The global economy in the past year has experienced both ups and downs due to various
factors affecting economic growth. In 2022, global growth was estimated to be 3.4%, which
is projected to fall to 2.9% in 2023 and then rise again to 3.1% in 2024. This is
attributed to the rise in central bank rates to combat inflation and ongoing
Russia-Ukraine conflict, which continue to impact economic activity across major economies
like Europe. However, the recent reopening of economies has paved the way for a
faster-than-expected recovery. As a result, global inflation is expected to fall from 8.8%
in 2022 to 6.6% in 2023 and 4.3% in 2024, but still above pre-pandemic levels of about
3.5%.
In 2022, global growth was estimated to be 3.4%, which is projected to fall to 2.9% in
2023 and then rise again to 3.1% in 2024.
While the balance of risks remains tilted to the downside, the risks have moderated,
with the possibility of a stronger boost from pent-up demand in numerous economies or a
faster fall in inflation being plausible. Despite the positive projections, the rise in
central bank rates to fight inflation, ongoing geopolitical conflicts, and the possibility
of tighter global financing costs could worsen debt distress and financial markets could
suddenly reprice in response to adverse inflation news. Therefore, in most economies,
achieving sustained disinflation remains a priority, necessitating the deployment of
macro-prudential tools and the strengthening of debt restructuring frameworks to maintain
financial and debt stability.
In conclusion, the global economy is gradually recovering from the impact of the
pandemic, with positive projections for inflation and growth in the coming years. However,
the ongoing geopolitical and economic challenges continue to pose risks to the economy. To
mitigate these risks, it is necessary to adopt effective measures, providing better-
targeted fiscal support, and strengthening multilateral cooperation to preserve the gains
from the rules-based multilateral system and achieve sustainable economic growth.
Indian economy
Following an 8.7% growth in FY22, the Indian economy has shown resilience in the face
of global challenges and is expected to grow at a rate of 7% in real terms for FY2023.
Despite the shocks of the COVID-19 pandemic, the Russian- Ukraine conflict, and central
banks policy rate hikes to curb inflation, India remains the fastest-growing major
economy, owing to bolstered private consumption and capital formation, all of which have
been the driving forces behind Indias economic growth, leading to a rebound in production
activity and higher capital expenditure.
Credit growth to the micro, small, and medium enterprises (MSME) sector has been
remarkable, averaging over 30.5% during Jan-Nov 2022. Additionally, the strengthening of
corporate balance sheets, well-capitalised public sector banks ready to increase credit
supply, and the governments production-linked incentive schemes are expected to further
support economic growth.
Additionally, the GOIs efforts to accelerate COVID-19 vaccinations have enabled people
to spend on contact- based services, such as restaurants, hotels, shopping malls, and
cinemas, leading to an increase in private consumption. Furthermore, the return of migrant
workers to cities to work in construction sites has led to a significant decline in
housing market inventory, boosting capital formation. Despite the positive projections for
growth, inflation remains a concern, with the Reserve Bank of India projecting headline
inflation at 6.8% in FY23. In response, the government and RBI have taken measures to
mitigate inflationary pressures, including macroprudential tools and strengthening debt
restructuring frameworks to maintain financial and debt stability.
Economic overview
Global economy
The global economy in the past year has experienced both ups and downs due to various
factors affecting economic growth. In 2022, global growth was estimated to be 3.4%, which
is projected to fall to 2.9% in 2023 and then rise again to 3.1% in 2024. This is
attributed to the rise in central bank rates to combat inflation and ongoing
Russia-Ukraine conflict, which continue to impact economic activity across major economies
like Europe. However, the recent reopening of economies has paved the way for a
faster-than-expected recovery. As a result, global inflation is expected to fall from 8.8%
in 2022 to 6.6% in 2023 and 4.3% in 2024, but still above pre-pandemic levels of about
3.5%.
India is expected to witness a GDP growth of 6.0-6.8%, supported by the expansion of
public digital platforms and various path-breaking measures.
In 2022, global growth was estimated to be 3.4%, which is projected to fall to 2.9% in
2023 and then rise again to 3.1% in 2024.
Looking ahead to 2023-24, India is expected to witness a GDP growth of 6.0-6.8%,
supported by the expansion of public digital platforms and path-breaking measures such as
PM GatiShakti, the National Logistics Policy, and the Production-Linked Incentive schemes
to boost manufacturing output. The Indian economy is well- positioned to continue on its
growth trajectory, and private capex is expected to play a leadership role in job creation
in the coming years.
Growth drivers in the Indian stainless steel hose market:
The demand for flexible flow solutions made with stainless steel corrugation has been
driven by the industrial sector and the burgeoning demand in heating, ventilation and air
conditioning applications. However, the transition from traditional flexible hoses to
flexible flow solutions made with SS corrugation has resulted in a favorable demand
landscape for the product.
Some of the major growth drivers boosting the demand in the country are as follows:
Rising infrastructure spending and government initiatives to curb carbon emissions and
promote clean energy are expected to drive the growth of Flexible Flow Solutions made with
Stainless Steel Corrugation in key end- user industries such as electric automobiles,
renewable water heating applications, and energy- efficient electrical appliances.
Emerging user segments such as renewables, lithium-ion battery applications,
semiconductor manufacturing, and robotics are expected to expand the addressable market
for the product, driving demand in the coming years.
Emergence of new application sectors
In the forthcoming years, there will be a growing demand from sectors that are either
in their early stages or have yet to establish themselves in India. The emergence of these
new user segments will significantly expand the addressable market for the product.
Noteworthy sectors that will drive this new demand include renewables, primarily solar
heating; applications of Lithium-Ion batteries, encompassing electric vehicles (EVs) as
well as other battery applications; semiconductor manufacturing; and robotics.
Industry overview
Global stainless steel flexible hose market
The global market for stainless steel flexible hoses was valued at approximately USD 25
Bn in 2020, out of which the SS corrugated hose market is estimated to be at USD 12.5 Bn
or 50% of the total SS flexible hose market. This is projected to grow at a CAGR of 7.5%
and 6.3% respectively, over the coming decade, during the forecast period 2020-2030.
This growth can be attributed to the increasing demand for corrosion-resistant
products, the growing need for energy conservation, and increasing industrialisation
across different regions globally. The demand for SS flexible hoses is being driven by
rapid urbanisation, which has accelerated the pace of infrastructure development and real
estate construction. This, in turn, has triggered the demand for HVAC systems and
translated into a promising outlook for SS flexible hoses. The flexible hoses segment is
expected to dominate the stainless steel hose market throughout the forecast period due to
their applications in various industries such as automotive, chemical, air conditioning
& refrigeration, piping, and home appliances.
Completion of over 1,840 manufacturing projects between FY18 and first 9 months of FY23
has created a large user base, supporting strong demand for Flexible Flow Solutions made
with Stainless Steel Corrugation.
Moreover, large-scale industrialisation and modernisation in agriculture and key
manufacturing sectors are fueling the demand for SS corrugated hoses. The piping industry
accounts for the largest market share among all end-users, while Asia Pacific accounted
for the largest share of the global stainless steel flexible hose market, followed by
North America. In the coming years, Asia Pacific is expected to grow at the highest CAGR,
driven by healthy economic growth in China and India.
Overall, the promising outlook for the global stainless steel hose market is driven by
favorable product attributes and increasing demand for corrosion-resistant and energy-
efficient products. With the rapid pace of urbanisation and industrialisation, this market
is poised for substantial growth in the coming years.
Source: Dun & Bradstreet
The progress on industrial automation for operational optimisation and cost control in
the manufacturing sector is believed to have a positive impact on Flexible Flow Solutions
made with Stainless Steel Corrugation.
Indian packaging industry
The Indian packaging industry is one of the fastest growing sectors in the country, and
is currently one of the largest sectors in the Indian economy. The industry was valued at
$373.6 billion in 2021, and is likely to grow with a CAGR of 12.6% between 2022 and 2027.
This can be attributed to the robust economic growth of the nation, coupled with the
booming e-commerce sector. Despite this growth, the flexible packaging industry is
expected to see a subdued revenue growth of 5% in FY23, owing to the volatility in raw
material prices and lower realisation. However, the industrys capacity is expected to
rise by 30%, by the end of FY23, with operating margins stabilising as the industry comes
out of severe disruptions in supply chain, input costs volatility in post-Covid era.
The Indian government recognises the potential of the packaging industry and has
released policies to further incentivise innovation and sustainability in the sector.
These policies include the implementation of a single use plastic ban, a focus on
recycling and biodegradability, and the adoption of the National Packaging Initiative. The
packaging sector has a much wider exposure to other sectors of the economy, and the growth
of these sectors in the coming decade will have a combined effect to take the packaging
industry to new heights.
The Indian packaging industry is poised for growth, and with the right policies and
initiatives in place, the sector will keep on fostering innovation and is expected to
continue to be a major contributor to the nations economy.
Global FIBC market
The global FIBC market is expected to show significant growth in the forecast period of
2022 to 2032, with a projected CAGR of 5.3%. This can be attributed to the increasing
demand for lightweight containers and bulk packaging solutions, especially in industries
such as food and pharmaceuticals. FIBCs are being increasingly used to transport products
like grains, rice, and liquid chemicals used in biological products, further driving
demand for the market.
Europe is the largest producer of FIBCs, accounting for a production market share of
approximately 29%. Asia is the second largest producer, with a production market share of
around 25%. On the other hand, North America is the largest consumer of FIBCs, with a
consumption market share of almost 38%.
The FIBC market is expected to continue growing as manufacturers focus on introducing
new, innovative, and lighter FIBC solutions. In addition, the growing demand for
cost-effective and sustainable bulk packaging solutions is expected to fuel market growth
in the coming years. The market is also expected to witness increased demand from various
end-use industries such as agriculture, chemicals, and construction, among others, which
will further drive market growth.
Leading end-use segements
• The chemicals and fertilisers sector is anticipated to dominate the global FIBC
market, in terms of end-use applications.
• Sales of FIBC in this industry is likely to grow at a CAGR of 5.8% in the global
market.
Indian FIBC market
Over the last decade, the FIBC market in India has grown by an impressive 38%,
according to the FIBC Association. This growth is largely attributed to the increasing
demand for food grade FIBC, which has been experiencing prominent growth rates. In 2021,
FIBC production in India reached 306,996 MT, with food grade FIBC accounting for nearly
28% of the total production.
The Indian FIBC market has seen a significant increase in total export sales, which
have tripled in the past decade and reached $708.5 million in FY21. This growth is driven
by the expansion of various industries, such as food products & agriculture,
pharmaceutical products, and chemicals and fertilisers, which have experienced substantial
industrialisation. This is largely due to increased international commerce and several
favourable measures by the Indian Government, including Make in India initiatives and
industry- specific incentives, which have boosted the establishment of numerous
manufacturing enterprises in India.
As a result of this growth, the demand for FIBC for effective storage and
transportation of goods is surging, particularly among these end-user industries. With the
Indian Governments continued support for industrialisation and trade activities, the
Indian FIBC market is expected to continue its growth trajectory in the coming years.
Indian startup ecosystem
Indias startup ecosystem has grown significantly over the past decade, propelled by
digital technologies and a rising number of young entrepreneurs. Despite macroeconomic
concerns and a challenging funding environment, the ecosystem continues to thrive, with
nearly 14,000 new startups joining the ranks across 555 districts in fiscal year 2022.
Indian startups raised a cumulative $24 billion across 1,021 deals in 2022, with
investments into the ecosystem more than twice that of 2020 and 2019, although 33% lower
than the hyper-funding cycle of 2021.
With the third-largest startup ecosystem in the world,
India is poised to become a global entrepreneurial hub, particularly in sunrise sectors
such as green energy, health tech, deep tech, and clean mobility. These sectors present
significant growth opportunities and can help drive the countrys economic progress. In
addition, the government has implemented initiatives such as the Startup India program,
Atal Innovation Mission, and Production-Linked Incentive schemes (PLI) to support the
success and growth of startups.
As of February 2023, India has nearly 27,000 active tech startups, with 1,300 added in
fiscal year 2023. These startups are diverse, encompassing domains ranging from health and
climate tech to clean energy and deep tech. They have the potential to create innovative
solutions and new business models that can address critical issues such as environmental
degradation, depletion of natural resources, and social and economic inequalities, making
sustainable development a key focus for the ecosystem.
However, while significant progress has been made to boost the startup ecosystem, more
needs to be done for India to fully realise its potential as a global entrepreneurial hub.
The government can expand incentivisation schemes to fast-track the adoption of
emerging technologies in other sectors, introduce policy frameworks to guide companies
operating in upcoming sectors, and create dedicated funds and skill development programs
to extend the startup wave to Tier 2, Tier 3, and rural areas. By doing so, Indian
startups can help create a more sustainable future for all while driving economic growth
and progress.
Indian startups raised a cumulative $24 billion across 1,021 deals in 2022, with
investments into the ecosystem more than twice that of 2020 and 2019, although 33% lower
than the hyper-funding cycle of 2021.
Company overview
SAT Industries Limited is a trailblazing business entity and group with a 38-year
legacy of cultivating disruptive and early-stage startups, while simultaneously
flourishing in established industries such as flexible flow solutions, packaging
materials, and wire rods. The innovative Company boasts a global presence, catering to
clients in over 80 countries, with offices located in Mumbai, Dubai and London. SATs well
positioned, and strategically built business model strikes a perfect balance between core
cash-flow generating businesses, and investments in high-growth startups to create a
distinctive competitive edge.
Through its subsidiaries, Aeroflex Industries Limited and Sah Polymers Limited, SAT
offers an impressive range of cutting- edge solutions to multiple industries across the
globe. With its recent foray into wire rods manufacturing, the Company is rapidly emerging
as one of the growing in the SS wire rods industry. Additionally, SAT actively invests in
early-stage startups with innovative business models, having backed over 125 companies
across 37 sectors such as food-tech, ed-tech, e-commerce, and digital media portals, among
others.
As a sector-agnostic but strong investment-philosophy based angel investor, SAT
continues to invest in pre-seed and seed stage startups, tracking their progress on a
regular basis, and ultimately backing them to grow bigger for larger value creation for
its stakeholders. SAT remains committed to its vision of driving growth and transformation
through bold investments in conventional cash-flow generating businesses and disruptive
new-age startups.
Financial Performance Discussion
The Company maintained resilient performance in FY23, despite various macro headwinds
on account of geopolitical events, rising raw material prices, tightening global
liquidity, among others. Revenue from Operations registered a 34.47% growth, reaching K
466.24 Crores compared to K 346.73 Crores in FY23. Operating Profits improved to K 70
Crores as compared to K 63 Crores in the previous year, an increase of 11% year on year.
Profit after Taxes for the year stood at K 45 Crores, as compared to K 39 Crores in the
previous year, registering an increase of 16% over the previous year.
Outlook
As the dawn of a new financial year breaks, SAT Industries unrelenting focus on growth
and innovation, both in its core businesses and high-growth startups, continues to pave
the way for a bright future. Sah Polymers and Aeroflex Industries, the Groups flagship
subsidiaries, are set to ride on a wave of significant growth opportunities, CAPEX
projects in pipeline, and constant scouting for strategically placed inorganic growth
opportunities.
Standalone Financial Ratios
| Ratios |
|
FY23 |
FY22 |
% Change |
| Current ratio |
Current assets/ Current Liabilities |
2.07 |
2.44 |
Increase in short term borrowings to meet temporary paucity of funds |
| Debt equity ratio |
Total Debt/ Shareholders Equity |
0.29 |
0.25 |
Increase in borrowings mainly offset by improved shareholders equity due to increase
in profits |
| Debt Service |
EBITDA/ Debt Service |
2.36 |
0.66 |
Increased in operating profit against lower debt obligations |
| Coverage ratio |
|
|
|
during the year. |
| Return on Equity |
Net profit after taxes/ Average Shareholders equity |
6.31% |
4.44% |
Increase in profit realisation per rupee of equity investment |
| Inventory turnover ratio |
Cost of Goods Sold/ Average Inventory |
23.42 |
6.43 |
Improved turnaround of inventory holding period |
| Trade Receivables turnover ratio |
Net credit sales/ Average Trade Receivable |
17.86 |
8.55 |
Improvement in collection efforts |
| Trade payables turnover ratio |
Net Credit purchase/ Average Trade Payables |
14.95 |
6.75 |
Better credit terms negotiated |
| Net capital turnover ratio |
Net Sales/Working capital |
2.35 |
0.39 |
E_cient utilisation of available working capital by the management |
| Net profit Margin |
Net profit/Net sales |
6.92% |
26.32% |
Decrease in net margin due to venturing into stainless steel manufacturing business |
| Return on Capital employed |
Earning before interest and taxes/ Capital Employed |
8.89% |
6.37% |
Increase in profit realisation per rupee of investment |
| Return on investment |
Income generated from investment/ Time weighted average investment |
N.A. |
N.A. |
Not calculated as investments in startups are made with a long term view which do not
give returns immediately. The same holds true for investments in subsidiary companies
which are made with the purpose of acqusition of business. |
Looking ahead, SAT Industries plans to double down on investments in its current
sectors of interest while exploring new opportunities in sectors with promising growth
potential.
Aeroflex Industries, in particular, is committed to staying at the forefront of
technological advancements within its industry, focusing on emerging applications of its
product portfolio, continuously designing and developing advanced products for critical
applications in industries such as green energy, semiconductors, and aerospace. Meanwhile,
Sah Polymers & Aeroflex Industries are actively exploring inorganic growth
opportunities in India and abroad, with an aim to expand its product range and customer
base. With a robust demand environment and strategic investments in place, the outlook for
SAT Industries and all its group companies remains positive for the foreseeable future.
Internal control and adequacy
The Company places utmost emphasis on maintaining a robust system of internal control,
which effectively safeguards its valuable assets against any unauthorised use or
disposition. All transactions are duly authorised, meticulously recorded, and
appropriately reported to ensure utmost transparency and accountability. The Companys
unwavering commitment to deploying a highly effective mechanism ensures optimum and
efficient utilisation of resources, seamless operations, diligent monitoring, and
adherence to applicable laws.
Moreover, the auditors have expressed their unequivocal satisfaction with the Companys
internal control systems, which are deemed to be both adequate and satisfactory. Such an
unwavering commitment to upholding rigorous standards of financial and operational
transparency testifies to the Companys unyielding dedication to maintaining its
reputation as a responsible and trustworthy entity in the market.
Human resources development and industrial relations
At SAT Industries, the management is well aware of the pivotal role that human
resources play in propelling the Company towards unprecedented success. Therefore, the
Group has made considerable efforts to engage its employees in honing their skills and
enriching their knowledge base.
To ensure its sustained growth and maintain its position in the market, SAT Industries
has invested extensively in developing its brand value, with a view to attract and retain
the finest talent in the industry.
The Company maintains a harmonious relationship with its employees, with employee
relations continuing to be cordial and productive at all levels. As the business
progresses, the management is resolute in cultivating an environment that is conducive to
imaginative thinking, augmented productivity, and progressive advancement.
As of March 31, 2023, SAT Industries boasts a workforce of 1,066 total people,
including 531 permanent employees, spread across its diverse group of companies. The Group
remains committed to nurturing its human resources, a critical enabler in its ongoing
journey towards sustained success.
Risk & Risk Mitigation
The Companys risk mitigation policy encompasses a comprehensive approach to identify
and assess risks throughout all levels of business operations while aligning with the
organizations objectives. It includes diligent monitoring of risk response effectiveness
in addressing strategic, operational, financial, and compliance risks. However, the
company acknowledges the presence of significant uncertainties such as global events,
geopolitical tensions such as the Russia-Ukraine conflict, global trade disputes,
inflationary & increasing interest rate environment, fluctuations in commodity prices,
and volatile foreign exchange movements.
Furthermore, the management maintains a vigilant oversight of domestic and
international markets related to the Companys products and required raw materials. They
also stay attuned to socio-economic changes worldwide and fluctuations in currency
exchange rates to minimize risks. The Board is of the opinion that there are no risks that
pose a threat to the companys existence. However, the Company proactively evaluates and
mitigates risks typically encountered in the normal course of business, including economic
risks, technological risks, fluctuations in foreign exchange rates, and raw material
prices.
SAFETY RISK
Our manufacturing facility is subject to various stringent safety laws and regulations.
Nonadherence to process and workforce safety requirements, safety laws and regulations may
impact business continuity and reputation. COVID-19 contagion poses risk to workforce
health and safety, and may lead to business disruptions.
SAT Industries has a robust governance mechanism for safety, health, environment and
sustainability where reviews are undertaken at multiple levels. To help inculcate a best
in-class safety culture amongst our workers, we have taken up several initiatives to
mitigate hazards and reduce risks. The Company has implemented various safety procedures
related to handling machines, installing and using suitable tools and equipment through
regular inspection at plant locations, and providing training and awareness across the
workplace. The Company, through its subsidiaries, has conducted a COVID Vaccination drive
to ensure that all the employees are fully vaccinated, and regular medical check-up is
duly undertaken to ensure the safety of all employees.
REGULATORY RISK
Our operations are governed by various statutes encompassing law and regulations for
environment and climate change, trade measures, competition, taxes, mining and others. Any
deviation in compliance and adherence has the potential to not only impact our operating
performance but also dent our reputation.
The continuously evolving regulatory scenario, resulting in changes of the statutory
provisions and introduction of newer ones, make compliance more complex.
At SAT, we make sure that the law of the land is fully complied with. In addition, we
update our teams internally on all the regulatory amendments and ensure that there is no
non-compliance.
COMMODITY FLUCTUATION RISK
The Companys performance is closely linked with that of the steel industry. Any
material changes in demand-supply scenarios within the steel sector, in India or abroad,
may impact its performance.
We have been running a structured cost reduction journey for the past few years to
improve profitability and mitigate the risk of commodity price inflation. However, we do
not put our production cycle at risk for the sake of buying inputs at lower prices.
SUPPLY CHAIN RISK
The supply chain network is subjected to physical and environmental destruction, trade
restrictions due to geopolitical tensions and disruptions of supplies. The developing
rail, road, port infrastructure, handling facilities and dependence on outsourced partners
may lead to disruption of operations.
The Company focuses specifically on the resilience of its supply chain and the
efficiency of launching its models to market. We work closely with our suppliers to define
inventory maintenance norms, build safety stocks, and explore localisation and alternative
sources, among others.
We continue to maintain and develop strong partnerships with key strategic suppliers to
ensure a stable future supply of components. We have been taking steps to find
substitutes, protect volatility by way of hedging and take price increases in a calibrated
manner to mitigate the impact of price rises.
CREDIT RISK
The Companys debt servicing capabilities could get affected due to major volatility in
financial markets and in a changing interest rate scenario. Further, the Company is also
exposed to currency risks arising due to a considerable amount of import and export of
goods it undertakes
The Company has kept a broader outlook on the markets, covering not only the foreign
exchange risks but also other risks associated with the financial assets and liabilities,
such as interest rate and credit risks. The management aims to:
• Create a sustainable business planning environment by reducing the impact of
currency and interest rate fluctuations on the Companys business plan.
• Achieve greater predictability of earnings by determining the financial value of
the expected earnings in advance • The risk of fluctuation in foreign currency
exchange rates is mitigated through a natural hedge as the group imports and exports in
foreign exchange for its export business.
NVESTMENT RISK
The company invests in various startups in disruptive sectors, which result in capital
loss in some cases and would have a severe impact on its profitability
Disclaimer :
"Aeroflex Industries Limited a material subsidiary of our Company has filed a
Draft Red Herring Prospectusdated March 31,
2023 ("DRHP") with Securities and Exchange Board of India ("SEBI").
In connection to the same,investments in equity and equity- related securities involve a
degree of risk and investors should not invest anyfunds in the proposed offer of Aeroflex
Industries Limited ("Issuer Subsidiary") unless they can afford to take therisk
of losing their entire investment. Investors are advised to read the risk factors
carefully before taking aninvestment decision in the proposed Offer of the Issuer
Subsidiary. For taking an investment decision, investorsmust rely on their own examination
of the Issuer Subsidiary and the Offer, including the risks involved. TheEquity Shares
have not been recommended or approved by the SEBI, nor does SEBI guarantee the accuracy
oradequacy of the contents of the DRHP. Specific attention of the investors is invited to
chapter titled "Risk Factors"on page 37 of the DRHP.
The Company has established clear goals, making it easier to decide which assets to
invest in. The Company has a diversified portfolio of investments in startups in various
sectors, which will help in mitigating the risk. In addition, the Company has a robust
internal team of professionals with relevant expertise to understand the market situations
and take decisions for investing the funds.
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