MANAGEMENT DISCUSSION AND ANALYSIS REPORT
(A) Industry and Business Overview: Review of Operations
Your company has recorded a turnover of Rs. 3.31 Crores in the
financial year FY 2022-23. The company has recorded a loss (before tax) of Rs.19.38 crores
as against a loss of Rs.11.80 Crores in the previous year.
South Central Railways
Kernex has completed the execution of the TCAS contract issued by South
Central Railways in 2019. Pre- commission check list and Joint Inspection was carried out
in the entire section and complied with. The company is now in the process of Final
Handing Over of the Equipment to the Railways. Safety Integrity Level 4 (SIL4)
certification by M/s. Ital Certifier (Independent Safety Assessor) has been taken up and
is waiting for ISA (Independent Safety Assessment) Certification.
NCR A, B & ICF Projets:
The Railway Board has floated multiple tenders in various Railway zones
for the installation of Kavach System. The total budget of the tenders was to the tune of
Rs. 1,500 crores spanning across 1,500 Kms. Out of these tenders, Kernex has partnered
with KEC as a consortium and bagged two orders worth about Rs. 550 Crores in the North
Central Railway Section.
Project 1 – NCR-A (North Central Railway):
Provision of Kavach (Train Collision Avoidance System), along with 2x24
fiber OFC as a backbone on Chipyana Buzurg (Excl) - Kanpur (Excl.) Sector on North Central
Railway on 31 Aug 2022. The total value of the project is Rs.268.89 Crores.
The project is to be completed by August 2024
The RSSI, Drone Survey, Station & locomotive surveys, tower
location survey were carried out and the drawings were submitted. The detailed procurement
plan and project schedules were worked out and were submitted. The procurement of material
was initiated along with the pre-production works for the manufacturing of Station Kavach,
Loco Kavach,etc.,
Project 2 – NCR-B (North Central Railway):
Provision of Kavach (Train Collision Avoidance System), along with 2x24
fiber OFC as a backbone on Kanpur (Incl) - Pt Deen Dayal Upadhyay Nagar (Excl) on 30 Sep
2022. The total value of the project is Rs.268.52 Crores
The project is to be completed by September 2024
The RSSI, Drone Survey, Station & locomotive surveys, tower
location survey were carried out and the drawings were submitted. The detailed procurement
plan and project schedules were worked out and were submitted. The procurement of material
was initiated along with the pre-production works for the manufacturing of Station Kavach,
Loco Kavach etc.
Project 3 – ICF (Integral Coach Factory, Chennai)
Your company bagged an order worth of 26 Cr to supply and commission
Kavachequipment on Vande Bharat trains being manufactured at Integral coach factory,
Chennai.
The delivery and commissioning will be completed within the Fiscal year
2023-24.
International
Having supplied all the 136 gates earlier, your company has completed
installation and Commissioning of 124 gates and preliminary handed over to the customer
was completed. Your company is in the process of Final Handover process. 100% material
supplies are completed. Project short closed from 136 Lx to 124 Lxs on mutual agreement
between Kernex and ENR, 2 Lxs repaired and rebuilt and the remaining material lying in
store related to 10 Lx gates needs to be handed over to ENR, the process is started and
handed over 102 nos wheel sensors to ENR, as a part of this material2 years warranty
maintenance for three PHO groups (34 Lx each) has been completed and warranty Maintenance
of fourth Group (22 Lxs) is under progress, likely to be completed in January 2024 FHO of
Lx sites is under progress, FHO of 6 Lx sites has been completed out of 96 Lx sites which
are under operation currently.
28 Lx sites have been dismantled and removed by ENR out of 124 Lxs
commissioned
Sri Lanka Railways
Execution of the order from Sri Lanka Railways for Supply,
Installation, Testing, Commissioning and Maintenance of 200 Nos of Bell and Light Level
Crossing Protection Systems could not be done in 2021-22 due to the circumstances arising
from Covid and Economic crises in Sri Lanka. During end of March 2022, Sri Lankan economy
plunged into payments crisis with depleting Foreign Exchange reserves. The Sri Lankan
Government has imposed Import controls and restrictions on foreign exchange utilization.
Kernex has been evaluating the situation ever since, and due to the COUNTRY RISK, wanted
to exit the project through a "Conciliated dialogue with SLR".It is expected to
have Marginal financial implications, as the EXIT would be mutual.
Research & Development and Addition of New Products
Specific Application Safety Assessment (SASC) for SCR TCAS field trials
is completed for the first for any project commissioned so far and the Final audit report
is awaited.
An upgraded version of Microcontroller Intelligent Module (MIE V2.1)
development is completed and undergoing Type tests. This is the vital controller module
which is responsible for all logic and control operations. This is going to be the basic
building block for all future M/s. Kernex projects. For the next version of TCAS, this
module shall be ready for implementation.
To enhance the safety, Indian Railways releases a new version of Kavach
specifications 4.0. Targeted to complete the development, validation, field trials and
independent safety assessment In FY23-24.
To integrate Kernex Kavach with LTE (in place of exiting UHF
communication), the hardware and Software development is in progress and targeted to
complete field trials in FY23-24.
Safety Integrity Level 4 (SIL4) certification by M/s. Ital Certifier
(Independent Safety Assessor) for Level Crossing Control Systems (LxCS) has been taken up
and shall be taken up for the generic product of (LxCS), waiting for the ISA Audit This
certification will enable us to submit our proposals to OEMs like Alstom, Revenga, etc.,
who are participating in ENR modernization projects.
Kernex is participating in the development of moving blocks along with
Center of Excellence IRISET which is aimed for headway improvement. This is likely to
start in Q4 of 2023.
Future outlook
India has the fourth largest railway network with over 22,593 operating
trains (9,141 freight and 13,452 passengers) with a daily passenger count of 24 million
passengers and 203.88 million tons of freight. In FY22 passenger traffic stood at 3.54
billion as compared to 1.28 billion in FY21. In FY23, railway freight volume stood at
1,109.38 MT which depicted year-on-year growth of 8%. Since August 2020, the Indian
Railways has run 450 Kisan Rail services and was able to transport over 1.45 lakh tons of
agricultural produce & perishables RailTel, a PSU under the Railway Ministry, which
provides fast and free Wi-Fi across the In November 2020, India Railways announced that
40% of dedicated freight corridor (DFC) will be opened for traffic by end-FY21. India is
among the top three exporters of railways globally as of 2022. Indias export of railways
has grown at a CAGR of 31.51% during 2010-18 to US$ 507.90 million. Exports of railways in
2021 stood at US$ 633.27 million.
Indian Railways is developing and creating technology in areas such as
signaling and telecommunication with 15,000 kms being converted into automatic signaling
and 37,000 kms to be fitted with KAVACH, the domestically developed Train Collision
Avoidance System.
The Indian Railways can be called the lifeline of Indias transport
system, connecting villages, towns, and cities across the country in a cost-effective and
efficient manner. Every year, the Union Budget is a highly anticipated event with all eyes
set on the proposals for the railways in the latest budget. These will set the tone for
new development projects to enhance levels of safety and comfort for passengers.
A total of Rs 2.40 lakh crore has been earmarked in capital expenditure
for the Indian Railways in the Union Budget 2023-24. This is approximately nine times the
amount spent in fiscal year 2013-14. Capex will rise more over the next few years and the
railway system will evolve as a national growth engine. Increased private investment will
be made in the infrastructure sector of the railways. The Infrastructure Finance
Secretariat, which has been developed recently, will support all stakeholders like roads,
power, railways, and urban infrastructure which rely primarily on government resources.
The Union Budget 2023-24 is expected to benefit the middle-class sector since railways are
not likely to increase passenger ticket or freight fares. A comprehensive description of
the Indian Railways budget estimates, allocations, revenue, and annual statements will be
provided by the finance minister. The Railway budget 2023 is likely to encourage the Make
in India effort and to emphasize the importance of renewable energy.The Indian Railways
has designed an autonomous railway protection system called Kavach (Train Collision
Avoidance System). This system will focus on preventing accidents caused by human errors.
By 2030, the Indian Railways aims to become a Net Zero Carbon Emitter. It intends to lower
its carbon footprint and reliance on imported fuel, while saving foreign exchange. The
Indian Railways is introducing Kavach in stages. It has been implemented for 1,455 route
km on the South-Central Railway with 77 locomotives till 23 December 2022. Kavach work is
underway on the Delhi-Mumbai and Delhi-Howrah sectors (3000 route km).The railway track
doubling between Surendra Nagar and Rajkot is nearly complete. The Ministry of Railways
states that 92% of the 116.17 km long doubling project is finished. The Udhampur Srinagar
Baramulla Rail Link (USBRL), which was implemented to build a broad-gauge railway line
over the Himalayas is now 90% finished. Through this project, Kashmir will be connected to
other parts of India. The Sivok-Rangpo New Broad-Gauge Rail Line Project is now more than
half completed. Sikkim will be connected to the rail network with the help of this
project. This railway line will stretch 44.96 km from Sivok to Rangpo. A small railway
line of 41.55 km will stretch in Sikkim. The introduction of Vande Bharat Express has
brought a significant improvement in terms of speed and convenience. Because of its rapid
acceleration and deceleration, the train may reach a maximum speed of 160-180 km per hour.
With these trains, the journey time will be reduced by 25% to 45%.In the coming three
years, 400 new-generation Vande Bharat Express trains will be constructed and
manufactured. Additionally, more money will be allocated for the new Vande Bharat trains
and the sleeper-class Vande Bharat 2.0.
The safety measures taken in the last few years have borne results. To
further strengthen this effort high density network and highly utilized network routes
will be provided with indigenously designed automatic train collision system that
eliminates train collision due to human error.
Your companys business mainly emanates from the strategic sector and
as such the capital / revenue allocations in the railway business segment have direct
bearing on Kernexoperations. Post Budget announcements, Kernex is expected to maintain a
healthy order book from strategic sector and achieve rapid growth compared to previous
years.
Your Company domestically having successfully executed the Design,
Development, Manufacture, supply, and trials of the Train Collision Avoidance System in
South Central Railways a Project of the Indian Railways. The Company has a strong R &
D base for the development of new products. The Government of Indias thrust now being in
Modernizing Railways with large infrastructure spending and Rail safety, the Company is in
a strong position to grab the opportunities that are expected to be available. Your
Company with its experience and expertise gained domestically has made a successful foray
into the International Markets in the Rail Sector in Egypt and South Africa and in Sri
Lanka and the outlook for the future appears promising in the years to come.
Mission Raftar : Indian Railways rolls out Train Collision Avoidance
System
INDIAN Railways (IR) is accelerating the deployment of the domestically
developed Train Collision Avoidance System (TCAS), now known as Kavach, with the aim of
installing it on 2000 route-km in the current financial year.
Kavach to be implemented on 65 locomotives, 1,445 km route and 134
stations in South Central Railway zone, while implementation on 1,200 km is underway as of
April 2022. Upgrades to Kavach will be made so that it can handle trains at speeds of up
to 160 kmph prior to it being implemented across 3000 km of track, including the majority
of the - New DelhiMumbai main line and - HowrahDelhi main line. as part of the Mission
Raftar project being undertaken by Indian Railways.
The Union budget of India for the FY 2022-23 allocated fund for the
rapidly implementation of Kavach along 2000 km of track, while also sanctioning its later
implementation across 34,000 km track of Golden Quadrilateral rail route.[4] Indian
commentators have claimed that had Kavach been deployed at the site of the 2023 Odisha
train collision that the system would have prevented the accident from occurring.
Newly built WAG-9HH locomotives will be equipped with Kavach apparatus;
the system will be useable even at these locomotives maximum design speed of 120 kmph. By
June 2023, two percent of all Indian trains had been outfitted with Kavach apparatus.
Opportunities
The Company with its expertise in designing, development, and
deployment of Train Collision Avoidance Systems in Indian Railways, and successfully
completing the installation of automatic and semi-automatic Railway Gates in Egypt and
Rail Safety project in South Africa is better poised to grab new opportunities both
domestically and internationally. Apart from these, the Company is pursuing the
opportunities in the Yard Management where our TCAS systems are using.
There is a possibility of diversifying into Defense related work and
manufacture of Electronic components and can undertake outsourced assembly work.
Threats
The company is presently limited to operations Railways Sector
resulting in the high customer concentration while there is a requirement to look for
newer opportunities in other sectors as well. Your company has initiated various proactive
steps i.e., planning newer offerings in the existing portfolio and diversification of its
product offerings. The rapid technological changes, competition from multi-national
Companies and unfair domestic competition, change in Government policies are the threats.
Segment wise or product wise performance
The Company, being in the business of Rail Safety equipment and
services is operating in one segment only. The performance of the operations is detailed
in the Directors Report on the result of operations.
Risks and areas of concern
The Rail Ministry wants the Indian manufacturers of Train Collision
Avoidance System to attain global standards, while meeting the yardsticks of safety and
security for their products and the need to increase in- line capacity and indigenization
of the technology to upgrade the TCAS system to international best practices so that
Indian technology matches their international counterparts. The companies were advised to
develop an interface between ETCS Level 2 (European Train Control System) and TCAS system
so that locos provided can work in both territories. The firms are to expedite the trials
and safety certifications. These activities may take further time for making changes and
improvements from that already specified by RDSO besides incurring further financial
resources.
Discussion on financial performance with respect to operational
performance
The Revenues and financial performance is detailed elsewhere in the
Directors Report.
Internal control systems and their adequacy
The Company has appointed an external firm of chartered accountants to
conduct Internal Audit and has in place systems of internal control commensurate with its
size and the nature of its operations. These have been designed to provide reasonable
assurance to record and provide reliable financial and operational information, compliance
with applicable statutes, safeguarding of assets from unauthorized use or losses,
executing transactions with proper authorization and ensuring compliance of corporate
policies. The control systems are regularly under review.
The internal Audit process is designed to review the adequacy of
internal control checks and balances in the systems and covers all significant areas of
the Companys operations such as Software and Hardware delivery, production, accounting
and finance, procurement, employee engagement, travel, insurance & other processes in
the company. Safeguarding of assets and their protection against unauthorized use are also
part of these exercises.
The company has an Audit Committee, the details of which have been
provided in the Corporate Governance Report. The Audit Committee reviews Audit Reports
submitted by the Internal Auditors. Suggestions for systematic improvements are considered
and the Audit Committee follows up on the impl?mentation of corrective action. The
Committee also meets the Companys statutory auditors and Internal Auditors to ascertain,
inter-alia, their views on the adequacy of internal control systems in the Company and
keeps the Board of Directors informed of its major observations from time to time.
Your company has well defined internal control systems. The company has
the following certification:
Quality Management System as per ISO 9001:2015
Material developments in HR / Industrial relations area including
number of people employed:
There are no materially significant changes in the HR front during the
year. The total number of employees as of March 2023 is 164as against 87 in the previous
year. The company has a good work environment that encourages innovation and meritocracy
with a vibrant work ethic that provides its employees an opportunity to work on new
technologies and enables it to leverage talents. As an organization which must constantly
upgrade itself, it has been building competence through training, cross training, and
skills up-gradation. Industrial relations remained cordial throughout the year.
The key ratios are mentioned in the Note No. 42 of the financial
statements
Cautionary Statement
Statements in the Managements Discussion and Analysis Report, which
seek to describe the Companys objectives, projections, estimates, expectations
predictions may be "forward looking statements" and are stated as required by
applicable laws and regulations. Actual results could differ from those expressed or
implied. Many factors including global and domestic demand-supply conditions, prices, raw
materials availability, technological changes, changes in Government Regulations and
policies, tax laws and other statutes may affect the actual results, which can be
different from what the Directors envisage in terms of future performance and outlook.
By order of the Board
For Kernex Microsystems (India) Limited
Sd/-
M Badari Narayana Raju Whole-Time Director DIN: 07993925
Place: Hyderabad Date: 13th August 2023
Sd/-
Sitarama Raju Manthena Whole-Time Director DIN: 08576273
Place: Hyderabad Date: 13th August 2023
+91-9892691696
