MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations, and our assessment of the factors that may affect our prospects and performance in future periods, together with our Restated Consolidated Financial Statements for three-month period ended June 30, 2023 and Financial Years 2023, 2022 and 2021 including the notes thereto and reports thereon, each included in this Draft Red Herring Prospectus. Unless otherwise stated, financial information used in this section is derived from the Draft Restated Consolidated Financial Statements.
While we have historically prepared our financial statements in accordance with Indian GAAP, in accordance with applicable law, we have adopted Indian Accounting Standards (Ind AS) with effect from April 01, 2021, with a transition date of April 01, 2021. This section includes a discussion of financial statement for three-month period ended June 30, 2023 and for the Financial Years 2023, 2022 and 2021 which were prepared under Ind AS. For the purposes of transition to Ind AS, we have followed the guidance prescribed in Ind AS 101 - First Time adoption of Indian Accounting Standard. The Restated Consolidated Financial Statements, prepared and presented in accordance with Ind AS and in accordance with the requirements of Section 26 of the Companies Act, the SEBIICDR Regulations and the Guidance Note on Reports in Company Prospectus (Revised 2019) issued by the ICAI.
Ind AS differs in certain material respects from Indian GAAP, IFRS and U.S. GAAP. Accordingly, the degree to which our financial statements will provide meaningful information to a prospective investor in countries other than India is entirely dependent on the readers level of familiarity with Ind AS. As a result, the Restated Consolidated Financial Statements may not be comparable to our historical financial statements.
This discussion and analysis contain forward-looking statements that reflect our current views with respect to future events and our financial performance, which are subject to numerous risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should also read Forward-Looking Statements and Risk Factors on pages 26 and 37, respectively, which discuss a number of factors and contingencies that could affect our business, financial condition and results of operations. Our Financial Year ends on March 31 of each year and accordingly, references to Financial Year, are to the 12-month period ended March 31 of the relevant year.
Unless the context otherwise requires, in this section, references to we, us, our, the Company or our Company refers to Diffusion Engineers Limited.
Unless otherwise indicated, industry and market data used in this section has been derivedfrom the report titled Assessment of the Welding consumables, Wear plates and Heavy Engineering market in India dated November 2023 (the CRISIL Report) prepared and issued by CRISIL Limited commissioned by us in connection with the Issue. Unless otherwise indicated, all financial, operational, industry and other related information derived from the CRISIL Report and included herein with respect to any particular year refers to such information for the relevant calendar year. For more information, see Risk Factor No. 49 - Certain sections of this Draft Red Herring Prospectus disclose information from the industry report which has been commissioned and paid for by us exclusively in connection with the Offer There can be no assurance that such third-party statistical, financial and other industry information is either complete or accurate. on page 70. Also see, Currency Conventions, Currency of Presentation, Use of Financial Information, Industry and Market Data on page 22.
OVERVIEW
We are a multi-product company providing engineering solutions to customers both in domestic and international market. Our Company has been in existence for over four decades and provide a wide range of products and services including manufacturing of customized welding consumables, wear plates and heavy engineering equipment for various industries and provide personalized services of repair and reconditioning of heavy machinery and equipment fabrication. We are also involved in trading of electrode powder and welding and cutting machinery. We initially started manufacturing of Super Conditioning, a surface treatment solution for machine components that greatly improves wear resistance, eliminates stress and increases their repairability leading to extended life of industrial parts resulting in smoother functioning and economy in production costs. We have developed a synergistic system of forward integration whereby we manufacture special purpose electrodes which are being further utilized for the manufacturing of wear plates. These wear plates are being utilized for manufacturing heavy engineering machinery. The manufacturing process is being completely utilized, ensuring economies of scale and minimal wastage. This forward integration helps in achieving efficiency in the production process and gaining competitive advantage, reduction in product costs, control over supply of raw materials and reduce our dependency on third parties for our operations.
Welding consumables market in India is estimated at around Rs 46 billion in fiscal 2023, with fiscal 2026 projections around Rs 58-60 billion. Due to the rise in demand for improved infrastructure, a lot of investment is happening in infrastructure development, such as construction of roads, bridges, ports and airports. Wear plates market in India is estimated around Rs 20 Bn in FY23 and is expected to grow at a CAGR of 8.5-9.5% to reach ~Rs 26 Bn in FY26. Wear plates are essential part of the industries such as power plants, steel mills, quarrying, cement etc, as these plates protect key components of these industry. As India continue to undergo rapid industrialization, each of these industries would grow and require wear plates to protect their equipment and machinery. The Indian heavy engineering capital goods industry is estimated to be Rs 2650-2750 billion as of FY23 and is projected to clock a CAGR of 7-8% over FY23-26. The industry expected to reach Rs 3300-3400 billion in size by FY26. Heavy electrical engineering, earthmoving, construction and Mining Machinery, and Process Plant Equipment are the largest segments of the industry. (Source: CRISIL Report)
We are focused on quality and design, which has allowed us to develop products suited to our customers requirements. We have the expertise to design and develop advanced in-house which enables us to manufacture complex and specialised heavy engineering equipment and components. Our Company, which housed a team of over 131 qualified engineers as of November 30, 2023, along with our decades of experience in welding consumables and wear plates, enables us to develop specialized products and solutions.
We operate from four manufacturing units, out of which Unit I, II and III are located in Nagpur Industrial Area, Hingna, Nagpur - 440 016, Maharashtra and Unit IV is located in Khapri (Uma), Nagpur - 441 501, Maharashtra for processing and manufacturing of our products. Our manufacturing Units are strategically located in the central part of the country with availability of all modes of transportation. This facilitates convenient transportation of our products, sourcing of raw materials and easy access to customers.
Our registered office is located at T-5 & T-6, Nagpur Industrial Area, MIDC, Hingna, Nagpur - 440016 Maharashtra. We have also overseas presence through our Subsidiaries in Philippines, Malaysia and Singapore and Joint Venture in United Kingdom.
We invest in R&D activities to create a differentiating factor and sustainability in our welding consumables products vis-a-vis our competitors and our clients specific requirements. Our R&D Facility is equipped with laboratory infrastructure for various developmental activities which includes process, finished products and other raw materials. We have a dedicated DSIR-approved R&D facility situated at Unit I. We have a certificate of Accreditation by National Accreditation Board for Testing and Calibration Laboratories -
ISO/IEC 17025:2017 for General Requirements for the Competence of Testing & Calibration Laboratories. We undertake multiple stringent quality checks and have Environment Management System (EMS) certification by TUV SUD South Asia Private Limited, Quality Management System (QMS)-ISO 9001:2015 and Environment Management System - ISO 14001:2015.
We manufacture special purpose welding electrodes at Unit I; flux cored wires and wear plates at Unit II; coatings for abrasion and corrosion resistances at Unit III,; and flux cored wires, wear plates and heavy engineering machinery at our Unit IV. Our Units are supported by infrastructure for storage of raw materials, manufacturing of our products, storage of finished goods, together with a quality control.
Our Company was incorporated in the year 1982. We initially started trading in welding electrodes for Super conditioning. From the year 1993, we started manufacturing welding electrodes. In the year 1994, we acquired our Unit I for manufacturing welding electrodes. Subsequently, we acquired Unit II as a dedicated unit for manufacturing wear plates and flux cored wires. In the year 2015, we acquired our Unit III for manufacturing coatings for abrasion and corrosion resistances and set up Unit IV for manufacturing heavy engineering equipment. Subsequently, we have also started production of flux cored wires and wear plates from Unit IV for which we have made an application on December 11, 2023 with MPCB.
Prashant Garg, our Promoter and Managing Director, has been instrumental in steering our company towards forward integration from manufacturing welding consumables to heavy engineering equipment and adding new product lines to our business. He has paved the way for the concept of total wear solutions.
We intend to expand our portfolio of welding consumables by manufacturing of powders for corrosion and abrasion resistance to be used in welding applications into our product line. For further information, see
Proposed Expansion Plans" and Objects of the Issue on pages 242 and 146, respectively.
The table below sets forth certain key operational and financial metrics for the periods indicated:
R in Million, except percentages)
Particulars |
For three- month period ended June 30, 2023 | Fiscal |
||
2023 | 2022 | 2021 | ||
Financial KPIs |
||||
Revenue from operations |
658.46 | 2,548.76 | 2,045.89 | 1,552.63 |
EBITDA |
106.40 | 347.97 | 275.22 | 227.00 |
EBITDA margin |
16.16% | 13.65% | 13.45% | 14.62% |
Restated profit for the year |
62.55 | 221.45 | 170.46 | 116.63 |
Restated profit for the year as % of Revenue (PAT margin) |
9.50% | 8.69% | 8.33% | 7.51% |
Average Capital employed |
1,888.31 | 1,676.66 | 1,350.28 | 1,850.50 |
ROCE (%) |
4.97% | 18.46% | 17.30% | 11.18% |
ROE (%) |
4.31% | 16.86% | 15.10% | 11.64% |
Debt-to-Equity ratio |
0.27 | 0.34 | 0.20 | 0.19 |
Operational KPIs |
||||
Revenue per sales person |
3.29 | 13.54 | 10.11 | 7.68 |
Revenue per order of Wear Parts and Job Work |
0.22 | 0.26 | 0.20 | 0.13 |
Revenue per order of Heavy Engineering Division |
0.74 | 0.65 | 0.81 | 0.79 |
Notes:
i) Revenue from Operations means the Revenue from Operations as appearing in the Restated Consolidated Financial Statements.
j) EBITDA refers to earnings before interest, taxes, depreciation, amortisation, gain or loss from discontinued operations and exceptional items. Operating EBITDA excludes other income. EBITDA Margin refers to EBITDA during a given period as a percentage of revenue from operations during that period.
k) Restated Profit Ratio/Margin quantifies our efficiency in generating profits from our revenue and is calculated by dividing our net profit after taxes by our total revenue.
l) Average Capital employed is calculated as average of opening and closing Networth and total debt during the period.
m) RoCE (Return on Capital Employed) (%) is calculated as EBIT divided by average capital employed. Average Capital employed is calculated as average of opening and closing Networth and total debt during the period.
n) Return on equity (RoE) is equal to profit for the year divided by the average total equity and is expressed as a percentage.
o) Debt to equity ratio is calculated by dividing the debt (i.e., borrowings (current and non-current) and current maturities of long-term borrowings) by total equity (which includes issued capital and all other equity reserves).
p) Revenue per Sales persons is total revenue from operation (consolidated) divided by total sales strength (including subsidiaries) i.e. average sale by an individual.
q) Revenue per order of Wear Parts and Service Welding is total revenue from operation of Fabrication and Job Work of Unit divided by total orders executed. This shows the average size per order.
r) Revenue per order of Heavy Engineering Division is total revenue from operation of Heavy Engineering Division divided by total orders executed. This shows the average size per order.
SIGNIFICANT FACTORS AFFECTING OUR FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Our business is subjected to various risks and uncertainties, including those discussed in the section titled Risk Factors beginning on page 37 of this Draft Red Herring Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:
We do not have long-term agreements with our suppliers for raw materials
Our purchases of raw materials are concentrated from a few suppliers with our top 10 suppliers contributing of the total purchases of raw materials on restated standalone financial statement are as follows:
Fiscal |
Amount (Rs in million) | % of total purchase |
For the period ended June 30, 2023 |
244.68 | 64.87 |
2023 |
719.94 | 49.49 |
2022 |
603.03 | 49.43 |
2021 |
329.69 | 50.80 |
Our ability to remain competitive, maintain costs and profitability depend, in part, on our ability to source and maintain a stable and sufficient supply of raw materials at acceptable prices. Our major raw materials include steel plates, mild steel plates, pipes, stainless steel, iron, iron sheets or strips of steel, nickel. We depend on external suppliers for all the raw materials required and typically purchase raw materials on a purchase order basis and place such orders with them in advance based on our requirements. As a result, the success of our business is significantly dependent on maintaining good relationships with our raw material suppliers. The absence of long-term supply contracts subjects us to risks such as price volatility caused by various factors viz. commodity market fluctuations, currency fluctuations, climatic and environmental conditions, transportation cost, changes in domestic as well as international government policies, regulatory changes and trade sanctions. Some part of our raw materials are also imported. China, United Kingdom, Germany, Italy, Spain, Singapore and Hong Kong constitute the countries from where major portion of the raw materials were imported during the last three Fiscal years. As a result, we continue to remain susceptible to the risks arising out of foreign exchange rate fluctuations as well as import duties, which could result in a decline in our operating margins. If we cannot fully offset the increase in raw material prices with increase in the prices for our products, we will experience lower profit margins, which in turn may have a material adverse effect on our results of operations, financial condition and ultimately lead to a liquidity crunch. In the absence of such contracts, we are also exposed to the risk of unavailability of raw materials in desired quantities and qualities, in a timely manner.
Our businesses are dependent on the performance of certain other industries.
We are dependent on the following industries for deriving a major portion our revenues. The following table sets forth revenues generated from the sale of products on restated standalone financial statement from each of the other industries for both of our businesses, for the periods indicated.
End-use segment |
For the period ended June 30, 2023 |
Fiscal 2023 |
Fiscal 2022 |
Fiscal 2021 |
||||
(Rs) | (%) | (Rs) | (%) | (Rs) | (%) | (Rs) | (%) | |
Cement |
292.63 | 47.80% | 747.09 | 30.61% | 719.13 | 36.74% | 518.98 | 34.07% |
Engineering |
34.21 | 5.59% | 262.36 | 10.75% | 145.50 | 7.43% | 74.86 | 4.91% |
Power |
51.77 | 8.46% | 325.82 | 13.35% | 291.76 | 14.90% | 303.89 | 19.95% |
Steel |
43.28 | 7.07% | 291.19 | 11.93% | 213.35 | 10.90% | 109.68 | 7.20% |
Sugar |
31.00 | 5.06% | 104.00 | 4.26% | 91.60 | 4.68% | 87.80 | 5.76% |
Total |
452.90 | 73.97% | 1,730.46 | 70.90% | 1,461.34 | 74.65% | 1,095.20 | 71.90% |
The remainder of our revenues are generated from sales to other sectors and also sales through our distributors, both in domestic and overseas market, which may include sales to the aforesaid sectors.
Any slowdown in these sectors or any loss of business from, or any significant reduction in the volume of business with, customers operating in these other industries, if not replaced, could materially and adversely affect our business, financial condition and results of operations. As a result of our dependence on customers in these other industries, we are exposed to fluctuations in the performance of these other industries globally, and in India. These other industries are sensitive to factors such as consumer demand, consumer confidence, disposable income levels and employment levels.
Our inability to collect receivables and default in payment from our customers could result in the reduction of our profits and affect our cash flows.
We sell at our standard terms with payment due before dispatch and conduct our business on the basis of various milestone payments. A small percentage of our sales are to customers on an open credit basis, with standard payment terms of generally between 30 to 90 days. While we generally monitor the ability of our customers to pay these open credit arrangements and limit the credit we extend to what we believe is reasonable based on an evaluation of each customers financial condition and payment history, we may still experience losses because of a customer being unable to pay. As a result, while we maintain what we believe to be a reasonable allowance for doubtful receivables for potential credit losses based upon our historical trends and other available information, there is a risk that our estimates may not be accurate.
The table set forth below sets forth our trade receivables and receivable turnover days in the periods indicated as well as bad debts written off and disputed trade receivables - which have significant increase in credit risk.
Particulars |
For the period ended June 30, 2023 |
Fiscal 2023 |
Fiscal 2022 |
Fiscal 2021 |
||||
Amount (Rs in million) | % of total sales | Amount (Rs in million) | % of total sales | Amount (Rs in million) | % of total sales | Amount (Rs in million) | % of total sales | |
Trade Receivables |
626.44 | 92.98% | 701.35 | 27.11 % | 503.45 | 24.12% | 430.81 | 27.04 |
Bad debts written off |
0.61 | 0.1% | 3.88 | 0.15% | 1.39 | 0.06% | 2.96 | 0.18% |
Disputed trade receivables which have significant increase in credit risk |
4.80 | 0.71% | 6.48 | 0.25% | 5.55 | 0.26% | 4.69 | 0.29% |
Any increase in our receivable turnover days will negatively affect our business. If we are unable to collect customer receivables or if the provisions for doubtful receivables are inadequate, it could have a material adverse effect on our business, results of operations and financial condition.
A significant portion of our domestic sales are derived from the western and southern zone and any adverse developments in this market could adversely affect our business.
Set forth below is certain information on our geography-wise domestic revenue from operations is on restated standalone financial statement for the periods indicated:
Zone |
Break-up of total domestic revenue from operations (%) |
|||
For the period ended June 30, 2023 | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 | |
West |
29.74% | 26.46% | 33.48% | 27.15% |
South |
17.53% | 24.73% | 17.24% | 25.02% |
North |
15.12% | 11.78% | 16.11% | 12.90% |
East |
14.49% | 14.49% | 12.92% | 11.78% |
Central |
15.21% | 10.49% | 11.98% | 10.79% |
We have historically derived a significant portion of our revenue from sales in the western and southern zone. For the period ended June 30, 2023, Fiscal 2023, 2022 and 2021 the revenue generated from sales in western and southern zone cumulatively represented 47.27%, 51.19%, 50.72% and 52.17% of our revenue from domestic sales. Accordingly, any materially adverse social, political or economic development, natural calamities, civil disruptions, regulatory developments or changes in the policies of the state or local government in this region could adversely affect our manufacturing and distribution activities, result in modification of our business strategy or require us to incur significant capital expenditure, which will in turn have a material adverse effect on our business, financial condition, results of operations, and cash flows. Further, our sales from this region may decline as a result of increased competition, regulatory action, pricing pressures, fluctuations in the demand for or supply of our products or services, or the outbreak of an infectious disease such as COVID-19. Our failure to effectively react to these situations or to successfully introduce new products or services in these markets could adversely affect our business, prospects, results of operations, financial condition, and cash flows. The occurrence of, or our inability to effectively respond to, any such events or effectively manage the competition in the region, could have an adverse effect on our business, results of operations, financial condition, cash flows and future business prospects.
Our business and profitability is substantially dependent on the availability and cost of our raw materials
We are engaged in the manufacturing of complex and high precision engineered components, requiring raw materials having certain technical specifications. The tables below provide cost of raw materials and components consumed as a percentage of our total revenue in the years/ periods indicated:
Particulars |
For the period ended June 30, 2023 |
Fiscal 2023 |
Fiscal 2022 |
Fiscal 2021 |
||||
Amount (Rs in million) | % of total revenue s | Amount (Rs in million) | % of total revenues | Amount (Rs in million) | % of total revenue | Amount (Rs in million) | % of total revenues | |
Cost of Raw Materials and Components Consumed |
324.46 | 48.16 | 1,376.33 | 53.21 | 1,166.25 | 55.87 | 591.22 | 37.12 |
We may experience volatility in the cost or availability of raw materials. While our arrangements with customers allow us to seek an upward revision in pricing, our cash flows may still be adversely affected because of any gap in time between the date of procurement of those primary raw materials and date on which we can reset the prices for our customers, to account for the increase in the prices of such raw materials. Our ability to pass through costs or otherwise mitigate these cost increases could adversely affect our business. From time to time, commodity prices may also fall rapidly. If this happens, suppliers may withdraw capacity from the market until prices improve which may cause periodic supply interruptions. If these supply interruptions occur, our costs for procuring our raw materials could increase, and our business, cash flows and results of operations could be adversely affected.
Any increase in prices of raw materials could have an impact on our working capital as we would require additional funds to procure the necessary steel at the higher prices. As a result, we may be required to allocate a larger portion of our working capital towards purchasing raw materials to maintain our production levels. This increased allocation towards purchase can potentially strain our working capital availability.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For Significant accounting policies please refer Significant Accounting Policies, under Chapter titled Financial Information beginning on page 296 of the Draft Red Herring Prospectus.
RESULTS OF OPERATIONS
The following table sets forth detailed revenue from operations data from our restated consolidated statement of profit and loss for the Fiscals 2023, 2022 and 2021 and for three-month period ended on June 30, 2023, the components of which are also expressed as a percentage of total income for such years.
Particulars |
As of and for the three-month period ended June 30, 2023 |
Fiscal 2023 |
Fiscal 2022 |
Fiscal 2021 |
||||
Rs. in Million s | % | Rs. in Millions | % | Rs. in Millions | % | Rs. in Millions | % | |
i. Sale of Product and Services: |
||||||||
Manufactured Products |
461.42 | 68.49 | 1813.81 | 70.12 | 1534.42 | 73.51 | 1109.59 | 69.67 |
Trading |
56.94 | 8.45 | 201.37 | 7.78 | 146.58 | 7.02 | 87.00 | 5.46 |
Export Sales |
47.10 | 6.99 | 347.22 | 13.42 | 160.34 | 7.68 | 183.88 | 11.55 |
ii. Job work receipts: |
||||||||
Local |
28.42 | 4.22 | 151.93 | 5.87 | 187.76 | 8.99 | 149.26 | 9.37 |
Export |
60.20 | 8.94 | 10.85 | 0.42 | 1.39 | 0.07 | 4.30 | 0.27 |
iii. Other Operating Revenues |
||||||||
Other Operating Revenues |
4.38 | 0.65 | 23.59 | 0.91 | 15.39 | 0.74 | 18.60 | 1.17 |
Total Revenue from Operations (i+ii+iii) |
658.46 | 97.74 | 2548.76 | 98.53 | 2045.89 | 98.01 | 1552.63 | 97.48 |
Our Companys revenue from operations for three-month period ended June 30, 2023, is Rs 658.46 million and revenue from operations increased to Rs 2548.76 million in Fiscal 2023 from Rs 2045.89 million in Fiscal 2022 and Rs 1552.63 million in Fiscal 2021. The increase in Fiscal 2023 over Fiscal 2022 is 24.58%, while the growth in revenue from operations in Fiscal 2022 over Fiscal 2021 is 31.77%.
Product wise bifurcation of revenue:
Product Category |
For three-month period ended June 30, 2023 |
Fiscal 2022-23 |
Fiscal 2021-22 |
Fiscal 2020-21 |
||||
(Rs) | (%) | (Rs) | (%) | (Rs) | (%) | (Rs) | (%) | |
Welding Consumables |
215.77 | 32.77 | 978.70 | 38.40 | 721.94 | 35.29 | 607.07 | 39.10 |
Wear plate / Wear consumables |
191.38 | 29.06 | 756.14 | 29.67 | 544.17 | 26.60 | 396.57 | 25.55 |
Heavy Engineering Equipment |
164.91 | 25.04 | 531.34 | 20.85 | 550.11 | 26.89 | 423.68 | 27.29 |
Trading |
40.18 | 6.10 | 174.55 | 6.85 | 141.36 | 6.91 | 95.77 | 6.17 |
Revenue from Subsidiaries |
46.23 | 7.02 | 108.02 | 4.24 | 88.31 | 4.32 | 29.55 | 1.90 |
Total |
658.46 | 100.00 | 2548.76 | 100.00 | 2045.89 | 100.00 | 1552.63 | 100.00 |
Geographical area wise bifurcation of revenue:
Product Category |
For three-month period ended June 30, 2023 |
Fiscal 2022-23 |
Fiscal 2021-22 |
Fiscal 2020-21 |
||||
(Rs) | (Rs) | (Rs) | (%) | (Rs) | (%) | (Rs) | (%) | |
Domestic |
598.26 | 90.85% | 2,190.69 | 85.95% | 1,884.15 | 92.09% | 1,364.45 | 87.88% |
Exports |
60.28 | 9.15% | 358.07 | 14.05% | 161.74 | 7.91% | 188.18 | 12.12% |
Total |
658.54 | 100.00% | 2,548.76 | 100.00% | 2,045.89 | 100.00% | 1,552.63 | 100.00% |
The primary offerings of our company include Welding Consumables, Wear plate/Wear consumables, Heavy Engineering Equipment, trading and sale by subsidiaries. Sales for these products amounted to Rs 658.46 million, Rs 2,548.76 million Rs 2,045.89 million and Rs 1,552.63 million for three-month periods ending June 30, 2023, Fiscal 2023, 2022, and 2021, respectively.
As of June 30, 2023, the revenue from operations is Rs 658.54 million, with domestic sales accounting for 90.85% and export sales for 9.15%. In Fiscal 2023, our company achieved a revenue from operations of Rs 2,548.76 million, with domestic sales comprising 85.95% and export sales at 14.05%. In Fiscal 2022, the corresponding figures were 92.09% and 7.91%, generating a revenue from operations of Rs 2,045.89 million. For Fiscal 2021, the percentages were 87.88% for domestic sales and 12.12% for export sales, contributing to a revenue from operations of Rs 1,552.63 million.
The following table sets forth select financial data from our restated Consolidated statement of profit and loss for the period ended and for Financials years 2023, 2022 and 2021, the components of which are also expressed as a percentage of total income for such years.
For three month period ended June 30, 2023 |
Fiscal 2023 |
Fiscal 2022 |
Fiscal 2021 |
|||||
Particulars |
Rs. in Millions | % of Total Income | Rs. in Millions | % of Total Income | Rs. in Millions | % of Total Income | Rs. in Millions | % of Total Income |
Income |
||||||||
Revenue from operations |
658.46 | 97.74% | 2548.76 | 98.53% | 2045.89 | 98.01% | 1552.63 | 97.48% |
Other income |
15.22 | 2.26% | 37.95 | 1.47% | 41.58 | 1.99% | 40.08 | 2.52% |
Total income |
673.69 | 100.00% | 2586.72 | 100.00% | 2087.47 | 100.00% | 1592.71 | 100.00% |
Expenditure |
||||||||
Cost of materials consumed |
324.46 | 48.16% | 1376.33 | 53.21% | 1166.25 | 55.87% | 591.22 | 37.12% |
Changes in inventories of finished goods and work- in progress |
22.21 | -3.30% | -28.26 | -1.09% | -77.72 | -3.72% | 177.28 | 11.13% |
Purchase of stock in trade |
47.80 | 7.10% | 128.09 | 4.95% | 82.07 | 3.93% | 59.87 | 3.76% |
Manufacturing expenses |
92.29 | 13.70% | 328.62 | 12.70% | 264.51 | 12.67% | 176.41 | 11.08% |
Employee benefit expenses |
84.99 | 12.62% | 307.60 | 11.89% | 268.96 | 12.88% | 239.45 | 15.03% |
Finance Cost |
6.04 | 0.90% | 22.95 | 0.89% | 13.83 | 0.66% | 20.01 | 1.26% |
Depreciation and Amortization |
12.50 | 1.86% | 38.42 | 1.49% | 41.64 | 1.99% | 38.99 | 2.45% |
Other Expenses |
36.16 | 5.37% | 157.61 | 6.09% | 116.92 | 5.60% | 101.19 | 6.35% |
Total expenses |
582.03 | 86.40% | 2331.36 | 90.13% | 1876.47 | 89.89% | 1404.42 | 88.18% |
Share of profit / (loss) of associates and joint ventures |
-3.79 | -0.56% | 31.24 | 1.21% | 8.75 | 0.42% | -20.30 | -1.27% |
Profit before tax |
87.86 | 13.04% | 286.60 | 11.08% | 219.75 | 10.53% | 168.00 | 10.55% |
Total Tax Expense |
25.32 | 3.76% | 65.15 | 2.52% | 49.29 | 2.36% | 51.37 | 3.23% |
Net Profit for the year |
62.55 | 9.28% | 221.45 | 8.56% | 170.46 | 8.17% | 116.63 | 7.32% |
Cost of materials consumed.
Cost of materials consumed comprises raw material costs incurred in production of Welding Consumables, Wear plate / Wear consumables, and Heavy Engineering Equipment and Trading. The primary raw materials are used in the manufacture of our products are iron, iron sheets or wire to manufacture our products. Raw materials consumed represent a significant portion of our total expenditure. Cost of materials consumed accounted for 48.16%, 53.21%, 55.87%, and 37.12% of our total income for three-month period ended June 30, 2023, and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021 respectively.
Changes in inventories of finished goods and work-in-progress
Changes in inventories of finished goods, work-in-progress and stock in trade consists of costs attributable to an increase or decrease in inventory levels during the relevant financial period in finished goods, stock- in-progress and stock in trade. Changes in inventories of finished goods and work-in-progress accounted for (3.30%), (1.09%), (3.72%) and 11.13% of our total income for three-month period ended June 30, 2023 and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021 respectively.
Purchases of stock in trade
Purchases of stock in trade accounted for 7.10%, 4.95%, 3.93% and 3.76% of our total income for three- month period ended June 30, 2023 and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021 respectively.
Manufacturing expenses
Manufacturing expenses comprise
(i) Consumable, stores, and spare parts material consumed;
(ii) Job work charges and labor charges;
(iii) Power and fuel, and other expenses specifically related to manufacturing activities. For three-month period ending June 30, 2023, and Fiscal years 2023, 2022, and 2021, manufacturing expenses represented 13.70%, 12.70%, 12.67%, and 11.08% of our total income, respectively.
Employee benefits expense
Employee benefits expense includes
(i) salaries and wages, and remuneration to director;
(ii) contribution to provident fund and other funds,
(iii) Gratuity , staff welfare expenses and Sales Commission to employees. Employee benefits expense accounted for 12.62%, 11.89%, 12.88% and 15.03% of our total income for three month period ended June 30, 2023 and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021 respectively.
Finance costs
Finance costs include interest expense on borrowings, Exchange fluctuation on foreign currency transactions/ translations and other borrowing costs. Finance costs accounted for 0.90%, 0.89% , 0.66% and 1.26% of our total income for three month period ended June 30, 2023, and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021 respectively.
Depreciation and amortization expenses
Depreciation represents depreciation on our property, plant and equipment. Amortization represents amortization of intangible assets. Depreciation is calculated on a written down value method over the estimated useful life of all assets, these lives are in accordance with Schedule II to the Companies Act, 2013 or as per the best estimation of the management. The estimated useful lives, residual value and depreciation method are reviewed at the end of each reporting period, with the effect of any change in estimate accounted for on a prospective basis.
Depreciation and amortization expense accounted for 1.86%, 1.49%, 1.99% and 2.45% of total income for three-month period ended June 30, 2023, and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021 respectively.
Other expenses
Other expenses include rent, repair & maintenance- plant & machinery, vehicles and other, security charges, travelling, communication and conveyance expenses and commission expenses, legal and professional fees and miscellaneous expenses. Other expenses accounted for 13.04%, 11.25% and 8.82% of our total income for three-month period ended June 30, 2023, and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021 respectively.
Results of operations for the three-month period ended June 30, 2023
Revenue from Operations
Our operational revenue amounted to Rs 658.46 million, constituting 97.74% of the total. This mainly comprised the sale of products manufactured by the company, services, and other operating revenue, including insurance, licenses, packing on sales, and duty drawback.
Other Income
Our other income was Rs 15.22 million which is 2.26% primarily consisted of interest income from deposits with banks, Profit on Sale of Assets & Investment, Net gain on financial instruments at fair value through profit or loss and PSI Incentive and miscellaneous income.
Cost of materials consumed.
Our cost of materials consumed was Rs 324.46 million which was 48.16% of our Total Income. The primary raw materials are used in the manufacture of our products are iron, iron sheets or wire to manufacture our products.
Changes in Inventories of Finished Goods & Work-in-Progress.
The closing stock of finished goods and work in progress was Rs 272.61 million as at June 30, 2023 against an opening stock of Rs 250.40 million as at April 1, 2023.
Purchase of stock in trade.
The purchase of stock in trade was Rs 47.80 million which was 7.10% of our Total Income
Manufacturing expenses
Our manufacturing expenses was Rs 92.29 million which was 13.70% of our Total Income. The manufacturing expenses primarily comprising of consumable, stores and spare parts material consumed, job work charges, labour charges, power and fuel and Carriage inward and clearing charges.
Employee benefits expense
Our employee benefits expense was Rs 84.99 million which was 12.62% of our total income primarily comprising of payment of salaries, wages and bonus, contribution to provident and other funds, gratuity and staff welfare expenses.
Finance costs
Our employee benefits expense was Rs 6.04 million which was 0.90% of our total income primarily comprising of interest expense on borrowings, Exchange fluctuation on foreign currency transactions/ translations and other borrowing costs.
Depreciation and amortization expense
Our depreciation and amortisation expense was Rs 12.50 million which was 1.86% of our total income, primarily on account of depreciation on property, plants and equipment and amortisation of intangible assets and amortisation of intangible assets.
Other expenses
Our other expenses was Rs 36.16 million which was 5.37% of our total income, primarily comprising of rent, repair & maintenance- plant & machinery, vehicles and other, security charges, travelling, communication and conveyance expenses and commission expenses, legal and professional fees and miscellaneous expenses.
Tax expense
Our total tax expenses were Rs 25.32 million which was 3.76% of our total income.
Profit/(Loss) for the year
Due to the aforementioned factors, we reported a profit of Rs 62.55 million which is 9.28% of our total income for the period.
Fiscal 2023 compared with Fiscal 2022
Revenue from Operations
Revenue from operations increased by Rs 502.88 million, or 24.58%, from Rs 2045.89 million in Fiscal 2022 to Rs 2548.76 million in Fiscal 2023. This was primarily attributed to an increase in revenue from Welding Consumables by 35.57% to Rs 978.70 million for Fiscal 2023 from Rs 721.94 million for Fiscal 2022, increase in revenue from Wear plate / Wear Parts by 38.95% to Rs 756.14 million for Fiscal 2023 from Rs 544.17 million for Fiscal 2022, and increase in revenue from Trading activities by 23.48% to Rs 174.55 million for Fiscal 2023 from Rs 141.36 million for Fiscal 2022. This increase was majorly attributed due to increase in production mix and increase in volume of units sold in these products.
Other Income
Our other income decreased by Rs 3.62 million or by 8.72% from Rs 41.58 million in Fiscal 2022 to Rs 37.95 million in Fiscal 2023. This decrease was driven by a decrease in net gains on foreign exchange fluctuation, decrease in MEIS License income and Insurance claim receipt which is Rs 6.97 million, Rs 2.28 million, Rs 1.97 million from fiscal year 2022 to fiscal year 2023. This was partially offset by an increase in Profit on Sale of Assets & Investment account and PSI Incentive for increase in other income by Rs 5.65 million and Rs 4.31 million respectively form the fiscal 2022 to fiscal 2023.
Cost of materials consumed.
The cost of material consumed experienced a rise of Rs 210.09 million or 18.01%, increasing from Rs 1166.25 million in Fiscal 2022 to Rs 1376.33 million in Fiscal 2023, attributed to the expansion of business scale and an increase in inventories of finished goods and work-in-progress.
Changes in Inventories of Finished Goods & Work-in-Progress.
The change in inventories of finished goods and work in progress showed a decrease of Rs 77.72 million in Fiscal 2022, compared to a reduction of Rs 28.26 million in Fiscal 2023. This is mainly due to a higher opening inventory of finished goods, work in progress, and stock in trade at the end of Fiscal 2023.
Purchase of stock in trade.
The purchase of stock in trade increased by Rs 46.02 million in Fiscal 2022, rising from Rs 82.07 million to Rs128.09 million in Fiscal 2023. This increase is attributed to increase in purchase of stock in trade.
Manufacturing Expenses
Manufacturing Expenses increased by Rs 64.11 million or by 24.24% from Rs 264.51 million in Fiscal 2022 to Rs 328.62 million in Fiscal 2023. This was primarily due to a increase in the Consumable, stores and spare parts material Consumed, Job work charges, Labour charges and Power and fuel of Rs 7.31 million, Rs 31.27 million, Rs 10.08 million and Rs 10.07 million respectively.
Employee benefits expense
Employee benefits expenses increased by Rs 38.64 million or by 14.36% from Rs 268.96 million in Fiscal 2022 to Rs 307.60 million in Fiscal 2023. This was primarily due to a general increase in the salaries and wages, including remuneration paid to the directors which together was Rs 235.19 million in fiscal 2022 and Rs 272.43 million in fiscal 2023. Employee benefit expenses contributed 12.88% of the total revenues for the Fiscal 2022 vis-a-vis 11.89% of the total revenues for the Fiscal 2023.
Finance costs
Finance costs rose by Rs9.12 million or 65.92%, increasing from Rs 13.83 million in Fiscal 2022 to Rs 22.95 million in Fiscal 2023. This uptick can be attributed to an increase in interest expenses on borrowing, which went from Rs9.62 million in Fiscal 2022 to Rs18.54 million in Fiscal 2023. Additionally, there was a rise in other borrowing costs, amounting to Rs0.13 million in Fiscal 2023 compared to Fiscal 2022.
Depreciation and amortization expense
The reduction in our depreciation and amortization expense by Rs3.23 million or 7.75%, from Rs41.64 million in Fiscal 2022 to Rs 38.42 million in Fiscal 2023, was mainly driven by a lower written-down value of tangible and intangible assets.
Other expenses
Other expenses increased by Rs 40.69 million or by 34.80% from Rs 116.92 million in Fiscal 2022 to Rs 157.61 million in Fiscal 2023. This was primarily due to
an increase in travelling, communication, and conveyance expenses to Rs 34.78 million in Fiscal 2023 from Rs 20.38 million in Fiscal 2022 primarily to increase in our operations.
an increase in net loss on financial instruments at fair value through profit or loss to Rs 10.33 million in Fiscal 2023 from nil in Fiscal 2022 due increase in export of the product manufactured and job work and due to market fluctuations.
an increase in Commission expenses on sales to Rs 6.53 million in Fiscal 2023 from Rs 2.52 million in Fiscal 2022.
an increase in packing, forwarding and advertisements and sales promotion expenses, legal and professional fees and miscellaneous expenses b Rs 8.39 million in Fiscal 2023 compared to Fiscal 2022.
Tax expense
Our total tax expense increased by Rs 15.86 million or by 32.17% from Rs 49.29 million in Fiscal 2022 to Rs 65.15 million in Fiscal 2023. This was largely driven by a increase in current tax of Rs 10.33 million which was added by increase in deferred tax by Rs 3.70 million in Fiscal 2023.
Profit/(Loss) for the year
For the various reasons discussed above, and following adjustments for tax expense, we recorded an increase in our profit by Rs 51.00 million or by 29.92% from Rs 170.46 million in Fiscal 2022 to Rs 221.45 million in Fiscal 2023. Profit after tax as a percentage of total revenue stood at 8.56% for Fiscal 2023 versus 8.17% for Fiscal 2022.
Fiscal 2022 compared with Fiscal 2021
Total income
Revenue from Operations
Revenue from operations increased by Rs 493.25 million, or 31.77%, from Rs 1552.63 million in Fiscal 2021 to Rs 2045.89 million in Fiscal 2022. This was primarily attributed to an increase in revenue from Welding Consumables by 18.92 % to Rs 721.94 million for Fiscal 2022 from Rs 607.07 million for Fiscal 2021, increase in revenue from Wear plate / Wear consumables by 37.22% to Rs 544.17 million for Fiscal 2022 from Rs 396.57 million for Fiscal 2021, and increase in revenue from Trading activities by 47.60% to Rs 141.36 million for Fiscal 2022 from Rs 95.77 million for Fiscal 2021. This increase was majorly attributed due to increase in production capacity and increase in volume of units sold in these products.
Other Income
Our other income increased by Rs 1.50 million or by 3.74% from Rs 40.08 million in Fiscal 2021 to Rs 41.58 million in Fiscal 2022.
This increase was driven by an increase in foreign exchange gain, which is Rs 5.36 million for Fiscal 2022 as compared to nil in the Fiscal 2021.
an increase in profit on sale of assets & investment, which is Rs 12.23 million for the Fiscal 2022 as compared to Rs 3.82 million in the Fiscal 2021
an increase in MEIS License income, which is Rs 3.10 million for the Fiscal 2022 as compared to Rs 0.47 million in the Fiscal 2021
the increase was offset to some extent by decrease in net gain on financial instruments at fair value through profit or loss, which is Rs 6.97 million for the Fiscal 2022 respectively as compared to Rs 22.14 million in the Fiscal 2021.
Cost of materials consumed.
The cost of materials used surged by Rs 575.02 million, marking a rise of 97.26% from Rs591.22 million in Fiscal 2021 to Rs 1,166.25 million in Fiscal 2022. This upswing is attributed to the expansion of the business scale and a simultaneous increase finished goods and work-in-progress.
Changes in Inventories of Finished Goods & Work-in-Progress.
Our changes in inventory of finished goods, work-in-progress and stock-in-trade decreased by 143.84% to Rs( 77.72) million in the Financial Year 2022 from Rs 177.28 million in the Financial Year 2021. This decrease was primarily due to changes in work in progress, finished goods and stock-in-trade during the relevant Financial Year and lower inventory at the beginning of the Financial Year 2022 as compared to Financial Year 2021
Purchase of stock in trade.
Our purchase of stock-in-trade increased by 37.07% to Rs 82.07 million in the Financial Year 2022 from Rs 59.87 million in the Financial Year 2021. This decrease was primarily due to a increase in purchase of traded goods.
Manufacturing Expenses
Manufacturing Expenses increased by Rs 88.10 million or by 49.94% from Rs 176.41 million in Fiscal 2021 to Rs 264.51 million in Fiscal 2022. This was primarily due to an increase in the Consumable, stores and spare parts material Consumed, Job work charges, Carriage inward and clearing charges and Power and fuel of Rs 11.66 million, Rs 35.20 million, Rs 13.12 million and Rs 13.43 million respectively.
Employee benefits expense
Employee benefits expense increased by Rs 29.52 million or by 12.33% from Rs 239.45 million in Fiscal 2021 to Rs 268.96 million in Fiscal 2022. This was primarily due to an increase in the salaries and wages by Rs 34.33 million. Employee benefit expenses contributed 15.03% of the total revenues for Fiscal 2021 vis-a-vis 12.88% of the total revenues for the Fiscal 2022.
Finance costs
Finance costs decreased by Rs 6.18 million or 30.88% from Rs 20.01 million in Fiscal 2021 to Rs 13.83 million in Fiscal 2022. This was due to decrease in interest expenses on borrowing from Rs 3.79 million and in Fiscal 2021 to Rs 4.28 million in Fiscal 2022 respectively.
Depreciation and amortization expense
Our depreciation and amortization expense increased by Rs 2.66 million or 6.81%, from Rs 38.99 million in Fiscal 2021 to Rs 41.64 million in Fiscal 2022. The increase in depreciation was primarily due addition in tangible and intangible assets.
Other expenses
Other expenses increased by Rs 15.73 million or by 15.55% from Rs 101.19 million in Fiscal 2021 to Rs 116.92 million in Fiscal 2022. This was primarily due to
an increase in rates and taxes to Rs 6.19 million in Fiscal 2022 from Rs 2.22 million in Fiscal 2021 primarily due to increase in our operations.
an increase in travelling, communication and conveyance expenses to Rs 20.38 million in Fiscal 2022 from Rs 12.42 million in Fiscal 2021 due to our focus on increasing our brand presence and increase the sales of product.
an increase in provision for expected credit loss, which is Rs 7.97 million for the Fiscal 2022 respectively as compared to almost nil in the Fiscal 2021.
an increase in legal and professional fees and miscellaneous expenses, which is Rs 29.83 million aggregating for the Fiscal 2022 respectively as compared to almost Rs 19.98 million in the Fiscal 2021.
Tax expense
Our total tax expense decreased by Rs 2.07 million or by 4.04% from 51.37 million in Fiscal 2021 to Rs 49.29 million in Fiscal 2022. This was largely driven by a reduction in deferred tax by Rs 6.73 million this was offset for increase in current tax by Rs 4.66 million in Fiscal 2022.
Profit/(Loss) for the year
For the various reasons discussed above, and following adjustments for tax expense, we recorded an increase in our profit by Rs 53.83 million or by 46.15% from Rs 116.63 million in Fiscal 2021 to Rs 170.46 million in Fiscal 2022. Profit after tax as a percentage of total revenue stood at 8.17% for Fiscal 2022 versus 7.32% for Fiscal 2021.
Cash Flows
The following table sets forth certain information relating to our cash flows under Ind AS for three month period ended on June 30, 2023 and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021:
(All amounts in Rs million)
Particulars |
For three month period ended June 30, 2023 | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 |
Net cash (used in)/ generated from operating activities |
133.32 | (47.37) | 110.51 | 118.72 |
Net cash (used in)/ generated from investing activities |
(60.26) | (133.73) | (152.02) | 57.97 |
Net cash (used in)/ generated from financing activities |
(92.47) | 195.78 | 25.33 | (158.29) |
Net increase/ (decrease) in cash and cash equivalents |
(19.41) | 14.68 | (16.18) | 18.52 |
Cash and Cash Equivalents at the beginning of the period |
45.29 | 30.61 | 46.79 | 28.25 |
Cash and Cash Equivalents at the end of the period |
25.88 | 45.29 | 30.61 | 46.79 |
Net cash generated from operating activities
Net cash generated from operating activities for three month period ended June 30, 2023 was Rs 133.32 million and our profit before tax that period was Rs 87.86 million. The difference was primarily attributable to depreciation of Rs 12.50 million, Interest and finance charges of Rs 6.04 million, Net (gain)/loss on financial instruments at fair value through profit or loss of Rs 11.56 million and thereafter change in working capital of Rs 42.48 million respectively, resulting in gross cash generated from operations at Rs 152.78 million. We have income tax paid of Rs 19.46 million.
Net cash used in operating activities in Fiscal 2023 was Rs 47.37 million and our profit before tax that period was Rs 286.60 million. The difference was primarily attributable to depreciation of Rs 38.42 million, Interest and finance charges of Rs 22.95 million, Net (gain)/loss on financial instruments at fair value through profit or loss of Rs 10.33 million, Share of profit / (loss) of associates and joint ventures of Rs 31.24 million and thereafter change in working capital of Rs (435.78) million respectively, resulting in gross cash used in for the operations at Rs 9.89 million. We have income tax paid of Rs 57.26 million.
Net cash generated from operating activities in Fiscal 2022 was Rs 110.51 million and our profit before tax that period was Rs 219.75 million. The difference was primarily attributable to depreciation of Rs 41.64 million, Interest and finance charges of Rs 13.83 million, Share of profit / (loss) of associates and joint ventures of Rs 8.75 million and thereafter change in working capital of Rs (121.37) million respectively, resulting in gross cash generated from the operations at Rs 153.67 million. We have income tax paid of Rs 43.17 million.
Net cash generated from operating activities in the Fiscal 2021 was Rs 118.72 million and our profit before tax that period was Rs 168.00 million. The difference was primarily attributable to depreciation of Rs 38.99 million, Interest and finance charges of Rs 20.01 million, Share of profit / (loss) of associates and joint ventures of Rs (20.30) million and thereafter change in working capital of Rs (18.02) million respectively, resulting in gross cash generated from the operations at Rs 163.58 million. We have income tax paid of Rs 44.88 million.
Net cash used in investing activities
In three month period ended June 30, 2023, our net cash used in investing activities was Rs 60.33 million, which was primarily for Purchase of property, plant & equipment (including capital work in progress) of Rs 20.85 million. Increase in non-current investment of Rs 40.95 million.
In the Fiscal 2023, our net cash used in investing activities was Rs 82.06 million, which was primarily for Purchase of property, plant & equipment (including capital work in progress) of Rs 92.06 million. Increase in non-current investment of Rs 47.81 million. This was offset slightly by decrease in bank balances not considered as cash and cash equivalent (net) of Rs 52.47 million.
In the Fiscal 2022, our net cash used in investing activities was Rs 152.02 million, which was primarily for Purchase of property, plant & equipment (including capital work in progress) of Rs 113.41 million. Increase in non-current investment of Rs 65.71 million and this was offset slightly by disposal of assets of Rs 52.47 million.
In the Fiscal 2021, our net cash generated from investing activities was Rs 57.97 million, which was primarily for Purchase of property, plant & equipment (including capital advances) of Rs 18.62 million. decrease in non-current investment of Rs 47.73 million and disposal of assets of Rs 25.95 million.
Net cash generated from/ used in financing activities.
For three month period ended June 30, 2023, our net cash used in financing activities was Rs 92.47 million. This was primarily due repayment of Rs 86.43 million as long term and short term borrowings and l, payment of finance cost Rs 6.04 million.
In the Fiscal 2023, our net cash generated from financing activities was Rs 195.78 million. This was primarily due to proceeds received from short term borrowings Rs 246.28 million, repayment of Rs 11.31 million as long term borrowing, payment of finance cost and dividend paid of Rs 16.24 million.
In the Fiscal 2022, our net cash generated from financing activities was Rs 25.33 million. This was primarily due to proceeds received from short term borrowings Rs 76.70 million, repayment of Rs 27.65 million as long term borrowing, payment of finance cost and dividend paid of Rs 13.82 million and Rs 9.90 million respectively.
In the Fiscal 2021, our net cash generated used in financing activities was Rs 158.29 million. This was primarily due repayment of Rs 125.17 million as long term and short-term borrowings and payment of finance cost and dividend paid of Rs 20.01 million and Rs 13.08 million respectively.
LIQUIDITY AND CAPITAL RESOURCES
We fund our operations primarily with cash flow from operating activities and borrowings / credit facilities from banks. Our primary use of funds has been to pay for our working capital requirements and capital expenditure and for the expansion of our manufacturing facilities. We evaluate our funding requirements regularly considering the cash flow from our operating activities and market conditions. In case our cash flows from operating activities do not generate sufficient cash flows, we may rely on other debt or equity financing activities, subject to market conditions.
Our Company had Consolidated cash and cash equivalents of Rs 25.88 million as of June 30, 2023,Rs 45.29 million as of March 31, 2023, Rs 30.61 million as of March 31, 2022, and Rs 46.79 million as of March 31, 2021.
We have Short term borrowing of Rs 394.48 million as of June 30, 2023 of as per restated consolidated financial statement.
The following table sets forth certain information relating to our outstanding indebtedness as of November 30, 2023, on a Consolidated basis:
(All amounts in Rs million)
Category of Borrowings |
Sanctioned amount* | Outstanding amount as at November 30, 2023* |
Secured Loans |
||
Term Loan |
NIL | NIL |
Working Capital Limits |
||
Fund based facilities (As sub-limit of working capital facility) |
||
Cash Credit |
470.00 | 49.28 |
Sub-limit of Cash Credit |
||
Export Packing Credit |
-- | |
Working Capital Demand Loan |
-- | |
Overdraft facility |
-- | |
Pre-Shipment Credit |
-- | |
Post-Shipment Credit |
-- | |
Pre shipment Finance, Post shipment Finance |
||
Non-Fund based facilities (As sub-limit of working capital facility) |
||
Bank Guarantee |
130.00 | 110.40 |
Letter of Credit |
-- | |
Standby Letter of Credit |
-- | |
Letter of Credit Capex |
50.00 | -- |
Total |
650.00 | 159.68 |
For further and detailed information on our indebtedness, see Risk Factor no.38- We have incurred borrowings from commercial banks and any non-compliance with repayment and other covenants in our financing agreements could adversely affect our business and financial condition. on pages 64 and Financial Indebtedness on page 362 of this Draft Red Herring Prospectus
CONTINGENT LIABILITIES
As of March 31, 2023, the estimated amount of contingent liabilities are as follows:
(All amounts in Rs million)
Particulars |
As at June 30, 2023 | As at March 31, 2023 | As at March 31, 2022 | As at March 31, 2021 |
Excise duty liability disputed |
- | 1.66 | 1.66 | 1.66 |
TOTAL |
- | 1.66 | 1.66 | 1.66 |
For further information on our contingent liabilities and commitments, see Note 36 - Contingent Liabilities under the chapter Restated Consolidated Financial Statements on page 324324.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or which we believe reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, operating results, liquidity, capital expenditure or capital resources.
RELATED PARTY TRANSACTIONS
We enter into various transactions with related parties in the ordinary course of business. For further information relating to our related party transactions, see Financial Information- Note 37 - Related Party TransactionRs " on page 324 of this Draft Red Herring Prospectus.
(All amounts in I million)
Particulars |
For three month period ended June 30 2023 | Year ended 31 March 2023 | Year ended 31 March 2022 | Year ended 31 March 2021 |
Sales |
||||
M/s Mecdiff SD. BHD. |
3.90 | 8.94 | 7.67 | 14.32 |
Total Credit Notes Towards Commission |
||||
LSN Diffusion Ltd |
1.48 | 0.57 | 0.43 | 0.06 |
Purchase |
||||
Benvira Forward Algorithms LLP |
- | - | 0.30 | |
LSN Diffusion Ltd |
5.99 | 35.37 | 27.59 | 27.72 |
Reimursement |
||||
Benvira Forward Algorithms LLP |
0.00 | 0.29 | 0.35 | 0.02 |
LSN Diffusion Ltd |
- | 0.21 | - | - |
Mr. Prashant Garg |
0.53 | 2.59 | 2.32 | 1.15 |
Commission |
||||
Mr. Prashant Garg |
0.63 | 2.50 | 4.00 | 3.80 |
Mr. Ajay Jain |
0.09 | 0.35 | 0.35 | 0.25 |
Mrs. Neelu Garg |
0.88 | 3.50 | 2.00 | 1.20 |
Mrs. Renuka Garg |
0.09 | 0.35 | 0.35 | 0.25 |
Ms. Anita Vijaykar |
0.09 | 0.35 | 0.35 | 0.25 |
Debit / (Credit) due to exchange fluctuation |
||||
LSN Diffusion Ltd |
- | -0.28 | 0.26 | |
M/s Mecdiff SD. BHD. |
0.01 | 0.11 | -0.19 | |
Dividend |
||||
Mr. Prashant Garg |
- | 4.37 | 5.83 | 5.10 |
Ajay Jain ( H.U.F) |
- | 0.03 | 0.04 | 0.04 |
Mr. Nitin N Garg |
- | 2.95 | 4.23 | 3.70 |
Mrs Daksha Jain |
- | 0.00 | 0.00 | 0.00 |
Mrs. Chitra N Garg |
- | 2.55 | 3.40 | 2.97 |
Mrs. Neelu Garg |
- | 0.03 | 0.04 | 0.03 |
Mrs. Renuka Garg |
- | 0.23 | 0.30 | 0.26 |
N. K. Garg HUF |
- | 0.89 | 1.19 | 1.04 |
Ms. Anita Vijaykar |
- | 0.00 | - | - |
Medical Re-imbursenent |
- | - | - | |
Mr. Prashant Garg |
- | - | - | 0.03 |
Remuneration |
||||
Mr. Prashant Garg |
4.05 | 16.65 | 13.05 | 12.00 |
Mrs. Neelu Garg |
1.38 | 1.92 | 1.64 | 1.26 |
Key Managerial Personnel |
||||
Mr Abhishek Mehta |
0.46 | - | - | - |
Ms Chanchal Jaiswal |
0.04 | - | - | - |
Relatives of Key Managerial Personnel |
||||
Mrs Disha Mehta |
0.39 | - | - | - |
Rent |
||||
Mrs. Chitra N Garg |
0.73 | 2.67 | 2.47 | 2.28 |
N. K. Garg HUF |
0.05 | 0.19 | 0.19 | 0.17 |
Mr. Prashant Garg |
0.18 | 0.70 | 0.64 | 0.59 |
Total |
20.96 | 88.01 | 78.51 | 78.79 |
Details of outstanding to/from related parties
Particulars |
For three month period ended June 30 2023 | Year ended 31 March 2023 | Year ended 31 March 2022 | Year ended 31 March 2021 |
Trade Payables |
||||
Benvira Forward Algorithms LLP |
- |
0.16 | - |
|
LSN Diffusion Ltd |
4.51 | 1.48 | 1.65 | 10.52 |
Trade receivables |
- |
- |
- |
|
M/s Mecdiff SD. BHD. |
3.90 | 1.51 | 0.23 | 9.28 |
Total Debit Notes towards expenses |
- |
- |
- |
- |
Diffusion MGM Machines Pvt Ltd. |
- | - | - | |
Reimbursement Payable |
- |
- |
- |
|
Mr. Prashant Garg |
- | 0.16 | - | - |
Advances |
||||
Nitin Grag |
10.83 | - |
- |
- |
Prashant grag |
10.83 | - |
- |
- |
Chitra Grag |
10.83 | - |
- |
- |
Non-GAAP Measures
In addition to our results determined in accordance with Ind AS, we believe the following non-GAAP measures are useful to investors in evaluating our operating performance and liquidity. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that Non-GAAP financial information, when taken collectively with financial measures prepared in accordance with Ind AS, may be helpful to investors because it provides an additional tool for investors to use in evaluating our ongoing operating results and trends and in comparing our financial results with other companies in our industry because it provides consistency and comparability with past financial performance. However, our management does not consider these Non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with Ind AS.
Reconciliation of Profit/(loss) for the period/year to our Operating EBITDA
Particulars |
For three month period ended 30 June 2023 | For the year ended 31st March, 2023 | For the year ended 31st March, 2022 | For the year ended 31st March, 2021 |
Restated profit/(loss) for the period/year attributable to equity shareholders (I) | 62.55 | 221.45 | 170.46 | 116.63 |
Add: | ||||
Finance Cost (II) | 6.04 | 22.95 | 13.83 | 20.01 |
Total Tax Expense (III) | 25.32 | 65.15 | 49.29 | 51.37 |
Depreciation (IV) | 12.50 | 38.42 | 41.64 | 38.99 |
Less: | ||||
Other Income | 15.22 | 37.95 | 41.58 | 40.08 |
Operating EBITDA (VII=I+n+m+IV) |
91.19 | 310.02 | 233.64 | 186.92 |
Operating EBITDA is calculated as the sum of restated profit/ (loss) for the period, total tax expenses, finance costs, depreciation and amortisation expense reduced and other income.
Reconciliation of Restated Profit/(loss) for the period from continuing operations to Operating EBITDA Margin
Particulars |
For three- month period ended June 30, 2023 | For the year ended 31st March, 2023 | For the year ended 31st March, 2022 | For the year ended 31st March, 2021 |
Operating EBITDA (I) | 91.19 | 310.02 | 233.64 | 186.92 |
Revenue from Operations (II) | 658.46 | 2,548.76 | 2,045.89 | 1,552.63 |
Operating EBITDA margin (I/II) | 13.85% | 12.16% | 11.42% | 12.04% |
Operating EBITDA Margin is calculated by dividing EBITDA by revenue from operations.
Reconciliation of Capital Turnover Ratio
Particulars |
For three month period ended June 30,2023 | For the year ended 31st March, 2023 | For the year ended 31st March, 2022 | For the year ended 31st March, 2021 |
Equity Share capital as per Restated Ind AS financial statements (I) | 37.37 | 37.37 | 37.37 | 37.37 |
Other Equity as per Restated Ind AS financial statements (II) | 1,443.87 | 1,382.60 | 1,169.11 | 1,013.85 |
Revenue from Operations (III) | 658.46 | 2,548.76 | 2,045.89 | 1,552.63 |
Capital Turnover Ratio {IV=III/ (I+II)} | 44.45% | 179.49% | 169.57% | 147.70% |
Capital Turnover ratio is calculated by dividing Revenue from operations by Equity share capital and security premium.
Reconciliation of Total Debt to Equity Ratio attributable to equity holders ratio
Particulars |
For three month period ended June 30,2023 | For the year ended 31st March, 2023 | For the year ended 31st March, 2022 | For the year ended 31st March, 2021 |
Total Borrowings | 394.48 | 480.92 | 245.95 | 196.90 |
Equity attributable to equity holders | 1,481.24 | 1,419.97 | 1,206.48 | 1,051.22 |
Total borrowings/Equity attributable to equity holders ratio |
0.27 | 0.34 | 0.20 | 0.19 |
Total Debt to Equity Ratio is calculated by dividing Total borrowing by Equity attributable to equity shareholders.
Reconciliation of Restated Profit/(Loss) margin
Particulars |
For three month period ended June 30, 2023 | For the year ended 31st March, 2023 | For the year ended 31st March, 2022 | For the year ended 31st March, 2021 |
Restated Profit/(loss) for the period/year (I) | 62.55 | 221.45 | 170.46 | 116.63 |
Revenue from operations | 658.46 | 2,548.76 | 2,045.89 | 1,552.63 |
Restated Profit/(Loss) margin (m=I/n) (in%) |
9.50% | 8.69% | 8.33% | 7.51% |
Profit Margin Ratio is calculated by dividing Profit/(loss)for the period/year by Revenue from operations.
Reservations, Qualifications and Adverse Remarks by the statutory auditors
There are no reservations, qualifications and adverse remarks by our Statutory Auditors since incorporation.
Details of Default, if any, including therein the amount involved, duration of default and present status, in repayment of statutory dues or repayment of debentures or repayment of deposits or repayment of loans from any bank or financial institution
There have been no defaults in payment of statutory dues or interest thereon or repayment of deposits and interest thereon or repayment of loans from any bank or financial institution and interest thereon by the Company For three month period ended June 30, 2023 and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021.
Material Frauds
There are no material frauds, as reported by our statutory auditor, committed against our Company, since incorporation.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Risk Management :
Diffusion engineers limited is exposed primarily to market risk (fluctuation in foreign currency exchange rates & interest rate), credit, liquidity which may adversely impact the fair value of its financial instruments. The Group assesses the unpredictability of the financial environment & seeks to mitigate potential adverse effects on the financial performance of the Group.
Credit Risk :
Credit risk is the risk of financial loss arising from counter-party failure to repay or service debt according to the contractual terms or obligations. Credit risk encompasses both, the direct risk of default and the risk of deterioration of creditworthiness as well as concentration of risks. Credit risk is controlled by analysing credit limits and creditworthiness of customers on a continuous basis to whom the credit has been granted after obtaining necessary approvals for credit.
Financial instruments that are subject to concentration of credit risk principally consists of trade receivables, investments, derivative financial instruments and other financial assets. None of the financial instruments of the Group results in material concentration of credit risk.
Liquidity Risk :
Liquidity Risk Management : Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
Maturities of Borrowings :
The following table details the Groups expected maturity for borrowings :
Exposure to Risk |
As at June 30, 2023 | As at March 31,2023 | As at March 31, 2022 | As at March 31, 2021 |
Interest bearing borrowings: |
||||
On Demand |
398.32 | 451.32 | 196.16 | 116.25 |
Less than 180 Days |
- | 10.13 | 10.90 | 12.94 |
181-365 Days |
- | 2.78 | 10.90 | 12.50 |
More than 365 Days |
- | 16.69 | 27.99 | 55.20 |
Market Risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Such changes in the values of financial instruments may result from changes in the foreign currency exchange rates, interest rates, credit, liquidity and other market changes. The Groups exposure to market risk is primarily on account of foreign currency exchange rate risk.
a) Foreign Currency Exchange Rate Risk :
The fluctuation in foreign currency exchange rates may have potential impact on the statement of profit or loss and other comprehensive income and equity, where any transaction references more than one currency or where assets / liabilities are denominated in a currency other than the functional currency of the respective entities. Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from fluctuations in exchange rates in those countries. The risks primarily relate to fluctuations in AED, US Dollar, Australian Dollar, Great Britain Pound, Euro, JPY against the respective functional currencies of the Group. The Group, as per its risk management policy, evaluates the impact of foreign exchange rate fluctuations by assessing its exposure to exchange rate risks & uses derivative instruments primarily to hedge foreign exchange (if required).
Foreign Currency Exposures
Particulars |
Currency type | As at June 30, 2023 | As at March 31, 2023 | As at March 31, 2022 | As at March 31, 2021 |
I. Trade receivables/Advance |
USD | 1.22 | 1.54 | 0.80 | 1.16 |
EURO | 0.07 | 0.07 | 0.02 | ||
SGD | 0.03 | 0.03 | 0.01 | - | |
AED | - | 0.00 | - | ||
AUD | 0.01 | 0.01 | - | - | |
Total |
1.26 | 1.65 | 0.88 | 1.18 | |
II. Borrowing balances : |
USD | 0.25 | 0.27 | 0.34 | 0 |
Total |
0.25 | 0.27 | 0.34 | - | |
III. Trade payables : |
USD | 0.24 | 0.11 | 0.23 | 0.34 |
EUR | 0.02 | 0.22 | 0.06 | 0.02 | |
Total |
0.26 | 0.33 | 0.29 | 0.36 |
Foreign Currency Sensitivity :
The following tables demonstrate the sensitivity to a reasonably possible change in foreign currency exchange rates, with all other variables held constant. The impact on the Groups profit before tax is due to changes in the fair value of monetary assets and liabilities.
Particulars |
Currency | Change in rate | Effect on profit before tax |
June 30, 2023 |
|||
Based on YOY change between F21 & F22 |
USD | +100% | 0.73 |
USD | -100% | (0.73) | |
EUR | +100% | - |
|
EUR | -100% | - |
|
SGD | +100% | 0.03 | |
SGD | -100% | (0.03) | |
AUD | +100% | 0.01 | |
AUD | -100% | (0.01) |
Particulars |
Currency |
Change in rate |
Effect on profit before tax |
March 31, 2023 |
|||
Based on YOY change between F21 & F22 |
USD |
+100% |
1.16 |
USD |
-100% |
(1.16) |
|
EUR |
+100% |
(0.15) |
|
EUR |
-100% |
0.15 |
|
SGD |
+100% |
0.03 |
|
SGD |
-100% |
(0.03) |
|
AUD |
+100% |
0.01 |
|
AUD |
-100% |
(0.01) |
|
March 31, 2022 |
|||
Based on YOY change between F22 & F21 |
USD |
+100% |
0.23 |
USD |
-100% |
(0.23) |
|
EUR |
+100% |
0.01 |
|
EUR |
-100% |
(0.01) |
|
SGD |
+100% |
0.01 |
|
SGD |
-100% |
(0.01) |
|
AED |
+100% |
0.00 |
|
AED |
-100% |
(0.00) |
|
April 01, 2021 |
|||
Based on YOY change between F21 & F20 |
USD |
+100% |
0.82 |
USD |
-100% |
(0.82) |
|
EUR |
+100% |
(0.00) |
|
EUR |
-100% |
0.00 |
|
SGD | +100% | - | |
SGD | -100% | - | |
AED | +100% | - | |
AED | -100% | - |
b) Interest Rate Risk :
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of change in market interest rates. The Groups exposure to the risk of changes in market interest rates relates primarily to the Groups debt obligations with floating interest rates.
Floating Interest rate exposure : |
As at June 30,2023 | As at March 31,2023 | As at March 31,2022 | As at March 31,2021 |
Secured Loans : |
||||
Loans repayable taken from Banks: |
394.48 | 480.92 | 245.95 | 196.46 |
Total |
394.48 | 480.92 | 245.95 | 196.46 |
Interest Rate Sensitivity :
The sensitivity analyses below have been determined based on exposure to interest rate. For variable rate liabilities, analysis is prepared assuming the amount of liability outstanding at the end of the reporting period was outstanding for the whole year. With all other variables held constant, the Groups profit before tax is affected through the impact on variable rate borrowings, as follows:
Particulars |
Increase/Decrease in Basis Points | Effect on Profit Before Tax (Loss) |
As at June 30, 2023 |
+100 | 3.94 |
-100 | (3.94) | |
As at March 31, 2023 |
+100 | 4.81 |
-100 | (4.81) | |
As at March 31, 2022 |
+100 | (2.46) |
-100 | 2.46 | |
As at March 31, 2021 |
+100 | 1.96 |
-100 | (1.96) |
An analysis of reasons for the changes in significant items of income and expenditure is given hereunder:
1. Unusual or infrequent events or transactions
As on date, there have been no unusual or infrequent events or transactions including unusual trends on account of business activity, unusual items of income, change of accounting policies and discretionary reduction of expenses.
2. Significant economic changes that materially affected or are likely to affect income from continuing operations.
Apart from the risks as disclosed under Section Risk Factors beginning on page 37, there are no significant economic changes that may materially affect or likely to affect income from continuing operations.
3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.
Apart from the risks as disclosed under Section Risk Factors beginning on page 37, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.
4. Future changes in relationship between costs and revenues
Our Companys future costs and revenues will be determined by demand/supply situation, both of the end products as well as the raw materials, government policies and budget constraints of our customer(s).
5. Increases in net sales or revenue and Introduction of new products or services or increased sales prices
Increases in revenues are by and large linked to increases in volume of business and also dependent on the price realization on our products.
6. Status of any publicly announced New Products or Business Segment
Except as disclosed elsewhere in the Draft Red Herring Prospectus, we have not announced and do not expect to announce in the near future any new products or business segments.
7. Total Turnover of Each Major Industry Segment in Which the Issuer Operates
Our business is primarily in manufacturing of viz. Welding Consumables, Wear plate/Wear consumables, Heavy Engineering Equipment and trading. Details of the industry turnover and other relevant information is disclosed in the section Industry Overview beginning on page 180.
8. Seasonality of business
Our Companys business is not seasonal in nature.
9. Any Major Dependence on a single or few suppliers or customers
The % of contribution of our Companys suppliers vis-a-vis the total revenue from operations on restated standalone financial statement respectively as of for three-month period ended June 30, 2023 and for the Fiscal 2021, 2022 and 2023 is as follows:
Top Suppliers as a percentage (%) of total purchases |
||||
Particulars |
For three- month period ended June 30, 2023 | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 |
Top 5 |
47.09% | 32.31% | 32.03% | 32.13% |
Top 10 |
64.87%% | 49.49% | 49.43% | 50.80% |
The % of contribution of our Companys customers vis-a-vis the total revenue from operations on restated standalone financial statement respectively as of for three month period ended June 30, 2023 and for the Fiscal 2023, 2022 and 202 is as follows:
Top Customers as a percentage (%) of total sales |
||||
Particulars |
For three month period ended June 30,2023 | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 |
Top 5 |
5.86% | 19.40 | 22.44 | 28.12 |
Top 10 |
8.70% | 29.64 | 31.84 | 33.79 |
10.Competitive conditions:
Competitive conditions are as described under the chapters Industry Overview and Our Business beginning on pages 180 and 216 respectively.
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