Aplab Ltd Management Discussions

a) Industry Structure and Developments

Aplabs PCCE operates in a historically protected, low-volume marketplace. This has meant that Aplab has a wider product range, than most of our local and international competitors. For example, none of our UPS competitors make any test variable power supplies, and vice versa there is no LONAR Series competitor that also competes with us on UPS systems. A large measure of this, is an outcome of our 60+ years long history. KAAS Series equivalent to GPU manufacturers for example, only deal in GPU systems.

Post-Covid, Aplab has primarily focused on its higher margin local Defence business, and so while the new tariffs regime has created hurdles for other manufacturers, for Aplab there are new opportunities in the horizon.

After exiting our UK educational business last year, this year Aplab will revisit old and new opportunities. We wish to have some business relations in place, by the time newly signed UK FTA falls into place sometime next year. Industry watchers are also suggesting a favourable agreement with USA by the end of the year.

The industry is rapidly moving to high-frequency, high power "SiC" and "GaAN" devices. This will require a fair amount of R&D on our traditional designs. Aplab is committed to deliver on a major upgrade of our technology this year.

Government spending for defence equipment continues to see multi-fold increases. As more defence infrastructure gets built, Aplabs order inflow will increase. We are seeing a large increase in demand for backup and ground power systems from this sector. The anticipated increase in Aplabs defence business means an increasing percentage of our total business is from a few customers; Aplab will need to continue to seek other lower margin business, as mentioned earlier, to pre-empt any future tail events in the Defence sector marketplace.

Aplab stands out as one of the few Indian power electronics manufacturers with a comprehensive in-house pan-India presence. The consequent higher operational costs, means seeking higher installed base maintenance and support revenues to sustain these manpower costs.

Aplab continues to struggle to find large volume business in BA self-service marketplace. As mentioned earlier, this is a lowest-common-denominator tender business. Aplab is convinced when the ROI for investment in Aplabs solutions is considered, we will have more of these clients ready to work with us closely. To mitigate the lowest-common-denominator hurdles to our business, licensing of designs, etc. will be pursued simultaneously.

A large portion of Aplabs future growth strategy will depend upon us being able to deliver upon our R&D goals for the next couple of years. This initiative will require high capital investments in talent, test equipment and prototyping materials and resources. Power electronics is a niche business, with a limited supply of industry-experienced talent, and the process of recruiting talented professionals is slow, albeit continual process.

New products mean new performance specifications with new and additional quality control requirements. Aplab will need to continue to bolster its quality control systems, as it introduces new high-performance designs to the marketplace and seeks new low value, but recurring service support revenues. Additional investments and test systems and tools will mean more funds diverted to capital equipment.

The company has a robust internal control system in place to optimize asset use, ensure accurate and timely financial reporting, and maintain compliance with statutory laws, regulations, and company policies. Management consistently reviews actual performance against budgets and forecasts. While the current internal controls are well-established and effective at all levels, the company is committed to ongoing improvements to enhance these systems wherever possible.

The company is steadily progressing towards increased cash flows and higher business volumes.

The Company will need to delicately balance any new requirements that take funds away from working capital, and any such investment should be primarily funded through business growth only.

f) Material developments in Human Resources / Industrial Relations front, including number of people employed.

As part of the streamlining, your Company has been able to rationalize our workforce and still deliver higher revenues. Manufacturing process analysis has led to safer, lean, and higher quality at higher volumes manufacturing. Management remains dedicated to enhancing safety, occupational health, and a positive work environment across all aspects of design, planning, training, and task execution. The company is also strategically streamlining its workforce to drive efficiency.