Birla Precision Technologies Ltd Management Discussions

Economic Overview

Global

The global economy demonstrated remarkable resilience in 2023-24, characterised by steady growth and a rapid slowdown in inflation. This journey was marked by significant challenges such as post-pandemic supply- chain disruptions, an energy and food crisis triggered by the Russia-Ukraine conflict, and a surge in inflation. Notably, the rise in inflation was followed by synchronised monetary policy tightening.

Global growth, which reached 3.2% in 2023, is forecasted to remain steady through 2024 and 2025. However, this falls short of the historical average of 3.8%, owing to restrained monetary policies, diminished fiscal aid, and sluggish productivity growth. On the other hand, global headline inflation is expected to moderate, decreasing from the annual average of 6.8% in 2023 to 5.9% in 2024, and further to 4.5% in 2025. This decline can be attributed to a more front-loaded reduction in advanced economies. In fact, inflation in these economies is expected to return to near pre-pandemic levels sooner than in emerging markets and developing economies.

Advanced economies are poised for a slight uptick, primarily driven by the recovery in the Euro Zone. The growth rates in these economies are projected to climb from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025. In contrast, emerging markets and developing economies are expected to sustain stable growth at 4.2% during 2024 and 2025. However, regional disparities still exist, with the growth moderation in Asia counterbalanced by growth in the Middle East, Central Asia, and Sub-Saharan Africa.

Global Economic Growth

(Source: World Economic Outlook - April 2024)

Indian Economy

Indias economy has been remarkably resilient to global economic challenges, exhibiting sustained growth over the past three years. Strict policy measures, regulations, and the gradual recovery of the private sector have supported this growth. Currently, the country is positioned for further progress, driven by several factors. These include significant investments in emerging sectors, ongoing Government expenditures, and efficiency improvements due to advancements in digitalisation and infrastructure.

In FY 2023-24, India grew at provisional estimates of 8.2%, surpassing the previous forecasts, which indicates a strong trajectory of economic advancement. Furthermore, government statistics underscore that Indias GDP growth rate surpassed that of major economies, such as Russia, the USA, China, and Japan.

The nation has solidified its position as the worlds third- largest fintech economy, rising to fourth place in global stock markets. This growth is fuelled by continuous IPO activity and strengthened investor confidence. Initiatives like the Skill India Mission, Start-Up India, and Stand-Up India are encouraging greater female participation in human capital development.

The governments economic policy agenda is laser-focussed on revitalising Indias growth potential. This encompasses efforts to rejuvenate the financial sector, streamline business conditions, and enhance both physical and digital infrastructure to strengthen connectivity and manufacturing competitiveness. Furthermore, ongoing economic reforms aim to foster a more business-friendly environment, improve quality of life, and fortify governance systems to align with this overarching vision.

Indian Economy GDP Growth Rate

(Source: Press Information Bureau (pib.gov.in)

Industry Overview

Global Auto Component Industry

The global auto components market was valued at US$ 1,964.51 Billion in CY 2023 and is projected to expand at a CAGR of 5.73% from CY 2023 to CY 2033, reaching US$ 3,429.54 Billion by CY 2033. North America is expected to maintain the largest share of the market, while Asia Pacific is poised to experience the fastest growth during the forecast period.

The North American auto components market has thrived due to the regions escalating industrial expansion and various key factors that have enhanced sector potential. As the principal market for these products, North America has seen a surge in demand from both OEMs and the aftermarket. Additionally, rapid urbanisation is set to further propel the markets growth.

Asia Pacifics swift growth is fuelled by robust industrialisation, urbanisation, and an expanding automotive sector, establishing it as the worlds largest car market. The region is a critical manufacturing hub, benefiting from lower production costs, a skilled workforce, and a robust supply chain ecosystem. Additionally, a growing middle-class population, rising disposable incomes, and enhancements in transport infrastructure are key drivers behind the expansion of the automotive components manufacturing industry in Asia Pacific.

(Source: https://www.sphericalinsights.com/reports/ automotive-components-market)

Indian Auto Component Industry

Indias auto component sector is the fourth largest in the world by production and the third largest by sales volume. The market size of Indias auto component industry is expected to expand by US$ 115.79 billion, with an impressive CAGR of 25.7% from CY 2023 to CY 2028. This growth is propelled by the expanding middle-class population, increasing demand for compact SUVs, and government initiatives that streamline regulations in the automotive industry.

According to the Automobile Component Manufacturers Association (ACMA), Indias automobile component exports are set to reach US$ 30 Billion by CY 2026. Investment in Indias auto component industry is poised for significant growth, with expected capital expenditures (capex) ranging between I NR 20,000-25,000 Cr. for FY 2024-25. These investments will focus on expanding production capacities and enhancing technological capabilities. Capex is projected to account for about 8-10% of operational income over the medium term, supported by the Production Linked Incentive (PLI) scheme, which promotes advanced technology and electric vehicle (EV) components. Meanwhile, imports have increased notably, rising by 11% to US$ 20.3 Billion, approximately 30% of which originate from China.

The sector has also drawn substantial foreign direct investment (FDI), with inflows reaching US$ 36.26 Billion from April 2000 to March 2024. Importantly, 100% FDI is allowed in the automotive parts industry under the automatic route, enhancing the attractiveness of investment opportunities.

The Union Cabinet approved the PLI-Auto Scheme with a budget of INR 25,938 Cr. for a five-year period from FY2022- 23 to FY2026-27. This scheme aims to boost the production of Advanced Automotive Technology (AAT) Products, with a particular emphasis on Zero Emission Vehicles (ZEVs) such as Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles. The PLI-AUTO Scheme aims to promote extensive localisation of AAT products, contributing to the growth of both domestic and international supply chains. Incentives under the scheme will be in effect from FY 2022-23 to FY 2026-27, with pay-outs scheduled for the subsequent fiscal year from FY 2023-24 to FY 2027-28.

(Source: https://www.technavio.com/report/india-auto-component-market-industry-analysis.

https://bwautoworld.com/article/accelerating-growth-indias-automotive-component-industry-outlook-514030.

https://www.investindia.gov.in/sector/auto-components#:~:text=The%20FDI%20inflow%20into%20Indian.allowed%20under%20the%20automatic%20route.

https://auto.economictimes.india times.com/news/ industry/auto-component-industrys-revenue-to-grow-by-5-7-in-fy25-icra/111664380

https://www.business-standard.com/industry/auto/indian-auto-component-industry-saw-highest-ever-jumpah33zin-fy23zacmaz223080700532.html

https://heavyindustries.gov.in/pli-scheme-automobile-and-auto-component-industry#:~:text=Union%20Cabinet%20approved%20the%20PLI.Automotive%20Technology%20(AAT)%20Products.)

Global Cutting Tools Industry

The global cutting tools market is forecasted to expand at a CAGR of 6.2% from FY 2023-24 to FY 2028-29, with the market size anticipated to rise from US$ 24.59 Billion in FY 2023-24 to US$ 33.21 Billion by FY 2028-29. This expansion is anticipated to be driven by rising demand across key sectors, including automotive, aerospace, manufacturing, and construction.

Advancements in material science are improving the durability and efficiency of cutting tools, thereby fuelling market growth. Moreover, the increasing integration of automation within manufacturing processes globally is expected to further boost demand for cutting tools. These developments are likely to sustain the positive growth trajectory of the global cutting tools market over the next few years.

Leading this growth, the Asia-Pacific region is poised to dominate the global market this year, spurred by its expanding industrial base, rising disposable incomes, and ongoing urbanisation. This boosts demand for consumer goods, automobiles, and infrastructure projects. Within the Asia-Pacific region, China maintains the largest market share, while India is quickly becoming a significant player, showing substantial growth and emerging as a key regional market.

(Source: https://www.marketdataforecast.com/market-reports/cuttina-tools-market

https://www.marketresearchfuture.com/reports/cuttina-tools-market-4027)

Indian Cutting Tools Industry

The cutting tool industry in India is expected to achieve a market size of US$ 101.48 Billion by CY 2027, with a CAGR of 4.2% from CY 2019 to CY 2027. This growth will be fuelled by increasing demand for metal-cutting equipment across diverse sectors such as aerospace, defence, automotive, and industrial machinery. As manufacturing sectors continue to expand, the use of cutting tools is expected to increase significantly to meet evolving customer needs. Over the next five years, the market share of cutting tools is projected to grow steadily, driven by the rising demand for efficient tools capable of meeting the intricate needs of critical and complex machine components.

(Source: https://www.theindustryoutlook.com/machinery- and-equipment/panorama/how-cuttina-tools-market-is- evolvina-in-india-nwid-2645.html)

Company Overview

Birla Precision Technologies Limited (BPTL or The Company) is a pioneering tool manufacturing company in India, boasting a rich legacy spanning over 8 decades. As part of the esteemed Birla Group of Companies, it is led by Mr. Vedant Birla, a seventh-generation member of the illustrious Birla family. BPTL operates across three primary product segments:

1. Cutting Tools: BPTLs subsidiary, Indian Tools Manufacturer (ITM), holds a significant market position as Indias first cutting tool company. Renowned brands under this segment include Dagger, Panther, Carbomach, and Hathyar, offering a wide array of cutting tool solutions.

2. Tool Holders: Established in 1986 through a joint venture with Kennametal Inc., USA, initially known as Birla Kennametal, this division specialises in manufacturing tool holders, collets, work holding solutions, and production boosters.

3. Automotive Precision Components: Formed in 1998 in collaboration with Perucchini Spa of Italy, this division focuses on machining products and precision components for the automotive industry.

BPTLs commitment to quality, innovation, and strategic partnerships has positioned it as a leader in the Indian tool manufacturing sector. The Company caters to diverse industrial needs with a portfolio of high-performance products across cutting tools, tool holders, and automotive precision components.

SWOT Analysis

Strength

• Extensive coverage across diverse customer segments.

• Well-established and respected brand presence.

• Commitment to superior quality and innovative design.

• Strong associations and partnerships within the industry.

• Skilled team with a track record of successful marketing strategies.

• Capable and experienced HR professionals at the top level.

Weaknesses

• Existing distribution network may require enhancements for better efficiency.

• Inadequate promotional strategies that need to be reevaluated and improved.

• Requirement for investment in new machinery and technology to replace obsolete equipment.

• Reliance on manual processes that could benefit from automation.

• Need for modernisation and upgrade of existing infrastructure.

• Insufficient recognition and presence in global markets.

Opportunities

• Potential for growth in key markets including India, Europe, and the USA.

• Exploring alternatives to sourcing or manufacturing in China to mitigate risks and leverage new opportunities.

• Expanding efforts to attract and serve customers across global markets.

• Investing in new technologies and innovations to stay competitive and meet evolving market demands.

• Building relationships with educational institutions to develop a pipeline of skilled graduates and improve employee capability.

Threats

• Established competitors with scalable business models pose significant competitive pressure.

• Increased competition due to suppliers in casting and forging moving into manufacturing.

• Traders engaging in brand labelling and sourcing from China intensify market competition.

• Market challenges due to regional preferences for local suppliers.

• Growing competition from international players in the global market.

Growing competition from international players in the global market.

Financial Overview

Standalone Overview:

The Sales and Other I ncome of the Company for the Financial Year 2023-24 stood at INR 22,778.26 Lakhs as against INR 26,370.74 Lakhs of previous year. Profit after tax stood at INR 1,066.14 Lakhs as against INR 1,538.32 Lakhs in the previous year.

Consolidated Overview:

The Sales and Other Income of the Company for the Financial Year 2023-24 stood at INR 22,755.82 Lakhs as against INR 26,364.42 Lakhs of previous year. Profit after tax stood at INR 943.30 Lakhs as against INR 1,407.32 Lakhs in the previous year.

The Companys financial statements have been prepared in accordance with the Indian Accounting Standards (Ind AS), complying with the requirements of the Companys Act 2013 and the guidelines issued by the Securities and Exchange Board of India (SEBI).

INR In Lakhs except for per share data

	Standalone		Consolidated
Particular	FY 2023-24	FY 2022-23	FY 2023-24	FY 2022-23
Revenue from Operation ( in Lakhs)	22,577.18	25,336.53	22,553.69	25,330.41
EBITDA ( in Lakhs)	2,797.79	2,858.24	2,677.87	2,737.85
PAT ( in Lakhs)	1,066.14	1,528.32	943.30	1,407.32
EPS	1.62	2.34	1.43	2.16

Key Ratios

The key financial ratios for the FY 2023-24 and a comparison thereof with the FY 2022-23 have been stated in the financial statement for the period ended March 31 2024.

Additional information pursuant to Regulations 52 (4) of Securities and Exchange Board of India (Listing obligation and disclosure requirements) Regulations 2015, as amended.

	Consolidated		Standalone
Particulars	March 31, 2024	March 31, 2023	March 31, 2024	March 31, 2023
Debt-Equity Ratio (In times)	0.29	0.24	0.29	0.24
Interest Service Coverage Ratio (In times)	5.79	6.84	6.16	7.22
Current Ratio (In times)	1.68	1.62	1.70	1.62
Current Liability Ratio (In times)	0.41	0.42	0.41	0.42
Total Debts to Total Assets (In times)	0.16	0.13	0.16	0.13
Debtors Turnover (In times)	5.39	6.29	5.17	6.28
Inventory Turnover (In times)	1.60	2.19	1.68	2.20
Debt Service Coverage Ratio	5.31	5.57	5.64	5.87
Long term debt to Working Capital Ratio	0.04	0.04	0.04	0.04
Operating Margin (%)	0.08	0.05	0.09	0.05
Net Profit Margin (%)	0.04	0.05	0.05	0.06

Risk Management

Effective risk management is indispensable for any business to identify and mitigate potential hazards that could jeopardise its operations and reputation. To ensure proper implementation and monitoring of the risk management plan, the Board of Directors has established a dedicated Risk Management Committee. This underscores BPTLs commitment to managing risks and operating safely and sustainably.

Risk	Impact	Mitigation
Market Risk	Dependence on automotive, aerospace, and industrial sectors for revenue exposes the Company to market fluctuations and sector- specific downturns.	• Diversification of customer base across industries and geographical regions to reduce dependency on any single market segment.
		• Continuous market research and monitoring of industry trends to anticipate changes and adapt strategies accordingly.
Technology and Innovation Risk	Rapid technological advancements in cutting tools and precision components require ongoing investment in research and development to maintain competitiveness.	• Commitment to R&D investment to develop new products
		• Enhance existing technologies and stay ahead of industry trends.
Operational Risk	Manufacturing complexities, supply chain disruptions, and quality control issues can impact production efficiency and product delivery of the Company.	• Implementing robust operational management systems and lean manufacturing practices to optimise production processes and minimise downtime.
		• Strengthening supplier relationships and diversify suppliers to mitigate supply chain risks.
Regulatory and Compliance Risk	Regulatory and compliance risk affects the company by potentially increasing operational costs due to the need for stringent adherence to regulations and standards.	• Regular monitoring of regulatory changes and updates to ensure compliance.
		• Investment in compliance management systems and training programmes for employees to uphold regulatory standards effectively.
Financial Risk	Exposure to currency fluctuations, liquidity challenges, and financial market volatility can impact profitability and financial stability of the Company.	• Implementation of robust financial risk management strategies, including hedging against currency risks, maintaining adequate liquidity reserves, and prudent financial planning and budgeting.
		• Regular financial audits and assessments to monitor financial health and identify potential risks early.
Talent and Human Resource Risk	Skills shortage, talent retention challenges, and succession planning gaps could affect the Companys growth and continuity.	• Investment in talent acquisition strategies, employee development programmes, and competitive compensation packages to attract and retain skilled professionals.
		• Implementation of succession planning initiatives to ensure leadership continuity and knowledge transfer.
Competitive Risk	Intense competition from global and domestic players in the cutting tools and precision components industry affects the company by pressuring it to continuously innovate and improve product quality while managing cost efficiency.	• Differentiation through product innovation, quality excellence, and customer service excellence.
		• Continuous benchmarking against competitors and adaptation of agile marketing strategies to maintain market leadership.

Human Resources

The Company is intensifying its commitment to employee welfare and their overall development by nurturing a supportive work culture. BPTLs strategy places a strong emphasis on qualitative growth through the creation of a hassle-free and constructive work environment, positioning employee welfare at the heart of its corporate growth strategy. The Company frequently holds interactive sessions with employees, which have led to positive outcomes. Additionally, it provides formal training conducted by both internal and external experts to deepen domain knowledge and promote a culture of corporate excellence. It is also important to highlight that none of the Companys Senior Management Personnel have been involved in any material, financial, or commercial transactions that could potentially conflict with the broader interests of the Company.

Internal Control Systems and Their Adequacy

The Company has been constantly upgrading its systems which helps minimise inefficiency and establishes a smoothly controlled internal system. This improvement helps the Company organise and increase its productivity and overall efficiency.

Cautionary Statement

Statements in this Annual Report, particularly those that relate to Management Discussion and Analysis, describing the Companys objectives, projections, estimates and expectations, may constitute forward-looking statements within the meaning of applicable laws and regulations. Although the expectations are based on reasonable assumptions, the actual results might differ.