Basic HTML Version
90
Sixty-Seventh Annual Report 2011-2012
from the supply of rare and frequently sought raw materials
for which demand is high, especially those used in vehicle
electronics such as rare earths, which are predominantly found
in China. In the past, China limited the export of rare earths
from time to time. If the Company is unable to find substitutes
for such raw materials or pass price increases on to customers
by raising prices, or to safeguard the supply of scarce raw
materials, the Company’s vehicle production, business and
results from operations could be affected.
Restrictive covenants in financingagreements:
Some of the
Company’s financing agreements and debt arrangements set
limits on and/or require the Company to obtain lender
consents before, among other things, pledging assets as
security. In addition, certain financial covenants may limit the
Company’s ability to borrow additional funds or to incur
additional liens. In the past, the Company has been able to
obtain required lender consents for such activities. If the
financial or growth plans require such consents and such
consents are not obtained, the Company may be forced to
forego or alter plans, which could adversely affect our results
of operations and financial condition.
In the event that the Company breaches these covenants, the
outstanding amounts due under such financing agreements
could become due and payable immediately. A default under
one of these financing agreements may also result in cross-
defaults under other financing agreements and result in the
outstanding amounts under such other financing agreements
becoming due and payable immediately. Defaults under one
or more of our financing agreements could have a material
adverse effect on the Company’s results of operations and
financial condition.
Environmental Regulations:
As an automobile company, the
Company is subject to extensive governmental regulations
regarding vehicle emission levels, noise, safety and levels of
pollutants generated by our production facilities. These
regulations are l ikely to become more stringent and
there is an upside risk to inflation, which could stop further
softening of interest rate cycle and have an adverse impact on
the demand and consequently growth in India.
Fuel Prices:
The crude oil price continued at about US$110
per barrel (Brent crude oil) throughout FY 2011-12. There are
renewed concerns of rapid growth in oil demand in emerging
economics and downshift in oil supply trends. As a result, the
oil prices are likely to continue at higher levels. The Indian
Government has removed petrol from administered price
mechanism. However, diesel and cooking gas continues to be
subsidized by the Government, which has impacted the
Government finances due to rising subsidies. There have been
discussions regarding removing diesel from the administered
price mechanism and imposing levy on passenger vehicles
running on diesel. The fuel prices or levies could adversely
impact the demand of automotive vehicles in India, particularly
passenger vehicles. Increases in fuel costs also pose a significant
challenge to automobile manufacturers worldwide, especially
in the commercial and premium vehicle segments where
increased fuel pr ices have an impact on demand. The
Company ’s product programs initiatives are aimed at
improving fuel efficiency of its products and development of
alternate fuel solutions.
Input Costs / Supplies:
Prices of commodity items used in
manufacturing automobiles, including steel, aluminium,
copper, zinc, rubber, platinum, palladium and rhodium have
become increasingly volatile over the past two years. While
the Company continues to pursue cost reduction initiatives,
an increase in price of input materials could severely impact
our profitability to the extent such increase cannot be absorbed
by the market through price increases and / or could have a
negative impact on the demand. In addition, because of intense
price competition and the considering level of fixed costs, the
Company may not be able to adequately address changes in
commodity prices even if they are foreseeable.
In addition, an increased price and supply risk could arise