voltamp transformers ltd Management discussions


ECONOMY / INDUSTRY OVERVIEW:

The Indian economy continues to stay resilient amidst geopolitical uncertainties, slowing global trade, disrupted supply chains, volatile commodity prices and rising interest rates. There is visible tax buoyancy in the country today enabling the Government to pursue its targeted capex plans. Elsewhere, major parts of the global economy continue to tread in turbulent waters due to policy tightening, high inflation, worsening financial conditions and continued trade disruptions due to the ongoing Russia-Ukraine conflict.

The capital investment cycle is expected to unfold in India with the strengthening of the balance sheet of corporates. Resilient domestic demand is expected to drive industrial output going ahead. Improving capacity utilization and robust credit growth in the industry point to bright prospects of CAPEX investments by private sector.

The PLI Schemes of the Government are expected to incentivize private players, both domestic and foreign, to set up manufacturing facilities in an environment of improving demand conditions and business confidence. Lastly, the relatively stable financial system will facilitate disbursement of credit towards investment programmes in the future.

Private CAPEX in India is expected to gain pace over the medium term, supported by general uptick in macroeconomic activity and supportive policy measures in place such as PLI, Atmanirbhar Bharat and the China + 1 strategy adopted by countries. The investments would also be made in export oriented sectors due to policy tailwinds. Some of the key sectors that will see CAPEX coming in the next few fiscals include oil & gas, auto and auto components, metals, cement, data centers, scrappage centers, recycling facilities, textiles, chemicals, construction sector, renewable energy and charging infrastructure among others. Additionally PLI incentive would further spur significant CAPEX in certain sectors such as solar photovoltaic modules, advanced chemistry cells batteries and textiles.

According to the Economic Survey, India saw private investments of 3.3 trillion in the first six months of FY:23, up 50% from 2.2 trillion a year earlier. This increased capital expenditure in the first half is the best in five years and comes after the economy witnessed a slowdown in such spending in FY 20 and FY 21 when Companies were reeling under the pressure of decline in demand and slower economic growth amid the Covid-19 pandemic. Also the amount of capital expenditure nearly doubled in past five years.

OUTLOOK FOR THE COMPANY:

The Union Budget 2023-24 clearly signals a move to return India to a higher growth trajectory. The budget focused on all aspects that can help India grow including agriculture, infrastructure capital outlay, MSMEs, Green energy and tourism. The Finance Minister in the Budget 2023-24 proposed 37 percent rise in capital expenditure versus the revised estimate of 202223 plus another 13.6 percent hike in grants in aid to State Governments to create capital assets. These together have raised effective capital expenditure for 2023-24 to 13.70 trillion, a massive amount that has never been allocated before. The focus on roads, metro, railways, power and urban infrastructure will boost the construction sector, which in turn feeds over 250 allied Industries including transformers. The production linked incentive scheme across 14 champion sectors could spur large scale domestic manufacturing and jobs, and create thriving electronics and autos industries among others - while stimulating the green economy. The allocation for PLI Schemes plus 76000 crore for the semi conductor industry will push investment in manufacturing sector in medium term. The Government has identified 100 critical infrastructure projects for last and first mile connectivity at an investment of 75000 crore. In addition there is a plan to add 50 airports, heliports and aerodromes. An amount of 240000 crore has also been provided for the Indian railways.

The continued thrust on capital expenditure is likely to boost the order books of capital goods companies, including EPC firms. Higher allocations for reforms linked, result oriented CAPEX scheme, allocation of 35000 crore towards energy transition will also support growth prospects of the capital goods sector players.

The overall increase in capital expenditure will also create long term benefits paving the way for recovery. The development of urban infrastructure in tier -II and III cities will increase the demand for infrastructure projects considering significant investment in projects like railways, roads, power etc., consumer appliances and heating, ventilation and air conditioning systems. Defence is another sector that is craving for private sector investments. Investments in infrastructure such as data centers would also pick up pace over the near to medium term. Regulatory and policy push for environmental related infrastructure such as scrappage centers, recycling facilities, renewable energy and charging infrastructure among others to

enable compliance to these policies. All these allocations eventually will have positive impact on the Company business, as and when execution take place on ground.

The Company at present is witnessing good enquiry pipeline in its market segments. However, with hardening interest rate and demand slowdown in advanced economies, planned CAPEX of corporates catering export market do run the risk of slow down/ deferment in few sectors like Chemical / Speciality Chemicals and textiles.

FINANCIAL PERFORMANCE OF THE COMPANY DURING THE LAST FIVE YEARS:

Profit Before Tax (PBT), Profit After Tax (PAT), and Sales and Services Income of the last five years.

The Company has achieved net sales and service revenue of? 1385.10 Crores as compared to ? 1127.20 crores in the previous year and the PBT increased to ? 260.36 crores as compared to ? 173.20 crores in the previous year and PAT increased to ? 200.49 crores as compared to ? 133.28 crores in the previous year.

FACTORS AFFECTING OUR FUTURE RESULTS OF OPERATIONS:

The major factors affecting future results of operations of your Company are the currency fluctuation, competitive pressures from local as well as International competitors, Govt, policies on power and infrastructure sectorsand project implementation, large unutilized capacity in Industry, aggressive pricing, continuing and highly volatile raw material prices and timely availability of imported raw materials at budgeted cost.

HUMAN RESOURCES/ INDUSTRIAL RELATIONS:

The Company continue its focus on development of human resources. The Company is a firm believer that its employees are its strength and the Company therefore respects individual rights and dignity of all its employees. The relations of the management with employees during the year continued to be cordial. Learning and development has been strengthened to bring value addition in the employee and to enhance team building leading towards success. The Company focuses on providing the employees, employee - friendly environment and culture and career growth opportunities.

INTERNAL CONTROL SYSTEMS:

The Company has in place, commensurate with the size and complexity of Companys business operation, effective internal control systems and policies for compliance of laws and to safeguard the interest of the Company. The Company maintains a system of internal controls designed to provide reasonable assurance regarding the efficiency and reliability of operations and for safeguarding the assets of the Company and for ensuring appropriate recording and reportingof financial information for ensuring reliability of financial controls and for ensuring compliance of applicable laws and regulations.

The internal financial controls are adequate and are operating effectively and there are proper systems in place to ensure compliance with the provisions of all applicable laws and such systems are adequate and operating effectively.

The internal audit covers a wide variety of operational matters and ensures compliance with specificstandards with regard to reliability and suitability of policies and procedures.

The internal auditors report to the top management through CFO and continuously monitor adherence to laid down systems and policies. Services of internal auditors are being outsourced through established audit firm. The systems are regularly reviewed and modified for changes in operating and regulatory requirements.

The Audit Committee reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening the same from time to time.

RISKS & CONCERNS:

Currently the geo-political situation, volatile commodity prices be crucial parameter to watch while forecasting upcoming businesses opportunities. Volatility in major material prices is also an area of concern adversely impacting fixed price orders for transformers. The wide fluctuation of rupee against US Dollars also affects margin since the key raw materials, viz. copper, transformer oil, special steels for lamination, etc., are of import origin.

STRENGTH:

The Company is debt free since many years and having a good amount of investments of its surplus funds in diversified portfolios, viz. debt and equity mutual funds, Government Securities, bonds, debentures, fixed deposits, tax-free bonds, etc. and the Company has efficient working capital management. The Company has a diverse industrial client base and not dependent on any particular industry segment or region to book orders. Continuity of senior level management staff in service with long duration allows the Company to handle larger volume of business with comparatively less risk.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS:

In accordance with the SEBI (Listing Obligations and Disclosure Requirements 2018) (Amendment) Regulations, 2018, the company is required to give details of significant changes (change of 25% or more as compared to the immediately previous financial year) in key sector specific financial ratios.

KEY FINANCIAL RATIOS:

Sr No. Particulars Numerator Denominator FY

2022-23

FY

2021-22

%

Variance

Reasons for variance (if +/- 25%)
1 Current Ratio (in times) Current Asset Current

Liabilities

4.90 4.80 2.15% NA
2 Debt-Equity Ratio Total Debt Shareholders

Equity

NA NA NA NA
3 Debt Service Coverage Ratio Earnings available for debt service Debt Service NA NA NA NA
4 Return on Equity Ratio (in %) Net Profits after taxes Average

Shareholders

Equity

19.51% 14.96% 30.46% Due to increase in profit
5 Inventory Turnover Ratio (in times) Cost of Goods Sold Average Value of Inventory 5.38 5.21 3.17% NA
6 Trade Receivables turnover ratio (in times) Revenue From Operations Average Trade Receivable 6.65 6.24 6.46% NA
7 Trade Payable turnover ratio (in times) Cost of sales+ Other expense Average Trade Payable 447.97 216.52 106.89% Fast clearances of vendor dues by offering immediate payment against supplies under cash discount scheme.
8 Net capital turnover ratio (in times) Revenue From Operations Working Capital 3.48 2.82 23.66% NA
9 Net profit ratio (in %) Net profit After Tax Total Income 14.03% 11.35% 23.58% NA
10 Return on Capital employed (in %) EBIT Capital

Employed

23.57% 18.44% 27.81% Due to increase in profit
11 Return on Investment (in %) Income from Investment Average

Investment

5.58% 7.46% -25.25% Due to planned switchover from equity to debt holdings and decline in fair value gain as compared to previous year.

LAST 10 YEARS FINANCIAL HIGHLIGHTS:

Year ended 31st March ( in crores) FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY 21 FY 22 FY 23
Net Sales (A) 444.78 516.89 563.30 610.94 639.02 828.83 858.58 692.30 1,127.20 1,385.10
Expenditure (B) 429.81 497.14 525.89 550.75 573.00 735.25 744.84 615.28 988.21 1,154.23
EBITDA (C=A-B) 14.97 19.75 37.41 60.18 66.02 93.58 113.74 77.03 139.00 230.87
Interest & Bank Charges (D) 0.37 0.30 0.43 0.51 0.56 0.00 0.00 0.01 0.80 0.89
Depreciation (E) 7.13 7.22 5.98 5.82 5.99 7.15 8.99 8.85 7.94 9.69
Other Income (F) 26.74 21.16 28.29 38.98 40.67 36.25 8.61 72.29 42.95 40.07
PBT (G=C-D-E+F) 34.21 33.39 59.29 92.83 100.14 122.68 113.36 140.46 173.21 260.36
Tax (H) 7.92 4.98 15.31 20.62 26.66 37.84 23.98 28.24 40.37 60.42
PAT (I=G-H) 26.29 28.41 43.98 72.21 73.48 84.84 89.38 112.22 132.84 199.94
Other Comprehensive Income/(Expense) (OCI) (J) (0.35) (0.11) 0.05 (0.44) (1.00) 0.45 0.55
TOTAL OCI (K=I+J) 26.29 28.41 43.98 71.86 73.37 84.89 88.94 111.22 133.29 200.49
Key Ratios (%) FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY 21 FY 22 FY 23
EBITDA Margin (L=C/A*100) 3.37 3.82 6.64 9.85 10.33 11.29 13.25 11.19 12.33 16.67
Net Margin (M=K/(A+F)*100) 5.58 5.28 7.43 11.06 10.79 9.81 10.26 14.54 11.39 14.07

CAUTIONARY STATEMENT:

Statements in this report on Management Discussion and Analysis relating to the Companys objectives, projections, estimates, expectations or prediction may be forward looking within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectations of future events. By their nature, forward-looking statements require the company to make assumptions and are subject to change based on risks and uncertainties. Actual results might differ materially from those expressed or implied depending upon factors such as climatic conditions, global and domestic demand-supply conditions, finished goods prices, raw materials cost and availability, foreign exchange market movements, changes in Government regulations and tax structure, economic and political developments within India and the countries with which the Company has business and other factors such as litigation and industrial relations. The Company assumes no responsibility in respect of forward looking statements herein which may undergo changes in future on the basis of subsequent developments, information or events.