A dynamic operating environment comes with risks and opportunities. We stay ahead of the curve to mitigate identified risks and leverage potential opportunities.
We have a comprehensive Risk Management System (hereinafter ‘RMS’) to ensure timely identification and evaluating of the risks, analysing the mitigation plan in existence to overcome the risks, and identifying potential areas of improvement to minimise adverse impact on the Company. Risks are inevitable, as we operate in a dynamic environment. However, by implementing RMS, we safeguard and protect its earnings and assets.
RMS is driven by your Board of Directors, ably supported by the Risk Management Committee (hereinafter ‘RMC’), constituted as per the provisions of the Companies Act. Details of RMS are set out in a risk management guideline, which is made available to the employees responsible for risk management and is binding on them. It contains a description of the process, the allocation of responsibilities and the structure of the risk assessment and reporting thereof.
Under RMC’s guidance, Risk Management Working Group (hereinafter ‘RMWG’) operates. It is an interface between various functions/divisions of Schaeffler India Limited and RMC of the Board of Directors. While on one hand it monitors, reviews, and guides productive implementation of risk management at Schaeffler India, on the other hand it provides valued feedback to the RMC.
Risk assessment is carried out in a hierarchical format, with bottom-up approach. The process owner of each risk area assesses the risk, valuates its impact on the Company’s earnings and assets, and assesses the risks and does valuation of impact with respect to the budget. Also, process owner describes the mitigation plan in existence to offset adverse impact thereof. If such mitigation plan is insufficient, future measures are identified for implementation. RMWG analyses the risk assessment so done and provides its inputs for further safeguarding the assets.
The value-added report is presented by RMWG to RMC for review. The RMC annually reports to the Board of Directors, which ensures they are continually updated on the current risk situation of the Company.
Risk assessment is done with a two-dimensional approach - the amount of damage each risk can have on an annual basis and its probability of occurrence. Based on the amount of damage, each risk is classified as very low, low, medium, and high. The probability of occurrence is assessed using percentages and is classified as improbable, possible, probable, and high probable. The combination of the estimated amount of damage and probability of occurrence determines the risk class, which can be low, medium, or high based on its impact on net assets, financial position, and earnings.
Each risk is valuated at two stages – before and after putting risk mitigation measures, referred to as gross and net valuation, respectively. Risks, based on net valuation, are assigned to various risk classes using the risk matrix.
Determined as low, medium, and high, based on the combination of estimated amount of damage and probability of occurrence, as considered for net valuation.
Risks are divided into strategic, operating, legal and financial risks and are described in decreasing order of the magnitude of their impact on the next assets, financial position and earnings of the company.
| Key risks | Mitigation measures | Risk class | Change |
|---|---|---|---|
Strategic risksCountry risksChanges in the social, political, legal, or economic stability within or outside the country could hamper the Company’s regular operations or planned future expansion. Changes in the political and regulatory environment of markets, in which the Company operates, could have an impact on its net assets, financial position, and earnings. During 2023, geopolitical situations, supply chain disruptions, inflationary pressure on food and energy prices had a dampening impact on general consumer sentiments and the global economy. In a connected world, India was impacted partially in terms of process and raw material cost risks. Further, local conditions within India with respect to uneven weather conditions, lower cash outlay for agriculture sector and adverse sentiments in rural market impacted sectors like Tractors. |
Strategic risksCountry risksThe socio-economic and political risks are mitigated with continuous observations of the developments in relevant business environment and taking appropriate actions in terms of changes in strategies to protect the interest of the Company. Several proactive countermeasures were identified and implemented in order to offset the adverse impacts as much as possible. |
Low |
|
Strategic market and technology risksTransformative marketplace changes have been forecasted such as reducing diesel penetration, stricter emission norms, potential electrification of vehicle powertrain and so on. Customers are increasingly looking for bundled offerings of products and services. The evolution of our business from component-driven to more systems-based could reduce the proportion of value added by us. The Government of India aims to increase the penetration of electric vehicles in the Indian automobile landscape. Accordingly, automobile manufacturers continue to emphasise and act towards this industry trend. To address the changing priorities of Automobile OEMs, our product offerings need to evolve to capture the industry requirements. |
Country risksWe are taking various measures to address these trends. We continue to focus on development of products compliance to latest emission norms. Our product offerings include systembased solutions which are value accretive to our customers. We are strategically enhancing our local production systems to be more modular and aiming towards ‘Factory for Tomorrow’. The Company is focusing on development of evolving technologies and innovative offerings in the e-mobility space. An E-mobility division is dedicated to work on solutions for electric motors and various control modules. It is helping us to penetrate in this growing segment and further expand our market position. |
Medium |
|
Operational risksMarket developmentsAs the Company is a supplier in the automotive and industrial sectors, demand for the Company’s products is, to a large extent, driven by macro-economic conditions and related cyclical fluctuation. Besides these, in the Automotive OEM division, demand is also affected by changes in consumption patterns, fuel/commodity prices, availability of key components, interest rate levels and so on. Cumulatively, these factors lead to significant volatility in automobile production. Sales in Industrial division is spread across diversified business fields and risk in one sector can be offset by opportunity in another sectors. A change in forecasted market trends could have an impact on the net assets, financial position, and the earnings of both Automotive and Industrial markets. |
Strategic risksCountry risksMarkets are analysed on an ongoing basis to detect changes in market structure or regulations early on. The Company effectively manages financial performance through cost efficiency, operational efficiency and price excellence programmes. |
Low |
|
Delivery performanceThe ability to deliver consistent performance in terms of quality and timely deliveries is a key competitive factor for a long-term relationship of trust with customers; this competitive factor is being constantly enhanced by systematic improvements in production and delivery logistics. Several factors impact delivery performance which may lead to sales volume loss and thereby increase in premium freight and other logistics costs. |
Country risksThe Company has built high-performance distribution centres aimed at improving market supply and delivery performance with strategic logistics locations. Component-sourcing options and capacity of critical production lines are being enhanced. Also, accuracy of forecasting market demands, alternate sourcing, localisation are some measures that ensure timely delivery performance. |
Medium |
|
Procurement risksProcurement risks arise mainly due to raw materials price fluctuations, especially prices of energy and steel, ability of suppliers to deliver quality products in time. Adverse fluctuations in market prices and/or supplier’s financial distress could have an impact on the Company’s financial position and earnings. There is constant threat emanating from global supply chain disruptions and import restrictions due to EXIM policy amendments. |
Country risksThe Company ensures optimal supply of goods and services, focusing on quality, cost, and delivery performance. Multiple product sourcing and localisation options are continuously explored. By negotiating prices and utilising economic synergies, the Company is largely able to obtain competitive prices. The Company keeps a close watch on the operations of its suppliers, by deploying dedicated personnel performing quality checks, for early signs of distress and be able to intervene to secure its interests. Forward buying option is undertaken in selected cases. |
Low |
|
Information Technology (IT) risksThe importance of the IT systems utilised across various functions in the Company is growing. The operability of business processes and, therefore, the continuity of operations depend on the availability of IT systems. Three protection targets – confidentiality, integrity, and availability – steer the Company’s IT security management and protection of data and IT systems. Unauthorised access to IT systems, modification and misappropriation of sensitive business data could have an impact on the Company’s net assets, financial position, and earnings. |
Country risksThe Company has highest standards of IT security systems and constantly upgrades the IT security infrastructure. It educates and trains its employees about IT security and what precautions the users should take, to ensure that the IT infrastructure, business data are adequately protected against any possible IT risks. Building redundancy in the IT systems (data back up in virtual server and fire and water proof cabinet) and the network infrastructure (secondary network lines) to mitigate the unavailability of data and processes. |
Low |
|
Information or cyber security risksThe prevalent threat of cyber attacks remains an area of concern for most organisations in an increasingly digital space. Cyber security risk is an important and continuous focus for the Company. The Company devotes significant attention and resources to protect and improve the security of its computer systems, software, networks and other technology assets. Nonetheless, cyber attacks/breaches pose a significant threat to the protection of our intellectual property, and that of our business partners, from theft, loss, unauthorised disclosure, and illegal access or misuse. Given the increase in both the frequency and sophistication of such attacks, the possibility of cyber attacks/breaches cannot be entirely ruled out and could have an impact on the Company’s net assets, financial position, and earnings. |
Country risksCyber security initiatives have been implemented to mitigate potential incremental security threats from possible security risk exposures. The company has reinforced and scaled up the internal environment to ensure the network is secured and healthy. Procedures and other IT security specifications supplement the information security regulations of the company. Several technical measures have been established for any illegal intrusions and to mitigate the risk of cyber-attacks and secure data thefts which also includes monitoring the networks for cyber threats through Security Operations Centre (SOC) to detect and respond to Cyber Security events We will continuously fortify our cyber security defences and place responsible guidelines along with security controls to strengthen our security roadmap in managing risks in data, IT systems and cyber security across the Group businesses. |
Low |
|
Production riskAs the Company’s manufacturing facility is capital-intensive, a large proportion of its costs are fixed. As a result, a decrease in the utilisation of plant capacity leads to under-absorption of costs and thereby impacts its earnings adversely. Moreover, the influence of force majeure could result in delays or interruptions of production and supply chain, leading to nonfulfilment of market demand. The period between failure at the plant and arrangement from an alternative source could impact the Company’s net assets, financial position, and earnings. |
Country risksThe Company regularly reviews market conditions and aligns its production plan accordingly, where necessary alternative source can be realised from another plant within the Schaeffler Group. To minimise the probability of occurrence of unplanned interruptions, the Company takes extensive fire prevention measures. Several cost containment measures were identified and implemented in material and process cost to overcome. |
Medium |
|
Loss of market shareThe Company faces competition in all business fields it operates in. As a result, the Company is exposed to dual risk of either being displaced by existing or new competitors or its products being replaced by product innovations or by new technological features. Customer dissatisfaction on price, quality, delivery performance and design could lead to a loss of market share. |
Country risksThe Company ensures close cooperation with its key customers on product development. It has implemented strict product quality controls to reduce the likelihood of substitution. The Company is also developing products which will help it to step up the value chain from components to systems. Unutilised capacity of products can be utilised by exploring additional opportunities. The Company is focusing on increasing its local footprint to comply with local content requirements under the Government of India’s ‘Make in India’. |
Medium |
|
Warranty and liability risksOne of the significant factors in customer decision to purchase the products offered by Schaeffler India is quality. We employ a certified quality management system besides continuously striving to improve our quality processes. However, there is a risk that poor quality products may get delivered. Usage of defective parts can lead to damages, unplanned repairs or recall on the part of customer which can result in liability claim or reputational damage. Furthermore, this may result in an increase in warranty and liability risk. |
Country risksThe Company responds to such risks by adopting strict quality control measures and continually improving its production processes to minimise the probability of warranty and liability risks materialising. Adherence to quality standards is strictly implemented. All product and recall liability risks are insured. |
Low |
|
Product piracyOur product brands - INA, LuK, and FAG are associated with best-in-class standards of quality, durability, and reliability, making them increasingly susceptible to product piracy. |
Country risksWe protect our intellectual property. We continue to engrave special markings on our products, making it difficult to counterfeit. Secondly, our Company follows a strict vigilance process to ensure the timely detection of counterfeiting instances and the initiation of legal actions against the guilty. This is done in association with law enforcement agencies. Moreover, a digital anti-counterfeit app is upgraded regularly to support these initiatives. We evaluate other technology-driven initiatives on an ongoing basis to overcome this risk. We also conduct awareness and engagement activities with our distributors. |
Low |
|
Legal risksYour Company’s operations give rise to legal risks, for instance those resulting from non-compliance with relevant regulations. Legal risks are reflected in provisions recognised in accordance with financial reporting standards. |
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ComplianceAs a Company which operations at different locations, it must comply with laws and regulations across the country. It is possible that violations of any existing law occur, despite careful observance of such legal requirements. |
Country risksThe Company has in place a comprehensive Compliance Management System, wherein laws and regulations applicable to the Company are mapped. Each compliance requirement is mapped to relevant process owner. The system sends alerts and reminders to each such process owner to enable him to comply with the requirements in a timely manner. Your Company’s management regularly reviews a comprehensive compliance report. The system is also updated regularly to capture regulatory changes and amendments. |
Low |
|
Financial risksThe key financial risks of the Company are listed below. |
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Tax risksYour Company is subject to tax audits. Tax authority’s interpretation of the tax law or of relevant facts made in current or future tax audits may differ from that of the Company. This may lead to adjustments to tax base and increase in the tax liabilities. An additional tax payment because of an adjustment to the tax base may impact on the Company’s financial position. |
Country risksThe Company extensively evaluates Corporate Tax and International Tax laws, both internally and with external tax experts, before implementing in the Company. The implementation strategy is well documented, reviewed periodically and amended as necessary. |
Low |
|
Pension risksYour Company has pension obligations towards its employees. Such obligations are measured using actuarial valuation based on assumptions with respect to the discount rate, increases in personnel payments and statistical life expectancy. Planned assets are invested with external agencies, which are subject to fluctuations in value. A change in these parameters could have an impact on the Company’s net assets. |
Country risksThe Company uses government bond rate as discount rate and invests in pension fund with a Government of India enterprise (LIC). Quarterly actuarial valuation is carried out, adequate provisions are established in books of accounts and annually funds are appropriately transferred to LIC. |
Low |
|
Currency risksThe Company is exposed to currency risks due to its cross-border transactions. The largest currency risks from operations result from fluctuations in the USD and Euro exchange rates. |
Country risksYour Company has INR as the inter-company invoicing currency with German entities. This leads to substantial reduction in its foreign exchange exposure and nullifies currency volatility impact. Additionally, the Company has a structured hedging strategy to counter currency risks. The strategy is followed consistently and reviewed periodically. The company monitors overall FX development closely and revisit its FX strategy on periodic basis. |
Low |
|
Liquidity risksThe risk that your Company will not be able to meet its payment obligations as they come due is referred to as liquidity risk. Such risks can arise if financing needs cannot be met by existing funding arrangements including surplus cash balance. Even though your Company is cash surplus and does not expect any liquidity risks, it has put efficient liquidity management measures to mitigate associated risks. |
Country risksIt has undertaken multiple measures to mitigate risks associated to liquidity management. The Company monitors liquidity risks using a rolling liquidity plan with a forecast period of twelve months. Short term cash flows are monitored regularly, involving key stakeholders. The working capital controls are adequately in place via appropriate actions including benchmarking and reviews. Company has a well established credit control mechanism to ensure timely collections and no loss of receivables. The credit insurance is undertaken in order to minimise the credit risk and thereby manage the overall liquidity risk in a better way. |
Low |
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