Kalyani Forge Management Discussions

Economic Review

Global Economy

The global economy is facing crisis due to rising inflation, resurgence of COVID-19 in some areas and Russia –Ukraine war. Inflation around the world is predicted to fall to 6.6% in the year 2023 as compared to 8.8% in 2022 and to further decline to 4.3% in 2024 which still remains above pre-pandemic levels of about 3.5%. The global growth is expected to fall from 3.4% in the year 2022 to 2.9% in year 2023. It is expected to rise in 2024 to about 3.1%.

The global growth is declining, the reasons being tightening of monetary policy, Russia-Ukraine War and financial crisis faced by

United States and Europe which is leading to huge amount of uncertainty in the world economy.

Indian Economy

In India Real GDP or GDP at Constant (2011-12) prices in the year 2022-23 are estimated to attain a level of 160.06 lakh crores, as against the First Revised Estimates of GDP for the year 2021-22 of 149.26 lakh crore. The growth in real GDP during 2022-23 is estimated at 7.2 per cent as compared to 9.1 per cent in 2021-22. Nominal GDP or GDP at Current Prices in the year 2022-23 is estimated to attain a level of 272.41 lakh crores, as against 234.71 lakh crores in Fy 2021-22, showing a growth rate of 16.1 per cent. GDP at Constant (2011-12) Prices in Q4 2022-23 is estimated at 43.62 lakh crore, as against 41.12 lakh crore in Q4 2021-22, showing a growth of 6.1 percent. GDP at Current Prices in Q4 2022-23 is estimated at 71.82 lakh crore, as against 65.05 lakh crore in Q4 2021-22, showing a growth of 10.4 percent.

India GDP Growth, (National Statistics Office)

The overall growth remained robust and is estimated to be 6.9 per cent for the full year with real GDP growing 7.7 per cent year-on-year during the first three quartersoffiscalyear 2022 - 23. There were some signs of moderation in the second half of FY

22 - 23. Growth was underpinned by strong investment activity bolstered by the governments capex push and buoyant private consumption, particularly among higher income earners. Inflation remained high, averaging around 6.7 per cent in FY22 - 23 but the current-account deficit narrowed in Q3 on the back of strong growth in service exports and easing global commodity prices.

The forging industry remains as one of the major contributors towards the Indian manufacturing industry. The forging industry of India provides direct employment to about 86,000 people. The small and very small units are mainly dependant on manual labour, however medium and large units are more mechanized. Quality standards in the industry have enhanced significantlyand the sector is now well known globally for its high quality and precision. India is the 3rd largest manufactures of forgings around the globe after China and the European Nations (led by Germany).

Future Outlook

As per Automotive Mission Plan 2016-26 (AMP) the Indian auto component industries may attain an impressive USD 200 billion in revenue by 2026, with exports of around USD 80 billion. The Indian Automotive industry will be among the top three of the world in the area of engineering, manufacturing export of vehicles and components. It is estimated that the demand of vehicles will reach 66.3 to 75.8 million units in the same year. Domestic aftermarket is estimated to reach USD 32 billion by 2026 from around 8 billion USD in FY – 2017. Estimated contribution of Auto Component Industry in Indias GDP will account to as much as 5% to 7% by 2026 and direct incremental employment of around 3.2 million.

(Sources: Press Information Bureau - Government of India, World Bank, Ascon India)

Business Environment

Global Supply Chains in our industry have been affected by shocks of covid and Ukraine war. From our primary interaction across all global customers, most of them are keen on shifting some or majority of their manufacturing or sourcing operations from China to India. This is a tail-wind for Kalyani Forge to capitalize on the sourcing interest from Indian companies who have a long history and established brand in the market.

Our Country enjoys a strong position in the global heavy vehicles market as it is the largest manufacturer of Tractors, the second-largest manufacturer of buses and third-largest manufacturer of heavy trucks around the world. Our company has a scope to extend its market share into these sectors to diversify in other sector as well, particularly in the defence sector as the government intends to reduce the defence export and procure defence requirements indigenously.

The focus of Indian Automotive industry is shifting towards Electronic Vehicles shortly called as EVs. Our country is a prominent auto exporter and has strong export growth expectations in the near future and in addition to that there are several initiatives implemented by the Government of India and major automobile players in the domestic market are expected to make our country a leader in the two-wheeler and four-wheeler market across the globe.

In spite of these upcoming opportunities, the forging industry faces a number of challenges which include, disrupted supply chain, poor allocation of resources, delayed technology up gradation, lack of benchmark infrastructure available in the Country amongst others.

Financial Review

Our company dedicated towards improving our Financial and operational performance. To achieve the same there has been number of machinery and tools installations in our manufacturing units for expanding scale of operations, improving operational efficiency and to improve the quality of the products. We are focussed towards quality control efforts to remove any bottlenecks that we face or might face while expanding our operations.

We have implemented various initiatives for cost optimization which include halting of shot blasting, grinding and outsourcing of MPI activities, implementation of Yield Improvement Project and reduction of cycle time in machining process.

Particulars 2022-23 2021-22 Change Formulae Reason for Change
Debt Ratio 0.48 0.43 0.05 Total Liabilities/ Total Assets NA
Debt Equity Ratio 0.36 0.25 0.11 Long/Short Term Debts (Secured Loans + CC)/ Net Worth Deviation was due to increase in Debt.
Interest Coverage Ratio 2.81 2.37 0.45 PBT + Interest/ Interest NA
Debt service coverage ratio 0.50 0.74 -0.24 PBT+Depreciation+Interest/Debt Service Deviation was due to increase in Debt.
Current Ratio 1.69 1.74 -0.05 Current Assets/Current Liabilities NA
Quick Ratio 0.93 1.08 -0.15 Current Asset-Inventories/Current Liability NA
Cash Ratio 0.06 0.07 -0.01 Cash & Cash equilant/ Current Liability NA
Asset turnover ratio 1.33 1.35 -0.02 Net Sale/ Total Asset NA
Trade Receivable turnover ratio 3.67 3.54 0.12 Net credit sales/ Average accounts receivable NA
Inventory Turnover ratio 3.58 4.29 -0.17 Sales/ Average Inventory NA

Human Resources

We strive to remain transparent and non-bureaucratic by having a flat organizational structure that enables the free flow of communication across all levels and locations. The company restructured and restored the 5-level organization structure to enable speed and agility of teams. Several Job Descriptions have ben updated and new ones created for specialized roles as the which are required for growth. Several HR policies have been simplified and digitized for ease of working of our employees.

The KOSPO team has started quarterly Kaizen Awards for employees across all plants and departments. This has brought many ideas to fruition which result in cost savings and productivity improvement. In FY23, a total of 90 Kaizens projects were submitted by employees.

Information Technology

The company started implementation of Quality Management Module in SAP. It has also initiated Costing Runs and Master Data improvements for better analysis of product costs. IT communications infrastructure has been improved across all plants with better internet connectivity access points to replace smaller scale devices.

The company has digitized many operations like new RFQ management, accounting approvals and project management.

Corporate Social Responsibility

Our Company truly believes that a thriving organisation has a responsibility towards society, the nation and the world at large. With CSR initiatives, our company continues to follow through with a passion for giving back to society.

Sustainable development of the society is a major theme of our CSR policy. We aim to joint forces with the governments role in societys welfare. Our team works cohesively to uplift and empower the marginalised section of society. We create projects that aim to improve the lives of the more economically deprived sections of society, especially those with limited access, such as women, children and the elderly. The company continually organises initiatives that involve volunteering for various CSR projects.

Risk Management

Risk Management is becoming an increasing important area for all organizations and especially for a company like ours that is on the growth path. We understand the need to eliminate, minimize and contain risks and uncertainty so that the momentum to grow does not stop. We have identified some important dimensions of Risk Management as follows:

Business Risk – evaluating business lifecycles for each product and impact of market movements on the business

Operational Risk – identifying all risks that impact the order to cash cycle. We have instituted a Monthly Sales Planning process and Monthly Sales Risk Mitigation Plan in FY23.

Compliance Risk – all operating compliances and statutory obligations are reviewed by our KOSPO Department in their internal audit and management review meetings. All financial and governance related compliances are reviewed by the Secretarial and

Finance Departments as well as in Quarterly Audit Committee Meetings.

Internal Control Systems and Their Adequacy

The Company has a well-framed internal control system that authorizes, records, and reports transactions to safeguard assets and protect against loss from unauthorized use or disposition. Internal controls are in place to ensure reliable data and financial information is reported for all assets. The internal control systems include several processes including but not limited to extensive internal audits, management review, and documented KOS policies, guidelines, and procedures.