kabra extrusion technik ltd Management discussions

I. Global Economy

The global economy witnessed a sharp recovery in 2021 by registering 6.1% growth as per International Monetary Fund

World Economic Outlook Update, July 2022 (IMF WEO, July 2022). Most of the economies returned to normalcy from COVID-19 related hiccups. However, the growth momentum was short-lived, slowing down to 3.2% in 2022 due to economic downturn in China coupled with supply-chain disruption and Ukraine-Russia conflict. Additionally, the tightening global financial conditions associated with expectations of steeper interest rate hikes by major central banks to ease inflation pressure is poised to slow down the global growth.

Advanced Economies (AEs) grew by 5.2% in 2021. AEs growth is expected to slow down to 2.5% in 2022 owing to lower private consumption, erosion of household purchasing power and the expected impact of a steeper tightening in monetary policy in the United States. The Euro region is experiencing spill-over effect from the Ukraine-Russia dispute. The European Central Bank ended net asset purchases and hiked rates in July 2022 for the first time since 2011.

Emerging Markets and Developing Economies (EMDEs) registered a 6.8% growth in 2021. EMDEs growth is expected to trim to 3.6% in 2021 mainly due to sharp slowdown in China coupled with moderation in Indias growth.

The global policy makers aim at taming inflation with monetary policy tightening. Majority of the economies are focusing to trim emission and increase their investments towards green energy for mitigating climate change.

II. Indian Economy

The Indian Economy continues to remain resilient despite of rising commodity prices, surging inflation, supply shortages. According to a Bloomberg survey, there is zero percent chance of India slipping into recession despite of the rupee nearing 80 per dollar mark. According to IMF WEO, July 2022 India was amongst the fastest growing economy registering 8.7% growth in 2021. Indias economy is expected to clock 7.4% growth in 2022 reflecting non-conducive global macro-environment coupled with policy tightening.

The Union Budget 2022-23 emphasis is on health and well-being, infrastructure, inclusive development, energy transition and climate action, financing of investments and Minimum Government, Maximum Governance. The capex target grew by 35.4%, from 5.54 lakh crore to 7.50 lakh crore. The effective capex for FY23 is anticipated to be 10.7 lakh crore. The Government has announced productivity-linked reward systems in 14 sectors with capital allocation of 30 lakh crore, thereby facilitating 60 lakh new job creation. The Union Budget 2022-23 marks a blueprint for Amrit Kaal, Indias 25-year-journey beginning from 2022, 75th year of Independence and ending in 2047, 100th year of Indias Independence. According to FICCIs Economic Outlook Survey, July 2022 the median growth forecast for agriculture and allied activities is estimated at 3% for FY23. On the other hand, the industry and services sectors are anticipated to clock 6.2% and 7.8%, respectively.

The Reserve Bank of India is expected to maintain hawkish stance in 2022. The policy repo rate forecast is pegged at 5.65% in FY23 well within the range of 5.50-6.25%. The Consumer Price Index (CPI) based retail inflation is estimated at 6.7% for FY23 maintaining the 5.7% to 7.0% range. The inflation rate is expected to slowdown from September 2022 and reduce to 4% range by June 2023.

RBI needs to monitor MSMEs liquidity constraints ensuring the economys financial health remains intact with minimal strain on increased non-performing assets. India is earnestly marching towards accomplishing its goal of achieving a GDP of $5 trillion in the next few years through its Atmanirbhar strategy. The manufacturing sector is expected to receive the necessary boost with Production Linked Incentive (PLI) schemes supported by macro economic trend of ‘China Plus One presenting significant opportunity for India to become a production hub.

III. Industry Overview a. Plastic Extrusion Machines Overview*

The market for plastic extrusion machines is pegged at US$ 6,793.9 million in 2022. It is estimated that plastic extrusion machines industry will surpass US$ 10,754.4 million in 2032, growing at 4.70% CAGR during 2022-32 period. Extrusion process is implemented for creating fixed cross-sectional profiles by using plastic or thermoplastic materials pressed through a die of desired shape and cross-section. Plastic extrusion manufacturing process uses high volumes of plastic material for manufacturing and producing plastic products including weather-stripping lines, pipes, tubes, deck railings, plastic films, window frames, plastic sheets, wire insulations and thermoplastic coatings.

The Plastic extrusion machine market is gaining traction owing to innovation processing technologies and the introduction of new plastic products in piping industries and manufacturing products, rising awareness about benefits of plastic extrusion machines and increasing awareness amongst the consumer for environment-friendly equipment. The manufacturers are continuously looking forward to launching innovative plastic products which are fuel efficient and high on performance with lighter weight.

*Source: Future Market Insights

Union Budget 2022-23:

Key Announcements for Plastics Extrusion Machine Manufacturers

The Government flagship drinking water project ‘Jal se Nal Yojana was earmarked 60,000 crores during the Union Budget 2022-23 will be beneficial for plastic pipes manufacturers and infrastructure industry.

The Government allocated 48,000 crores towards ‘Housing for All scheme benefitting completion of 80 lakh houses in 2022-23.

The Central Governments effective capital expenditure is estimated at 10.68 lakh crores in 2022-23 translating to 4.1% of GDP.

b. Electric Vehicles and Allied Industries^

India adds nearly 2.5 billion metric tons of carbon translating to ~7% of the global emission. The Internal Combustion Engine (ICE) vehicular pollution contributes to approximately 40% of the total pollution in India. Thus, it is imperative for strong push towards Electric Vehicles (EV) adoption to curb the increasing pollution. Additionally, Climate change has led to a shift in global climate policy which requires the world to adopt EV.

India imports ~85% of crude oil to meet its fuel requirement. The oil imports swelled to US$ 119.2 billion in FY22 from US$ 62.2 billion in FY21 leading to a three year high 1.8% current account deficit of US$ 43.81 billion in FY22. As per research study by Council on Energy, Environment and Water (CEEW), India could save US$14 billion on its oil import bill provided EVs commands 30% share in 2030.

EVs accounted for 1% of total vehicle sales in CY21. It is expected to enjoy 39% of total automotive sales by CY27. The major of this growth is expected from the travel segment, especially e-three wheelers (E3Ws) and e-two wheelers (E2Ws) comprises 34% and 64% of total vehicle registrations as of June 2022. Though the adoption rate of e-buses is lower (0.5% of total vehicle registrations) than E2Ws and E3Ws. The estimates include e-rickshaws and e-carts, which are estimated to reach ~850,000 units in 2027. The e-buses are expected to pick up with large scale state governments inviting tenders. E-four wheelers (E4Ws) are expected to take additional time for large-scale adoption due to issues related to range anxiety, varying duty cycles, and sparse charging networks.

The high voltage battery comprises of nearly 40% of cost in an EV. It is responsible for providing sufficient energy to the electric motor. The electric motor is another critical component of EVs, responsible for converting electrical energy into mechanical energy and propelling the vehicle to move. EVs are equipped with automatic transmission (direct drive), reducing the need for transmission fluid and lower power loss to the wheels. The power train is the differentiating system between ICE and EV. Power trains for ICEs are complex compared to EVs, with hundreds of parts, including differentials, axles, emission controls, exhausts, and engine cooling systems. EV powertrains have a relatively simpler structure compared to ICE power trains and only include battery packs, charging ports and drive train units.

There is a wide imparity in Capex for EV and ICE variants, with an electric car costing ~2x of an ICE variant. Similarly, the cost of e-buses is ~1.5-2x higher than the diesel counterparts, subject to specifications. Strong government support (from central and state governments) in the form of subsidies has helped E2W and E3W achieve price parity with their ICE counterparts.

Additionally, the EV industry is heavily import-driven pertaining to Lithium-ion (Li-ion) battery cells. The rising inflation rate in India coupled with adverse USD/INR is making difficult for importers to procure cells at a lower cost. India imported nearly 450 million units of Li-ion batteries costing US$ 865 million in FY20. The established battery capacity is estimated to be 736GWh in 2021 and is expected to surpass ~1TWh in 2023. The demand for battery capacity in India is still low, estimated at ~1GWh in 2021.

The EV industry faces dearth of charging infrastructure with mere 1,742 charging stations in the country. This number is expected to increase to 100,000 units by 2027 to accommodate the increasing demand by ~1.4 million EVs expected to be on the roads by then.

There is high demand of subsidies under the Faster Adoption and Manufacturing of Hybrid and EV (FAME II) scheme. Additionally, the emergence of the battery-as-a-service (BaaS) model will trim the total cost of operation (TCO) of EVs in the coming years.

EV Policy Support

India has taken a leap of faith for a promoting and implementing clean energy-based future, evident from the changes in the policies of the governments with respect to environmental protection. There are 20 states in India which have come up with either a draft or final state level EV policy. These state policies aim to accelerate Indias transition from ICE to EVs.

In March 2019, Ministry of Heavy Industries and Public Enterprises (MoHI&PE) notified the FAME II scheme, where the primary role of the ministry is to develop a framework for implementation of the FAME scheme.

In February 2021, the Ministry of Road, Transport and Highways (MoRTH) launched the ‘Go Electric campaign for promoting and spread awareness on electric mobility and EV charging infrastructure with a motive to lead India towards a clean ecosystem and to combat adverse climate changes.

The Ministry of Housing and Urban Affairs (MoHUA) notified that the residential and commercial complexes will have to allot 20% of their parking space for EV charging facilities. It has also amended the ‘Urban and Regional Development Plans Formulation and Implementation Guidelines– 2014 to include the formulations of norms and standards for charging infrastructure in city infrastructure planning.

The Ministry of Finance rationalised the customs duty for all categories of vehicles, battery packs and cells in 2019.

It also reduced the GST rates on the purchase EVs from 12% to 5% and announced income tax rebate of US$ 1965 on purchase of EVs. More recently in 2022, the Ministry of Finance has tripled the allocation under the FAME scheme and for the Financial Year 2023, the allocation is expected to be around US$ 381 million. Due to considerable interest in the field of EVs, the union governments total expenditure under the FAME scheme is to be around USD 612 million between FY19 and FY23.

The Ministry of Environment, Forest and Climate Change is the key union ministry connected with the National Electric

Mobility Mission Plan 2020 initiative. The ministry also published the Draft Battery Waste Management Rules, 2020 to strengthen the ecosystem for handling and disposal of batteries across India. The Draft Rules aim at creating an effective mechanism for the disposal of batteries and ensuring public safety.

The Automotive Mission Plan 2016-26 (AMP II) provides for a plan to provide adequate incentives to ensure expeditious development of indigenous EV component designs and development of manufacturing industry for hybrid vehicles and EVs in India.

The announcement of a battery swapping policy in the Union Budget 2022-23 is also likely to boost the setting up of charging stations for electric vehicles through subsidies and incentives.

^ Source: EY Parthenons Electrifying Indian Mobility

IV. Company Overview

Kabra Extrusiontechnik (KET) is Indias premier manufacturer & exporter of extrusion plants. KET is a part of renowned Kolsite Group having over 6 decades of experience, more than 14,463 installations and presence in more than 92 countries in

Americas, Middle East, Asia and Africa. KET enjoys leadership position in the extrusion market. KET constantly endeavours to offer better solutions to plastics processors across the globe. Kabra Extrusiontechnik has set benchmarks in plastics extrusion industry by modern R&D techniques and various processes to cater the market requirements.

Battrixx is the future technologies division of KET. It is dedicated to developing and producing green energy systems and solutions that will power the growth of Indias transition into green energy storage and electric transportation. Battrixx has technologically partnered with a renowned European player, thereby benefitting from a patented design and manufacturing process. The brand stands tall with state-of-the-art facilities for design, development and production in Chakan, Pune.

The noble objectives are epitomised by the brands flagship product advanced lithium-ion battery packs and modules for e-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 1,200 crores led by ~2,000 skilled professionals.

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

KET enjoys market leadership status in the extrusion market with 40% market share as on FY22. The Company has a strong brand loyalty and wide customer base in the 90+ export markets.

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



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


A 50:50 JV with Penta SRL, Italy for auto-feeding systems for the plastics and food processing industry


Technology partnership with Unicor GmbH in October 2016 to make corrugated pipe machines

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, like drip lines have widened the range of products.

5. Diversification into Battery Management System (BMS): Battrixx, KETs Battery Division offers advanced lithium-ion battery packs with smart BMS both for electric vehicles and other energy storage applications. Battrixx acquired 100% stake in Pune-based Varos Technology to develop end-to-end battery management systems by leveraging cloud-based Artificial Intelligence (AI)-driven analytic tools to help predict battery life and monitor battery 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 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 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 Rs Cr) FY21 FY22 Growth
Revenue 276 406 46.9%
Gross Profit 100 132 32.7%
Gross Profit margin % 36.1% 32.6% (350 bps)
EBITDA 41 55 34.2%
EBITDA margin % 14.8% 13.5% (126 bps)
EBIT 31 44 39.6%
PAT 25 30 23.3%
PAT margin % 8.9% 7.5% (143 bps)

KETs revenues grew by 46.9% YoY to 406 crores owing to growth in both extrusion and Battery business. The revenue mix of Extrusion Business: Battery Division stood at 73:26 in FY22 as against 99:1 in FY21.

The Companys EBITDA grew by 34.2% YoY to 55 crores. EBITDA margin stood at 13.5% in FY22. KETs PAT grew by 23.3% YoY to 30 crores. PAT margin stood at 7.5% during FY22.

C. Significant changes in Key Financial Ratios and Change in return on Net Worth:

Sr. No. Particulars % Change Increase/(Decrease) Reason(s) for variation
1. Debtors Turnover -46% Due to higher receivables in Current year
2. Inventory Turnover -45% Due to increase in inventory
3. Interest Coverage Ratio 21% Due to higher EBIT during current year
4. Current Ratio -12% Due to decrease in working capital in Current year
5. Debt Equity Ratio 106% Due to increase in debt
6. Operating Pro t Margin -9% Due to increase in debt
7. Net Pro t Margin -17% Due to lower profitability product in total revenue

CHANGE IN RETURN ON NET WORTH as compared to the immediately previous financial year along with a detailed explanation thereof: Increased by 18.26% due to higher sales during the year under review.

D. Business Outlook

Extrusion Business: The Company is making continuous efforts to develop a wide range of extrusion lines and allied products. Effective implementation of key strategies will enable us to achieve long-term sustainable growth. The Companys focus is on investing more in technology and increasing reach in the promising markets. With a wider and more innovative product portfolio, the Company shall be better equipped to withstand the challenges in the short to medium term.

BMS/ESS Business: Battrixx plans to add 5 additional Cylinderical and 4 Prismatic battery pack production lines. It plans to enhance the annual production capacity from 100,000 battery packs to 700,000 battery packs by end of FY24. Battrixx will invest INR 100 crores funded by Equity/Internal Accruals.

E. Risk and Challenges

The Companys business operations may fluctuate due to a variety of factors such as Technology obsolescence, unforeseen contingencies such as Covid-19, market conditions, growing competition, including imports and unorganized sector that may have adverse effect on Companys business and its margin in future. A risk identification and mitigation framework has been adopted by the Company. Major risks have been identified by the businesses and functions and the Company will adopt various measures at different points in time to counter these risks successfully on a continuing basis. The Company is geared up to provide a technological solution to face the upcoming challenges to process reusable, recyclable or compostable Plastic as well as Lead-Free stabilizers by upgrading the existing set up of its customers.

The Company has diversified its business into a segment of Energy Storage Systems (ESS), to reduce the dependency on single segment business. The Company will leverage its ability to adapt new technologies to manufacture advance Lithium-ion Battery Packs equipped with Battery Management Systems (BMS) under the brand name "BATTRIXX" to power the growth of Indias transition to green energy storage and electric transportation.

V. Internal Control Systems 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, except to the extent of temporary suspension of operations on account of Covid-19 related lockdowns. The programmes aiming at leadership development and upgradation with advancing technology on all fronts were conducted during the year. The Company continues to maintain the Covid-19 safety protocols ensuring its human capital safety. We are pleased to state complete vaccination for all eligible employees. Our human capital strength stood at 488 including Workers, Staff and Executives as on 31st March 2022.

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.

For and on behalf of the Board
Place : Mumbai
Date : 10/05/2022
S. V. Kabra
Chairman & Managing Director
(DIN: 00015415)