elin electronics ltd Management discussions

GLOBAL ECONOMY

The global economy is rebounding well since early 2022, led by countries like the United States, China, and India. Nations have learned from the Covid-19 pandemic and are preparing for future black swan events. A powerful post-recession recovery is underway, driven by increased demand and improved supply.

In 2023, the global economy encountered challenges like the Russia-Ukraine conflict, resurgence of the Covid-19 pandemic, and commodity price fluctuations.

International Monetary Fund (IMF) reports a dip from 3.4% (2022) to 2.8% (2023), but expects 3.0% growth in 2024, indicating a positive trajectory. Advanced economies slow down to 1.3% (2023) and 1.4% (2024) due to geoeconomic fragmentation, while emerging markets project stronger growth at 3.9% (2023) and 4.2% (2024). Tightened monetary policies are likely to cool commodity prices and demand.

Recovery signs are likely to emerge through easing inflation and accommodative banking, hinting at a brighter 2023 path with a focus on emerging markets resilience and supply chain resolution. Despite surpassing 2022 growth expectations, aggressive policy tightening, geopolitical uncertainties, and declining business sentiment dampen global growth outlook. Policy responses prioritising stability, inclusivity, and sustainability are crucial in shaping the future trajectory of the global economy.

(Source: https://www.imf.org/en/Publications/WEO/ Issues/2023/04/11/world-economic-outlook-april-2023)

INDIAN ECONOMY

Indias economy has demonstrated remarkable resilience, positioning itself as a key driver of global economic progress. This robust economic growth is underpinned by a confluence of factors. Notably, an upsurge in domestic consumption, increased capital expenditure, and foreign investments contribute significantly this expansion. Favourable Government policies and a thriving manufacturing sector are likely to further propel the nations economic prosperity. Indias commitment to innovation is evident through key initiatives like PM Gati Shakti, the National Logistics Policy, and Production Linked Incentive (PLI) Scheme. As of March 2023, Indias GDP stood at approximately USD 3.75 Trillion as a result of which the country secured its place among the top five fastest-growing economies in 2022, surpassing the UK.

Based on the RBIs projections, Indias GDP is expected to grow at the rate of 7.2% in 2023 and 6.5% in 2024. The Union Budget 2023-24 outlines the vision of ‘Amrit Kaal, aiming for an inclusive economy with increased capital expenditure. However, challenges like slower consumption growth, external conditions, rising borrowing costs, and stagnant income may hinder private consumption and overall economic development. Prudent policies and strategies are essential to address these impediments effectively.

(Source: https://www.forbesindia.com/article/explainers/ gdp-india/85337/1)

GLOBAL ELECTRONICS INDUSTRY

Over the past six decades, the global electronics industry has undergone significant expansion has been primarily fuelled by emerging technologies, generating a robust demand worldwide. It encompasses a wide range of sectors, including electronics products, design, components, and manufacturing services. Historically, the electronics market has shown substantial growth.

Furthermore, according to Frost & Sullivans analysis, the industry is projected to exhibit a compound annual growth rate (CAGR) of 5.2%, reaching USD 2,955 Billion by 2025. This growth is being propelled by several key factors, such as increasing disposable income, a higher acceptance of audio and video broadcasting, wider internet penetration, the younger generations fascination with next-gen technologies, and the emergence of e-commerce, among others.

5.2%

CAGR

USD 2,955 Billion by 2025 Global Electronics Industry

GLOBAL ELECTRONICS MANUFACTURING SERVICES (EMS) INDUSTRY

By 2030, Global EMS market is forecasted to reach to USD 790 Billion. This growth is at a steady CAGR of 6% throughout the forecast period from 2022 to 2030. The EMS industry in India has positioned itself as a frontrunner in driving technological advancements, showcasing a remarkable ability to conceive innovative ideas and effectively implement them into the products.

The EMS industrys demand surged from medical device and sustainable equipment advancements, indicating its commitment to meeting market needs and driving technology progress. Future growth hinges on the rising demand for smart solutions. Further, to cater to the growing demand and boost revenue, brands and EMS manufacturers are providing premium and mid-range appliances progressively.

6% (2022-2030) CAGR

USD 790 Billion

2030 Projection

EMS: Products under industry application

Mobile Phones: Smart Phones and Feature Phones IT: Computer, Laptops, Tablets, Printers, etc. Telecom: BTS, GPON, Modems, Routers, Servers, etc. Industrial: Energy meters, HMS, PLC, SCADA, Inverter, etc.

Consumer Electronics: LED TVs, Air Conditioning, Washing Machine, etc.

Consumer Appliances: Small Appliances (Fans, Water Heater, etc.) and Kitchen Appliances (Mixer-Grinder, Hand-Blender, etc.) Automotive: ABS, AMT, Body Control Modules, Engine Control Unit, etc.

Medical: All-related Medical Electronic Equipment Lighting: LED and LCU

Others: Aerospace and Defence, Data centre and Cloud Storage, Energy, etc.

(Source: https://www.sphericalinsights.com/reports/ electronic-manufacturing-services-ems-market)

INDIAN ELECTRONICS INDUSTRY

The Indian electronics industry is experiencing rapid growth, making it one of the fastest-growing sectors. This market is projected to expand at an impressive CAGR of 25.5%, reaching 20,873 Billion (USD 282 Billion) by

2025-26.

The domestic electronics production is expected to reach 96% by 2025-26. Multinationals shift focus to India due to cost advantages and strategic Government initiatives, enhancing global competitiveness. India gains recognition not only as a low-cost alternative for electronics production but also as a preferred destination for high-quality design work. The push and strong consumer base solidify India as a fast-growing electronics market. Further, the electronics consumption market is expected to exhibit substantial growth, reaching 13,769 Billion

(USD 186 Billion) by 2025-26.

INDIAN EMS INDUSTRY

Indias EMS market is projected to grow to USD 135 Billion by 2025-26, at a CAGR of 30.3%. In the EMS market, original equipment manufacturing (OEM) holds an 80% share, while original design manufacturing (ODM) accounts for 20%. Limited product differentiation exists as OEMs provide reference designs to EMS providers. To adapt, EMS companies are embracing ODM models, offering turnkey solutions from design to reverse logistics. They diversify products, leverage global footprints, and ensure swift deliveries, outperforming competitors.

Furthermore, the growth of Indias EMS sector is driven by a robust consumer economy and rising demand for consumer and industrial electronics. The Governments favourable policy initiatives and shifts in global manufacturing have further strengthened Indias position as a preferred destination for electronics manufacturing investments, with a focus on import substitution. Brands are increasingly embracing the ODM model and exploring new product segments, propelling them toward EMS engagement. As the demand increases, EMS/ODM players are encouraged to establish a local component ecosystem, bolstering domestic electronics capabilities.

Moving ahead fractional horsepower motors (FHP) with power ratings below one horsepower are used in low-voltage applications like electric fans, mixers, and juicer mixers. The Indian market is price competitive, but value-added services can sway customers. Electrification, decreasing prices, and new manufacturing facilities will drive the demand for FHP motors in household appliances.

COMPANY OVERVIEW

Elin Electronics Limited (referred to as ‘Elin Electronics or ‘The Company) is one of the leading EMS providers based in India, specialising in end-to-end product solutions for major brands in the lighting, fans, small and kitchen appliances sectors. The Companys diversified product portfolio includes LED lighting, fans, switches, small appliances, and FHP motors. In addition to EMS offerings, Elin Electronics manufactures medical diagnostic cartridges for diagnostic devices and plastic moulded and sheet metal parts and components, catering to customers in the auto ancillary and consumer durables sectors. Elin Electronics takes pride in marketing and selling FHP motors under its own brand name ‘Elin and is one of the largest FHP motor manufacturers in the country.

Moreover, Elin Electronics enjoys strong position in the

EMS market for LED lighting and flashlights. Additionally, the Company is recognised as a key player in the small appliances vertical, Elin Electronics offers both OEM and

ODM capabilities. Under the OEM model, the Company manufactures and supplies products based on customers designs, which are then distributed under their own brand names. In contrast, under the ODM model, Elin Electronics conceives, designs, and manufactures products that are marketed by its customers under their respective brands. The Companys ODM focus particularly shines in the lighting products and small appliances sectors. EMS contributes 77.93% to revenue Non-EMS contributes 22.07% to revenue.

Elin Appliances Private Limited (EAPL), a 100% subsidiary of Elin Electronics, founded on 21^st August, 2002, specialises in manufacturing of small appliances and personal care products. This includes a diverse array of home appliances like toasters, juicers, irons, ovens, white goods, other home appliances, and in personal care it includes hair straighteners, hair brushes, hair dryers and trimmers.

MANUFACTURING SYNERGY

Seamlessly integrating die, mold, sheet metal, plastic molding, aluminum casting, and surface coating, the Companys in-house capabilities are the bedrock supporting all product verticals. Strategically positioned in Ghaziabad, Baddi, and Verna (Goa), the advanced facilities boast top-tier equipment, assembly lines, and complete power redundancy, ensuring prompt delivery of premium goods. Augmented by local utilities, DG sets, and water sourcing, the Companys manufacturing is fortified, with future expansion plots secured in Bhiwadi and Noida.

INTEGRATED EXCELLENCE

Elin Electronics profound backward integration yields amplified efficiencies, elevated product quality, and enhanced customer retention. This integration propels the Company as a technologically adept manufacturing and service partner, ensuring a competitive edge. Crucially, the in-house PCB assembly, featuring six fully automated lines operating at 3,04,000 CPH capacity, fuels the Companys manufacturing prowess. Augmenting this, the Company also manufactures FHP motors, sheet metal, plastic parts, tools, and dies.

R&D EMPOWERMENT FUELING INNOVATION

At Elin Electronics, research and development is paramount, driving engineering, product, die and mold design, electronic circuitry, and prototype innovation. This commitment magnifies the Companys capabilities, leveraging the manufacturing legacy. Continuous innovation caters to customer preferences, securing the Companys position as the supplier of choice for unparalleled comfort and quality.

OPPORTUNITIES AND CHALLENGES Growth Drivers for Elin Electronics

Urbanisation and Income Rise: Growing urbanisation and rising incomes drive the demand for consumer electronics. The expanding middle class, changing lifestyles, and easy financing options shorten product replacement cycles. Electronics are now essential utilities, not just luxuries.

E-Tail Boom: E-commerce thrives due to internet expansion and smartphone usage, offering speed, cost savings, and scalability. Consumers are embracing online shopping due to the convenience and competitive prices.

Tech Advancements: Rapid technological progress leads to price reductions, fuelling electronics sales. The ‘Make in India initiative attracts investments, creating more affordable products from computers to smartphones.

Favourable Policies: Government support, favourable policies, and investments boost the consumer electronics sectors growth, driving Indias global prominence. Indias proactive initiatives covers Production Linked Incentive (PLI) Scheme, Scheme for Promotion of Manufacturing of Electronic

Components and Semiconductors (SPECS), Modified

Electronics Manufacturing Clusters Scheme (EMC 2.0), and MSIPS.

Benefitsof EMS Model: Rising electronic product demand leads brands to partner with EMS providers, gaining cost-effectiveness, quick manufacturing, and reliable aftermarket support.

China + 1 Strategy: Increasing Chinese manufacturing costs drive OEMs to explore alternatives alongside China, considering comparable pricing, quality, and responsiveness.

Focus on Domestic Manufacturing: Indias robust electronics growth, driven by local demand and Government initiatives (Make in India, Digital India), attracts significant EMS investments.

BIS Certification: Stricter BIS registration enforces quality controls, restrains cheap imports, and boosts local manufacturing under the Make in India initiative. Export Focus: Indias potential as a top manufacturing destination supports ‘Make in India for the World. Government-industry collaboration is key for Electronic System Design and Manufacturing (ESDM) production success.

Indias electronics industry continues to transform lives and shape the future with innovation, accessibility, and global competitiveness.

Challenges for Elin Electronics

Enhancing Local Value Add: Indias electronics sector faces cost disadvantages in logistics and local value addition, relying heavily on imports. Simplifying procedures, reducing taxes on start-ups, and strengthening IP protection can boost Indias appeal. Elin Electronics advanced facilities contribute to Indias promising component manufacturing base.

Supply Chain Realignment: Indias electronics sector aims to improve supply chain resilience and localisation. The limited domestic component supplier base leads to heavy import reliance for critical components like LED, Semi-conductors and PCBs. Focused on sustainable growth, India is taking crucial steps to enhance its domestic value chain capability and reduce dependence on imports for long-term industry resilience.

Component Manufacturing/Lead Time: Companies should prioritises local sourcing of key components with set quality and pricing criteria. This boosts scalability for component manufacturers. Rising demand for motor-driven appliances drives local sourcing of mechanical components like motors in India, reducing costs. Price competition and new facilities increase household appliance demand, driving the need for FHP motors. Encouraging PCBA design and assembly develops the component ecosystem.

BUSINESS DIVISIONS: GROWTH POTENTIAL
LED Lighting and Flashlights	Small Appliances
Expected to reach 366 Billion by 2025-26	Expected to reach 99 Billion by 2025-26
Leading manufacturer in EMS market	Customised products for Indian market
Revenue: 2,858 Million	Strategic entry into electronic beauty products market
	Revenue: 2,505 Million
FHP Motors	Medical Diagnostic Devices
Expected to reach 41 Billion by 2025-26	Expected to reach 42 Billion by 2025-26
Used in low-voltage applications, notably in small appliances	Domestic production accounts for 28% of overall market
Serving diverse customer base, including Bosch,	Strong demand due to rising medical tourism
Philips, and Havells	Revenue: 121 Million
Demand projected to increase in the next 5 years
Revenue: 1,952 Million
Moulded and Sheet Metal Parts and Components	Fan
Expected to reach 1,263 Billion by 2025-26	Expected to reach 222 Billion by 2025-26
Gradually gaining traction in auto components industry	Revenue: 528 Million
Revenue: 2,253 Million

FINANCIAL OVERVIEW (Consolidated bases)

in Million	2022-23	2021-22
Revenue	10,754	10,938
EBITDA	674	799
Margin (%)	6.3	7.3
PAT	268	392

 

FINANCIAL RATIOS
	2022-23	2021-22	% Change
Inventory Turnover	6.55	6.95	(5.71)
Debtors Turnover	5.74	6.08	(5.55)
Interest Coverage Ratio	3.73	5.16	(27.68)
Current Ratio	2.43	1.74	39.87
Debt Equity Ratio	0.16	0.32	(51.57)
Operating Profit Margin (%)	4.53%	6.00%	(24.37)
Net Profit Margin (%)	2.49%	3.58%	(30.43)
Return on equity (%)	6.73%	13.86%	(51.43)

Explanation for variances exceeding 25%:

Current ratio is increased due to pending IPO proceeds in monitoring account & bank deposits.

Debt equity ratio is reduced due to repayment of borrowings as part of utilisation of IPO proceeds during the year.

Due to lower profitability, return on equity, net profit and interest coverage

(Note: There was no person or entity belonging to the promoter/promoter group which holds (s) 10% or more shareholding in the Company.)

RISK AND MITIGATION

	Risk Mitigation
Globalisation Risk	The electronics industry in India encounters To mitigate this, the Company has proactively stiff competition from imported electronic diversified its supply chain sources by exploring goods originating in China. The influx alternative markets and suppliers. Additionally, it of affordable imports from China will is committed to investing in continuous product exacerbate the challenges faced by the innovation, offering unique features and superior domestic electronics sector. quality to establish a competitive advantage and withstand the challenges posed by affordable imports from China.
Industry Risk	Risk arises when the entire industry faces Elin Electronics focuses on diversifying its product the possibility of reaching a stagnant portfolio to cater to different market segments or declining position. This risk not only and industries. The Company is also committed to impacts a specific company but also affects investing in strategic partnerships and alliances to the entire industry in which it operates. enhance its market resilience and adaptability to changing industry dynamics.
Client Concentration Risk	Relying on a small number of clients to The Company is actively pursuing new customer generate majority of revenue poses a risk acquisitions and expanding into different market to the Company. This risk stems from the segments to reduce dependence on a limited possibility of losing key customers or being number of clients. The Company also prioritises adversely affected by any issues that these building strong and lasting relationships with existing customers may encounter in their own clients by offering exceptional customer service businesses. and personalised support to ensure their continued loyalty and satisfaction.
Regulatory Risk	Non-compliance with industry regulations The Company monitors and stays updated on and evolving legal requirements may result changes in relevant regulations and compliance in penalties and damage to the Companys requirements. It also maintains open communication reputation. and engages with regulatory authorities to ensure timely adherence and avoid any potential adverse impacts on its business operations.

HUMAN RESOURCE

At Elin Electronics, the HR strategy prioritises talent development, competitive compensation, and a supportive work environment to attract top professionals. Continuous training ensures that the workforce stays updated with emerging technologies. The Company values employee well-being, leading to increased productivity. Embracing diversity and inclusion fosters innovation. The goal of Elin Electronics is to maintain a leading position in the electronics industry through effective HR stewardship. As of 31^st March, 2023, the total workforce stands at [5,151 (2,870 permanent & 2,281 contractual)].

INTERNAL CONTROL SYSTEM

The Company maintains a robust and efficient internal control system appropriate for its operational scale. Additionally, it strictly adheres to local statutory requirements, ensuring orderly and efficient business conduct, asset safeguarding, fraud and error detection and prevention, completeness and accuracy of accounting records, and timely preparation of dependable financial information. The effectiveness of the internal checks and control systems is confirmed through self-audits and assessments by both internal and statutory auditors.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Report may contain ‘forward-looking statements as per relevant laws and regulations, outlining the Companys objectives, projections, estimates, expectations, or predictions.

However, actual results might significantlydiffer from those expressed or implied. The Companys operations could be influenced by crucial factors such as demand-supply conditions, alterations in Government and international regulations, tax regimes, economic developments in India and globally, and other considerations like litigation and labour relations.