Avro India Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Global Economic Overview

The projected path of global economic growth is expected to grow at 3.2 percent during 2024 and 2025 at the same pace in 2023. A slight acceleration advanced economies where growth is expected to rise from 1.6 percent in 2023 to 1.7 percent in 2024 and 1.8 percent in 2025 will be offset by a modest slowdown in emerging market and developing economies from 4.3% in 2023 to 4.2 percent in both 2024 and 2025. The forecast for global growth five years from now at 3.1 years is at its lowest in decades. Global inflation is forecasted to decline steadily, from 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, with advance economies returning to their inflation targets sooner than emerging market and developing economies. Core inflation is generally projected to decline more gradually. This positive trend towards stabilisation is encouraging as central banks are likely to shift towards more accommodative monetary policies.

The global economy has been surprisingly resilient, despite significant central bank interest hikes to restore price stability.

Outlook

The medium-term global growth projection stabilises at 3.1% reflecting cautious optimism amidst enduring economic disparities that may slow the pace of improvement in living standards, particularly in middle-and lower-income countries. This outlook while cautious, recognises the resilience and adaptability of global economies facing structural changes. The growth trajectory, albeit modest, continues to offer opportunities for progress and innovation, particularly as economies adapt to more sustainable and efficient practices.

Despite the challenges, the global economic landscape remains a fertile ground for strategic adaption and long-term resilience. The relative steady growth prospects underscore the importance of continued innovation and strategic planning to overcome structural impediments and enhance capital and labour allocation. As we move forward, the focus on fostering a dynamic and inclusive global economy will remain paramount, underscoring our commitment to driving sustainable growth and prosperity.

Source: https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april- 2024

Indian Economic Overview

Indian economy is projected to grow by 6.5 to 7 percent in the financial year ending March 2025, according to the 2023-24 Economic Survey Report.

The Economic Survey 2023-24 reports that inflationary pressures in India have been effectively managed through administrative and monetary policies, reducing retail inflation from 6.7 percent in FY 2022-23 to 5.4 percent in FY 2023-24. Core inflation for goods and services has reached multi-year lows. Core inflation is measured by excluding food and energy items from CPI headline inflation. However, it is worth noting that food inflation in the country increased from 6.6 percent in FY 2023 to 7.5 percent in FY 2024. The report notes that this increase is due to extreme weather conditions and crop damage. The RBI and the IMF expect further decrease in inflation, if country experiences a normal expansion and there are no external shocks. The Economic Survey 2023-24 report highlights a decrease in Indias fiscal deficit from 6.4 percent in FY 2023 to 5.6 percent FY 2024. This reduction was driven by a robust growth in direct and indirect tax revenues.

Outlook

The Survey highlighted that Indias real GDP in FY 24 was 20 percent higher than FY20, a notable achievement among the major economies, and suggested strong potential for continued robust growth in FY 2024-25 and beyond. The Survey expressed optimism for FY 2024-25, anticipating broad-based and inclusive growth for the countrys economy. It claims that in FY2025 Indias economic growth will see reductions in unemployment and multidimensional poverty, and increased labour force participation.

Source: https://www.india-briefing.com/news/economic-survey-of-india-2023-24-report-highlights- 33716.html/

Global Plastic Market

The global plastic market size was estimated at USD 624.8 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 4.2% from 2024 to 2030. The increasing substitution of glass, metals, wood, natural rubber, and other materials, by plastics is expected to drive the global plastics market in the coming years.

Increasing alternatives for glass, metals, natural rubber, wood, and other artificial materials by plastics is expected to drive the global plastics market. Various products such as olefins, PVC, polystyrene, and PET are rapidly replacing major materials in automotive, medical & healthcare, construction & infrastructure, and consumer goods applications. In addition, increasing awareness regarding the reduction of carbon emissions and favorable regulations are leading to the replacement of metals and heavy substances with lightweight plastics, especially in automobile and industrial machinery.

Indian Plastic Market

The Indian plastic industry is one of the leading sectors in the countrys economy. The history of the plastic industry in India dates back to 1957 with the production of polystyrene. Since then, the industry has made substantial progress and has grown rapidly. The industry is present across the country and has more than 2,500 exporters. It employs more than 4 million people in the country and constitutes 30,000 processing units; among these, 85-90% belong to small and medium enterprises. India manufactures various products such as plastics and linoleum, houseware products, cordage, fishnets, floor coverings, medical items, packaging items, plastic films, pipes, raw materials, etc. The country majorly exports plastic raw materials, films, sheets, woven sacks, fabrics, and tarpaulin. The Government of India intends to take the plastic industry from a current level of Rs. 3 lakh crore (US$ 37.8 billion) of economic activity to Rs. 10 lakh crore (US$ 126 billion) in 4-5 years.

Ten Plastic Parks have been approved in the country by The Department of Chemicals and Petrochemicals. Among these, six plastic parks have received final approval from the following states - Madhya Pradesh (two parks), Assam (one park), Tamil Nadu (one park), Odisha (one park), and Jharkhand (one park). These parks are intended to boost employment and attain environmentally sustainable growth.

India exports plastic to more than 200 countries in the world. The top five consumer and houseware product importing countries are the USA, Germany Japan, the UK, and France. India largely exports plastic and related products to the USA, China, the UAE, the UK, Germany, Italy, Bangladesh, etc. The total value of exports to the USA, the largest consumer of the Indian plastic industry, stood at US$ 2.31 billion in 2022-23, a decrease of 4.71% YoY. China was the second largest consumer of plastic export products from India and the total value of exports stood at US$ 690.95 million. The USA and China constituted 19.37%, and 5.78%, of the total plastic exports in 2022-23.

The total plastic exports from India to France during 2022-23 was around US$ 211.4 million. In order to boost exports to France and Europe, PLEXCONCIL collaborated with the Indo-French Chamber in the first quarter of 2021-22. The Minister for Commerce and Industry, Mr. Piyush Goyal, recently urged industry to adopt international standards to help it expand its global footprint. India has recently signed a free- trade agreement with UAE and Australia, which will give the plastics industry new opportunities.

The Plastic Export Promotion Council (PLEXCONCIL) has set a target to increase the plastic exports of the country to US$ 25 billion by 2027. There are multiple plastic parks that are being set up in the country in a phased manner that will help improve the plastic manufacturing outputs of the country. Under the plastic park schemes, the Government of India provides funds of up to 50% of the project costs or a ceiling cost of Rs. 40 crore (US$ 5 million) per project.

Government initiatives like "Digital India", "Make in India", and "Skill India" will also boost Indias Plastic industry. For instance, under the "Digital India" program, the government aims to reduce the import dependence on products from other countries, which will lift the local plastic part manufacturers. The government also launched a program for building Centres of Excellence (CoEs) to develop the existing petrochemical technology and promote the research environment pertaining to the sector in the country. This will aid in promoting and developing new applications of polymers and plastics in the country. Additionally, about 23 Central Institute of Plastics Engineering & Technology (CIPET) have been approved to accelerate financial and technological collaboration for promoting skills in the chemicals and petrochemicals sector.

Source: https://www.ibef.org/assets/images/exports/Plastics-3.jpg

Plastic Furniture Market

The global plastic furniture market was valued at USD 15.37 billion in 2023. It is expected to reach USD 26.47 billion in 2032, growing at a CAGR of 6.23% over the forecast period (2024-2032). Plastic furniture offers a cost-effective alternative to traditional furniture materials such as wood, metal, and glass. Its lower production costs, lightweight nature, and ease of manufacturing make plastic furniture more affordable for consumers, driving demand across various market segments.

Furniture made of plastic is more efficient and inexpensive than that made of other materials. Additionally, plastic furniture comes in various styles, colors, and designs that make it simple to complement the decor of a house, restaurant, hotel, or business. Plastic furniture is not only beautifully designed and vibrantly coloured, but also incredibly durable. Metal chairs and wooden chairs are rigid; as a result, they distort or rupture quickly. Conversely, plastic furniture is flexible, making it effortless to stand firm against excessive pressure and damage. Additionally, plastic furniture is more lucrative than wooden and metal furniture. Plastic furniture is also corrosion-resistant. Due to this, it does not leave any marks on tiles, pavements, or other areas of hotels and houses, attracting customers. This significantly boosts the demand for plastic furniture.

Currently, recycled plastic furniture is available widely. This type of furniture is generally made from plastic waste like bottles, toys, and ocean plastic. These plastic wastes are mainly applied while manufacturing outdoor furniture. Many key players are producing plastic furniture by using waste plastics. This initiative is setting a benchmark for sustainable material usage and design. Therefore, the increase in the drift of using recycled plastic furniture by various end-users is projected to generate profitable growth opportunities for the plastic furniture market. However, plastic furnitures most prominent effect is on the environment because it takes a long time to degrade and emit toxic chemicals into the ground. Additionally, plastics are pervasive in marine life, which pollutes the environment and necessitates immediate action, limiting the expansion of the plastic furniture sector.

Circular Economy Forecast: A Billion-Dollar Market Opportunity

The worldwide revenue of circular economy transactions was estimated to total roughly $339 billion in 2022. This is forecasted to more than double by 2026, reaching a $712 billion market opportunity. Keep in mind that this estimation only takes into account the categories of second 69 hand, rental, and refurbished goods, leaving aside a large pool of major circular business models, such as recycling. Including those in the equation would likely increase the value of the economy significantly, considering the projected value of the global waste recycling services market size of $88 billion, which in turn registers a 4.79% annual growth (CAGR) for the period 2020-2030.

In a forward-looking perspective, delving into the future reveals the potential of the Circular Economy to contribute an extra $4.5 trillion to global economic output by 2030, a figure that could surge to a remarkable $25 trillion by 2050. Additionally, the projections by The World Economic Forum highlight the transformative impact of recycling, reuse, and remanufacturing, suggesting that by 2025, these practices could unleash annual untapped resource savings of $1 trillion. Looking even further ahead, this value is predicted to double, reaching an impressive $2 trillion per year by 2050.

Source: https://resortecs.com/circular-economy-forecast-a-billion-dollar-market- opportunity/#:~:text=The%20worldwide%20revenue%20of%20circular.a%20%24712%20billion%20marke t%20opportunity.

National Circular Economy Roadmap for reduction of Plastic waste in India

India has taken the lead in its quest for a circular economy towards achieving the Net Zero target by 2070. Indias Council of Scientific & Industrial Research (CSIR) is developing various technologies towards reducing Indias Carbon footprint and recycling.

Swachhata campaign, inspired by PM Modi, has generated awareness about waste to wealth concept. There is now also better mass understanding about the application of innovation and technology for Recycling and Reuse of Waste materials for productive means," he said, pointing out that the Government has earned a total revenue of Rs.11,000 crore just by disposing of electronic scrap in the last three years.

The Government of India has been actively formulating policies and promoting projects to drive the country towards a circular economy. It has already notified various rules, such as the Plastic Waste Management Rules, e-Waste Management Rules, Construction and Demolition Waste Management Rules, Metals Recycling Policy, etc., in this regard.

Source: https://pib.gov.in/PressReleasePage.aspx?PRID=1983269

Opportunities

The increasing desire for upscale and modern furniture is anticipated to drive the expansion of the market. The escalating demand for easy to clean furniture variants in homes and commercial settings is anticipated to further fuel the market growth across the country.

The projected increase in capacity of recycling of plastic scrap is expected to decrease the manufacturing cost of plastic furniture.

The expanding e-commerce industry in India provides consumers with convenient access to a wide range of plastic furniture options, enhancing the markets reach and growth.

The Company is continuously attempting to expand its footprint in the unexplored market despite the fierce competition from the unorganized sector.

The Company is focussing to add new products for industrial sector and moulds and determined to emerge as a major player with its quality products. The Plastic Export Promotion Council has set target to increase the plastic exports of the country to US$ 25 billion by 2027. There are multiple plastic parks that are being set up in the country in a phased manner that will help improve the plastic manufacturing outputs of the country creating opportunities for the company to develop Industrial plastic products

Threats

Uncertain government policies and fluctuating market conditions emerges as a substantial challenge. The landscapes inherent volatility demands adept maneuvering to ensure consistent growth.

The relentless march of technological advancements, while promising innovation simultaneously poses a threat. The necessity to remain at the forefront of technological advancements becomes imperative to stay relevant and competitive.

The stiff competition from unorganized sector poses threats to the industry. The relentless competition emanating from this sector necessitates strategic agility to counter their impact effectively.

The surging competition stands as an inextricable adversary. The rising number of players contending for prominence amplifies the pressure to innovate and differentiate.

Business Overview

The Turnover of the Company has increased considerably in FY 2023-24 as compared to FY 2022-23. The Company has achieved a total sales of Rs. 93.37 crores where the offline sales were Rs. 90.99 Cr and online sales were Rs. 2.38 Cr. Due to its high quality and reasonably priced products combined with 3 years guarantee in selected product ranges, the Company is among the most liked companies on platforms lime Amazon and Flipkart when compared to major names in terms of ratings and reviews. The Company sells its products through the Amazon fulfilled and Flipkart Assured programmes. The Company has established its presence on other portals such as GeM, Meesho, Indiamart, Jiomart etc.

During the financial year 2023-24, the Company has onboarded Bollywood actor Mr. Sonu Sood as its brand association for a period of one year. The Company has expanded its distribution network beyond North India. The Company has onboarded more than 50 distributors in Q4 of FY 2023-24 and are in the process of onboarding more than 100 distributors in FY 2024-25. To motivate and onboard channel partners, the Company is doing dealer and distributor conferences on a regular basis in different parts of the country. The Company is selling its products to institutional customers such as Lots and Metro.

During the financial year under review, the Company has launched new models of plastic chairs which has received positive response from our customers. During the financial year under review, the production capacity of the Company has increased as it has purchased few used injection Moulding Machines. The purchase of said machines will also help the company to service the different products of the Company within the segment of plastic furniture.

The Company has a presence on social media for marketing its products, We have a strong presence on various social media platforms such as facebook and youtube. The Company also organizes contest and campaigns on various occasions to promote its products through coupons.

Segment-wise Performance

The Companys operations are classified as belonging to a single or main business segment. Accordingly, disclosures under Ind AS-108 "Operating Segments" are not required to be made.

Growth Strategy and Outlook

The Company is poised for a dynamic future, driven by our strategic initiatives and a clear focus on market expansion and product innovation. Our strategy revolves around three core pillars high quality products, geographical expansion and sustainability. The Companys commitment to fulfil its societal obligations by offering high quality products at affordable prices aligns with its existing operations. This commitment forms the basis for AVROs efforts to contribute positively to the environment through its recycling and sustainability initiatives.

Our sustainability initiatives remain a cornerstone of our strategy outlook. All the wastage generated during the manufacturing process is being reused thereby reducing our carbon footprint. AVROs innovative use of regenerated polymers reflects its dedication to incorporating environmental considerations into its operations. By collecting used plastics, AVRO is actively participating in the circular economy, turning discarded plastics into valuable material for creating new furniture products. This circular economy not only promotes environmental responsibility but also aligns with the companys mission to produce plastic furniture while keeping the environment in mind.

FINANCIAL PERFORMANCE AND HIGHLIGHT

Particulars (Rs. Crore)	FY 24	FY 23	YoY Change
Revenue from Operations	93.37	80.01	16.70%
Total Income	97.37	82.34	18.25%
EBITDA	9.79	8.54	14.64%
EBITDA Margin	10.50%	10.46%	4 bps
PBT	5.64	5.83	-3.26%
Net Profit	4.04	4.15	-2.65%
Net Profit Margin	4.32%	5.19%	-87 bps
EPS (Rs.)	4.00	4.12	-2.91%

The Companys revenue from operations increased to Rs. 93.37 Cr in FY 2024 compared to Rs. 80.01 in FY 2023. The EBITDA has grown from Rs. 8.54 Cr to Rs. 9.79 Cr. EBITDA in FY 2024 is 14.64% higher than previous financial year. Net Sales Operations in FY 2024 have been 16.70% higher than FY 2023. PBT for FY 2024 is 3.26% lesser than FY 2023 at Rs. 5.64 Cr and Net Profit is 2.65% lesser than FY 2023 at Rs. 4.04 Cr.

For FY 24, offline sales contributed Rs. 90.99 Cr to the revenue which is approx. 97.45 % of the revenue, while Online sales has contributed Rs. 2.38 Cr to the revenue which is approx. 2.55 % of the revenue.

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company is required to provide details of significant changes (i.e. change of 25% or more as compared to the immediate previous financial year) in key financial ratios, along with detailed explanations. The following are the list of important financial ratios:

Ratio	As at 31st March, 2024	As at 31st March, 2023	% variance	Reason for Variance
Current Ratio (in times)	1.58	1.94	(18.56)
Debt-Equity Ratio (in times)	0.54	0.47	14.89
Interest Coverage Ratio (in times)	5.12	7.52	(31.91)	Additional borrowing has been introduced during the year resulted in higher interest payments, causing a decrease in the ratio
Return on Equity (in %)	15.04	18.24	(17.54)
Inventory Turnover Ratio (in times)	12.43	12.20	1.89
Debtors Turnover Ratio (in times)	5.01	4.53	10.60
Trade Payable Turnover Ratio (in times)	13.24	10.85	22.03
Return on Net Worth (in %)	13.99	16.71	(16.28)
Net profit Ratio (in %)	4.32	5.19	(16.76)
Operating Profit Margin (in %)	11.66	12.65	(7.83)
Net Profit Margin (in %)	4.32	5.19

Risks and Concerns

AVRO recognizes that operating in the business landscape comes with inherent risks that can emanate from various sources such as, encompassing product distribution, governmental policies, competition and technological shifts. To ensure its sustained performance over the long term, the company places a paramount emphasis on the identification, analysis, and effective mitigation of these risks through well-suited control measures.

The process of risk identification and assessment remains ongoing, with a commitment to promptly implement appropriate measures to curtail their potential impact. The efficacy of diverse risk reduction measures is subject to periodic evaluation, underlining the companys dedication to refining its risk

The process of risk identification and assessment remains ongoing, with a commitment to promptly implement appropriate measures to curtail their potential impact. The efficacy of diverse risk reduction measures is subject to periodic evaluation, underlining the companys dedication to refining its risk management strategies. At regular intervals, the Board scrutinizes the entirety of the Risk Management protocol to maintain its relevance and efficacy.

The company operates within the realm of foreign exchange exposure due to its reliance on imported machinery and moulds. The volatility in the exchange rate between the US Dollar and the Indian Rupee holds the potential to adversely affect the companys financial status and outcomes. Furthermore, the company is not immune to the volatility of prices, both for its finished products and the raw materials it employs. The companys approach to managing these risks extends to adept inventory management strategies, often coupled with the judicious allocation of cost increases to the end customer.

The company remains resolute in its proactive and proficient handling of risks, as it acknowledges risk as an inherent facet of conducting business. Rigorous and regular evaluations of both internal and external risk factors underscore the companys commitment to vigilance. These risks are in a constant state of flux, both in terms of their potential consequences and the probability of occurrence. Thus, the company consistently monitors the external landscape for emergent threats and gauges their potential ramifications on overarching corporate objectives. The Board of Directors plays a pivotal role in overseeing and evaluating the companys all-encompassing risk management framework.

The companys robust approach encompasses the assessment and management of an array of risks that span the spectrum. These encompass competition risk, concerns related to safety and sustainability, adherence to compliance norms, the integrity of information security, the availability of crucial raw materials, and the intricate dynamics posed by the pandemic. AVROs commitment to proactive risk management is deeply ingrained in its operational ethos, ensuring a resilient and adaptable stance in the face of an ever-evolving business landscape.

Material Developments in Human Resources and Industrial Relations

Recognizing the invaluable contribution of its employees, Avro Limited places paramount importance on nurturing and enhancing its human resources. The companys dedication to this endeavour is evident through its strategic focus on key aspects of human resource management, which encompasses effective communication, continuous learning and development, rigorous performance management and appraisal processes, and meticulous recruitment practices.

The Company focuses on inclusive, collaborative, and growth-oriented culture built over the years. Company has always remained an equal opportunity employer and has embedded these values in its employees. Company prohibits child labour, forced labour and discrimination of any kind against employee or applicant based on gender identity, language, race, colour, religion, caste, creed, sex, ethnicity, age, martial status etc.

The Company provides a work environment that fosters collaboration, lateral thinking, and innovative idea for employees to create value. It firmly believes that its rapid growth trajectory, coupled with the establishment of an inclusive and welcoming workplace, has significantly contributed to its ability to attract a diverse pool of exceptional individuals.

Central to the companys approach is the provision of regular training to employees, designed to empower them with the skills and knowledge necessary for achieving operational excellence, maintaining high productivity levels, and upholding stringent quality and safety standards.

Linkage between personal goals and organizational tools is considered a vital aspect for the shared growth of employees and the organization.

Industrial relations across all the units have been harmonious and cordial.

Internal Control Systems and Their Adequacy

The company has established a comprehensive system of internal controls that are well-suited to the companys size and business nature. These internal control mechanisms serve a crucial purpose: to optimize the efficiency of business operations, protect the companys valuable assets, ensure adherence to established policies and procedures, and to proactively identify and prevent errors and fraudulent activities. Additionally, they play a pivotal role in ensuring compliance with relevant laws and regulations while also upholding the accuracy and dependability of financial reporting and statements. Its worth noting that the company maintains a vigilant oversight of its corporate policies to ensure ongoing adherence. The Company is strengthening its Internal Control System every year as per the need of laws and transactions of the Company.

The responsibility of conducting internal audits falls upon the companys Internal Auditor. These internal audits are conducted at regular intervals, serving as a means to provide management with a degree of confidence in the integrity of transactions. To assess the ongoing effectiveness of the internal control systems, the Internal Auditors periodically evaluate their efficiency. Furthermore, the internal control specifically over financial reporting is rigorously tested and validated by the companys statutory auditors, providing an additional layer of assurance.

Recognizing the significance of maintaining transparent financial reporting and robust internal controls, the company has instituted an Audit Committee. This committee plays a crucial role in facilitating communication between the Statutory Auditors, Internal Auditors, and the management. Its responsibilities span a wide array of matters, encompassing financial reporting, internal control assessment, and other pertinent areas.

The companys commitment to internal controls, transparent financial reporting, and maintaining a strong audit framework underscores its dedication to operational excellence and accountability. Through its systematic approach and the engagement of internal and external audit expertise, the company aims to foster trust among stakeholders and ensure the integrity of its financial practices.

Cautionary Statement

The statements provided in the Management Discussions and Analysis section are grounded in presently accessible information and a series of suppositions encompassing the economy, variables influencing raw material costs, selling prices, shifts in consumer demand and preferences, pertinent laws and regulations, as well as additional economic and political aspects. Its important to note that the companys forthcoming performance projections and assumptions lack a guarantee of precision from the managements side. Consequently, readers are cautioned that the actual outcomes might deviate from what is articulated and inferred in the statements.