MANAGEMENT DISCUSSION AND ANALYSIS REPORT
INTRODUCTION
FOSECO is the Foundry Technologies Division of Vesuvius Group pic. engaged in
supporting the development of global steel and foundry manufacturing processes with new
technologies. It has manufacturing capabilities in all the major steel and foundry markets
across the world and is a leader in the supply of consumables and solutions related to the
foundry industry. FOSECO, as the name stands, originates from the term FOundry SErvices
COmpany. Foundry Services was born of an idea that took shape in a small town of
Birmingham in England in 1932. One of the most recognised brand names in the world, it has
become an integral part of the foundry industry as a supplier of high-quality consumable
products to various sectors.
Fosecos primary customers are ferrous and non-ferrous foundries serving various
end-markets from large bespoke castings to high-volume automotive pieces. The Company is a
world leader in products and services that serve the global foundry industry, improving
casting quality and foundry efficiency. It continuously focusses on technical service,
market-leading technology supported by above-industry average investment in R&D to
provide business-enhancing solutions to its customers. It has manufacturing footprints
close to all the main foundry markets in the world. It trains its engineers who are
progressively integrated within the global network of experts. Local manufacturing, local
expertise and leveraging global knowledge of the foundry processes positions Foseco in a
special relationship with its customers, help them optimise their processes and product
performances, it provides its customers, products and expertise to create best solutions
and reap full benefits for success.
FOSECOS BUSINESS MODEL
Foseco operates a profitable, flexible, cash-generative and growth-building business
model centred around strong customer relationships and local presence. It has built the
brand equity of its products through reliability, technology and service over many
decades. Foseco provides a comprehensive range of foundry technologies, equipment and
consumable supplies backed by world-leading foundry processes and product application
expertise. Understanding the need of the customers and offering them solutions that are
unique puts Foseco on a different footing than its competitors. These are delivered to the
customers by an international team of experts, passionate about consistently creating
better castings through a partnership model with foundries. The value addition is made
through improvements in process capability, casting yields, resource utilisation,
efficiency and development of new business opportunities.
Fosecos Target Customer Segments
Foseco services the needs of the following industrial sectors:
Fosecos Key Strengths
• Solutions Offering: The Companys local and international teams continuously
work on developing new toolkits based on detailed knowledge of customers processes to
offer innovative/customised solutions
• Products Offering: Full range of high-quality products and services
• Innovation: Industry-leading technologies with a focus on continuous
innovation
• Technical Support: Access to Fosecos extensive application engineering
resources
• Proximity: Global presence and extensive reach in India
FOUNDRY PROCESS AND STRATEGY
The Foundry Process
Foundries have a huge role to play in the industrial development of India. A foundry is
a factory where castings are produced by melting the metal, pouring the liquid in a mould
and allowing it to cool and solidify into the desired shape. Foundries produce metal
products for railroads, engine, tractor, mining, earth moving machinery, pipe components,
natural gas industries and machines used to make essential everyday consumer products.
Foseco is a leading supplier of consumable products, solutions and associated services
in various areas of the foundry process, as explained in the diagram below:
Casting Quality as a Driver for Demand
Foseco products typically represent less than 5% of a foundrys production cost.
However, it contributes significantly in improving product quality and manufacturing
efficiency, whilst reducing the environmental impact of the casting process and improving
the ratio of finished castings to the amount of metal poured — a key parameter of
foundry efficiency. As castings become increasingly complicated (driven in the case of
automotive casting by the need for lightness), they demand cleaner metal, better flow into
the mould and more consistent solidification. This supports the computer modelling, flow
simulation and casting methoding capabilities that are central to the services provided by
Foseco.
Business Strategy
Foseco follows the strategy of Solution Partnering that is founded on five core areas
of strength viz., Product Technology, Application Expertise, Process Knowledge, Process
Control and Customer Relationships. The solutions offered help the customers improve their
business performance wherever possible and reduce environmental impact using
environmentally friendly products that conserve natural resources. It continually works to
improve its solution offerings to deliver the greatest value to its customers.
Product Technology: Foseco is the only supplier that offers products and services
across the entire foundry process in both ferrous and non-ferrous areas. This global
proprietary consumable product technology consists of:
Application Expertise: Foseco team maintains an in-depth knowledge of customers
operations and the application of its products across a wide range of foundry processes.
Process Knowledge: Fosecos engineers possess an in-depth understanding of
customers processes for manufacturing casting from melting to post cast treatment.
Process Control: Fosecos range of sophisticated and state-of-the-art process
control equipments helps ensure process management, measurement, consistency, improved
productivity and reliability of cast components.
Customer Relationships: A conviction that customer partnerships, where expertise
and knowledge are shared, result in the greatest performance improvements for its
customers, is the cornerstone of Fosecos strategy.
Iron
Iron casting is split between grey and ductile iron with grey iron representing the
majority of metal being cast. This is a cost-efficient and robust process to produce
components that do not need to tolerate extreme mechanical stress. All iron casting
requires filters and coatings but grey iron is not as reliant on feeding system
utilisation due to its lower shrinkage on solidification. Conversely, ductile iron
production requires more sophisticated products to cope with the high shrinkages of metal
while solidifying.
Steel
Steel is used in castings for manufacturing components with very high mechanical
performance. Steel castings is the most demanding casting process due to higher melting
temperatures and greater tendency for shrinkage, thus the greater demand for products,
viz. high-performance feeders, high-temperature resistant filters and robust coatings and
technical expertise in this segment.
Aluminium/Non Ferrous
Aluminium casting is the fastest-growing segment of the foundry market. It has captured
a significant share of the light vehicles market. Being molten below 700?C, aluminium can
be cast in iron moulds which can be reused. Foseco concentrates on supplying fluxes,
filters and machines that refine the composition and cleanliness of the metal.
ECONOMIC AND INDUSTRIAL HIGHLIGHTS
The Global Economy
The year 2022 began with the world economy placed in a fundamentally good form. Global
GDP growth in 2021 was 6.1%, a solid rebound from the pandemic-induced contraction of 3.1%
in 2020. In January 2022, despite concerns about the new Omicron variant of COVID-19, the
manufacturing sector had expanded and trade levels
had once again reached an all-time high. In February, Russia invaded Ukraine, resulting
in a spike in the prices of gold, crude oil and natural gas. Energy markets took center
stage. Inflation in many countries hit levels not seen since the 1980s. Prices of food
grains and essential items have risen manifold in many countries on account of the energy
crisis and a tightened monetary policy.
Looking back, 2022 was yet another year of upheaval — one of many recently. We
have been living in volatile, uncertain, complex and ambiguous times. 2022 was no
exception. We are also living in a world that is more connected, and therefore need to
constantly evaluate the emerging opportunities and threats in these volatile times.
Indian Economy - Opportunities and Threats
The Indian economy has been remarkably resilient in the face of the deteriorating
global situation. This is a reflection of the strengthening macroeconomic stability. There
were headwinds throughout the year that impacted Indias path to economic recovery. The
year began with the threat of the Omicron variant of the coronavirus. Fortunately, the
threat subsided fairly quickly, without impacting the economy in any significant way. The
only problem was that this headwind was replaced by Russias invasion of Ukraine in
mid-February, leading to further disruptions in the global supply chain. The next
development to impact the economy was the decision of several major central banks,
especially the US Federal Reserve, to reverse their loose monetary policy stance. The
ripple effect of the policy-tightening measures was felt worldwide. The RBI wasnt too far
behind in tightening its stance either, with the first interest rate hike being announced
in May.
Sectoral analysis reveals that growth was driven by pent- up demand from the services
sector, enhanced agriculture exports and robust construction activity aided by increased
infrastructure investment. Private consumption remained high and so was the investment
rate, hinting at the beginnings of an investment cycle. There is cautious optimism as the
slowdown in global economic activity is not mirrored in Indias performance of various
high- frequency indicators.
As we head into 2023, the uncertainty in global economic developments requires
continued monitoring of the global demand and the cost situation. Every crisis is an
opportunity. The resilient nature of the Indian economy so far could be capitalised on to
increase its share in global trade. As the value chains will continuously evolve during
these volatile and uncertain times, India can capture some of the global demand. The good
news is that much hard work has been done in the last several years and a strong platform
has been erected on which the superstructure of a stronger economy can be constructed.
Foundry Market Insights
India is the second-largest casting producer in the world, behind China. The Indian
foundry industry manufactures metal cast components for applications in Automotive,
Tractor, Railways, Machine Tools, Pipes, Defence, Aerospace, Construction, Mining,
Textile, Cement, Electrical, Power Machinery, Pumps/Valves, Wind Turbine Generators, etc.
The foundry industry had been facing tough challenges for the past few years. First, there
was an unprecedented slowdown in 2019 followed by the pandemic in 2020 and the
profitability pressures in 2021. Despite these challenges, the prospects of the Indian
foundry industry look positive in the coming years.
The automotive demand, especially passenger car demand has started increasing with the
growing aspirations and income levels of the middle class. The two-wheeler demand is still
subdued due to the impact of Covid-19 on household incomes, rising vehicle costs and high
fuel costs. In 2022, tractor production declined over a high base of 2021 though it
started picking up in the last quarter of 2022. Commercial vehicle sales grew in 2022 over
2021, on the back of demand from the e-commerce sector and government spending on
infrastructure development projects.
The government is expected to continue increasing its investment in improving the
railways and building other essential infrastructure, creating an increased demand for
construction, mining and general engineering goods. The Machine Tools segment is also
expected to grow with the growth in the Automotive segment and the launch of new models.
Some of the challenges faced by the industry may continue for some more time. The
export demand has started going down. The raw material cost for foundries has risen fast,
but these could not be recovered from the original equipment manufacturers (OEMs), thus
putting pressure on profitability. The foundries need to invest in new technologies to
meet the tightening environmental regulations and to develop export markets. The drive
towards Electric Vehicles (EVs) will change the kind of castings to be produced. The speed
at which the transition will happen remains to be seen.
Key Growth Drivers of the Market
The Indian economy, particularly the foundry sector, is expanding due to the rise in
domestic demand. The automotive demand is expected to grow even though there could be
affordability pressures at the lower end of cars and two-wheelers. The increase in
economic activities and construction will help grow the demand for medium and heavy
commercial vehicles and off-road vehicles. The increased government spending on Railways
is driving the growth in foundries catering to the segment. The need for electricity and
particularly clean energy will continue to drive growth for power and windmills.
Tightening environmental regulations and OEM specifications are the other key factors for
the foundries to upgrade their technologies and processes. Many foundries are also looking
at capturing the export markets and being a China plus one alternate, for which they need
to enhance their processes. Foseco remains committed to being a leader in technology
development and innovation, positioning itself as a preferred solution provider for the
foundries.
FOSECOS PERFORMANCE HIGHLIGHTS
2022 has been a growth year where the Company has grown the topline while improving
profitability and maintaining the total trade working capital. Domestic demand was the key
driver for growth. The raw material costs continued to remain high and rise in a few
cases. Foseco demonstrated its ability to help its customers navigate through rising costs
through cost-reduction solutions and fit-for-purpose new product introductions. The value
thus created helped the Company to recover our cost increases from the market. A
disciplined approach towards collections and inventory resulted in reducing the trade
receivables days and inventory days.
Foseco maintained its technology leadership position and introduced several new
products for the ferrous and non-ferrous foundries. As part of its commitment towards
sustainability, new product development is being prioritised towards products that bring
in the sustainability benefit. The environmental norms and the OEM specifications are
getting tighter. The Company continued to take the lead and offer solutions that help its
customers meet those norms. Fosecos products and solutions help its customers reduce
their costs, improve productivity, and in many cases, grow sales. The Company continued to
expand its coverage and become accessible to more foundries by strengthening its
distribution channel. As the Company expands its coverage to smaller foundries, it is also
introducing products and solutions that meet the specific needs of smaller foundries.
To serve its growing customer base better, Foseco is strengthening its team, processes
and capabilities. The Company has hired more people, improved its processes and stepped up
its training and global connect. Foseco is optimistic about the future prospects and
believe that these investments will fuel its growth aspirations.
The Companys priority in 2023 remains to drive profitable growth and further
strengthen its market position in the foundry industry, in all divisions and in every
region. While doing so, it will maintain its focus on profitability and on working capital
performance. At the same time, the commitment towards the safety of its people and the
best-in-class quality of the products will remain unwavering.
Fosecos continued success will rest on its highly-engaged and talented people, aligned
around a common purpose and objectives. With the ever-improving quality of innovative
products and solutions offering, the strength of its optimized manufacturing cost base,
and above all, the strong support and commitment of its people, the Company is confident
of meeting its goals successfully.
Financial Performance
Table 1: Abridged Profit and Loss Account
|
|
(Rs. in lakh) |
| Particulars |
2022 |
2021 |
| Total Revenue from Operations |
40,673 |
33,801 |
| Operating Expenses |
(33,650) |
(28,881) |
| EBITDA |
7,023 |
4,920 |
| Depreciation and Amortisation Expenses |
(890) |
(588) |
| PBIT |
6,133 |
4,332 |
| Finance Charges |
-- |
-- |
| Profit Before Tax (PBT) |
6,133 |
4,332 |
| Tax Expenses |
(1,536) |
(1,065) |
| Profit After Tax (PAT) |
4,597 |
3,267 |
During the year under review, the Company witnessed a rise in sales revenue by 20.3%.
Sales was strong largely due to rise in prices of premium products coupled with prudent
credit evaluation of targeted customers. Meeting customers and offering solutions in
optimal use of raw material in their manufacturing process and technology was also an
important element of the Companys strategy.
All these measures resulted in the Profit After Tax (PAT) rising by 40.7%. The Company
generated Rs. 5,871 lakh net cash from its operating activities in 2022 as against Rs.
1,982 lakh in 2021.
Table 2: Key Financial Ratios
| Particulars |
2022 |
2021 |
| PBIT/Total Revenue |
15.08% |
12.82% |
| PAT/Total Revenue |
11.30% |
9.67% |
| ROCE |
26% |
21% |
| RONW |
19.23% |
15.66% |
| Debt Equity Ratio |
-- |
-- |
| Current Ratio |
2.94 |
2.99 |
| Interest Coverage Ratio |
-- |
-- |
| Debtors Turnover |
4.80 |
4.56 |
| Inventory Turnover |
10.75 |
10.94 |
| Operating Profit Margin |
16.91% |
14.32% |
| Net Profit Margin |
11.07% |
9.51% |
Disclosure of Accounting Treatment - Adoption of Indian Accounting Standards (Ind-AS)
The Company has followed the Indian Accounting Standards (Ind-AS) for drawing-up its
accounts as prescribed by the Institute of Chartered Accountants of India, in the
preparation of financial statements. There are no audit qualifications in the Companys
financial statements for the year under review.
Health, Safety, Environment & Sustainability
Foseco strives to achieve the highest standards of HSE practices, having adopted an
Integrated (Quality, Health, Safety and Environment) Management System (IMS) accredited to
ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018. The Company has well established HSE
standards and monitoring process for each of its operations. Every employee is required to
conduct safety audits and suggest safety improvement opportunities. These improvement
opportunities are reviewed by HSE team members and wherever feasible these are implemented
in the safety culture journey. It also runs continuous improvement programs for employees
health and environment. To increase HSE awareness amongst employees, Foseco regularly
conducts internal competition and participates in competitions organised by trade bodies.
The company has launched sustainability drive with the defined targets to reduce its
environmental footprint interms of CO2 and waste water. The Company has
invested in own generation of green energy source by solar power project in pune with the
capacity of 565 kWP. The Company has implemented specific measures to reduce its CO2
emissions, interms of energy efficiency, neuralisation of secondary energy with green
energy contracts.
Quality
Foseco is acknowledged in the market for its consistent product quality and technical
expertise. The consistent quality products adds value to the customer processes. The
Company is committed to supporting customers with reliable products, which it strives to
deliver through best-in-class quality management in its production sites. Its quality
systems define the commitments and responsibilities which apply to all aspects of the
business. To demonstrate this, Foseco has an established process to address customer
complaints which ensures participation from cross-functional expertise and is thus
committed to ensuring customer satisfaction. The problem-solving methodology 8D PPS
(Practical Problem Solving) enhances the problem-solving capability of team members which
is recognized in the form of Regional contests and Awards.
Operations
Foseco has state-of-the-art manufacturing facilities in Pune and Puducherry. It also
imports products from its group manufacturing locations in other parts of the world.
Foseco operates in a cellular manufacturing structure. Each cell is "a factory within
a factory" and has end-to-end responsibility for the entire supply chain process
— from purchase to the manufacturing process to despatch. This workflow ensures that
the entire cell team is responsible for safety, quality, production, cost and product
delivery. Foseco is progressively using operational excellence tools to standardise its
processes and activities and ensure efficient systems to delight customers. With the Lean
philosophy, Foseco is becoming more flexible to take on new challenges in customer
satisfaction. These initiatives are very well backed by innovative engineering practices
and solutions. Foseco India has constantly carried out improvement initiatives to maintain
and upgrade its manufacturing facilities through revenue expense and capex.
Human Resources
The Human Resources function is continually committed and focused towards defining and
delivering people strategy to meet the growth of talent and organisation. Focused approach
towards attracting, assimilating CORE Values and continuously investing in them, have
helped us impeccably in passing the difficult transition time of change management for
hybrid work orientation, business outlook and many other aspects.
The year 2022 was majorly focused on attracting and onboarding right and strategic
talent crucial for the business performance, developing the culture of engagement,
appreciation, and growth. The function has been instrumental in delivering business growth
by hiring critical talent in mid-level leadership, front sales ferrous and non-ferrous
group and support transition roles. The structured onboarding and people development
programs such as technical capability assessment and development for sales, workmen
development and Leadership development has facilitated and led organization in upskilling
and reskilling overall talent and developmening next generation leaders. HR also ensured
that clear changes are made to recruitment and capability - building process determining
the characteristic of purpose-driven employee and embedding these attributes with
recruitment, development, career and succession planning. The HR team played a crucial
role in forming employee experience by working together with the people to create
personalized, authentic and motivating experiences that tap into purpose to strengthen
individual, team and company performance.
Furthermore, Every Opinion Counts is the philosophy that the Company has
continued to lead in the year through its employee engagement survey — I engage. The
constant dialogue with internal stakeholders, structured townhall communication, and You
Said, We Did communications have increased the trust in the survey resulting in high
employee participation level. The HR team facilitated ensuring the engagement drivers are
addressed based on the feedback received. The survey has received positive feedback on
strength and development aspects which will be brainstormed to make each day even better.
Furthermore, the Company has placed great emphasis on the health and well-being of its
employees. One of the key initiatives it has implemented is an annual health check-up
programme, accompanied by monthly sessions led by health experts. This programme will
continue in the upcoming year.
The Reward and Recognition initiatives of Foundry Excellence and Plant Performance
Awards for exceptional performances have further reinforced the appreciation and
engagement culture and helped in creating a mindset of performance-oriented organisation.
With all factors stated above, Foseco certainly expects to go the extra mile for its
business activities and employee relations in its journey of growth. The Company
continuously endeavours to play a central role in building organizational resilience and
driving value by connecting talent to business strategy.
Corporate Social Responsibility Initiatives
During the year, the Company undertook its CSR initiatives in the areas of education,
healthcare, social causes, environment and information technology. The Companys CSR
activities focus on the disadvantaged, vulnerable and marginalised segments of society.
The Companys collaborative partnerships with communities are manifested in its
CSR-based programmes. CSR projects are undertaken by partnering with renowned
Non-Governmental Organisation (NGOs). The initiatives taken during the year were focused
on rehabilitation of people affected by the COVID-19 pandemic, education, technology,
skill building programmes and improving the overall quality of lives of people residing in
the vicinity of the Companys plants. These initiatives augment the natural resource base
and create sustainable rural livelihoods.
The Company continued its association with Jehangir Hospital for detecting juvenile
diabetes in young boys and girls and supporting their families by distributing medicine
and diabetic kits for the treatment of diabetes. The Company is sensitive towards
environmental and social requirements. It had supplied biomass cookstoves under the banner
of "Happy Family Kit" to deserving and needy families in the slum, rural, and
semi-urban communities. This project proved to be a big success providing the Company the
encouragement to continue with this initiative even further. The Company has now been
involved with this project for three consecutive years. This unique cookstove is
environmentally friendly as it emanates less smoke in comparison with traditional
cookstoves that adversely affect the health of the women cooking food for their families.
These cookstoves had found favour with these communities as it is convenient to use. Due
to its relevance to the community, it has created huge, favourable and visible impact in
the lives of the beneficiary community. Print and digital media had given wide coverage to
this noble cause.
In the area of education, the Company has built infrastructure in a residential school
near the Companys plant. The school provides free education and boarding at its premises
to children of migrant workers and labourers residing nearby. During the year under
review, the Company provided bunk beds to the school with the aim of providing recreation
to the residential students, and hence, motivate children from nearby areas to take
admission in the school.
In the financial year ended December 31, 2022, numerous ambitious projects were
completed, which the Company was committed to delivering. The Company will keep working on
social projects that fall within the scope of its CSR Policy, which will provide
significant assistance to society in the long run.
Information Technology
Fosecos IT systems are very robust and are running seamlessly to lend support to
people working from anywhere. The IT processes of the Company are accredited to ISO
9001:2015.
Internal Control Systems and Their Adequacy
Foseco adopts a rigorous system of Internal Control and Risk Management to ensure all
assets are safeguarded and protected against loss from unauthorised use or disposition and
that transactions are authorised, recorded, and reported quickly. In addition, the Company
has a well-structured system of risk assessment and risk reporting.
The Companys internal controls are supplemented by an extensive programme of internal
audits, review by management and documented policies, guidelines and procedures. The
internal controls are designed to ensure that financial and other records are reliable for
preparing financial information and other data and for maintaining accountability of
assets. During the year, due care has been exercised by the Company with respect to all
the requirements of the Company Law and Listing Regulations.
Cautionary Statement
Statements in the Management Discussion and Analysis Report describing the Companys
objectives, projections, estimates and expectations may be forward-looking statements
within the meaning of applicable securities laws and regulations. Actual results might
differ materially from those expressed or implied. Important developments that could
affect the Companys operations include economic conditions affecting demand/supply and
price conditions in the domestic and overseas markets in which the Company operates,
changes in government regulations, tax laws, and other factors such as litigation and
industrial relations.
For and on behalf of the Board of Directors
Ravi Moti Kirpalani
Chairperson
DIN:02613688
Place: Gurgaon
Date: February 27, 2023.
+91-9892691696
