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Bemco Hydraulics Ltd Management Discussions

1,376
(5.00%)
Jul 19, 2024|09:56:00 AM

Bemco Hydraulics Ltd Share Price Management Discussions

Industry structure & development:-

We are a Hydraulic engineering company and we bring out information in brief that is relevant to our current business interest and our strategy to grow in this segment

Main mother Industry on whom we are mainly depended on are, heavy engineering works, Aeronautics, defense. Railways, Automobile, forging, Sheet metal. Apart from these there are many global companies expanding their manufacturing facilities. There is upward trend in the business year by year for past couple of years.

India is a growing country and every business house can grow in its own field provided, they add value to the investments of the buyers program. There is a business opportunity for all segments of business because our country has not reached to the saturation point unlike European and American countries.

In Bemco, we have given major focus on Automotive and Rail Industry not only for business in home country but also in the neighboring countries. We have been successful in securing business as anticipated and much is expected in the years to come.

We believe we are better placed in this segment of industry and are well secured.

Opportunities and Threats:

Opportunities -

We have different product verticals catering to the above segments therefore there are ample opportunities to explore the business prospects from different segments of Industry.

1. In the western countries, forging and foundry industry are reduced as a result Indian Industry is doing better in this segment with export business opportunities. We cater to this segment and we are recognized in this segment of business so much so that, we get substantial business from this segment.

2. Automobile: Every Indian vehicle manufacturer has Bemco machines and we are recognized in this segment of business. Apart from supplying conventional machines, we also supply customized machines to these companies.

3. Railways: Indian Railways is perhaps second largest in the globe and has many workshops spread across length and breadth of the country. We supply Hydraulic wheel presses, spring testing machines and an Import substitute equipment by name - Hydraulic Re-railing equipment which Railways buy in good numbers.

4. Aviation and Defense: Bemco has developed few import substitutes wherein the business is steady and secured although the size of business is not significant. But we value this business as it is a feather in our cap and add brand value to the company. We are being seen as one among the reputed and reliable within industry.

Threats:

1. We are a Hydraulic Engineering Industry who design and develop custom built, application specific Hydraulic machines from concept level to commissioning. Our responsibility ends after putting the machine into production and then we get paid. Time frame for returns on the investment is to the tune of 6 to 8 months for each machine. Our investment on the work in progress is for a longer period of time as a result we carry a huge inventory at a huge interest cost.

2. We need to retain our entire workforce in good and bad times because all are specialized brains trained for our business module. Unlike software industry, we cannot adopt hire and fire policy. We need to carry our work force at all times.

3. If government reduces import duty to promote imports, the domestic hydraulic industry would suffer competitiveness. This is highly unpredictable.

4. We largely depend on government orders. The decisions are normally taken after 180 days. Earnest money deposited is blocked for unknown period at a huge cost.

5. In case of disputes and arbitration, the decisions are delayed for unknown period of time and it is beyond our control. Our inventory gets blocked until dispute is resolved. Security deposits submitted as a surety remain with the government body for an extended period of time.

6. Bank interests are much higher when compared to the developed countries. Since realization on our investment is spread over 8-10 months, we lose major chunk of earnings in bank interest & government levies. At times, when dispute crop up, we end up paying interest and government levies and lose heavily.

7. We are better placed in selling large size machines because of our infrastructure and past track record than selling smaller capacity machines. It is often seen that, small entrepreneurs open a new business account with our existing buyers with smaller machines and expand their business tentacles to secure larger business. We really need to strike balance in between, although the business coming from smaller machines does not add much to the turnover. The only way to sustain in this segment is to make the machines more efficient than before and make it incomparable with other products technologically. There is a need for constant innovation, developments and meet expenses without anticipating quicker returns.

8. With the increased globalization, the buyer and the user are more knowledgeable than any single manufacturer. There is need to infuse latest technology and produce energy efficient intelligent machines. It is the time for change over to next generation technology to grow in this business. We need to either develop technology in- house or have technical collaboration with the experts of this field.

9. At times, private entrepreneurs do not take delivery after the machine is ready due many reasons not concerned to us. In this period, we would be carrying huge inventory of capital goods which otherwise cannot be sold to anyone else than the one who placed order.

Segment wise and Product wise performance:

We have experts of each and every field who are responsible to give their best. The business is growing by word of mouth from one industry to another. We conceive new engineering concepts, develop, produce, test, prove said capabilities of the machine & then sell the first machine. The first machine speaks by itself and sells many more.

Bemco is always dedicated to its work responsibilities & enjoys crossing new mile stones of success in its under takings. Every employee gives his best to his part of responsibility and it is in the culture of this organization thereby we convert every individual of the organization into an asset of the company.

Outlook

We are confident and looking forward to a bright future and growth. We have planned for larger investments on the infrastructure development & induction of new technology.

Risk andLConcerns:

In true sense, we-have lesser risk factors in our business. We are into manufacture of custom built products & our investment begins only after securing the business and after contracts are supported with sufficient advance payment.

We are aiming for 50% of the business from Government sector wherein we get paid upon delivery and returns on our investment are well secured. We are successful in reaching to these bench marks.

As a result dead inventory is not created which would otherwise compel us for distress selling or depleting stocks. This is one of the key factors for our 60 years of presence in this field of business in all circumstances of situation of industry prevailing in the country.

Our business is hardly affected by product or the technology becoming obsolete overnight unlike electronic and automobile industry. This process is very slow and as a requirement of industry, we are already having European technology partner to keep pace with time & technology in the relevant field.

Concerns:

Our major concern is on the bank interest on capital goods, security deposits for a longer period of time for government contracts, late decisions of government mechanism & huge inventory costs while work in progress. There is much things expected from the government in this regard.

ESTIMATES FOR THE FINANCIAL YEAR2024-25:

Estimates for the current and following F.Y. are based on the corrections taken place in the overall market and taking into account the inflow of new Orders and Enquiries. During the year we have achieved the turnover as expected and has set the growth in sales turnover at the rate of 10%. we expect a strong rebound in business and it is our endeavor to marginally surpass the performance in the bottom line compared to last year. /5AJ I /7\

BEMCO FLUIDTECHNIK LLP which is engaged in manufacturing of hydraulic pumps, valves, hydraulic motors, hydraulic equipment/power packs, and manifold blocks and many such items and have introduced new products in the previous year and has a favorable response for the same. The subsidiary has broken even operationally for the financial year 2023-24.During the financial year, we expect the growth sale turnover at the rate of 25%, Bemco Fluidtechnik LLP Turnover and profit for the financial year ending 31st March, 2024 amounts to Rs.572.45/- lakhs and Rs.4.95/- lakhs.

PEGASYS MACHINES PVT LTD Company is engaged in the business of manufacturing machinery like shaft straightening Machines, gear roll testers, PLC/ PC based automation system special machines, machine design and related technical consultancy, which is of great utility to this Company. It is a sole manufacturer of automatic straightening Machines of this technology in India today. Pegasys Machines Private Limited comes with one year forward looking order book. During the financial year 2024-25 Looks like, we shall surpass last year sales by 10%. Pegasys Machines Pvt Ltd Turnover and profit after tax for the financial year ending 31st March, 2024 amounts to Rs. 1400/-lakhs and Rs. 489/-lakhs.

To sum up, the outlook for the next year looks bright.

Internal Controls and their adequacy:

Bemco has put in place adequate internal financial control with reference to the financial statement, some of which are outlined below:

The financial statement for the year ended 31st March, 2023 of the company and its subsidiary are prepared with comparative data, in compliance with Ind AS. Your Company has adopted accounting policies which are in line with the Accounting Standard prescribed in the Companies (Accounting Standards) Rules, 2006 that continues to apply u/s 133 and other applicable provisions of the companies Act, 2013 read with rule 7 of the companies (Accounts) Rules, 2014. These are in accordance with generally accepted accounting principles in India. Changes in policies if any are approved in the audit committee in consultation with the auditors.

The policies to ensure uniform accounting treatment are prescribed to the subsidiaries of your company. The accounts of the subsidiary companies are audited and certified by their respective auditors for consolidation.

The company has proper and adequate system of internal audit and control which ensures that all the assets are safeguarded against loss from unauthorized use and that all transactions are authorized recorded and reported correctly.

The company continuously improves upon existing practices for each of its major functional areas with a view to strengthen the internal control system.

The Comp.any has assigned internal audit function to a firm of Chartered accountants. Regular internal audit and checksyfte carried out to ensure that the responsibilities are discharged effectively. All major findings and suggestions arising out of internal audit are reported and reviewed by the Audit Committee. The management ensures implementation of these suggestions and reviews them periodically.

Human Resources:

Your company believes that human talent is its fundamental strength. The Company nurtures competencies and skills through learning and development programmes and recognizes talent, and rewards it through performancemanagement system. During 2023-24, the focus from an organization development perspective was to implement strong processes and controls to continuously improve efficiencies and improve organization capabilities.

The process of realigning the organization along functional lines in various areas of business like business acquisition, business execution and technology adoption continued through 2023-24. On the operational side of business, management changes were undertaken to create more focus and greater accountability.

Your company has enjoyed cordial relations with its employees, worker and staff employees are paid in accordance with the wage agreement established with trade unions.

The Employee strength of the company as on 31st March, 2024 was 306.

Analytical Ratios:

Ratio Numerator Denominator Current Period Previous Period % Change Reason of Change if more than 25%
Current Ratio Current Assets Current Liabilities 1.13 1.60 -29.50% Due to increases in credit sales and current investment.
Debt-Equity Ratio Total Debt Shareholders Equity 0.31 0.20 53.76% Due to increase in cash credit.
Debt Service Coverage Ratio Earnings Available for debt Services Debt Service 0.64 0.67 -4.80% NA
Return on Equity Ratio Net Profit After Tax less Preference Dividend Average Shareholders Equity 0.13 0.10 34.02% Due to increase in sales.
Inventory Turnover Ratio Cost of Goods Sold (COGS) Average Inventory 1.72 1.00 72.31% Due to increase in sales.
Trade Receivables turnover Ratio Net Credit Sales Average Accounts Receivable 3.17 2.28 38.89% Due to increase in sales.
Trade payables turnover ratio Net Credit Purchases Average Trade Payables 2.81 2.47 13.88% NA
Net Capital Turnover Ratio Net Sales Working Capital 12.77 2.59 393.90% Due to increase in sales.
Net Profit Ratio (%) Net profit after Tax Net Sales 9.72% 10.03% -3.15% NA
Return on Capital Employed (%) Earnings before interest and taxes Capital Employed 21.24% 14.29% 48.64% Due to increase in sales & profit increase during the year.
Return on Investment (%) Income Generated from Invested Funds Average Invested Funds in Treasury Investments 2.10% 20.12% -89.55% Due to Decrease in investment to Subsidiary.

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