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About the company:
The Company together with its subsidiaries and associates operate in a wide range of activities such as manufacturing of automotive vehicles, automotive components, spare parts & accessories, housing development and financial services.
The company is a leading manufacturer of aluminium die-casting components.
It supplies to major automotive OEMs including TVS Motor, the Cummins group, the Volvo group, Hyundai Motor India Ltd, Ford Motors, the Daimler group, and to component suppliers such as Wabco India Ltd and the Visteon group.
Its product range includes flywheel housing, gear housing, clutch housing, filter heads, air connectors, lube oil cooler cover assembly, filtration module casting, turbocharger, compressor cover assembly, charge air pipe, intake manifold, cover coolant duct for the truck segment; cylinder head, case transaxle assembly, oil pan, chain case, cylinder head cover, adaptor oil filter, fuel pump housing, fork gear shift, starter housing; crankcase, cylinder head, cylinder barrel, wheel hub for powered two-wheelers and brake equipment valve bodies.
The company has its main die-casting component production facilities at Padi, Mahindra City, Oragadam in Chennai, and Belagondapalli at Hosur, in Tamil Nadu.
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Changes in ownership held by Promoter’s Family:
As part of streamlining holdings held by TVS family members in various TVS group companies, the key promoter family members in 2021, decided to align the ownership of different group companies with the respective arms of the families managing them.
As part of the restructuring, a composite scheme of amalgamation and arrangement has been completed involving T.V. Sundaram Iyengar & Sons Ltd. (TVS & Sons), Sundaram Industries Private Ltd. (SIPL) and Southern Roadways Private Ltd. (SRPL) and the family holding companies.
As a part of the scheme, TVS Holding Pvt Ltd (THPL) has acquired the shareholdings of TVS & Sons, SIPL and SRPL and consequently as on date holds ~64.72% in SCL.
Another holding company of the Venu Srinivasan family - VS Investment Pvt Ltd (VSIPL) has also raised ~Rs 1600 crore of loans which ultimately was used to facilitate the entire rearrangement of shares.
Ultimately, under the recent announcement, THPL and VSIPL will be merged with SCL and thereby NCRPS issued to THPL will be extinguished against the loan of Rs.1600 crore.
SCL will utilize part proceeds realized on the sale of shares of TVS Motor for the redemption of the balance NCRPS (issued to public shareholders and other promoter entities).
While most operating companies of the TVS group are not directly part of the family agreement, their holdings will witness a change, as the intent of the scheme is to also simplify the shareholding structure and give control to family factions managing them.
SCLDCD, SCL and its leading subsidiary, TVS Motor, and current subsidiaries under these companies, will remain within the Venu Srinivasan faction of the TVS group.
Indian automotive industry in 2021-22:
FY2021-22 was another tough year for the Indian automobile industry. The industry, recovered from the historic lows of 2020-21, but continued to be plagued during the year due to the 2nd & 3rd waves of CoVID-19, shortage of semiconductors, supply chain uncertainties, high logistics costs, rising commodity prices and above all the lowering in demand post the festive season. Geo-political issues and the Russia-Ukraine war also resulted in a muted Q4 for the industry.
BUSINESS OUTLOOK AND OVERVIEW:
The increase in global oil prices and commodities due to the Russia-Ukraine war is expected to have some impact on the demand in the automotive industry. These are being keenly tracked from the demand side as well as the supply side factors.
The Aatma Nirbhar Bharat Scheme of the Union Government is witnessing significant investments by businesses to make India self-reliant. A significant portion of the incentives is being given to the Automotive & Auto Component industries where the focus is on having a self-reliant supply chain including accelerating the transition to EV and setting up infrastructure for semiconductor manufacturing in India.
OPPORTUNITIES & THREATS:
In the long term, in lieu of stringent emission norms, fuel economy regulations and adoption of alternate drivetrain technologies, the thrust towards lightweighting is bound to increase leading to higher content of aluminium in all vehicle types. The Company is well placed to leverage these emerging opportunities. This will provide for increased growth opportunities since the company is already a preferred source for aluminium castings to major OEMs in India and abroad.
The supply chain disruptions caused by the pandemic could have OEMs review their global purchasing strategies which would result in a strong push for localization to de-risk the supply chain despite the cost impact. It is also expected that many companies will move their businesses out of China, which is a major source of supplies for automotive parts.
Intense competition makes it extremely difficult to seek price increases to compensate for the effects of inflation bringing the margins under severe pressure. However, the Company's supply contracts provide for periodic price adjustments indexed to the international prices of aluminium and this should offer some protection against the volatility of commodity prices.
Raw material timely availability, shortages in semiconductors and container availability due to covid-led disruptions in China and high costs of logistics, may impact sales and financial performance during the year.
Operating efficiencies:
Implementation of industry-wide best practices, such as Total Quality Management, enterprise resource planning and other internal automation measures, help products meet the rigorous standards of the top global auto manufacturers.
During fiscal 2020, SCL has implemented proactive cost optimization measures in low-cost automation, employee consolidation, recycling of materials etc. which has facilitated better cost management during the downturn and weather the impact of pandemic-related disruptions. Benefits of these have started to accrue as operating margins are being maintained at over 13% over the last two fiscals.
NOTE: The company is undergoing a corporate restructuring which I have not covered in detail. It is very well covered across the blogosphere. Once such good reference is: https://mnacritique.mergersindia.com/sundaram-clayton-tvs-group-restructuring/