gi engineering solutions ltd share price Management discussions


Your company is engaged in the business of providing information technology based Engineering Services, development of software and software programmes, distribution and supply of and to generally deal in all forms of electrical power/energy, trading of engineering goods for facilitate infrastructure projects to promote industrial and commercial activity, Trading of Commodities.

Engineering Services

Global Industry Overview:

The engineering services market is segmented by engineering disciplines (civil, mechanical, electrical, piping & structural), delivery mode (offshore, onsite), services (product engineering, process engineering, automation related services, asset management related services), industries (aerospace and defense, automotive, chemical and petrochemical, electric power generation, municipal utility projects, mining, oil and gas, pharmaceuticals, transportation, telecommunications, nuclear projects etc. The engineering services market was valued at USD 1095.84 billion in the previous year. It is expected to reach USD 1530.82 billion by the next five years, registering a CAGR of 6.2% during the forecast period.

Infrastructure demand is a significant driver of the engineering services industry since it creates a need for specialized skills and encourages innovation. Infrastructure projects are often vast and complicated, necessitating the need for engineering service providers to design, plan, and execute these projects, thereby delivering value-added services to their customers.

The use of digital technologies such as AI, IoT, and cloud computing also drives the market. These technologies are used to gather, process, and analyze massive volumes of data in real-time to make better decisions. According to Delteks research, 25% of architectural and engineering businesses perceive their firms to be digitally advanced now, while 76% anticipate it to be in five years.

Indian Industry Overview:

The engineering services market is projected to witness considerable growth in the upcoming years. The major factors contributing to the growth of the market include the continuous investment by the government on the manufacturing industry, with the government initiatives/subsidies for micro, small, and middle enterprises (MSMEs). Moreover, the expansion of global market players to India due to ease in FDI (foreign direct investment) has increased the FDI inflows in the recent past. Therefore, a considerable rise in the engineering services can be projected during the forecast period.

The product engineering services is one of the engineering services and this services market is influenced by product development and advancements conducted by the key market players. These players are playing a significant role in the growth of the product engineering services market by providing various products and adopting several strategies such as merger and acquisition, partnerships and collaboration, technological development, and others.

Energy Sector

Global Industry Overview:

The current global energy crisis has added new urgency to accelerate clean energy transitions and, once again, highlighted the key role of renewable energy. For renewable electricity, pre-crisis policies lead to faster growth in our updated forecast. Notably, wind and solar have the potential to reduce the European Unions power sector dependence on Russias natural gas.

Solar and wind costs are expected to remain higher in the coming years than pre-pandemic levels due to elevated commodity and freight prices. However, their competitiveness actually improves, due to much sharper increases in natural gas and coal prices.

Biofuel demand growth to expand year-on-year by 3% in 2023. On the other hand, increasing feedstock prices and policy reaction from multiple countries slows growth in the short term, leading to a 20% downward revision of our previous biofuel demand growth forecast. Russias invasion of Ukraine is also putting upward pressure on an already high-price environment for biofuel feedstocks, in particular vegetable oils.

While looming market uncertainties increase challenges, the new focus on energy security especially in the European Union is also triggering an unprecedented policy momentum towards accelerating energy efficiency and renewables.

Indian Industry Overview:

India has low conventional energy resources compared to its required energy needs driven by a huge population and a rapidly increasing economy. However, India can harness the huge potential of solar energy as it receives sunshine for most of the year. It also has vast potential in the hydro power sector which is being explored across states, especially in the northeast. As of February 2023, Renewable energy sources, including large hydropower, have a combined installed capacity of 174.53 GW. India is the only country among the G20 countries who is on track to achieve its targets under the Paris Agreement.

India has set a target to reduce the carbon intensity of the nations economy by less than 45% by the end of the decade, achieve 50 percent cumulative electric power installed by 2030 from renewables, and achieve net-zero carbon emissions by 2070.The non-hydro renewable energy capacity addition stood at 4.2 GW for the first three months of FY23 against 2.6 GW for the first three months of FY22.

Trading of engineering goods (such as steel products comprising of TMT bars, girders, and hollow sections; Pipes & Tubes are made of steel; etc. - Infrastructure Projects

Global Industry Overview:

Steel pipes market will reach at an estimated value of USD 2,45,516.20 million by 2028 and grow at a CAGR of 6.10% in the coming years. Increase in the oil & gas production due to the demand from the transportation industry acts as an essential factor driving the steel pipes market.

Rise in the product consumption in the region is a crucial factor accelerating the market growth, also rise in the rapid industrialization & urbanization, increase in the population, and rise in the growth in the manufacturing sectors, especially in developing economies are the major factors among others boosting the steel pipes market. Moreover, increase in the demand from emerging economies and rise in the research and development activities in the market will further create new opportunities for steel pipes market in the forecast period mentioned above.

However, rise in the cost of research and development activities is the major factor among others restraining the market growth, and will further challenge the steel pipes market in the forecast period mentioned above.

Indian Industry Overview:

Demand for steel from different sectors will drive this industry. Consumption of steel by Indias infrastructure segment is expected to increase to 11% by FY26. Steel demand from the automotive sector is expected to increase due to rise in the demand for automobiles.

The new Vehicle Scrappage policy will help in reducing steel prices as the policy enables recycling of materials used in old vehicles. The Smart Cities Affordable Housing and industrial corridors are a few government intitivates to boost the steel industry.About 158 lakh metric tonnes (MT) of steel are likely to be consumed in the construction of houses sanctioned under the Pradhan Mantri Awas Yojana (Urban).

Opportunities and Threats:

Engineering Services

The engineering services market is expected to benefit from steady economic growth in developed and developing countries. According to the report, Asia will represent 66% of the global middle-class population by 2030. Going forward, the Asia Pacific and Middle Eastern regions are expected to be the fastest-growing markets in the engineering services, design, animation, and graphic designing industries. Developing countries such as India and China have started attracting foreign investments to improve their infrastructure. This was mainly due to an increase in internet penetration, growth in population, and increasing economic activity.

Lack of quality control and safety concerns of engineering firms may hinder the engineering services market growth. Companies in the industry are incurring high maintenance and budgeting costs to develop new and advanced methods to combat issues of safety and control.

Energy Sector

With the declining cost of renewables, corporates have increasingly signed power purchase contracts directly with wind and solar projects outside the main government policy schemes to meet their private decarbonisation goals and also to hedge against future price volatility. Developers of wind and solar projects entering these agreements have accepted additional risk from shorter contracts and greater exposure to wholesale electricity prices. While project development tied to private agreements accounts for about a quarter of projects in the pipeline, lower electricity demand, plummeting power prices and a weaker financing environment may lead to such projects being reconsidered.

At the same time, the hedging value of renewables to both electricity price volatility and climate liabilities remains intact. Once operational, renewables projects with long-term power purchase contracts can provide stable revenues to investors while sheltering buyers from future electricity and fuel price volatility.

There is little doubt that massive cost reductions in the last decade are one of the main reasons behind renewables rapidly transforming the global electricity mix. In most countries, renewables are the cheapest way of meeting growing demand.

Trading of engineering goods (such as steel products comprising of TMT bars, girders, and hollow sections; Pipes & Tubes are made of steel; etc. -Infrastructure Projects

The infrastructure sector accounts for 9% of steel consumption and is expected to increase to 11% by 2025-26. Due to rising investment in infrastructure the demand for steel products would increase in the years ahead.

70% of the countrys infrastructure, estimated at Rs. 6 lakh crore (US$ 89.50 billion), is yet to come up. Thus, a significant growth potential for steel sector is present. For various infrastructure sectors, including real estate and power, the Ministry of Finance planning to set up a stress fund.

The automotive industry is forecast to reach US$ 260- 300 billion by 2026. The industry accounts for around 10% of the demand for steel in India. With increasing capacity addition in the automotive industry, demand for steel from the sector is expected to be robust.

COMPANY OVERVIEW:

Our Company was incorporated as "GI Engineering Solutions Limited" on August 10, 2006 as a public limited Company under the Companies Act, 1956 and was granted the Certificate of Incorporation by the Registrar of Companies, Mumbai. Subsequently, our Company entered into a Composite Scheme of Arrangement and Amalgamation with the division of Genesys International Corporation Limited called the Engineering and Information Technology Division and which was approved by the Honble Bombay High Court vide its order dated September 07, 2007. On August 03, 2022, our Company was acquired by Mr. Vishesh Gupta and M/s. Vrindaa Advanced Materials Limited pursuant to the Share Purchase Agreement and the management of the Company underwent a change. The Company with effect from August 30, 2022 appointed and composed a new Board of Directors and Key Managerial Personnel.

After the change in the management and control of our Company, the objects were broadened. Our company is engaged in the business of providing information technology based Engineering Services, development of software and software programmes, distribution and supply of and to generally deal in all forms of electrical power/energy, trading of engineering goods such as steel products comprising of TMT bars, girders, and hollow sections; Pipes & Tubes; pipes & plumbing systems; electrical conduits, switches, circuit breakers etc; irrigation pipes and sprinkler systems, drip irrigation systems and hybrid irrigation systems, borewell pumps etc; and rainwater harvesting systems for facilitate infrastructure projects to promote industrial and commercial activity, Trading of Commodities.

Current Business Segments

Engineering Services, Energy Sector, Trading of Commodities, trading of engineering goods for Infrastructure Sector and Others

Engineering Services: Your Company deals in business of consultancy, advisors, technicians, manufacturers and agents in any part of India and outside India for development of software, software programmes for development or manufacture of remote monitoring programmes, software and programmes for engineering services, innovative software, computers, computer spares and parts or similar related products, to set up data processing centres and provide engineering services of all kind and render all management and professional services in these fields.

Infrastructure Business Division: Your Company is engaged in the business of trading of engineering goods for infrastructure development such as steel products comprising of TMT bars, girders, and hollow sections; construction materials comprising of cement, bricks, tiles, mortar, bitumen; pipes & plumbing systems; electrical conduits, switches, circuit breakers etc; irrigation pipes and sprinkler systems, drip irrigation systems and hybrid irrigation systems, borewell pumps etc; and rainwater harvesting systems.

Energy Business:

Your Company is generating, developing, transmitting, trading, accumulation, distribution and supply of and to generally deal in all forms of electrical power/energy including dealing in all aspects of Thermal, Hydro, Nuclear, Solar, Tidal, Biomass, Wind Power and Power generated through any Conventional/Non-Conventional/Renewable Energy sources including construction, generation, operation & maintenance, renovation & modernization of Power Stations and Power Projects and also to undertake the business of other allied/ancillary industries including those for utilization/sale/supply of steam and ash generated at power stations and other by-products and deal-in, supply, install, operate and manage all necessary plants, items of equipment, cables, wires, lines, establishments and other works related to Energy/Power and other forms of Energy/Power services like Project Management, Project Advisory services, including Supply of Coal, Fuel. Oil, gas based captive power and to carry on in India or out of India the business of power, minerals and fuels of all kind, to establish, operate and maintain power generation stations and plants, accumulation, tie-lines, sub-stations, workshops, transmission lines, to establish and develop power projects and other infrastructure projects to promote industrial, commercial activity for inland and foreign trade, and to do government liaison work and other work.

Risks and Concerns:

Risks and Challenges being faced by the Company are same as what others in the industry are facing and those are

1. Economic Risk
2. Liquidity Risk
3. Execution Risk
4. Technological advancement
5. High cost of resources.
6. Attracting talented and retaining skilled staff.
7. Project Management
8. Government policies
9. Competition and customer acquisition

Internal Control System and its adequacy:

The internal control systems are adequate for the scale and type of the Companys operations. Well-documented policies, guidelines, and procedures are put in place for monitoring business and operational performance and ensuring safeguarding of assets and proper reporting of financial transactions. Periodic audits are conducted by an independent internal audit firm hired by the Company to ensure the adequacy of internal control systems and compliance with laws and regulations. The Companys robust MIS system assists in rigorous monitoring of data to confirm that all major expenses are within the budgeted limits.

Discussion on Financial Performance

The financials of the Company as on 31st March, 2023 in comparison with the previous year figures along with the key financial indicators are discussed as under:

Net worth

The Companys net worth stood at Rs. 34.47 Crore as against the previous year where it stood at Rs. 4.35 Crore.

Borrowings

The Companys borrowings aggregated to Rs. 1.04 Crore which includes loans from related parties of Rs. 0.02 Crore in comparison to the previous year figures being Nil.

Trade Receivables & Trade Payables

Trade receivables at the end of financial year was Rs. 14.12 Crore and trade payables aggregated to Rs.7.80 Crore as against the previous year where Trade receivables and trade payables stood at Nil and 0.01 Crore respectively.

Current Assets & Current Liabilities

The Current Assets of the Company stood at Rs. 43.84 Crore whereas the current liabilities aggregated to Rs. 9.37 Crore as against the previous year where the Current Assets and Current Liabilities were 4.44 Crore and 0.08 Crore respectively.

Earnings per Share

The basic and diluted Earnings per Share (EPS) as at the end of financial year was 0.79.

Financial Ratios along with detailed explanations thereof for change:

Ratios FY 2022-23 FY 2021-22
Debtors Turnover Ratio 119.03 9.23
Inventory Turnover Ratio 3217.01 -
Interest Coverage Ratio 3.17 -
Current Ratio 4.68 53.89
Debt Equity Ratio 0.03 -
Operating Margin Ratio 0.39% (19.38%)
Net Profit Margin 0.34% 6.45%
Return on Net Worth (RONW) 8.36% 0.16%

During the financial year 2022-23, Since companys management has changed, the company has diversified its business and stated its business operations during the financial year under audit, due to with there are variations in the ratios from last financial year to current financial year.

Human Resources

The human resource function has been significant for our Company. It plays a pivotal role in the change of management and triggers the unlocking of human potential, which results in organization transformation and success. Our learning and development philosophy is to ensure that real learning takes place and endures. We believe that real learning takes place when a learner can develop a new skill, competency and behaviour and is able to internalize and apply consistently to relevant work-life situations. The Company has developed a system to reward adequately and recognize employee contribution towards its growth. A remuneration policy has also been developed and adopted by the Company which provides for appointment and remuneration of Directors, Key Managerial Personnel and Senior Management.

CAUTIONARY STATEMENT

The Management Discussion and Analysis contains statements for describing the Companys objectives, projections, estimates, expectation or predictions. These statements are forward-looking in nature and are within the meaning of applicable securities laws and regulations. The Company has undertaken various assessments and analysis to make assumptions on future expectations on business development. However, various risks and unknown factors could cause differences in the actual developments from our expectations. Important factors that could make a difference to the Companys operations include macroeconomic developments in the country and improvement in the state of capital markets, changes in the Governmental regulations, taxes, laws and other statutes and other incidental factors. The Company undertakes no obligation to publicly revise any forward-looking statements to reflect future/likely events or circumstances.