Kilburn Engg. Management Discussions

annexure- I

macro-economic scenario

Global economy

The financial year 2022-2023 commenced with a progressive stance. During the first half, mass vaccinations were carried out in phases, leading to the easing of restrictions and the gradual reopening of post-pandemic economies. These measures presented nations with opportunities to recover some of the economic losses they had suffered. However, the global economy remains in a state of uncertainty due to the cumulative effects of multiple adverse shocks experienced over the past three years, primarily attributed to the Covid-19 pandemic and Russias invasion of Ukraine. To mitigate the impact of these shocks, various measures were implemented. Quantitative easing, relaxation of restrictions, support packages, and government initiatives aimed at achieving maximum employment and price stability helped stimulate economic recovery.

In early 2023, the global economy began showing signs of nascent recovery after enduring the negative consequences of Russias invasion of Ukraine and the ongoing war. These events had significant repercussions on commodity and energy prices, as well as trade disruptions, prompting economies to undergo substantial reorientation and adjustment. Some financial systems experienced stress due to a combination of factors, including interest rate hikes by central banks, regulatory gaps, and reduced bank-specific risks. Consequently, concerns about financial stability arose.

Recent instances of banking instability serve as a reminder that the world economic outlook remains fragile, with prevailing downside risks and increasing uncertainty. Inflation has proven to be more persistent than initially anticipated, as core inflation rates continue to peak in several countries. Robust labor markets in most advanced economies indicate stronger-than- expected aggregate demand, which may necessitate further tightening of monetary policy or an extended period of tighter policy measures compared to previous expectations.

However, according to the International Monetary Fund (IMF), global growth is projected to slow from 3.4% in 2022 to 2.8% in 2023. Furthermore, advanced economies are expected to experience a significant slowdown in growth, dropping from 2.7% in 2022 to 1.3% in 2023. Meanwhile, emerging market economies (EMEs) are predicted to have an average growth rate of 3.9% in 2023, with a projected increase to 4.2% in 2024.

Global economy

The Indian economy has shown remarkable progress since the onset of the Covid-19 pandemic, surpassing many other countries by achieving a complete rebound in FY 2021-22. This strong momentum has positioned India to return to its pre-pandemic growth trajectory in FY 2022-23. According to

the IMF, India is expected to be one of the fastest-growing economies globally, with a growth forecast of 7% in the current fiscal year. This forecast, coupled with the expected easing of headline retail inflation from 6.7% in the previous year to 4.9% in 2023-24, highlights Indias economic resilience and unwavering determination to overcome challenges. Various factors have contributed to the growth of the Indian economy in FY 2022-23. Notably, the Union Governments steady increase in capital expenditure (capex) has served as a significant catalyst for growth.

The adverse impacts of earlier disruptions, such as inflation, the Russia-Ukraine war, supply chain disruptions, and semiconductor shortages, have diminished as the economy experienced remarkable growth in the first half of FY 2022-23. This upward trajectory has propelled the manufacturing sector into a cruise mode, resulting in a notable acceleration in both manufacturing and investment. These positive developments indicate progress and a promising outlook for the Indian economy.

industry scenario and business outlook

The Company specializes in the design and manufacturing of specialized process eguipment and systems for critical applications, with a primary focus on the chemical, refineries and petrochemical, nuclear power sectors and tea industry. The companys key products include rotary dryers, calciners, air preheaters, paddle dryers, VFBD (vibratory fluid bed dryers) and fabrication services at sites amongst others.

The overall outlook for chemical industry, integrated petrochemical and refinery complexes and tea is highly favourable for the companys versatile array of products. This versatility in the companys product range acts both an opportunity in growing sectors and risk mitigation on any unanticipated downturns in a particular industry

The Indian Carbon Black industry is in the range of 80 billion and expected to grow at a CAGR of 9% p.a. to reach 130+ Billion by 2028. The typical applications are Tire, non-tire rubber, plastics, packaging, industrial films, laminations and inks. The new uses of carbon black include high performance coatings in wood, marine, aerospace, decorative and industrial applications for pigmentation and UV Protection, toner for printers etc. This bodes well for its eguipments like rotary dryers and pelletizers.

The Indian Soda Ash market is expected to grow at a steady CAGR of 5% from now till 2030. The growing use of same in metallurgical processes, detergents, flue gas treatment and wastewater treatment is expected to increase the demand of soda ash in India. The company products viz Calciner and cooler packages, Hydrator and FBD packages cate to the soda ash industry.

The Company has also forayed into offering fabrication of equipment (Silos and vessels) at a refinery site to an EPC company in East India. A strong reference in the refinery vertical would enhance its opportunities in the upcoming refinery and petrochemical complexes both for green field and brown field projects.

Petrochemical vertical provides opportunities for all types of dryers (FBD, VFBD and Paddle dryers) in both brown and green field projects, and turnarounds.

The strengths of the company and Opportunities dovetail well with the industry trends:

The chemical industry is experiencing robust demand, and the company is well-positioned to capitalize on this opportunity. Furthermore, the favorable policies and support from the government are driving substantial investments in the country, which is expected to directly enhance the companys order intake in the upcoming quarters.

The government of India has announced an outlay of 1.97 Lakh Crores for the Production Linked Incentive (PLI) Schemes across 14 key sectors These schemes aim to foster the development of national manufacturing champions. Several of these sectors have a need for drying solutions in their operational processes.

Indias chemical industry has experienced exceptional demand growth on a global scale. As a result, it is positioned to assume a prominent role in both consumption and manufacturing worldwide. In recent years, shifting geopolitical scenarios have prompted many countries to prioritize domestic self-sufficiency and localized supply chains. However, when compared to other major global chemical clusters, Indias manufacturing competitiveness demonstrates a strong starting point, suggesting the potential for India to become a prominent chemical manufacturing hub. Domestic consumption in India is expected to achieve a remarkable CAG) of 9-10% in the coming years. This growth can be attributed to various factors, including increasing disposable incomes, a favorable demographic dividend, a rising global preference for environmentally friendly alternatives, and the growing diversification of global chemical supply chains. With this projected growth, Indias share in the global chemicals sector could triple to 10-12% by 2040, resulting in an additional market value of USD 700 billion, surpassing the current contribution of USD 170-180 billion (as of 2021). The Specialty Chemicals segment is poised to be a significant driver of this growth, with the potential to contribute over USD 20 billion to Indias net exports by 2040.

The carbon black market, explained earlier, is expected to witness steady growth in India. This can be attributed to the rising demand for carbon black in the tyre, construction, and manufacturing industries. Carbon black is widely utilized to enhance the durability of industrial rubber compounds and various equipment, leading to increased demand in these sectors. The future of the carbon black market globally, also, looks promising with opportunities in the transportation, industrial, and building and construction sectors. The major drivers for this market are increasing tire production and growth in plastic and coating market.

India has emerged as the sixth largest player in the global petrochemical business in 2022, boasting a market size of approximately USD 190 billion. The countrys remarkable economic progress, supported by robust macro fundamentals and population growth, serves as key catalysts for establishing India as a prominent petrochemical manufacturing hub. Government initiatives like Make in India and the Aatmanirbhar Bharat Abhiyan provide guidance and create a conducive environment to attract further investments in this sector. The forward integration of Indias petroleum industry into petrochemicals and subseguent polymer derivatives has the potential to be a game changer. This integration ensures the availability of feedstock and intermediate products for downstream polymer industries, resulting in increased value maximization across the entire polymer molecule chain. Indias petrochemical sector is poised for significant growth, driven by factors such as impressive returns on investment in financial markets, the countrys favourable demographics, increasing affluence, and its rising global stature.

The above sectors are key to our business and have in the past generated significant number of orders of high value.

In the wake of increasing concerns about environmental degradation, our Paddle dryers have emerged as a sustainable solution for drying sludge. These advanced dryers play a vital role in states where strict pollution norms have been enforced, making it imperative for industries to adopt ecofriendly practices. By efficiently removing moisture from sludge, these dryers significantly reduce the volume of waste generated, thereby minimizing the environmental footprint of industrial processes. Embracing such environmentally conscious technologies ensures compliance with regulations and exemplifies a commitment to protecting our planet for generations to come.

In the tea industry, the Company maintains a dominant market position. We are actively reinforcing our stronghold by providing comprehensive services to our esteemed customers. Here are some noteworthy trends in this industry:

The tea market in India is experiencing robust growth driven by both healthy production and consumption of the beverage. It is projected to maintain a strong Compound Annual Growth Rate (CAGR) of nearly 4.5% during the forecast period of 20232028. India holds the notable position of being the worlds second-largest tea producer, closely trailing China.

Exploring its new initiatives, the Company has a breakthrough in procuring an order for C-PVC powder drying in Fluid Bed Dryer and order for calciner package for Activated Pharma Ingredients (API). Successful execution of these orders will help us in procuring further orders for such applications.

Overall, the Company continues to enjoy the benefit available to the Indian manufacturing industry vis-a-vis other global players, due to the cost advantages.

financial performance

Discussion on financial performance with respect to operational performance.

Significant Changes in some Key Financial Ratios (i.e change of 25% or more as compared to the immediately previous financial year) are as following:

Key Financial Ratios FY2022-23 FY 2021-22 Change (%) Reasons
Net Profit Margin (%) 13,60% 1,26% 976,90% During the year, the Company has earned higher profits along with achievement of increased turnover.
Operating profit margin (%) 22,27% 11,90% 87,12% Economics of scale due to increased turnover,
Return on Net Worth (%) 28,56% 2,11% 1253,08% During the year, the Company has earned higher profits along with achievement of increased turnover,
Debtors Turnover Ratio (Number of times) 4,68 2,66 75,99% During the year, sales of the Company have increased with the reduced level of Trade Receivables,
Debt Eguity Ratio (Number of times) 0,61 1,20 49,15% During the year, the Company has redeemed the CRPS which was redeemable in the year 2035 and 2036, The Company has also partly repaid the Term Loans in advance during the year, Further, the retained earnings of the Company have increased due to adeguate profits during the year.
Interest Coverage Ratios (Number of times) 8,00 1,84 334,78% Reduction in interest expense, along with increased profitability.

Segment-wise or Product-wise Performance

The Company is primarily engaged in designing and manufacture of drying systems for diverse applications, The Companys performance in respect of these business groups has been outlined in the Directors Report,


Risks Mitigation
- infringement of Intellectual property Rights, (IPR) a) Constant innovation of the Companys products to deter copying of the product by unscrupulous competitors,
b) Your Company is providing a total system to customers against products by some competitors which mitigate the risk from competition to an extent
- Business Risk The primary risk faced by your Company comes from increased competition in various segments due to entry of large number of domestic and international players, Your Company provides a performance guarantee to its customers which in short guarantees the technology provided which many of the smaller players are unable to provide, Chinese challenge is being mitigated by providing post commissioning support and strengthening the trust with the customers,
- Long execution periods expose your Company to the risk of price variations, At the time of Quotation your Company executes Suitable contracts with vendors where price & credit period are matched with the buyers terms,
- As significant portion of the Companys sales is export the Company also faces the risk of currency fluctuations, Your Company has a policy of hedging currency exposures to optimum levels,
- As the Companys products are capital goods in nature, cyclical dip in sales is an inherent risk in its business, Your Company is continuously developing several new products and expanding geographically which helps to bridge dip in sales if any of established products,

internal control systems & their adequacy

Risks Mitigation
5 Due to changing economic environment Customers delaying The Company insists Letter of Credit (LC) terms with new and overseas customers.
i) Payments
ii) Taking Delivery of the manufactured product on committed date However, there remains a risk about the customers asking for postponing delivery when Companys manufacture is completed. Such demands are settled through negotiations.

The Company has a system of regular internal audit and they report inter-alia on the adequacy of the Internal controls. The Internal audit reports are presented to the Audit Committee and are discussed at the Board meeting. Their recommendations are duly compiled with.

human resource development

Human resources are the key to the success of any organization and the company continues to induct young talent with a futuristic view. There were 262 employees on the roles of Company as on 31st March, 2023. Training and development of employees is continuous and aligned to the changing needs of the engineering industry. The overall industrial and employees relations has remained cordial and positive.

gentle word of caution

Some of the statements in this management discussion and analysis report describing the Companies objectives, projections, estimates and expectation may be Forward Looking Statements within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Companys operations include a downtrend in industry, significant changes in political and economic environment in India, tax laws, foreign exchange fluctuation, custom duties, litigations and labour relations.

For and on behalf of the Board

Manmohan Singh

Place : Kolkata

Date : 4th August, 2023

Chairman (DIN: 00699314)