solar industries india ltd Management discussions

Global economic overview

Energy crisis, rising inflation, tight financial conditions in most parts of the world and a hike in commodity prices are denting business sentiments globally. The ongoing geopolitical quandary and the resurgence of Covid-19 in China have further aggravated the situation.

As per the latest estimates by the International Monetary Fund, global growth slowed down and is estimated to grow by 3.4% in CY23 compared to 6.2% in CY22.

"As per the Global Economic Outlook, Global Growth is to fall from 3.4% in F-22 to 2.8% in F-23 before settling at 3.0% in 2024". With the exception of the global financial crisis and the peak of the COVID-19 crisis, it is the weakest growth estimate since 2001. Global inflation is further expected to rise from 4.7% in 2021 to 8.8% in 2022, before softening to 6.5% in 2023 and 4.1% in 2024.

Dwindling private sector savings will test the emerging markets ability to withstand continued tightening in global financial conditions and weaker global growth. Geopolitical stresses remain unresolved and represent two-sided risks for emerging markets in 2023.

As advanced economies raise interest rates to fight inflation, financial conditions are tightening, especially for their emerging-market counterparts. Flexible exchange rates are insufficient to absorb external shocks and policymakers will need to implement foreign exchange interventions or capital flow management measures to emerge from the present scenario.

Turkey

The Turkish economy was significantly impacted by widespread inflation. During the year, inflation reached an all-time high of 85%. Its domestic currency also depreciated significantly in the first half of the fiscal but various initiatives taken by the Turkish government helped stabilise the currency in recent months. Turkish exports hit an all-time high during the said period. Turkey recorded a 13% rise in exports by value, with sales hitting USD 254 billion in 2022.

The earthquake took an enormous toll on existing assets and suppress economic activity as the country faces a humanitarian crisis. This has affected the economic activities in the affected region in short term. However, subsequent large-scale rebuilding efforts by the public and private sectors are expected to boost the associated economic activities and the countrys GDP growth.

According to the World Bank, economic growth is projected to slow down to around 2.7% in 2023-24. It is expected that inflation is to decline but will remain above 40%. This will dent household purchasing power while heightened uncertainty will deter investment. Export growth is expected to be slow as external demand weakens. The unemployment rate is projected to stay above 10% in 2023. Large external finance requirements and minimal reserve buffers may make the economy sensitive to shocks.

Australia

The Australian economy saw its steepest inflation jump in four decades in 2022. Inflationary pressures impacted household purchasing power. The governments initiatives and expenditure on cleaner and cheaper energy, education, nation-building infrastructure, and other activities to promote its sectors have contributed to the economys resilience.

The growth rate of Australias economy is expected to slow down to 1.9% in 2023 and 1.6% in 2024. Rising inflation, the rapid increase in interest rates by the RBA and other macro-indicators are some of the major reasons for such slow growth. Inflationary pressures are expected to diminish as the labour market cools and supply chain bottlenecks ease. A stronger-than-expected decline in house prices is a key risk to the Australian economy.²

South Africa

South Africa is one of the few economies that is pioneering the transition to a low-carbon economy. The World Bank-supported $497 million initiative has improved the countries coal sectors prospects. Mpumalanga province produces over 83% of the countrys total coal production. This initiative opened up new options and increased coal output in that province.

As projected by the World Bank in its report, South Africas economic growth is expected to slow down to 1.4% in 2023 but will rise to 1.8% in 2024 owning to policies in place by the Government.³

Ghana

According to the African

Development Bank, Ghanas GDP is set to grow by 3.6% in 2022. This is 1.8% less than the figure for 2021. Deep macroeconomic imbalances, increased inflation, a depreciating local currency, and a huge public debt impacted on growth.

Ghanas real GDP growth is expected to decline in 2023 due to rising consumer prices and fiscal tightening, which weigh on private consumption and investment. During the fiscal year, the governments spending has decreased. Ghanas economic growth rate is expected to reach 5.8% by 2027 as new projects come online, fueled by an increase in gold exports.

Nigeria

Owing to several global as well as domestic headwinds, Nigerias economic growth has slowed. The country experienced declined oil output and moderating non-oil activity during the fiscal. Like other economies, the Nigerian economy is also severely affected by the cost of living crisis. Despite these headwinds, Nigeria is one of the few economies to continue its growth momentum. The decline in its growth rate is relatively less than the global economy.

Nigerias GDP is expected to grow by 2.9% between 2023 and 2024. The decline in oil production, insecurity ahead of the 2023 general elections and high inflationary pressure remain the major areas of concern for the Nigerian economy. For 2023, the manufacturing sector is expected to expand. Purchasing Managers Index (PMI) shows confidence within key sectors of the economy.

Zambia

The education and Information, Communication and Technologies (ICT) sectors have performed well throughout the year. The increased allocation in the governments yearly budget for health, environmental protection, housing and community facilities, and cultural development is projected to boost the countrys economic activity. With the resolutions addressing the debt crisis, economic recovery is likely to continue in 2023, and inflation is expected to reduce further. Zambias economy is one of the few in the Southern African area that is growing favourably. According to the World Banks most recent prediction, Zambias GDP would grow by 3.9% in 2023 and 4.1% in 2024.

Tanzania

Pro-growth policies are at the top of the governments economic strategy. It seeks to maintain expansion momentum while cushioning the economy from external shocks. The governments strategies include deepening investments in transport, information and communication technology, and energy to support spatial transformation and inclusive growth, with the purpose of significantly scaling up human capital development.

These interventions will address the rural-urban divide and boost the enablers for poverty reduction that affect access to infrastructure, social services, and productive jobs. Given the key role of the private sector, the framework is expected to maximise access to finance and generate employment for Tanzanias development. Tanzanias GDP is expected to grow by 5.3% in 2023, according to the World Bank. This forecast is significantly higher than Sub-Saharan Africas average growth rate of 3.6%.

Indonesia

[Indonesias 2022 GDP growth races to a 9-year high on resource boom]

Indonesia has the largest economy in Southeast Asia and is classified as a newly industrialized country due to its status as a middle-income country and member of the G20. With a nominal GDP ranking of 17th in the world and a GDP (PPP) ranking of 7th, Indonesia relies heavily on domestic market consumption, government budget spending, and its ownership of 141 state-owned enterprises. Additionally, the administration of pricing for essential goods, such as rice and electricity, plays a vital role in Indonesias market economy. The Indonesian economy is estimated to have grown by 5.3% in 2022. Indonesias economic growth reached its highest level in nine years because of increased spending brought on by the easing of pandemic restrictions and record-high exports driven by a surge in global commodities. Household consumption accounted for more than half of its growth. As Covid-19-related restrictions eased, it was further supported by travel-related spending. Exports during the same period also rose significantly.

The Indonesian economy is expected to grow by 4.8% in 2023. Household consumption is expected to drive the growth momentum for the economy. Investment in public infrastructure and improvement in peoples mobility will further expand the growth momentum of the country.

Global Economy (%)

Outlook

Global central banks are striving to strike a balance between growth and inflationary concerns and are thus resorting to liquidity tightening measures. They are closely monitoring liquidity positions and aiming to boost sentiments. However, a number of countries are experiencing tepid growth and the future of the global economy is critically dependent on the proper calibration of monetary policy, the course of the war in Ukraine and the possibility of more pandemic-related supply-side shocks.

High energy prices have pushed up inflation, which is estimated to gradually moderate in CY23 and CY24. The IMF predicted global inflation to decline to 6.5% in CY22 from 8.8% in CY22. The governments focus on monetary policy, providing financial assistance to those who need it the most and addressing the energy issue through energy savings, supply diversification, and investment in low-emission sources would help in stabilising inflation.

Indian economy

The Indian economy demonstrated resilient growth in FY 2022-23, manifesting strong indications of macroeconomic stability. The country has recovered from a series of shocks such as the pandemic-induced disruption in economic activity, and the sudden rise in commodity prices fuelling inflation owing to the prolonged Russia-Ukraine conflict.

According to the first advance estimates by National Statistical Office (NSO), the Indian economy is estimated to have recorded a growth of 7% in FY 2022-23, thus reiterating its position as one of the fastest-growing major economies.⁴ According to a recent valuation in terms of size by the International Monetary Fund (IMF), the Indian economy has overtaken the United Kingdoms economy and become the worlds fifth-largest economy⁵. This is the outcome of prudent fiscal and monetary policies of the Government of India and the RBI, proactive vaccination coverage and the sustained capital expenditure of the government. A revival in private investment after the pandemic and bank credit growth are likely to restore momentum of the economy against the background of global recession.

Inflation continues to be a major challenge for growth. According to the RBI, headline inflation is estimated to be at 6.5% for FY 2022-23. The RBI has estimated the inflation for the October-December 2022 quarter to be 6.6% and for the January-March 2023 quarter at 5.9%. It is projected to further decrease to 5% in the April-June 2023 quarter.

However, it is not high enough to deter private consumption and also not so low as to weaken the inducement to invest. In addition, with inflation on a declining path, the interest cost of domestic credit will reduce, inducing a further rise in credit demand by corporates and retail borrowers.

Despite high inflation, economic activity and human consumption have continued to expand, as seen by rising railway freight, E-WayBills, air traffic, PMI data, and other high-frequency indicators. There is a small revenue gap as a result of the reduction in excise tax on petroleum items. Overall revenues point to a bright future for the Indian economy

Outlook

Indias recovery from the pandemic was relatively quick compared to other developing economies, and growth in the coming year will be supported by robust domestic demand and a pickup in capital investment. Even as Indias outlook remains bright, global economic prospects for the near term have been weighed down by various challenges, which are expected to impart a few spill-over effects for the Indian economy.

Against this backdrop, the Economic Survey projects a baseline GDP growth of 6.5% in real terms in FY 2023-24. The projection is broadly in line with estimates provided by multilateral agencies such as the World Bank, the IMF, and the ADB and by RBI [Source: Economic Survey 2022-23].

Industry overview

Global industrial explosives industry

Industrial explosives are used in blasting that are typically employed in mining and construction. Explosives in mining have the biggest market share and may be found in coal mining, quarrying, non-metal mining, and metal mining.

The market is witnessing growth, due to the rising demand for blasting materials from the mining and construction industry. Increasing population and rapid urbanisation are ensuring significant opportunities for ongoing and upcoming Industrial and commercial projects, which need explosives for various purposes.

Outlook

With inflation on a declining path ongoing and upcoming Industrial and commercial projects, which need explosives for various purposes. It is expected to drive the Industrial Explosives market substantially during the forecast period. With a CAGR of 5.4%, the global industrial explosives industry is expected to grow to more than US$ 16 billion, between 2023 and 2028 .

Indian industrial explosives industry

Below are the growth drivers for the Indian explosives industry.

Real Estate & Housing

[The Real Estate Industry in India is expected to reach USD 1 Trillion by 2030 and will contribute 13% to Indias GDP by 2025.]

After exhibiting resilience during the pandemic, the Indian real estate sector has already been the major housing market with strong consumer demand and rising per-capita income. The market grew by over 40% in 2022. According to independent property consultant Knight Frank India, cities like Mumbai, Bengaluru, and the National Capital Region (NCR) have been witnessing increasing sales. The current scenario of sales is fuelling the expectations of double-digit growth numbers in 2023.

The 225 BPS cumulative increase in the repo rate in 2022, as well as the resulting increase in home-loan rates, caused a reduction in homebuyers affordability in the Indian market in 2022. While affordability levels in 2022 have risen since 2021, they remain much higher than pre-pandemic levels in 2019.

The housing market, which drives growth and sustains the whole real estate industry, is set to have an extraordinarily outstanding and probably record-breaking year in the near future. Residential sales have increased by 51% since the Covid-19 era. This is not to say that the real estate market is ideal or without flaws, since several factors, such as rising mortgage rates, inflation, and building material shortages, might stymie expansion. As long as these concerns are restricted in scale, they are not serious and may even be innocuous. A strengthening economy, a return to pre-pandemic working conditions, and different government efforts are all contributing to a very favourable climate.

Outlook

The Finance Ministry has made a significant increase in the budget allocation for the Pradhan Mantri Awaas Yojana, raising it from H 48,000 crore to H 79,000 crore for FY 2023-24. With a target of building 29.5 million houses by FY 2023-24, 21.1 million houses have already been constructed, and the remaining houses are expected to be constructed by March 2024.7 This increase is expected to boost demand for raw materials such as steel, cement, stone aggregate, and consequently, explosives. This development could have a positive impact on the economy by creating more job opportunities and stimulating growth in the construction industry.

Ports

The Indian government has set an ambitious goal of increasing the handling capacity of its ports to 10,000 million tonnes per annum by the year 2047. This represents a four-fold increase from the current total port capacity of 2604.99 million tonnes.⁸ Achieving this target will require significant infrastructure development, including excavation work to improve port connectivity and roads.

Outlook

The Government is investing heavily in port infrastructure, which will help improve efficiency and capacity. The Government is also focused on investing in various projects to ensure that Indias ports can efficiently handle the growing volume of goods being traded globally. This development could have a positive impact on the economy by increasing trade, creating job opportunities and improving the countrys overall infrastructure. Therefore, the outlook for Indian ports remains promising. The country is expected to witness strong economic growth in the coming years, which will boost the demand for port services.

Cement and limestone

The Indian cement sector, which accounts for over 8% of the countrys GDP, is the worlds second-largest cement producer after China. Indias installed capacity is over 550 million Tons per year, and the countrys contribution to global output has risen to 8%, the second largest in the world. Cement, a crucial component of modern construction and infrastructure development, plays a vital role in shaping our future in multiple ways. According to ICRA, Indias cement industry remains a highly underpenetrated market in the world among major economies. The per capita cement consumption of the world is 500-550 kgs whereas, in India, per capita cement consumption is just 240-250 kgs.

Although per capita consumption remains low, a growth in home building across India and the governments emphasis on infrastructure development are providing the cement sector a good outlook. Rural housing remains in great demand, followed by infrastructure and urban housing. In comparison to other sectors, segmental demand for the industrial and commercial sectors has remained modest.⁹

Outlook

It is expected that the demand for cement in India will experience significant growth of 8-10% due to the emphasis placed on the housing and infrastructure sectors in the FY 2023-24 budget. This emphasis includes investment in the development of roads, railways, ports, and other critical infrastructure apart from Housing. As a result, the demand for cement, a key material in the construction industry, is likely to increase substantially to support these projects. It is anticipated that non-residential sectors such as infrastructure development and commercial projects would fuel cement market growth. Growth is expected to be fastest in the eastern regions, followed by the central and southern regions, although the northern and western regions may be more muted. Mining of iron ore, limestone, and stone aggregate has increased as a result of enhanced development in housing, infrastructure, and steel, which is demonstrated by growth in cement.

Steel and iron ore industry

India has become the worlds second-largest producer as well as consumer of steel. During Financial year total Crude Steel Production was 125.32 Million Tons. The metals sector engages 11.49 lakh of people consisting of 7.06% of the total employment share. The steel sector has witnessed a huge transformation during the past eight years and has emerged globally from being the fourth largest producer to the second largest producer and the second largest consumer of steel. Steel usage in India climbed from 57.8 kg in 2013–14 to 77 kg in 2022 and is predicted to reach 220 kg by 2047. India has increased the installed capacity of production of steel by 50% to 155 million tonnes in FY 2021-22 from around 100 million tonnes in FY 2013-14. The removal of export duties on steel and stainless steel will strengthen that sector of the economy.¹⁰

Outlook

The National Steel Policy 2017 outlines an ambitious goal for India to double its production capacity from 155 million tonnes to 300 million tonnes by FY 2030-31. To achieve this, certain major players in the private sector are expected to expand their capacities by over 60 million tonnes in the next two financial years. In addition, the Steel Authority of India plans to increase its current capacity of 20.63 million tonnes per annum to 35 million tonnes per annum by FY 2030-31. To meet this increased demand, 444 million tonnes of iron ore will be required, as well as other resources such as limestone, coal, and dolomite. This presents a positive outlook for the explosives industry.²

Roads and infrastructure sector

India has the second-largest road network in the world at about 62.16 lakh km. The Nations pride, the visionary project of Atal Tunnel that runs under the ‘Rohtang Pass which was constructed on the ‘Manali – Leh Highway under the challenging conditions of freezing temperatures in extremely difficult terrain, has officially been certified by the World Book of Records, as the ‘Worlds Longest Highway Tunnel above 10,000 Feet.

Outlook

The budget for FY 2023-24 has signalled a renewed focus on infrastructure and housing, with a significant increase in the outlay for Roads and Highways. The allocation for this sector has been raised from H 1,99,000 crore to H 2,70,000 crore, indicating a strong commitment to the development of National Highways in the country. This increased investment is set to give a substantial boost to the National Highway Construction Sector. In FY 2022-23, the National Highway construction fell short of its target of 12,000 KM due to land acquisition issues. However, the Ministry plans to construct 14,000 KM of highways in FY 2023-24. The development of rural roads under the Gram Sadak Yojana will also receive significant attention in the coming year.

Mining

The mining sector in India is one of the countrys most important. Many key businesses rely on it for essential raw materials. India has 1,531 active mines and produces 95 minerals, including four fuels, ten metallic, twenty-three non-metallic, three atomic, and 55 minor minerals (including building and other materials). Based on the countrys geological mapping, an area of 571,000 square kilometres (out of a total of 3.1 million square kilometres) has been designated as an Obvious Geological Potential (OGP) area, where the geological potential for the occurrence of mineral deposits is greater. Minerals such as manganese, lead, copper, and alumina are predicted to expand by double digits in the next few years. There is significant scope for new mining capacities in iron ore, bauxite, and coal.

Since major reforms in the Mining Policy from 2021, 108 Mineral Blocks other than Coal have been auctioned.

India is the Worlds second largest Coal producer and Fifth largest in Country in terms of Coal deposit. Indias target is 1.2 Billion Tons Coal Production by FY 2024-25. Countrys Coal Production has increased considerably from 646 Million Tons in 2014 to 893 Million Tons in FY 2022-23.

Coal India the Worlds largest Coal producer produced 703.22 Million Tons in F-23 registering an increase 12.94% over previous year. The other public sector coal company Singareni Collieries registering an all time high production of 67.14 Million Tons registering an increase of 3.26. The major growth have been in the private and captive mines which produced 122.38 Million Tons registering a massive growth of 35.14%. This substantial growth has considerably increased the availability of Coal to the Power Sector. Despite this increase, the countrys coal imports have also risen, highlighting the need for continued efforts to reduce dependence on foreign coal

Outlook

To achieve the governments aim of eliminating the need for steam coal imports, there is a renewed focus on increasing production from Coal India and private sector mines. The Coal Ministry has set a target of 1017 Million Tons for the year 2023-24 and the target set for Coal India is 780 Million Tons, Singareni Collieries 75 Million Tons and Private & Captive Mines is 162 Million Tons. Coal India has planned a Capital expenditure of H 16,500 crore for the year F-24 and accelerating rail connectivity for major mines under PM Gati Shakti. The Coal Ministry

Expected coal production

(in Million tonnes) is also undertaking 52 First Mile Connectivity projects for Coal India, Singareni Collieries, and Neyveli. Additionally, 133 blocks will be up for auction in the 6th and 7th Tranche of Commercial bids, with 15 blocks planned for MDOs. All of these initiatives demonstrate the countrys determined efforts to meet the rising demand for power by increasing coal production. Coal Indias capital expenditure for the year is also significant, reflecting the governments commitment to the industrys growth. Overall, the coal industry is poised for growth, and with continued support, it will play a vital role in powering the nations progress.

Global defence industry

The global aerospace and defence market grew from USD 721.22 billion in 2021 to USD 781.4 billion in 2022 at a compound annual growth rate (CAGR) of 8.3%. The Russia-Ukraine war disrupted the chances of global economic recovery, at least in the short term. The war between these two countries has led to economic sanctions on multiple countries, a surge in commodity prices, and supply chain disruptions, affecting many markets across the globe.

Outlook

The ongoing geopolitical tensions are expected to result an upsurge in government spending on defence and security globally. This is expected to drive the demand for new and upgraded weapons systems, military aircraft and other defence-related goods. The aerospace and defence market is expected to grow to $961.21 billion in 2026 at a CAGR of 5.3%³.

Indian defence industry

The Indian defence industry, the worlds second-largest armed force, is on the verge of a change. The government has identified the defence and aerospace sector as a focus area for the ‘Aatmanirbhar Bharat or ‘Self-Reliant India initiative, with a formidable push on the establishment of indigenous manufacturing infrastructure supported by a requisite research and development ecosystem. India is positioned as the third-largest military spender in the world, with its defence budget accounting for 13.18% of the countrys total budget. The government has established two defence industrial corridors in Uttar Pradesh and Tamil Nadu. As per the Union Budget 2023-24, H 5.94 lakh crore has been allocated to the ministry of defence. In line with the self-reliant India initiative, the share of domestic capital procurement, which was earmarked at 68% in FY 2022-23 has been enhanced to 75% of the capital acquisition budget of the defence services for FY 2023-24.¹³

Outlook

The government has announced two dedicated defence industrial corridors in the states of Tamil Nadu and Uttar Pradesh to act as clusters of defence manufacturing that leverage existing infrastructure, and human capital. Further, to enable innovation within the defence and aerospace ecosystem there are supportive government schemes such as the iDEX ((Innovations for Defence Excellence) and DTIS (Defence Testing Infrastructure Scheme).

The Indian government has been increasing its defence spending in recent years to modernise its armed forces and meet the emerging security challenges. The Indian armed forces are facing a growing demand for defence products and services. The Indian Army is in the process of modernising its inventory of weapons and platforms, while the Indian Navy is expanding its fleet of ships and submarines. The Indian Air Force is also acquiring new fighter jets and helicopters.

Growth drivers

Defence industrial corridors – The Government has established two defence industrial corridors in Uttar Pradesh and Tamil Nadu. The two defence corridors in Uttar Pradesh and Tamil Nadu have together signed 111 Memorandums of Understanding (MoUs) with industries representing investments worth H 21,904 crore.

Industries (Development and Regulation) (IDR) Act, 1951– The list of defence items requiring Industrial Licences has been reduced, and most parts or components no longer require an Industrial License. The original validity of the granted Industrial Licence has been raised from three to fifteen years, with the option to extend it by three years on a case-by-case basis.

The defence products list requiring Industrial Licences has been rationalised and the manufacture of most parts or components does not require Industrial License.

Promotion of indigenous design and development of defence equipment - A new category of capital procurement ‘Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)} has been introduced in Defence Procurement Procedure (DPP)-2016.

The government has identified more than 400 items that will be reserved for indigenous procurement, meaning they will be purchased from domestic suppliers rather than from foreign sources. Additionally, 24 proposals for capital acquisitions have been approved, with a total procurement budget of H 84,328 crore. Out of these 24 proposals, 21 have been approved for domestic procurement, with a total value of approximately H 82,000 crore. This means that the government has authorized the purchase of a significant amount of goods and services from domestic suppliers, which is expected to benefit the Indian economy and support local businesses.¹⁴

Outlook

The government of India aims to achieve a turnover of USD 25 billion including export of USD 5 billion in aerospace and defence goods and services by FY 2025-26. Over the next 5-7 years, the Government of India plans to spend USD 130 billion for fleet modernisation across all armed services. To support the domestic defence industry the government aims to ensure transparency, predictability, and ease of doing business by creating a robust eco-system and supportive government policies. Towards this end the government has taken steps to bring about de-licensing, de-regulation, export promotion and foreign investment liberalisation. The Ministry of Defence has also notified four ‘Positive indigenisation lists comprising 411 defence equipments to be manufactured locally in a phased manner. In addition, to encourage export and liberalise foreign direct investments (FDI) in the defence sector, the Automatic Route has been expanded to 74% and the Government Route has been expanded to 100%.¹⁵

Company overview

Incorporated in the year 1995, Solar Industries India Limited is one of the largest domestic manufacturers of bulk and cartridge explosives, detonators, detonating cords and components. In FY 2009-10, the Company entered into the defence sector to manufacture high-energy explosives, delivery systems, ammunition filling and pyros fuses.

The Companys Non defence operation are spread all over India with its manufacturing facilities at 32 locations within the country. It also has manufacturing plants in Nigeria, Zambia, Ghana, South Africa, Turkey, Tanzania and Indonesia.

Opportunities

Increase in coal demand

The countrys energy needs will rise in the future as a result of urbanisation and economic growth. In the foreseeable future, coal would continue to be the dominant source for supplying Indias expanding electricity needs, despite rising investments in renewable capacity.

Government schemes

The governments focus on "Make in India" to establish "Atmanirbhar Bharat" is expected to decrease import dependency and raise domestic demand for Indias defence industry. The government further aims to support MSMEs in the defence export sector through favourable policies and initiatives. The government liberalised and authorised FDI under automatic route up to 74% and through government route up to 100% where it is likely to lead an access to modern technology¹⁶.

Space sector schemes

With greater private involvement in space activity, the government continues introducing advantageous programmes to promote growth in this sector. Private businesses will be able to conduct space activities more readily thanks to the launch of the Indian Space Association. In an effort to foster young talent, the NITI Ayog, along with ISRO and the Central Board of Secondary

Education (CBSE), has also launched the Atal Tinkering Lab (ATL) space challenge. Up to 100% of foreign direct investment (FDI) in the space sector has been permitted through the government route for satellite establishment and operations which is expected to provide enormous investment prospects for international businesses¹⁷.

Infrastructure investments

The governments Gati Shakti master plan for multimodal connectivity is expected provide major impetus to the infrastructure sector. A capital outlay of H 10 lakh crore has been allocated by the government in Union Budget 2023-24 for infrastructure development which would boost the economic growth and aid the industry¹⁸. The development of Smart Cities is also likely to increase investments in infrastructure.

Threats

At this point, there arent any significant risks to the long-term viability of Solars business. Driven by robust financials good operational efficiencies, and improved intellectual capital capabilities, Solar is well-positioned to keep providing value to stakeholders. However, supply chain constraints, and geopolitical ambiguity are important dangers that could result in short-term economic difficulties.

Product wise performance

Industrial Explosives:

Industrial explosives comprise:

1 Bulk Explosives

2 Packaged Explosives

3 Initiating Systems

Defence Products:

1 High Energy Materials (HMX, RDX, TNT & their Compounds)

2 Composite Propellants for Pinaka, Akash, Brahmos, PSOMXL, Skyroot etc.

3 30 mm Ammunition, MultiMode Hand Grenade, Mines, Warheads, Bund Blasting Device

4 Artillery Fuses, ASW Fuses, Pyros and Igniters

5 Chaff Payloads

6 Loitering Munition

7 Rocket Integration

8 Explosives Filling of Ammunition

Risk Management

The Board at Solar Industries continues to be in charge of risk management and internal control, with a focus on defining the companys risk appetite, regularly assessing and monitoring key risks, and reviewing reports generated by internal auditors on internal controls and risk reports.

Please refer page no. 24 of the report for a thorough description of risk management procedure and plan.

Financial overview

A detailed financial overview of the Company for FY 2022-23 is available in the financial capital section on page no. 34 and Boards Report on page no. 97 forming part of this Annual Report.

Key financial ratios (consolidated)

S. No.	Key financial ratios	FY 2022-23	FY 2021-22
1	Debtors Turnover	9.09	6.81
2	Inventory Turnover	18.75	12.82
3	Interest Coverage Ratio	14.42	15.23
4	Current Ratio	1.53	1.49
5	Net Debt Equity Ratio	0.35	0.41
6	Adjusted Operating Profit Margin (%)	16.76%	16.16%
7	Adjusted Net Profit Margin (%)	11.72%	11.54%
8	Return on Net Worth* (%)	29.00%	23.05%

*The Return on Net Worth for the FY 2022-23 is 29% and the Return on Net Worth for FY 2021-22 was 23.05%. The increase of 5.95% in the Return on Net Worth is mainly due to high profits.

1. The Inventory Turnover Ratio increased by 5.93% in FY 2022-23 due to a decrease in the holding period of inventory.

2. There is no significant change (i.e. change of 25% or more as compared to the immediately previous financial year) in the other key financial ratios.

Human Resources

To know more about our employee well-being, safety, diversity and engagement programs, please read page no. 46 of the Annual Report.

Outlook

The Companys business fundamentals remain robust. It is optimising its operations and supply chain while also incorporating the revised strategy and growth drivers. Its focus on capital investment to increase its operational skills across business verticals will be critical. The government has a number of measures in place to help India become self-sufficient and to promote the export of defence items. The Company is well-positioned and is working towards expanding its product line in order to capitalise on the potential. The company has plans to establish new plants in Thailand and Australia, which are expected to be operational in the near future. It will also focus on forming more strategic collaborations with well-established globally recognised organisations in order to improve its manufacturing technologies.

Internal Control Systems and their Adequacy

The Solar Group has established exceptional internal control systems and procedures to steer all its business processes. The Company has distinctly defined roles and responsibilities for all managerial positions. The financial parameters are effectively monitored and controlled through its SAP ERP software system. 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. The Company has a robust Management Information System and strives to align all its processes and controls with best practices. The Audit Committee also meets statutory auditors to ascertain, inter alia, their views on the adequacy of internal control systems and informs major observations to the Board of Directors periodically. The Company has appointed an independent firm of chartered accountants to monitor the internal audit of its activities, based on an internal audit plan, which is reviewed each year in consultation with the statutory auditors and approved by the audit committee.

The Company has identified inherent reporting risks for major elements in the financial statements and established controls to prevent the same. These risks and the prevention controls are revisited periodically considering the changes in business, IT systems, regulations and internal policies, based on evaluations of the audit, as per Section 177 of the Companies Act 2013 and Regulation 18 of SEBI Regulations, 2015, the Audit Committee has concluded that as March 31, 2023, internal financial controls were adequate and operating effectively.

Cautionary statement

This document contains statements about expected future events, and financial and operating results of Solar Industries India Limited, which are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that the assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications and risk factors referred to in the Managements Discussion and Analysis of Solar Industries India Limiteds Annual Report, for FY 2022-23.