cosmo ferrites ltd Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Industry Structure & Developments:

The Company is in the business of manufacturing soft ferrites cores. Major applications of ferrites are inverter transformers, Energy Meter, Mobile Charger, SMPS, pulse transformers, line filters, choke, noise suppressors etc. The industry is witnessing a decent growth rate and it is expected to grow at a similar rate in the near future as well, in both Domestic and Exports industry. The rapid urbanization and increase in usage of products using soft ferrites has given a big fillip to the soft ferrites industry in the recent years.

Opportunities & Threats:

The continuous shift of manufacturing facilities from high- cost locations like US & European countries to low-cost countries like India & China has provided a lucrative opportunity to the manufacturers in these countries. The company is taking steps to utilize its full potential by increasing its market share in the domestic market. However, unlike hard ferrite, soft ferrite is more complicated both in terms of manufacturing process and characteristic requirements. Further the continuous technological advancements pose a threat to the companies unable to cope with these changes

Details of Significant Changes in the Key Financial Ratios & Return on Net Worth:

As per the amendment made under Schedule V to the Listing Regulations read with Regulation 34(3) of the Listing Regulations, details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios and any changes in Return on Net Worth of the Company therefore are given below:

S. No.	RATIO	FY 2022-23	FY 2021-22	%CHANGE	Explanation
1.	Debt Equity Ratio (in times)	2.27	1.60	42.33	Increased due to new loans procured for capex
2.	Net Profit Ratio (in %)	2.25	12.50	(81.98)%	Due to reduction in profit margin.
3.	Return on Net Worth Ratio (in %)	7.78	62.61	(87.57) %	Due to reduction in profit margin.
4.	Operating Profit Margin Ratio (in times)	11.69	23.30	(49.83)%	Due to reduction in profit margin.
5.	Interest Coverage Ratio (in times)	1.57	7.50	(79.07)%	Due to reduction in profit margin.
6.	Debtor Turnover Ratio (in times)	6.36	8.82	(27.86)%	Due to increase in trade receivables

There is no significant changes (i.e. 25% or more) in other key financial ratios viz. Current Ratio and Inventory turnover Ratio.

Discussion on financial performance

The revenue from operation is Rs. 10731 Lacs against Rs. 11384 Lacs in the previous year. The Earnings before interest, tax, depreciation and amortization (EBITDA) is Rs. 1255 Lacs against Rs. 2949 Lacs in the last year. The reporting year margins witnessed pressure owing to the fierce competition in the Indian market with the low-priced imports from China. The margins have also been affected due to lower exports sales, generally having higher margins, particularly from the Europe region due to inventory corrections, geopolitical turmoil and fears of recessions in Europe. The Company is taking necessary steps to deal with the low-priced imports from China and also working on the recovery of some normalization of order flow from Europe. The company is working on several medium-term growth prospects, particularly in the automotive sector and expect customer approvals in FY 23-24 which should lead to margin expansion.

New developments

The company has installed Solar power plant of 608 KW in the last quarter of FY 22-23.

TOP HAT kiln has been commissioned for specialty cores during last quarter of FY 22-23 which should add to revenue / profitability in the coming years.

During the year, the company has raised its production capacity from 2400 MT to 3600 MT.

Segment Wise or Product Wise Performance

The Company deals in only one product i.e., Soft Ferrites Core.

Outlook

The outlook for the industry and the company looks bright and new markets in the global arena are being developed by the Company. The Company is also focusing on cost cutting and increased productivity to enhance its competitiveness.

Risks & Concerns

The management cautions readers that the risks outlined below are not exhaustive and are for information purposes only. Investors are requested to exercise their own judgment in assessing various risks associated with the company.

The Competition Risk

Ferrites industry is capital intensive industry. In a free market environment, new capacities are created depending upon demand supply situation and return on investment. At times there is over supply situation in the Indian ferrite market particularly when there is an influx of cheap imports into India leading to decline in operating margins. We are mitigating the above risk by taking the necessary steps to improve the sales and margins in the domestic market and also increasing our exports presence, developing niche products, exploring new markets and new customers.

Customer Attrition Risk

All customers are sensitive to quality, delivery and price.

The above risk is mitigated by developing value added niche products, customer schedule adherence and improved quality standards. This enables us to built long term relationship with various customers by providing them good value proposition.

Raw Material Price Risk

Raw material price have a significant impact on operating margins since scope for increase in selling prices has reduced.

Since, raw materials prices are increasing continuously, especially Ferric Oxide, the company is in the process of taking out lower realization products and customers, increasing sales realization and exploring new markets where realizations are high.

People Risk Management

High Quality human resources are vital to the success of our business. People are valuable assets of the company.

The company has been working towards providing challenging high growth environment for its employees. The company follows good HR practices, which include various schemes for employee welfare and motivation.

The company has strong appraisal system. It has successfully worked its compensation policy to team and individual performances. The company provides good opportunity to deserving candidates. The company believes in growth of its managers to leaders and has structured training programs to that effect.

With excellent performance track record as well as best HR practices we are able to attract and retain people for growth of our business.

Security Risk Management

Operations could be disrupted due to natural, political and economic disturbances.

Running a business exposes the company to a number of risks.

The company has taken adequate insurance cover on its insurable interests. These include:

1. Fire Risk

2. Marine risk

3. Burglary risk

4. Group Personal Accident Policy

5. Other Miscellaneous Policies.

The company has also taken steps to strengthen IT security system as well as physical security system at all our locations.

Foreign Exchange Risk

The Company is exposed to foreign exchange risk mainly due to imported raw materials and finished products.

Since we are a net foreign exchange earner on an overall basis it may be stated that there is an exposure to the risk of Indian rupee appreciating against other foreign currencies.

Operational & Financial performance

The details of the financial performance are appearing in the financial statements appearing separately. The highlights of the same are also mentioned in the Directors Report.

Internal Control Systems & their adequacy

The Statutory Auditors assess the adequacy of internal control every quarter and report to the Board of Directors accordingly. The Company has adequate internal control procedures commensurate with size of the company and nature of its business.

Human Resources /Industrial Relations front

Human resource is considered as vital strength of the company. There was unity of purpose among all level of employees i.e. to continuously strive for the improvement in work practices & productivity.

Social

As a leader in ferrite industry, Cosmo Ferrites acts as a socially responsible corporate citizen. We are not just committed to providing a conducive environment to all our stakeholders, we also believe in advocating for positive change in our world.

Cautionary statement

Certain statements in the Management Discussion & Analysis describing the companys views about the industrys expectations/ predictions objectives etc. may be forward looking within the applicable laws and regulations. Actual results may differ materially from those expressed in the statements. Companys operations may be affected with the demand and supply situations, input prices and their availability, changes in Government regulations, tax laws and other factors such as industrial relations and economic developments etc. Investors should bear the above, in mind.