Kabra Extrusion Technik Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>

I. Global Economy Overview

The worldwide economy is poised for a 3.1% expansion in 2024, a modest upswing beyond earlier expectations. This growth is principally driven by the United States and other major economies outperforming projections, along with Chinas proactive fiscal policies. Despite the hurdles presented by the pandemic, geopolitical tensions in Ukraine, and escalating living costs, the revival of the global economy has showcased exceptional robustness.

Inflation, which scaled peaks in 2022, is receding swifter than anticipated, mitigating the foreseen downsides to labor markets and commerce. This easing of inflationary pressures owes much to propitious supply dynamics and the efficacy of central banking policies in anchoring inflationary anticipations. The ameliorated state of global supply chains has substantially contributed to this more rapid abatement in inflation than initially foreseen.

It is anticipated that economic growth in advanced nations was moderated to 1.6% in 2023, down from a more robust 2.6% in 2022, because of constrictive policy measures. A further cooling to 1.5% is expected in 2024, before a rebound to 1.8% in 2025. This tempering of growth is largely influenced by the economic deceleration within the Eurozone and the United Kingdom.

Emerging markets and developing economies saw steady growth rates of 4.1% across both 2022 and 2023.

In 2023, policymakers in advanced economies relaxed fiscal constraints. In contrast, in emerging markets and developing economies, where economic activity generally remains below pre-pandemic benchmarks, fiscal stances were evaluated to have stayed on a consistent keel.

The forecasted annual rise in real GDP has been adjusted upward to 2.6%, an ascent from the earlier projection of 2.3% at the years commencement. This revised outlook is fueled by marginally more favourable growth estimates for countries including the US, the UK, and India. The projection for global real GDP growth is anchored at 2.6% for 2025. Projections indicate that the global economys weakest quarterly real GDP expansion was likely 0.4% in the final quarter of 2023, with expectations of an advance to 0.8% by the second half of 2024.

 

II. INDIAN ECONOMY OVERVIEW

In 2024, Indias GDP growth is projected to hit a high of 7.5%, according to the World Bank. This surge is indicative of a larger positive trend across South Asia, which is expected to experience a regional growth rate of 6.0% due to Indias robust performance and recoveries unfolding in Pakistan and Sri Lanka.

During fiscal year 2023, the Indian economy experienced significant expansion, fueled by vigorous developments within the manufacturing and service sectors. The momentum of this robust growth is predicted to be maintained. With a steadfast investment climate and a resurgence in consumer expenditure, the nations economic growth is poised for further amplification.

The upward economic trajectory is further reinforced by the governments escalated investments in infrastructure and the rejuvenation of the Real Estate market. Affluent regions are reporting substantial gains in employment and income levels. However, rural communities and the lower-income segments are still in the process of overcoming the residual impacts of the global pandemic.

SOURCE: NSO (National Statistical Ministry of Statistics)

According to the Crisil report, India is on track to preserve its status as the swiftest growing major economy globally. In the window from 2025 to 2031, its expected that India will not only transcend the $5 trillion GDP threshold but also approach a $7 trillion valuation, potentially rising to the worlds third-largest economic power. This surge in economic prowess is projected to boost Indias per capita income significantly, categorizing it among the upper-middle-income nations by the year 2031.

MANUFACTURING: Indias economic ascent is driven by a strategic twofold plan, which includes nurturing sectors that specialize in sophisticated manufacturing processes and strengthening essential infrastructural foundations. At present, the manufacturing sector contributes to 15% of Indias GDP. The government has strategically curated a selection of industries that utilize Indias indigenous resources and niche skill sets, aiming to unlock the latent opportunities within the local market while simultaneously climbing the ranks in the global manufacturing sector.

EXPORTS: India is setting its sights on accelerating its export dynamics. Over the past ten years, the country has expanded the breadth of its export destinations and has shifted towards fabricating goods that are not only higher in value but are also emblematic of superior quality, cost efficiency, and increased complexity.

India appears to have effectively cushioned the blow from the ongoing global economic slump through strategic government capital investments, invigorated domestic spending, and a host of other economic safeguards. The robust underpinnings of the economy, coupled with the fortified financial health of banks and corporates, judicious fiscal management, a well-regulated external deficit, and a robust cache of foreign exchange reserves, all contribute to a promising economic landscape moving forward.

 

III. INDUSTRY OVERVIEW

1. Plastic Extrusion Machines Overview

In 2023, the worldwide market for plastic extrusion machinery attained a valuation of USD 6.6 billion. Projections indicate that by 2032, this sector is anticipated to expand to USD 9.7 billion, progressing at an annual compound growth rate of 4.1% over the forecast period from 2024 to 2032.

The need for plastic extrusion machines remains robust due to their role in enhancing productivity and workflow while ensuring consistency in the products manufactured. Plastic extrusion machines have recently become popular in various sectors due to their rapid operation, scalability in production, ease of use, versatility, and superior quality of output. Globally, there is a growing consciousness about energy conservation, which serves to propel the market for plastic extrusion machines forward.

The Asia Pacific area holds a significant portion of the global market for plastic extrusion machines, driven by the regional preference for sleek and convenient plastic products. Consequently, this region is expected to experience the most rapid market growth. In nations such as India and China, the demand for plastic extrusion machines is high due to a plethora of emerging small to medium-sized manufacturers in sectors such as packaging, consumer goods, and automotive. These industries require high-quality and consistently extruded plastic products. Countries like China, Japan, and India, with their swiftly growing manufacturing sectors, present considerable opportunities for the expansion of the plastic extrusion machine market within the forecasted timeline.

SOURCE: Plastic Extrusion Machines Market Size & Share 2024-2032 (imarcgroup.com), Plastic Extrusion Machine Market Size, Demand, Trends - 2032 (futuremarketinsights.com)

 

Flexible Packaging (Blown Film)

Flexible packaging utilizes a variety of materials such as polymers, paper, films, aluminium foil, cellulose, bioplastics, and laminated films. The selection of these materials is based on the required characteristics of the packaging, including barrier properties, sealability, durability, printability and cost-effectiveness, as well as environmental considerations.

Plastics are predominant in the industry due to their affordability, strength, moisture resistance, adaptability, barrier qualities, and ease of use.

The demand for plastic-based flexible packaging is expected to grow steadily, driven by the expansion of food processing, oil and dairy industries, e-commerce, personal care, and other consumer goods. This growth is further fuelled by demographic shifts, urbanization and increasing disposable incomes. Specifically, blown films are anticipated to experience a growth rate of 7%-10% over the next five years. The packaging sector is also adapting to the need for recyclability and sustainability, which calls for more technologically advanced machines capable of higher outputs and processing a broader range of materials. Investment in the packaging industry is ongoing, with contributions from small and medium enterprises, as well as large and multinational corporations across India. Innovative applications, such as the use of films in the solar industry and the development of biodegradable films, are expected to expand.

 

Polymer Pipe Industry

The PVC pipe sector in India is experiencing robust expansion. According to a CRISIL estimates, manufacturers of PVC pipes and fittings are poised to maintain a strong growth trajectory, with an anticipated volume increase of 13-15% in the next fiscal year. This growth is propelled by increased government funding for water supply, irrigation, housing and infrastructure initiatives. Key government programs such as Jal Jeevan Mission, AMRUT 2.0 and PM Awas Yojana are expected to provide substantial support, with over 70% of industry demand stemming from agriculture, water supply, irrigation and sewerage sectors, all of which rely heavily on government investment. The rest of the demand comes from residential plumbing and industrial uses. The demand is rising for all types of polymer pipes, including PVC, CPVC, HDPE, and PPR, with PVC being the most prevalent. A notable market expansion is attributed to the introduction of OPVC (Oriented PVC) Pipes, which serve as an alternative to Ductile Iron (DI) pipes.

 

Union Budget 2024-25: Key Announcements for Plastics Extrusion Machine Manufacturers

The Interim Union Budget for the fiscal year 2024-25 lays emphasis on prudent fiscal management while prioritizing infrastructure enhancement, agricultural development, eco-friendly growth initiatives, and railway advancement. The government remains steadfast in implementing economic strategies that bolster sustained development, fuel investment, and meet the progressive ambitions of the nation.

The Pradhan Mantri Awas Yojana (Rural) is on the brink of accomplishing its ambitious goal of 3 crore homes, with a further target of 2 crore homes set for the upcoming quintet. Additionally, a new Housing initiative is poised to be introduced for the Middle Class, aimed at encouraging home purchases and construction.

Capitalizing on the substantial tri-fold increase in capital expenditure allocation over the preceding four years, which has significantly stimulated economic expansion and job creation, the allocation for the ensuing year is set for an augmentation of 11.1% to reach 11.11 lakh crore which is 3.4% of the GDP.

 

2. Electric Vehicle and Allied Industries:

Indias electric vehicle (EV) sector is poised for a significant transformation, with the potential to revolutionize the nations transport system. The sector is expected to play a pivotal role in fostering a greener and more sustainable future for India, contributing to the worldwide initiative to mitigate climate change and enhance urban air quality. As per Fortune Business Insights, the valuation of Indias EV market is anticipated to surge from USD 3.21 billion in 2022 to a staggering USD 113.99 billion by 2029, registering a compound annual growth rate (CAGR) of 66.52%. This remarkable growth trajectory underscores the sectors capacity to reshape Indias automotive industry. The EV market has experienced robust expansion in recent years, bolstered by the Indian Governments introduction of supportive policies and initiatives.

Furthermore, a collaborative report by GameChanger Law Advisors and Speciale Invest forecasts a substantial growth in the Indian EV battery market, projecting an increase from USD 16.77 billion in 2023 to an impressive 27.70 billion USD by 2028. This growth is indicative of the burgeoning potential within the EV industry to alter the mobility dynamics in India.

 

EV Sales Trend from FY18 to FY24:

Category	FY18	FY19	FY20	FY21	FY22	FY23	FY24	YoY
								Change
E-2 Wheelers	2,005	28,007	26,834	44,803	2,52,642	7,28,054	9,44,126	29.7%
E-3 Wheelers	91,970	1,16,031	1,43,051	90,898	1,72,543	4,01,882	6,32,485	57.4%
E-4 Wheelers	1,204	1,885	2,377	5,154	18,622	47,499	90,432	90.4%
E-Buses	19	66	434	373	1,194	1,984	3,693	86.1%
Grand Total	95,198	1,45,989	1,72,696	1,41,228	4,45,001	11,79,419	16,70,736	41.7%

 

The EV sales in India surpassed the 1.5 million annual sales mark for the first time in FY24. The EV sales grew by 41.7% YoY to 16,70,736 units in FY24. However, the growth momentum during the year was slowed by reduction of FAME subsidy scheme. The E-2 Wheelers industry experience a decline in sales during H1FY24 owing to the aforesaid regulatory changes. However, the industry bounced back in H2FY24 led by recovery in sales. The E-2 Wheelers sales grew by 29.7% YoY to 9,44,126 units in FY24. However, the E-2 Wheelers share in total EV sales contracted by 522 bps YoY to 56.5% in FY24. The E-3 Wheelers sales surged by 57.4% YoY to 6,32,485 units in FY24. The E-3 Wheelers share in total EV sales expanded by 378 bps YoY to 37.9% in FY24. The E-4 Wheelers sales grew by 90.4% YoY to 90,432 units in FY24. The E-4 Wheelers share in total EV sales expanded by 139 bps YoY to 5.4% in FY24. E-Buses Wheelers sales grew by 86.1% YoY to 3,693 units in FY24. E-Buses share in total EV sales stood 0.4% in FY24.

 

Union Budget 2024-25: Key Announcements for EV Industry

The finance minister declared that the administration will bolster the Electric Vehicle (EV) infrastructure by promoting the production of EVs and the setup of charging stations.

There will be an emphasis on increasing the use of electric buses within public transportation systems.

Offering incentives and significantly enhance the electric vehicle network by concentrating on increasing the deployment of charging infrastructure.

Government plans to develop plant for recycling lithium-ion batteries, e-waste in India.

The Government initiatives such as the PLI scheme for Advanced Chemistry Cells (ACC) and the recent reduction in import duties on EVs are game changers. All this not only opens doors for foreign OEMs but also signals India’s readiness to welcome significant investments and fosters a new ecosystem for EVs and their component suppliers. The Government introduced the Electric Mobility Promotion Scheme 2024, with a budget of INR 500 crore to continue supporting the purchase of electric two and three-wheelers until July 2024 for accelerating EV adoption amongst Indian customers. It is anticipated that the Government is likely to continue to aforesaid scheme post-election for promoting electric mobility.

As per NITI Aayog, India targets to be a 100% electric vehicle nation by 2030. A recent analysis by the Confederation of Indian Industry (CII) highlighted the critical requirement for a substantial network of charging infrastructure to meet the accelerating growth of electric vehicles in India. The nation should aim to establish at least 1.32 million EV charging stations by 2030 to keep pace with the expanding fleet of electric vehicles. To achieve a recommended proportion of one charging point for every 40 EVs, the country needs to set up more than 400,000 charging points each year, reaching a total of 1.32 million by the end of the decade.

 

IV. Company Overview

Kabra Extrusiontechnik (KET), a leading player in Indias plastic extrusion sector, is a part of the prestigious Kolsite Group. With over six decades of industry experience, a track record of more than 15,000 successful installations, and a global footprint spanning over 100 countries, KET holds a dominant position in the extrusion marketplace. KET is committed to continuously innovating and delivering superior solutions to plastic processors worldwide. Leveraging cutting-edge research and development along with diverse process enhancements, Kabra Extrusiontechnik has established high standards in the plastics extrusion field.

Battrixx, a forward-looking division of KET, focuses on creating and manufacturing sustainable energy systems and technologies critical for India’s progression towards green energy storage and e-Mobility. Operating from its high-tech facilities in Chakan, Pune, the brand asserts its excellence through its pioneering offering – sophisticated lithium-ion battery packs and modules designed for electric vehicles.

 

A. Key Strengths

1. Strong Parentage: KET is a part of Kolsite group which enjoys a legacy of 60 years. Kolsite group has 8 state-of-art manufacturing plants across the nation. It has annual turnover of ~INR 1,500 crores led by ~2,000 skilled professionals.

Customized

 

2. Competitive Market Position: KETs competitive positioning lies in its Solutions understanding of the indigenous markets with strong client relationship, coupled with continuous efforts towards enhancing its technological expertise.

KETs Edge

KET enjoys market leadership status in the extrusion market with ~40% market share as on FY24. The Company has a strong brand loyalty and wide customer base in the 100+ export markets. Continuously

Introduce New

 

3. Technical Collaboration: KET believes in continuous innovation with strong Products technology partnership.

Company	Purpose
Battenfeld-Cincinnati	Technical tie-up with Battenfeld-Cincinnati since 1983 for pipe and profile machinery
Extron Mecanor	JV with Extron Mecanor, Finland in October 2016 to provide an integrated approach to pipe producers by offering pipe socketing and belling solutions
Penta	A 50:50 JV with Penta SRL, Italy for auto-feeding systems for the plastics and food processing industry

 

4. R&D Focussed Approach: KET has one of the largest R & D team in the Plastics Machinery Industry with qualified engineers working in different areas of processing, manufacturing, application development, design, controls and automation. KET has added new range of Pipe and Film plants and other new products.

 

5. Diversification into Battery Management System (BMS): Battrixx, KET’s Battery Division offers advanced lithium-ion battery packs with smart BMS both for electric vehicles and other energy storage applications. In FY23, Battrixx fully acquired Varos Technology, a Pune-based company specializing in the development of comprehensive battery management systems. These systems utilize cloud-powered AI analytics to forecast battery lifespan and track their performance.

 

6. Battrixx Technical Edge: Battrixx infrastructure can handle both cylindrical and prismatic cells to manufacture modules and packs with in-house built advanced BMS integration.

 

Battrixx’s Capabilities in EV Landscape

Battrixx facilitates EV charging operators to manage & control assets with dynamic end-to-end EV Charging Management Solutions in the electric 2 Wheelers & 3 Wheeler space.

 

7. Staying ahead of the Curve: Battrixx culture to constantly innovate and the ability to partner with global innovators is helping the Company to stay ahead of the curve. Battrixx innovation remains relevant making their product market ready, thereby providing differentiation to our esteemed consumers. Battrixx commitment towards constant innovation and thrust for end-customer delight makes us the preferred supply of choice from EV OEMs.

 

B. Financial Performance Snapshot

Particulars (in Cr)	F23	F24	Change (in %)
Revenue	670	608	(9.3%)
Gross Profit	184	184	0.1%
Gross Profit margin %	27.4%	30.3%	283 bps
EBITDA	74	61	(18.1%)
EBITDA margin %	11.1%	10.0%	(108 bps)
EBIT	61	45	(25.5%)
PAT	38	34	(9.8%)
PAT margin %	5.6%	5.6%	(3 bps)

 

KET’s revenues stood at 608 crores in FY24. The revenue mix of Extrusion Business: Battery Division stood at 57:43 in FY24 as against 48:52 in FY23. The Company’s EBITDA stood at 61 crores. EBITDA margin stood at 10.0% in FY24. KET’s PAT stood at 34 crores. PAT margin stood at 5.6% during FY24.

 

C. Key Financial Ratios

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Listing Regulations") and the Company is required to give details of significant changes (change of 25% or more) as compared to the immediately previous financial year) in key sector-specific financial ratios.

Particulars	% Change	Reasons for Variation
Debtors Turnover	-27.9%	Due to lower sales & increase in trade receivables
Inventory Turnover	-16.1%	Due to lower sales & increase in inventory
Interest Coverage Ratio	-8.8%	Due to lower profitability
Current Ratio	1.4%
Debt Equity Ratio	-1.8%
Operating Profit Margin	-9.8%	Due to lower sales
Net Profit Margin	-0.8%
Return on Capital Employed	-26.0%	Due to lower profitability & increase in capital

 

D. Business Outlook

Extrusion Division: Kabra Extrusiontechnik has been proactive in adapting to market shifts and changes in raw materials. Over the past year, the company has made a significant return to the high-output (over 600 kg/hr), low-thickness (10-20 micron), multilayer, and barrier film segments, with products in the 3, 5, and 7 layer categories. This success is due to internal R&D and strategic partnerships with specialized technology firms. Although still in the early stages, Kabra is focusing on bio-compostable films in collaboration with select customers, aiming to provide comprehensive solutions from material to film. Looking ahead, Kabra Extrusiontechnik plans to enhance the capabilities of its film plants to achieve even higher outputs and film widths, and to cater to specific, high-demand applications. Achieving these goals will require substantial R&D efforts and investments in centers of excellence that are dedicated to proactively developing and introducing diverse solutions.

As a leading player in the industry, Kabra Extrusiontechnik has carved a niche for itself as a trusted brand by the customers for delivering strong technical solutions and innovative product models that meets variety of market requirements. These include large-scale production, versatility, larger sizes and enhanced performance, while also focusing on reducing production costs through higher energy efficiency, the ability to process recyclable materials and compatibility with a wider array of resins and stabilizers. Our R&D efforts are in sync with these market demands, leading to ongoing improvements, expansion of our product range and the introduction of new product lines. Consequently, Kabra is strategically positioned to capitalize on the extensive and diverse growth within the pipe industry.

With concurrent investments in manufacturing capabilities and talent acquisition, the Company is well-equipped to leverage the anticipated industry growth in the coming years.

Battrixx Division: Battrix, KETs division dedicated to advanced lithium-ion battery packs and modules for electric vehicles, continues to win accolades from EV OEMs. The expansion of Battrixxs production capabilities is anticipated to be completed in the first half of the FY25. Battrixx is set to venture into additional industry verticals such as E-3 Wheelers and E-4 Wheelers in the forthcoming fiscal year.

The market for Battery Energy Storage Systems (BESS) in India is experiencing substantial growth due to various factors, including the escalating integration of renewable energy, concerns over grid stability and the increasing need for a dependable electricity supply. The demand for BESS is expected to surge, positioning it as a key transformative element in Indias energy sector in the forthcoming years. As of March 2023, Indias battery energy storage system (BESS) had an installed capacity of approximately 40 MWh. The projections from the Central Electricity Authority (CEA) in their recent report on the optimal generation mix suggest that by 2030, the BESS market in India could surpass 208 gigawatt-hours (GWh). According to the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research & Analytics, India had tendered over 8 GW of cumulative capacity for grid-scale energy storage systems (ESS). KET aims to capitalize on the vast untapped potential of Indias BESS market and position itself as a major player in the BESS industry.

 

E. Risks and Challenges

The operational dynamics of the Company are subject to fluctuations driven by numerous factors including the risk of technology becoming outdated, unforeseen events like the Covid-19 pandemic, market volatility, intensifying competition, import pressures, and challenges from the unorganized sector, all of which could potentially impact the Company’s future business performance and profit margins. To address this, the Company has implemented a risk identification and mitigation strategy. This entails the pinpointing of major risks by business units and functional areas, with the intention of deploying a variety of countermeasures over time to effectively manage these risks on an ongoing basis.

The Company is prepared to offer technological solutions to emerging challenges, such as processing reusable, recyclable, or compostable plastics, as well as non-toxic, Lead-Free stabilizers by enhancing the current infrastructure of its client base. Furthermore, the business has broadened its focus into the Energy Storage Systems (ESS) sector, aiming to diversify beyond reliance on a single market segment. Capitalizing on its capacity to embrace and apply novel technologies, the Company plans to produce cutting-edge Lithium-ion Battery Packs that come with integrated Battery Management Systems (BMS), marketed under the "BATTRIXX" brand. This initiative is poised to contribute to Indias shift towards sustainable energy storage solutions and the electrification of transportation.

 

V. Internal Control System and Their Adequacy

The Companys internal audit system is geared towards ensuring adequate internal controls commensurate with the size complexity and needs of the business, with the objective of efficient conduct of operations through adherence to the Companys policies, identifying areas of improvement, evaluating the reliability of financial statements, ensuring compliance with applicable laws and regulations and safeguarding of assets from unauthorized use. The Company has appointed a firm of Chartered Accountants as Internal Auditors in compliance of Section 138 of the Companies Act, 2013 to conduct internal audit of functions and activities of the Company. They report on quarterly basis to the Company on their findings. The Report is reviewed by the Audit Committee Members and Statutory Auditors.

 

VI. Human Capital

The Company continues to maintain cordial and peaceful industrial relations facilitating smooth manufacturing activities. The programmes aiming at leadership development and upgradation with advancing technology on all fronts were conducted during the year. Our human capital strength stood at 559 including Workers, Staff and Executives as on 31st March 2024.

 

Cautionary Statement

Actual performance may differ from projections made, as the Companys operations are subject to various economic conditions, government regulations, natural calamities and other incidental factors over which the Company may not have any direct / indirect control.

Shreevallabh Kabra

Executive Chairman

(DIN: 00015415)