Ahlada Engineers 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 2022-23. 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 Indian Accounting Standards (INDAS) 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.

External Environment

Global Economy

According to IMF World economic Outlook (WEO) (July 2023), the global economy is yet again at a highly uncertain moment, with the cumulative effects of the past three years adverse shocks, most notably, the COVID-19 pandemic and Russias invasion of Ukraine, manifesting in unforeseen ways spurred by pent-up demand, lingering supply disruptions and commodity price spikes, inflation reached multi decade highs

Global growth is projected to fall from an estimated 3.5 percent in 2022 to 3.0 percent in both 2023 and 2024. While the forecast for 2023 is modestly higher than predicted in the April 2023 World Economic Outlook (WEO), it remains weak by historical standards. The rise in central bank policy rates to fight inflation continues to weigh on economic activity. Global headline inflation is expected to fall from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in 2024. Underlying (core) inflation is projected to decline more gradually, and forecasts for inflation in 2024 have been revised upward.

The recent resolution of the US debt ceiling standoff and, earlier this year, strong action by authorities to contain turbulence in US and Swiss banking reduced the immediate risks of financial sector turmoil. This moderated adverse risks to the outlook. However, the balance of risks to global growth remains tilted to the downside. Inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy. Financial sector turbulence could resume as markets adjust to further policy tightening by central banks. Chinas recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers. Sovereign debt distress could spread to a wider group of economies. On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient.

In most economies, the priority remains achieving sustained disinflation while ensuring financial stability. Therefore, central banks should remain focused on restoring price stability and strengthen financial supervision and risk monitoring. Should market strains materialize, countries should provide liquidity promptly while mitigating the possibility of moral hazard. They should also build fiscal buffers, with the composition of fiscal adjustment ensuring targeted support for the most vulnerable. Improvements to the supply side of the economy would facilitate fiscal consolidation and a smoother decline of inflation toward target levels.

(Source: World Economic Outlook (imf.org))

Indian Economy:

According tothe Asian Development Bank (ADB) "Despite the global slowdown, Indias economic growth rate is stronger than in many peer economies and reflects relatively robust domestic consumption and lesser dependence on global demand,". "The Government of Indias strong infrastructure push under the Prime Ministers Gati Shakti (National Master Plan for Multimodal Connectivity) initiative, logistics development, and industrial corridor development will contribute significantly to raising industrial competitiveness and boosting future growth."

Projects growth in Indias gross domestic product (GDP) to moderate to 6.4% in fiscal year (FY) 2023 ending on 31 March 2024 and rise to 6.7% in FY2024, driven by private consumption and private investment on the back of government policies to improve transport infrastructure, logistics, and the business ecosystem. FY2024 is expected to see faster growth in investment, thanks to supportive government policies and sound macroeconomic fundamentals, lower nonperforming loans in banks, and significant corporate deleveraging that will enhance bank lending.

However, geopolitical tensions and weather-related shocks are key risks to Indias economic outlook.

Indian Steel Industry:

India remains a bright spot in the global steel industry and the steel demand in the country is expected to show a healthy growth of 7.3% and 6.2% in 2023 and 2024 compared to a global growth of 2.3% and 1.7%, respectively, according to Short Range Outlook of The World Steel Association. The world steel forecast comes against the backdrop of the countrys macro-economic fundamentals like manufacturing and services PMIs, IIP, core infrastructure growth, remaining steady and strong and it is expected to register a GDP growth ranging from 6 to 6.5% in fiscal 2023-24, as estimated by different agencies including the RBI, IMF & World Bank.

India today is the second-largest producer of crude steel in the world and a leading exporter to the global market.The Indian steel industry is modern, with the state of the art steel mills. It has always strived for continuous modernization older plants and up-gradation to higher energy efficiency levels.

Our Company Structure and Developments

Our Company is in the business of manufacturing steel doors, steel windows (steel-frame), Green Chalk Boards, Dual Desks and Purified Drinking Water System and we cater to customers across various segments and industries. We currently have our facilities spread across 2 manufacturing units in addition to one assembling unit and one stock yard, with an area admeasuring 27,153 square yards on the outskirts of Hyderabad.

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 two decades 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, school furniture and purified drinking water systems 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.

Our Company manufactures and supplies steel doors and windows to various infra developers, industrial customers and State Governments as well.

OPPORTUNITIES AND THREATS

Opportunities:

Rapid urbanisation and multi storey buildings will continue to intensify the demand for steel Doors and Steel Windows.

Govt. Initiatives for revamping the infrastructures of schools & educational institutions across many states.

Due to rising investment in infra and construction, the demand for steel products would increase in the years ahead.

Increasing concept of independent Bungalow

New geographic markets for consumer products that require premium performance and long-lasting products.

Government focus on strengthening the domestic manufacturing base under the Atmanirbhar Bharat program presents a strong opportunity for steel consumption in India. The production linked incentive scheme, which intends to incentivise the additional production in India, is expected to boost steel demand in automobile& auto components, consumer durables, solar equipment, telecom, etc.

The Government has announced an investment of over1 trillion in infrastructure over the next 5 (five) years. This would be a key growth driver not only for steel but will also be a multiplier of growth across the sectors, boosting steel demand from sectors such as transportation, real estate and urbanization as well.

Opportunities available in areas such as housing, dedicated industrial corridors, and other infrastructure projects.

The Company is always on the lookout for new opportunities in the Steel allied product business and responds by adding new products to its portfolio.

Risks, Concerns and Threats:

1. Economic uncertainty: Based on the current and future market environment estimates, the base cost material are expected to continue to be volatile.

2. The constantly fluctuating price of raw materials and weak steel prices have put significant pressure on steel margins.

3. Delayed real estate projects have impacted the steel Doors industry.

4. Malpractices by some of the players in the industry may affect the overall performance of the emerging players.

5. The Engineering industry is very competitive due to its large number of producers. The Companys profitability gets impacted when it does act fast enough to capitalise on the underlying opportunities

Some of the risks that may arise in the normal course of its business and impact its ability for future developments include inter-alia, Credit Risk, Liquidity Risk, Counter-party risk, Regulatory risk, Commodity Inflation Risk, Currency Fluctuation Risk and Market Risk.

Key Government Initiatives

Atmanirbhar Bharat Abhiyan

In May 2020, The Honourable Prime Minister, Shri. Narendra Modi launched the Self-reliant India (Atmanirbhar Bharat Abhiyan) mission to promote Indian goods in the global supply chain markets and help the country achieve self-reliance. The mission was announced amid the pandemic when the government allocated funds worth Rs. 20 lakh crore (US$ 268.74 billion), which amounts to ~10% of Indias GDP, as a stimulus package to help recover the economy by promoting incentives for domestic production. It encompasses themes such as ‘Local for Global: Make in India for the World and ‘Vocal for Local.

Make in India

"Make in India" is a major national programme of the Government of India designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best in class manufacturing infrastructure in the country. The primary objective of this initiative is to attract investments from across the globe and strengthen Indias manufacturing sector. It is being led by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, Government of India.

Outlook:

The Company is confident that it can utilise future opportunities and face future challenges with agility in order to meet shareholders expectation of sustainable growth and profitability.

The key focus areas are:

Debt reduction and thereby savings in interest cost

Increasing the value addition per product.

To sustain the EBITDA levels

Your Company focuses on quality products and expects to get more orders in coming years. Adoption of global trends in the Steel Doors & Steel Windows business which includes eco friendly, efficient, safe and reliable equipment manufacturing, improved designs will help us to gain more in the coming years.

At present we have the sizable orders to be executed from Andhra Pradesh Education & Welfare Infrastructure Development Corporation (APEWIDC). This project is part of flagship program "MANABADI: NADU- NEDU" Phase-II of Government of Andhra Pradesh for supply and installation of Steel Doors, Steel Windows and Green Chalk Boards. These contracts/orders are in addition to the existing business with Tata Steel Limited and other clients.

We are hopeful of getting further high value contracts/orders for supply of Dual Desks and Purified Drinking Water Systems. Tata Steel Limited continues to buy our products on "Buy & Sell model on mutually agreed terms.

We have appointed Distributors and Dealers throughout Andhra Pradesh, Telangana, Kerala, Karnataka, Maharashtra (partial) and Tamilnadu (partial) to market our products., steel doors, steel Windows & other allied products in order to promote our brand "ahlada". We are also trying to create awareness among general public through various channels i.e.. print media, Electronic media and Social Media. We are in the process for appointing Distributors and Dealers in Gujarat and remaining northern states.

We also intend to work with other State Governments and reputed private institutions for supply of similar products throughout India to expand our network, with an endeavor to increase revenue and profitability".

The management of the Company is making its sincere efforts to increase the volume of business in their best efficient manner.

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.

Continuing innovation, technology upgrade and cost improvements:

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

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:

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

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

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.

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.

HIGHLIGHTS OF THE FINANCIAL RESULTS:

Operational Review

Gross revenues increased to Rs.15,848.14 lakhs from Rs.15,232.03 lakhs in the previous year registering an increasing of 4.04%. Profit before Depreciation and Interest has fallen by 5.17% to Rs. 2549.53 lakhs as against Rs. 2688.55 lakhs in the previous year. After providing for depreciation and taxation, the net profit of the Company for the year under review was placed at Rs. 509.41 lakhs as against Rs. 518.25 lakhs in the previous year recording a fall of 1.71%.

Financial Performance:

(Rs in Lakhs)

Particulars

2022-23

2021-22

Revenue from Operations

15827.57

15,214.38

Other Income

20.57

17.65

Total Income

15848.14

15,232.03

Profit Before Interest and Depreciation

2,549.53

2,688.55

Finance Charges

373.74

451.51

Depreciation

1302.21

1,468.09

Net Profit after Interest and Depreciation But before tax

873.58

768.95

Net Profit before Tax

873.58

768.95

Provision for Tax

364.17

250.70

Net Profit after Tax

509.41

518.25

Details of significant changes in key financial ratios, along with detailed explanations:

List of Ratios

31.03.2023 31.03.2022

Variance

Reason

(a) Current Ratio

1.72 1.74

-1.57%

Decrease was primarily on account of increase in sundry creditors.

(b) Debt-Equity Ratio

0.26 0.25

2.97%

Increase was primarily on account of repayment of short term loans and long term loans.

(c) Debt Service Coverage Ratio

5.27 2.52

108.97%

Increase was primarily on account of repayment of long term loans.

(d) Return on Equity Ratio

0.04 0.04

-4.28%

Decrease was primarily on account of decrease in profits.

(e) Inventory turnover ratio

4.51 4.25

5.94%

Increase was primarily on account of Increasing inventory

(f) Trade Receivables turnover ratio

3.54 3.95

-10.40%

Decrease was primarily on account of realiastion of sundry debtors.

(g) Trade payables turnover ratio

5.59 3.52

58.80%

Increase was primarily on account of increase of sundry creditors.

(h) Net capital turnover ratio

3.50 4.14

-15.48%

Decrease was primarily on account of increase working capital.

(i) Net profit ratio

3.21 3.40

-5.53%

Decrease was primarily on account of increase in material consumption

(j) Return on Capital Employed 0.07 0.07
(k) Return on investment NA NA

Human Resources:

Ahlada believes that people are the backbone to the company. The Company has meritocratic culture and provides a conducive workplace for all. Occupational health and safety of both the permanent and contractual workforce is ensured at all times. The company focuses on the learning and professional development of its employees. Multiple on-the-job, classroom and other forms of trainings, learning opportunities and structured programmes are offered to our people, in order to help build worldclass competencies, regularly reskill and upskill and provide an environment of continuous improvement.

Cautionary Statement:

Statements in the Management Discussion and Analysis describing the Companys estimates and expectations may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results/performance could differ materially from those expressed or implied.

By Order of the Board
For AHLADA ENGINEERS LIMITED
Sd/- Sd/-
Ch. Suresh Mohan Reddy Ch. Ahlada
Place: Hyderabad Managing Director Whole Time Director
Date: 14 August, 2023 (DIN: 00090543) (DIN: 09406784)