commercial engineers body builders company ltd Management discussions


INDIA TO REMAIN FASTEST GROWING ECONOMY

Despite the turmoil due to Covid, in last two-three years, India recoils and looks ahead to becoming USD 5 trillion economy by CY27. According to the IMF dataset on Gross Domestic Product (GDP) at current prices for India, the current GDP is estimated to be at USD 3.5 trillion and projected to be at USD 5.5 trillion by CY27. The expected GDP growth rate of India for coming years is almost double as that of world economy. Besides this, India stands out as the fastest growing economy amongst the major economies. Outshining the growth rate of China, the Indian economy is expected to grow at more than 6% rate in the period of CY23-CY27.

Union Budget 2023-24 on boosting public infrastructure through enhanced capital expenditure are expected to augment growth and crowd in private investment through large multiplier effects in FY23. With improvement in demand for contract-intensive sectors as well as positive business and consumer sentiment, discretionary spending and urban consumption is expected to bolster economic growth. Along with increasing government support and push towards capex, the investment activities are expected to stay upright through improving bank credit and rising capacity utilisation.

OUTLOOK FOR FY 2023-24 AND ONWARDS Wagon and rail components

With positivity in economy and government focus on infrastructure and policy of make in India the Company foresee continual growth in coming years. In the Union Budget 2023-24, the government has allocated H 2.40 lakh crore towards railway-Capex which is the highest ever allocation and an increase of 51% over previous years allocation. The allocation towards rolling stock has more than doubled Y-o-Y to H 37,581 crore in the union budget 2023-24 from H 15,158 crore (revised budget) in 2022-23. Indian Railways has recorded the best-ever performance in its recorded history in terms of the output from the Freight Business in the financial year 2022-23.

IR has achieved an originating Freight loading of 1512 MT i.e., an incremental loading of 94 MT over the previous best of 1418 MT achieved in FY2021-22 with a growth of about 7 percent.

The freight transport unit i.e., NTKM (Net Tonne Kilometre) of IR has also clocked an impressive growth rate of 10 per cent to breach the 900 Bn mark for the first time to reach 903 Bn NTKMs in the FY 2022-23 as against 820 Bn NTKMs achieved last year.

IR has achieved an incremental loading of 74.6 MT in Coal, followed by 8.7 MT in Balance other goods, 5.6 in Cement & Clinkers, 7.1 MT in Fertilizers, 5 MT in containers and 4 MT in POL.

Increased supply of Coal to Power houses, in close coordination with Ministry of Power and Coal, have been one of the key features of the freight performance of IR in FY2022-23. The loading of Coal (both domestic and imported) to Power Houses has increased by 84 MT in FY 2022-23 with 569 MT Coal being moved to Power houses as against 485 MT last year, i.e., a growth of 17.3 per cent.

Along with excellent performance in transporting coal to the Power houses, increase in automobile loading has been another highlight of Freight Business in FY2022- 23 and 5527 rakes have been loaded in FY2022-23, as compared to 3344 rakes last year i.e., a growth of 65 percent. The Company has well-established lines for these application wagons.

The Indian Railways has placed the highest ever order for about 72,000 wagons last year and reportedly another 40,000 wagons to come with which railways look to be poised to increase the share of railways in freight transportation from about 27 per cent to 45 per cent by 2030

Progress will go steep up with dedicated freight corridor having started operations. This will call for increased requirement of wagons in coming years. Private participation is also being pushed by IR which is giving big boost to requirements in this segment.

DFC achieved a milestone of running one lakh trains. The first train on the DFC network was flagged off on December 12,2020. Till the start of the year 55,332 trains have been operated on the Eastern Dedicated Freight Corridor (EDFC) while 44,658 trains on the Western Dedicated Freight Corridor (WDFC) further 2089 Route KM 73.5 per cent of the DFC has been commissioned. DFC alignment except for Jawaharlal Nehru Port Trust connectivity is expected to be commissioned by December 2023. Also with the commissioning of the New Dadri-New Rewari section, freight transportation can be seamlessly done from the hinterlands of Uttar Pradesh to the Western ports of India. DFC is a vital initiative under the National Logistics Policy and is aimed at reducing the cost of logistics from 15 per cent (approx.) of the countrys GDP to 8 per cent by 2030.The freight infrastructure capacity augmentation by DFC is crucial in achieving the Indian Railways target of 3000-millionton freight loading by 2027. This will certainly lead to an increase in traffic which will result in demand of wagons. Good prospective lies in coming years.

Private sector ownership of wagons is on a rise driven by some of the recent schemes announced by the Indian Government. Industries such as cement, coal, steel, automobiles etc. which have a large freight movement through rail have been procuring wagons from domestic manufacturers. There is significant scope for an increase in demand from the cement, coal and steel industries on the back of growing domestic demand. Further, currently, the auto industry is using the railways mainly for transportation of passenger vehicles. There is also potential to transport CV parts and two-wheelers through the railway network which will add to wagon procurement by automobile manufacturers and logistics companies. Further, defence services are also proposing to procure wagons for transportation of utilities etc.

Policy initiatives for inducing modal shift recommends improving containerisation. The volume of containerisation in India is very low (5%). In the domestic sector compared to developed countries where it is around 30%. Action plan for improving containerisation at least to 20% is in place and the same would consequently promote in increased requirement for containers as well as container carrying wagons - both of which eventually are included in the business domain of Jupiter.

JWL DAKO-CZ India Limited ("JWL DAKO-CZ") joint venture projects is in to design manufacture and supply brake systems for high-speed passenger coaches and freight wagons in India. The axle mounted disc brake system have been fully operational with all due approvals received from the Indian Railway.

JWL-KOVIS (India) Private Limited ("JWL-KOVIS") joint venture with Kovis Proizvodna (Slovenia) Is in to manufacture, assemble and supply brake discs, axel and gear boxes, other cast and ductile iron casting and components for railway rolling stock for domestic and international markets. JV has started commercial operations and some of the products manufactured by this joint venture have been approved by the Indian Railways. JV is participating in regular tenders of ICF/ RCF/MCF. Prospects with Vande Bharat/ High speed passenger trains/ Metro coaches on top priority. It will cater to Indian Railways, domestic OEM and explore export opportunities.

JWL Talegria (India) Private Limited (JWL Talegria) is a joint venture between JWL and Talleres of Spain. The JV is into manufacturing of Weldable Cast Manganese Steel (WCMS) Crossings for high speed tracks. The project is in advanced stage of commissioning and shall start commercial production immediately after completion of internal and field trials. This is a futuristic product for the railway track-infrastructure and the demand is expected to be rising through the coming years. Moreover, it will explore export of its products to European and overseas markets.

Load body and components for Commercial Vehicles

Commercial vehicle (CV) industry volumes to grow by 7-10% in FY2024, supported by replacement demand, pick-up in mining, infrastructure, and construction activities, and overall healthy fleet utilisation levels. This is despite the 5% YoY and 41% sequential contraction in volumes in April 2023 due to expected price increases with the transition to BS6 2.0 and associated pre-buying in March 2023.

The growth in FY2024 would follow a year of healthy demand in FY2023, wherein the industry volumes expanded by more than 33%, supported by a favourable base, as well as a healthy pick-up in macroeconomic activity.

The scrappage policy, which was announced in March 2021, has been implemented from April 1, 2023, and is likely to contribute to the growth of new CV sales. It is being implemented in phases, primarily with a view to reducing the carbon footprint. In the first phase, it has been proposed to mandatorily scrap Government vehicles older than 15 years from April 1, 2023, which has a potential to replace 9 lakh vehicles. The second phase mandates scrapping based on vehicle fitness. Accordingly, heavy commercial vehicles (HCVs) older than 15 years and other vehicles older than 20 years need to undergo a mandatory fitness test from October 1, 2024. Although voluntary in nature, several measures have been proposed to incentivise scrapping of older vehicles - including hike in fitness certificate, renewal fees, and levy of green tax on older vehicles, increasing their cost of ownership. Further, on submission of the scrapping certificate, new vehicle purchases would be eligible for discounts from the OEMs, road tax rebate, and registration fee waiver.

It is estimated that the population of medium and heavy commercial vehicles (M&HCV) older than 15 years is about 1.1 million units offering significant potential for scrappage. However, given the nature of the usage of such vehicles, the actual scrappage could possibly be lower due to a significant portion of used CVs and older trucks in the overall mix, which are used in hinterlands for short-haul operations by small fleet operators. Nevertheless, even if a proportion of these vehicles gets scrapped, and with mandatory scrapping of the Government vehicles, it can offer a fillip to new vehicle sales by spurring replacement demand. Moreover, it would drive additional benefits like stimulating modernisation of the fleet in the country, improving fuel efficiencies, and reducing pollution and raw material costs through metal recycling going forward." M&HCV goods carrier segment, which is one of the major products relevant to the product line of the Company, to report a growth of 8-10% in FY2024 after closing FY2023 with a robust rise of 40%. The segment volumes would continue to be supported by the stable macroeconomic environment, Government push on infrastructure development, and the consequent higher freight availability, as well as an element of replacement demand.

For the light commercial vehicle (LCV) goods carrier segment, while demand would continue to be led by the increased requirement for last-mile transportation from the e-commerce segment and healthy demand from agriculture and the allied sectors, the growth momentum is likely to at to 4-6% and to remain steady.

The above two segments are important for the operations of the Company and opportunities lie in moderate growth over the steep growth platform of last year.

Lastly, in CV, Company has ventured into trailer segment with full drive. This segment has seen growth of 24%. Facilities have been and is being placed to accommodate the opportunity coming from this segment. Opening with OE in this segment will add on to our strength. The Company has approvals from ICAT and has established marketing and after sales setup to extract best from this segment. All types of trailers like Tipping trailer, box trailer, flatbed, semi low bed, special purpose Bomb cart for ports and container handling and bulkers for movement of ash has been added to our product list.

Containers

The container manufacturing facility is principally targeting to manufacture Hi-Tech and Special containers like power packs, data centres, refrigerated containers etc. for Hi-End and High Value clients. However, ISO and domestic containers will continue to be produced for both national and international customers.

Make in India drive have given good boost to container manufacturing units. The logistics industry is an integral part of economic activity and has emerged as one of the key sectors in India contributing 13-14% of GDP. Increasing demand for e-commerce, the expansion of the retail sector, growth in the manufacturing sector and the governments infrastructure development initiatives augur well for the logistics industry in India. Container manufacturing requires a special grade Corten-A steel which was not manufactured on a large scale in India. The government through the steel ministry has taken up the matter with the large steel manufacturers in India get themselves registered with Bureau of Indian Standards (BIS) and obtain a license to roll Corten steel according to the standards specified. Tata Steels Jamshedpur plant was the first to receive an all-India license to produce structural weather resistant Corten steel.

The domestic container demand is expected to be healthy over the next 3-4 years driven by healthy growth in exports, increase in domestic containerised freight traffic due to government schemes such as DFC, and governments push on domestic procurement. The private sector, especially the logistics sector, is also expected to increase its share in domestic procurement of containers for inland movement of cargo to cater to domestic demand. The demand for specialised containers such as refrigerated containers is expected to see strong growth backed by an increase in domestic trade and exports of perishable goods, pharmaceuticals etc.

The Company has gained a good reputation among the customers. With good design facility, flexibility in operations and well-placed infrastructure makes this vertical well placed for high yield. In the last 24 Months of Operations, the Company has established itself as Marker Leader in Specialised Container manufacturer. The Company has entered strategic manufacturing of DATA Centers. A top management audit and plant assessment has been successfully completed, required for Export. For Amperehour, Singapore, Schneider and Delta, Taiwan new prototypes have been successfully developed by your Company. By year end, the Company would be market leaders in manufacturing and a one stop manufacturing hub for specialised containers for America/ EU/ Southeast Asia & Australia. Your Company has also on boarded BV as third-party Auditor, for plant Manufacturing Assessments and Manufacturing Capacity revised certification and would be Indias leading manufacturing facility in terms of Volumes.

Commercial Electric Vehicles

Jupiter Electric Mobility Private Limited (JEMPL), a Subsidiary of Jupiter Wagons Limited has forayed into mobility solution with to bring sustainable, profitable and efficient electric vehicles to accelerate the mass adaptation of EVs globally. Under this division, we are in the process of designing, developing, manufacturing, assembling, supplying and providing after-sales service for electric vehicles and components manufacturing for all ranges of electric vehicles. JEMPL is one of the technology manufacturers that is well-positioned to gain from this high growth industry trend as well as various initiatives introduced by the Government of India to facilitate the growth of the electric vehicle industry in India. JEMPL has launched two variants of E-LCVs (JEM TEZ and EV STAR CC) into the market and plans to undertake end-to-end production in India and establish service facilities in key markets, in order to expand into the after-sales requirements for a seamless customer experience. Enhancing its existing capabilities and expertise in the mobility solutions business, JEMPL also has a strategic partnership for EV batteries and vehicle design & development.

FINANCIAL OVERVIEW- ON STANDALONE BASIS

Amount in lakh

For the year ended 31 March 2023

For the year ended 31 March 2022

Amount % of net sales Amount % of net sales
Income
Revenue from operations 2,06,824.74 1,17,835.40
Total income 2,06,824.74 1,17,835.40
Expenses
Raw materials cost and changes in inventories of work-inprogress 1,57,447.04 76.13% 89,684.40 76.11%
Employee benefits expense 4,117.24 1.99% 3,379.97 2.87%
Operating and other expenses 19,867.05 9.61% 13,356.96 11.34%
Operating profit (EBIDTA) 25,393.41 12.28% 11,414.07 9.69%
Finance costs 2,888.68 1.40% 1,816.69 1.54%
Depreciation and amortisation expense 2,494.35 1.21% 2,334.52 1.98%
Other income 508.71 0.25% 339.14 0.29%
Profit/ (loss) before tax and exceptional items 20,519.09 9.92% 7,602.00 6.45%

The bifurcation of revenue is given below: -

Year ended 31 March 2023

Year ended 31 March 2022

in lakhs in nos. in lakhs in nos.
Railway Wagons 1,62,753.90 4347 81,931.27 2441
Cms Crossing 3,559.15 1520 3,764.25 2013
Commercial Vehicle Load Bodies & Components 31,315.26 7616 28,456.96 8591
Containers 5,343.16 1246 2,324.80 562
Others 3,853.28 1,358.11
Total 2,06,824.74 1,17,835.40

The analysis of performance is explained below

a) During the year revenue from operation increased to H 206,824.74 lakhs as compared to H 117,835.40 lakhs in the previous year, a growth of 75.52%. Growth in railway wagons sales is 98.65%, Load bodies components and containers business also continues to grow at a healthy pace.

b) Employee cost and other operating expenses increased as compared to previous year, mainly on volume growth and in line with increase in sales volume. However, as percentage of revenue, employee cost decreased by 0.88%, and other operating cost decreased by 1.73%, mainly due to product mix and increased operational efficiency.

c) Consequent to above, the operating profit in terms of % to revenue increased to 12.28% from 9.69% previous year.

d) Finance cost has increased by H 1071.99 lakh as compared to previous year which mainly attributable to increased working capital requirement and investment in plant and machinery.

BORROWINGS

As on 31-03-2023, the Company has outstanding longterm debt of 2,814.68 lakhs, cash credit & working capital demand loan of 17,265.89 lakh and unsecured bill discounting liabilities (with recourse) of 8,649.21 lakh. The average interest rate of long-term debt was 11.50% to 7.98% per annum. The debt service coverage ratio increased by 72% from 3.57 times to 6.12 times.

Considering the debt servicing requirement for the year, the Company is reasonably confident of meeting these, subject to severe and unforeseen changes in situation.

CREDIT RATING

Credit rating of the Company were carried out by ICRA and ACUITE

Particular Rating
A. Rated on long term scale
Term loan A +; stable
Cash credit A 1
B. Rated on short term scale
Non fund base A 1

TECHNOLOGY - IT PROCESS AND SYSTEMS

During the year, the Company has specifically focused on upgrading the IT infrastructure, automated tax reconciliation system and human resource management system. After amalgamation, the Company has taken initiative for integration of SAP and migrated from legacy hardware server to cloud. We are also in the process of automation and integration of procurement system with SAP.

CORPORATE GOVERNANCE

The Company believes that corporate accountability and corporate governance enable wealth creation and that the shareowners participation adds value and often the power of ideas that investors bring outweighs the money they have invested in the Company. The corporate governance practices, as envisaged by the law of the country and regulators, in letter and spirit are the pillars of the business practices.

The driving forces of corporate governance are its core values - excellence and customer satisfaction, maximising long- term value for stakeholders, good corporate conduct and environment-friendly behavior.

RISK MANAGEMENT

The management and members of the Board review the business periodically to identify ongoing factors that affect the business and also changes in the external environment, which are likely to impact the Company. The management has foreseen certain risks and took steps to mitigate the risks. The following are the key risks and the mitigation approach.

Dependence on Railways: IR being the major customer for Wagons, any adverse impact on budget allocation of Railways will impact the order flow. The Company has mitigated this risk partly by developing wagons for private operators.

Cyclicality of the commercial vehicle industry - The demand for heavy vehicles is closely linked to overall industrial growth and is vulnerable to cyclicality in the commercial vehicle industry. In addition to rationalising the production capacities (as already mentioned), the Company is focusing on increasing the revenue from other businesses such as wagons, heavy fabrication for power plant, water tankers, load bodies for automotive vehicle used by defense and Containers.

Delay in execution of orders: Delays in execution of orders (particularly orders obtained through competitive tenders) can have a negative impact on profitability. The Company continues to monitor closely the execution of orders.

Raw material costs - Steel accounts for a major portion of the raw material costs. The Company has centralised the steel procurement function with the objective of leveraging the volumes to get better prices and is focusing on other cost control measures. Fluctuation in the foreign currency will adversely effect on import price of raw material components

Competition - The Company depends on load body business from certain OEM customers. These OEMs have developed more than one supplier to minimise their risk. There is a risk of change in OEM policy of with reference to suppliers. The Company follows a policy of working closely with select OEMs to enhance its share of business. Further, the Company continues to focus on orders from certain dealers.

Increase in interest rate/cost: Any increase in interest rate will adversely affect the Company. The Company is exploring ways and means to tighten its working capital in order lower working capital finance.

INTERNAL CONTROL SYSTEM

The Company has an established and comprehensive internal control mechanism and management structure in place across all locations and business functions that ensure the Companys assets are safeguarded against all and any loss from unauthorised use or disposal.

The documentation of Internal Control over Financial Reporting is in place and the management has undertaken an effectiveness test of the system.

Internal Control systems are implemented:

a) To safeguard the Companys assets from loss or damage.

b) To keep constant check on cost structure and process loss.

c) To provide adequate financial and accounting controls for preparation and reporting of financial performance and state of affairs, in accordance with Accounting Standards.

d) To maintain proper accounting record and statutory compliances.

The systematic implementation of Internal Control Systems and policies has resulted in the use of funds in the most efficient and appropriate manner.

INTERNAL AUDIT:

The Company has assigned the internal audit to a leading auditing firm. The internal audits are reviewed by the Audit Committee including implementation status of changes suggested by Internal Auditors The management and Audit Committee of the Board review the findings and the recommendations of the internal auditors as well as statutory auditors, who are also are empowered by the Board to take up and investigate any matter flagged by the internal audit team.

KEY FINANCIAL RATIOS

lakhs Working capital utilisation increased due to significant growth (75.52% increase in revenue) in operation. The Company is regular in repayment of principal and interest liabilities.

Ratio Descriptions Year ended 31 March 2023 Year ended 31 March 2022
PBDIT as % of revenue from Operations 12.28% 9.69%
Profit/ (loss) before tax and exceptional items as % of revenue from operation 9.92% 6.45%
Profit/ (loss) before taxes % of revenue from operation 9.92% 6.45%
Return on Net Worth 15.49% 7.32%
Gross Debt: Equity ratio 0.03:1 0.06:1
Current Ratio 1.42:1 1.66:1
Interest Coverage Ratio 8.97:1 5.03:1
Debtors Turnover 14.55 16.59
Inventory Turnover ratio 3.88 3.18

Note on the Change in Ratios

a) P BDIT/ operating margin: During the year the PBDIT margin increased by 26.75% from 9.69% to 12.28%. The increase is mainly attributable to significant growth in wagon business.

b) Profit/ (loss) before tax and exceptional items:

During the year the Company registered profit before tax and exceptional items of 20,519.09 lakh, which is 9.92% of revenue from operation as compared to previous years profit of 7,602 lakh (6.45%).

c) Peturn on net worth: Please refer (a) and (b) above.

d) Debt Equity Ratio: The outstanding long-term debts reduced to 2814.68 lakhs from 4225.36

e) Current Ratio: Current ratio was 1.66:1 as compared to previous year 1.56:1. The liquidity position of the Company is stable. The Company is reasonably confident of meeting its short-term obligation.

f) Interest Coverage Ratio: - Interest coverage ratio was 8.97 times as compared to previous year 5.03 times. The ratio indicates that the Company has sufficient cash earnings and can service the debt from earnings.

g) Debtor Turnover Ratio: Debtor turnover ratio was 14.55 times as compared to previous year 16.59 times. The Company continues to focus on marquee customers, collection and taking reasonable measures on effectiveness in collecting receivables.

h) I nventory Turnover ratio: Inventory turnover ratio was 3.88 as compared to previous year 3.18.

CAUTIONARY STATEMENT

Statements made in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, and expectations may be "Forward-looking statements" within the meaning of applicable securities laws and regulations. However, actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand-supply and price conditions in the domestic and overseas markets in which the Company operates, changes in Government regulations, tax laws and other statutes and other incidental factors.