We are optimistic of riding through the prevailing sectorial slowdown and emerging
stronger
Overview
The big message that I wish to communicate to stakeholders is that during the
challenging financial year of FY2023-24, your Company continued to address prevailing
ground realities without diluting its perspective of the future. Even as the management
engaged with the challenges of the day, it continued to build the business for tomorrow.
By balancing the needs of the day and future, the Company contributed to deepen its
business sustainability.
The year under review presented different realities than what had been anticipated.
There was a demand weakness in certain global pockets, marked by trade partners selecting
to destock their inventories. The result was that whatever demand emerged was addressed by
trade partners from what had been sold by us to them in the past. Since new sales by the
Company to its trade partners in large consuming markers trended lower, there was a 16.6%
revenue from operations decline during the reported financial year. On the positive side,
the financial core of our business remained attractive: 19.53% RoCE in FY2023-24, 160.19%
operating cash flow of PAT; 18.3% EBITDA margin and a continued net debt-free (cash
surplus) status by the close of the year.
On the business side, Uniparts continued to service ten leading agricultural equipment
brands in the world and also five of ten leading construction equipment companies in the
world (ex-China). Uniparts continued to service the largest US aftermarket retail store
chain while also onboarding the second largest retail stores group as a customer. We must
assure our stakeholders that the management continues to be optimistic of long-term
prospects with the possibility of short-term aberrations. The Company's business model
continues to be as relevant as ever, in fact more relevant with every passing day. The
complement of our off-highway products, overall portfolio and marquee customers validate
the robustness of our global business. At the core of our products portfolio is a reality:
people will need to eat and people will need to construct. At a time when the availability
of fallow arable land has declined and global population has increased, there is a
priority to generate more from given land tracts. Besides, this reality is complemented by
the fact that farm labour availability appears to have peaked, climate change is making
farming increasingly vulnerable and rising disposable incomes is generating an increased
demand for food products. Besides, as the world passes through an increase in disposable
incomes, there is a growing priority to build homes, office and supporting infrastructure.
These overarching realities have only deepened the rationale for a company like ours to
focus further on its core while adding adjacent areas. There is a growing conviction that
the Uniparts business model addresses a reality fundamental to addressing the outlined
challenges related to food security through responsible farm mechanisation. Besides, the
Company provides components for equipment that catalyse construction. These priorities are
reflected in our central commitment to ‘Building the world, Feeding its people'.
At the heart of the food security and infrastructure build-out lies the existence of
Off-Highway Vehicles (OHV) industry. This segment of the engineering sector has
encountered a favourable multi-year traction. As a result, even as the demand for OHVs has
been marked by demand shifts, the shifts have been abbreviated on the lower side and
extended on the higher side. This indicates that the long-term trend of OHVs has been
positive and growing.
The demand for OHVs was soft during the year under review. The demand for OHVs in
FY2023-24 must be seen within the context of the high demand growth of 2021 and 2022.
Following a sharp percentage growth in those years, OHV demand was relatively moderate
during the year under review, partly on account of trade partners selecting to work with
lower inventories.
At Uniparts, we responded to this reality through business-strengthening initiatives
that enhanced our preparedness (across facilities and resources) for when demand revives.
We are optimistic that the core rationale of the business remains intact and once the
trade pipeline is exhausted and demand persists, there would be a revival in our OHV
prospects, marked by fresh buying and re-stocking. The business-strengthening initiatives
of the last financial year remained aligned with the Company's medium-term business plan
that should translate into sustainable growth.
Competitive advantage
At Uniparts, we have created a competitive advantage that makes it possible to remain
resilient during industry troughs and rise higher during crests.
Our principal advantage is that we have progressively deepened our focus in the Off
Highway Vehicles (OHV) segment; this has strengthened our recall as a dedicated industry
solution provider and turn-to for requirements. Over the years, we strengthened our
competitive advantage through progressive capacity investments, retaining our global
market position for specialised components like 3-Point linkage (3PL) and Precision
Machined Parts (PMP).
The Company grew its engagements with most leading global OEMs in the OHV space. The
result is that this translated into a deeper trust that helped our Company carve out a
larger share of the customer's spending and taking their business ahead.
The Company has progressively reinvested with the objective of enhancing holistic
competitiveness, widening our relevance across geographies through our global delivery
model and dual-shoring strategy, neutralising what was once perceived as a long-distance
supply chain challenge.
The Company commissioned front-end global warehouses (two in USA and one in Germany)
with the objective to provide products on demand, eliminating the risk associated with
long-schedule deliveries and sending out a message that ‘If it is Uniparts, it will
deliver on schedule'.
The result is that Uniparts is perceived to be a globally trusted partner, deepening
our relevance across markets, products, sectors and time.
The ability to expand offerings to the same set of customers and service multi-location
customers at more locations and across more business verticals is becoming increasingly
important.
Building the business
At Uniparts, we recognise the need for sustainable growth.
Over the years, we stayed close to our knitting by deepening our presence by growing
our manufacturing capacity on the one hand and widening the range of products offeredon
the other. We recognise that we possess several engineering competencies that go into the
manufacture of our existing products that can be leveraged for the manufacture of new
products that address more customers within our sector or account for a larger share of
business of existing customers.
Even as we continue to remain focused on the Off Highway Vehicle segment, we
continuously evaluate options for extending into adjacent spaces where we can leverage our
existing capabilities. Over the years, we created product verticals like Hydraulics, Power
Take Off (PTO), Fabrications as well as 3PL for Utility Terrain Vehicles (UTVs); the
Company will continue to seek more extensions going ahead. At Uniparts, we consistently
enhanced our manufacturing capacity in a modular manner based on emerging market
requirements. This approach helped the Company eliminate mismatches between market demand
and capacity creation, protecting or enhancing our capital efficiency. By apportioning
capital expenditure across the years, the Company has been able to moderate what would
have been a sizable one-time capital expenditure and spread this across the years,
strengthening cash flows and enhancing financial discipline. We will continue to seek
opportunities by which we can increase our manufacturing capacity in line with evolving
market trends (organically and inorganically wherever possible), strengthening our
holistic competitiveness.
At Uniparts, we will deepen our culture around the core values of Passion, Innovation,
Integrity, Excellence and Teamwork. These values – a value system over a vision
system - are all about what we want to be remembered for and remembered as. These values
are about meritocracy, free exchange of perspectives, regard for people, engagement with
stakeholders, respect for the planet and enhanced community prosperity.
We expect that this complement of values will continue to provide an inspiring
workplace that deepens motivation, innovation and productivity, enhance our respect as a
responsible corporate citizen, strengthen our order book and enhance engagement cum
revenue visibility.
Optimism
At Uniparts, we remain optimistic of prospects the relative weakness in market
conditions notwithstanding. This optimism is derived from the robustness of our
long-validated business model, our preparedness for an impending recovery and the vastness
of the addressable market. The size of Uniparts' core market is more than USD 1 billion
while adjacent market spaces provide us with an opportunity ten times larger. The size of
these markets empower our Company to not only remain invested but to deepen our presence
with increasing investments. This market growth is being catalysed by the enduring twin
themes of increased global infrastructure spending and enhanced food security priority.
Uniparts is an adequately dispersed global player; we are not dependent for revenues on
a single geography; over the years, we have moderated our geographic concentration risk
and continue to work further on the same.
Uniparts enjoys growing multi-year relationships with the world's leading OEMs and
large organised after-market retail store chains. The quality of these engagements has
enhanced the revenue visibility for the Company, enhancing sustainability. We are working
closely with these customers, customising products and partnering to empower them to win
in their markets. This is inspiring our customers to believe that we represent an
extension of their enterprise.
Uniparts enjoys an attractive foundation; we enjoy a leading presence in the core
product verticals of 3-Point linkage and Precision Machined Parts. With several
international buyers seeing an alternative in their supply chain away from China, we have
found increased traction for our services among existing as well as new customers.
Outlook
At Uniparts, we recognise that the prevailing environment is marked by challenges
related to geopolitical instability, economic slowdown in global pockets that could affect
the growth of the infrastructure and agriculture sectors and potentially unfavourable
tariff regimes. We expect to counter these realities and possibilities through the
sustained diversification of our products, customers, geographies and near-shoring. In
doing so, we seek to broadbase our organisation across diverse business variables,
moderating the impact that a probable downside in any one or few products could have on
our Company.
The result is that we will seek to sustain a market leading presence in the businesses
of our pursuit; we will deepen our presence in adjacent business spaces (UTV 3PL,
Hydraulics, PTO and Fabrications) that widen our addressable market from USD 1 billion+ to
USD 10 billion+; we will widen our focus on 70 horsepower-plus tractors; we intend to
market our products in more countries; we will seek larger wallet share and we are
attractively placed to grow through organic and inorganic initiatives.
Most importantly, we expect the ferment of our initiatives and aspirations to translate
into enhanced stakeholder value and the Company graduating to the next orbit.
Gurdeep Soni
Chairman and Managing Director
We will seek to sustain a market leading presence in the businesses of our pursuit
THE VICE CHAIRMAN'S ANNUAL OPERATING REVIEW
Our continued focus will deepen resilience and empower us to enhance our business
relevance.
Overview
During the last few decades of our existence, we broad based our business model with
the objective to enhance durability and growth. This positioning was validated during weak
market demand in certain parts of our business during the last financial year.
The Company's business continued to generate healthy cashflows, strengthening the
Balance Sheet. The Company's strategic broadbasing (explained in last year's Annual
Report) was validated during the reported year. Certain construction markets like North
America and Europe remained resilient; small agricultural equipment demand in North
America and India were adversely affected. Large agriculture equipment market remained
broadly stable.
At Uniparts, we are convinced that the Company's consistent broadbasing and
diversification continued to be relevant; had it not been for this broadbasing, the
Company's performance would have been more challenged during the last financial year. The
Company is now even more resolute in its conviction that this long-term broadbasing is
effective and needs to be consistently reinforced in the pursuit of long-term
sustainability. The Company will continue to leverage its integrated precision engineering
capabilities and validated global operating model to address a wider opportunity canvas.
The Company expects to leverage healthy cashflows and robust Balance Sheet to sustain
investments, business-strengthening acquisitions or alliances.
The Company has been deepening cost optimisation and process efficiencies,
strengthening overall competitiveness.
The Company continues to augment digital capabilities (digital and analytical planning
tools), enhancing organisational agility, competitiveness and data-based decision making.
The Company remained committed to make a holistic difference, manifested (among other
things) in community and environment interventions around our manufacturing facilities. As
an extension, we equipped our Visakhapatnam facility with a rooftop solar plant and our
Noida facilities are in the process of engaging open-access solar energy. The Company
reported revenue from operations of H11,395.35 million, profit after tax of H1,246.88
million and cash flow from operations of H1,997.33 million during the year under review.
This indicates that the Company performed creditably in the face of sectorial challenges.
During the reported year, revenue from operations moderated 16.58%, EBIDTA declined 32.73%
and profit after tax degrew 39.14%. The Company remained net debt-free and net
cash-positive.
The Company leveraged its integrated precision engineering competence and global
business model. This helped the Company deepen its resilience in core and adjacent
business segments. The Company expanded its North American customer base by marking the
first year of working with the second largest retail store group for farm equipment and
accessories in North America, which is expected to help the Company reach wider and deeper
across the organised North American retail segment.
The Company will invest deeper and leverage integrated precision engineering coupled
with its global model to sustain business growth. The Company will design and manufacture
systems of higher value, widening its portfolio. We believe that this complement will
deepen resilience and empower the Company to enhance business relevance leading to
enhanced stakeholder value.
Paramjit Singh Soni
Vice Chairman and Executive Director