Hindware Home Innovation Ltd Management Discussions

Economic

Environment

global

The global economy in 2023 demonstrated resilience, with better-than-expected growth and improved supply chain conditions. Despite geopolitical tensions, global growth remained steady, following a moderated growth rate of 2.3% in 2022, global growth is estimated to reach 3.2% in 2023.

Decisive monetary policy actions and enhanced frameworks, particularly in emerging markets and developing economies, have helped anchor inflation expectations. Global inflation is expected to steadily decrease from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Advanced economies are anticipated to reach their inflation targets sooner than emerging markets and developing economies. Core inflation is generally projected to decline at a slower pace.

Indian

The Indian economy remained resilient amidst global challenges. Strong consumer demand, a vibrant manufacturing sector, and continued government investment in infrastructure helped India to become the fifth-largest economy in the world. It is expected to grow at 7.6% in FY 2023-24, from 7.0% reported in FY 2022-23. The average monthly GST collection for the financial year reached C1.68 lakh crore, surpassing the previous years average of C1.5 lakh crore.

Indias manufacturing sector and investments in infrastructure are driving the countrys continued robust economic growth, with the real estate, renewable energy, and automobile sectors expanding rapidly.

The Indian economy experienced significant growth in Q3 FY 2023-24, achieving an 8.4% increase. This growth was driven by strong performances in the manufacturing, electricity, and construction sectors. Consequently, the National Statistical Office revised its GDP growth estimate for FY 2023-24 from 7.3% to 7.6%.

Outlook

Global growth in 2024 is expected to remain stable, maintaining the same pace as in 2023, although it will be lower than the annual average of 3.8% reported between 2000 and 2019.

This growth is anticipated to be supported by a stronger performance in advanced economies, particularly with the recovery of the Euro area from the low growth of 2023. Emerging Markets and Developing Economies (EMDEs) are expected to experience stable growth through 2024 and 2025, with regional differences.

Outlook

According to the latest reports from NCAER, the Indian economy is expected to register growth exceeding 7%, driven by robust high-frequency indicators, continued investments by the Indian Government in the infrastructure sector, strong domestic demand, and a pick-up in exports. Given this buoyant outlook, the IMF predicts that India will become the fourth-largest global economy, surpassing Japan, by 2025.

Building Products

industry review

In FY 2023-24, growth in the sanitaryware, faucet, and tiles segments was slower due to the focus on completing delayed real estate projects and subdued customer sentiment. However, we expect demand to increase across these sectors as new projects begin and ongoing ones near completion. Initiatives like Swachh Bharat Abhiyan and Bharat Tap, along with changing consumer preferences for visually appealing, water- saving, and sustainable products, will drive growth. Additionally, factors such as urbanisation, a growing middle class, and increased e-commerce accessibility will further support market expansion. Our integrated approach to the Bathware business positions us well to leverage these trends and achieve sustained growth.

Plastic Pipes and Fittings

Over the last 12-15 months, the market volume has continued to grow, but sales numbers have been muted due to a drop in raw material prices. The Indian Governments investment in infrastructure, coupled with favourable policies and initiatives, is reshaping the construction sector. Government initiatives such as the Smart Cities Mission, Atmanirbhar Bharat Abhiyan (Self- Reliant India Campaign), and Pradhan Mantri Awas Yojana (Prime Ministers Housing Scheme) are driving demand for plastic pipes. Additionally, rapid urbanisation in India will further fuel market expansion.

business review

Our Building Products business offers a wide range of products, including sanitaryware, faucets, premium tiles, and plastic pipes and fittings, serving diverse needs in Indias construction and infrastructure sector.

Under our Bathware business, we focus on continuously launching new products tailored to customer preferences, providing a comprehensive range that caters to all consumers. We have invested significantly in establishing a robust presence nationwide, with 660+ brand stores, 35,000+ retail outlets, and 500+ distributors.

Furthermore, we have expanded our offerings to include a diverse range of premium tiles to meet the growing demand for top-tier tiling solutions in residential, commercial, and retail settings. With support from distributors and retailers nationwide, we are well- positioned to drive innovation in this category.

To enhance our market share in the plastic pipes and fittings sector, we are intensifying efforts to diversify our product portfolio and provide comprehensive plumbing solutions. This includes introducing foam core pipes and inspection chambers, initiating plans for producing PTMT Faucets and Accessories. This expansion is in line with our strategy of offering cutting-edge products to

meet evolving market demands. With a commitment to ongoing product innovation and development, we currently offer 2,000+ SKUs, with numerous additions in the pipeline. We have a network of 300+ active distributors and 30,000+ dealers, ensuring widespread accessibility of our products.

To read more about the performance of the Bathware business, please refer fg] 12

Outlook Bathware

Our strategy centres on enhancing customer experiences through standardised brand stores, creating a welcoming atmosphere complemented by curated buying experiences delivered by highly skilled bath consultants with in-depth product knowledge.

To ensure sustained growth, we will rigorously analyse our distribution channels to identify untapped market opportunities. We will also expand our product range to meet evolving customer preferences and focus on strengthening our premium offerings.

To build brand awareness and drive sales, we will intensify our marketing efforts, leveraging influencer partnerships with architects, interior designers, and plumbers. Additionally, we will continue to explore growth opportunities within the institutional market segment through a strategic approach.

Pipes

We will adopt a multi-pronged strategy to drive growth and expand our market footprint. This includes scaling up our distribution to new regions, enhancing our product portfolio with higher value- added segments, and leveraging influencer marketing to build brand awareness. Additionally, expanding our Roorkee plant will create new opportunities and strengthen our overall market position.

Consumer Appliances Business

industry review

In FY 2023-24, the demand for consumer appliances in India witnessed a slowdown, reflecting the challenging and dynamic conditions prevailing in the industry.

Factors such as weak consumer sentiment due to the inflationary environment and an increased cost-of-living, were primary contributors to this subdued demand. Additionally, supply chain disruptions and shifts in consumer spending habits amidst economic uncertainty further dampened the demand for consumer appliances.

In the coming years, rising disposable incomes, urbanisation, technological advancements, government initiatives, e-commerce growth, changing consumer preferences, smart home technology, and infrastructure development are expected to contribute to the growth of the consumer appliances market in India.

business review

As a prominent player in Indias consumer appliances market, Hindware Smart Appliances offers a diverse range of products tailored to meet the evolving needs of consumers, ranging from chimneys, cooktops, dishwashers, sinks, built-in microwaves, ovens, hobs, air coolers, fans, water heaters and kitchen and furniture fittings.

As part of our strategy, we continuously strengthen our product portfolio by introducing newer product categories to cater to evolving consumer needs.

We are committed to enhancing accessibility for our customers through a multi-faceted approach.

Firstly, we have established kitchen galleries across the country, including Tier 2 and Tier 3 markets, serving as direct touchpoints for customers to experience our products first-hand and make buying decisions. Secondly, our strong partnerships with leading e-commerce platforms are helping us expand our online market share and reach a broader audience of customers who prefer online shopping.

Moreover, we are at the forefront of innovation, integrating smart technology into our appliances.

This includes IoT connectivity, app control, and AI-powered features, providing consumers with enhanced convenience and efficiency in their daily lives.

Further, we understand the importance of after- sales service in ensuring customer satisfaction; therefore, we are strengthening our network to provide prompt assistance.

In alignment with our countrys commitment to Make in India, we are reducing our reliance on imports by forging partnerships with renowned contract manufacturers in India. This strategic approach not only ensures better control over quality and reduced lead times but also supports local manufacturing, contributing to the growth of the Indian economy.

To read more about the performance of the Consumer Appliances business, please refer ff] 32

Risk Management

At Hindware Home Innovation Limited, we recognise the importance of effective risk management in ensuring the long-term success and sustainability of our organisation. In the dynamic realm of business, navigating uncertainties requires a robust framework for systematically assessing both internal and external risks. At Hindware Home Innovation Limited, we take proactive steps to mitigate and manage these risks, ensuring the durability and perpetuality of our enterprise.

It is imperative that risk management is not just a compliance requirement but a strategic necessity.

It is an ongoing process that involves identifying, assessing, and mitigating risks that could impact our business operations, financial performance, and reputation. By proactively managing risks, we can seize opportunities for growth and innovation while minimising potential negative impacts.

The Hindware Home Innovation Limited Board takes an onus on risk management and plays a crucial role in spotting the likely sources of potential risks and guiding our risk management efforts. They provide strategic direction and ensure that risk management practices are integrated into our overall corporate governance framework.

overview

The Company employs a comprehensive risk management framework to assess and analyse strategic, operational, financial, and compliance risks. We also track the efficacy and efficiency of risk reduction and management strategies.

To systematically handle important risks identified by our businesses and operations, we implement essential mitigation actions continuously. Our Audit Committee, which is supervised by the Board, is responsible for keeping an eye on the effectiveness of our risk management process and for identifying any upcoming risks.

key dimensions

• Hindware Home Innovation Limited implements a rigorous process that dynamically incorporates identified hazards, measuring and reporting them against predetermined criteria based on likelihood and potential impact on the Company.

• To develop our risk profile, we analyse various scenarios in the internal as well as external environment. This strategic approach informs the development of our overarching strategy, fundamental operations, and various engagement tactics, ensuring that we remain agile and proactive in addressing emerging risks.

• The Audit Committee reviews the strategies developed in the intellectual exercise before final approval by the Board.

• Annually, the Directors evaluate the Companys long-term financial stability and operational viability, examining primary risks, including market conditions, regulatory compliance, technical improvements, and financial performance. This assessment is crucial for identifying and managing risks and challenges to the Companys long-term viability, ensuring its performance and survival.

cautionary statement

The Management Discussion and Analysis may contain forward-looking statements that describe our Companys objectives and predictions in accordance with applicable laws and regulations. However, actual results may significantly differ from the forward-looking statements included in this document due to various risks and uncertainties. These risks and uncertainties may include the impact of economic and political conditions in India, fluctuations in interest rates, and new regulations and government policies that may affect our Companys business and its ability to implement future strategies. Our Company does not assume responsibility for updating these statements.

key risks and their mitigation process

We at Hindware Home Innovation Limited have classified our risks into three categories namely, external, operational and financial. The mitigation strategy is as follows:

External Risks
Nature	Key Risks and their Definition	Mitigation Strategy
Economic, Political and Market Risk	The business may be negatively affected by a decrease in macroeconomic activity, disturbances in the global market, and geopolitical tensions. Additionally, an increase in inflation and interest rates could also have an impact on consumer demand.	The strategic diversification of our business portfolio across multiple segments serves as a pivotal measure to mitigate dependency on any one sector. This approach yields several key advantages, including bolstering our resilience in the face of market fluctuations, optimising cost structures, enhancing operational efficiency, broadening our customer base, and facilitating access to new avenues of growth and opportunity. The Board consistently provides direction and annually reviews the process of identifying potential risks and the measures taken to mitigate them.
Competition Risk	Growing competition could impact pricing power and erode profitability.	We are aware of the most recent industry developments and continually execute strategies to strengthen our competitiveness. Our consistent commitment to research and innovation allows us to stay ahead of our competitors while also meeting our clients enhancing demands. Furthermore, our omnichannel distribution strategy enables us to serve a large consumer base across the country.
Consumer Risk	Consumer preferences are always in flux. Failure to adapt to changing consumer preferences may result in a decreased uptake of products or services.	To ensure our offerings stay relevant and up to date, we rely on a cohesive consumer feedback system. This allows us to understand their unique needs and customise our product accordingly.
Operation Risk
Nature	Key Risks and their Definition	Mitigation Strategy
Product Quality Risk	The inability to uphold the quality of a product can have negative consequences on sales, putting the sellers reputation at risk.	Our position among the top five brands in several categories proves our commitment to maintaining high quality standards. We strictly follow specified quality standards.
Technology Risk	Our competitiveness may be reduced by using obsolete technology.	We prioritise worldwide technical breakthroughs and invest in cutting-edge technology to deliver superior quality products. We can preserve our competitive edge by forming partnerships and alliances with global technological pioneers.
Employee Risk	Failure to both attract and retain employees has the potential to negatively impact our strategic goals for growth.	Our Company cultivates an environment that champions and supports equality, enabling our employees to flourish. We nurture a culture of ongoing learning to facilitate the professional growth of our team as they progress in their careers.
Distribution Risk	The evolving buying habits of customers have the potential to endanger our distribution network, which could ultimately impact our profitability.	Our Company has expanded its reach through traditional and digital channels in an all-encompassing strategy to distribution. We have made investments in online presence and embraced digital technology to make sure that our customers can easily access our products and services across a variety of e-commerce platforms. We have worked to improve and fortify these strategies while also acknowledging the ongoing significance of our conventional distribution channels. Because of this, we have been able to develop an efficient omnichannel distribution system that offers our clients a flexible and convenient way to make purchases.
Operating Efficiency	Failure to effectively utilise our logistics network, stores, and support units has the potential to negatively impact our profitability.	We frequently analyse and evaluate the operations of our logistics network, putting policies in place to improve, automate, and examine our procedures. We now have a more effective and efficient market presence as a result of our adoption of the franchise store model.
Cyber Security	The possibility of cyber attacks poses a threat to the continuity of our operations.	Significant investments have been done in the creating of a resilient IT infrastructure with the goal of mitigating any potential cyber security risks and ensuring the integrity of our organisations data.
Business Continuity Risk	Unforeseen events such as pandemics or major incidents have the potential to impact our day-to-day operations and cause a ripple effect on our organisations performance.	Following a thorough study of the market landscape, our management implemented a number of actions to limit the pandemics impact. We are constantly monitoring infection rates and tailoring our response plan to the ever-changing environment.
Brand Legacy	As our customers interact with our brand through various mediums such as electronic, print, and social media, any misleading perceptions of our Company has the potential to impact on sales.	Our Company places emphasis value on maintaining a strong brand equity we have created over the years. To reach a wider audience and successfully communicate our brand message, we use both traditional and digital communication methods.

Financial Risks

Credit Profile	The inability to obtain short-term and long-term working capital at a favourable interest rate has the potential to hinder our capacity to fulfil our liquidity needs, which could negatively impact our operations.	Our Company places a major emphasis on optimising working capital requirements by optimising our inventories & receivables cycles, and payables cycle. Furthermore, we are constantly pursuing initiatives to ensure that our Company has access to competitively priced short-term and long-term debt, as well as the ability to elongate the maturity of new indebtedness.
Credit Rating Risk	A reduction in our credit ratings has the potential to impede our ability to secure additional financing and could negatively impact the interest rates and other commercial terms associated with financial institution.	We have a consistent track record of fulfilling our debt obligations and have positive relationship with our banking and financial institutions. Regular communication with lenders and rating agencies helps instil trust in our financial performance.
Currency Risk	Profitability may be negatively affected by fluctuations in foreign currency exchange rates.	We defend our position by executing proper hedging techniques as needed. Our participation in forward and option contracts helps to mitigate foreign exchange risk.
Legal Risk	Failure to comply with regulations may result in penalties and damage our reputation.	We focus on maintaining a strong governance system to ensure compliance with laws, regulations, and current rules. Our constant communication and reporting to regulatory organisations encourage transparency.

Internal Control

Our Company is committed to maintaining an efficient internal control environment that ensures operations are conducted securely and orderly, assets are protected, fraud and errors are prevented and detected, accounting records are completed on time and accurately, and reliable financial information is prepared. Our internal control systems are intended to be consistent with the Principles of Governance. The Audit Committee of the Board of Directors, which includes Independent Directors, is in charge of evaluating the performance of our Companys internal control systems. This includes evaluating the annual plan, important audit findings, the effectiveness of internal controls, and adherence to accounting standards and regulations.

Internal Financial Control

Our internal control architecture is in line with industry best practices for companies of similar size, nature, and complexity. We periodically examine and test this framework to discover opportunities for improvement.