This Report contains forward-looking statements that involve risks and uncertainties.
When used in this Report, the words ‘anticipate, ‘believe, ‘estimate,
‘expect, ‘intend, ‘will and other similar expressions as they relate to
the Company and/or its Businesses are intended to identify such forward-looking
statements. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events, or
otherwise. Actual results, performances or achievements could differ materially from those
expressed or implied in such forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements that speak only as of their
dates. This report should be read in conjunction with the financial statements included
and the notes.
INDUSTRY STRUCTURE AND DEVELOPMENT
Global Economic Scenario
The January 2023 World Economic Outlook Update projects that global growth will fall to
2.9 percent in 2023 but rise to 3.1 percent in 2024. The 2023 forecast is 0.2 percentage
point higher than predicted in the October 2022 World Economic Outlook but below the
historical average of 3.8 percent. Rising interest rates and the war in Ukraine continue
to weigh on economic activity. Chinas recent reopening has paved the way for a
faster-than-expected recovery. Global inflation is expected to fall to 6.6 percent in 2023
and 4.3 percent in 2024, still above pre-pandemic levels. The baseline forecast is for
growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0
percent in 2024. Advanced economies are expected to see an especially pronounced growth
slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative
scenario with further financial sector stress, global growth declines to about 2.5 percent
in 2023 with advanced economy growth falling below 1 percent. Global headline inflation in
the baseline is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of
lower commodity prices but underlying (core) inflation is likely to decline more slowly.
Inflations return to target is unlikely before 2025 in most cases. (Source IMF imf.org)
Indian Economic Scenario
India has emerged as the fastest growing major economy in the world and is expected to
be one of the top three economic powers in the world over the next 10-15 years, backed by
robust democracy and strong partnerships.
Prices in the year 2022-23 is estimated to attain a level of 159.71 lakh Crore, as
against the First Revised Estimate of GDP for the year 2021-22 of 149.26 lakh Crore. The
growth in GDP during 2022-23 is estimated at 7.0 percent as compared to a contraction of
9.1 percent in 2021-22. Nominal GDP or GDP at Current Prices in the year 2022-23 is
estimated to attain a level of 272.04 lakh crore, as against 234.71 lakh crore in 2021-22,
showing a growth rate of 15.9 percent. (As per NSO, The National Statistical Office
released on 28.02.2023)
Indias foreign exchange reserves raised by $5.98 billion and stood at $578.78 billion
as of March 24, 2023, according to data from RBI. Indias GDP which contracted in the past
years has recovered in 2022-23. This recovery one of the most decisive among major
economies validated Indias long-term consumption potential.
Industry Outlook and Trends
The company primarily caters to two industries:
a) Heavy Engineering b) Defence
The Heavy Engineering division contributes about 76% of the total revenue for the
company while the Defence division contributes 24%.
The engineering sector is the largest of the industrial sectors in India and accounts
for 3.53% of the countrys Gross Domestic Product (GDP). It accounts for 27% of the total
factories in the industrial sectors and represents 63% of the overall foreign
collaborations. India enjoys comparative advantage vis-?-vis peers in terms of
manufacturing cost, market knowledge, technology and creativity. All these factors have
been a driving force behind engineering exports from India. The engineering goods export
of India had a share of 24% out of total exports during April December 2022-23 from the
country. During 2022-23, the total engineering goods exports of India were valued at US$
107.04 billion; a 4.57% increase from the previous year. Export of engineering goods is
expected to reach US$ 200 billion by 2030.
Capacity creation in various divisions such as infrastructure, power, mining, oil &
gas, refinery, steel, automotive, and consumer durables, has only provided positive
tailwinds to your company.
However, there are certain risks involved in dealing with this high risk-high return
business of Heavy Engineering. The Engineering industry is both capital & labour
intensive, and requires huge investments & in turn has high gestation periods. Any
unplanned announcement of lockdown might impact the operations at great level and the
industry might run into huge losses.
The Defence Sector is also likely to accelerate with rising concerns of national
security as there have been constant disputes with China & Pakistan. The government of
Indias proactive approach & its "Make in India" initiative offers huge
potential for the sector.
Government has further formulated the ‘Defence Production and Export Promotion
Policy 2020 to provide impetus to self-reliance in defence manufacturing under the
‘Aatmanirbhar Bharat scheme. This would further companys case and help it to make
inroads in the industry.
OPPORTUNITIES AND THREATS
Opportunities:
Indias drive to become self-reliant and built in-house capabilities and uplift
Domestic Production both in
Engineering & Defence Sector.
"Make in India" push by the government especially in the Defence
Sector.
Bolstered reforms and long-term fiscal policies by the Government can make Global
manufacturers shift their supply chains from China to India.
Threats:
Distress pricing policies of competitors, coupled with rising cost of labour.
Rising inputs costs of raw material and energy and fuel.
Non-flexible government regulations on procurement policies delaying product delivery
timelines and cost.
SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE
Revenue from Defence Sector in FY2022-23 represented 60% of the companys turnover,
while Heavy
Engineering representing the rest 40%.
The Companys total Revenue from Operations stood at Rs. 1520 lakhs, with 40% coming in
from the Heavy Engineering and other Sector, while 60% of the total Revenue from
Operations came from the Defence Sector, resulting a decrease of revenue from the
Operations compared to FY2022. The company with same Asset base has been able to cater to
a diversified pool of Industries, and thus been able to assure that the top line is not
affected due to outbreak of the pandemic.
The companys total list of principal clients now stands at 6 and this list includes
big name such as L&T. The company managed to complete 10 projects in the FY2023.
The State-of-the-Art Palsana workshop is now 100% complete and the company is further
developing a world class infrastructure facility at the workshop to fasten the production
process. The company has a team of more than 400 employees and has witnessed 100% client
satisfaction in the previous fiscal.
OUTLOOK
The company witnessed a decrease of 45.52% growth in Revenue from Operations during the
FY2022-2023 compared to corresponding time period last year. However, the bottom line got
impacted because of heavy employee expense. The company didnt lay off employees during
the lockdown because the company truly believes that the people in the organisation are
its true strength and the company believed in supporting them during the time of crisis.
The roadmap of the company for FY2023 is as follows:
Develop capabilities and facilities to work on special grade Alloys and Materials
Develop technical partnership with organization in the field of Oil & Gas and Defence
Get empaneled with EIL and PESO Establish stronger footprints in execution of site related
Shutdown projects Increase the portfolio of Defence Related project Develop state of the
Art World class infrastructure at Palsana.
R&D on Welding Technologies.
Automation of production process in few areas to ramp up capacity. ASME Certification,
ISO 45001:2018 Standard and ISO 9001:2015 Standard.
RISK AND CONCERNS
Metal, which forms the main raw material for the company has inherently been more
volatile and it impacts the gross profit margins of the company. Continuous Labour
availability is very necessary for the company to grow. The industry which forms the major
portion of the revenue from operations is cyclical in nature; hence depend on overall
economic activity.
Moreover, slow speed of project approval delays revenue recognition.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has in place an adequate system of internal control commensurate with its
size and nature of its business. These have been designed to provide reasonable assurance
that all assets are safeguarded and protected against loss from unauthorized use or
disposition and that all transactions are authorized, recorded and reported correctly and
the business operations are conducted as per the described policies and procedures of the
Company. The Audit Committee and the Management have reviewed the adequacy of the internal
control systems and suitable steps are taken to improve the same.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
In FY 2022-23, revenue decreased to Rs. 1520.29 lakhs, a decrease of 45.5% from FY
2021-22. EBITDA came in at around Rs. -25.48 lakhs and Loss after Tax was -472.59 lakhs.
The company expects to be in a good wicket in FY 2023-24. The company was able to keep its
operations afloat and has managed to remain focused on network building and human resource
development to sustain growth for the coming years.
To conserve resources for the Companys future growth plans, no dividend is being
recommended by the
Directors for the year ended 31st March, 2023.
The company generated its revenue in FY2022-23 from the Heavy Engineering Division in
which it carried out some independent Projects along with serving its Six principal
clients. The other sector in which the company was engaged in was the Defence Sector,
which contributed 60% to its top line. The company now has a pool base of more than 400+
employees which are contributing daily to the growth of the company.
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES
The company firmly believes that its human resources are the key enablers for the
growth of the company and are an important asset. Hence, the success of the company is
closely aligned to the goals of the human resources of the company. The company has over
400+ employees, skilled and unskilled combined, who are proficient and carry rich
experience. They form a perfect team, and are the true reason behind the improvement of
the performance of the Company. Taking this into account, the Company would continue to
invest in developing its human capital and establishing its brand on the market to attract
and retain the best talent.
DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS
Interest Coverage Ratio
The companys Interest Coverage ratio was of -0.44 (FY2023) at the Operational level.
The raw material expenses for the company due to volatility in metal prices along with
non-operational months due to lower profits at the EBIT level.
Current Ratio
The company is well able to maintain its Current Ratio at 1.39 which it intended to in
order to make sure it has slight resources to meet its short-term obligations.
Operating Profit Margin (%)
The Company aims to maintain a stable Operating Margin Ratio; however, FY2023 has been
an outlier for the company due to high raw material & labor costs.
Net Profit Margin (%)
The companys FY2023 Net Profit went up to Rs. -472.55 lakhs. However, the company is
expecting to more profit in the upcoming financial year.
RETURN ON NET WORTH
The Company witnessed a significant change in the Return on Net Worth, due to
lower profitability & higher leverage. However, the Asset Turnover for the company has
been remained intact. The company expects to be on a good wicket in the coming Fiscal
Years.
|
For and on behalf of the Board of Directors |
|
Sd/- |
|
Sanjaykumar Govindprasad Sarawagi |
Place: Surat |
Chairman |
Date: 17/08/2023 |
DIN: 00005468 |
+91-9892691696
