Hexa Tradex Management Discussions


Company overview

Hexa Tradex Limiteds operations essentially focus on national and international trading of good and services. The companys key objective is to carry out the business of dealer, trader, import & export agents, representatives, contractors, buying and selling agents, brokers, importers, buyers, sellers & exporters and to buy, sell, or otherwise trade and deal in goods, produce, articles and merchandise of all types, on a wholesale, cash and carry basis. The products the company deals in, include minerals & metals, stainless & special steels, alloys, ferrous & non-ferrous metals, auto parts, tools & implements, dies jigs, steel pipes, tubes & pipe fittings, iron & steel products, cast iron, steel & tubular structural scrap, tubes & allied products, chemicals & petrochemicals, capital goods, household articles & general merchandise, groceries such as packaged food items, fruits & vegetables, household items like toiletries, electronics, electrical appliances, general merchandise, apparels, accessories, stationery items, over the counter drugs, home & office furnishing and beauty products.

OUTLOOK

The Global Economy

Global economic shocks in the past were severe but spaced out in time. This was witnessed in the third decade of this millennium. At least three shocks have hit the global economy since 2020. It all started with the pandemic-induced contraction of the global output, followed by the Russian-Ukraine conflict leading to a worldwide surge in inflation. Subsequently, the central banks across economies led by the Federal Reserve responded with synchronised policy rate hikes to curb inflation. The rate hike by the US Fed drove capital into the US markets causing the US Dollar to appreciate against most currencies. This led to the widening of the Current Account Deficits (CAD) and increased inflationary pressures in net importing economies. The rate hike and persistent inflation also led to a lowering of the global growth forecasts for 2022 and 2023 by the IMF in its October 2022 update of the World Economic Outlook. The vulnerability of the Chinese economy further contributed to weakening the growth forecasts. Slowing global growth, apart from monetary tightening may also lead to a financial contagion emanating from the advanced economies where the debt of the non-financial sectors has risen the most since the global financial crisis. With persisting inflation in the advanced economies and the central banks hinting at further rate hikes, downside risks to the global economic outlook appear elevated. (As per Economic Survey 2022-23)

The Indian Economy

India marked 2022 as the 75th year of Independence. India became the worlds fifth largest economy, measured in current dollars. Indias GDP has reached $3.75 trillion in 2023, from around $2 trillion in 2014; moving from 10th largest to 5th largest economy in the world. India is now being called a Bright Spot in the global economy.

The rise in consumer prices has slowed considerably. The annual rate of inflation is below 6 per cent. Wholesale prices are rising at a rate below 5 per cent. Although the high oil price this year compared to last year, has infiated Indias import bill and caused the merchandise trade deficit to balloon, concerns over the current account deficit and its financing had ebbed as the year rolled on. Foreign exchange reserve levels are comfortable and external debt is low. India had a good monsoon, and reservoir levels are higher than the last 10-year average. The fundamentals of the Indian economy are sound as it enters its ‘Amrit Kaal, the 25-year journey towards its centenary as a modern, independent nation. Policies pursued carefully and consciously have ensured that the recovery is robust and sustainable. India is currently the worlds fastest-growing economy, according to institutions like the World Bank and IMF. With a GDP growth rate of 7.2%, India is expected to become the third-largest economy, surpassing Japan and Germany by 2027.

Opportunities

A large customer base, developing economy, vast middle class and a growing young population with higher spending power, sets India as an important target for any establishment seeking a market for its product and services. Several multinational corporations consider India as a potential market that contributes significantly to their top and bottom line. The ‘Made in India and ‘AatmaNirbhar Bharat initiatives of the Indian government aim to boost local production and increase the competitiveness of Indian industries. This presents many prospects for Hexa Tradex to expand its operations locally. Government Policies like Production Linked Incentive (PLI), Jal Jeevan Mission and PM Ji-van Yojana that are targeting development in various sectors like infrastructure, housing and development, offer many opportunities for the company to further strengthen its position.

Challenges

Trading businesses are associated with various risks and challenges which can be faced on account of domestic and global economic scenarios, geo-political conditions, competition, trade protection measures by various economies, and more. The success of any business always depends on its ability to face challenges and survive. Unexpected circumstances, such as the Russia-Ukraine conflict, can affect the companys operations, supply chain, product demand and severely disrupt logistics. In the framework of international trade, geopolitical conflicts can present a threat to the companys business. Geopolitical conflicts can result in trade barriers, taxes and other trade restrictions, limiting Hexa Tradexs trading opportunities due to limited access to new markets. Towards this end, Hexa Tradex consistently works on developing various systems and strategies to equip itself for any unforeseen contingencies.

Risk Management

There is a considerable risk involved in trading and financing businesses. Since the company operates in a volatile industry, its investments and performance are shaped by mega-trends in the operating environment. The companys operations and future performance depend on how these existing scenarios affect its capacity to deliver on its commitments. Adverse regulatory or economic conditions in the global market, for instance, can directly and negatively affect the companys revenues.

Hexa Tradex believes that risk management is not a one-o_ exercise. Continuous monitoring and reviewing are crucial for the success of the risk management approach, which ensures that risks have been correctly identified & assessed, and the right controls put in place. It is also a way to learn and take corrective measures from past experiences.

Hexa Tradex has identified the following major risks to its business: a) Strat egic Risk: Trading businesses are highly competitive in nature. b) C ommercial Risks: Business failures of vendors or customers pose a risk to the business. c) F inancial Risks: Trading businesses are also exposed to financial risks because of non or delayed payments by customers. Increase in financial costs also poses a risk which can significantly impact margins and profitability. Hexa Tradex takes into account the profitability on a case-to-case basis. However, it does not compromise significantly on the credit risk, unless the transaction is with regular customers. d) G eo Political Risks: Cross-border trading transactions are subject to political and global economic risks.

Hexa Tradex upholds an effective strategy and risk management system to safeguard itself against a wide range of risks. The management of the company considers various elements, analyses the risks involved and then takes effective steps to reduce risk. The management system is reviewed periodically and suitable changes are made based on the risks prevailing in the current market scenario.

Financial Performance

The companys total revenue from operations, for the year under review is 4.77 lakhs as compared to 1.89 lakhs in the previous year. The Company has su_ered a loss of 282.44 lakhs for the year under review, as compared to a loss of 178.94 lakhs in the previous year. The Companys reserve & surplus decreased to 1,93,625.54 lakhs as on March 31, 2023 as compared to 2,12,712.95 lakhs as on March 31, 2022. The decrease is due to recognition of loss of 18,804.97 lakhs (net of taxes) in Other Comprehensive Income (OCI) on account of fair valuation of investments (Quoted and Unquoted) of 18,804.74 lakhs (net of taxes) for the year under review. As on March 31, 2023 the net worth of the company decreased to 1,94,730.45 lakhs in comparison to 2,13,817.86 lakhs as on March 31, 2022.

Adequacy of Internal Control System

Hexa Tradex has a reliable and effective system of internal control to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition, and that all transactions are authorised, recorded and reported correctly. The company has an internal audit and control department to monitor, review and update internal controls on a regular basis. It has put into place a well-defined organisational structure, authority levels and internal guidelines to conduct its business operations. The internal audit and control department conduct audits of all key business areas, as per the pre-drawn audit plan. The audit plan is approved by the audit committee, which regularly reviews compliances to the plan. All audit observations and follow-up actions are reported to the committee. It periodically reviews audit plans, observations & recommendations of the audit report with reference to significant risk areas, and adequacy & efficacy of these controls.

Human Resources and Industrial Relations

Hexa Tradex has a process driven recruitment policy and believes in nurturing and retaining its talented pool of professionals. However, retention of human resources often poses a challenge in growing business organisations. The business as of now involves a limited number of professionals but keeping the companys growth trend in mind, it foresees a requirement for additional talent, with the requisite experience and qualifications, in the near future.

Cautionary Statement

The statement in this Management Discussion and Analysis report, describing Hexa Tradexs outlook, projections, estimates, expectations or predictions may be a ‘forward looking statement within the meaning of applicable securities, laws or regulations. Actual results could differ materially from those expressed or implied.