Hilton Metal Forging Ltd Management Discussions

Industry Structure and Developments

The Indian metal forging industry majorly caters to the high demand for forged products from the automotive sector. However, the recent slowdown in this sector has led to shift in focus of leading metal forging players to expanding their product portfolio for other non-automotive industries where the demand for forged products is increasing. These non-automotive industries include agriculture, power, aerospace and defense. The increasing investment and expansion of these sectors is positively influencing the market. The aerospace industry require various high-quality and lightweight metal forged parts. Therefore, the increasing demand for critical forged products in the aerospace & defense industry is likely to drive market growth.

India has the 4th largest railway system in the world, behind only the US, Russia and China.

The Indian Railways consists of a total track length of 126,366 km with 7,335 stations. 5100 km of track length was added during 2023-24, which is an average daily track laying of 14 km per day. The railways operate 13,523 passenger trains and 9,146 freight trains daily. The Indian Railways has loaded over 1500 MT during 2023-24.

Some of the other relevant data includes:

• Vision 2024 has been envisaged to achieve targets of 2024 MT freight loading by 2024.

• Mumbai-Ahmedabad high-speed rail project sanctioned at a total cost of $14.27 Bn.

• As of March 2024, 62,119 km length of Broad-Gauge network has been electrified. With this, Indian Railways is rapidly progressing towards its target of 100% electrification and becoming the largest green railway network in the world. Indian Railways (IR) is rapidly progressing to accomplish Mission.

• 38,650 Km length of railway electrification has been achieved since 2014 till Oct, 2023.

• 100% Electrification and become the largest green railway network in the world. 6,577 RKMs has been achieved in IR history during calendar year 2023.

• Indian Railways has commissioned Wi-Fi at 6,108 railway stations across the country.

• To achieve its green mission, Indian Railways has solarized more than 1000 stations.

• Till Oct23, Automatic Block Signaling (ABS) has been provided at 4,111 route kms (Rkm).

• Kavach has so far been deployed on 1465 Route km (Rkm) and 144 locomotives (including Electric Multiple Unit rakes) on South Central Railway in Telangana (684 Rkm), Andhra Pradesh (66 Rkm), Karnataka (117 Rkm) and Maharashtra (598 Rkm) States.

• 400 new generation Vande Bharat Trains to be manufactured during the next three years.

• 100 PM Gati Shakti Cargo terminals for multimodal logistics to be developed during the next three years.

• During 2014-22, 1544 km (377 km new line, 972 km Gauge conversion and 195 km Doubling) sections, falling fully/partly in Northeastern Region, have been commissioned at an average rate of 193 km per year, which is 190% more than average annual commissioning achieved during 2009-14 (66.6 km per year).

Developed in the past, forging is a process of metal forming that has evolved through the integration of innovative techniques. In the process, a metal is deformed with the use of compressive forces such as hammering, rolling, and pressing in controlled conditions for giving the material a desired geometric change. The process produces high- quality metal parts, consisting of alloy steel, stainless steel, and aluminum alloys, with enhanced material strength. The forging process offers a wide range of forging components having different materials, shapes, finishes, and sizes.

In India, forging OEMs offer closed-die forged solutions that are used in the automotive industry. Indias market share in automotive forging is higher than other industries such as industrial machinery, railway, aerospace and defense, and others. The rising demand for the product is due to its application in construction, mechanical equipment, oil & gas, automotive, and aerospace, driving the market growth during the forecast period.

Increasing Export of Forging Products to Drive Market Growth:

Globally, India is considered one of the major forging production hubs. The increase in domestic manufacturing capacity and competitiveness is helping Indias exports grow rapidly. According to the Engineering Export Promotion Council of India (EEPC), the forging sector is one of the key sectors for export growth. In addition, government initiatives such as Make in India has boosted the manufacturing industry in the region by creating a positive business environment. The key players operating in the Indian metal forging industry are bagging export orders from various economies, which is likely to drive the market growth in India.

Based on material, the India metal forging market is classified into carbon steel, alloy steel, stainless steel, aluminum, magnesium, titanium, and others.

The carbon steel segment holds the largest India metal forging market share owing to its machinability, good strength, and other properties. Carbon steel is mainly used as raw material in forging manufacturing. It is preferred over materials in the automotive industry for manufacturing control arms, rocker arms, and crankshafts. It provides cost-effectiveness for structural application, balancing strength and ductility, malleability, high strength, toughness, temperature resistance, good machinability, wear resistance, and corrosion resistance in a mild atmosphere. These benefits of carbon steel have created tremendous demand in the automotive sector.

The alloy steel segment holds the second-largest market share. The segmental growth is attributed to its high strength and durability. These properties make it suitable for applications where robustness and resistance to wear are crucial, such as in automotive, aerospace, and industrial equipment

The India metal forging market size was valued at USD 4.43 billion in 2022. The market is expected to grow from USD 5.08 billion in 2023 to USD 9.75 billion by 2030, exhibiting a CAGR of 9.8% during the forecast period.

Steel prices and demand supply gap: The forging industry in India has been showing a growth trend since last one year. However, there seems to be a huge demand supply gap, which exists, which is not being met by the steel manufacturers in India. Some of the possible reasons for the demand supply gap include - major players reeling under high debts, lower coal production by Coal India, as compared to the demand and gap in the quality standards to meet the higher level of demand in the automobile sector and significant rise in prices of graphite electrodes, an immensely vital raw material for steel manufacturers.

The forging industry says it is also concerned over the continuous rise of steel prices in India and is living under constant fear that if this trend continues, then it will defeat the Make in India project and China which as of now is the biggest steel exporter, will get a competitive edge in the world steel market. The steel prices have deflated by around 46.86 percent in the last one year. The price of steel has gone down to Rs 28,256 per tonne, compared to Rs. 47,740 per tonne in November 2019-20. Even though the global steel prices also witnessed immense the quantum influences was not as high.

High electricity tariff rates in Maharashtra: On one hand manufacturing industries across India are extensively promoting the governments Make in India initiative while on the other hand the manufacturing industries in Maharashtra are grappling with serious concerns related to high electricity tariff rates. According to the figures released by Maha discom last year, the state has lost about 500 consumers, which includes some the big names. Though, last year, the Maharashtra government reduced the power tariff for industries, it has still not made the state a competitive destination as compared to neighbouring states like Gujarat, Karnataka, Andhra Pradesh and others which offer electricity at cheaper rates.

Modernisation: Technology and automation levels in India (barring a few bigger forging companies) is lower as compared to the European, Japanese and American counterparts and companies from China, Korea and Taiwan. According to a recent survey of the Indian forging industry, about 70 percent of the forging units in India are MSMEs who need to upgrade their technologies. For this, the industry needs huge government support in terms of further interest subvention and Technology Upgradation Fund.

Outlook

The Indian forging industry has returned to pre-Covid production level and growth prospects are bright. This will boost the capacity significantly over the next three years, supported by China+1 strategy amid the threat of technological disruption by way of alternative fuels in the automotive segment. After a challenging phase during Covid and some labour issues later, the Indian forging industry is back supported by steady global and domestic demand. Currently, the annual production level is at about 2.2 million tonnes, including all categories. About 35 per cent of this production is exported to various geographies

Indian forging companies have also undertaken technological upgradation in order to grab the emerging opportunities. About 10 years ago, forging firms were doing only forging and supplying the same. With investments in forward integration, they have moved up to machined parts, finished products and to subassemblies.

With the favourable growth outlook both in India and overseas, the industrys capacity is expected to increase to 3.5-4 million tonnes in the next three years.

Many opportunities are emerging from non-automotive segments such as railways, defence and aerospace and power transmission segments. Scores of Indian companies have been supplying to these sectors. Also, with the looming threat of alternative fuel technologies such as electric battery, forging firms, particularly small ones, are looking to expand their business in non-auto segments.

Indian Railways recorded monthly freight loading of 135.46 MT in Jun 2024, an improvement of 10.07% over last years freight loading for the same period.

Following the Mantra, "Hungry For Cargo", Indian Railways has made sustained efforts to improve the ease of doing business as well as improve the service delivery at competitive prices. This has resulted in new traffic coming to railways from both conventional and non-conventional commodity streams. The customer centric approach and work of business development units backed up by agile policy making has helped the Railways breach the 1400 MT Freight Loading mark for 1st time ever in FY 2021-22. Indian Railways has registered highest ever Freight Loading in any Financial year with 1512 MT freight loading in FY 2022-23.

• The railway sector in India aims to contribute about 1.5% to the countrys GDP by building infrastructure to support 45% of the modal freight share of the economy.

• Two Dedicated Freight Corridors (DFC), one on the Western route (Jawaharlal Nehru Port to Dadri) and another on the Eastern route (Ludhiana to Dankuni), have been fast-tracked.

• Railways have earned Rs. 14,798.11 cr in Jun 2024 against Rs. 13,316.81 cr over the last year from Freight loading.

• New Line/ Doubling/ Gauge Conversion: 5,243 km of conversion have been achieved during 2022-23 as against 2,909 km in 2021-22. The average daily track laying in FY23 comes out to be 14.4 km per day, which is the highest ever commissioning.

• 785 electric locomotives produced in this FY 2022-23 up to 31st January 2023.

• As on 31st January, 2024, 82 Vande Bharat train services are operating across the Indian Railways.

• Currently, a total of 2,359 trips of Kisan Rail trains have been operated on 167 routes, wherein nearly 7.9 lakh tonnes of consignments have been transported.

• 6,521 (98.8% of total stations) stations have been equipped with Electrical/Electronic Signalling Interlocking System up to 31.12.2023.

• During 2022-23, 30 Freight Terminals were created as compared to 21 Freight Terminals in 2021-22.

• Under the Union Budget 2023, Indian Railways has been allocated a highest ever capital outlay of $29 Bn.

• The average Freight Train speed has increased to 44.36 kmph during 2021-22 compared to 42.97 kmph during 2020-21 (+3.23 %) (up to 31.12. 2021). National Rail Plan aims to increase share of freight traffic from current 27% to 45% by 2030.

The Board of Directors are proud to announce that the company has successfully developed and supplied railway wheels to the Indian Railways and that the company is the first Indian MSME company to have produced Indigenous Forged Railway Wheels. The company till date has supplied 2500 Railway Wheels thereby making it eligible to participate in Global tenders. The company has started Research and Development in the Railway Wheel Set Assembly and will disseminate details through a press release post approval from the Third party agencies.

However during operational period HMFL has taken measures to:

Tooling--Increase die life by at least 1.5 times that of current levels. Reduce per-part die system costs by at least 50%. Produce tooling within 24 hours from time of order.

Energy--Reduce the total forging process energy input by 20% while cutting the per-piece energy cost by considerable amount.

Material utilization--Achieve a minimum overall reduction in raw material consumption of 10 to15%. Reduce the scrap rate (increase material utilization).

Productivity--Improve per-employee productivity by 20%. Reduce per-piece labor costs by 30%. Achieve average forging facility up-times at maximum.

Quality--Reduce rejected or returned work to less than 25 parts per million. Achieve ?8 sigma process control.

Environment--Generate no harmful gas combustion products; completely eliminate aerosol emissions within forging plants; and recycle all fluids necessary to forging operations.

Segment-wise or Product wise Performance

Based on the guiding principles given in Ind AS 108 on Operating Segments, the Companys business activity falls within a single operating segment, namely Manufacturing of Steel Forgings, Flanges and Forged Fittings for oil & gas industry, Petrochemicals, Railways, Automobiles and refineries industry.

Opportunities and Challenges

• There are 42 Indian Railway workshops in the country. Each Railway workshop does POH (Periodic Overhauling) of around 2,400 wagons/coaches annually. FY24 Indian Railways Released a POH schedule of 90.000 coaches/ wagons. Indian Railways releases schedule for POH at the beginning of each Financial year.

• Each coach/wagon has to mandatorily undergo POH once every 4.5 years. This generates demand for around 1,60,000 wagon wheels every year in the replacement market.

• HMFL has a big opportunity in Wagon Wheelsets supply as Railway wheel factory, Bangalore supplies

90.000 Wagon Wheelsets while demand is around 1,76,000 Wagon Wheelsets in FY25.

• HMFL has Manufactured and Supplied 5 types of Forged Wagon Wheels. Initial set of Forged Wagon Wheels successfully passed the fracture and technical compatibility test conducted by RITES and on-field trial of 36 months post Wagon Wheel fitting by Indian Railways.

• Replacement market is dependent mainly on Imports. Hilton Metal Forging Ltd. has clear edge in replacement market.

Risks and Concerns:

• Modest Scale of Operations

The company has registered growth of 31.92% in its total income in FY24 over FY23 wherein the total income stood at Rs. 138.42 crore vis-a-vis Rs. 104.93 crore in FY23, which thereby reflects the companys growing scale of operations. The improvement in ROI in FY24 can be attributed to better demand within India. However, despite the improvement the scale of operations remained modest.

• Working Capital-Intensive Nature of Operation

The operating cycle remained stretched; however, improved from 267 days in FY23 to 239 days in FY24 mainly on account of improvement in inventory holding period. Inventory period has improved from 242 days in FY23 to 213 days in FY24. HMFLs inventory cycle remained elongated as flanges manufacturing is very long process driven activity along with various approvals to be granted for the dispatch of export orders. HMFL caters to different industries and manufactures products of various size/grades. Thus, the company has to maintain different sizes/grades of material to meet the manufacturing requirement towards respective products resulting in high inventory. The collection period also increased to 88 days in FY24 vis a-vis 71 days in FY23 owing to liberal credit policy of the company. HMFL also procures raw material on cash basis. Owing to all of the above, the average utilization of the working capital limits stood at 96%. Going forward, improvement in the operating cycle is expected owing to higher execution in domestic business and the same remains critical from credit perspective.

Internal Control Systems and their Adequacy:

The Company has in place internal financial control systems, commensurate with the size and complexity of its operations to ensure proper recording of financial and operational information and compliance the various internal controls and other regulatory and statutory compliances. The internal auditor monitors and evaluates the efficacy and adequacy of internal control systems in the Company. Based on the report of the internal auditor, respective departments undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board for their perusal.

Financial Performance with respect to operational performance

		(Rs. In Lakhs)
Particulars	Year Ended March 2024	Year Ended March 2023
Total revenue	13988.80	10,539.30
Less: Operating Expenses & Provision	12334.31	9,063.64
Profit before Interest, Depreciation & Taxes	1654.50	1,475.66
Less: Depreciation	219.60	236.36
Less: Interest & finance Charges	648.37	535.85
Less: Exceptional Items	-	-
Profit before Tax	786.52	703.45
Less: Provision for Taxation	117.94	117.47
Profit After Tax	668.58	585.97
Other Comprehensive Income	0	0
Total Comprehensive Income for the Year	0	0
Balance Brought forward	-85.25	-671.22
Balance Available for Appropriation	583.33	-85.25
Surplus retained in Profit & Loss account	583.33	-85.25

During the year under review, the total revenue of the company was Rs 13988.80 lakhs as compared to Rs10539.30 lakhs during the previous year and the PAT is Rs. 668.58 lakhs as compared to last years profit of Rs. 585.97 lakhs.

Significant Changes in Key Financial Ratios:

Ratios	For FY 23-24	For FY 22-23
Debtors Turnover	4.29	2.99
Inventory Turnover	1.93	2.05
Interest Coverage Ratio	2.21	2.31
Current Ratio	1.90	1.88
Debt Equity Ratio	0.53	0.58
Operating Profit Margin (%)	11.98	14.08
Net Profit Margin (%)	4.84	5.59
Net Worth (%)	99.52	89.12

Explanations for variation of 25% or more in Key Financial Ratios:

Debtors Turnover: The Debtors turnover ratio is increased to 4.29 from 2.99 in previous year. This is because of the efficient recovery of sales proceeds.

Human Resource Management and Industrial Relations:

The Company believes that human resources are the most important assets of the organization. During the year under review, your company continued its efforts to improve HR related processes, practices and system to align these to the organizational objectives. Over the years, Company has maintained consistency in its efforts in training and developing its human recourses with a view to face competition.

There was satisfactory co-operation between the management and the workers in working towards the overall objectives of the company.

Women Centric Initiatives:

The Company is committed to provide healthy environment to all employees of HFML and does not tolerate any discrimination and/or harassment in any form. The Company has in place a stringent policy to address issues pertaining to female employees and to provide a safe environment for them.

Cautionary Statements:

Statements made in the Management Discussion & Analysis describing the Companys objectives, projections, estimates, expectations may be "Forward-looking statements" within the meaning of applicable securities, laws & regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand supply and price conditions in the domestic & overseas markets in which the Company operates, changes in the government regulations, tax laws & other statutes & other incidental factors.

	For and on behalf of the Board of Directors
Place: Mumbai
Date: 30th May, 2024
	Yuvraj Malhotra
	Chairman & Managing Director
	DIN:00225156