Konstelec Engineers Ltd Management Discussions

Global Economy

The global economy proved more resilient than expected compared to 2023, with a stable growth outlook amidst the risk of prevailing geopolitical stress.

A _urry of business activities was witnessed, with a reopening rebound and progress in reducing inflation from last years peaks. Infiation fell faster than expected in most regions amid unwinding supply-side issues and restrictive monetary policy.

With disinflation and consistent growth, the possibility of a severe economic downturn has diminished, and the risks to global economic expansion are broadly balanced now. Due to robust domestic demand, less reliance on exports and a resilient manufacturing sector, emerging economies achieved higher growth rates than developed economies. Estimates suggest growth of 4.0% to 4.4% for emerging economies.

Global energy prices in 2023 remained a roller coaster ride for the most part. Despite supply headwinds and an uncertain economic environment, the manufacturing industry surpassed previous years expectations.

Global growth, estimated at 3.2% for 2023, is expected to maintain this rate throughout 2024 and 2025. Infiation may persist longer than expected, with potential disruptions in energy and food markets.

Indian Economy

The Indian economy continued to surprise analysts amid global uncertainties.

In a demonstration of strength and resilience, it grew by 8.2% for FY24 beating analysts estimates.

The sector-wise analysis revealed that the real gross value added (GVA), a more accurate measure of actual economic growth, grew at 7.2% in 2023-24, compared to the 6.7% growth observed in 2022-23. The growth propelled the Indian economy to US$3.5 trillion and set the stage for achieving the US$ 5 trillion target in the next few years.

Defiation, robust growth in the manufacturing sector, a rebound in consumer expansion, the upside in tax collections, lower-than-budgeted subsidy payouts and increasing government spending on capital expenditure are presumably the reasons behind this uptick.

The core sector, comprising coal output, crude oil, refinery products, natural gas, fertilisers, steel, cement and electricity, grew by 7.51%. Factory output increased by 5.8%, slightly up from 5.2%in the previous year, driven by growth in manufacturing and production of construction goods. Indias mining sector grew by 7.5% in FY24, with significant growth in iron ore and limestone production.

Gross GST collections in FY24 exceeded H20 lakh crore and reached H20.18 lakh crore, while on a net basis, it was H18.1 lakh crore, up 13.4% on a year-on-year basis.

In its latest monetary policy review, the Reserve Bank of India (RBI) raised Indias GDP growth projection to 7.2% for FY25 from 7% estimated earlier. Experts suggest India will remain the fastest-growing of the worlds largest economies for some time, although its pace of expansion is expected to moderate. However, investment growth is still expected to be stronger than previously envisaged and remain robust with strong public and private investment.

SOURCE: https://www.indiainfoline.com/blog/march-2024-core-sector-growth-tapers-to-5-2-despite-low-base-e_ect https://indianexpress.com/article/business/economy/india-iip-factory-output-march-fy24-gdp-9320854/#:~:text=Manufacturing%2C%20which%20accounts%20for%2077.6,cent%20in%20the%20 previous%20year https://economictimes.indiatimes.com/news/economy/indicators/march-gst-collection-up-11-5-yoy-at-rs-1-78-lakh-cr-fy24-mop-up-crosses-rs-20-lakh-crore/articleshow/108943100.cms?from=mdr

Infrastructure sector in India

Indias journey towards becoming a developed nation hinges significantly on enhancing its infrastructure, a pivot for fostering liveable, climate-resilient and inclusive cities that drive economic growth. Given the initiatives launched in the last couple of years, the governments focus on building such an infrastructure for the future has been evident.

The steady growth over the last four years in the infrastructure sector has significantly bolstered economic expansion, with investments in infrastructure playing a pivotal role in spawning associated industries, stimulating job creation and attracting private investments.

Some notable government initiatives for infrastructure developments fuelling growth in the sector are listed below: l National Infrastructure Pipeline (NIP): Launched in 2019, a programme with massive investment for social and infrastructure projects across energy, transportation and urban development l PM Gati Shakti National Master Plan: Launched in 2021, aims to improve logistics infrastructure by creating a multi-modal network for efficient movement of cargo and people l Bharatmala Pariyojana: Focuses on developing a network of highways and expressways to improve national and regional connectivity l Sagarmala Project: Aims to develop Indias coastal infrastructure, including ports, waterways and logistics facilities, to boost maritime trade l Smart Cities Mission: Aims to develop smart and sustainable cities with improved infrastructure, services and governance l Increased Focus on Public-Private Partnerships (PPP): Encourages private sector participation to meet ambitious infrastructure goals Indias infrastructure sector is poised for strong growth, with planned investments amounting to H111 lakh crore by 2025 under the National Infrastructure Pipeline. The planned capital expenditure for this fiscal year stands at H11.11 lakh crore, reflecting an 11.1% increase from the previous year.

Morgan Stanley, the investment banking firm, forecasts a CAGR of 15.3% in infrastructure investments, expecting total spending in India to reach US$ 1.45 trillion over the next five years.

The firm also predicts that infrastructure investment will rise from 5.3% of GDP in fiscal year FY224 to 6.5% by FY29.

Power EPC sector in India

Indias power EPC market is poised for transformative growth, reaching US$ 13.30 billion in 2022 and is projected to soar to US$ 83.84 billion by 2031, reflecting a robust CAGR of 22.7% from 2023 to 2031.

This expansion is fuelled by burgeoning industrial activities across diverse sectors, sustained economic progress and government initiatives like Power for All.

The sector has also witnessed substantial foreign direct investments exceeding US$ 15 billion, constituting 3% of the total FDI inflow.

Government efforts to bolster industrial growth and transition to clean energy, alongside a rising number of solar and wind power projects are set to propel market growth significantly in the foreseeable future.

Manufacturing sector in India

Manufacturing has emerged as an integral pillar in the countrys economic growth, owing to the stellar performance of key sectors such as automotive, engineering, chemicals, pharmaceuticals, and consumer durables.

With the manufacturing sector contributing around 17% to the GDP, projections indicate a growth potential of 21% over the next 6-7 years.

This growth trajectory of the manufacturing industry underscores Indias capacity to fortify its position within global supply chains. Additionally, with the implementation of different programmes and policies, the government expects manufacturing to constitute 25% of the economic output by 2025.

Here are some government initiatives for driving growth in the manufacturing sector:

Make in India initiative: Launched in 2014, this government programme promotes manufacturing within India and attracts foreign investment. It aims to boost industrial growth, enhance job opportunities and facilitate skill development by encouraging global companies to set shop in India.

Production Linked Incentive (PLI) initiative: Introduced in 2021, it is a government scheme designed to promote domestic manufacturing and reduce import dependence across various sectors in India. It offers financial incentives to eligible companies based on their incremental sales of manufactured goods.

The objective is to attract investments, boost production capacities, create employment opportunities and enhance Indias competitiveness in global markets.

The manufacturing sector is experiencing a surge in investments, marking a significant milestone in the nations economic landscape. According to a report by Colliers, it is poised to reach US$1 trillion by 2025-26.

Oil & Gas sector sector in India

Indias oil and gas sector plays a major role in influencing the economys decision-making. The countrys economic growth is closely related to its energy demand; therefore, the need for hydrocarbon products will increase, making the sector conducive to investment. India is the worlds third-largest energy and oil consumer and fourth-largest importer of lique_ed natural gas (LNG). Indias energy demand is expected to grow at about 3% per annum by 2040, againsta global rate of 1%. By 2040, around 25% of the global energy growth is anticipated from India due to its fast-growing economy and demographic dividend.

India‘s refining capacity stands at 256.8 MMTPA as of Apr. 2024, comprising 23 refineries. India aims to increase its refining capacity to 450 MMTPA by 2030.

Indias oil and gas production is expected to achieve a mid-decade peak between 2023 and 2032 (probably around 2027), driven by the KG-Basin projects.

The Government is steadfast in increasing domestic production and has taken definitive steps in that direction: l The Ministry of Petroleum and Natural Gas (MoPNG) signed contracts for ten blocks in January 2024. Three coal bed methane

(CBM) blocks were also awarded under Special CBM Bid Round-SCBM 2022 l Vast offshore acreage of more than 1 Million Sq. Km. that were restricted areas earlier has been made available recently for E&P (Exploration and Production) operations l It is estimated that after the award of blocks under the forthcoming OALP-IX and X Bid Rounds, about 5,60,000 Sq. Km. Area. This 16% of Indias sedimentary basin will come under exploration by the end of 2024 (from 10% earlier)

Cement industry in India

The cement industry plays a pivotal role in Indias infrastructure development. Indiais the worlds second-largest cement producer, contributing more than 8% to the global installed capacity.

In recent years, cement demand has been rising due to the governments push for infrastructure development and affordable housing. Another significant factor that aids this growth is the ready availability of raw materials such as limestone and coal.

Aided by suitable government foreign policies, several foreign players have invested in the country in the recent past. Cement demand grew 8% in 2022 and 12% in 2023.In 2023, the market size of Indias cement industry reached 3.96 billion tonnes and is expected to touch 5.99 billion tonnes by 2032, exhibiting a CAGR of 4.7% during 2024-32.

The cement industry is on course to add a capacity of around 150-160 million tonnes from FY25 to FY28.The past five fiscals witnessed a capacity expansion of only 119 million tonnes to reach 595 million tonnes.

Paint sector in India

The growth of the paint industry largely depends on the growth of the real estate sector, which accounts for about 70% of the total paint demand in India. Rising demand for residential and non-residentialproperties and government initiatives for affordable housing are fuelling the growth in the paint industry. Repainting is also a major cause for expansion in the sector.

A post-pandemic boom of investments and infrastructure development has also resulted in a demand spike from the real estate sector. As a result, the sector experienced two consecutive years of remarkable growth in FY22 and FY23. The sector, which a few key players initially dominated, is now seeing more new entrants backed by conglomerates, reflecting optimism.

Thus, the industry is gearing up forintense competition as a war for market share is waiting to unravel. The India Paints and Coatings Market size is estimated at US$9.60 billion in 2024. It is expected to reach US$15.04 billion by 2029, growing at a CAGR of 9.38% between 2024 and 2029.

Operational performance

During the financial year under review, our Company has achieved exceptional operational performance across a diverse array of significant projects throughout India. We have effectively managed operations in 22 states, handling major projects such as the upcoming HPCL refinery in Rajasthan, the Tata Memorial Cancer Hospital in Mumbai, and SSKM Hospital in Kolkata. Our portfolio also includes the ethanol plant in Bhatinda managed by HPCL, as well as the Aluminum Capacity Expansion project at NALCOs Damanjodi site in Orissa, where we built facilities in a remote, open-cast mining location. We are additionally involved in another ethanol plant in Bhatinda for HMEL.

Among our notable achievements is the Assam bio-refinery project, where we are conducting Electrical and Instrumentation (E&I) works for Indias first bamboo-based ethanol refinery, reflecting our commitment to advancing sustainable technologies. We are also engaged in critical E&I work for Prodairs N2 and H2 plant, developed on a Build-Own-Operate-Transfer (BOOT) basis, demonstrating our expertise in managing complex and high-impact energy projects. Our work includes completing the Ammonia Storage (Critical Tank Project) for FACT in Kochi through Toyo and finishing the electrical work for the LNG terminal in Chhara for HPCL, also through Toyo—marking one of the first such projects in India. We have also achieved significant milestones with the IOCL-Dindori Cryogenic Equipment manufacturing plant, the first of its kind in India, used across various sectors including animal husbandry, oil and gas industries, chemicals, aviation, and lubricants. Additionally, we completed Electrical and Instrumentation work, including shutdowns, for PX/PTA at IOCL Panipat, and executed the first EPC contract for a 132KV switchyard with GIS and PLC integration at IOCL Guwahati.

Human resource

The Companys HR strategy emphasises fostering a performance-driven culture that nurtures innovation, rewards achievement, and motivates employees to achieve the

Companys objectives. Collaborating closely with senior management and the Board, the HR department co-creates all HR strategies to drive organisational change, attract talent and enhance capabilities. The HR department plays a pivotal role in cultivating a strategic advantage through its workforce by addressing diverse human resource requirements.

Information technology

Information Technology serves as the cornerstone of our business transformation. Leveraging advanced technology, the Company has evolved into a leading industry player. Konstelec continuously invests in IT architecture to boost process efficiency, service delivery and competitive edge. Remaining proactive, we constantly innovate to maintain a cutting-edge IT infrastructure that enhances capacity, flexibility and availability. This modernisation has delivered faster performance and operational efficiency through reduced data footprint, seamless business mobilisation with mobile applications, and embedded analytics for real-time insights into transaction data, enabling smarter business decisions.

Financial performance

In FY24, our revenue from operations soared to H21,531.53 Lakhs, representing a substantial increase of 40.36% from the previous year owing to increasing business activity in the infrastructure and manufacturing sector.

Our EBITDA also saw a remarkable rise, growing from H1,598.35 Lakhs last year to H2,026.28 Lakhs. Furthermore, our Profit After Tax (PAT) surged by 24.18% to reach H892.07 Lakhs, demonstrating robust financial performance.

However, our operating cash flows experienced a decline in FY24 due to an increase in accounts receivables. On a positive note, we achieved a significant reduction in long-term borrowings during the last financial year, showcasing our commitment to improving our financial health.

Particulars	For the year ended March 31, 2023 (J in Lakhs)	For the year ended March 31, 2024 (J in Lakhs)	Change (%)
Revenue from Operations (H in Lakhs)	15,340.50	21,531.53	40.36
EBITDA (H in Lakhs)	1,598.35	2,026.28	26.77
EBITDA Margin (%)	10.42	9.41	-9.68
Profit After Tax (H in Lakhs)	718.39	892.07	24.18
PAT Margin (%)	4.68	4.14	-11.53
RoE (%)	11.58	9.49	-2.09
RoCE (%)	20.27	17.90	-2.37
Net Capital Turnover Ratio (in Times)	2.77	2.61	-5.82
Operating Cash Flows (H in Lakhs)	(457.08)	(2,069.18)	-1612.12

Internal control & Adequacy

maintains an internal Committee to ensure robust checks

The Company maintains an internal control system tailored to its business nature, size, and complexity, ensuring transactions are authorised, recorded, and reported accurately. External professionals conduct continuous internal audits supported by respective teams. The audit plan undergoes review with the Audit

Committee to ensure robust checks across significant operational areas. The Committee also consults with Statutory Auditors on financial statements, reporting systems, and compliance. Findings from internal audits, including process enhancements and implementation status, are presented to and reviewed by the Audit Committee and Board. The Company documents comprehensive controls in manuals covering payroll, procurement, asset management, and other processes to ensure reliable financial information, statutory compliance, asset protection, transaction authorisation, and policy adherence.

Risk management

The Company identifies major risk areas, including input cost pressures, rising wages, skilled manpower availability, pandemic-related delays in contract execution and stretched cash flows. To safeguard stakeholder interests, it employs a robust project risk management framework to assess and mitigate risks before committing financially. The Contract Management Committee oversees potential risks affecting project costs and timelines, while the Operations and Business Development teams prudently bid on tenders, clarifying business terms upfront with clients. The Project Review Committee of the Board regularly monitors and evaluates strategies to reduce risks in collaboration with relevant departments.

CAUTIONARY STATEMENT

THE STATEMENTS IN THIS MANAGEMENT DISCUSSION AND ANALYSIS OUTLINING THE COMPANYS GOALS, FORECASTS, ASSESSMENTS AND ANTICIPATIONS MAY CONSTITUTE ‘FORWARD-LOOKING STATEMENTS UNDER RELEVANT LAWS AND REGULATIONS. ACTUAL OUTCOMES COULD SIGNIFICANTLY DIFFER FROM THOSE EXPRESSED OR IMPLIED. KEY DEVELOPMENTS THAT COULD IMPACT THE COMPANYS OPERATIONS INCLUDE DECLINES IN THE INFRASTRUCTURE SECTOR, SUBSTANTIAL SHIFTS IN INDIAS POLITICAL AND ECONOMIC LANDSCAPE, FLUCTUATIONS IN EXCHANGE RATES, CHANGES IN TAX REGULATIONS, LEGAL DISPUTES, LABOUR RELATIONS AND FLUCTUATIONS IN INTEREST RATES.