Cosmo Ferrites Ltd Management Discussions

The Company is in the business of manufacturing soft ferrites cores. Major applications of ferrites are inverter transformers, Energy Meter, Mobile Charger, SMPS, pulse transformers, line filters, choke, noise suppressors etc. The industry is witnessing a decent growth rate, and it is expected to grow at a similar rate in the near future as well, in both Domestic and Exports industry. The rapid urbanization and increase in usage of products using soft ferrites has given a big fillip to the soft ferrites industry in recent years.

The continuous shift of manufacturing facilities from high-cost locations like US & European countries to low-cost countries like India & China has provided a lucrative opportunity to the manufacturers in these countries. However, unlike hard ferrite, soft ferrite is more complicated both in terms of manufacturing process and characteristic requirements. Further the continuous technological advancements pose a threat to companies unable to cope with these changes.

As per the amendment made under Schedule V to the Listing Regulations read with Regulation 34(3) of the Listing Regulations, details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios and any changes in Return on Net Worth of the Company therefore are given below:

There are no significant changes (i.e. 25% or more) in other key financial ratios viz. Current Ratio and Inventory turnover Ratio.

The revenue from operation is Rs 9776 Lacs against Rs 10731 Lacs in the previous year. The Earnings before interest, tax, depreciation and amortization (EBITDA) are Rs 1013 Lacs against 1255 Lacs in the last year. The reporting year margins witnessed pressure owing to subdued lower exports sales, generally having higher margin, particularly from Europe region due to inventory corrections, shortages of chips, geopolitical turmoil and fears of recessions in Europe, prior correction in selling prices in anticipation of correction in raw materials prices and inventory loss due to drop in raw material prices.

Further there is an increase in finance costs from Rs 757 Lacs against Rs 550 Lacs owing to capital expenditure for new capacities.

The company has successfully developed several new products tailored for automotive and space applications.

Currently it is progressing towards obtaining approvals in export markets for these innovations, a move anticipated to optimize capacity and enhance margins within the next couple of quarters.

The government, responding to the companys request, initiated an antidumping investigation concerning the import of soft ferrites cores from neighboring countries. The investigation is generally progressing as per the notified schedule. Likely favorable outcome will help improve operating margin and capacity ustulation

The Company deals in only one product i.e., Soft Ferrites Core.

The outlook for the industry and the company looks bright and new markets in the global arena are being developed by the Company. The Company is also focusing on cost cutting and increased productivity to enhance its competitiveness.

The management cautions readers that the risks outlined below are not exhaustive and are for information purposes only. Investors are requested to exercise their own judgment in assessing various risks associated with the company.

The ferrites industry is capital intensive industry. In a free market environment, new capacities are created depending upon demand supply situation and return on investment. Industry is cyclical in nature and at times there is over supply situation leading to a decline in operating margins. We are mitigating the above risk by increasing our exports presence, developing niche products, exploring new markets and new customers. The domestic market caters to the lower end segment of the ferrites market and poses no threat to the company. The company has a good image with local customers.

All customers are sensitive to quality, delivery and price. The above risk is mitigated by developing value added niche products, customer schedule adherence and improved quality standards. This enables us to build long term relationships with various customers by providing them with a good value proposition.

Raw material prices have a significant impact on operating margins.

Since, raw materials prices are volatile in international markets especially Ferric Oxide, the company is in the process of strong inventory management, taking out lower realization products and customers, increasing sales realization and exploring new markets where realizations are high.

High Quality human resources are vital to the success of our business. People are valuable assets of the company. The company has been working towards providing challenging high growth environment for its employees. The company follows good HR practices, which include various schemes for employee welfare and motivation.

The company has a strong appraisal system. It has successfully worked its compensation policy to team and individual performances. The company provides good opportunities to deserving candidates. The company believes in growth of its managers to leaders and has structured training programs to that effect.

With excellent performance track record as well as best HR practices we are able to attract and retain people for growth of our business.

Operations could be disrupted due to natural, political and economic disturbances.

Running a business exposes the company to a number of risks.

The company has taken adequate insurance cover on its insurable interests. These include:

1. Fire Risk

2. Marine risk

3. Burglary risk

4. Group Personal Accident Policy

5. Other Miscellaneous Policies.

The company has also taken steps to strengthen the IT security system as well as physical security system at all our locations.

The Company is exposed to foreign exchange risk mainly due to imported raw materials and finished products. However, being importer and exporter both the foreign currency risk is partially Mitigated through a natural hedge

The details of the financial performance appear in the financial statements appearing separately. The highlights of the same are also mentioned in the Directors Report.

The Statutory Auditors assess the adequacy of internal control every quarter and report to the Board of Directors accordingly. The Company has adequate internal control procedures commensurate with the size of the company and the nature of its business.

Human resources are considered as vital strength of the company. There was unity of purpose among all levels of employees i.e. to continuously strive for the improvement in work practices & productivity.

As a leader in ferrite industry, Cosmo Ferrites acts as a socially responsible corporate citizen. We are not just committed to providing a conducive environment to all our stakeholders, we also believe in advocating for positive change in our world.

Certain statements in the Management Discussion & Analysis describing the companys views about the industrys expectations/ predictions objectives etc. may be forward looking within the applicable laws and regulations. Actual results may differ materially from those expressed in the statements. A companys operations may be affected by the demand and supply situations, input prices and their availability, changes in Government regulations, tax laws and other factors such as industrial relations and economic developments etc. Investors should bear the above in mind.