IKIO Lighting Ltd Management Discussions

ECONOMY OVERVIEW Indian Economy

In a context of global stability, Indias economy achieved a remarkable 7.6% growth rate in FY 2024, surpassing the performance of both developed and emerging markets. Several high-frequency indicators highlight this resilience. For example, GST collections reached H1.8 Lakh Crore by March 31, 2024, reflecting a significant 11.5% increase from the previous year. Investments in physical and digital infrastructure have positioned India to achieve sustainable growth without triggering inflation. Furthermore, Indias GDP growth has become more robust, showing increased macroeconomic stability and a reduced sensitivity to shocks that previously had a more substantial impact.

Outlook

According to projections from the Reserve Bank of India, the nation is on track to achieve a GDP growth rate exceeding 7% in 2024, driven by robust domestic factors. Key contributors to this growth include strong domestic consumption, a transition to renewable energy, improved trade policies, substantial infrastructure investments, and ongoing digitalisation efforts. With strategic reforms in progress, India is set for sustained economic progress. Additionally, the population growth rate has decelerated from 2.1% in the 1990s to nearly 1% today, resulting in higher per capita income from GDP growth. The National Council of Applied Economic Research (NCAER) indicates that India is unlikely to encounter significant unexpected economic challenges at this juncture.

ABOUT US

We are a premier Indian Original Design Manufacturer (ODM) excelling in the creation, development, and production of products, with a focus on LED lighting, marketed under various customer brands. IKIOs journey from being a product manufacturer to one of Indias leading manufacturers of high-end lighting solution and lighting and electronics, has been nothing short of exemplary. Our in-house research and development team creates continuous innovation and advancement through comprehensive process and product enhancements.

Our Products

? High-end home decorative LED lights

? Indoor and Outdoor lights

? LED lights for RVs

Interior LED lights for product display including Commercial Refrigeration (CR)

? Solar Panels for RVs

? ABS Pipes for RVs

? IPS Stabilisers for CR

? Rotary Switches

? Fan Regulators & Assembly

? Lithium Battery

? USB Chargers

INDUSTRY OVERVIEW

Electronic Manufacturing Services (EMS)

Electronics Manufacturing Services (EMS) encompass companies that offer design, manufacturing, testing, distribution, and repair services for electronic components and assemblies for original equipment manufacturers (OEMs). The increasing demand for EMS is driven by the growing use of electronic products across diverse industries such as healthcare, automotive, and industrial sectors. The rise of new technologies like virtual reality, the Internet of Things (IoT), and 3D printing is encouraging organisations to expand their production capacities.

To achieve this, companies are partnering with a diverse range of market participants, including OEMs, original design manufacturers (ODMs), and others. Key regions leading the EMS market include North America (United States, Canada, and Mexico), Europe, Asia Pacific (India, China, and Japan), the Middle East and Africa, and South America.

Overview of the Global EMS Industry

The global EMS industry was valued at $548 .18 billion in 2023 and this market is projected to grow from USD 580.52 billion in 2024 to USD 730.14 billion by 2028, reflecting a CAGR of 5.90% over the forecast period.

1548.18

EMS global market value in 2023

The EMS market primarily focuses on optimising various economic aspects, including manufacturing, raw material procurement, and resource consolidation. It also leverages industrial design expertise and provides value-added services like warranty and repairs. Additionally, EMS companies have started offering design services, assisting with conceptual product development and providing mechanical, electrical, and software design support. Available globally, EMS offers a multitude of advantages to businesses.

Amidst fierce competition, the evident trend of global recovery maintains investor confidence in this sector. As a result, the field is anticipated to attract continued and increased investment in the coming years.

A wide range of industries are engaging EMS specialists to address their diverse manufacturing needs.

Trends of the EMS Industry

The increasing demand for electronics is driving significant advancements within the industry. The surge in demand for electronics manufacturing is challenged by unpredictable supply chains. To address these issues, the adoption of advanced digital tools and innovative strategies is crucial. Here are the key trends shaping the future of the industry:

The rise of smart devices

In 2023, the rise of ‘smart devices has made them indispensable.

The increase in use of AR and VR

Virtual Reality (VR) and Augmented Reality (AR) have emerged as transformative technologies in the electronics manufacturing services industry.

The push for eco-friendly electronics

Companies are under immense pressure to prioritise eco-friendliness in electronics manufacturing as global awareness of environmental issues grows, and consumers increasingly demand sustainable practices from manufacturers.

Staying a step ahead with predictive maintenance

In electronic manufacturing services, equipment breakdowns are inevitable challenges. Predictive maintenance leverages data from conditionmonitoring sensors to determine optimal servicing times, aiding businesses in minimising disruptions and maximising operational efficiency.

The big data revolution in electronics manufacturing

Big data is no longer exclusive to enterprise companies; even middle and small businesses can now leverage it. Previously considered expensive, advancements like loT have made big data accessible to SMEs, enabling them to harness its benefits for their operations.

The revolution of robotics in EMS industry

Electronics manufacturing is now at the forefront of industrial robot adoption, surpassing the automotive sector. Robots play a crucial role in enhancing efficiency, enabling manufacturers to produce microdevices and localise production.

Embedded systems at the heart of modern EMS

The design and manufacturing sectors are evolving rapidly, aiming to enhance performance, bolster security, and ensure seamless connectivity.

Evolution of miniaturised electronics

Miniaturisation has unlocked opportunities for electronics to revolutionise sectors such as healthcare and automotive. It is not merely about size reduction; it is about packing more features into every minuscule chip.

CHALLENGES

While the electronics manufacturing services market holds promising future prospects, it also faces its fair share of challenges.

Decreased operating margins

Rising global competition and the adoption of advanced technologies have led to a decrease in the cost of electronic goods. However, ongoing pressure from OEMs to reduce costs has impacted the profit margins of EMS suppliers in certain industry sectors. To remain successful, manufacturers must prioritise increasing production efficiency.

Globally complex supply chain

EMS firms face the challenge of balancing internal and external resources while meeting international standards. The operational load is compounded by traceability and compliance issues, as components and subassemblies often traverse multiple countries before reaching end users.

Management of Supplier Quality

Leveraging global supply chain management is a prevailing trend in the electronics industry. Hence, identifying the right suppliers is crucial for success.

Product with quicker lifecycles

Short product life cycles stem from rapidly changing consumer preferences in the electronics industry. To boost sales and seize market share, electronics producers must demonstrate adaptability and responsiveness to market trends.

Market ambiguity

Manufacturers face considerable challenges due to the overall unpredictability of the market, compounded by the cyclical nature of consumer demand and the volatility of the economy.

Adoption of new laws and standards

Manufacturers must ensure compliance with new laws and regulations, necessitating modifications to their products accordingly.

INDIAN EMS INDUSTRY

India is rapidly establishing itself as a manufacturing and exporting powerhouse, driven by favourable government policies such as Production Linked Incentive (PLI) and Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), cost competitiveness, robust infrastructure, and a skilled labour force. The "China+1" strategy is also accelerating Indias manufacturing landscape. In the global EMS industry, Indias share is expected to rise from approximately 2% in FY 21 to around 7% by FY 27.

India has emerged as one of the largest consumers of electronic products, particularly in the Asia-Pacific region. Over the past decade, demand has surged due to a growing middle-class population, increasing disposable incomes, and declining electronics prices in the country.

Electronics Manufacturing Services (EMS) market: Indian Scenario

The Government of India has implemented numerous initiatives to create the comprehensive development of the Electronics System Design and Manufacturing (ESDM) sector within the country. These efforts include the development of core components such as chipsets and the establishment of an enabling environment to facilitate global competitiveness in the EMS industry.

In India, the electronics sector is poised to play a pivotal role in the governments objective of generating USD 1 trillion in economic value from the countrys digital economy by 2025.

OVERVIEW OF INDIAN ELECTRONICS INDUSTRY

Indias electronics manufacturing sector is poised for a 15% growth, reaching a value of USD 115 billion by 2024. Industry focus is shifting towards higher value addition in components and product development. Mobile phone production, a key segment, is expected to surpass USD 50 billion by March 2024, up from around USD 42 billion in the previous fiscal year.

Mobile manufacturer and internet users in the world

Indias electronics industry is poised for substantial growth in the coming years, fuelled by several pivotal factors. These include:

? Low Penetration Levels: Despite significant advancements, the penetration of electronics remains relatively low in India, leaving ample room for growth and expansion.

? Rising Disposable Incomes: With the steady rise in disposable incomes across the country, consumer spending on electronics is expected to increase, further driving market growth.

? Improving Power Availability: Improvements in power infrastructure and availability are crucial for the sustained growth of the electronics industry, enabling seamless operations and expansion.

? Increased Localisation: A shift towards localisation in manufacturing processes and supply chains is bolstering the domestic electronics industry, reducing dependency on imports and enhancing self-sufficiency.

? Government Policy Initiatives: Government initiatives such as M-SIPS (Modified Special Incentive Package Scheme), PLI (Production Linked Incentive), PMP (Phased Manufacturing Programme), and SPECS (Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors) are providing significant impetus to the electronics sector, fostering growth, innovation, and competitiveness.

The contribution of domestic electronics production to Indias GDP is projected to witness a substantial increase, reaching 5.3% by FY 27 from 2.8% in FY 21. This upward trajectory underscores the sectors growing significance to the overall economy, positioning it as a key driver of Indias economic development and industrial progress.

GROWTH DRIVERS

Huge EMS potential in India

? Indias EMS industry is relatively youthful, boasting nearly three decades of experience.

? The Indian markets potential is fuelled by anticipated geographical diversification by global OEMs, reducing dependence on other nations.

? The Indian EMS market encompasses a range of company tiers, including global EMS firms with Indian operations and large, mid-sized, and small Indian EMS companies.

Production Linked Incentive Scheme 2.0

? Prime Minister Shri Narendra Modi has approved the introduction of the Production-Linked I ncentive (PLI) Scheme 2.0 for IT hardware to boost manufacturing capabilities and enhance exports.

? The PLI scheme for IT hardware provides incentives for the production of laptops, tablets, all-in-one PCs, servers, and ultra-small form factor devices in India.

Import discouragement and export promotion for EMS manufacturers

? In 2020, the Union Ministry of Defence formulated the Defence Production & Export Promotion Policy 2020 as a crucial guidance document to accelerate the governments commitment to Atmanirbhar Bharat.

? This policy is expected to significantly boost exports in the coming years.

? Recently, the Government of India (GoI) imposed a ban on the import of laptops, tablets, all-in-one personal computers, ultra-small computers, and servers to promote domestic manufacturing of these products.

Modified Electronic Clusters (EMC 2.0)

Scheme

? In 2020, the Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme was launched to attract major global electronics manufacturers and their supply chains to establish units in the country.

? The EMC 2.0 Scheme offers financial assistance for setting up both EMC projects and Common Facility Centres (CFCs) across the country.

Indian Electronic System Design and

Manufacturing (ESDM) sector

? Indian manufacturers are attracting the attention of multinational corporations due to shifting global landscapes in electronics design, manufacturing capabilities, and cost structures.

? The Electronics System Design & Manufacturing (ESDM) industry encompasses electronic hardware products and components related to information technology (IT), office automation, telecom, consumer electronics, aviation, aerospace, defence, solar photovoltaics, nano electronics, and medical electronics.

? The ESDM sector is crucial to the Indian governments goal of generating US$1 trillion in economic value from the digital economy by 2025.

THE LED MARKET OVERVIEW (INDIA & OVERSEAS)

The India LED Lighting Market is estimated to be valued at USD 4.70 billion in 2024, with projections indicating a growth to USD 6.77 billion by 2030. This growth trajectory reflects a CAGR of 6.29% during the forecast period from 2024 to 2030. This growth is driven by various factors, such as reduced manufacturing costs of LED lights, the gradual elimination of traditional lighting options like halogen, incandescent, fluorescent, and HID lamps, and the increased demand for LED lighting in hazardous environments. Our report delves into historical data from 2018 to 2022, while also providing a comprehensive analysis of the current and projected market trends.

Largest segment by automotive utility lighting in 2023 (value share headlights)

Largest segment by indoor lighting in 2023 (value share industrial and warehouse)

Largest segment by outdoor lighting in 2023 (value share streets and roadways)

Growth driver - Reduction in manufacturing costs of LED lights

The production cost of LED lights has seen a consistent decrease over the past decade, and this trend is expected to continue. India is on track to become the largest market for LED lighting systems, primarily due to the governments UJALA initiative, which aims to replace inefficient bulbs with energy- efficient lamps. As a result of this initiative, there has been a substantial reduction in both manufacturing costs and the overall cost of LED lights.

Indian LED market trends

Government schemes in India aimed at providing affordable residential housing are contributing to the increased adoption of LED lighting across the country.

? The growth of the housing sector is being propelled by factors such as the rise in nuclear families, urbanisation, and increasing per capita income.

? Domestic automotive brands are promoting economical passenger and commercial vehicles.

? Incentives like 100% loan approvals and tax incentives on interest payments are driving sales of electric vehicles (EVs), thus supporting the growth of LED lighting.

? The affordability of cars and the dominance of the two-wheeler segment are boosting the LED lighting market.

? Increasing Foreign Direct Investment (FDI) and emphasis on efficient lighting are encouraging the adoption of LEDs.

? Government initiatives such as UJALA are increasing LED penetration nationwide.

? Schemes like the Mission for Integrated Development of Horticulture (MIDH) promote greenhouse farming, further driving demand for LED lighting solutions.

The global LED market scenario

In 2023, the LED lighting market reached a value of US$ 65.28 Billion, with a projected Compound Annual Growth Rate (CAGR) of 10.12% during the forecast period from 2023 to 2030.

LED lighting is extensively utilised across residential and commercial sectors, outdoor environments, automotive lighting, and decorative installations. Available in various forms including traditional bulbs, tube lights, spotlights, and floodlights, LEDs offer versatility in applications.

This technology is poised to lead the global energy efficiency and rapid development market due to its exceptional attributes. LEDs consume 75% less power and boast a lifespan 25 times longer than incandescent bulbs, rendering them highly efficient and cost-effective.

The trend of replacing older lighting systems with LED alternatives is gaining momentum, especially in the outdoor lighting segment. LED technology surpasses conventional options like compact fluorescent lamps (CFLs) and cold cathode fluorescent lamps (CCFLs) owing to its advanced features.

Apart from being cost-effective, LEDs find applications in backlighting for large-screen and non-backlight displays (OLEDs). Although initial costs may be higher, the longer lifespan of LED lighting significantly reduces overall expenses compared to CFLs.

Growing consumer awareness regarding the extended lifespan of LED lamps drives adoption, particularly in products like LED lamps and ceiling lights. The global LED market is propelled by factors such as growth in display backlighting, declining LED lamp costs, extended lifespan, and high efficacy.

FINANCIAL PERFORMANCE

The Company continued its focus on its operations and cost optimization through backward integration. The details of the financial performance of the company appear in the Balance Sheet, Profit & Loss Account, and other financial statements forming part of this Annual report. For financial highlights please refer to the heading ‘Financial summary of the Directors Report.

KEY FINANCIAL RATIOS (STANDALONE AND CONSOLIDATED)

Standalone

Ratios	Unit	FY 2024	FY 2023
Revenue from Ops	(INR Mn)	2,409.76	2,413.59
EBIDA (1)	(INR Mn)	287.01	389.4
EBITDA Margin (2)	(%)	11.91%	16.13%
Profit After Tax (3)	(INR Mn)	286.76	246.42
Debt to Equity (4)	(Times)	0.00	0.24
RoCE (5)	(%)	9.17%	30.76%
RoE (6)	(%)	5.98%	24.36%
Net Debt to EBITDA (7)	(Times)	0.02	0.6
Consolidated
Ratios	Unit	FY 2024	FY 2023
Revenue from Ops	(INR Mn)	4379.53	3,587.65
EBIDA (1)	(INR Mn)	927.21	774.81
EBITDA Margin (2)	(%)	21.17%	21.60%
Profit After Tax (3)	(INR Mn)	605.71	500.38
Debt to Equity (4)	(Times)	0.06	0.86
RoCE (5)	(%)	15.43%	28.32%
RoE (6)	(%)	10.96%	35.20%
Net Debt to EBITDA (7)	(Times)	0.29	1.55

HUMAN RESOURCE AND INDUSTRIAL RELATIONS

The company believes that employees are pivotal to our success, possessing vast knowledge and innovative capabilities. We aim to create an environment where every employee can contribute to the companys performance, excel in their roles, and grow professionally. Our focus is on recruiting skilled talent, enhancing competencies through training and development, and recognising and rewarding leadership and performance.

Employees are encouraged to strive for excellence and maintain a customer-focused approach, with a goal of achieving high performance and accuracy consistently. The company offers challenging and fulfilling opportunities to maximise employee potential, ensuring they grow alongside the company.

Health, safety, and environmental concerns remain our top priorities. We conduct periodic audits, both internally and with external agencies, to identify gaps and implement continuous improvements, ensuring a safe workplace for all employees.

INTERNAL CONTROL SYSTEM AND ADEQUACY

The company has robust internal controls to ensure transactions are authorised, recorded, and reported accurately, and to safeguard assets. These controls are supported by comprehensive policies and procedures and are regularly reviewed by the internal auditor, who reports to management and the audit committee. The company also promotes a work environment that encourages performance, customer focus, and innovation, while maintaining high standards of quality and integrity.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis regarding the Companys objectives, projections, estimates, and expectations are forwardlooking and subject to risks and uncertainties. Actual results may differ materially due to factors such as global and Indian demand-supply conditions, finished goods prices, changes in government regulations and policies, tax regimes, and economic conditions in India and other countries where the Company operates. The Company does not commit to updating these forward-looking statements.