Aarvi Encon Ltd Management Discussions

Global Economy:

The global economy has demonstrated remarkable resilience in the face of last years shocks. This resilience can be attributed to robust macroeconomic fundamentals in most advanced and emerging market economies, alongside strong consumer and government spending. The United States has successfully navigated recessionary pressures, while Europe has exhibited economic resilience that exceeded earlier projections. Conversely, China has encountered significant challenges in regaining its economic momentum.

Although inflation remains above target in many countries, it continues to ease across all major economies. The situation in Asia is more nuanced, with inflation not rising as steeply as in the West and declining more rapidly. Consequently, interest rates in Asia have not risen as much. Global inflation is anticipated to decrease faster than previously expected, reaching 5.8 percent in 2024 and 4.4 percent in 2025, driven by alleviating supply-side issues and tighter monetary policies.

The recovery in global economic growth is facing headwinds from multiple crises, including high debt levels, an energy crisis, and geopolitical tensions. The Red Sea crisis has disrupted global trade routes, resulting in increased transit times, shipping costs, and insurance premiums.

According to the International Monetary Fund (IMF), the global economy is projected to grow by 3.1% in 2024 and 3.2% in 2025. This growth is attributed to the resilience of the United States and certain emerging markets, along with anticipated fiscal support in China. However, this growth rate remains below the historical average, primarily due to elevated central bank policy rates aimed at combating inflation, reduced fiscal support, and sluggish productivity growth.

Sources: h t t p s : / / w w w . i m f . o r g / e n / P u b l i c a t i o n s / W E O / Issues/2024/01/30/world-economic-outlook-update-january-2024 file:///C:/Users/User/Downloads/text.pdf https://en.vietnamplus.vn/top-10-defining-events-of-global-economy-in-2023/275388.vnp

Indian Economy:

Despitetheuncertaintystemmingfromadversegeopolitical developments and expansionary fiscal measures taken during the COVID-19 pandemic, the Indian economy has showcased remarkable resilience and maintained robust macroeconomic fundamentals. Strong domestic demand for consumption and investment, coupled with the governments unwavering focus on capital expenditure, has been the principal economic driver in FY24. India has recorded the highest growth among major advanced and emerging market economies and is poised to become the third-largest economy in USD terms by 2027. Projections also indicate that Indias contribution to global growth will increase by 200 basis points over the next five years. The IMF forecasts Indias GDP to expand by 6.7% in 2024 and 6.5% in 2025, driven by vigorous domestic demand and substantial government spending. The countrys economic fundamentals are on an upward trajectory, characterized by declining inflation, a robust financial ecosystem, improved fiscal management, and increasing foreign reserves.

The massive tripling of capital expenditure outlay over the past four years has generated a significant multiplier effect on economic growth and job creation. Growth in the manufacturing sector is accelerating, bolstered by government policies and initiatives, while the services sector is increasingly adopting new technologies to enhance global competitiveness. Timely interventions by the government and the Reserve Bank of India have facilitated Indias swift recovery from recent global shocks. Reforms in taxation, banking, and ease of doing business, along with substantial infrastructure investments, are set to enhance the countrys long-term economic growth potential.

Sources: https://www.worldbank.org/en/country/india/overview h t t p s : / / r b i . o r g . i n / s c r i p t s / B S _ V i e w B u l l e t i n . aspx?Id=22315#:~:text=Recent%20growth%20 o u t t u r n s % 2 0 h a v e % 2 0 s u r p r i s e d , N a t i o n a l % 2 0 Statistical%20Office%20(NSO). https://www.ibef.org/economy/indian-economy-overview https://www.thehindu.com/business/Economy/economy-to-grow-by-73-in-current-fiscal-against-72-expansion-in-fy23/article67709699.ece https://www.cnbctv18.com/economy/imf-raises-india-growth-world-economic-outlook-18925721.htm https://www.business-standard.com/world-news/world-bank-lifts-india-s-economic-growth-forecast-for-fy25-to-6-6-124040201133_1.html https://www.fortuneindia.com/macro/ahead-of-budget-imf-raises-indias-gdp-growth-projection-to-65-for-fy25/115537 https://www.imf.org/en/Search#q=india&sort=relevancy

Global Staffing

The global staffing and recruitment market size is projected to grow from USD 757.56 billion in 2023 to USD 2,031.34 billion by 2031, with an estimated CAGR of 13.1% during this period. A key trend in this market is the increasing adoption of automation and AI-driven recruitment models. The growing number of job vacancies worldwide is driving the adoption of staffing and recruitment solutions across various organizations. According to an April 2023 report by the World Economic Forum, over 803 companies in 45 economies collectively employ more than 11.3 million workers in 27 industries. This surge in employment activity is fueled by factors such as increased investment in the green transition of businesses, the broader application of ESG standards, and the localization of supply chains, all of which are enhancing employment rates globally. Additionally, entrepreneurs in developing countries are expanding their businesses, leading to the creation of new job opportunities around the world. https://www.theinsightpartners.com/reports/staffing-and-recruitment-market

1. Technological Integration: Technological advancements, including artificial intelligence, machine learning, and data analytics, are reshaping the recruitment and staffing landscape. Automated resume screening, chatbots for initial candidate interactions, and predictive analytics are becoming integral to streamline processes and improve efficiency.

2. Remote Workforce Management: The rise of remote work, accelerated by global events, has led to a surge in demand for virtual recruitment and staffing solutions. Companies are leveraging digital platforms for seamless candidate sourcing, interviewing, and onboarding, fostering a more flexible and adaptive workforce.

3. Diversity and Inclusion: Organizations are increasingly prioritizing diversity and inclusion in their hiring processes. Recruitment and staffing agencies are playing a crucial role in assisting companies to build diverse teams, ensuring a wide range of perspectives and skill sets.

4. Gig Economy Influence: The gig economy is impacting the way companies approach staffing. Temporary and freelance workers are sought after for short-term projects, driving the demand for flexible staffing solutions.

https://www.linkedin.com/pulse/global-recruitment-staffing-market-set-expand-295-i9myf

Indian Staffing

The India staffing and recruitment market was valued at US$ 18.06 billion in 2022 and is projected to reach US$ 48.53 billion by 2030; it is expected to grow at a CAGR of 13.2% from 2022 to 2030. This substantial growth is driven by the increasing adoption of flexible workforce solutions and skill development initiatives spearheaded by staffing companies. According to recent reports, more than 5% of individuals are advancing in their careers annually through these staffing channels, indicating a robust and dynamic job market.

In 2023, flexible staffing as an employment format saw a 5 percent year-on-year growth compared to other employment formats, according to a report by the Indian Staffing Federation. Indias flexible (contract) staffing sector is valued at $16 billion, contributing approximately 40,760 crores annually to social security and GST. According to Lohit Bhatia, President of the Indian Staffing Federation, highlighted the growing trust in flexible employment. This trust is underpinned by the tangible benefits provided to workers, including social security, continuous job opportunities, and avenues for upskilling. These advantages have positioned flexible staffing as a preferred employment model for both employers and employees.

The adoption of flexible staffing solutions by both employers and employees highlights their effectiveness in meeting the evolving needs of todays labour market. Over the past few years, there has been a 10 percent increase in the age group of 25–30 years moving towards the flexible workforce, indicating a trend of young individuals increasingly choosing this employment model. This diversity across age groups underscores its widespread appeal and accessibility, catering to individuals at different career stages.

Gender-specific data reveals that women consistently make up 25 percent of the flexible workforce, showcasing impressive diversity. Various sectors, including FMCG, e-commerce, manufacturing, healthcare, retail, logistics, banking, and energy, actively embrace general staffing services to fulfil their workforce requirements. https://www.thehindubusinessline.com/economy/flexi-staffing-continues-to-be-popular-choice-of-employment-format/article67438299.ece

Gig Workers

The emergence of the gig economy is reshaping the landscape of employment, and the projections underscore its significant growth trajectory. By 2025, India anticipates an expansion of its gig workforce by over 110 lakh workers, a testament to the transformative power of this evolving employment model. Urbanization, coupled with the availability of a talented younger demographic and widespread technology access, has provided fertile ground for the proliferation of gig opportunities, emphasizing flexibility as its primary allure across diverse professions.

The latest insights from the NITI Aayog June 2022 report project a substantial surge in the gig workforce, potentially reaching 2.35 crore by 2030. Notably, gig or contractual hiring is poised to increase to 9% of the total workforce hiring in 2023, up from 8% in 2022. Key sectors driving this trend include automotive, engineering & manufacturing, GIC, and IT. Moreover, the distribution of gig force workers across expertise levels reveals a diversified landscape, with 31% engaged in low-skilled work, 47% in medium-skilled work, and 22% in high-skilled work, as reported by NITI Aayog.

Recognizing the evolving nature of gig employment, platforms are increasingly prioritizing the well-being and professional development of gig workers. Initiatives such as health benefits, including comprehensive coverage for medical expenses and paid leaves, underscore a commitment to worker safety and welfare. Moreover, platform-led upskilling endeavours are instrumental in facilitating the transition of informal sector workers into the gig economy, fostering career progression through certifications and skill enhancement opportunities. Additionally, advocating for adequate legal protection and rights for gig workers is imperative, ensuring fair wages and dispute resolution mechanisms to uphold their dignity and security in the workforce.

While the gig economy offers unprecedented professional autonomy, the unorganized sector remains a cornerstone of employment in India, albeit fraught with challenges. Accounting for approximately 45% of the nations GDP and employing around 90% of the workforce, the unorganized sector is a vital contributor to the economy. However, pervasive issues such as inadequate social security, poor working conditions, and limited access to education and training persistently plague this sector, hindering upward mobility and economic empowerment for workers. In response to these challenges, the Indian government has embarked on significant policy initiatives aimed at enhancing the welfare of informal sector workers. The implementation of the National Policy for Informal Sector Workers and plans for a national floor level minimum wage signify proactive steps towards addressing social security gaps and ensuring fair compensation for workers. These measures, coupled with ongoing efforts to improve access to education and training, underscore a commitment to fostering inclusive growth and improving the livelihoods of workers in the unorganized sector.

In conclusion, while the gig economy presents exciting opportunities for flexible employment, the enduring significance of the unorganized sector underscores the multifaceted nature of Indias employment landscape. By addressing the systemic challenges facing informal sector workers and embracing policy reforms aimed at enhancing social security and livelihoods, India can pave the way for a more equitable and inclusive workforce ecosystem. https://ciiblog.in/future-of-gig-workforce-in-india/

COMPANY OVERVIEW

Aarvi Encon, a leading Technical Manpower Supply company, provides permanent and temporary manpower services in a variety of industries. It has been providing industrial solutions to the organized sector for over 36 years. Aarvi adds value to various verticals by providing technical staffing solutions and qualified engineers in areas such as electrical- instrumentation services, erection & commissioning, operation & maintenance, instrument calibration, plant shutdown, equipment services & support for O&Ms, airport maintenance, and so on.

Aarvi is one of the most well-known workforce outsourcing firms, providing temporary staffing to a wide range of industries, including EPC firms, power plants, oil and gas refineries, chemicals and petrochemicals, construction, infrastructure projects, renewable energy, ports, terminals, telecom, fertilizers, cement, automation, automobile, aviation, metro & monorail, railway, metals, minerals and so on. Throughout the year, the company successfully welcomed and integrated several new clients into its portfolio.

The company has added O&M services to its service offering. O&M activities currently account for 17% of our revenue. Aarvi Encon has become the preferred partner for O&M services. The Company is moving towards Aarvis Green Transformation, whereby our manpower outsourcing services in the renewable sector accounted for an impressive 9% of the total revenue.

Aarvi has established a significant presence not only in the Indian market but also in several Middle Eastern countries, including the UAE, UK, Indonesia, Oman, and Qatar. Additionally, a new company has been incorporated in Saudi Arabia, where operations are set to commence soon.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has in place adequate Internal Financial Controls with reference to financial statements, and these internal financial controls are operating effectively. Your company has adopted policies and procedures to ensure the orderly and efficient conduct of its business, including adherence to the Companys policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records, and timely preparation of reliable financial statements.

To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee. The Internal Auditors monitor and evaluate the efficacy and adequacy of the companys internal control systems, ensuring compliance with applicable laws, regulations, accounting procedures, and policies. Based on the reports from the Internal Auditors, corrective actions were undertaken, and controls were thereby strengthened. Significant audit observations and action plans are presented to the Audit Committee of the Board.

Results of our operations:

The function-wise classification of the Consolidated Statement of Profit and Loss is as follows:

Consolidated Performance a. Revenue from operations at Rs. 406.15 Crore as against Rs. 436.52 Crore of previous year shows the decrease in revenue by 7% than the previous year. b. The Net profit after tax for the year decrease by 21.78% to Rs. 11.35 Crore from Rs. 14.51 Crore. c. The Working capital (Net current assets) increased by Rs. 18.20 Crore i.e. from Rs. 63.80 Crore to Rs. 82.00 Crore. Significant changes in key financial ratios as compared to the previous year:

Standalone Performance a. Revenue from operations at Rs. 377.65 Crore as against Rs. 382.70Crore of previous year which is decrease by 1.3 %. b. The Net profit after tax for the year reduced by 26.7% to Rs 10.35 Crore from Rs. 14.12 Crore. c. The Working capital (Net current assets) increased by Rs. 15.32 Crore i.e. from Rs. 46.76 Crore to Rs. 62.08 Crore.

Significant changes in key financial ratios as compared to the previous year:

Material Developments in Human Resources / Industrial Relations Front

The Company believes that Human Resources are its key assets. The total number of employees and consultant of the Company is 5458. The Companys HR policy focuses on developing the skill and competencies of all the employees, facilitating team work and total employee involvement, providing a happy work environment to the employees and support to their families and remaining a socially responsible Company contributing to the society. Learning is given the utmost importance in the Company. Training programs focus on improving employees current skills and competencies as well as developing them for their future roles as part of their career development. The Company ensures overall development of every employee and all inputs are provided to reach the expert level of their skill and competency.

In the Company, HR processes are aligned to make employees feel that they are a part of the Company family. The Company creates the platform for employees to voice their opinion and make suggestions to improve the working environment. The Company maintains regular communication with employees to make them feel connected with the Company and perform their jobs most effectively.

The Company focuses on inculcating the habit of continuous improvement and motivating employees to participate in improvement activities for the organization. The Company continues to maintain its record of industrial harmony.