Josts Engineering Company Ltd Management Discussions.

A. Industry structure and developments

The company has two divisions, namely, Material Handling Division and Engineering Products Division. The activities being carried out in these two divisions are explained below:

? Material Handling Division (MHD)

In MHD, the company manufactures various types of material handling equipments such as pallet truck, platform truck, tow truck, hand pallet truck, electric pallet truck, stacker, racking system, electric forklift, diesel Forklift, reach truck etc. The company also carries out the trading activities in these material handling equipments.

MHD provides innovative solutions for internal material handling needs for its customers so that it improves the efficiency of their processes. Effectiveness is visible when customers save their labor cost, material, time and space. For more than fifty years, the Company has been catering the industries in fields of material storage, material transportation, loading/unloading and stacking/retrieving operations, hence immensely benefiting the industry.

? Engineering Products Division (EPD)

In EPD, the Company deals in various product lines such as sound and vibration, environmental simulation, process control instrumentation, components, electrical, nano technology and analytical solutions, heat and combustion, auto and auto ancillaries, oil and gas etc. The company is committed to provide environment-friendly technology that helps environment and also assists the customers to enhance the performance of their product and processes.

The Company is associated with some of the worlds leading brands that provide advanced engineering solutions for the demanding industry applications. The solution is a blend of innovation and global leadership with our principles of expertise, know-how and reach in the Indian market. The Company provides complete engineered products that give technical and commercial support in sales, commissioning and after sales service.

Indias engineering sector has witnessed a remarkable growth over the last few years driven by increased investment in infrastructure and industrial production. The engineering sector, being closely associated with the manufacturing and infrastructure sectors, is of strategic importance to Indias economy. The sector has been de-licensed and enjoys 100 per cent FDI. Government has planned an investment of Rs 100 lakh crore (US$ 1.43 trillion) in infrastructure sector over the next five years.

Aerospace & Defense sectors is expected to grow in line with planned satellite launch missions, modernization of aircraft & helicopter programs and various defense equipment & system manufacturing. Increased private partnership and also getting these systems & components manufacturing & testing from private industry as well government labs promises good business potential. Power segment will continue to grow related to various augmentation, upgradation and modernization plans of Generation, Transmission and Discoms.

Automotive segment is expected to face continued slowdown challenges due to various impacting factors related to policy matter as well as usage pattern. Similarly, slow progress in education sector is anticipated.

B. Opportunities and threats

As global industry soothsayers point out, industrialization is set to post good growth over the coming years, there is every possibility that the material handling equipment industry will also take giant leaps ahead. Material handling equipment market share in India is anticipated to grow significantly due to an attractive economic landscape, and significant demand for goods movement. The increase in manufacturing activities in the region will also augment sales. The need for safe working environments in industrial facilities, developments in areas such as wireless technologies, robotics, and flexible electronics will fuel the material handling equipment market size. Furthermore, with the expectation that good number of international firms will establish their manufacturing activities in India and expansion of various international firms in the region will drive demand.

With the governments ambitious ‘Make in India plan taking root, the industry is expecting to see good growth in manufacturing and consequently in logistics and distribution activities for the next few years. Manufacturing will continue to remain one of the biggest demand drivers of the warehousing sector. With the governments renewed focus on incentivizing the manufacturing sector, the logistics market will reap the benefits in the coming years.

C. Risks and concerns.

In these uncertain times of Covid-19, the company is operating in an increasingly volatile, uncertain, complex and ambiguous world with rapid changes in all domains potentially impacting the company. These changes bring in new opportunities for the company but also bring about multi-dimensional risks, which need to be judiciously managed.

Risk management is, thus an integral part of the companys strategy. We proactively identify potential risks and accordingly devise our short-term and long-term actions to mitigate any risk which could materially impact the companys long-term goals.

Economic Risk: A slump in economic growth may severely impact the infrastructure sectors, ultimately affecting the Companys performance.

Mitigation: The Company has strategies in place for countering economic slowdown. With the government emphasizing investment in infrastructure, the company has numerous long-term growth opportunities.

Credit Risk: Delays in payment by customers may hamper the companys cash flow. These factors influence the Companys finances, affecting several other capital-dependent activities.

Mitigation: The Company has put tremendous emphasis on controlling its working capital to overcome this. The Company has built strong processes to continuously track debtors profile, cash inflow and minimize such risks.

Cost Risk: The rise in the price of raw materials and competitive pricing may threaten the business.

Mitigation: The Company has made efforts over the years to implement cost optimization techniques by building long term relationship with vendors. In addition, the Company has created a team dedicated to tracking the pricing of various materials.

HR Risk: The Companys operations may get affected due to not having the right people in place with the skills required to compete, innovate or grow.

Mitigation: The most significant commodity in companys business is the labor force. The business focuses on creating a group of driven people who are passionate and zealous about working hard and excelling in industry. We pay attention to each employees needs, ensure a good working environment and encourage integrity and productivity. Training and team-building exercises are carried out regularly to minimize fatigue and increase performance.

D. Segment–wise or product-wise financial and operational performance.

? Material Handling Division (MHD)

MHD was on right path on achieving its target. However, it took a serious hit in the midst of the government ordering due to nationwide lockdown to contain COVID-19s spread. The lockdown coincided with the peak of demand months for Material handling equipments, making the severe impact on the financial performance.

Operational Review:

During the year, Revenue has declined by 20%. The reason for decline is lockdown by government to contain COVID-19 in the mid of March-20.

Contribution has marginally increased to 34% against 30% in FY19.

Financial Review:

Particulars FY20 FY19
Revenue (Rs in lacs) 5,241 6,552
Contribution (Rs in lacs) 1,796 1,972
Margin (%) 34 30

? Engineering Products Division (EPD)

Engineering Product Division has given a revenue growth of 21% in FY20. Revenue growth in the EPD business was provided by Power, Defense, Infrastructure and Heavy Engineering Segments. Automotive sector though on slow pace also contributed to a reasonable level.

Operational Review:

During the year, Revenue has increased by 21%.

Contribution has marginally reduced to 46% against 49% in FY19.

Financial Review:

Particulars FY20 FY19
Revenue (Rs in lacs) 5,081 4,186
Contribution (Rs in lacs) 2,317 2,046
Margin (%) 46 49

E. Outlook

Given the unprecedented situation, growth forecasts will largely rely on COVID-19s spread. The unavailability of labor and a downturn in discretionary spending foresees a challenging period for the economy as a whole. The growth in the medium to long term will be better led by gradual pick up in Governments spending for infrastructure.

Our Prime Minister has announced Aatmanirbhar bharat abhiyan to support the Indian economy to overcome the impact of COVID-19 on economy. As a part of this scheme government has announced various steps specially for MSMEs. Government has disallowed tender by foreign companies upto Rs 200 Crore, through this schemes government has instilled a lot of faith in Indias backbone – the MSME ecosystem. Also, our finance minister has announced that government and central public sector enterprises will release all pending MSME payments in 45 days. Josts being a registered MSME will definitely be going to benefit from the same. Indias growth is seen recovering sharply to 7.4% in the next fiscal year. The IMF sees Indias FY20 growth at 4.2%, down from 4.8% estimated in January, 2020.

Material Handling division has a lot of growth potential in the infrastructure and construction sector and is expected to benefit significantly from this. The impetus for the infrastructure sector also augurs well for the division, as this can result in demand. The Division has taken steps which will help boost operational performance and profitability in the future.

Engineering Product division is reasonably good presence in both private and government sector. The engineering sector, being closely associated with the manufacturing and infrastructure sectors, is of strategic importance to Indias economy. Capacity creation in sectors such as infrastructure, Power, mining, Oil & gas, refinery, steel, automotive and consumer durables is driving demand in the engineering sector. Space, Aerospace, Defense, Power and Engineering sectors promise good growth potential in view of capital expenditure and projects planned in these sectors. The Company will continue to add partners selectively in its distribution business.

F. Internal control systems and their adequacy.

Company has an adequate system for internal controls to ensure effectiveness and efficiency of the operations, timely preparation and delivery of accounting records in adherence to the Companys policies. It plays a significant role in the process of risk identification and its mitigation. During the year, such controls were tested, and no reportable material weaknesses in the design or operation were noticed.

The Company has appointed external auditors to monitor the internal control system efficiently. The findings of the internal audit report are then provided to the senior management for their appropriate corrective action in case of any deficiency. A risk-based program of internal audits provides assurance to the Audit Committee regarding the adequacy and effectiveness of internal controls. The Company has laid down properly documented policies, guidelines and procedures for this purpose.

G. Material developments in Human Resources / Industrial Relations front, including number of people employed.

Great Brands and Great People have always been companys biggest asset. Sustainable, profitable growth can only be achieved in an organization which focuses on performance culture and where employees are engaged and empowered to be the best they can be.

We recognize and appreciate the role of Human Resource as a strategic business partner. Its role in supporting and driving business strategy is as important as product or technology innovation. It is our continuous endeavor to provide the right talent the right position at the right place and at the right time. We also ensure that the work environment is conducive for growth of employees and enables the factors which help in operating business without any obstruction/impediments. In the year 2019-2020 we have taken significant HR initiatives which have impacted people and business in a Positive and Big way. The Company has on its roll, 236 permanent employees as on 31st March, 2020.

H. Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor, including details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof.

Particulars FY 20 FY 19 % change Y-o-Y
Debtors Turnover Ratio 3.14 3.20 -2%
Inventory Turnover Ratio 6.85 7.07 -3%
Interest Coverage Ratio 2.43 4.22 -42%
Current Ratio 1.38 1.40 -1%
Debt Equity Ratio 0.55 0.42 31%
Operating Profit Margin (%) 40.05 37.47 7%
Net Profit Margin (%) 1.00 3.83 -74%
Return on Networth (%) 3.90 15.75 -75%

Interest Coverage Ratio – EBIT has reduced to Rs 267.50 lacs from 476.11 lacs in FY 19. The reason for reduction during the year is exceptional items which includes payments under sabka vishwas scheme of Rs 383.76 lacs. This has resulted in nullifying the Companys contingent liability. Sabka Vishwas Scheme, 2019, was introduced under Union Budget,2019, to resolve all disputes relating to the erstwhile Service Tax and Central Excise Acts, which are now subsumed under GST.

Debt Equity Ratio – The total debt has increased by Rs 363.35 lacs in FY 20. The increase in debt is due to impact of exceptional item/situation i.e. payment of Rs 383.76 lacs under sabka vishwas scheme during the year and the impact of lockdown on account of COVID-19 in the month of March-20 which has affected the working capital cycle.

Net Profit Margin – Net Profit after tax for the year is Rs 104.04 lacs against Rs 411.26 lacs in FY 19. The reason for decline in net profit is due to impact of exceptional items of Rs 383.76 lacs which includes payments under sabka vishwas scheme.

Return on Networth - The reason for decline is due to exceptional items of Rs 383.76 lacs which includes payments under sabka vishwas scheme.

I. Cautionary Statement:

Statement in Management Discussion and Analysis may be forward looking within the meaning of applicable securities laws and regulations. Many factors may affect the actual results, which could be different from what the Directors envisage in terms of future performance and outlook.

The Company assumes no responsibilities in respect of the forward-looking statements herein, which may undergo changes in future on the basis of subsequent developments, information or events.

On behalf of the Board of Directors
Jai Prakash Agarwal
15th June, 2020