Kenrik Industries Ltd Management Discussions

You should read the following discussion of our financial condition and results of operations together with our restated financial statements for the financial year ended 31^st March 2024, 31^st March 2023, and 31^st March 2022 including the notes and significant accounting policies thereto and the reports thereon, which appear elsewhere in this Draft prospectus. You should also see the section titled "Risk Factors" beginning on page 21 of this Draft prospectus, which discusses a number of factors and contingencies that could impact our financial condition and results of operations. The following discussion relates to our Company, unless otherwise stated, is based on restated audited financial statements. These financial statements have been prepared in accordance with Ind GAAP, the Companies Act and the SEBI (ICDR) Regulations and restated as described in the report of our auditors dated May 20, 2024 which is included in this Draft Prospectus under the section titled "Financial Information as Restated" beginning on page 138 of this Draft Prospectus. The restated financial statements have been prepared on a basis that differs in certain material respects from generally accepted accounting principles in other jurisdictions, including US GAAP and IFRS. We do not provide a reconciliation of our restated financial statements to US GAAP or IFRS and we have not otherwise quantified or identified the impact of the differences between Indian GAAP and U.S. GAAP or IFRS as applied to our restated financial statements. This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those described under "Risk Factors" and "Forward Looking Statements" beginning on pages 21 and 15 respectively, and elsewhere in this Draft Prospectus Accordingly, the degree to which the financial statements in this Draft Prospectus will provide meaningful information depends entirely on such potential investors level of familiarity with Indian accounting practices. Our F.Y. ends on March 31 of each year; therefore, all references to a particular fiscal are to the twelve-month period ended March 31 of that year. Please also refer to section titled "Certain Conventions, Use of Financial, Industry and Market Data and Currency Presentation" beginning on page 13 of this Draft Prospectus.

BUSINESS OVERVIEW

Our Company was originally incorporated as ‘Kenrik Industries Private Limited on February 28, 2017 under the provision of the Companies Act, 2013 bearing Corporate Identification Number U36101GJ2017PTC095995 issued by the Deputy Registrar of Companies for and on behalf of the Jurisdictional Registrar of Companies, Registrar of Companies, Central Registration Centre. Subsequently, our company was converted into a Public Limited Company under the Companies Act, 2013 and the name of our Company was changed to "Kenrik Industries Limited" vide a fresh Certificate of Incorporation consequent upon conversion from Private Company to Public Company dated April 27, 2018 bearing Corporate Identification Number U36101GJ2017PLC095995 issued by Assistant Registrar of Companies, Ahmedabad. Our Company is mainly focused on traditional Indian jewellery. Our products include handmade gold jewellery studded with precious and semi-precious stones such as diamond, ruby, cubic zirconia etc. Our product portfolio includes rings, earrings, armlet, pendants, nose rings, bracelets, chains, necklaces, bangles, watches, luxury items and other wedding jewellery. Our products cater to the customers across high-end, mid-market and value market segments. The jewelleries are made as per the specific requirements by the customer and the same are manufactured on job work basis at our manufacturing unit situated in Ahmedabad, Gujarat. We are currently operating on a primarily on a B2B business Model and offer our customers a broad variety of jewelleries and ornaments. As we are currently operating under a B2B business Model, we focus on operations relating to quality control, inventory management and business development. The Company deals only in jewellery certified by BIS Hallmark. The BIS hallmark is a mark of conformity widely accepted by the consumer bestow the additional confidence to the consumer on the purity of our gold jewellery. To reach up to the utmost customer satisfaction level, we focus on jewelleries based on the customer preference(s).Our company has website as well as mobile application which facilitates in expansion of our business. We are a customer-centric Company, our prime focus is to attain the utmost client satisfaction by offering them quality assured products. We also deliver our products in a quality packaging material to ensure safe transport. Moreover, our ethical trade practices, transparent business dealings and timely delivery of products help us in maintaining cordial relations with our customers. Our Company strives at all times to provide products that offer our customers the designs with superior finish and quality. Our Promoters Nitinkumar Dalpatbhai Shah and Nihar Nitinbhai Shah have around 25 years of experience and nearly half decade respectively in gems and jewellery industry and with their innovative business ideas, in-depth knowledge and excellent management skills, we have served our customers proficiently.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE LAST AUDITED PERIOD

In the opinion of the Board of Directors of our Company, since the date of the last audited period i.e., March 31, 2024 as disclosed in this Draft Prospectus, there have not arisen any circumstance that materially or adversely affect or are likely to affect the trading or profitability of our Company or the value of its assets or its ability to pay its material liabilities within the next twelve months except as follows:

1. The Board of Directors have decided to get their equity shares listed on SME Platform of BSE Limited and pursuant to Section 62(1)(c) of the Companies Act 2013, by a resolution passed at its meeting held on April 22, 2024 proposed the Issue, subject to the approval of the shareholders and such other authorities as may be necessary.

2. The shareholders of The Company have, pursuant to Section 62(1)(c) of the Companies Act 2013, by a special resolution passed in the Extra Ordinary General Meeting held on May 17, 2024 authorized the Initial Public Offer.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATION

1. Covid-19 pandemic.

2. Our dependence on limited number of customers/suppliers/brands for a significant portion of our revenues;

3. Any failure to comply with the financial and restrictive covenants under our financing arrangements;

4. Our ability to retain and hire key employees or maintain good relations with our workforce;

5. Impact of any reduction in sales of our services/products;

6. Rapid Technological advancement and inability to keep pace with the change;

7. Increased competition in industries/sector in which we operate;

8. General economic and business conditions in India and in the markets in which we operate and in the local, regional and national economies;

9. Changes in laws and regulations relating to the Sectors in which we operate;

10. Political instability or changes in the Government in India or in the government of the states where we operate could cause us significant adverse effects; 11. Failure to obtain any applicable approvals, licenses, registrations and permits in a timely manner; 12. Occurrence of natural or man-made disasters could adversely affect our results of operations and financial condition and 13. Our inability to successfully diversify our product offerings may adversely affect our growth and negatively impact our profitability.

SIGNIFICANT ACCOUNTING POLICIES:

Our significant accounting policies are described in the section entitled "Financial Statements as Restated" beginning from page no. 138 of the Draft Prospectus.

MAJOR COMPONENTS OF OUR STATEMENT OF PROFIT AND LOSS Income

Our total income comprises of revenue from operations and other income.

Revenue from Operations

Our Revenue from operations majorly comprises of revenues from sale of products such as gold and silver jewellery and other products .

Other Income

Other income comprises of interest income and other miscellaneous income.

Expenditure

Our total expenditure primarily consists of cost of Material Consumed, employee benefit expenses, finance costs, Depreciation and Other Expenses.

Employee Benefit Expenses

Our employee benefits expense comprises of Salaries and wages, Director Remuneration, & Staff Welfare Expenses.

Finance costs

Our Finance cost expenses comprises of Interest Expenses & other borrowing costs.

Other Expenses

Other expenses primarily include Rent Expenses, Freight & Transportation, Insurance Charges, Rates and Taxes etc.

Provision for Tax

The provision for current taxation is computed in accordance with relevant tax regulation. Deferred tax is recognized on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or subsequently enacted as on balance sheet date. Deferred tax assets are recognized and carried forward to the extent that there is a virtual certainly that sufficient future taxable income will be available against which such deferred tax assets can be realized in future.

SUMMARY OF THE RESULTS OF OPERATION:

The following table sets forth select financial data from restated profit and loss accounts for financial year ended on 31^st March 2024, 31^st March 2023 and 31^st March 2022 and the components of which are also expressed as a percentage of total income for such periods.

(Rs in Lakhs)

			For the year ended
Particulars	31st March 2024	% of Total Revenue	31st March 2023	% of Total Revenue	31st March 2022	% of Total Revenue
(1) Revenue
(a) Revenue from Operations	7077.05	99.76%	5188.42	99.70%	3258.71	99.68%
(b) Other Income	17.23	0.24%	15.71	0.30%	10.45	0.32%
Total Revenue (1)	7094.28	100.00%	5204.14	100.00%	3269.17	100%
(2) Expenses
Cost of Material Consumed	6915.35	97.48%	5094.74	97.90%	3189.17	97.55%
Employee Benefit Expenses	29.06	0.41%	19.39	0.37%	18.55	0.57%
Other Expenses	6.62	0.09%	23.10	0.44%	6.82	0.21%
Total Expenses (2)	6951.04	97.98%	5137.23	98.71%	3214.54	98.33%
(3) Profit/(Loss) before
Interest, Depreciation and	143.24	2.02%	66.91	1.29%	54.63	1.67%
Tax (1-2)
Depreciation & Amortisation
	1.47	0.02%	1.82	0.03%	2.13	0.07%
Expenses
(4) Profit/(Loss) before
	141.77	2.00%	65.09	1.25%	52.49	1.61%
Interest and Tax
Financial Charges	0.00	0.00%	0.00	0.00%	0.00	0.00%
(5) Profit/(Loss) before Tax	141.77	2.00%	65.09	1.25%	52.49	1.61%
Tax expense
(a) Current Tax	36.39	0.51%	17.68	0.34%	13.69	0.42%
(b) Deferred Tax	(0.69)	-0.01%	(0.03)	0.00%	(0.04)	0.00%
(c) MAT Credit	0.00	0.00	0.00	0.00%	0.00	-
Total Tax Expenses	35.70	0.50%	17.65	0.34%	13.65	0.42%
(6) Profit/(Loss) for the
	106.07	1.50%	47.44	0.91%	38.84	1.19%
period/ year

COMPARISON OF FINANCIAL YEAR ENDED MARCH 31, 2024 WITH FINANCIAL YEAR ENDED MARCH 31, 2023

Total Income

The total income for the financial year ended March 31, 2024, increased significantly by Rs. 1,890.14 lakhs, from Rs. 5,204.14 lakhs in the financial year ended March 31, 2023, to Rs. 7,094.28 lakhs. This growth is primarily driven by revenue from operations.

Revenue from Operations

Revenue from operations experienced remarkable growth, increasing by 36.40% to reach Rs. 7,077.05 lakhs for the financial year ended March 31, 2024, compared to Rs. 5,188.42 lakhs for the financial year ended March 31, 2023. This increase in revenue is attributed to a rise in the quantity of gold and silver products sold, along with an increase in gold and silver prices.

Other Income

Other income witnessed an increase of 9.66%, rising from Rs. 15.71 lakhs in the financial year ended March 31, 2023, to Rs. 17.23 lakhs for the financial year ended March 31, 2024. This increase is primarily due to higher interest income during the period.

Cost of Material Consumed

The cost of materials consumed increased by Rs. 1,820.61 lakhs, or 35.74%, from Rs. 5,094.74 lakhs in the financial year ended March 31, 2023, to Rs. 6,915.35 lakhs for the financial year ended March 31, 2024. This notable increase aligns with the growth in sales volume during the same period.

Employee Benefit Expenses

Employee benefit expenses exhibited a substantial increase of Rs. 9.68 lakhs, or 49.92%, from Rs. 19.39 lakhs in the financial year ended March 31, 2023, to Rs. 29.06 lakhs for the financial year ended March 31, 2024. This rise is attributed to an increase in salary of the employees and number of employees during the period.

Other Expenses

Other expenses decreased by 71.33%, from Rs. 23.10 lakhs in the financial year ended March 31, 2023, to Rs. 6.62 lakhs for the financial year ended March 31, 2024. This decrease was due to a one-time marketing expense incurred in the previous financial year to boost sales.

Profit Before Tax

Profit before tax demonstrated an extraordinary surge, increasing by Rs. 76.68 lakhs, from Rs. 65.09 lakhs in the financial year ended March 31, 2023, to Rs. 141.77 lakhs for the financial year ended March 31, 2024. This remarkable increase was due to increase in business operations.

Profit After Tax

The combined impact of the above factors led to a substantial growth in profit after tax, surging by Rs. 58.63 lakhs, from Rs. 47.44 lakhs in the financial year ended March 31, 2023, to Rs. 106.07 lakhs in the financial year ended March 31, 2024. This reflects robust financial performance for The Company during this period.

COMPARISON OF THE FINANCIAL PERFORMANCE OF F.Y. 2022-23 WITH F.Y. 2021-22

The total income for the year ending March 31, 2023, increased significantly from Rs. 3,269.17 lakhs as of March 31, 2022, to Rs. 5,204.14 lakhs. This increase was primarily due to a substantial rise in revenue from operations, detailed as follows:

Income

Revenue from Operations

Revenue from operations saw a notable increase of 59.22%, rising from Rs. 3,258.71 lakhs as of March 31, 2022, to Rs. 5,188.42 lakhs as of March 31, 2023. This growth was driven by an increased demand for our gold and silver products.

Other Income

Other income increased by Rs. 5.26 lakhs, from Rs. 10.45 lakhs as of March 31, 2022, to Rs. 15.71 lakhs as of March 31, 2023. This rise was primarily attributable to an increase in interest income.

Expenditure

Cost of Materials Consumed

The cost of materials consumed rose by 59.75%, reaching Rs. 5,094.74 lakhs in FY 2022-23, up from Rs. 3,189.17 lakhs as of March 31, 2022. This increase was driven by higher material purchases due to increased demand.

Employee Benefit Expenses

Employee benefit expenses surged by 4.50%, reaching Rs. 19.39 lakhs as of March 31, 2023, up from Rs. 18.55 lakhs as of March 31, 2022. This rise was primarily due to increased salary expenses.

Other Expenses

Other expenses saw an increase of 238.72%, rising from Rs. 6.82 lakhs as of March 31, 2022, to Rs. 23.10 lakhs as of March 31, 2023. This rise was mainly driven by higher marketing expenses, which in turn led to increased sales.

Profit Before Tax (PBT)

The Companys PBT surged, increasing from Rs. 52.49 lakhs as of March 31, 2022, to Rs. 65.09 lakhs as of March 31, 2023. This remarkable growth of 24% was primarily attributable to improved profitability margins.

Profit After Tax (PAT)

Consequently, PAT experienced a significant increase of 22.14%, soaring from Rs. 38.84 lakhs as of March 31, 2022, to Rs. 47.44 lakhs as of March 31, 2023. This substantial growth underscores The Companys enhanced financial performance and operational effectiveness during the fiscal year. In conclusion, The Company demonstrated commendable financial resilience and growth in FY 2022-23. Strategic endeavours and operational excellence across various segments led to significant enhancements in both top-line and bottom-line performance.

Cash Flows

(Rs. in Lakhs)

	For the Financial Year ended March 31
Particulars
	2024	2023	2022
Net Cash flow (used in)/ from Operating Activities	236.88	28.62	(501.57)
Net Cash flow (used in)/ from Investing Activities	7.10	(50.60)	(1.41)
Net Cash flow (used in)/ from Financing Activities	21.20	21.55	502.44

Cash Flows from Operating Activities

Net cash from operating activities for the year ended 31st March 2024, was Rs. 236.88 lakhs as compared to the Profit Before Tax at Rs. 141.77 lakhs. Net cash from operating activities for the year ended 31^st March 2023 was at Rs. 28.62 lakhs as compared to the Profit Before Tax at Rs. 65.09 lakhs while for the year ended 31^st March 2022, net cash from operating activities was at Rs. (501.57) lakhs as compared to the Profit Before Tax at Rs. 52.49 lakhs.

Cash Flows from Investment Activities

Net cashflow from investing activities for the year ended 31st March 2024 was Rs. 7.10 lakhs this was due to the decrease in the long-term loans and advance. Net cash flow from investing activities for the year ended 31^st March 2023 was at Rs. (50.60) lakhs due to increase in the long-term loans and advance. While for the year ended 31^st March 2021, net cash flow from investing activities was at Rs. (1.41) lakhs due to purchase of fixed assets.

Cash Flows from Financing Activities

Net cashflow from financing activities for the year ended 31st March 2024 was Rs. 21.20 lakhs is due to proceeds of loan. Net cash from financing activities for year ended 31^st March 2023 was at Rs. 21.55 lakhs due to increase in loans, while for the year ended 31^st March 2022, net cash from financing activities was at Rs. 502.44 lakhs majorly due to issue of new equity shares and loan taken.

AN ANALYSIS OF REASONS FOR THE CHANGES IN SIGNIFICANT ITEMS OF INCOME AND EXPENDITURE IS GIVEN HEREUNDER:

1. Unusual or infrequent events or transactions

Except as described in this Draft Prospectus, during the periods under review there have been no transactions or events, which in our best judgment, would be considered unusual or infrequent.

2. Significant economic changes that materially affected or are likely to affect income from continuing operations.

There are no significant economic changes that may materially affect or likely to affect income from continuing operations except the Covid-19 pandemic which is still to be controlled. However, Government policies governing the sector in which we operate as well as the overall growth of the Indian economy has a significant bearing on our operations. Major changes in these factors can significantly impact income from continuing operations.

3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section "Risk Factors" beginning on page 21 in the Draft Prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

4. Expected Future changes in relationship between costs and revenues

Our Companys future costs and revenues will be determined by demand/supply situation, Government Policies and Taxation and Currency fluctuations.

5. Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or increased sales prices

Changes in revenue in the last financial years are as explained in the part "Comparison of the financial performance of above.

6. Total turnover of each major industry segment in which our Company operates

The Company is mainly engaged in operations of selling gold and silver products all the activities of the business revolve around this main business. Therefore, there are no separate reportable segments.

7. Status of any publicly announced New Products or Business Segment

Apart from the recent business initiatives discussed in "Our Business" on page 92, we currently have no plans to develop new products or establish new business segments.

8. Seasonality of business

The Company experiences seasonal fluctuations in sales, particularly during festival periods and the wedding season in certain regions. Although we proactively manage inventory to accommodate these fluctuations, our fixed costs, such as employee salaries and showroom operating expenses, remain consistent. Failing to accurately predict and prepare for these seasonal variations could significantly impact our business, financial stability, and operational performance.

9. Competitive conditions

Competitive conditions are as described under the Chapters "Industry Overview" and "Our Business" beginning on page 81and 92 respectively of the Draft Prospectus.

10. Details of material developments after the date of last balance sheet i.e., 31^st March 2024.

Except as mentioned in this Draft Prospectus, no circumstances have arisen since the date of last financial statement until the date of filing the Draft Prospectus, which materially and adversely affect or are likely to affect the operations or profitability of our Company, or value of its assets, or its ability to pay its liability within next twelve months.