AIA Engineering Ltd Management Discussions

CAVEAT

Shareholders are cautioned that certain data and information external to the Company is included in this section. Though these data and information are based on sources believed to be reliable, no representation is made on their accuracy or comprehensiveness. Further, though utmost care has been taken to ensure that the opinions expressed by the management herein contain their perceptions on most of the important trends having a material impact on the Companys operations, no representation is made that the following presents an exhaustive coverage on and of all issues related to the same. The opinions expressed by the management may contain certain forwardlooking statements in the current scenario, which is extremely dynamic and increasingly fraught with risks and uncertainties. Actual results, performances, achievements or sequence of events may be materially different from the views expressed herein. Shareholders are hence cautioned not to place undue reliance on these statements and are advised to conduct their own investigation and analysis of the information contained or referred to in this section before taking any action with regard to their own specific objectives. Further, the discussion following herein reflects the perceptions on major issues as on date and the opinions expressed here are subject to change without notice. The Company undertakes no obligation to publicly update or revise any of the opinions or forward-looking statements expressed in this section, consequent to new information, future events, or otherwise.

NOTE

Except stated otherwise, all figures, percentages, analysis, views and opinions are on consolidated financial statements of AIA Engineering Limited and its wholly owned subsidiaries (jointly referred as AIA or Company, hereinafter). Financial information presented in various sections of the Management Discussion and Analysis is classified under suitable heads, which may be different from the classification reported under the Consolidated Financial Statements. Some additional financial information is also included in this section, which may not be readily available from the Consolidated Financial Statements. Previous years figures have been regrouped, wherever necessary, to make it comparable with the current year.

GLOBAL ECONOMY

Following an unprecedented series of shocks in the preceding years, global growth was stable yet underwhelming through 2024 and was projected to remain so in the January 2025 as per World Economic Outlook (WEO) Update. However, the landscape has changed as governments around the world reorder policy priorities. A series of new tariff measures by the United States and countermeasures by its trading partners have been announced and implemented. This on its own is a major negative shock to growth. The unpredictability with which these measures have been unfolding also has a negative impact on economic activity and the outlook and, at the same time, makes it more difficult than usual to make assumptions that would constitute a basis for an internally consistent and timely set of projections. This is complemented with a range of global growth forecasts, primarily under different trade policy assumptions.

In financial year 2024-25, the world continues to face a lot of challenges including unprecedented military conflicts between Russia and Ukraine and between Israel and Palestine. Red Sea corridor continues to be unsafe and created huge pressure on transit time and over-all freight costs. There is geopolitical upheaval between USA and China upending long-standing supply chain systems. USA, under Mr. Trump, is also resetting the global world order where trade led the borderless world to create a unique inter-dependent network.

The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity. Under the reference forecast that incorporates information as of April 4, global growth is projected to drop to 2.8 percent in 2025 and 3 percent in 2026—down from 3.3 percent for both years in the January 2025 as per WEO Update, corresponding to a cumulative down grade of 0.8 percentage and much below the historical (2000-19) average of 3.7 percent.

Global headline inflation is expected to decline at a pace that is slightly slower than what was expected in January, reaching 4.3 percent in 2025 and 3.6 percent in 2026, with notable upward revisions for advanced economies and slight downward revisions for emerging market and developing economies in 2025.

Policymakers face the challenge of managing inflation, calibrating monetary policy, and adjusting to a less restrictive stance. Fiscal consolidation is needed to rebuild budget capacity, raise revenue, and curb public debt. Structural reforms should reinforce productivity growth and debt sustainability, while efficient multilateral coordination is needed for debt resolution and climate change mitigation. While the world continues to battle economic shocks and uncertainty, the Company is affected by these global macro developments. Most importantly, regimes in many countries are advocating restricted market access for many product categories. Each country is going through its own upheaval in regards to this. Your Company is also affected by this uncertainty and is trying various measures to mitigate the same.

INDIAN ECONOMY

The Reserve Bank of Indias rate-setting Monetary Policy Committee cut Indias GDP forecast for this fiscal year starting April 1 to 6.5% from 6.7% growth projected earlier, amid heightened worries about higher-than-expected Trump tariffs potential threats to the economic output of Asias third-largest economy. However, against all odds, India continues to remain one of the fastest growing Economies -even pipping China. Amidst challenges, some of the key economies like India and other East Asian countries have shown strong resilience and have continued to grow due to big Infra push and also strong Capex cycles witnessed on an opportunistic note. The sentiment of "China plus one" has also helped these economies including India to a considerable extent.

OUTLOOK AND PROSPECTUS

AIA Engineering Limited (AIA), manufactures a range of customised High chrome Products including various sizes of high chrome grinding media balls, Liners, and other Castings - which are mill internals being used in the process of Crushing and Grinding in Cement, Mining and Thermal Power industries. The Company employs casting process for the manufacture of these products.

In Cement Industry, your Company continues to enjoy a dominant market share (of over 95%) in India and has continued to maintain this dominance over last 15 years supplying to all leading Cement majors in India. As we have mentioned in the past, Cement Industry is a very matured industry having converted into High Chrome consumable ware parts almost entirely not only in India but in all major Cement producing countries of the world. Your Company supplies High Chrome solution to Cement Industry in more than 125 countries and the growth is primarily coming from the increased market share which your Company has been gaining - ex-China today we enjoy over 35% market share in the world. However, the volumes are quite restricted at around 75,000 to 80,000 tons per annum and the growth is therefore very modest and linked to the overall industrial growth in India and market share growth worldwide.

Most of the Companys growth is expected to come from the mining markets which are spread out across countries in North and South America, Africa, Asia and Australia. Your Company is treating each country as a separate strategic effort in terms of ensuring continued and stable supply conditions. Your Company is focused on the significant opportunity available for converting the Mining Industries worldwide from their conventional use of forged grinding media into High Chrome grinding media. Your Company also has developed unique designs of mining liners based on unique technology platform for the Mining Industry. There is a significant headroom for growth considering the fact that the market opportunity for the 3 specific ores - i.e. Gold, Copper and Iron ore on which your Company is focused is over 2 million tons per annum whereas the penetration of High Chrome products in this segment is just around 25% which implies a very significant headroom for growth. However, your Company has realized that there are considerable challenges for conversion and hence your Company has over last few years successfully developed High Chrome potent solutions which are primarily aimed at improving grinding efficiencies of the mills (equipment where grinding and crushing takes place in Mines) so that the focus is on improvement on throughputs, reduction in consumption of various other consumables, reduction in power cost and also reduction in the cost of consumable products i.e. grinding media and liners. Your Company has invested considerable time and efforts in sharpening the skillset for making this solution extremely effective. This has put your Company in a unique position as the only Company in the world offering these comprehensive solutions for the Mining Industry under one roof.

Our efforts have been constrained over last year on account of renewed uncertainty in the Red sea corridor which led to increased shipping costs and longer transit times. The uncertainty around availability of containers and longer lead times affected decision making at many mine sites where customers were in advanced stages of decision making to migrate to high chrome cast grinding media. For mining customers, predictability of supply chain mechanics is critical to their operations and container shipping industrys uncertain conditions affected the Company. In addition to Gold and Copper, Company also supplies to Iron Ore customers across the world and where there is large opportunity for conversion from forged to high chrome grinding media.

Going forward, Company will continue to build on its competencies to offer material value addition to its customers in form of increase in throughput, increase in yield of gold and copper ores and reduction in operating costs in terms of wear costs, power costs and reagent consumption. This value addition is offered by continuous and direct engagement with operations personnel at plants in different countries and ensuring that a custom designed solution is offered to meet their specific objectives and engage with them on a continuous improvement journey to measure and ensure the benefits accrue over the lifetime of our solution.

The Company is confident of its long term prospects and sustained growth through new customer acquisitions in the Mining Segment. Company believes that it has certain distinct competitive advantages given its unique product offerings coupled with highly efficient plants in India, duly supported by a strong global sales force and support infrastructure in the form of Companys global offices and warehouse infrastructure and continued developmental efforts aimed at making its solutions very potent - all these factors give the Company the confidence in its prospects.

CAPEX PLAN:

Over the past years, the Company has witnessed a positive trend in net cash generated from operating activities despite having challenges related to the metal prices, freight costs and global economic growth. This demonstrates its strong capital efficiency, i.e. effective conversion of operational performance into cash flows, which is vital for funding its growth initiatives and meeting its financial obligations. With a commitment to long-term growth, the Company has consistently prioritised allocating financial resources towards capital expenditure. These strategic investments are designed to enhance operational capabilities, support expansion plans and ensure a robust and sustainable future for the Company. Accordingly, following capex proposals are from internal cash accruals.

The Companys current capacity stands at 4,60,000 MT per annum.

Company is reviewing implementation of manufacturing plants at China and Ghana in phased manner. Company is also evaluating Indonesia, Thailand and other geographic locations for setting up of similar manufacturing facilities. Being a responsible corporate citizen, the Company is dedicated to the conservation of environment. The Company recognises the significance of renewable energy in combating climate change. Keeping this as its primary objective for Financial Year 2025-26, Company further plans to invest in Renewable Energy Projects (including Solar and Wind) by investing Rs 40.00 Crores during F.Y. 2025-26. Post installation of this, the Companys 52% Power consumption will come from renewable energy.

RISKS AND CONCERNS:

Risk Management Framework provides consistent, clear and robust framework for managing risks across the group and thus is fundamental to performance and progress as a company. WE CARE is the one common, unifying thread that runs through everything your Company does. Your Company is continuously working to deliver a sustainable future along with stakeholders. Companys integrated risk management helps the group in management of risks at both strategic and operational levels and enables achievement of short and long term business outcomes. It ensures a safe and compliant operating environment, aligned to its values and behaviors.

The Company is a Manufacturing Concern with facilities in 4 Cities in India and with sales and distribution spread across the world. The Company is exposed to certain operating business risks, similar to most manufacturing companies, which is mitigated by regular monitoring and corrective actions.

Key risks that the Company faces are around stability in the mining market, foreign exchange rate fluctuation, fluctuation in raw material prices, debtor defaults, trade barriers by various countries, disruption in supply chain and disruption and uncertainty in business due to Ukraine Crisis and volatile Geo-Political scenarios.

Treasury Risks: Company faces following key financial risks, which are actively managed by Treasury Team. Foreign Exchange (FX) Risk: Presence in different geographies exposes the Company to high volatility in currencies of different countries due to higher export in turnover and import of raw material. Given the reduction in US interest rates, the Dollar remained strong against most currencies through the year.

Proactive and Adoptive Hedging Policy which is aligned with market best practices and Dynamic Pricing Mechanism are in place to limit impact of exchange volatility on receivables, payables and forecasted revenue.

Credit Risk on Investment Portfolio: Company deploys its investible surplus in Government securities, State Government securities, AAA Corporate Bonds, Commercial Papers, Fixed Deposits and Debt Mutual Funds. Corporate Bonds and Debt Mutual Fund investments bear credit risk. Direct investments are restricted to Board approved select AAA rated corporates. Debt Mutual Fund investments are managed and monitored based on a Internal Risk Management Framework.

Raw Material Fluctuation: The Company, always focuses on providing world class quality product to its customers and to do so, we engage in sourcing raw material from reliable sources. Limited Sources for procurement of raw material, Lack of substitution of in respect of raw material and high volatility in prices of MS Scrap, SS Scrap, CS Scrap and Ferro Chrome in Global Market puts pressure on cost of the production.

To mitigate this risk, the Company has actively engaged in developing a network of local and global vendors and dual sourcing of raw material. The Company engages with the customers and is able to pass through most of the raw material changes - either through price pass clauses if there are longer tenure contracts or by repricing new offers. The Company is closely monitoring raw material price movements and is regularly buying the raw materials during low price cycles so as to average out the impact of price fluctuations.

Debtor Defaults: Risk of Customer Receipt default due to increasing global footprint.

The Company periodically assesses financial reliability of customers, taking into account the financial condition, current economic trends and analysis of historical bad debts and ageing of accounts receivable. Customer wise limits are set accordingly. Company has taken up comprehensive credit insurance policy to mitigate risks around financial conditions of export customers.

Disruption in Supply Chain: Due to Red Sea, Israel - GAZA and Russia-Ukraine Crisis, there are chances of disruption in overall exports and imports. There are possibility of jump in overall outward and inward freight expenses. Working capital may increase because transit time may increase. Increase in inventory at Customer place to meet timely delivery. It may also put pressure on margin because of volatile freight cost. To mitigate disruption in supply chain, Company is planning production well in advance to compensate delay in logistic, maintaining higher inventory at warehouse of country having disrupted supply chain. Logistic team is putting efforts on midterm contract with shipping line to keep cost under cap. Sales team is also working with Customers to fix contract on FOB Plus Actual Freight.

Compliance Risks: The Company operates in different geographies, each having its own regulatory landscape, which continuously evolves, changes, and undergoes increased scrutiny from the regulators. Any noncompliance with regulations or scrutiny process can result in dilution of financial position or jeopardise Companys reputation. Regulatory risks are managed through a strong governance mechanism based on the philosophy of zero tolerance to non-compliance. This is implemented through:

• Assessment of regulatory and compliance requirements on regular basis.

• Robust internal controls.

Environmental, Social and Governance Risks:

Organisation must sustain growth in a continuously evolving global eco-system with unpredicted externalities. They can be challenged, if they do not aim for holistically enhancing stakeholders value, including striving to mitigate risks associated with environmental and climate change. Sustainable value creation can no longer be ESG- risk agnostic, which has now evolved as new yardstick in addition to profitability and capital efficiency returns. Company has embarked on a structured process to better understand and manage evolving ESG risks. This includes adopting a structured ESG framework and strategy, based on international standards and structures.

Information Technology Risks: Risk of loss or disclosure of trade secrets, confidential or proprietary information to competitors or to unauthorised sources including external attacks on the Companys IT network.

• The data in the network/on the servers are guarded by access control at domain level. Any unauthorized access is restricted. The administrator privileges are restricted and are not provided to end users. Systems are adequately secured to constrain the access and use of data.

• Vulnerability assessment and penetration testing performed yearly.

• E-mails are decently protected.

Gmail filters also exists.

• Laptop Hard drives are encrypted.

• Regular training conducted for all users to ensure effectiveness of IT awareness.

• Critical servers related to SAP are not publicly exposed and accessible only through VPN.

• DR is considered for SAP and DR drills going on as per plan.

Trade Barriers in various Countries: Major portion of the sales is exports in number of the Countries. Competitors having capacity to manufacture either high chrome ball or forged ball in those countries are filing application for Anti-Dumping duty against imports in the Countries. This is hampering companys volume of the Business in those countries and finally its overall volume. There is major shift in overall global scenario. Instead of Free Trade between Countries Globally now many of the Countries have started protecting their local industries. Countries like Mexico and United State of America has imposed import duty on imports of Companys products.

The Company continuously defends its position with support of local Consultants. Company continuously following fair price and fair margin policy on its products to avoid Ant-Dumping measures, which has helped it in Brazil and Canada. However many a time Local Government protect local manufacturer and Company is losing its market share in those Countries.

INTERNAL CONTROL SYSTEM AND THE ADEQUACY:

The Companys Internal Control Systems are commensurate with the size and nature of its operations, aimed at achieving efficiency in operations, optimum utilisation of resources, reliable financial reporting and compliances with all applicable laws and regulations. Talati and Talati LLP, Chartered Accountants and Deloitte Tooche Tohmatsu India LLP. are the Internal Auditors of the Company. They carry out extensive internal audit throughout the year across all functional areas and submits Quarterly Reports to the Management and Audit Committee. The recommendations from Internal Auditors and follow up actions for improvements of the business processes and controls are also periodically reviewed and monitored by the Audit Committee. The company also has in house internal control department which designs and reviews operating effectiveness of internal controls system.

FINANCIAL PERFORMANCE REVIEW:

The financial performance of the Company as a whole (on Consolidated basis) is as under:- I. Consolidated Performance:

An analysis of the Consolidated performance of the Company is given below:

• Physical Production:

The production achieved is as under:

Product	2024-25	2023-24
High Chrome Mill Internals	2,48,200	2,95,509

• Sales Turnover:

The Comparative position of Sales Turnover achieved by the Company is as under:

Particulars	2024-25	2023-24
Sales in India (35.39%) (P.Y. 28.80%)	1,49,590.99	1,37,428.33
Sales Outside India (64.61%) (PY. 71.20%)	2,73,071.28	3,39,753.93
Total	4,22,662.27	4,77,182.26

• Key Performance Indicators :

An analysis of the key indicators as percentage to Revenue is given below:

Particulars	2024-25	2023-24
1 Revenue from Operations	4,28,744.39	4,85,376.13
2 Cost of Materials Consumed (Including purchase of stock-in-trade and change in Inventories)	1,73,770.39	2,07,265.15
- % of revenue from operations	40.53%	42.70%
3 Employee Benefit Expense	18,547.87	17,140.29
- % of revenue from operations	4.33%	3.53%
4 Other Expenses	1,21,504.51	1,27,595.10
- % of revenue from operations	28.34%	26.29%
5 EBIDTA	1,49,259.54	1,61,666.94
- % of revenue from operations	34.81%	33.31%
6 Finance Costs	2,109.13	2,837.87
- % of revenue from operations	0.49%	0.58%
7 Depreciation and Amortisation Expense	10,307.39	10,027.15
- % of revenue from operations	2.40%	2.07%
8 Profit Before Tax	1,36,843.02	1,48,801.92
- % of revenue from operations	31.92%	30.66%
9 Profit After Tax (Including Other Comprehensive Income)	1,03,761.18	1,11,868.53
- % of revenue from operations	24.20%	23.05%

II Standalone Performance

The analysis of Standalone performance of the Company is given below:

• Sales Turnover :

The Comparative position of Sales Turnover achieved by the Company is as under:

Particulars	2024-25	2023-24
Sales in India (41.72%) (PY. 31.82%)	1,42,925.13	1,29,262.39
Sales Outside India (58.28%) (P.Y. 68.18%)	1,99,639.28	2,76,941.76
Total	3,42,564.41	4,06,204.15

• Key performance indicators:

An analysis of the key indicators as percentage to Revenue is given below:

Particulars	2024-25	2023-24
1 Revenue from Operations	3,48,644.76	4,14,394.99
2 Cost of Materials Consumed (including change in inventories)	1,57,071.40	1,96,378.89
- % of revenue from operations	45.05%	47.39%
3 Employee Benefit Expense	12,999.49	12,276.83
- % of revenue from operations	3.73%	2.96%
4 Other Expenses	81,865.34	89,475.14
- % of revenue from operations	23.48%	21.59%
5 EBIDTA	1,44,216.19	1,59,108.40
- % of revenue from operations	41.36%	38.40%
6 Finance Costs	2,101.66	2,826.07
- % of revenue from operations	0.60%	0.68%
7 Depreciation and Amortisation Expense	10,068.21	9,821.51
- % of revenue from operations	2.89%	2.37%
8 Profit Before Tax	1,32,046.32	1,46,460.82
- % of revenue from operations	37.87%	35.34%
9 Profit After Tax (Including Other Comprehensive Income)	1,02,093.51	1,13,373.91
- % of revenue from operations	29.28%	27.36%

DETAILS OF SIGNIFICANT CHANGES IN THE KEY FINANCIAL RATIOS & RETURN ON NET WORTH

Pursuant to amendment made in Schedule V to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 details of significant changes (i.e. change of 25% or more as compared to the immediately previous Financial Year) in Key Financial Ratios and any changes in Return on Net Worth of the Company including explanations therefore are given below:

Standalone

Particulars	2024-25	2023-24	Change	Change in %	Explanations
1 Debtors Turnover (Days)	145.10	125.03	20.29	14.0%	-
2 Inventory Turnover (Days)	69.81	59.42	10.52	15.0%	-
3 Interest Coverage Ratio	58.52	52.82	5.70	9.7%	-
4 Current Ratio	9.15	9.08	0.07	0.8%	-
5 Debt Equity Ratio	0.07	0.07	0.00	2.6%	-
6 Operating Profit Margin (%)	25.34%	26.20%	(0.86)	(3.4%)	-
7 Net Profit Margin (%)	29.82%	27.80%	2.07	6.9%	-
8 Return on Networth (%)	15.52%	18.94%	(3.41)	(22.0%)	-

Consolidated

Particulars	2024-25	2023-24	Change	Change in %	Explanations
1 Debtors Turnover (Days)	71.39	67.39	4.00	5.9%	-
2 Inventory Turnover (Days)	95.92	92.66	3.26	3.5%	-
3 Interest Coverage Ratio	66.48	53.43	13.05	24.4%	Increase in Interest coverage ratio is due to reduction absolute profits
4 Current Ratio	8.17	8.01	0.16	2.0%	-
5 Debt Equity Ratio	0.07	0.07	0.00	2.5%	-
6 Operating Profit Margin (%)	26.28%	26.38%	(0.09)	(0.4%)	-
7 Net Profit Margin (%)	25.10%	23.80%	1.30	5.5%	-
8 Return on Networth (%)	15.62%	18.39%	(2.78)	(15.1%)	-