Coromandel Engineering Company Ltd Management Discussions

Industry Analysis

The Construction Industry is one of the Major Contributors to Indias GDP - both directly & indirectly. It is one of the largest employers of skilled & unskilled workforce and over 40 Million people work in the Construction Industry & provides impetus to the growth of many large scale industries & infrastructure projects like Steel, Power, Cement, Automobiles, Fertilizer, Food, Metro Systems & Railways / Transportation Systems etc.

The construction Industry faced cost related issues with severe increase in input cost of materials and postponed of projects.

Review of Business

The Company had participated in tenders worth around Rs. 200 Crores across industrial, commercial and residential segments, during the year. The pressure on pricing is continuing, adding to the cost push in input materials and impact of Pandemic.

During the year, your Company was able to collect payments for current projects within the stipulated time period. This has helped in the improvement of the companys cash flow.

Risk Management

Given below are some of the significant risks that could have an impact on the Company and the mitigation measures that are put in place by the Company.

Pandemic related Risk

On account of Pandemic, the work schedules can be affected, disrupting the availability of labour and clients can postpone/cancel their schedules, leading to reduced turnover, liquidity and operational losses.

Mitigation Measures

•Have labour camps within / closer to the construction sites so that mobilized labour force can continue to work at the sites.

•Many of the lock down protocols permit existing construction activities to continue and take benefit of such relaxations.

• Hold more inventory of input materials as per BOM/work schedule so that availability of materials are ensured during short lock downs.

Bidding Risk

Quoting with lesser margins to obtain orders matching the prices of competition, leading to pressure on margins during execution.

Mitigation Measures

1.Site visits, collecting regional market prices, quality & competitive Vendor prices and thorough study of project scope before quoting for tenders. Structured process and formats to cover all possible activities and related costs while quoting.

2.Fixing minimum margins to be targeted and approval process for additional discounts, based on commercial justification.

3.Ensuring margin through back to back contracts wherever possible and with consent of client.

Risk in Process Activity

Process linkages right from obtaining orders to handing over to Client by planning effectively, timely deployment of resources, adherence to budgets and timelines. In the absence of proper linkage in this regard, actual cost and timelines may vary adversely.

Mitigation Measures

1.Ensuring detailed study of the site specific conditions and scope of the project with cross functional teams.

2.Detailed project execution plans are drawn up with process linkages.

3.Monitor the progress on a regular basis at projects and weekly in office to ensure timely delivery.

Quality Risk

The risk of quality of work not adhering to specifications as per contract, leading to short certifications of our invoice, payment delays and additional costs for rectification lowering the profitability and reputation loss.

Mitigation Measures

1.Constantly evaluating quality standards of our Vendor/Service Providers and having a pre - qualified panel for placing orders.

2.Monitoring of the quality of incoming materials and work execution through our in house team.

3.Posting exclusive QA / QC person in major projects.

4.Close monitoring / inspection of the works entrusted to Sub contractors, with respect to Quality.

Risk of Timely Completion

Not completing the work as per agreed timelines,

leading to cost escalation, levy of liquidated

damages and loss of further business.

Mitigation Measures

1.Timely mobilization of site team and other resources, as per contract requirements.

2.Ensuring availability of material / labour/ equipment as per execution plan through effective planning and tracking.

3.Ensuring availability of drawings/clearances from client/various authorities and any gap is communicated in advance and delays from the clients end are documented.

Cost Escalation Risk

Increase in costs beyond budget leading to margins

getting affected.

Mitigation Measures

1.Project Cost estimates to be based on specific site conditions, seasonal cost variation and availability factors and anticipated cost push over the tenure of the project.

2.Escalation clauses based on base prices for key input materials to be included in the contracts.

3.Negotiating better rates from suppliers/service providers, based on volumes to overcome unforeseen expenses.

4.Ensuring timely completion of the project.

5.Proper Documentation including sign off of additional costs incurred during Force majeure condition like Covid, Flood, etc., and due to

scope changes and follow up for necessary reimbursement.

Compliance Risk

Contractual and Legal - non compliance of specific contractual obligations and general obligations in practice and statutory non compliance will result in penalty and loss of reputation.

Mitigation Measures

1.Monitoring industry specific statutory requirements including RERA regulations as applicable, and training of employees to ensure compliance.

2.Checklist to capture applicable contractual obligations from quotation stage and ensure onerous clauses are not accepted.

3.Maintaining documentation to record non compliances on contractual obligations due to client issues.

Human Resources Risk

Attracting and retaining right talent, impacting the performance and growth of the business. Non availability of trained labour due to labour migration etc.

Mitigation Measures

1.Identifying good performers and ensuring opportunities for career growth through challenging roles and performance related compensation.

2.Attracting talent from industry with up to date technical skills through market related compensation.

3.Hold Labour camps with in or near the project sites to retain trained labour and minimize the impact of labour Migration.

Liquidity Risk

Not generating adequate cash as per requirements, resulting in delayed payments affecting execution and higher borrowings, resulting in higher interest cost.

Mitigation Measures

1. Ensuring timely submission of bills, certification of the work done by the client to meet cash flow.

2.Monitoring collections as per contractual terms and put in escalation mechanism for close follow-up of overdue when delays occur.

3.Ensuring better credit terms from suppliers and also hold unutilized lines of credit from banks to tide over temporary cash flow mis-matches.

The risk management matrix consisting of probable risks, their impact and the mitigation measures are reviewed periodically at the senior management level as well as by the Audit Committee of the Board.

Internal control systems and their adequacy

Your Company has an Internal Control System commensurate with the size and complexity of Operations. The overall objective of the process of Internal Control is to safeguard the assets of the Company, ensure that Operations are conducted in orderly and efficient manner and high standards of Corporate Governance are met.

Your company has established and is maintaining adequate internal controls within the system to ensure completeness and accuracy of financial and other information, which are used by management for supervision and control. The adequacy and effectiveness of internal controls are monitored regularly by the internal auditors and measures for improvement are adopted from time to time. Also as part of the internal control systems, it is being ensured that all applicable laws are complied without any lapse. Periodic updates are being

sought from the relevant sources to keep abreast with the latest changes in any applicable law and the compliance thereof.

The Audit Committee of the Company meets periodically to review and recommend quarterly, half yearly and annual financial statements of the Company. The Audit Committee reviews the important findings and corrective measures from internal audit reports. The Committee holds discussions with the internal auditors, statutory auditors and the management on the matters relating to internal controls, auditing and financial reporting. The Committee also reviews with the statutory auditors, the scope of their audit and findings.

Discussion on financial performance with respect to operations

Income from operations:

During the year, the Company achieved revenue from Operations of Rs.12,651 lakhs as against Rs.13,300 lakhs in the previous year. Operational EBITDA was positive at Rs.60 Lakhs as against negative of Rs.17 Lakhs in the previous year. Loss before Tax was at Rs. 385 Lakhs as against loss of Rs. 564 Lakhs in the previous year. Decrease in loss was mainly due to the improved operational performance of the company.

Summary of Financial Results:

The revenue and breakup of expenditure for the year are as follows:

Rs. in lakhs

	FY 2022-23	%	FY 2021-22	%
Revenue from Operations	12651	100.0	13300	100.0
Materials consumed and Sub contract Expenses	10611	83.8	11772	88.5
Salaries & Other Benefits	1020	8.0	829	6.2
Other Expenses	964	7.7	720	5.4
Finance Cost	422	3.3	472	3.5
Depreciation	223	1.8	274	2.1
Total Costs	13240	104.6	14067	105.8

Net Profit / (Loss)

Rs. in lakhs

	2022-23	2021-22
Total revenue	12656	13303
Profit/(Loss) before interest and tax (PBIT)	(163)	(291)
Profit/(loss) before tax (PBT)	(385)	(564)
PBT as % of revenue	(3%)	(4.2%)

Key Financial Ratios

Parameter	2022-23	2021-22	Change (%)	Comments
Debtors Turnover days	56	59	5% improvement	Better collections
Inventory Turnover times	9.0	7.08		Better revenue
Interest Coverage Ratio	Negative	Negative
Current Ratio	1.0	1.0		Due to higher input/ conversion cost
Debt Equity Ratio	Negative	Negative
Operating Profit Margin (%)	(1.2%)	(2.1%)	-	On total revenue
Net Profit Margin (%)	(2.9%)	(4.2%)	-	On total revenue

Net Worth

The net worth of the Company as at 31st March 2023 was Negative at Rs.2048.43 Lakhs as compared to Rs.1596.49 Lakhs (Negative) as at 31st March 2022. Various steps are being taken to bring the net worth back to positive through operational and other initiatives.

Due to its financial position, the Company was not able to meet its liabilities in respect of Preference shareholders. Hence the Board of Directors of the Company resolved that the Companys paid up Preference Share Capital be wholly reduced by extinguishing all rights to payments to be made to Preference Shareholders subject to the consent of the Preference Shareholders, Equity Shareholders and other statutory authorities.

As stated in the notes to the accounts in the previous year, the company had, based on the consent provided by the preference shareholders and Equity Shareholders during FY 2021-22 for

complete extinguishment of the rights of the preference shareholders and entitlements with respect to the preference shares of the value of Rs.2835.63 lakhs allotted to them had approached the NCLT, Chennai, with a Scheme of Reduction of Preference Share capital. The NCLT vide its order dated 9th of May 2023, has approved the said extinguishment of the entire obligation of the Company with respect to the Preference Share Capital of Rs.2835.63 lakhs.

As per the Board resolution of the Company, the extinguishment will come into effect from the date of approval of NCLT which is 9th May 2023. Hence, the effect of extinguishment is not considered in the financial statements of the Company for the year ending 31st March 2023 and as at 31st March 2023. The terms of the order of NCLT in CP No. 42 (CHE) of 2022 dated May 9th, 2023, have been fully complied with and duly certified by the Company Secretary and Compliance Officer.

Consequent to the extinguishment of entire obligations towards preference share capital as approved by the NCLT, the net worth of the Company which is (Rs. 2048.43 Lakhs Negative) as on 31st March 2023 will stand improved to Rs.787.20 Lakhs (Positive).

The above facts have been taken note of by the Directors as material facts occurring after the Balance Sheet date. The necessary financial effect of the extinguishment of the preference share capital of the company will be given effect in the first quarter of the FY 2023-24.

Human Resources

The company believes that the human capital is the key contributor for the business growth and competitiveness. This includes not only the employees of the Company, but the skilled labour engaged at project sites, through sub-contracting.

During the year higher turnover has been achieved in employee strength which stood at 210 (permanent employees-86 & non permanent employees-124) at end of the year against 145 at end of the previous year.

The Company has identified good talents from the market and deployed for the orders under execution and is in pipe line.

	On behalf of the Board
Place: Chennai	M.M.VENKATACHALAM
Date: 30th May, 2023	DIN:00152619
	Chairman