Ador Fontech Ltd Management Discussions

ANNEXURE 1

ECONOMIC ENVIRONMENT

India is doing well in dif cult times

Indias continued high growth is driven by several path-breaking-reforms including the following: (i) Implementation of Goods and Service Tax(GST) (ii) National Logistics Policy (NLP) (iii) Amendments to Foreign Trade Policy (FTP) (iv) Fast track of free trade agreement (FTA)

India aims to double its current annual GDP growth of close to USD 3.5 trillion to USD 7 trillion by 2027 and reach USD 10 trillion by 2030.

BUSINESS ENVIRONMENT

Welding can be traced back in its historic development to ancient times, with the earliest examples dating back to the Bronze and Iron age. During the Iron age, Egyptians and people in the eastern Mediterranean area learned to weld pieces of iron together. This was followed by the art of blacksmithing and welding through hammering during the middles ages. Since the 19th century, people have developed increasingly ecient and effective welding techniques. Today, we even have robotic welding, a method growing in popularity that uses computer control to weld metals much more quickly and accurately than is possible through manual welding. With passing of each century, welding has become more streamlined process with continual yet minimal innovations.

GLOBAL MARKET

Consumables

The global welding consumables market size reached US$ 11076.12 million in 2022 and is expected to grow at a CAGR of 9.22% till 2030. It is expected to reach value of US$ 18803.63 million by the end of 2030.

Equipment

The global welding equipment market size was valued at US$13066.96 million in 2022 and is expected to expand at a CAGR of 6.9% reaching US$19501.64 million by 2028.

INDIAN MARKET

Consumables

The Indian welding consumables market size reached US$ 1,095 million in 2022. The International Market Analysis Research and Consulting Group (IMARC) Group expects the market to reach US$ 1,570 million by 2028, exhibiting a growth rate (CAGR) of 6.1% during 2023-2028.

Equipment

The Indian welding equipment market size is forecast to reach US$23.1 billion by 2027, after growing at a CAGR of 5.9% during 2022-2027.

As regards Fabrication and Repair welding, both complement one another and are corollary. While the market for fabrication industry is deterministic, that of repair welding is deductive in nature, which depends on two parameters:

Weld defects as a process which happen during the course of fabrication including (i) Lack of penetration or incomplete penetration (ii) Lack of fusion or incomplete fusion (iii) Undercut (iv) Spatter (v) Slag inclusions (vi) Cracks (vii) Porosity and (viii) Overlap.

Breakdown and maintenance requirement. As a thumb rule, market for repair welding will be in the range of approximately fteen to twenty percent as that of fabrication welding.

INDUSTRY STRUCTURE AND DEVELOPMENT

Repair welding

Although a weld repair may be a relatively straightforward activity, in many instances it can be complex and various engineering disciplines may need to be involved to ensure a successful outcome. It is recommended that ongoing analysis of the types of defect is carried out to discover the likely reason for their occurrence (material/process or skill related).

In general terms, a welding repair involves:

(i) A detailed assessment to nd out extremity of the defect. This may involve the use of surface or sub-surface or non-destructive testing (NDT) method

(ii) Cleaning the repair area (removal of paint grease etc.)

(iii) Once established, the excavation site must be clearly identified and marked out

(iv) An excavation procedure may be required to be carried out (method used ie., grinding, arc/air gouging, preheat requirements etc.)

(v) A welding repair procedure/method statement with the appropriate welding process, consumables, technique, controlled heat input and interpass temperatures, etc. will need to be approved and implemented meticulously.

(vi) Use of approved welders to be deployed to undertake repair welding

(vii) NDT procedure/technique to be prepared & carried out to ensure that the defect has been successfully removed and repaired.

While repair seems a logical outcome for problems, yet the amount of times that a weld can be repaired is very much dependent on the type of weld that is that needed for repairing. For example, Low Alloy Steel re-welds are dictated by the heat-treated condition supplied. Whereas for Chromium-Molybdenum (Cr-Mo) steels, there can only be two rewelds carried out. Consideration should be given to the post-weld heat treatment operation, as well as any possible degradation of the joint weld.

ANNEXURE TO THE DIRECTORS REPORT

Further, depending on the specific application, all of the common welding processes can be used for repair welding:

Shielded metal arc welding (SMAW),Gas-metal arc welding (GMAW), Gas-tungsten arc welding (GTAW), Submerged arc welding (SAW) & Plasma arc welding (PAW)

Many a times organisations are adopting newer technologies and materials like ceramics, laser welding etc. to ensure longevity of weld parts and ease of handling.

Project size (Ex. large or one-off versus small or mass production) Production stage (early versus late in the project) Thickness/number of runs Fabrication/inspection requirements Poor/incorrect t up Material grade Welding process Welders skill Welding conditions (Ex. position, accessibility) No specific factor can be indenti ed Inspection technique used Site welding conditions

CURRENT YEAR OUTLOOK

Current year outlook remains positive as the Government has placed thrust on infrastructural developments as enunciated in the budget presented by the Finance Minister.

Further, the Indian economy continues to perform well and remains one of the fastest growing in the world, despite the fact that growth projection for 2023-24 has been slightly lowered to six percent.

OPPORTUNITIES

Welding industry has been one of the oldest and mature industry. While there are no radical changes that can be expected in terms of technology, minor improvements happen consistently.

Window of opportunities exits in varied types of repair welding applications within India and offshore destinations like Middle East and African countries. While it is rewarding, it poses equivalent challenges. It is important for organisations to demark the choice of projects and ensure pro tability.

During the year 2023-24 major international expo in terms of Essen Welding at Germany has been scheduled. This will provide great opportunities for organisations across the globe to learn, share, compare and improvise as also look for newer opportunities for growth.

RISKS, THREATS AND CONCERNS

Competition from organised and unorganised sectors exists, besides overseas organisations setting up business establishments in India, offer a plethora of challenges. Even in the case of B2B when there arises breakdown, Shop floor Authorities generally use branded products, but may deploy nearby available Welder and Technician to have the component(s) repaired, unless higher risk like breakage due to improper use of high value components may be anticipated.

SEGMENT WISE AND PRODUCT WISE PERFORMANCE

As regards segment wise performance, the gamut of repair welding largely encompasses provision of holistic solution. Depending on the requirement, it may involve pure service or supply of materials or a combination of both. Further, depending on the base materials there may be different varieties of products that may be offered. Further, even though at revenue level categorisation is made in terms of Trading, Manufacturing and Services; yet supply of raw materials, job works and deployment of other resources being mutually inclusive ie., with extensive overlap, combined holistic analysis is opined to facilitate rationale inference.

While there was an impasse during covid, post covid most of the suppliers have raised their cost and passing of the same to ultimate customers largely seems a major constraint due to competition.

BUSINESS ORGANISATIONS

Most business organisations are converging fabrication and repair welding business under a single roof. This offers the advantage of increased scale of business operations, resulting in cost savings by way of optimal use of resources, easy customer recall and last but not the least, uni ed platform for a ‘single stop solution.

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

To increase the operating effectiveness, automated IT systems are built to control risk and monitor different phases of operations. During the year, the Company migrated to Ramco Systems Accounting Software package. There were challenges at the inception to adapt to the new system and over a period of time it has got smoothened. Going forward, the seamless integration is expected to facilitate nesse in accounting operations.

Further, the Company has various kinds of audits like Statutory, Internal, Goods and Service Tax, Cost Audit etc. all of which are being undertaken by distinct external team of Auditors to ensure fair and transparent disclosures in the interest of all Stakeholders.

PERFORMANCE ANALYSIS

Details on performances are reflected in the statement of financial results and ratio analysis.

MATERIAL DEVELOPMENT IN HUMAN RESOURCE MANAGEMENT

The Company uses Human Capital Management (HCM) module of the Ramco System. As part of the same, mobile app is made available to all employees, which is a self-service-module. Employees can mark their attendance, apply & authorise leave and access salary slips while on the move. In other words, it is HR on the Mobile.

SAFE HARBOR AND DISCLAIMER STATEMENT

Any statement(s) forming part of this document that are not statement(s) of historical facts should be considered as forward-looking statement(s). There are a number of important factors that could cause the Companys actual results to differ materially, from those indicated by the forward-looking statements. Ador Fontech Limited disclaims any obligation to update any forward-looking statement(s) to reflect future events or circumstances unless required on to a do so by law.

HUMAN RESOURCE DEVELOPMENT

Human Resource is the most valuable asset of any organisation.

The growth of Ador Fontech can be largely attributed to the passion and dedicated efforts of its employees. The staff strength as on March 31, 2023 was 166 besides 95 workers on contractual rolls.

Kudos!!! to the Employee Fraternity.

The contribution of employees may not have been possible, but for the support from their families. Through the medium of this Annual Report Special Thanks goes out to each of them.

RATIO ANALYSIS

	2022-23		2021-22
Particulars	Standalone	Consolidated	Standalone	Consolidated
Revenue from operations	20,778	21,423	20,477	20,957
Total income	21,202	21,716	21,043	21,409
Purchases	12,024	12,244	11,015	11,226
Earnings before interest, depreciation and tax (EBIDAT)	3,569	3,050	3,776	3,281
Depreciation	312	358	271	316
Earnings before interest and tax (EBIT)	3,257	2,692	3,505	2,965
Interest expense	-	3	-	5
Exceptional items
Pro t/(loss) before tax	3,257	2,689	3,505	2,960
Tax expense	954	933	960	827
Pro t/(loss) after tax	2,303	1,756	2,545	2,133
Total comprehensive income	2,322	1,779	2,564	2,152
Equity dividend (percent)	250%	-	200%	-
Share capital	700	700	700	700
Reserves and surplus	14,191	11,957	13,269	11,578
Net worth	14,891	12,657	13,969	12,278
Gross property (Plant, equipment and intangible assets)	5,744	6,207	5,618	6,051
Net property (Plant, equipment and intangible assets)	2,809	2,926	2,810	2,921
Total assets	17,480	15,572	16,898	15,741
KEY RATIOS
Working capital turnover ratio (Revenue/Working capital)	2.0	2.3	2.0	2.4
Trade receivables turnover ratio (Credit sales/Average debtors)	7.2	7.2	7.5	7.5
Trade receivables turnover-No. of days ( Accounts receivable/Credit sales*365)	51	51	49	49
Trade payables turnover ratio (Purchase/Average creditors)	6.1	6.1	5.5	5.5
Trade payables turnover-No. of days (Accounts payable/Cost of goods sold*365)	59	60	65	65
Interest coverage ratio (EBIT/Interest expense)	-	-	-	-
Inventory turnover ratio (Cost of goods sold/Average inventory)	6.2	6.2	5.4	5.4
Current ratio (Current assets/Current liability)	5.4	4.2	4.5	3.6
Debt/Equity ratio (Debt/Shareholders equity)	-	-	-	-
Earnings per share (Pro t after tax/Number of equity shares)	6.6	5.0	7.3	6.1
EBIDAT/Sales ratio	17%	14%	18%	16%
Return on year end capital employed (EBIT/Capital employed)	22%	22%	27%	25%
Return on equity (Net income/Shareholders equity)	15%	14%	18%	17%
Return on investment (Interest income/Cost of investment)	9%	6%	9%	7%
Debt service coverage ratio (EBIT/Debt service)	-	-	-	-
Capital turnover ratio (Total income/Shareholders equity)	142%	172%	151%	174%
Gross profit margin ratio (Gross pro t/Trunover)	32%	33%	36%	37%
Gross profit ratio (Pro t before tax/Total income)	15%	12%	17%	14%
Net profit ratio (Pro t after tax/Total income)	11%	8%	12%	10%

RATIO ANALYSIS

Rupees In Lakhs

	2022-23		2021-22
Particulars	Standalone	Consolidated	Standalone	Consolidated
PARAMETERS
(a) Average debtors	2,903	2,985	2,739	2,788
Opening debtors	2,755	2,821	2,722	2,754
Closing debtors	3,051	3,148	2,755	2,821
(b) Average creditors	1,962	2,006	1,998	2,042
Opening creditors	2,131	2,182	1,865	1,901
Closing creditors	1,793	1,829	2,131	2,182
(c) Average capital employed	14,516	12,514	13,107	11,671
Opening capital employed (Total assets less current liabilities)	13,969	12,337	12,244	11,005
Closing capital employed (Total assets less current liabilities)	15,062	12,690	13,969	12,337
(d) Working capital	10,528	9,307	10,184	8,786
Current assets	12,946	12,189	13,113	12,190
Current liabilities	2,418	2,882	2,929	3,404
(e) Borrowings
(f) Gross margin	6,736	7,144	7,430	7,702
Sales	20,778	21,423	20,477	20,957
Cost of goods sold	14,042	14,309	13,047	13,255
(g) Average inventory	2,256	2,322	2,399	2,459
Opening inventory	2,274	2,350	2,523	2,567
Closing inventory	2,238	2,294	2,274	2,350
(h) Interest income	350	241	292	215
Average investment	3,898	3,903	3,231	3,235
Opening investment	3,817	3,822	2,644	2,648
Closing investment	3,978	3,983	3,817	3,822
(i) Computation of gross margin
Turnover	20,778	21,423	20,477	20,957
Expenses
Material cost	12,060	12,300	11,265	11,443
Consumable and stores	9	17	11	17
Power, fuel and utilities	92	96	80	87
Security charges	39	39	29	29
Subcontracting of job works	1,319	1,319	1,215	1,215
Labour	268	268	186	186
Freight and forwarding	255	270	261	278
Total expenses	14,042	14,309	13,047	13,255
Gross pro t	6,736	7,114	7,430	7,702