COMMITTED TO OUTPERFORM THE SECTOR
Post recovery from the slowdown in the Indian domestic automotive market in FY 2019,
and subsequently the spread of COVID-19 in FY 2020 and FY 2021, our long-cherished dream
of having a state-of-the-art production facility was realised, and production has begun.
This was an epoch-making project for Enkei Wheels (India) Limited (EWIL). However, this is
the first step for our Company to catch up, and we will continue on our constant strive to
promote this trend in 2023, leading to a stable management and further development.
TO OUR SHAREHOLDERS
I would like to share with our shareholders the overall performance results and the
latest developments of Enkei Wheels (India) Limited (EWIL) for FY 2022 as detailed below.
We also express our gratitude to all of you, for your continued support.
PRODUCTION AND SALES OF AUTOMOBILES AND MOTORCYCLES IN 2022
According to data published by SIAM (Society of Indian Automobile Manufacturers), the
number of automobiles sold in India in the year 2022 (January to December) was recorded at
4.72 Million, surpassing Japan's 4.2 Million, and ranking third in the world after China
and the United States. While other countries' automobile markets were sluggish due to the
global
shortage of semiconductors, India's 4.72 Million units were up by 27.5% compared to the
same period last year, and the rapid recovery of the domestic market in India stood out.
This is believed to be in part due to the recovery in consumption after the COVID-19
infection spread subsided, and also in part due to the fact that India's best-selling cars
do not require a lot of semiconductors. In any case, India is expected to surpass China to
become the world's most populous country by 2023, and with the rate of passenger car
ownership per household still being low (approximately 8.5%), further market expansion is
expected, and therefore automakers are expanding their production capacity to achieve this
purpose. Meanwhile, also according to SIAM reports, the sale of motorcycles in India in
2022 was 15.6 Million units, up by 7.5% from the previous year. While the Indian market
for electric vehicles (EVs) is still small, the Indian Government is encouraging the wider
usage of EVs through subsidies and other policies, against the backdrop of serious air
pollution problems. Therefore, EVs are expected to be a potential growth market in the
future. In fact, the number of EVs registered in 2022 is estimated to exceed 1 Million, of
which 62.4% will be two-wheelers, and 33.6% three-wheelers, and 4.0% four-wheelers. It
should be noted at this time that two-wheeler EVs account for only 4% of the annual
motorcycle sales. Therefore, it is assumed that electric scooters will continue to
dominate the EV market for the time being, and the expansion of EVs among four-wheelers
will depend on the expansion of infrastructure, such as charging facilities.
ORDERS AND PRODUCTION STATUS IN FY 2022
The number of orders for EWIL in FY 2022 increased to 150.6% for 2W and to 104.1% for
4W, compared to the previous year. Among 2W, the number of orders received varied widely
throughout the year, from a minimum of 68,000 units per month to a maximum of 145,000
units per month, leading to adjustments required in the production lines and personnel
which was tedious. For 4W, production of the new MAC5 line started in May, but due to the
shortage of semiconductors on the customer side, we were unable to increase orders, and
the order level remained at approximately 75,000 units/month throughout the year. Before
the new MAC5 line's production started, the existing line was operating at 100% capacity,
and orders received were almost equal to production capacity. However, post the starting
of MAC5, there was a surplus. MAC5 has gradually improved its productivity since it
commenced operations, and has now improved to the point where it seems that the
achievement of 130% of the existing line and the target of 140% is within the range. In
terms of 3B (3 Basics of manufacturing) improvement, which is an important aspect along
with productivity, the fact that the ENKEI Group standard could not be achieved is one of
the biggest points for our reconsideration. (Reject ratio, pass-through ratio, reduce
work-in-process).
FY 2022 PROFITABILITY
In order to secure profits in FY 2022, even under circumstances where the orders were
inconsistent, we continued to strive towards continuous cost reductions. Triggered by
Ukraine-Russia geopolitical problems, the price of all purchased goods, not only raw
materials and energy, but also secondary materials and other purchased items price rose,
putting pressure on profits. Further, in terms of exchange rates, the dollar to indian
rupee has been depreciating, while the yen to the rupee has been appreciating in rupee's
favour. Energy costs, in particular, are one of the expenses that account for 7-10% of net
sales. However, compared to the beginning of FY 2022, the unit price of electricity, LPG,
and CBFS fluctuated up and down by 21.4%, 47.5%, and 59.0%, respectively, resulting in
being a major obstacle to fixed cost reduction activities. Additionally, noteworthy in FY
2022 is the significant increase in energy consumption and depreciation costs accompanied
with the commencement of MAC5 operations. As mentioned above, the domestic automotive and
two-wheeler market in India has emerged from the COVID-19 pandemic, and although it is
still affected by the shortage of semiconductors and the newly emerging geopolitical
issues, our profitability in FY 2022 has resulted in higher revenues and lower profits
when compared to FY 2021.
PROGRESS OF PRODUCTION CAPACITY EXPANSION PLAN
The 'Vision 2020' project to expand production capacity to an adjacent site, which was
originally targeted to start operation in 2020, had to undergo a major change of plan due
to delays in construction permits, among others. Hence, the project name was changed to
'Preparations For our Future (PFF)' and was restarted at the beginning of 2020, including
the conversion of the existing 4W line (MAP2/MAP3) to MAT. However, shortly thereafter,
the COVID-19 pandemic struck, and the entire project was again delayed significantly. The
project gradually resumed with the gradual end of the COVID-19 pandemic, and last year, in
May 2022, the long-awaited PFF 1st phase, MAC5, was completed, and production
began. The productivity of this production line has a maximum potential of 1.4 times of
the existing line, and has been steadily growing since the start of operations. The 2nd
phase of the PFF project consists of three projects that are scheduled for 2023. The
following three projects are underway simultaneously: (1) new paint shop; (2) the
conversion of MAP3 (existing line) to MAT; (3) machine shop (reprocessing of the line,
addition of the Helium leaks test/consolidation, and the installation of equipment and the
start-up of production are being promoted simultaneously). The 3rd phase of the
PFF project is to restart the MAT conversion of MAP2 (existing line, which has now been
removed) in 2024. With the completion of the 3rd phase, the currently planned
PFF project is expected to be completed. (Plan as of December 2022).
MEDIUM- TO LONG-TERM ORDER RECEIPT STRATEGY
As mentioned above, we are on track in our drive to expand our 4W capacity from 2022 to
2024. While it is clear that the Indian domestic market for automobiles and motorcycles
will continue to expand after 2023, it is undeniable that the speed of our production
capacity expansion will be seen objectively as slow, but we will steadily move forward
with our feet on the ground while ensuring profitability. Therefore, for the time being,
we will continue to accept orders in line with our production capacity. Moreover, it
cannot be said with certainty that the sudden turn of events experienced in the past four
years will not occur again. Therefore, while expanding our production capacity, our
Company will promote a flexible structure that can withstand unforeseen circumstances and
yet focus on building a solid foundation to support this structure. The key issues are the
development of human resources and the establishment of a system, and it is important to
have a management system that can maintain stable production after expanding production
capacity.
IN CONCLUSION
The ENKEI Group's action guideline for FY 2023 is to 'Commit to achieve your goals' and
EWIL has set the launch of the new painting plant, MAP3 MAT line, and machine shop as its
primary goals. Following the start of the new MAC5 production line last year, the Company
plans to undergo major changes and evolutions in 2023, and this is a very important
project that will affect the most recent orders. In addition, the activity policy for EWIL
2023 is 'Realise further improvement of productivity and stable operation'. While moving
forward on the project to increase production capacity, the Company will also focus on
improving the productivity of existing production lines and stabilising production to
strengthen the foundation as a manufacturing industry and establishing a system that can
generate stable profits by integrating the manufacturing and internal divisions. To this
end, each individual in-charge, and each department will set high goals and continue on
the strive to achieve them.
We also aim to become a company that can survive in perpetuity through a sound,
reliable, and stable management structure, a working environment based on 'safety',
'health', and 'environment', improvement of employee welfare benefits, and contributions
to the local community through CSR activities. We would like to express our deepest
gratitude to our stakeholders, shareholders, customers, suppliers, employees, unions and
EK Group companies for their understanding and cooperation, and sincerely hope that we can
continue to count on your continued support.
| Regards, |
| KAZUO SUZUKI |
| Managing Director |