Aaron Industries Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENTS

It was a bit challenging for the Indian Economy to overcome all the hurdles and barriers. India saw a steep decline in its growth rate in the July-September quarter of 2019, when Gross Domestic Product (GDP) was at its lowest in 7years at 4.5 percent. Several sectors such as real estate, aviation, automobile and construction sectors suffered a constant decline in demand. On the other hand, the Banking sector and financial services witnessed serious crisis due to rising NPAs & bad loans and squeezing credit limits. This economic slowdown could be attributed to declining consumer demand. To revive the Indian economy and improve its growth rate, the Central Government has announced and undertook several measures and initiatives.

Elevator Market

The Company is engaged in the Business of manufacturing of Elevator and Elevator parts. Indian elevators and escalators market is projected to cross $ 2 billion by year 2023, on the back of rising urbanization, introduction of Real Estate (Regulation and Development) Act, 2016 (RERA) and increasing number of high-rise residential and commercial buildings across the Country.

According to TechSci Research report, Elevators market in India is projected to grow at a CAGR of over 8% during FY16 - FY21, due to increasing urbanization, rising construction of high-rise buildings, growing Real estate sector coupled with increasing investments on improvement of public infrastructure across various major cities in the country. Further, Government of India is also focusing towards modernization of airports and railway stations, and this is also projected to drive elevators and escalators market in the Country during forecast period.

Increasing number of high rise buildings is driving demand for passenger elevators across different end user segment including residential, commercial, industrial and government institutions. Cities like Ahmedabad, Mumbai, Delhi, Bangalore, Chennai, Kolkata, Hyderabad, Pune, Nasik, Patna, Surat, Vadodara, Noida and Gurgaon are the major demand generators for elevators and escalators in the Country.

Steel Polishing and Finishing Market

India is the worlds second largest Steel producer in year 2019. India surpassed Japan to become the worlds second largest Steel producer in year 2019. As per Indian Steel Association (ISA), Steel demand is estimated to grow 7 per cent in FY20 and FY21 in India.

The growth in the Indian Steel sector has been driven by domestic availability of raw materials such as iron ore and cost-effective labour. Consequently, the Steel sector has been a major contributor to Indias manufacturing output.

Indias finished Steel consumption grew at a CAGR of 5.2 percent during FY16-FY20 to reach 100 MT. Indias crude Steel and finished Steel production increased to 108.5 MT and 101.03 MT in FY20P, respectively.

Indias per capita consumption of Steel grew at a CAGR of 4.43 per cent from 46 kgs in FY08 to 74.10 kgs in FY19.

The Indian government has always supported the steel industry and introduced the National Steel Policy in 2017, which envisions the growth trajectory of the Indian steel industry till 2030-31. The broad contours of the policy are as follows:

1. Steel-making capacity is expected to reach 300 million tonnes per annum by 2030-31.

2. Crude steel production is expected to reach 255 million tonnes by 2030-31, at 85% capacity utilization.

3. With 24 million tonnes of net exports, consumption is expected to reach 206 million tonnes by 2030-31.

4. As a result, per capita steel consumption is anticipated to rise to 160 kg.

5. An additional investment of Rs. 10 lakh crore is envisaged.

6. Allowed 100 percent Foreign Direct Investment (FDI) in the Steel sector under the automatic route. According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), Indian metallurgical industries attracted Foreign Direct Investment (FDI) to the tune of US$ 13.40 billion between April 2000-March 2020.

Expansion of Business

The Company has already made more than Rs. 7.00 Cr. investments in the land, building, plant & machinery at newly manufacturing unit located at 251-B, Royal Industrial Park, Vill. Moti Pardi, Ta. Mangrol, Surat-394120, Gujarat. This unit is engaged in polishing and finishing stainless steel sheets.

This unit is the backward integration of Aarons primary product portfolio i.e. Elevator Doors and Cabins. Commissioning of this unit is a strategic decision to strengthen the supply-side of our core products i.e. elevator doors and cabins. Apart from elevators, stainless sheet sheet is used in a variety of industries such as food storage, architectural & construction, appliances and many more.

Product

Portfolio

We have a complete range of products for elevator industry. An in-house production of major parts of elevators which consistes of Elevator Cabinets, All type of doors with Automatic door operators. This products are sold individually or even with complete Kit of elevator.

The expansion towards sheet polishing has opened a wide range of industries where we can capture new market. Polishing products consist of different finishes in stainless steels, PVD coated colored sheets and designer sheets.

SEGMENT WISE PERFORMANCE

SEGMENT FY 2019-20 FY 2018-19
Elevator Industry 18,36,71,324 14,93,50,132
Electrical Products 1,39,21,348 2,60,81,244
Steel Polishing 1,63,99,264 1,01,051

Increasing urbanization, construction of high rise buildings.

Increasing concept of Elevator in Bungalow. Growing value of aesthetics in elevators.

Tapping Steel polishing and finishing market.

Indias finished Steel consumption is anticipated to increase to 230 MT by FY 2030-31 from 98.71 MT in FY 2018-19.

Steel per capita consumption in India is anticipated to rise to 160 kg.

RISKS, CORNCERS & THREATS

The Company is exposed to a number of risks such as economic, regulatory, taxation and environmental risks. Further, Following can be some of the risk and concern the Company needs to be keep in mind:

-The competition from largely unorganized Industry of the elevator market can affect the functioning of the Company.

-It is a challenge to recruit and hire technically sound manpower, who understand the complexity and technicality of elevator products for installation, servicing & maintenance.

-Current slowdown in the real estate sector can affect the performance of Elevator business.

-Increasing competition among the Indian and foreign Company in Steel industry can affect the performance of Steel Polishing and finishing business.

Some of the risks that may arise in its normal course of its business and impact its ability for future developments include inter-alia, credit risk, liquidity risk, counterparty risk, regulatory risk, commodity inflation risk, currency fluctuation risk and market risk.

INTERNAL CONTROL SYSTEM & THEIR ADEQUANCY

The Company has a sound and adequate internal control, commensurate with its size and nature of business. We constantly upgrade our systems for incremental improvements, because we firmly believe that change is the only constant, and without change we cannot progress. We periodically review the systems. These systems ensure protection of assets and proper recording of transactions and timely reporting.

HUMAN RESOURCES

One of the key pillars of the Companys business is its people. The Company considers human resources as one of the vital and important factors for sustained growth, business success and creating value for Stakeholders. Taking into this account, your Company continued to Invest in developing its human capital and establishing its brand on the market to attract and retain the best talent. The Company has maintained healthy, cordial and harmonious relations with all Employees.

The total numbers of Employees were 85 as on 31st March, 2020.

SIGNIFICANT CHANGES IN FINANCIAL RATIOS

During theyear, the significant changes in the financial ratios of the Company, which are more than 25% as compared to the previous year are summarized below:

FINANCIAL RATIO FY 2019-20 FY2018 -19 Change % Reason for Change
Interest Coverage 5.37 7.20 25.42% Due to increase in
Ratio borrowing for business expansion

OUTLOOK

The outlook is optimistic, with the Company likely to perform better aided by capacity expansion, market growth, increasing preference for value-added products and a wider geographic footprint.

Your Company focuses on quality products and expects to get more orders in coming years. Adoption of global trends in Elevator business which includes energy efficient, safe and reliable equipment manufacturing and Improve designs will help us to gain more in coming years.

Further, Market presence in Steel polishing business is expected to be strengthened, the results of which would become visible by Financial year 2020-21.

CAUTIONARY STATEMENT

Certain statements made in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, predictions and expectations may be forward looking statements, within the meaning of applicable securities law and regulations and actual results may differ materially from those expressed or implied. Significant factors that make differences to Companys operations include competition, change in Government policies and regulations, tax regimes and economic development within India. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statement, on the basis of any subsequent development, information or events or otherwise.