OVERVIEW
The Management Discussion and Analysis Report has been prepared in
accordance with the provisions of Regulation 34(2)(e) of Listing Regulations, read with
Schedule V(B) thereto, with a view to provide an analysis of the business. The objective
of this report is to convey the Managements perspective on the external environment and
our industry, as well as strategy, operating and financial performance, material
developments in human resources and industrial relations, risks and opportunities and
internal control systems and their adequacy in the Company during the FY2022-23.
EXTERNAL ENVIRONMENT
• Global Economy
As per International Monetary Fund (World Economic Outlook Apr 2023)
forecast global growth to decline 2.9% in 2023 as compared to 3.4% growth last year 2022.
However, the Russia-Ukraine conflict resulted in supply chain disruptions, inflationary
pressure and slowed the pace of recovery.
Central banks across the globe have resorted to raising policy rates to
tackle inflationary pressure. With strong policy action from various central banks, food
and energy prices have come down, but underlying price pressures are proving sticky, with
labour markets tight in a number of economies.
Source: IMF World Economic Outlook 2023
• Indian Economic
According to the estimates by National Statistics Office (NSO), Indias
GDP growth is estimated at 7.2% for FY 2023. Despite GDP growth came in slightly lower
than the last year, India remains one of the fastest growing economies among the major
economies.
Despite sluggish global economy, India is ranked fifth in the world in
terms of nominal gross domestic product ("GDP") for Fiscal 2022 and is the third
largest economy in the world in terms of purchasing power parity ("PPP"). India
is expected to become an approximately US$ 5 trillion economy by Fiscal 2026 and the third
largest economy by Fiscal 2030 surpassing Germany and Japan. Indias nominal GDP has grown
at a compounded annual growth rate ("CAGR") of 11.6% between Calendar Year 2010
and Calendar Year 2021 and is expected to continue the trend by growing at a CAGR of 11.9%
between Calendar Year 2021 and Calendar Year 2024.
Source: NSO, Press Information Bureau (pib.gov.in)
CONSUMER ELECTRICAL INDUSTRY IN INDIA
Many macroeconomic factors are driving the growth of this industry
which include rapid urbanization, nuclearization of families, growth in earnings of the
middle class and its expansion in size. Many government initiatives to support the real
estate industry , public infrastructure growth and industrial growth are fueling the
demand; PMAY scheme, PLI, Rural electrification being some of the major ones. The per
capita consumption is thus expected to rise 3 times the current average to reach the
global average consumption.
India is the third largest producer and the second largest consumer of
electricity in the world. Consumer electrical industry is one of the important aspects of
the Indian economy, contributing approximately 8% to the countrys manufacturing
production, approximately 1.5% to Indias GDP and approximately 1.5% to Indias exports.
Consumer electrical industry entails heavy electrical products such as W&C and light
electrical products such as FMEG.
The consumer electrical industry consisting of W&C and FMEGs was
estimated at approximately Rs 1,61,500 crore in Fiscal 2022 and is expected to grow at a
CAGR of approximately 11% till Fiscal 2027 to reach a market value of approximately Rs
2,66,500 crore.
INDUSTRY STRUCTURE AND DEVELOPMENTS:
RR Kabels Wires and Cables portfolio at present includes a wide range
of products such as house wires, industrial wires, low and medium voltage power cables and
special cables, which are manufactured in accordance with various Indian and international
standards. Nearly one quarter of our sales comes from exports to over 50 countries across
the world.
Our FMEG (Fast Moving Electrical Goods) portfolio includes a wide range
of Consumer products such as fans, lighting, switches switchgear and appliances. These
FMEG products are primarily for residential and commercial users, including retail malls,
office spaces, hospitals and public infrastructure. In addition, we produce customized
products (especially in Lighting), for our customers, based on their requirements,
specifications, and performance expectations.
Our diversified product portfolio spreads across the following focus
areas:
Wires and Cables
We sell our wires and cables under the brand name RR Kabel in India
and in almost all of the international markets. Our exports under private label
constitutes less than 5% of our exports. This has helped us create a very strong brand
equity in many of our established markets overseas.
In India, the RR Kabel brand is known for its superior quality and is
widely acknowledged and approved by most electrical consultants for all kind of
Infrastructure projects.
While a majority of our sales is through the trade channel; over the
years we have built a strong sales team and credentials in real estate projects and also
in the Industrial and some of the public infrastructure projects. This has been further
supported by our willingness to develop new types of Cable construction and insulation,
suitable for a specific need; which has helped us develop Customers in various type of
Industries and has also enabled us supply an import substitute in some cases.
While our Power cable range is largely in Low and Medium voltage,
limited to 33 KVA at present, we are in process of developing and getting approval for 66
KVA range as well, since we see a large potential for cables in the power transmission
projects for upgradation of existing distribution infra and the development of new ones;
with full commitment and financial support of the government and Power distribution
companies.
The Wire and Cable division registered net revenue of Rs 4,95,853 lakhs
during the FY 2023 compared to net revenue of Rs 4,11,144 lakhs during FY 2022.
Fast Moving Electrical Goods (FMEG)
Our FMEG portfolio includes a wide range of products such as fans,
lighting, switches switchgear and appliances that covers nearly 75% of the entire
category. These products are targeted towards residential consumers and commercial users,
including retail malls, office spaces, hospitals and public infrastructure. In addition,
we produce customized products, especially Lighting fixtures, based on their requirements,
specifications and performance expectations.
Over the past few years, we have continuously grown in each of the
product category viz Fans, Lighting, Small appliances, Professional lighting and Switches.
We have also recently launched Switchgear (Low Voltage) and expect this category to grow
substantially in the years ahead. To grow revenue and increase margin, in these
categories, it is important to continuously innovate and introduce new variants; create
high brand visibility; adopt a multi-channel strategy covering traditional and modern
format retail stores and e-commerce. We have simultaneously worked on all these fronts and
are focused on premiumization in each category and sub category, designing and
manufacturing high quality products in line with our Companys ethos.
At present we sell each of the FMEG products (except in Switches and
Switchgear) in two brands viz. RR and Luminous. RR branded products are economical and
targeted toward the mass market while Luminous is positioned as a premium product in the
same category. We are also ready with a brand transition plan, since our right to use the
Luminous brand is for a limited period. A new brand "RR Signature" is being
established as our premium brand which will help us transition and we have started
introducing products into the market.
The FMEG division registered net revenue of Rs 64,067 lakhs during the
FY 2023 compared to net revenue of Rs 27,449 lakhs during FY 2022.
| (Rs in Lakhs)Particulars |
For the year
ended 31 March 2023 |
For the year
ended 31 March 2022 |
|
Wires & Cables |
Fast-Moving Electrical
Goods |
Wires & Cables |
Fast-Moving Electrical
Goods |
| Revenue from operations |
4,95,853 |
64,067 |
4,11,144 |
27,449 |
RISK AND CONCERNS
Industry and the Company have some challenges and risks in which it
operates such as:
1. Volatility in prices of raw material
Wires and Cables business has a very large component of material cost
and the prices of raw materials such as Copper and Aluminum has been very volatile over
the past few years especially. This volatility is a challenge for manufacturers as stock
management becomes tougher and can lead to potential losses on stock, especially if the
exchange rate is equally volatile. While in the retail sales (especially in Wires) , the
manufacturers are able to pass on the raw material cost to consumer; in Cables it is
relatively difficult as the end customer here is a project developer or a government
entity and the construction contracts have been negotiated at a fixed price, within a said
period. In such cases a manufacturer maybe forced to absorb or partially absorb the raw
material price increase; which may hit the earnings of the Company.
In case of our Company however, since Trade sales dominate and
instances of rate contract are limited; we have kept our risk exposure low. In cases of
long term supply contracts, in most cases we make the customer accept the price variation
clause, that has been established by IEEMA and accepted generally.
In FMEG business also there is an impact of increase in Copper and
Aluminum in case of Fans and Small appliances, but it is generally passed on to consumer
through MRP change. Lighting is also prone to price change but mostly downwards in past
years as the LED prices keep dropping periodically. In such cases the manufacturer has the
flexibility of reducing prices to the extent it wants to, keeping its sales objective and
brand salience in view.
2. Fluctuation in currency exchange rate
Fluctuation in rupee-dollar exchange rate also poses a key challenge to
the W&C industry. The average rupee-dollar exchange rate was Rs 74 in CY 2021, which
had increased to Rs 83 in October 2022. Players may import raw materials such as aluminum,
insulation materials because of economies of cost and quality, which when exposed to
exchange rate fluctuation, may result in increase in overall cost, thereby impacting the
margin.
As explained above, the two factors which affect prices of Copper and
Aluminum are the LME and the US$ to Rs. exchange rate; both of which are beyond the
control of a manufacturer. To minimize the risk, a prudent buying and stocking of Copper
and Aluminum is the only way to minimize the risk, apart from managing and balancing the
portfolio of our customers and channel partners.
3. Competitive Market
While the Indian market continues to grow due to steady rise in
Infrastructure investment especially post Covid, the available capacity and large no of
manufacturers in wires and cables, makes this business highly competitive. A positive
development over the years is that the unorganized market or the market dominated earlier
by local (regional) manufacturers is shrinking and branded players today occupy over 80%
share. This has benefited companies like RR Kabel. In the years ahead, competition will
remain strong but the winners will be companies that are able to produce at low cost, are
able to supply fast and are able to service the Customer better. Above all, as the
regulations related to electrical installations are becoming tighter, the quality of
products will have a larger bearing on market share and success, which is where our
Company hopes to make a larger gain.
4. Recession
Recession cycles are part of the global economy, and one cannot rule
out possibilities for India and the world. One of the early strategies adopted by RR Kabel
was to increase exports and spread wide globally; which it has done remarkably by selling
25% of its output to over 50 countries globally. This is a big de-risk as a political or
economic disturbance in one part of the world can be compensated in our countries.
Our large dependence on trade is another way of de-risking because the
trade sells to all customer segments and if one of the segments is down, the other one
could be rising. In case of cables; ie Power, Industrial and Special also we are spreading
our customer base to various types of Industries. This will ensure that if one of the
Industry segment is down; the others will make up for the loss. This is how we are
isolating ourselves from recession.
5. Natural Calamity
Our manufacturing locations for Wires and Cables is at Silvassa and
Waghodia (Baroda) ; which are normally not known to be disaster prone places. However,
having a facility for Wires at both locations helps us from redundancy point of view.
Also, our FG stock is largely at the factories, instead of being spread across the branch
warehouses. This helps us minimize the risk of stock at branch warehouse especially in
cities where flooding is frequent.
Similarly in FMEG, our ceiling fans are made at two locations Roorkee
and Gagret and the manufacturing is inter-changeable, if required. The FG stock is largely
at the factory location and hence risk exposure is lower. For Lighting and Appliances, we
do not have any in-house manufacturing and our attempt thus is to have atleast 2 sources
for supply of each product so that in case of a calamity, the other source can continue.
Another step we have recently taken is to increase vertical stacking of
material in Factory and in our Branch warehouses. While this has been undertaken for space
optimization, the safety of stock in case of flooding etc. is also a key objective; since
only Wires are stocked at ground level and all FMEG material is about 1-1.5 mtrs from
ground in the wa rehouse.
6. Government Taxes
Increase in GST rates on Materials, Electronic Products and Components
has a direct impact on the cost of manufacturing. So depending on the product, market
conditions and competition; such an increase may or may not impact the selling price of
Products and hence effect the margins and profitability of our business.
In exports there is a possibility of import levies for political or
economic reasons, which cannot be predicted. Such levy may make imports from India
unviable thus causing loss of sales for our Company. The only way to counter this
possibility is to spread our exports wider and reduce dependence on one Country or a
region.
STRENGTH
The following are some of key pillars of our Company:
1. In-house and integrated manufacturing facilities
We have five state of art manufacturing facilities across India, with
the latest technology and equipment. We buy most of our machines from Germany and Taiwan,
from globally renowned manu. These are at Waghodia, Gujarat ("Waghodia
Facility"), Silvassa, Dadra and Nagar Haveli and Daman and Diu ("Silvassa
Facility"), Roorkee, Uttarakhand ("Roorkee Facility"), Bengaluru, Karnataka
("Bengaluru Facility") and Gagret, Himachal Pradesh ("Gagret
Facility"). Our machine operators are experienced and most have been in RR Kabel for
over 10 to 15 years and are thus able to maintain the machines well; reducing down time
and enhancing output.
Our Waghodia and Silvassa Facilities have the capability to manufacture
a wide variety of wire and cable products including house wires, industrial wires, power
cables and special cables. 100% of the insulation material is compounded in-house for both
the factories that gives us an edge in terms of innovation and cost. The testing
facilities, equipment and competence that we have, supported by a NABL accredited lab
makes us self-sufficient and quick to respond to the market need.
The Waghodia Facility is one of the largest consumer electrical
manufacturing facilities in India as of March 31, 2023, with an annual manufacturing
capacity of 2.1 million CKM of wires and cables. (Source: Technopak Report)
2. Well recognized and trusted consumer brands
RR Kabel established itself as a high quality and trusted brand through
consistent high quality products, constant engagement with electricians, contractors,
consultants and developers.
Our extensive distribution network, our investment and constant
engagement through Kabel Nukkad and Kabel Mela, establishing a deep connect with
electricians through programs like "Kabel Star" and our digital and physical
marketing efforts have enabled us develop and strongly entrench brand in the consumer
electrical industry.
3. Wide range of Products
In the segment of Electrical construction materials, we have all
category of products that can serve the needs of a residential or commercial project.
Within each product category we have a wide variety of products at various price point so
that we can cover the requirement of every socio-economic segment of the market. Our
effort of innovation and creating multiple product choices will continue.
For B2B business, we have the ability to design and manufacture various
types of Cables as per standard specification or a customized specification. This ability
has evolved from the variety of requirement in export markets and has been extended to
customers across different Industries and for a varied type of applications.
4. Strong Values and Ethos
RR Kabel has been built on strong values which define the Companys
policies and its products. It is thus widely believed in the trade and also by the end
customer that RR Kabel never supplies a substandard product and it always stand by its
commitment. This brings in a lot of confidence amongst our channel partners, many of who
have been working with the company for over a decade or more.
5. Human Resource
The Companys culture is like that of a large family with a huge
emphasis on employee wellbeing. Over the past years a lot of investment has been done to
build a bond between the Company and its workers. In all factories the employees are
served with hygienic, nutritious hot meals and in many locations, accommodation has been
provided on cost sharing basis to employees and their family. Every employee is bonded
with the Company due to the Values which are propagated, accessibility to the management
to discuss their grievance, caring and supportive attitude of the promoters and an open
culture. This strong bond enables RR Kabel to achieve many of its tasks ahead of time.
> AWARDS
During the year under review company has received following awards:
I. Best Brand in Building Material and Fittings category at the ET
Infra Focus Summit and Awards 2022.
II. We also won the won the Pride of India Brands Award, 2022.
III. Trailblazer HR Initiative award by CHRO Summit 2023
IV. Best practices and Innovation in HR by Gujarat Employer
Organisation 2023
V. "Great Place To Work" certified by GPTW (Jun 2023- Jun
2024)
KEY RATIOS
| Sr. No. Ratio |
As at 31 March 2023 |
As at 31 March 2022 |
% of variance |
Explanation for change in the ratio by
more than 25% as compared to the previous year |
| 1 Current Ratio (times) |
1.77 |
2.14 |
-17.31% |
NA |
| 2 Debt Equity Ratio (times) |
0.36 |
0.42 |
-13.03% |
NA |
| 3 Return on Equity Ratio (%) |
13.36% |
16.85% |
-20.67% |
NA |
| 4 Inventory turnover ratio (times) |
5.83 |
5.80 |
0.47% |
|
| 5 Return on capital employed |
14.77% |
16.95% |
-12.83% |
NA |
| 6 Net profit ratio (%) |
3.36 % |
4.37% |
-28.96% |
Net Profit ratio decreases due to higher
operating expenses. |
| 7 Trade payables turnover ratio (times) |
15.43 |
26.88 |
-42.59% |
Trade payable turnover ratio decreases due
to higher average trade payables. |
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
The Company has in place a robust Internal Control system to maximize
the effectiveness and efficiency by including activities that are tailored to the nature,
size and complexity of the Company. The Company follows proper hierarchy and processes for
reporting of routine activities. Direct access to the senior Management is available in
extreme cases.
The controls and policies are being further strengthened through
adoption of IT in all functions and processes so that deviation are not made or even if
they have to be made, it follows the use of a pre-defined approval hierarchy matrix. All
possible areas of human error (manual entry of data) are being rectified through digital
intervention, internally and for the external stake holders like suppliers, vendors,
customers etc.
The Company has framed whistle blower policy to report concerned areas
to the Management. The Companys internal control system is commensurate with the size,
scale and complexities of its operations. The Audit Committee actively reviews the
adequacy and effectiveness of the internal control systems and suggests improvements to
strengthen the same.
HUMAN RESOURCES
Human Resources is a very critical capital of the Company. RR Kabel is
continuously investing in enhancing the HR capability at each level of the company,
starting with the Workers, Operators, Supervisors and Managers. The enhancement of
technical skills, soft skills and management ability, is made through internal and
external interventions. Improvement in skills and capability is being measured and
recorded regularly to help the Company re-design the programs and add more interventions.
The appraisal system followed is transparent and is performance based and it endeavors to
retain, develop and provide better working environment to the employees by providing an
atmosphere of trusteeship, competition and challenge, thereby providing opportunities for
personal and professional growth through training and ample career enhancement
opportunities.
DESCLAIMER
The contents of this Report include statements that look forward into
the future and may carry risks and uncertainties.
These forward-looking statements are identified by words such as
anticipate, belief, estimate, expect, intend, will and other similar
expressions related to the Company and its Businesses. The Company does not have an
obligation to update or modify these forward- looking statements publicly, whether due to
new information, future events, or other reasons. The actual results, performances, or
achievements may differ significantly from what is expressed or implied in these
forward-looking statements. It is advised that readers exercise caution and not overly
rely on these forward-looking statements as they only reflect the state of affairs as of
the date of this Report. It is recommended to read this Report together with the financial
statements and their accompanying notes.
|
For and on behalf of the Board of Directors |
|
Tribhuvanprasad Rameshwarlal Kabra |
|
Executive Chairman |
|
DIN:00091375 |
| Place: Mumbai |
|
| Date: August 14, 2023 |
|
+91-9892691696
