K C P Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

(A) Indian Economy overview

The Indian GDP recorded a growth of 7% amid challenging Global Geo political and Macro economic conditions in FY 2022-2023 and is expected to record a growth rate of 7.8%- 8% for FY 2023-2024. The Geo Political condition remained fragile due to the political tensions in the middle east region mainly triggered by the Israel Palestine conflict and the continued Russia Ukraine war.

The Global political conditions continued to affect the demand supply for commodities and kept the commodity prices buoyant.

The monetary Policies helped ease the inflation for the FY 2023-2024. The Indian economy, witnessed inflation at 5% for FY 2023-2024, down from 6.8% recorded in the previous year . The Indian Economy witnessed steep rise in the interest cost in FY 20222023, the repo rates continued to remain at high levels at 6.5% as of the close of the FY 2023-2024. The Repo rates continued to be at these higher level since June 2023, affecting the borrowing cost of the corporates for both short term and long term financing.

The INR remained at a low level of Rs. 83.30 to USD as at the close of the FY 2023-2024, depreciating marginally from a level of Rs. 82.16 at the beginning of the year. This depreciated levels of the INR against dollar, affected the landed cost of imported raw materials adversely to the manufacturers.

Coal Price Movement

The Global coal price index softened considerably to a levels of 180, based on 2016 as the index base year. It may be recalled that the Coal price index touched a peak of 590 in FY 2022-2023. The imported coal price traded in the range of 100 USD to 125 USD in FY 2023-2024 still high as compared to the levels of 60 to 80 USD in 2018 to 2020 period. Geopolitical disruptions continued to keep the international coal prices buoyant. The unrest in the middle east and suez canal region caused due to the Israel Palestine conflict continued to affect the logistics costs adversely, affecting the landed price of coal to the importers. The table below exhibits the movement

in the coal price index, with 2016 considered as the index year.

Cement Industry in India

Indian Cement production reached a level of 375 million MTs for the FY 2022-2023, which marked a YOY growth rate of 6.8%, The Cement industry recorded a growth rate of 7.4% in FY 2023-2024 driven by infrastructure-led investment and mass residential projects. The Outlay of Rs. 10 Lakh crores in the budget for FY 2023 also gave a boost to the infrastructure spend, aiding to the growth in demand for cement. The drop in the coal prices benefited the manufacturers, by reducing the cost of production.

Outlook of Cement Industry

Indian Cement industry is expected to grow at a CAGR rate of around 6%-6.5% for the next 5 year. The FY 2024-2025 is expected to see the demand increase marginally over the current year.

(B) KCP Performance By Segment

(1) Cement

Cement production for the FY 2023-2024 showed an improvement of around 9% as compared to the last financial Year. The Cement market space was characterized by intense competition, it is estimated that approximately 40 Million Mts of capacity was added in FY 2023-2024, which constitutes approximately 10% of the sales for FY 2023-2024.

Cement	(Amt Rs Crores)
Description	FY 23-24	FY 22-23
Revenue	1,582.94	1,524.46
Profit Before Interest & Tax	55.27	(33.75)

The softening of coal prices improved the margins in cement segment, coupled with increase in production and sales resulting in better capacity utilisation.

Risks

Whilst the outlook of the cement industry in India looks good on the back of the expected spend on the infrastructure by the government, the performance of cement division of KCP would largely depend on the cooling off effect on the Coal price, Regional competition and cost Management at the unit level. The company has embarked on cost reduction project spend in WHR. The cash flows for FY 2024-2025 may be affected because of the additional capex spent planned by the company.

(2) Heavy Engineering

The Performance of Heavy Engineering Segment was lower as compared to FY 2022-2023, The Turnover was lower by Rs 31.78 Crs, and the loss at PBT level before interest and Taxes was higher by Rs 10 Crs appx, for FY 2023-2024 as compared to the previous year. The business was affected due to the Michaung floods in December 2023, and operations were halted for 1 month and production level was at a reduced level for a period of 3 months. An estimated total loss was in excess of Rs 10 Crs, and we received a sum of Rs 7.5 Crs from the insurance companies as initial settlement. Further claims for material damage are under process. Though the restoration work to set right the material damages continued after the close of the FY 2023-2024, the unit operated closer to the normal capacity as on 31 March 2024. The challenges faced by the unit in the form of competition from unorganised sectors, continued to keep the margins of the unit under pressure. In FY 20232024 some very prestigious orders were bagged in the defense and space segment. The unit delivered the prestigious order of Gaganyan crew module structure in October 2023, and is also working on another crew module for delivery in FY 2024-2025. The Metallic canopy for the Agni A5 Missile Cannister was delivered for the defense segment in FY 20232024. A strategic initiative to enhance business in the process equipment and defense & space vertical is

being undertaken in addition to an effort to increase exports.

Heavy Engineering	(Amt Rs Crores)
Description	FY 23-24	FY 22-23
Revenue	81.49	117.40
Profit Before Interest & Tax	(19.82)	(5.84)

Way Forward and Risks:

The competition from the unorganised sectors continued to pose the risk to the business and kept the margins under pressure. Some of the sales enhancement initiative being taken is expected to yield positive result in the FY 2024-2025.

(3) Hospitality

The Hospitality industry continued to show good signs in the financial year 2023-2024. The Industry witnessed increased occupancy in the range of 75%-78%. The Average room rent for the hospitality industry also increased to a level of Rs 4500 to Rs 5000 for the FY 2023-2024. The KCP Mercure Hotel in Hyderabad, continued to consolidate its position as a preferred business hotel.

Hotel	(Amt Rs Crores)
Description	FY 23-24	FY 22-23
Revenue	36.87	28.52
Profit Before Interest & Tax	7.50	3.30

The Mercure Hyderabad KCP saw increased occupancy level at 84% for FY 2023-2024. The Roof Top restaurant attracted many residents as well as non-resident guest. This gave a boost to the food and beverage revenue, along with the Room rent revenue growth. The Hotel also received many accolades and recognition during the year from prestigious institutions.

It received the customers choice award in July 2023 from Make my trip, Best Roof top dining award in Oct 2023 from Restaurants India awards, Best Roof top restaurant award in Nov 2023 from Hybiz TV, and Travelers choice award from Trip Advisor in Dec 2023.

Way Forward and Risks

The Hotel has established itself as a preferred hotel in the segment, and continues to improve its occupancy and ARR. However the revenue and bottom line will be affected based on the economic situation in India.

The F&B revenues and occupancy shall continue to perform at good level as it did in FY 2023-2024.

(C) Subsidiary & Joint Venture

(i) KCP Vietnam Industries Limited

Details	2023-2024	2022-2023
Crushing Capacity (TPD)	11,000	11,000
Cane Crushed (MT)	12,59,972	9,60,718
Sugar Produced (MT)	1,45,715	96,963
Recovery rate (%)	11.56%	10.09%
Average sales realization (Rs./MT)	68,544	62,697
Turnover (Rs in Crores)	1,198.10	603.28
PBT (Rs in Crores)	275.68	148.18
Power sold to National Grid (MWH)	98,827	69,930

The season for crushing begins in January every year, The 2023 season also began in first week of January 2023 for Son Hua and at the end of January 2023 for Dong Xuan. The 2023 Season witnessed improved performance on all fronts.

The company took several initiatives in the previous season on farm input distribution and other farmer support initiatives, the total land under cultivation for 2023 season increased by 34%, the sugar cane yield was higher by 13% and the sugar yield increased by 3%.

The prices of refined sugar increased by around 9%, in FY 2023-2024 as compared to the previous year. The average refined sugar realisation stood at Rs 68,544 per MT of Sugar, as compared to Rs 62,697 in PY The total volumes of refined sugar sales saw an increase of 89% in FY 2023-24 over previous year with volumes of current year recorded at 144,947 MTs

as compared to 76,877 MT previous year. The gross margins for FY 2023-2024 was 28.05% as compared to 28.93 % the previous year.

Sugar cane farmers earned historically the best average income per ha in the zone invested by the Company due to the highest average yield per hectare and the highest sugar cane price in the history of the Company. Company recorded the best business results in the history backed by second highest sugar cane quantity milled, highest ever sugar quantity produced and sold, highest average prices realised for sugar and by-products etc. Companys strong investment and purchase policies, favorable weather conditions, strong international sugar prices, trade remedies in place etc. are the major factors contributed to the successful results of the Company.

(ii) Fives-Cail KCP Limited

Sales during the year under review amounted to Rs. 355.73 Crores as against Rs. 177.06 Crores during the previous year. The Company recorded a profit from continuing operations of Rs. 10.55 Crores during the year under report as compared to a profit of Rs. 3.44 Crores in the previous year.

Operations

The Company booked orders worth Rs. 153.3 Crores (Exports Rs. 11.50 Crores) during the year under report and the order backlog position is Rs. 95.30 Crores (Exports Rs. 20.20 Crores) as at 31st March 2024 in comparison with a backlog of Rs. 30.06 Crores (Exports Rs. 10.92 Crores) at the end of the previous year.

Business Review

The total revenue for the year is Rs. 355.73 Crores as compared to Rs. 177.06 Crores in the previous year. The Company recorded a profit before tax of Rs. 14.69 Crores during the year ended 31st March 2024.

Though the government is keen to increase the blending of ethanol to optimise the fuel cost, the market for incinerator is little slow as compared to last year, due to drought and election.

Sugar Industry continues to be in the down ward trend in India. However, we foresee encouraging scenario in domestic and International Markets both for sugar and incinerator segment after the elections this year, to meet the blending of ethanol to 20% to fuel as against 12% at present.

The Company has been operating fully compliant with full safety measures in all our work places.

The Company carries an order backlog of INR 95.3 Crores as at 1st April 2024 and the current year revenue appears to be moderate.

(D) New Projects Update Waste Heat Recovery Project :

During the last quarter of the current financial year, the company has embarked on setting up a 16 MW Waste Heat Recovery (WHR) Plant at its Cement Production facility at Muktyala, Andhra Pradesh to reduce the fuel cost in production process of Cement. It will also help in the Companys efforts in reducing the carbon footprints. The financing arrangements have been completed and the EPC Contractor for executing the Project has been finalised and orders placed. The Project is expected to be commissioned in the third quarter of FY 2025-2026.

(E) Internal Control Systems and their adequacy:

The Company has internal financial controls backed by proper procedures, delegation of powers. The company has clearly defined reporting system to Chairperson and Managing Director, Joint Managing Director, Heads of the Units and Functional Heads. The Company is ISO certified and has quality and procedure manuals.

Statutory Auditors have further certified on the internal financial controls in their report which is part of this Annual Report.

(F) Accounting Policies and Procedures:

In the preparation of financial statements, the company followed all laid down guidelines and standards. The company has policies in line with the applicable accounting standards and a few material accounting policies have been disclosed as part of accounts which are part of the Annual Report.

The Company has made all the disclosures in the accounts, as required under new Schedule III of the Companies Act, 2013

(G) Key Ratios

Key Ratios have been given in Note 53 of the Standalone Financial Statements.

Cautionary Statement:

Statements in the "Management Discussion and Analysis" describing the Companys objectives, expectations or predictions are as perceived currently. Actual results may differ materially from those expressed in this statement. Important factors that could influence the Companys operations include domestic supply and demand conditions affecting selling prices of finished goods, input prices, changes in government regulations, tax laws, economic developments within the country, Global Geo political factors and other factors such as litigation and industrial relations.

	For and on behalf of the Board of Directors
Place: Chennai	Dr V L Indira Dutt
Date: May 20, 2024	Chairperson and Managing Director