Duncan Engineering Ltd Management Discussions

1. Industry Structure and Development

India has a diverse industrial landscape, and the pneumatic products industry is an important part of it. The industry is composed of several players, including manufacturers, suppliers, distributors, and service providers. Indias pneumatic products industry has grown significantly in recent years, driven by a strong demand from various industries such as automotive, manufacturing, construction, and healthcare.

Duncan offers a wide range of pneumatic products, including Solenoid operated Directional control valves, Linear and Rotary actuators, and valve Automation Systems. These cater to various applications such as compressed air systems, control systems, automation systems, and others.

Indias pneumatic products industry has been experiencing steady growth due to various factors, such as the increasing demand for automation in industries, the rise in manufacturing activities, and the growth of the automotive and construction sectors. Additionally, the Indian governments initiatives to promote manufacturing and industrial development have contributed to the growth of the industry.

In terms of market segmentation against Duncan Engineering product lines, the Power sector is the largest consumer of Duncan pneumatic products in India. The manufacturing sector and construction industry are also significant users of pneumatic products. Moreover, the process sector is expected to be a potential market for Duncan pneumatic products in the coming years, as there is a growing demand for indigenous pneumatic products.

To support the growth of the pneumatic products industry, the Indian government has introduced several initiatives, including the Make in India campaign and the National Manufacturing Policy. These initiatives aim to promote local manufacturing, increase investments, and develop infrastructure to support the growth of the manufacturing sector in India.

In conclusion, Indias pneumatic products industry is poised for significant growth in the coming years, driven by increasing demand from various industries, government initiatives, and a favorable business environment. The industrys diverse players and range of products offer ample opportunities for growth and development.

2. Opportunities and Threats

A. There are several opportunities for pneumatics and valve automation products in India:

1. Rising Industrial Automation: With an increasing emphasis on automation across various industries in India, there is a growing demand for pneumatic systems and valve automation products to improve efficiency, productivity, and safety in manufacturing processes.

2. Infrastructure Development: Indias ongoing infrastructure development projects, such as smart cities, transportation networks, and industrial parks, present significant opportunities for the deployment of pneumatic systems and valve automation solutions in areas such as HVAC (Heating, Ventilation, and Air Conditioning), water management, and industrial automation.

3. Renewable Energy Sector: The push towards renewable energy sources such as solar and wind power requires sophisticated control systems, where pneumatic actuators and valves play a crucial role in regulating fluid flow and pressure, presenting opportunities for the industry.

4. Emerging Healthcare Sector: The growing healthcare sector in India, including hospitals, pharmaceutical manufacturing, and medical device production, requires precise control and automation systems, creating a demand for high-quality pneumatic products for applications such as medical equipment and laboratory automation.

5. Focus on Safety and Environmental Compliance: Increasing awareness about workplace safety and environmental regulations drives the adoption of pneumatic systems and valve automation products that offer reliability, precision, and compliance with safety and environmental standards.

6. Export Potential: Indias growing reputation as a manufacturing hub and its competitive advantage in terms of skilled labor and cost-effective production can open up export opportunities for Indian manufacturers of pneumatics and valve automation products to global markets.

7. Research and Development: Investments in research and development (R&D) to innovate and develop advanced pneumatic technologies can lead to the creation of differentiated products with enhanced performance, reliability, and energy efficiency, catering to the evolving needs of industries both in India and abroad.

Capitalizing on these opportunities through strategic partnerships, innovative product development, and effective market penetration strategies can help companies in the pneumatics and valve automation products industry unlock growth potential in the Indian market.

B. Threats for pneumatics and valve automation products in India:

1. High Competition: The market for pneumatics and valve automation products in India is likely to be fiercely competitive, with numerous players vying for market share. Intense competition could lead to pricing pressures and erosion of profit margins.

2. Price Sensitivity: Indian customers, particularly in industrial sectors, are often highly price sensitive. This can pose a challenge for companies in the pneumatics and valve automation industry, especially if they cannot offer competitive pricing without compromising on quality.

3. Regulatory Challenges: Compliance with regulatory standards and obtaining necessary certifications can be a complex and time-consuming process. Failure to meet regulatory requirements could result in delays in product launches or even legal repercussions.

4. Technological Obsolescence: Rapid advancements in technology mean that products can quickly become outdated. Companies in the pneumatics and valve automation sector need to continuously innovate and adapt to emerging technologies to stay relevant in the market.

5. Supply Chain Disruptions: Disruptions in the supply chain, whether due to natural disasters, geopolitical tensions, or other factors, can adversely affect the availability of raw materials and components essential for manufacturing pneumatics and valve automation products.

6. Changing Customer Preferences: Shifts in customer preferences towards alternative technologies or solutions could impact the demand for pneumatics and valve automation products. Companies need to stay attuned to evolving customer needs and preferences to remain competitive.

7. Economic Instability: Economic fluctuations, including inflation, currency devaluation, or recessions, can impact the purchasing power of consumers and businesses. Uncertain economic conditions may lead to reduced investment in infrastructure projects or industrial automation, affecting demand for pneumatics and valve automation products.

Navigating these threats effectively will be crucial for companies in the pneumatics and valve automation industry to sustain growth and remain competitive in the Indian market.

3. Segment-wise or product-wise performance

The companys business activity falls within a single primary business segment viz., "General Engineering Products". Details of its performance is given under the head, Discussion on financial performance with respect to operational performance.

4. Outlook

The upcoming fiscal years hold immense importance for the Company as it endeavours to broaden its product range in pneumatics. New Product Development (NPD) stands out as a top priority, with the Company focusing on assembling a skilled team and devising a roadmap for the introduction of new products with certification complying international standards.

Leveraging its core strength in customization, the Company will continue tailoring its offerings to meet customer demands. Additionally, a concentrated effort will be directed towards bolstering exports in the forthcoming fiscal year through the establishment of a dedicated team.

The trajectory of fluid power technology appears promising in India, driven by escalating automation needs, quality control standards, safety measures, and the growing emphasis on efficient and renewable energy sources. Several factors contribute to the growth of the pneumatic industry in India:

1. Automation Trends: Increasing automation across various industries drives the demand for pneumatic systems and components to power automated machinery and processes. As industries automate more tasks for efficiency and productivity, the demand for pneumatic systems, which are reliable and adaptable for automation, grows.

2. Quality Control Requirements: Stringent quality control standards necessitate the use of precise and reliable pneumatic systems for manufacturing and assembly processes. Industries such as automotive, electronics, and pharmaceuticals rely on pneumatic systems for their precision and consistency in operations.

3. Safety Regulations: Pneumatic systems often offer safer operation compared to other power transmission systems like hydraulics or mechanical systems. This safety aspect becomes crucial in industries where worker safety is a priority, leading to the adoption of pneumatic technology.

4. Efficient and Renewable Energy: The emphasis on energy efficiency and sustainability drives the adoption of pneumatic systems, which are inherently more energy-efficient than some alternative technologies. Additionally, advancements in pneumatic technology enable integration with renewable energy sources, further boosting their attractiveness in Indias evolving energy landscape.

5. Industrial Growth: Indias rapid industrialization and infrastructure development create a robust demand for pneumatic systems in various sectors such as manufacturing, construction, and transportation. As these industries expand, so does the need for pneumatic components and systems.

6. Global Market Trends: Global trends, such as the increasing use of pneumatic systems in advanced manufacturing processes and the growth of industries like aerospace and defense, also influence the growth of the pneumatic industry in India. Companies in India may tap into these global markets, further driving growth domestically.

Overall, the interplay of these factors contributes to the positive outlook for the pneumatic industry in India, presenting significant growth opportunities for companies operating in this sector.

Nevertheless, the industry is not without its challenges, including fierce competition, price sensitivity, regulatory hurdles, and the threat of technological obsolescence. Successful navigation of these obstacles is imperative for companies within the industry to thrive.

In summary, the outlook for pneumatics and valve automation products in India for the fiscal year 2024-2025 appears optimistic, with abundant growth prospects across various sectors. However, maintaining agility and fostering innovation will be crucial for the Company to outpace competitors and seize these opportunities.

5. Risks and Concerns

Risk, which is the manifestation of business uncertainty affecting corporate performance and prospects, is an integral part of business. The Company follows a defined and exhaustive risk management process, which is integrated with its operations. This enables the Company to identify, categorise and prioritise operational, financial, and strategic business risks. To address the identified risks, the Company continues to spend significant time, effort, and human resources to manage and mitigate such risks.

6. Internal Control Systems and their adequacy

The Company has adequate internal control systems, which includes internal financial controls, the efficacy of which is continuously monitored and updated when required internally. The internal Auditors monitor the compliance of the same.

The Companys internal control system ensures that assets are safeguarded, established regulations are complied with and pending issues are addressed promptly. The Audit Committee reviews reports presented by the internal auditors on a routine basis. The committee makes note of the audit observations and takes corrective actions, if necessary. It maintains constant dialogue with statutory and internal auditors to ensure that internal control systems are operating effectively.

7. Discussion on financial performance with respect to operational performance

A. Analysis of the profit and loss statement

i. Revenues: Revenues from operations registered a (-7.12) % decreased from Rs. 7009.52 Lakh in FY 2223 to Rs. 6510.16 Lakh in FY 23-24.

ii. Margins: EBITDA for the year was Rs. 1101.74 Lakh as against Rs. 1456.29 Lakh in FY 22-23. EBITDA margin of the Company decreased to 16.37 % from 20.34 % in FY 22-23. The net profit margin of the Company was Rs. 687.38 Lakh in FY 23-24 compared to Rs. 990.35 Lakh in FY 22-23. The margins for the year were decreased by 26.19%.

B. Analysis of the Balance Sheet

i. Sources of funds: The capital employed by the Company increased to Rs. 5345.02 Lakh as on 31^st March 2024 from Rs.4747.28 Lakh as on 31^st March 2023 owing to internal accruals.

The net worth of the Company increased 14.02 % to Rs. 5291.52 Lakh as on 31^st March 2024 from Rs. 4641.04 Lakh as on 31^st March 2023.

ii. Applications of funds: Fixed assets (gross) of the Company increased 3.73 % from Rs.3229.47 Lakh as on 31^st March 2023 to Rs.3349.79 Lakh as on 31^st March 2024.

iii. Working capital management: Total Current Assets of the Company increased by 11.70% from Rs. 4634.64 Lakh as on 31^st March 2023 to Rs. 5176.68 Lakh as on 31^st March 2024. Current Assets included current investment and cash and bank balance of Rs. 3135.28 Lakh in FY 23-24 compared to Rs. 2883.98 Lakh in FY 22-23 due to the deployment of funds into short term Investments.

Inventories, including raw materials, work-in-progress and finished goods, among others, increased to Rs. 1128.10 Lakh on 31^st March 2024 from Rs. 1054.28 Lakh as on 31^st March 2023 due to higher production. Trade receivables as at 31^st March 2024 were Rs. 775.11 Lakh compared to Rs. 595.68 Lakh as at 31^st March 2023.

8. Human Resources and Industrial Relations

The Company employed 182 officers and workmen as on 31^st March 2024. Increase in the value of human capital through the development of individual and collective competencies helped the Company stay in step with market developments and requirements. The Company has a policy to regularly run programs and projects on skill development and upgradation of employee competence. Programmes of knowledge sharing were conducted; employees are encouraged to attend external programs as required to enhance their perspective of emerging standards. Several innovative ideas received from employees were implemented, resulting in enhance quality, cost optimisation and productivity.

The Company generally enjoys cordial relationship with its staff and workers. The Company management has entered into wage revision agreement with the recognised workers union on March 28, 2024, for a period of 3 years effective from April 1,2024, to March 31,2027.

9. Key Financial Ratios

A. Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor is given below:

B. Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof.

10. Disclosure of Accounting Treatment:

Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the managements explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction.

The Accounts for the year have been prepared as per Indian Accounting Standards (Ind AS). The current year and previous year figures have been re-stated accordingly. No treatment different from that prescribed in Ind AS has been followed by the Company.

11. Cautionary Statement

This statement made in this section describes the Companys objectives, projections, expectation, and estimations which may be forward looking statements within the meaning of applicable Securities Laws and Regulations. Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual results could differ materially from those expressed in the statements or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements based on any subsequent development, information, or events.