Statutory Reports
Corporate Overview
69th Annual Report 2013-14
92
Financial Statements
points to control inflation. Interest rates remained firm thus making
it difficult to purchase consumer durable items on finance. High
costs of borrowing and elevated consumer price inflation adversely
affected household consumer sentiment and spending. On the
other hand, slowdown in GDP growth has been due to decline
in both consumption and investment growth. Investments were
stalled because of high interest rates, poor demand conditions,
and regulatory issues. While mining output declined on a year-
on-year basis owing to policy, clearance and legal obstructions,
the decline in capital goods production was due to a downturn in
the investment cycle. Consumer durables sector performance was
affected adversely by low income growth, elevated interest rates,
and subdued consumer sentiment. From 4.8% of GDP in FY 2012-
13, current account deficit during the first three quarters of FY 2013-
14 (April-December) remained around 2.3% of GDP. This has led to
hardening of rupee and fuel prices remained firm. The automotive
industry in general is cyclical and economic slowdowns in the past
have affected the manufacturing sector including the automotive
and related industries.
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 in recent years. Further price movements
would closely depend on the evolving economic scenarios across
the globe. While the Company continues to pursue cost reduction
initiatives, an increase in price of input materials could severely
impact the Company’s 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 high level of fixed costs,
the Company may not be able to adequately address changes
in commodity prices even if they are foreseeable. Increases
in fuel costs also pose a significant challenge to automobile
manufacturers worldwide including the Company, especially in
the commercial and premium vehicle segments where increased
fuel prices have an impact on demand.
Restrictive covenants in financing agreements:
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. However there can be no assurance that the Company
will be able to obtain such consents in the future. 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 the Company’s results of operations
and financial condition.
In the event that the Company breach these covenants, the
outstanding amounts under such financing agreements could
become due and payable immediately and/or resulting in increased
costs. 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 financing agreements could have a material adverse effect
on the Company’s results of operations and financial condition.
Environmental Regulations:
The automotive industry is subject
to extensive Governmental regulations regarding vehicle emission
levels, noise, safety and levels of pollutants generated by the
production facilities. These regulations are likely to become more
stringent and compliance costs may significantly impact the
future results of operations. In particular, the US and Europe have
stringent regulations relating to vehicular emissions. The proposed
tightening of vehicle emissions regulations by the European Union
will require significant costs for compliance. While the Company
is pursuing various technologies in order to meet the required
standards in the various countries in which the Company sell its
vehicles, the costs for compliance with these required standards
can be significant to the operations and may adversely impact the
results of operations.
To comply with current and future environmental norms, the
Company may have to incur additional capital expenditure
and R&D expenditure to upgrade products and manufacturing
facilities, which would have an impact on the Company’s cost of
production and the results of operations and may be difficult to
pass through to its customers. If the Company is unable to develop
commercially viable technologies within the time frames set by the
new standards, the Company could face significant civil penalties
