smiths founders india ltd Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS FORMING PART OF DIRECTORS REPORT FOR 2021-22

During the year under review, the Indian automobile sector drove through a slow lane. The forging industry too opened the year 2021-22 on a subdued note. Though the Association of Indian Forging Industry (AIFI) projected higher demand during the first quarter, due to the pandemic, passive consumer sentiment, stagnant end-user market and inadequate liquidity in the financial system, growth in the automobile / auto components sector remained muted.

Industry Structure and Developments:

The turnaround for the Indian auto industry which began in the Financial Year 2020-21 did not continue in the Financial Year 2021-22. Despite the limp, your Company could improve sales by 25.08% in comparison to previous year.

Opportunities and Threats:

There are a few concerns which seem to hamper the overall growth in the long run, including the rising steel prices, demand supply gap, high electricity tariff, rising fuel prices, governments thrust on electric vehicles and technology upgradation and modernization.

Given the importance of the automobile industry to the economy, its potential for generating employment opportunities and its backward and forward linkages with several sectors, the Government is committed to support its development.

Going forward, Year 23-24 onwards, the Auto Industry is expected to show good growth across all segments on the back of healthy economic outlook, infrastructure investments and new launches by OEMs.

Growing concerns over air pollution, road safety and urban congestion, are driving the policy and regulations for electric motor vehicles and urban development. In the long run, these will impact ownership patterns and in turn will have a significant effect on the future of the automotive industry.

Segment-wise or product wise performance:

Your Company is primarily engaged in the business of ferrous forgings and hence there are no separate reportable segments.

Outlook:

The rapidly globalising world is opening up newer avenues for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe, more environment friendly and reliable modes of transportation. Over the next decade, this will lead to newer verticals and opportunities for auto-component manufacturers, who would need to adapt to the change via systematic research and development.

The Indian Auto Component industry is expected to grow by 8-10 per cent in FY 2022-23, based on higher localisation by Original Equipment Manufacturers (OEMs), higher component content per vehicle, and rising exports from India. The Indian Auto Component industry is set to become the third largest in the world by 2025.

A normal monsoon is expected to push up the countrys growth rate in the coming year.

Risks and Concerns:

The Companys business is exposed to many internal and external risks. Your Company with its lean, nimble and customer-oriented approach is confident of improving its performance and augmenting its resources.

Internal Control Systems and their adequacy:

The Company has an adequate system of internal control commensurate with the size and nature of its business, which ensures that transactions are recorded, authorised and reported correctly apart from safeguarding its assets against loss from wastage, unauthorised use and removal.

Discussion on Financial performance with respect to operational performance:

The financial statements have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP) and comply with the Accounting Standard specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014.

Results of Operations:

Sales turnover and Income

					(Rs.in Lakhs)
Particulars	Financial Year 2021-22		Financial Year 2020-21		+/-
	Amount	%	Amount	%	%
Revenue from Operations	1103.15	97.61	881.97	95.26	2.35
Other Income	27.04	2.39	43.88	4.74	(-)2.35
Total	1130.19	100.00	925.85	100.00	-

Net Sales has increased and other Income has decreased.

Expenses

					(Rs.in Lakhs)
Particulars	Financial Year 2021-22		Financial Year 2020-21		+/-
	Amount	%	Amount	%	%
Material Costs & Changes Inventory	427.18	43.36	359.49	41.91	1.45
Employee Benefits Expense	270.84	27.49	235.93	27.51	(-)0.02
Finance Costs	34.23	3.47	41.77	4.87	(-)1.4
Depreciation & Amortisation Expense	24.36	2.47	24.75	2.89	(-)0.42
Direct Expenses	169.67	17.22	138.97	16.20	1.02
Administration Expenses	53.50	5.43	52.24	6.09	(-)0.66
Selling & Distribution Expenses	5.52	0.56	4.54	0.53	0.03
Total Expenses	985.30	100.00	857.69	100.00	0

Administration expenses have gone up due to ISO recertification expense.

Finance cost has gone down due to repayment of loans, usage of OD Direct Expenses have gone up due to increase in labour and power charges

Material developments in Human Resources/Industrial Relations front, including number of people employed:

The Company considers its people as the most critical and valuable asset. The relations between the employees and the Company remained cordial throughout the year. The Company continues to focus on safety, training and development of the employees. The total number of employees on the rolls of the Company as on March 31, 2022 was 65.

Cautionary Statement:

Certain statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and other incidental factors, over which the Company does not have any direct control.