ASM Technologies Ltd Management Discussions

Overview

ASM Technologies Limited and its subsidiaries have been providing world-class consulting and product development services in the areas of Engineering Services and Design-Led Manufacturing with successful Off-shore Development & Support Centres in India and Overseas for its global clientele. The Company is a public limited company incorporated in India with a registered office in Bengaluru, Karnataka, India. The Companys shares are listed with BSE Limited.

The Ministry of Corporate Affairs (MCA) vide notification dated February 16, 2015, notified the Ind AS applicability to certain classes of companies. Ind AS has replaced the existing Indian GAAP prescribed under Section 133 of the Companies Act 2013, read with Rule 7 of the Companies (Accounts) Rules 2014. For ASM Technologies Limited, Ind AS is applicable from April 1, 2017.

1. Industry Structure and Development

Indias Engineering Research and Development (ER&D) sector is rapidly evolving, attributed to the integration of digital technologies and increased focus on sustainability. Key growth areas include AI-enhanced industrial analytics, predictive maintenance for heavy machinery, and the development of smart factories. Simultaneously, the industrys structure is becoming more complex, with increased collaboration between start-ups, Global Capability Centres (GCCs), Engineering Service Providers (ESPs), and academia. Accordingly, digital engineering innovation hubs and sector-specific incubators play a pivotal role in fostering innovation and addressing industry challenges such as talent gaps and the lack of advanced lab facilities.

2. Opportunities and Threats

There are abundant opportunities in the ER&D sector, particularly in areas like industrial IoT, digital twins, and automation. The demand for data-driven solutions drives companies to invest heavily in ER&D to optimise factory operations and improve product design through cross-functional collaboration. However, the sector faces significant threats, including talent shortages, rapid technological obsolescence, and increasing cybersecurity threats. Also, geopolitical uncertainties and shifting consumer preferences pose challenges that companies must navigate to maintain their competitive edge. ASM Technologies Limited is a pioneer in Engineering Services and Design- Led Manufacturing and believes in its competitive strengths. The Companys Global Delivery Model and core competencies consider the changing economic scenarios as an opportunity to provide greater value to existing clients and add new clients. The Companys specific industry, domain, and technology expertise allows it to facilitate business transformation for its clients through innovative strategies and solutions. Additionally, its process-driven engineering and planning ensure that quality products are delivered at the optimum time and cost.

3. Segment-Wise or Product-Wise Performance

The performance of various segments within the ER&D sector varies significantly. For instance, the industrial segment, including construction, heavily invests in data-backed operations to enhance efficiency and output quality. Similarly, the semiconductor segment focuses on embedded engineering and VLSI design, leveraging the expertise available in regions like Southeast Asia and Eastern Europe. Meanwhile, the software segment is witnessing increased commoditisation, with ER&D activities globally distributed to capitalise on cost efficiencies and market expansion opportunities.

4. Outlook

The outlook for the ER&D sector in India is optimistic, with projected growth driven by advancements in digital engineering and sustainability initiatives. By 2030, the industrial ER&D spend is expected to reach $250-280 Billion, growing at a CAGR of 8-9%. As per Nasscom report Key growth drivers include the increased adoption of automation, robotics, and AI-enhanced analytics. In addition, the focus on developing integrated product-service solutions is expected to contribute significantly to the sectors expansion as companies look to offer comprehensive solutions that enhance customer experience and operational efficiency.

5. Risks and Concerns

The ER&D sector contends with several risks and concerns. Talent shortages and skill gaps are particularly pressing, as the industry requires a workforce skilled in new digital technologies. Similarly, data privacy and cybersecurity threats are major concerns, given the increasing reliance on digital solutions. Additionally, regulatory and compliance challenges and ethical considerations related to AI bias pose significant risks.

Accordingly, companies must address these issues proactively to ensure sustainable growth and maintain stakeholder trust: a. Competition Risk

In this highly competitive global business environment, only firms that continually upgrade their capabilities and offerings in line with emerging technologies and market imperatives can hope to survive and thrive in this environment. Capability building and continual upgrading are essential for organisational survival and growth. Technologies have been surging, from traditional technologies to Analytics, Big data, Artificial Intelligence, and Robotics. The Company stays inclined to enhance the value proposition for its customers by deepening its domain expertise, technological capabilities, and customer engagement. It competes with other technology service providers in response to requests for proposals, and in certain services, there is increased competition, resulting in price pressures.

Furthermore, the unrivalled blend of engineering culture and technology skills adopted by the Company and its strategic acquisitions and management resources add to its capability to offer innovative and value-added solutions and services by integrating its diverse domain knowledge experience. b. Financial Risk

The ER&D sector re-adapts to technology disruptions by reshaping enterprises and focusing on technology-led platforms. This is because the currency volatility and innovative technologies, such as artificial intelligence and automation, have disrupted the sectors traditional products and solutions. With a significant portion of the Companys revenues coming from exports, volatility in exchange rates may impact the Companys business adversely.

The Company, however, mitigates the risks with robust accounts, receivable management, a centralised framework to control expenses, and currency hedging strategies by the management. It has a defined policy for managing its foreign exchange exposure. The Company tracks the foreign exchange markets closely and makes appropriate hedging decisions from time to time if need be. The Boards risk policy covers some of these large macro-level risks and remedial measures taken by the Company to face and mitigate some of these risks. c. New Technologies and Business Models

Engineering Research & Development continues to be the fastest-growing segment, driven by global majors. India continues to be the core of digital innovation, with a rich ecosystem of start-ups, tech providers, and service providers engaging in global delivery and investing in IP, solutions, and Centres of Excellence (CoE). Digital became mainstream during the year, with the industry increasingly investing in digitised solutions to drive future growth opportunities.

Furthermore, the Indian ER&D companies need to speed up the process of adopting technology to stay future-proof. This is because the industry is fraught with challenges and opportunities, with Artificial Intelligence (AI), automation, and machine learning, permeating every facet of a business. As a System Design House, ASM Technologies Limited is fully equipped to handle complex Software, Electronics, Mechanical, and Embedded software design and development to complete the product under one roof. Moreover, working prototypes and manufacturing enable total product realisation for the client. In its effort to step up non-linear growth, some of the key designs by the Companys Engineering Services group are being prototyped. They will be manufactured in limited quantities through partner companies and delivered to strategic customers.

Moreover, the Company regularly audits and verifies its compliance with security and disaster recovery measures. The impact of investments in Innovation and R&D has accelerated ASM Technologies Limiteds growth. Also, they have placed the Company at the forefront of Product Development while getting global recognition. The initiative has, therefore, been on developing future products to align with the changing technologies, market, and customer demands.

d. Geography Risk

The business environment in the past year has been volatile and uncertain, given the current pandemic. The Company has insulated its overall performance from the impact of market exigencies and vagaries with a domestic and international spread of business and various solutions and services combinations. The Companys well-honed skills enable it to spread its business efficiently across geographies. Moreover, it derives most of its revenues from offshoring business, resulting in a healthier bottom line and protection from risks from any downward spiral in any economy. The Companys growth does not depend on any specific geographic area or specified industry segment.

6. Internal Control Systems and Their Adequacy

Effective internal control systems are crucial for the ER&D sector to manage risks and ensure operational efficiency. Integrating advanced data analytics and AI in internal controls can help detect anomalies and enhance decision-making processes. Also, establishing industry-specific lab facilities and innovation hubs can provide robust testing and validation environments to ensure the quality and reliability of ER&D outputs. Regular audits and adherence to international standards are essential to maintain the integrity of internal control systems and foster a culture of continuous improvement within the sector.

The Internal Control System has been designed to ensure that the assets and interests of the company are protected. On the other hand, the dependability of accounting data and its accuracy are ensured with proper checks and balances. The internal control systems adopted by the Company are adequate and appropriate to its operations for the uninterrupted functioning of its business. The existing internal control systems and their adequacy are frequently reviewed and improved to meet the changing business environment.

Further, the Company has an internal audit to examine and evaluate the adequacy & effectiveness of its Internal Control System. The internal audit ensures that the system designed and implemented to provide adequate internal control commensurate with the Companys size and operations. The Audit Committee of the Company, chaired by the independent director and consisting of other non-executive independent directors, periodically reviews and commends the Companys quarterly, half-yearly, and annual financial statements. A detailed note on the functioning of the audit committee forms part of the chapter on Corporate Governance in this Report.

The management duly considers and takes appropriate action on the recommendations made by the statutory auditors, internal auditors, and independent Audit Committee of the Board of Directors.

Financial Overview a. Share Capital

The Company has, at present, only one class of shares. The authorised share capital is H15,00,00,000 ( fifteen crores) equity shares of H10/- each, constituting H150.00 Million. There was an increase in the issued, subscribed, and paid-up capital of H117.74 Million during the year under review. The Company called for a final call money for the rights issue and issued preference shares. b. Shareholder Funds

The total shareholder funds were H1628.86 Million as of March 31, 2023, against H849.35 Million as of the previous years end. c. Fixed Assets

As of March 31, 2024, the net block of assets stood at H 80.04 Million for the standalone and H299.42 Million for the consolidated. d. Net Worth

The return on Net worth (RONW) for the year ended March 31, 2023, was 7.59% for the standalone and 5.92% for the consolidated. e. Earnings Per Share

Earnings per share for the year ended March 31, 2024, was H3.44 for the standalone and H(6.74) for the consolidated. f. Revenue

On the standalone front, the Company registered a total revenue of H1222.82 Million for the year ended March 31, 2024, compared to H1391.50 Million the previous year. Domestic sales at H512.65 Million and export sales at H710.17 Million contributed to the revenue.

The Consolidated total revenue for the year ended March 31, 2024, was H 2016.49 Million compared to H 2204.08 Million the previous year.

g. Operating Profit (EBITDA)

The Company earned an operating profit of H139.22 Million, representing 11.39% of total revenues for the year ended March 31, 2024, as compared to H281.04 Mn representing 18.78% of the total revenue, during the previous year On the consolidated front, EBITDA was at H105.62 Million, representing 5.24% of the total revenues for the year ended March 31, 2024. h. Net Profit After Tax/Loss

Net profit after tax was H36.91 Million on the standalone front and a loss of H71.34 Million for the consolidated for the year ended March 31, 2024. i. Developments in Human Resources/ Industrial Relations

The total employee strength of the company, as of March 31, 2024, was 1260 as compared to 1163 the previous year. Employees are the most valuable asset at ASM Technologies Limited. The Company is dedicated to fostering a supportive and dynamic work environment through innovative initiatives to attract, train, retain, and motivate its team. The Companys endeavours are underpinned by a robust set of values and policies designed to ensure a healthy, happy, and prosperous workplace. The Company firmly believes that its people are the primary drivers of its success, making human resource development a core component of its mission.

In line with this belief, ASM Technologies Limited has implemented a timely and cost-effective recruitment system to attract top-tier talent. The Companys compensation and benefits policies are aligned with the latest trends in the ER&D market, ensuring that it remains competitive and employees feel valued. By continuously enhancing the Companys work environment and focusing on employee well-being and professional growth, ASM Technologies Limited not only fulfils the aspirations of its workforce but also drives its overall success and innovation.

j. Ratios

Particulars	Standalone	Consolidated
Current Ratio	2.34	4.65
Debt Equity Ratio	0.28	0.61
Net Profit Margin (%)	3.02	(3.54)
Inventory Turnover	NA	5.23
Interest Coverage Ratio	0.81	0.43
Debtor Turnover	2.01	3.79
Operating Profit Margin (%)	11.39	5.24