Integra Engineering India Ltd Management Discussions.

Your Directors have pleasure in presenting the Management Discussion and Analysis Report for the year ended on 31st March

2022.

FORWARD LOOKING STATEMENT

This report contains forward-looking statements based on certain assumptions and expectations of future events. The Company, therefore, cannot guarantee that these assumptions and expectations are accurate or will be realized, The Companys actual results, performance or achievements can thus differ materially from those projected in any such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent developments, information or events.

OVERVIEW

The Company is offering a variety of engineering solutions. On the one side the Company has expertise in sheet metal fabrication work as well as machining and surface treatment. The existing competence of the Company offers a unique blend of products as well as services to end users like Indian Railways being an OEM of Rolling stock and especially locomotive and metro components in the transport sector. In addition to that, the Company manufactures standard industrial enclosures for various segments such as telecommunication, power and IT sector.

The Company on the other side is supplying various Research Design & Standards Organization (RDSO) approved electromechanical products such as Metal to Metal relays, Metal to Carbon Relays, Fuse Automatic Change Over System (FACS) and LED signal s to Indian Railways.

The Company also offers value added solutions to its customers such as mechanical components with wiring solutions.

The Company offers specialized services to niche markets and has been able to promptly respond to market needs by developing products that meet specific customer requirements.

RAILWAY INDUSTRY TREND:

Rolling Stock Market (2022-2027)

Global Rolling Stock Market size is projected to grow from USD 53.8 billion in 2022 to USD 64.8 billion by 2027, at a CAGR of 3.8%. The growth of the global market can be attributed to factors such as increasing urbanization, increasing traffic congestion, rising demand for comfortable journey and growing preference for shorter journey time. Moreover, the demand for rolling stock is dependent on some other factors such as the replacement of old rolling stock, new railway projects, and the expansion of railway routes. Apart from this, the increasing electrification of railway networks is also expected to foster the growth of this market globally.

Additionally, the oil-importing countries are also planning to reduce their oil dependency, thereby looking for an alternative energy source. As a result, most of the countries prefer electricity as a source of energy for various rolling stock. Thereby, the governments of various countries are actively involved in to planning of the new railway routes in their metro cities and suburban areas. As a result, the industry is experiencing a large number of upcoming and ongoing metro railway and intercity railway projects globally. Thereby, the demand for rolling stock market is likely to grow at a steady pace.

Source:https://www.marketsandmarkets.com/Market-Reports/rolling-stock-market-4380892.html?gclid=EAIaIQobChMIvdrvq57U9wIVT9iWCh1ZPQbMEAAYASAAEgLQHfD_BwE

By locomotive technology, conventional locomotive segment is expected to hold the larger share in the global rolling stock market

Diesel and electric locomotives are considered conventional locomotives. Growing urbanization increases the development of additional public transportation to overcome issues related to traffic congestion in urban areas. Railway transport serves as a viable option to meet the demand for an urban commute as well as long-distance travel. Therefore, the trend of electrification of rail lines is expected to boost the demand for electric locomotives. For instance, India is planning to achieve the 100% green railway with net-zero emission by 2030 as the first country in the world, thereby putting more effort into achieving 100% electrification of the rail network by 2023, thus, propelling the electric locomotives market in the country. Moreover, the increasing demand for electric locomotives and the growing electro-diesel market in Europe are expected to boost the demand for conventional locomotives.

Asia pacific is Expected to Lead the Locomotive Market

Railways is the preferred means of transport among the passengers of the major Asian economies such as China, India and Japan. These three countries are also topping the list of passenger-kilometer per year and in addition to that major manufacturer of the locomotive market are headquartered in this region.

Source:https://www.researchandmarkets.com/reports/5025549/locomotive-market-growth-trends-covid-19#rela1-5321449

Metro Rail Project at Glance in India

Currently 10 cities in India have a functional metro rail network of over 500 km (Kolkata, Delhi, Chennai, Bengaluru, Hyderabad, Jaipur, Gurgaon, Mumbai, Kochi and Lucknow)In addition, morethan 664 km of metro rail projects in 15 cities are presently under various stages of implementation.

Source: https://www.metrorailnews.in/metro-rail-project-at- glance-in-india/

GOVERNMENT INITIATIVES:

Government Support is Contributing the Locomotive Market Growth

There are increasing environmental concerns regarding the emissions due to road and air transport, growing city congestion, and railway transportation is the cheap and environmentally friendly alternative. In most of the biggest rail network countries management is under the control of private players. But at the same time government has some control over its operations. India which has the fourth-largest rail network in the world has a state-owned rail network, and in 2019, Indian Railways has received a budget allocation of USD 9.62 billion for the 2019-20 fiscal year which is 19.5% more than that of the previous year. In addition to that a proposed capital expenditure outlay of USD 23.4 billion for railways.

Source:https://www.researchandmarkets.com/reports/5025549/locomotive-market-growth-trends-covid-19#rela1-5321449

Announcement in Budget 2022-23

With the emphasis on new-age rolling stocks, the Union Budget has made provision for Indian Railways to acquire 1,800 high horsepower (HP) electric locomotives with the state-of-the-art technology to increase speed of freight trains.

Source: https://swarajyamag.com/news-brief/budget-2022-23- railways-to-acquire-1800-new-age-high-power-locos-for-heavy-haulage-and-speed

In her Budget speech, Finance Minister Nirmala Sitharaman announced that 400 Vande Bharat trains will be manufactured in the next three years. Introduced in 2019, the Vande Bharat semi-high speed trains have been a novelty so far. Two Vande Bharat trainsets (originally called Train 18) are currently running, both from Delhi — to Varanasi and Katra.

Source:https://indianexpress.com/article/explained/budget-2022-vande-bharat-target-7757873/#:~:text=In%20her%20Budget%20speech%2C%20Finance,been%20a%20novelty%20so%20far.

Announcement by India Railways:

The Indian Railways has invited bids for the manufacture and supply of 800 electric train engines under a contract worth about 30,000 crore.

These 12,000-horsepower (HP) electric locomotives are to be supplied over the next 10 years and will be manufactured at Banaras Locomotive Works, Varanasi.

Source:

https://economictimes.indiatimes.com/industry/transportation/railways/railways-floats-rs-30k-cr-tender-for-800-electric-train-engines/articleshow/91355530.cms

Announcement by Prime Minister:

Prime Minister Narendra Modi onApril 20, 2022 nnounced that an electric locomotive manufacturing plant with an investment of Rs 20,000 crore would be set up in the tribal-dominated Dahod district of Gujarat.

Source: https://economictimes.indiatimes.com/news/india/pm-modi-announces-rs-20000-crore-electric-locomotive-plant-in-tribal-dominated-dahod-in-gujarat/articleshow/90963363.cms

Make in India Policy for Metro Projects development:

In line with the Government of Indias focus on Make in India, the Ministry of Housing and Urban Affairs (MoHUA) became the first ministry to issue a Phased Manufacturing Plan (PMP) for indigenous procurement of metro rail components. Accordingly, the specification of various components has been standardised to engage and encourage long-term investment in the fast-growing metro-rail sector.

Source:https://journals.sagepub.com/doi/abs/10.1177/0019556119857864?journalCode=ipaa

KEY DEVELOPMENTS DURING THE YEAR:

We are happy to share that the Company has received various opportunities for development of new products during the year:

Domestic market:

We have developed more than 5 different types of panels made of stainless steel / Aluminum material for OEM of Rolling stock whereas 2 panels are in regular supply by end of the year. We have developed and supplied various interior parts (in Stainless steel and Aluminum material) of Metro trains to OEM of metro trains to be used in Agra- Kanpur and RRTS Metro Projects.

Export market:

We have developed panel for export customer which will be used in New York Metro project which is under testing.

• The Company has received final approval for its Metal to Carbon relay in the month of April 2021 from Research Design and Standards Organisation (RDSO) after a lengthy approval and safety testing process. The manufacturing facility was set for this product and supply was started during the year.

In order, to be able to expand its own production capacity, the leased premised were terminated. The leased premises were vacated by end of November 2021 and can now be fully used by the Company.

In September 2021, the Company had announced the sudden passing of Mr. Utkarsh Pundlik, Chief Executive Officer. He joined the Company in 2016 and has since contributed to the great development and success of the Company. Mr. Bhavin Kariya, Chief Financial Officer, took on responsibility immediately and was appointed as Chief Executive Officer by the Board of Directors of the Company in February 2022.

Opportunity & Threats

The Company takes a pride in being a preferred supplier to many reputed OEMs of Rolling stock. With the continuation of major infrastructure policies and programs of the government, the focus will remain on strengthening the transport sectors. The Company will continue to capitalize on new opportunities by offering its products and services to existing and new customers in the transport sector. This is in line with its drive to be the preferred choice for customers.

Measures taken so far as well as the ongoing measures enable the Company to increase its competitiveness and offer a wider range of products and services. The strategy has been to continue the focus on profitable growth through new product and service offerings and operational excellence.

The Company is generating more than 75% of total revenue from contract manufacturing business as an OEM supplier, hence, the business depends on customer requirements. Any fluctuation in the customers requirements demand can affect the Company performance.

The Companys products are highly labour intensive. Availability of manpower can impact the performance of the Company by influencing on time delivery of qualitative products. We are in a process of implementing automation or semi automation wherever possible to reduce the dependency of manpower to be able to supply qualitative products consistently.

Outlook

The Companys current prospects for the coming years are promising. We plan to expand byby supplying to additional demands in rolling stock and especially additional development in metro projects.

Indian Railways has revised its electrical locomotive target to 1190 locomotives in 22-23 compared to the previous target of 685 locomotives. This generated substantial additional opportunity for the Company for the next year.

The Company continuous to focus on consolidating business in the rolling stock segment by supplying various fabricated parts as well as all RDSO approved products to Indian Railways. The further expansion of the product offering and the exploration of the export market is an important ongoing effort.

Internally the Company is working to strengthen three main areas including operational efficiency, human resources management and financial planning to support the expected growth.

The Company continues its focus on process and quality and strives to always exceed customer expectation. The Company is certified under various standards to meet customer demands and enhance value delivery. The Company is accredited with following certifications:

TUV NORD - Quality Standard - ISO 9001:2015

• Design, Engineering, Manufacture, and supply of Electrical and Automation Enclosure System.

• Manufacture and Supply of Enclosure for Traction & Auxilliary Converter and Other fabricated sheet metal products.

• Design, manufacture, and supply of Railway Control System (Relays and Prewired base plates) and Fuse Automatic Change Over System (FACS).

• Manufacture and Supply of Power Products and Wire harness.

TUV NORD - Welding Process for Railways- EN 15085 - 2 - CL1

• New Build of parts for railway vehicles without design scope.

The Company has qualified welder as per American Welding Society (AWS). This is the prerequisite of our export customers.

The Company is in process of the following additional certifications:

• TBBCert - Germany - DIN 6701 - Bonding Process - Class A3

• TUV NORD - ISO 14001 - Environmental Management

• TUV NORD - ISO 45001 - Health and Safety Management

Material developments in Human resources / Industrial relations:

With a total workforce of more than 825 employees, including staff, permanent employees and contract workers, the prime objective of the human resource function is employee development. The Company believes that human resources are its most valuable asset to achieve success and profitability in business.

The Company has established a continuous training culture for all level of employees. New employees are educated about the Company with "Induction training". Under this training, new recruits undergo an induction training by departmental heads, which offer a broad overview of the Companys varied functions, processes, strategy and growth objectives. Inhouse as well as external training programmes for all level of employees are conducted on regular basis. The Company has also opened a "welding training center" within the Company to develop new welders as well as to provide regular training to existing welder groups.

The Company periodically carries out various employee motivation and engagement activities which includes festival celebration, birthday celebrations, sports and competition events.

Risks & Concerns

We set out below risk that is most material to our business and performance according to current market situation. We explain mitigation strategies which help us to manage this risk.

Risk Mitigation Strategy
Raw Material Price Volatility: We have raw material (sheet metal) price variance clause with most of our customers. The mechanism of price variance clause and terms of price revision is transparent and easy to execute.
Volatility in prices of raw materials can impact margins.
Manpower availability: We are reasonably managing the mix of permanent labour and manpower. We are hiring the manpower from ITI and giving welding training. We have established a welding training center. We are continuously inspiring our all employees to take training on various matters and improving their skills.
Production planning and schedules vary with labour fluctuation which impacts on time delivery of the projects.

Internal Control Systems and their adequacy:

The Company has adequate internal control system over the financial reporting ensuring the accuracy of the accounting systems and related financial reporting. The internal control system adheres to local statutory requirements for orderly and efficient conduct of business. The efficacy of the internal checks and control system are validated by internal as well as statutory auditors. The Audit Committee reviews the adequacy and effectiveness of the internal control system, significant audit observations and monitors the sustainability of remedial measures.

Discussion on financial performance with respect to operational performance

The Company has achieved a turnover of 10,375 lakhs for the financial year 2021-22 against the Companys turnover of 6,301 lakhs for the previous financial year 2020-21. Further, the Company attained profit after tax of 910 lakhs in the F.Y. 2021-22 compared to 541 lakhs for the previous financial year 2020-21.

Details of significant changes

Sr No. List of Ratios Standalone Consolidated
2021-22 2020-21 2021-22 2020-21
1 Operating Profit Margin Ratio (%) 13.77% 13.36% 13.77% 13.36%
2 Net Profit Margin Ratio (%) 8.77% 8.58% 8.77% 8.58%
3 Return on Net worth 23.30% 17.00% 23.30% 17.00%
4 Interest Coverage Ratio 15.61 11.97 15.61 11.97
5 Debt Equity Ratio 0.85 0.70 0.85 0.70
6 Current Ratio 1.61 1.89 1.61 1.89
7 Debtors Turnover Ratio 2.98 2.63 2.98 2.63
8 Inventory Turnover Ratio 5.11 5.62 5.11 5.62

Cautionary Statement:

The statements made in the Management Discussion and Analysis section, describing the Companys goals, expectations, and predictions, among others, do contain forward-looking views of the management. The actual performance of the Company is dependent on several external factors, many of which are beyond the control of the management, like growth of Indias economy, continuation of industrial reforms, fluctuation on value of Rupee in the foreign exchange market, volatility of commodity prices, applicable laws / regulations, tax structure, domestic, international industry scenario, movement in international prices of raw materials and economic development within the country, among others.