Ahlada Engineers Ltd Management Discussions.

Pursuant to Regulation 34 read with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 your directors wish to report as follows:

Overview

The objective of this report is to convey the Managements perspective on the external environment and engineering industry, as well as strategy, operating and financial performance, material developments in human resources and industrial relations, risks and opportunities, and internal control systems and their adequacy in the Company during the Financial Year 2019-20. This should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in the Report. The Companys financial statements have been prepared in accordance with applicable Accounting Standards complying with the requirements of the Companies Act, 2013, as amended and regulations issued by the Securities and Exchange Board of India (SEBI) from time to time.

II. External Environment

Macroeconomic Condition With continued weakness in global trade and investment, global growth slumped to 2.9% in 2019, leading to varying degrees of deceleration in economies around the globe. Rising geopolitical tensions, worsening trade relations among some nations, trade policy uncertainties, and stress in key emerging market economies continued to impact global economic activity. Intensifying social unrest in several countries and weather- related disasters also contributed to declining global economic activity.

Growth in the advanced economies slowed down to 1.7% in 2019 as compared to 2.2% in 2018. The US economy slowed to 2.3% in 2019 on account of rising geopolitical tensions and policy uncertainty. Growth in the European region also slowed to 1.2% in 2019. The industrial sector in Germany struggled with lower demand from Asia and disruptions to car production. Uncertainty related to Brexit also weighed on growth in the European region. Growth in Japan was at 0.7% owing to the impact of Typhoon Hagibis, increase in value-added tax, and overall slowdown in manufacturing and exports - particularly those to China. Growth in China dropped to 6.1% in 2019 owing to lower investor sentiment and cooling domestic demand.

In India, growth slowed down to 4.2% in 2019. This economic slowdown can be attributed to weak investments and declining consumer demand. Further, several sectors such as real estate, aviation, automobile, and construction sectors suffered a consistent decline in demand. The banking sector and financial services also witnessed significant pressure of non-performing assets.

Overall, increasing trade tensions, worsening financial market sentiments, intense social unrest across many countries, and sluggish economic growth led to slowdown in global economy.

2. Economic Outlook

In view of the COVID-19 pandemic, there remains considerable uncertainty around the global economic forecast for 2020. According to the International Monetary Fund (IMF), global economy is projected to contract sharply by 4.9% in 2020, surpassing the decline seen during the global financial crisis a decade ago. Stark differences will be observed between impact of the pandemic on advanced economies, and emerging markets and developing economies owing to differences in governance capacity, health care systems, strength of financial institutions, and currency strength.

Growth is expected to be slower in most advanced economies. Countries in the emerging market and developing economies will also witness a slump in growth due to external demand shock, tightening in global financial conditions, and a plunge in commodity prices. In China, where recovery from the sharp contraction in the first quarter is underway, growth is projected at 1% in 2020, supported in part by policy stimulus. The IMF projects a partial recovery in 2021, however, the level of GDP growth is expected to remain below the pre-COVID-19 trend, with uncertainty about strength of the rebound.

Indias economy in the Financial Year 2020-21 is projected to grow at a slower pace following a longer period of lockdown and slower rate of recovery than anticipated. Effective policies and fiscal measures by the Government will be essential to forestall contraction of growth.

Industry Structure and Developments

Our Company is in the business of manufacturing steel doors and windows (steel-frame) and we cater to customers across various segments and industries. We currently have our facilities spread across 3 manufacturing units in addition to one assembling unit and stock yard, with an area admeasuring 34,211 square yards on the outskirts of Hyderabad. Additionally, we are also in the business of manufacturing cleanroom equipment for our customers in the pharmaceutical,

biotechnology and food industries.

Established in 2005, we started commercial operations in February 2006 with manufacturing of cleanroom equipment and furniture. Further in the year 2008, we started manufacturing steel doors which catered to the then existing customers of cleanroom equipment and furniture. Gradually we started expanding the customer base for our products manufactured to healthcare, entertainment and real estate vertical as well.

We have been gradually expanding our manufacturing facilities and have over the past decade, expanded the facilities to its current form and capacity. Presently, we have an installed capacity to manufacture 30,000 doors per month. The facilities to manufacture clean room equipment and furniture and windows is inter-operable, and hence, capacities for the same cannot be conclusively determined.

With nearly a decade of experience in making steel doors and windows, we have developed in-house expertise in the process of manufacturing our product range, i.e. steel doors, windows and clean room equipment, and our in-house research team contributes in fine-tuning our products, its look and finish to suit the requirements of our customers, which in turn has carved a niche for our Companys products. Our in-house research and design team also constantly update the product designs as per client requirements and also make changes to improve efficiency.

In order to expand our business and customer base, we have on August 22, 2017, entered into a Master Manufacturing and Supply Agreement (MMSA) with Tata Steel Limited (TSL), whereby TSL has assured off take of doors manufactured and shall work with us to improve process and line efficiency. We consider this alliance with Tata as one of our biggest strengths. The salient features of this MMSA are as detailed below:

Pursuant to the said Agreement, our Company is manufacturing and supplying steel doors of decorative, wood finished, RAL colour, to be used for independent house building and/or steel doors of decorative and wood finished, RAL colour for external door / internal door / toilet door to be used in housing, residential and commercial sector and other related parts for Tata and under the brand name of Tata and / or as directed by Tata from time to time ("Product").

Additionally, our Company manufactures and supplies steel doors and windows to other infra developers and industrial customers (other than Tata Steel Limited and the products manufactured and supplied to TSL) as well.

IMPACT OF COVID-19 PANDEMIC ON THE COMPANY

The COVID-19 pandemic has posed unprecedented disruptions in business operations of companies all over the globe. At "Ahlada", the first and foremost priority is the health and safety of the employees and the communities in which the Company operates. The Company has been operating its facilities in accordance with the advisories issued from time to time, by the Central, State and local Governments, including the prescribed hygiene and safety standards and social distancing norms.

a. Impact on the operations:

In view of the nationwide lockdown imposed to combat the COVID-19 pandemic and the slowdown in economic activity, there has been a significant reduction in demand in key housing consuming segments such as infrastructure, construction, real estate, capital goods, amongst others. Our company have reduced production amidst weakening economic activities, shortage of manpower, working capital constraints, and logistical issues, thereby impacting product demand adversely.

The Companys production levels decreased on account of lack of demand from customers. Production at downstream facilities was temporarily suspended. Supply chain activities were affected and all despatches were stopped.

At locations where operations were re-opened, the Company adopted safety & hygiene standards at shop floor and offices and implemented social distancing norms, work from home, workforce deployment plan, and staggered shift timing for safety of the employees.

With the phased removal of the lockdown restrictions in India, the Companys upstream making operations have been ramped up and are currently operating at about 50% utilisation levels. The downstream units have reopened and are steadily ramping up.

b. Impact on the profitability, cash flow, liquidity and financials:

The impact on the operations of the Company on account of the COVID-19 pandemic, led to decline in finished product deliveries which resulted in decline in earnings and increase in inventories. Post relaxation of the lockdown, the plant production is gradually ramping up and the inventory is being liquidated based on market demand and

offtake. The Companys digital initiatives have enabled compliance of the internal financial controls and reporting of the Company. The Company has been fulfilling its legal obligations as required for execution of the existing contracts/agreements.

The Company has always strived to have a balanced maturity profile and a judicious mix of funding instruments which help in minimising costs while providing flexibility in managing cashflows. Taking its cashflows and liquidity position into account, the Company is in a position to service its debt and other financing arrangements. The Company has chosen not to avail the moratorium offered by RBI on interest and principal payments, demonstrating its ability to service its debt obligations.

Our Competitive strengths

1. Professional and Experienced Management team

We are a professionally managed organization that is driven by a qualified and dedicated management team, which is led by our Board of Directors. Our senior management team led by our Managing Director and other whole time directors are function oriented and focussed on their respective tasks, while being collaborative. Our management teams collective experience and capabilities enable us to understand and anticipate market trends, manage our business operations and growth, leverage customer relationships and respond to changes in customer preferences. We will continue to leverage on the experience of our management team and their understanding of the industry we operate in, to take advantage of current and future market opportunities.

2. Quality Products

Ours is a quality conscious organisation, which believes in manufacturing quality products. Led by engineering graduates, our management team is focussed on ensuring minimum defects in our products and quality certifications are only an endorsement of the robust systems and processes developed with years of experience and knowledge. Our products and processes undergo regular quality checks to ensure minimal defects. We have been accredited with ISO 9001:2015 (Quality Management system), ISO 14001:2015 (Environmental Management system) and OHSAS 18001:2007 (Occupational Health and Safety Management system) certifications from TUV SUD Management Service GmbH.

3. Assured offtake of products

While our Company was into manufacturing and selling of steel doors and clean room equipment, the agreement with Tata Steel Limited has ensured an assured offtake of our products i.e. steel doors. With the assured product offtake, our team can focus their attention on improving production and manufacturing efficiencies, ensuring quality products at reasonable prices to cater to our customers.

4. Integrated manufacturing facility with independent storage facility

Our Company always endeavours to maintain the requisite infrastructure and technological up gradation for the smooth running of the manufacturing process as well as to cope with the market demand. Our manufacturing units, assembling unit and stockyard are spread across an area of 34,211 square yards and is situated on the outskirts of Hyderabad. We have deployed specialized and imported machinery which is best suited to our manufacturing operations thereby enhancing our product output. We have a common godown/storage facility for finished products within a 10 km radius of our manufacturing facilities, which eases the clutter of storage at manufacturing area and helps in easy dispatch to our customers.

Strategy

During the year under review, the Company continued to focus on operational and marketing excellence to counter adverse business conditions. The Company aspires to be the most valuable and respected Company in the Country for which it has taken steps to be structurally, financially, and culturally future-ready. The Company continues to place special emphasis on strengthening its financial profile to enable future growth and to achieve volume growth while remaining cost competitive.

The Company aspires to further strengthen its leadership position in the industry and is pursuing the following priorities in the medium term.

Strategic enablers:

In order to be future-ready, the Company is focussed on creating an organisation culture which is built on a strong foundation of agility and innovation. People are the key asset for any organisation and hence, the Company continues to direct its efforts towards building a future-ready, engaged, and diverse workforce. The Company is also focussed on investing in various new business models, and enhancing the maturity of the organisation.

Continuing innovation, technology upgrade and cost improvements

Continuous innovation in our manufacturing process, technology upgrade and cost improvement is a norm at our Company. Our qualified and technical teams try and ensure minimal wastage and extract out maximum from the resources we have at our disposal, be it the raw materials, be it the energy or the premises we operate in, optimum utilisation is what we believe will help us in innovating process improvements, thereby reducing costs. Additionally, we use the latest technology and machinery to ensure best quality and competitive product output and regularly upgrade our technology and machineries used in the manufacturing process in order to keep up market standards.

Growth of Indias GDP in FY2019-20

Particulars Q1, FY20 Q2, FY20 Q3, FY20 Q4,FY20
Real GDP growth (%) 5.2 4.4 4.1 3.1

(Source: Economic Times, CSO, Economic Survey, IMF, RBI, Franklin Templeton, PIB)

Road Ahead:

Doors and Windows

With the governments focus on Housing for All by 2022 and Affordable Housing being the flavour within the realty sector, the demand for doors and windows is expected to be robust, based on the new homes and also substantially due to the replacement of existing wooden doors and windows. We do not have any commissioned report for the industry details about the doors and windows market. Given that its a subset of the realty market, a brief about the realty space is listed below.

The real estate sector is one of the most globally recognised sectors. In India, real estate is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade. The real estate sector comprises four sub sectors - housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.

Key Government Initiatives National infrastructure pipeline:

To achieve a GDP of USD 5 trillion by 2025, the government announced National Infrastructure Policy with an investment plan worth H102 trillion in five years. It laid down the vision of the government in terms of job creation: about 50 million people are expected to leave farming from 2012 to 2030, the transition being underway.

Corporate tax relief:

Indian companies were unable to compete globally, with the cost of capital and corporate income tax (CIT) being significantly higher than overseas competitors. In view of this, the government reduced corporate tax rate to 22% from 30%; it announced a new tax rate of 15% for new domestic manufacturing companies, strengthening the Make-in-India initiative. The new effective CIT would be 25.17%, inclusive of a new lower surcharge of 10% and cess of 4%. Indias CIT is now closer to the global average statutory CIT of 23.03%.

Growth drivers Demographics

Urbanisation: Indias urbanization rate was pegged at 34% in 2019 and is projected to reach 40% by 2030, creating an additional demand for 25 million affordable housing units, which will, in turn boost the demand for construction industry in the country.

Growing nuclear families: 74% households have five or fewer members according to the 2011 Census. The fall in the average household size with higher disposable incomes is expected to catalyse growth of the construction industry in the country.

Rising population: India is the second-most populous country with a population of around 1.36 billion in 2019 and growing at >1% per year, the largest population increment anywhere. This population growth would drive the real estate and infrastructure industry, which will, in turn boost the growth of the construction industry.

Financial

Increasing incomes: The nominal per-capita net national income during 2019-20 is estimated at H1,34,226, a rise of 6.1% compared to H126,521 during 2018-19, in turn, driving consumption in the country.

Real estate Housing sector

Housing shortage: The Ministry of Housing and Urban Affairs evaluated an affordable housing shortfall of approximately 10 million, and with the Government addressing this shortage, the demand of the construction of housing sector is expected to grow exponentially.

Home extension and home improvement needs: In 2011, 41% of households were living in less than one-room homes and only 53% households were in a good condition, implying a need for home repair and extension. This is also expected to drive the demand for construction chemicals across the country.

Commercial sector

Office space growth: According to a Knight Frank India report, the countrys office leasing volume rose by 27% y-o-y to an all time high of 60.6 million square feet in 2019 on the back of a surge in leasing activity by information technology companies. This has helped boost the construction chemicals market in the country in the years to come.

Shopping malls growth: India is set to embark on a journey comprising >65 million sq ft of new mall spaces by the end of 2022, of which the top 7 cities could comprise a 72% share and the remaining 28% or 18.2 million sq ft is slated to come up in Tier 2 and 3 cities. This could further boost the demand of construction chemicals.

Pradhan Mantri Awas Yojana (PMAY) (U:

# As of 27th December 2019, a total of 1.12 Crore houses have been sanctioned in the 50th meeting of Central Sanctioning and Monitoring Committee (CSMC) held on 27th December, 2019 under the Pradhan Mantri Awas Yojana (PMAY) (U) since its launch, according to the Ministry of Housing and Urban Affairs, Government of India. The Ministry of Housing and Urban Poverty Alleviation has sanctioned the construction of more than one crore affordable houses for urban poor in states/UTS.

# The government has allowed FDI of up to 100 per cent for townships and settlements development projects

# Real Estate Bill was passed in March 2016 to establish a real estate regulatory authority for regulating and promoting the sector

Smart City Project:

The Government of India along with the governments of the respective states has taken several initiatives to encourage the development in the sector. The Smart City Project, where there is a plan to build 100 smart cities, is a prime opportunity for the real estate companies. Below are some of the other major Government Initiatives:

Risks and Concerns

Your Company is actively, albeit cautiously, looking for growth opportunities and new markets for its products. The Company is exposed to a number of market risks arising from its normal business activities. These risks include changes in raw material prices caused due to market fluctuations and imposition of various government duties - as in the recent times, foreign currency exchange rate, interest rate which may adversely impact the Companys financial assets, liabilities and/or future cash flows. The Company continues to mitigate these risks by careful planning of optimum sales mix, active treasury management, product diversification, innovation and penetration in different markets, both domestic and international. Further cost saving measures across all segments of the Company, would help in improving the margins in an otherwise difficult market.

SWOT analysis

Strengths Weaknesses Opportunities Threats
The agreement with Tata is a testimony of our work ethic and quality, endorsed by a leading Corporate. We are dependent on Tata for distribution and marketing of the products supplied to Tata and we do not have our own distribution or marketing network for such products. The sharing of knowledge and process and cost improvements by TSL team with us will eventually help us make wider range of excellent quality steel doors at competitive rates. Threats from Chinese imports and the unorganised nature of the business makes the playing field uneven for organised players.

Internal control systems and their adequacy

The Company has in place adequate internal control systems and procedures commensurate with the size and nature of business. Depending on the changing requirements the internal audit department is strengthened. The Company has

implemented corporate governance requirement and the audit committee periodically reviews the systems and procedures of the Company.

These procedures are designed to ensure that:

V All assets and resources are acquired economically, used efficiently and are adequately protected;

V Significant financial, managerial and operating information is accurate, reliable and is provided timely; and

V All internal policies and statutory guidelines are complied with.

The effectiveness of internal control is continuously monitored by the Audit Committee of the Company. The Company has an Audit Committee which regularly reviews the reports submitted. The Audit Committee observations are acted upon by the Management. The Company has implemented the corporate governance requirements and the Audit Committee periodically reviews the systems and procedures of the Company.

HIGHLIGHTS OF THE FINANCIAL RESULTS: Financial Performance:

Particulars 2019-20 2018-2019
Revenue from Operations 110,46,16,799 207,43,26,881
Other Income 17,91,373 26,62,992
Total Income 110,64,08172 207,69,89,873
Profit Before Interest and Depreciation 8,97,95,034 34,03,53,837
Finance Charges 5,18,66,651 8,88,67,461
Depreciation 9,84,43,500 7,02,40,698
Net Profit after Interest and Depreciation but before tax 8,97,95,034 18,12,45,678
Net Profit before Tax 8,97,95,034 18,12,45,678
Provision for Tax 2,52,18,509 6,75,65,866
Net Profit after Tax 6,45,76,525 11,36,79,812

STATUTORY COMPLIANCE:

Your Company gives priority to comply all of the statutory requirements in time and the management regularly discusses the same with all of the departmental heads. The Company Secretary, as compliance officer, timely ensures compliance of the provisions of the Companies Act, 2013, SEBI Regulations and provisions of Listing Agreements. Compliance Certificates are obtained from various units of the Company and the Board is informed of the same at every Board Meeting.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES:

The development of human resources is a key strategic challenge in order to prepare people for future responsibilities in terms of professional skills as well as business skills. Your Company has conducted training programmes to its employees enabling them to improve / upgrade their skills.

Silent Revolution continues unabated: Creating tomorrows leaders through identification and nurture of potential talent. Company has taken numerous initiatives for leadership development.