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 2020-21. 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

Global Economy & Steel and Engineering Industry

The global economy was significantly impacted by COVID-19 led disruptions in 2020 resulting in contraction across the leading economies barring China. China has been the only major economy to register a growth of 2.3% in 2020, whilst other economies witnessed a contraction. Although recovery was seen in the second half of 2020 with lifting of lockdowns, it has been inconsistent across countries due to resurgence of infections, varying levels of policy support and access to medical facilities. In view of the same, the International Monetary Fund (‘IMF) estimates that the global economy shall contract by -3.5% in 2020 as against a growth of 2.8% in 2019.

The steel industry (excluding China) also witnessed a significant decline in production and demand during the first half of 2020. However, an almost equally stronger recovery has been witnessed in the second half of the year. According to World Steel Association (‘WSA), global crude steel production reached 1,864 million tonnes in 2020, down by 0.9% as compared to 2019. China has produced 1,053 million tonnes of crude steel in 2020, up by 5.2% over 2019. Chinas share of global crude steel production has also increased from 53.3% in 2019 to 56.5% in 2020. Global steel demand has also seen only a minor contraction of ~0.2% in 2020 due to a very strong recovery in China during H12020 and a better than expected rebound in the rest of the world during H2 2020.

Indian Economy & Steel Industry

The COVID-19 pandemic resulted in a nation-wide lockdown in India in Q1FY2021 and was one of the strictest lockdowns globally. This resulted in a GDP contraction of 24% in Q1FY2021 as most of the economic activity was halted during April-May. However, India has witnessed a gradual resumption of economic activity from Q2 FY 2021 onwards. The initial recovery was driven by government spending on infrastructure, exports and rural economy. The recovery has gained momentum since August 2020 with pickup in consumption demand driven by festive buying and return of urban consumption resulting in GDP growth of 0.4% in Q3 FY 2021. Despite this recovery, India is estimated to see a contraction of 8% in the annual GDP of FY 2021 due to sharp fall seen in H1 FY 2021.

India is expected to witness a full economic recovery in H2 FY2022 and is projected to grow by 9.5% in FY2022 driven by (a) ongoing vaccination supporting the current recovery momentum; (b) restart of investment cycle with significant spending on infrastructure and (c) continued recovery in consumption supported by urban demand, accentuated by work-from-home and preferences for personal mobility along with rising rural incomes and affordability. However, normal growth levels would only be seen in FY 2023, provided no further economic disruption occurs and the vaccination drive achieves its target of covering more than 30% of the population by end of2021.

Industry Structure and Developments

Our Company is in the business of manufacturing steel doors and 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 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 clean room equipment and furniture. Further in the year 2008, we started manufacturing steel doors which catered to the then existing customers of clean room 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 inhouse 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 industrial customers (other than Tata Steel Limited and the products manufactured and supplied to TSL) as well.

Further we have successfully completed supplies of products allotted to us, viz. Ceramic Steel Green Chalk Boards, Dual Desks and Purified Drinking Water System under Phase-I of flagship program "MANA BADI-NADU NEDU of Government of Andhra Pradesh.

OPPORTUNITIES AND THREATS

Opportunities:

• 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 over 1 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.

• Emergence of new trends after COVID-19, such as work from home, preference to physical distancing would create additional demand for furniture, personal mobility, etc. In addition, the rise in e-commerce activity will support the growth of warehousing and light commercial vehicles.

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

Threats

• Resurgence of infections leading to fresh lockdowns, both localized as well as at regional / national levels resulting in disruption in economic activity.

• Slower recovery in services, which is the backbone of Indian economy.

• Excess production facilities in a region may lead to cut throat competition.

• The steel and engineering industry greatly relies on construction activities. Therefore, any problem in construction activities will affect the industry to a large extent.

• Scarcity in supply of raw materials.

Outlook:

Considering the overall situation and the developments taking place in Industry, the outlook for the future is expected to be reasonable.

MMSA DEVELOPMENTS:

Regarding the Deed of Modification to Master Manufacturing and Supply Agreement (MMSA) and the Deed of Settlement between Tata Steel Limited (TSL) and the Company, as per the MMSA agreement "Initial Term" of the Agreement expires on July 31,2021. At the behest of TSL, it is mutually decided by the parties not to invoke the Extension Period (additional period up to June 30, 2022) under the MMSA.

TSL has cconfirmed that they may enter into a fresh business arrangements with the company on mutually agreeable terms.

We are also working on to set up our own distribution network for supply of steel doors and steel windows across the country."

MANABADI - NADU NADU:

In addition to the existing business with Tata Steel Limited and other clients. Further we are looking forward for repeat orders from Government of Andhra Pradesh for supply of Green Chalk Boards, Dual Desks and Purified Drinking Water System under MANA BADI-NADU NEDU" Phase-II of Government of Andhra Pradesh as well. We also intend to work with other State Governments and private institutions for supply of similar products throughout India to expand to expand our network, with an endeavor to increase revenue and profitability.

We are also working on to set up our own distribution network for supply of steel doors and steel windows across the country."

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 Upto 31st July, 2021

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.

MMSA DEVELOPMENTS:

Regarding the Deed of Modification to Master Manufacturing and Supply Agreement (MMSA) and the Deed of Settlement between Tata Steel Limited (TSL) and the Company, as per the MMSA agreement "Initial Term" of the Agreement expires on July 31,2021. At the behest of TSL, it is mutually decided by the parties not to invoke the Extension Period (additional period up to June 30, 2022) under the MMSA.

TSL has cconfirmed that they may enter into a fresh business arrangements with the company on mutually agreeable terms on buy and sell model.

We are also working on to set up our own distribution network for supply of steel doors and steel windows across the country."

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 27,153 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.

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 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

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.

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.

HIGHLIGHTS OF THE FINANCIAL RESULTS:

Financial Performance:

Particulars 2020-21 2019-20
Revenue from Operations 1,590,460,596 1,104,616,799
Other Income 1,652,449 1,791,373
Total Income 1,592,113,045 1,106,408,172
Profit Before Interest and Depreciation 297,380,727 251,591,369
Finance Charges 39,142,174 51,866,651
Depreciation 114,450,126 97,366,640
Net Profit after Interest and Depreciation But before tax 143,788,427 102,358,078
Net Profit Before Tax 143,788,427 102,358,078
Provision for Tax 41,905,992 25,218,509
Net Profit After Tax 101,882,435 77,139,569

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.