Forge Auto International Ltd Management Discussions

Our company started the business as a partnership firm in the year 2001, with the vision to make its presence in forging sector. As on June 30, 2024, we have established a forging capacity of 20000 MTs and machining capacity of approx. 25 lakhs units per annum for the owned Machinery. The manufacturing facility of the company is installed with the machines like medium frequency induction heating equipment, CNCs, VMCs (vertical milling centres), hydraulic surface grinder with all accessories,

HMI screw press, shot blasting machine, Electric Screw Presses of 1000 MT and 1600 MT, lathe machine, continuous heat treatment furnace with ISO thermal annealing, normalising, quenching and tempering, pillar drilling machine / circular saw machine, Spectrometer and PMI, Ultrasonic washing machine, MPI equipment, rolling machine, 6 Drop Forge Hammers ranging from 1MT to 2.5MT, Broaching (both Horizontal and Vertical), Laser Marking Machines, Coining Presses along with testing equipments like Magna Flux Crack Detection Machines, Standard Room (with CMM, Contour Tracers, Roughness Tester, Height Gauge and other testing instruments), Design & Engineering (with Solid Works, Solid Edge, NX Cam, Q Form Simulation Software and 3D Printer) and utility equipments like forklift, EOT crane, transformer and panels capable of undertaking the forging and machining activities. Further, during the year 2021 our company forayed into the manufacturing of hydraulic components, castor wheel components, industrial goods and other sectors to cater to the growing demand in the forging and machining sector in the India and outside India. Further, over the years, we have expanded our presence within India, with an additional international reach through our customers established in indifferent parts of the world. Apart from our domestic sales, we export our products to countries like France, Germany, Poland, Brazil, Austria, Turkey and United States of America. Below table represent our sales in the Domestic and International Market:-

Our strategy and commitment to deliver the required product and services to its customer by consistently improving its current products and innovating customer-centric new products and process technologies. Further, because of our commitment towards customer satisfaction and performance of our products, we have expanded our customer base both geographically and in different industry sectors. We serve our customers, engaged in the business of manufacturing in different sectors and industry like agriculture equipment, automotive, castor wheel, construction, defense, heavy commercial vehicle, railway, striking tool, tractor etc.

We have been granted

Our Promoters and senior management have been instrumental in the growth of our business. Our Promoter Parmod Gupta and Rajan Mittal have played a vital role in the growth of our Company and continues to provide strategic guidance and oversees overall performance of our Company. Parmod Gupta holds a bachelors degree in Arts. He has the experience of around 48 years in running the forging business and drives new investment and growth strategy besides managing day to day operations of our Company. We have been supported by Rajan Mittal who holds a bachelors degree in Science from Guru Nanak Dev University in the year 1988. He has around 32 years of experience in the field of business development and financial management in the forging industry. For the details of educational qualification and experiences of our promoter and senior management refer "Our Management" beginning on page 115.

For details in respect of Statement of Significant Accounting Policies, please refer to Annexure IV of Restated Financial Statements beginning on page 131 of this Red Herring Prospectus.

For details in respect of "Statement of Significant Accounting Policies", please refer to Annexure IV of Restated Financial Statements beginning on page 131 of this Red Herring Prospectus.

The following discussion on results of operations should be read in conjunction with the Restated Financial Statements for the financial years ended on March 31, 2024, March 31, 2023, and March 31, 2022.

Revenue from operations comprises Revenue from selling of forging and machined Components for the both Auto and Non automative sector in both domestic market and customers located in different countries internationally.

Other income includes (i) interest income on loans and advances; (ii) Interest on FD income; (iii) Duty Drawbacks; (iv) profit on sale of fixed assets (v) Subsidy (vi) others.

Our expenses comprise (i) purchases of stock-in-trade; (ii) Cost of material consumed; (iii) changes in inventories of finished goods and work-in-progress; (iv) employee benefits expense; (v)finance costs; (vi) depreciation and amortisation expense; and

Changes in inventories of finished goods and work-in-progress denotes increase/ decrease in inventories of finished goods and work in progress between opening and closing dates of a reporting period.

Employee benefit expenses primarily include (i) salaries wages and other expenses; (ii) director remuneration (iii) contributions to statutory fund; and (iv) staff welfare expenses (v) gratuity expenses.

Depreciation and amortization expenses primarily include depreciation expenses on our plant machinery and equipments, office furniture and motor cars, delivery vans and computers.

Other expenses comprises (i) Auditor remuneration; (ii) Electricity and fuel expenses; (iii) repairs and maintenance expenses; (iv) rent expenses; (v) insurance charges; (vi) Exhibition expenses; (vii) Discounts expenses; (viii) Security expenses; (ix) legal and professional expenses; (x) commission expenses; (xi) loading and unloading expenses; (xii) rates & taxes; (xiii) travelling & conveyance expenses; (xiv) Shipping expenses; (xv) Recruitment Expenses; (xvi) other miscellaneous expenses;

Our total income has increased marginally by 2.21% to Rs. 18157.30 lakhs in Fiscal 2024 from Rs. 17764.43 lakhs in Fiscal 2023. the reason for the increase is mainly due to the gain on sale of fixed assets amounting 53.41 Lakhs, further the revenue from operations has increased marginally by 1.96% or 346.87 lakhs.

Our Revenue from operations has increased marginally by 1.96% to Rs. 18011.72 lakhs in Fiscal 2024 from Rs. 17664.85 lakhs in Fiscal 2023. The main reason of increase in the revenue from operations was due to production and goods sold mix during the period.

Our other income was Rs. 99.58 lakhs in Fiscal 2023, which has been increased by 46.19% to Rs. 145.58 lakhs in Fiscal 2024.The main reason for such increase was due to sales of fixed assets which has contributed 53.41 Lakhs in the current year.

Our total expenses have also increased marginally by 0.92% to Rs. 17228.08 lakhs in Fiscal 2024 from Rs. 17071.47 lakhs in Fiscal 2023. The main reason for increase is the increase in revenue from operations. The major contribution in increase in the total expenses were from increase in employees benefit cost which increased by Rs. 323.83 lakhs and increase in other expenses which increased by Rs. 334.71 lakhs. These increase in expenses were partially offset by the decrease in the material cost which decreased by Rs. 624.21 lakhs including change in inventoy.

The cost of material consumed decreased from Rs. 10542.27 lakhs to 9918.06 lakhs representing an decrease of approximately 5.92%. The main reason for decrease in the cost of material consumed was due to decrease in the prices of raw material used in production, product mix of the company and cost optimalisation methods used by the company.

Employee benefit expenses increased by 40.14% from Rs. 806.73 lakhs in Fiscal 2023 to Rs. 1130.56 lakhs in Fiscal 2024. Such increase was due to new employees hired in the different departments to generate increased target of sales and overall business improvement, which lead to an increase in salary and wages by Rs. 241.31 lakhs and also the remuneration paid to the directors has increased significantly by 67.20 Lakhs Per annum.

Depreciation, and amortisation expenses increased by 24.51% from Rs. 206.70 lakhs in Fiscal 2023 to Rs. 257.36 lakhs in Fiscal 2024. The company works on an asset light model hence the depreciation expenses are limited to the extend on 1-2% of the total income of the Company.

Other expenses increased by 6.47% from Rs. 5176.97 lakhs in Fiscal 2023 to Rs. 5511.68 lakhs in Fiscal 2024. The main reason for increase in the other expenses is the increase operation of the company. The major portion of the other expenses is represented

by consumables and spares which has increased to Rs. 1,446.67 lakhs from Rs. 1093.06 lakhs, Electricity Expenses which has increased to Rs. 662.23 lakhs from Rs. 568.84 lakhs.

Current tax increased by 41.74% from Rs. 164.63 lakhs in Fiscal 2023 to Rs. 233.35 lakhs in Fiscal 2023. Such increase is the resulting factor of increased profits.

The profit after tax of the company increased from Rs. 496.29 lakhs in the Fiscal 2023 to Rs. 668.88 lakhs in the Fiscal 2024 representing an increase of 34.78%. The increase in the PAT was the resultant of the marginal increase in revenue of the company which increased by 1.96% against which the total expenses of the company increased by 0.92%. In Fiscal 24, the PAT Margin of the company was 3.71% as against 2.81% during the Fiscal 2023, which was majorly due to the reduction in the cost of material consumed along with lower increase in major cost such as electricity expenses, repair expenses, fuel expenses and labour expenses. Further, the Rebate & Discount which was Rs. 192.94 lakhs in Fiscal year 2023 reduced to Rs. 20.55 lakhs in Fiscal 2024.

Our total income has increased significantly by 32.57% to Rs. 17764.41 lakhs in Fiscal 2023 from Rs. 13400.28 lakhs in Fiscal 2022. The main reason of increase was due to increase in the revenue from sale of products which increased to 17664.85 lakhs as against 13287.85 lakhs which represents an increase of 32.94%. However, the other income of the company which has been decreased by 11.43% to Rs. 99.58 lakhs in Fiscal 2023 from Rs. 112.43 lakhs in the Fiscal 2022.

Our Revenue from operations has increased significantly by 32.94% to Rs. 17664.85 lakhs in Fiscal 2023 from Rs. 13287.85 lakhs in Fiscal 2022. The main reason of increase in the revenue from operations was due to increase in the production and goods sold during the period. The company has during the period increased its forging capacity from 19750MT to 20000MT and machining capacity from 22 lakh units to 25 lakh units. Further, due to the increased order frow from the customer, the company was able to increase its actual utilization from 60.26% in FY2022 to 71.84% in FY2023. Further, the utilization for machining capacity has been around 78% during both the financial years. Further, the sales of auto part during the period increased from Rs. 3999.15 lakhs to Rs. 7554.97 lakhs and company also witness growth in the sales of Caster Wheel Parts, Forged & Machined Parts, Hydraulic Parts & Railway Parts in comparison to previous year.

Our other income was Rs. 112.43 lakhs in Fiscal 2022, which has been decreased by 11.43% to Rs. 99.58 lakhs in Fiscal 2023.The main reason for such decrease was due to non-receipt of Electricity Subsidy and further there is a gain in the foreign exchange fluctuation and incentive received under invest in Punjab scheme among other reasons.

Our total expenses have also increased significantly by 31.06% to Rs. 17071.46 lakhs in Fiscal 2023 from Rs. 13025.84 lakhs in Fiscal 2022. The main reason for increase in the total expenses was increase in the business of the Company due to which the cost of material consumed increase from Rs. 7842.46 lakhs to 10542.27 lakhs representing an increase of approximately 34.43%.

The cost of material consumed increase from Rs. 7842.46 lakhs to 10542.27 lakhs representing an increase of approximately 34.43%. The main reason for increase in the cost of material consumed was due to increase in the revenue from the goods sold by the company. The cost of material consumed is directly proportionate to the sale of products by the company. For the Fiscal year 2023 the material to revenue ratio was 59.68% which was approximately 59.02% during Fiscal year 2022.

Employee benefit expenses increased by 29.86% from Rs. 621.25 lakhs in Fiscal 2022 to Rs. 806.73 lakhs in Fiscal 2023. Such increase was due to new employees hired in the different departments to generate increased target of sales and overall business improvement, which lead to an increase in salary and wages by Rs. 169.21 lakhs.

Depreciation, amortisation and impairment expenses increased by 17.78% from Rs. 180.09 lakhs in Fiscal 2022 to Rs. 206.70 lakhs in Fiscal 2023. The company works on an asset light model hence the depreciation expenses are limited to the extend on 1- 2% of the total income of the Company.

Other expenses increased by 26.19% from Rs. 4102.47 lakhs in Fiscal 2022 to Rs. 5176.97 lakhs in Fiscal 2023. The main reason for increase in the other expenses is the increase operation of the company. The major portion of the other expenses is represented by consumables and spares which has increased to Rs. 1,093.06 lakhs from Rs. 786.41 lakhs, Electricity Expenses which has increased to Rs. 568.84 lakhs from Rs. 526.31 lakhs, Fuel Expenses which has increased to Rs. 1,121.92 lakhs from Rs. 801.03 lakhs, Labour Expenses which has increased to Rs. 1,454.66 lakhs from Rs. 1,122.49 lakhs and Repair & Maintenance Machinery which has increased to Rs. 295.59 lakhs from Rs. 237.63 lakhs. These abovementioned expenses represent more than 80% of our total other expenses, the increase in other expenses have been pursuant to the increase in these major expenses.

Current tax increased by 147.86% from Rs. 66.42 lakhs in Fiscal 2022 to Rs. 164.63 lakhs in Fiscal 2023. Such increase is the resulting factor of increased profits.

The profit after tax of the company increased from Rs. 264.34 lakhs in the Fiscal 2022 to Rs. 496.29 lakhs in the Fiscal 2023 representing an increase of 87.75%. The increase in the PAT was the resultant of the increase in revenue of the company which increased by 32.94% against which the total expenses of the company increased by 31.06%. In Fiscal 2023, the PAT Margin of the company was 2.81% as against 1.99% during the Fiscal 2022, which was majorly due to the rationalization of the Employee benefits expenses which increased by 29.86%, Depreciation and amortisation expenses by 14.78%, Finance costs by 21.19% and Other expenses by 26.19% against the increase in revenue by around 32.94%. Further, the bad debts written off during the Fiscal 2022 amounts to Rs. 313.20 lakhs which was Nil during the Fiscal 2023, which also added to increase in the PAT margins of the Company.

After the date of last Balance sheet i.e., March 31, 2024, the following material events have occurred after the last audited period:

6.

7. Parmod Gupta was re-designated from Director to Chairman & Whole Time Director of the Company with effect from June 03, 2024.
8. The company has been sanctioned financial facility under 4E-Financing Scheme (4E-FIN) for a maximum amount upto Rs. 742 lakhs from SIDBI.
9. Rajan Mittal was re-designated from Director to Managing Director of the Company with effect from June 03, 2024.
10. We have passed a Board resolution in the meeting of Board of Director dated June 03, 2024 authorizing the Board of Directors to raise funds by making an Initial Public Offering.
11. We have passed a special resolution in the meeting of shareholders dated June 04, 2024 authorizing the Board of Directors to raise funds by making an Initial Public Offering.