Arfin India Ltd Management Discussions

Industry Structure and Developments

Manufacturing is emerging as an integral pillar in the countrys economic growth, thanks to the performance of key sectors like automotive, engineering, chemicals, pharmaceuticals, and consumer durables. The Indian manufacturing industry generated 16-17% of Indias GDP prepandemic and is projected to be one of the fastest growing sectors.

The machine tool industry was literally the nuts and bolts of the manufacturing industry in India. Today, technology has stimulated innovation with digital transformation a key aspect in gaining an edge in this highly competitive market.

Technology has today encouraged creativity, with digital transformation being a critical element in gaining an advantage in this increasingly competitive industry. The Indian manufacturing sector is steadily moving toward more automated and process-driven manufacturing, which is projected to improve efficiency and enhance productivity.

India has the capacity to export goods worth US$ 1 trillion by 2030 and is on the road to becoming a major global manufacturing hub.

With 17% of the nations GDP and over 27.3 million workers, the manufacturing sector plays a significant role in the Indian economy. Through the implementation of different programmes and policies, the Indian government hopes to have 25% of the economys output come from manufacturing by 2025.

India now has the physical and digital infrastructure to raise the share of the manufacturing sector in the economy and make a realistic bid to be an important player in global supply chains.

The Company is involved primarily in segment of manufacturing and trading of non-ferrous metals although major part of the business is covered by aluminium products. Companys main products line includes Aluminium Wire Rod, AluminiumDeox, Cored Wire, Aluminium Alloy Ingots, Ferro Titanium, Conductor & Cables and Inoculant.The Company is operating in multiple products of aluminium and this multiplicity of operations minimizes the operating eventualities. A considerably wide geographical presence and reach, both domestic and international, have helped the Company to attempt de-risking its business and meet the risks with suitable precaution.Your company is well positioned to capitalize on emerging opportunity due to significant competitive strength, acquired over the years.

Opportunities

India is gradually progressing on the road to Industry 4.0 through the Government of Indias initiatives like the National Manufacturing Policy which aims to increase the share of manufacturing in GDP to 25 percent by 2025 and the PLI scheme for manufacturing which was launched in 2022 to develop the core manufacturing sector at par with global manufacturing standards.

India is planning to offer incentives of up to Rs. 18.000 crore (US$ 2.2 billion) to spur local manufacturing in six new sectors including chemicals, shipping containers, and inputs for vaccines.The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025-26.

India has potential to become a global manufacturing hub and by 2030, it can add more than US$ 500 billion annually to the global economy.

In FY 2023-24, the Company delivered a resilient and strong performance, despite macroeconomic challenges, tough market conditions and global uncertainties. The Company has achieved sales of 27,513 metric tons worth 62,090 Lakhs. The Company has inbuilt production capacity of 71,000 metric tons per annum. Considering the installed capacity of 71,000 metric tons, the Company has significant spare capacity to increase its production and sales level. Accordingly, the Company has geared-up its marketing and production activities. The Company has been able to achieve Gross Export Sales of Rs 10,856 Lakhs during the financial year ended March 31, 2024.The performance was mainly driven by higher volumes and better product mix, lower input costs, stability in operations and costsaving actions.

Our business strategy prioritizes reaching our goals in a maximally responsible manner.We recognise the value of a diverse workforce. We remain committed to

Threats

When you grab the opportunities based on your strength, you are bound to be accompanied by the risks and threats attached with them. The Company is exposed to the following type of risks.

These factors can be main drivers behind the pressure on the Company in terms of operation and profitability.

Product / Plant Wise Performance

The Company is engaged only in one segment of manufacturing and trading of non-ferrous metal and does not have any other segment or activity. Hence segment wise reporting is not required to be given. Product / Plant wise performance is as follows:

Aluminium Wire Rod

The Company has installed capacity of 15,000 metric tons per annum in the business of aluminium wire rod. The Company has sold 6,096 metric tons of aluminium wire rod worth Rs14,633 Lakhs in compare to 5,445 metric tons worth Rs 14,113 Lakhs during previous year 2022-23.

During the year the company has additionally produced 3,856 metric tons which is used for Job work and home consumption (used in Conductor and cables division). It reflects year on year increase in sales volume at the rate of 12% in terms of quantity and 4% in terms of sales amount. The Company expects aluminium wire rod product sales volume to increase by around 10% to 15% during FY25.make an even bigger difference by reimagining and improving our work, investing in our people and welding a sustainable future.

Aluminium Deox

The Company is having installed capacity of 20,000 metric tons per annum in aluminium deox. The sales during the financial year under report was 6,858 metric tons amounting to Rs 14,321 Lakhs in compare to 5,855 metric tons worth Rs 13,290 Lakhs during previous year 2022-23. It reflects year on year increase in sales volume at the rate of 17% in terms of quantity and increase of 8% in terms of sales amount. The Company expects to grow this business at 10% to15%duringFY24.

Cored Wire

The Company is having cored wire plant with capacity of 3,500 metric tons per annum. The sales quantity during the financial year under report was 933 metric tons worth Rs 5,015 Lakhs in compare to 1,259 metric tons of goods worth f 5,814 Lakhs during previous financial year 2022-23. It reflects year on year decrease in sales volume at the rate of 26% in terms of quantity and 14% in terms of sales amount. The Company expects to grow this business by 5 to 8% during FY25.

Aluminium Alloy Ingots

The Company is having installed capacity of 18,000 metric tons per annum of aluminium alloy plant. The sales during the financial year under report stood at 3,997 metric tons amounting to Rs 8,476 Lakhs in compare to 6,919 metric tons of goods worth Rs 14,833 Lakhs during previous financial year 2022-23.

Conductor and Cables

The Company is having installed capacity of 12,000 metric tons per annum of conductor and cables plant. The sales during the financial year under report stood at 3,375 metric tons amounting to Rs 9,068 Lakhs in compare to 2,128 metric tons of goodsworth X 4,933 Lakhs during previous financial year 2022-23. It reflects year on year increase in sales volume at the rate of 59% in terms of quantity and 84% in terms of sales amount.

Ferro Alloys

The Company is having installed capacity of 2,500 metric tons per annum of Ferro Alloys plant. The sales during the financial year under report stood at 871 metric tons amounting to Rs 3,718 Lakhs in compare to 881 metric tons of goods worth Rs 5,899 Lakhs during previous financial year 2022-23. The Company expects to grow this business also at 2 to 5% during FY25.

Outlook Global Outlook

Indias GDP/GVA growth is expected to moderate to 6.5%/6.2% in FY2025, amid subdued growth outcomes in H1 FY2025 on the back of continued weakness in rural demand, slowdown in Government capex during the election period, tepid external demand and diminishing benefits owing to the deflation in commodity prices. However, the pace of expansion in economic activity is expected to pick up in H2 Fy2025.

The average CPI inflation is forecasted to ease to 4.6% in FY2025 from the 5.3% estimated for FY2024, largely in line with the Monetary Policy Committees (MPC) projections. The cooling is expected to be led by a softening in the food inflation based on the assumption of a normal and well-distributed monsoon, with any deviations on that account posing upside risks to our CPI inflation projections.

The upward revision in GDP growth estimates for FY2024, along with the MPCs expectations around the growth and inflation outlookfor FY2025, reinforce our view of a likely shallow rate cut cycle. ICRA foresees a rate cut cycle limited to 50 bps at best, commencing in the October 2024 policy meeting, with a stance change in the preceding review, after some visibility on the monsoon turnout and greater clarity on the US Feds actions.

Domestic Outlook

India took a big economic leap this leap year: The country ended fiscal year 2023 to 2024 with a big bang, surpassing all market estimates of GDR with 8.15% year-over-year (YoY) growth. For three consecutive years, Indias economy has exceeded growth expectations (averaging 8.3% annual growth over this period) despite global uncertainties, driven by strong domestic demand and continuous government efforts toward reforms and capital expenditure.

Indias annual GDP growth to be between 7.0% and 7.2% in fiscal 2024 to 2025 and between 6.7% and 7.3% the following fiscal year as markets adapt to geopolitical uncertainties in their investment and consumption decisions. The global economy is anticipated to rebound synchronously in 2025, as major election uncertainties are resolved, and Western central banks possibly implement rate cuts as inflation concerns subside. India is likely to experience improved capital flows, boosting private investment and exports. Inflation concerns remain, but we expect them to ease in the latter half of the next fiscal year, barring any surprises from rising oil or food prices.

Business Highlights

Aluminium Wire Road and Aluminium Deox business has contributed significantly along with Cored Wire, Ferro Alloys, Inoculant and Conductor verticals during the year.

The salient points for the business overview of the Company during the financial year 2023-24 are as follows:

• Total net revenue from operations of Rs 53,516 Lakhs in compare to Rs 54,411 Lakhs during the previous financial year ended March 31,2023.

• EBIDTAof Rs3,220 Lakhs

• EBIDTA Margins of 6.02% of Net Sales

• PAT ofRs 822 Lakhs

• Basic and diluted earnings per equity share for the year was Rs 0.52 per share

Risks and Concerns

The Company recognizes that risk is an integral part of business and it is committed to manage the risks in a proactive and efficient manner. Risk evaluation and management is an ongoing process within the Organization. The state of external environment, including factors like interest rates, inflation, and growth in economic activity, rationalization of tax structure, job creation & retention of manpower and consumer sentiment continues to be the biggest source of threat as well as opportunity for the Company. Any slowdown in the economic activity in the Country, significant job losses or high rates of inflation can severely impact the consumption and therefore growth of the Company.

The Companys business is exposed to many internal and external risks and it has consequently put in place robust systems and processes along with appropriate review mechanism to actively monitor, manage and mitigate these risks. The Company takes a structured approach to the identification, quantification and hedging of such risks by developing comprehensive Risk Management Policy of the Company which is periodically reviewed by the management.

Risks classified as per Companys Risk Management Policy are:

• Strategic risk

* Operational risk

• Financial risk

• Hazardous risk

Other risks include employment risk, industry risk, raw material risk, regulatory risks, cyber security risk, economic uncertainty and price volatility resulting from demand uncertainty etc. Although the Board recognizes presence of these risks, but there are no risks which in the opinion of the Board threaten the existence of the Company.

Internal Control Systems and its Adequacy

The Companys internal control systems are commensurate with the nature of its business and the size and complexity of its operations and are in line with requirements of the Companies Act, 2013. These are routinely tested and certified by Statutory as well as Internal Auditors and cover all offices, factories and key business areas. Significant audit observations and follow up actions thereon are reported to the Audit Committee.

The Audit Committee reviews adequacy and effectiveness of the Companys internal control environment and monitors the implementation of audit recommendations, including those relating to strengthening of the Companys Risk Management Policies and Systems. The Audit Committee of the Board keeps a close eye on business operations and functioning of the internal audit function. The findings of the audit function are reviewed by the Committee

The Companys Internal Control System has been designed to provide for:

• Compliance with applicable Statutes, Policies & Procedures, Rules & Regulations and delegated authority.

• Adherence to applicable Accounting Standards and Policies.

• Proper recording of transactions & timely reporting.

• Effective use of resources and efficient operations.

* Safeguarding of assets.

at regular intervals. Appropriate actions, as deemed necessary to ensure sustainability and future growth prospects of the Company, are taken in a timely fashion. The internal controls facilitate prompt detection and redressal of any deviations in business operations.

The Company has well designed policies, procedures & guidelines in place to ensure control of its different areas of business operations and reporting. This includes delegation of powers, various manuals, rules, policies and guidelines formulated by the Company from time to time. The approved policies, procedures & guidelines are effectively and responsibly being used while executing business of the Company. The Company has developed & implemented an Internal Financial Control framework duly approved by the Audit Committee which includes internally entity level policies / processes and operating level standard operating procedures primarily aiming at bringing awareness amongst the officials dealing with affairs of the Company so as to ensure adherence of the policies, procedures, guidelines designed and put in place for effective control. This provides the Directors with reasonable assurance regarding the adequacy and operating effectiveness of controls with regard to reporting, operational and compliance risks.

"The Company has well established internal control procedures across all business verticals commensurate with the size and nature of operations."

Financial Statements are prepared in compliance with applicable Accounting Standards & on the basis of the Significant Accounting Policies as adopted by the Company and duly approved by the Audit Committee and the Board. These Policies apply uniformly across the Company. The Accounting Policies supported by standard operating procedures are reviewed and updated from time to time. The Company uses ERP Systems as a business enabler and also to maintain its books of account. The Standard Operating Procedures and transactional controls built into the ERP Systems ensure proper recording, approval mechanisms and maintenance of records. The systems, standard operating procedures and controls are reviewed by the management from time to time.

During FY 2023-24, we assessed the effectiveness of the Internal Control over Financial Reporting and has determined that our Internal Control over Financial Reporting as at March 31,2024, is effective.

Financial Performance vis-a-vis Operational Performance

Details with respect to financial performance vis-a-vis operational performance are given at the end of this Management Discussion and Analysis Report.

Human Relations/Industrial Relations

Our people are our best assets. Their caliber and commitment are our inherent strength. Manpower strength of the Company as on March 31,2024 was 298 as against 310 at the last day of the previous financial year. People are at the centre of driving excellence at Arfin.

The HR policies are based on fair practices, which continually strive towards attracting, retaining, and developing the best talent required for the business to grow and accelerate the journey in the next normal scenario. All employees exhibit unparalleled commitment, competence and dedication towards this journey. The Company boasts of well-defined HR policies which take care of both personal and professional growth of its employees.

Culture is a key enabler to optimize potential, retain and also attract top talent to fuel performance within the organization. Policies nurture a culture that leads to alignment of employee goals with that of the Company. The HR initiatives strive to groom future leaders.

Acquiring diverse experiences, accomplishing challenging tasks and continually learning and upskilling is enabling them to deliver their best. By identifying, developing and nurturing quality talent at every stage of the employee lifecycle, we are empowering them to become future ready and build rewarding careers.

The Company ensures a safe, conducive and productive work environment for the employees through following steps:

• Providing workplace Health & Safety Training to workers

• Employee incentive programs

• Weekly review meeting, Knowledge sharing sessions and feedback system

• Wellness Initiatives, Fun Activities,

The Company focuses on four aspects of well-being - physical, Mental, Emotional and purposeful. A safe work environment is non-negotiable, for which the Company being a responsible corporate citizen always gives utmost importance to Safety, Occupational Health and Environment and is committed to maintain sustainable work environment across all its manufacturing units. The Company places high importance on the development of its human resources.

Key Financial Ratios

The Company has identified the following ratios as its key financial Ratios:

Return on Net Worth

The detail of return on net worth is qiven below:

Return on Net worth (RONW) is a measure of profitability of a Company expressed in percentage. It is calculated by dividing Net profit by average capital employed during the year. Net profit has reduced from Rs 1032 Lakhs to Rs 822 Lakhs for the reasons of reduction in sales and operating profit.

Cautionary Statement

Statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates and expectations which may be forward-looking statements. These statements are made within the meaning of applicable securities laws, and regulations are based on informed judgements and estimates. Past performance of the Company is not necessarily indicative of its future results, and actual results could materially differ from those expressed or implied. Important factors that could make a difference to its operations may include but are not limited to economic conditions affecting demand / supply, price conditions in the domestic and international markets in which it operates, changes in Government regulations, tax laws and other statutes. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements based on any subsequent development, information or events.

Review of Financial Performance of the Company for the Period under Report