Lloyds Engineering Works Ltd Management Discussions

Global economic review

Overview: The global economy registered a decline in growth from 3.5% in 2022 to an estimated 3.1% in 2023. Asia is expected to contribute significantly to global growth in 2023-24, despite the weaker-than-expected recovery in China, sustained weakness in USA, rising energy costs in Europe, weak global consumer sentiment due to the Ukraine-Russia war, and the Red Sea crisis resulting in increased logistics costs. A tightening monetary policy translated into increased policy rates and interest rates for new loans.

Growth in advanced economies is estimated to decline from 2.6 percent in 2022 to 1.5 percent in 2023 and further, 1.4 percent in 2024 as policy tightening takes effect. Emerging market and developing countries are projected to report a modest decline in economic growth from 4.1 percent in 2022 to 4.0 percent in 2023 and 2024. Global inflation is projected to decline steadily from 8.7 percent in 2022 to 6.9 percent in 2023 and 5.8 percent in 2024 on account of a tighter monetary policy coupled with relatively lower international commodity prices. Core inflation is expected to decrease gradually, as inflation is not expected to return to its target until 2025 in most cases. The US Federal Reserve approved a much-anticipated interest rate hike that raising the benchmark borrowing costs to their highest in over 22 years.

Global trade in goods was expected to have decreased by an approximate US$2 trillion in 2023; trade in services increased by an estimated US$500 billion. The average cost of Brent crude oil in 2023 stood at $83 per barrel, a downturn as compared to $101per barrel in 2022. This decrease comes on account of from Russia finding crude oil destinations outside the European Union and global crude oil demand falling short of expectations.

Global equity markets ended 2023 on a strong note, with major global equity benchmarks achieving double-digit returns. This outperformance was driven by a downturn in global inflation, slide in the dollar index, declining crude prices and higher expectations of rate cuts by the US Fed and other Central banks.

(Source: UNCTAD, IMF)

Performance of major economies, 2023

United States: Reported GDP growth of 2.5% in 2023 compared to 1.9% in 2022 China: GDP growth was 5.2% in 2023 compared to 3% in 2022 United Kingdom: GDP grew by 0.4% in 2023 compared to 4.3% in 2022 Japan: GDP grew 1.9% in 2023 unchanged from a preliminary 1.9% in 2022

Germany: GDP contracted by 0.3% in 2023 compared to 1.8% in 2022 (Source: PWC report, EY report, IMF data, OECD data, Livemint) Outlook: Asia is poised to continue leading global growth in 2024-25. Inflation is expected to ease gradually as cost pressures decreases; headline inflation in G20 countries is projected to decline. Amid high inflation and monetary tightening, the global economy has shown resilience as the growth is expected to be stabilized at previous levels over next two years (Source: World Bank).

Overview: The Indian economy was estimated to grow 7.8 per cent in FY 2023-24 as against 7.2 per cent in FY 2022-23 primarily driven by improved performance in the mining and quarrying, manufacturing and certain segments of the services sector. India has maintained its position as the fifth largest economy in the world. The Indian rupee displayed relative resilience compared to the previous year as the rupee depreciated 0.8% from Rs 82.66 against the US dollar on the first trading day of 2023 to Rs 83.35 on 27^th December versus the greenback.

In the 11 months of FY 2023-24, the CPI inflation experienced an average of 5.4 percent with rural inflation exceeding urban inflation. Food inflation experienced a spike on account of lower production and erratic weather. Core inflation, on the other hand, averaged at 4.5 percent, down from 6.2 percent in FY 23, moderated by softening global commodity prices.

India?s foreign exchange reserves reached a historic peak of $645.6 billion. The credit quality of Indian companies remained robust from October 2023 to March 2024 on account of deleveraged Balance Sheets, sustained domestic demand and government-led capital expenditure. Rating upgrades continued to surpass rating downgrades in the second half of FY24. UPI transactions in India witnessed a record 56 per cent growth in volume and 43 per cent growth in value in FY24.

E: Estimated

(Source: Budget FY24; Economy Projections, RBI projections, Deccan Herald)

India?s monsoon in 2023 hit a five-year low, with August marking the driest month in a century. Despite receiving only 94 per cent of its long-term average rainfall from June to September, wheat production estimatedly recorded 114 million tonnes in the 2023-24 crop year due to higher coverage. Rice production was anticipated to decrease to reach 106 million metric tons (MMT) in comparison to 132 million metric tonnes in the previous year. Total kharif pulses produced in 2023-24 stood at an estimated 71.18 Lakh metric tonnes, which is lower than FY 2022-23 due to climatic conditions. As per the first advance estimates of national income released by the National Statistical Office (NSO), the manufacturing sector output is projected to have grown 6.5 per cent in 2023-24 compared to 1.3 per cent in 2022-23. The Indian mining sector experienced an estimated growth of 8.1 per cent in 2023-24 compared to 4.1 per cent in 2022-23. Financial services, real estate and professional services grew a projected 8.9 per cent in 2023-24 compared to 7.1 per cent in FY 2022-23.

Real GDP or GDP at constant prices increased from to Rs 160.71 Lakh Crore in 2022-23 (provisional GDP estimate released on 31^st May, 2023) to an estimated Rs. 173.82 Lakh Crore in 2023-24. Growth in real GDP during 2023-24 stood at 8.2 per cent compared to 7.2 per cent in 2022-23. Nominal GDP or GDP at current prices was estimated at Rs 295.36 Lakh Crore in 2023-24 as compared to the provisional 2022-23 GDP estimate of Rs 269.50 Lakh Crore. The gross non-performing asset ratio for scheduled commercial banks improved from 4.1 per cent as of March 2023 to 2.8 per cent as of March 2024.

India?s exports of goods and services were expected to reach $900 billion in 2023-24 compared to $770 billion in the previous year despite global headwinds. Merchandise exports were expected to expand between $495 billion and $500 billion, while services exports were expected to touch $400 billion during the year. India?s net direct tax collection increased 17.7 per cent to Rs. 19.58 Lakh Crore in FY24. Gross GST collection amounted to Rs 20.2 Lakh Crore, marking an 11.7% increase, with an average monthly collection of Rs 1,68,000 Crore, surpassing the previous year?s average of Rs 1,50,000 Crore.

The agriculture sector was grew an estimated 1.8 per cent in 2023-24, lower than the 4 per cent expansion in 2022-23. Trade, hotel, transport, communication and services related to broadcasting segment are estimated to grow at 6.3 per cent in 2023-24, a contraction from 14 per cent in 2022-23. The Indian automobile segment was expected to close FY 2023-24 with a growth of 6-9 per cent, despite global supply chain disruptions and rising ownership costs. The construction sector was expected to grow 10.7 per cent year-on-year from 10 per cent in 2023-23. Public administration, defence and other services were projected to grow by 7.7 per cent in 2023-24 as against 7.2 per cent in FY2022-23. The growth in gross value added (GVA) at basic prices was pegged at 6.9 per cent, down from 7 per cent in 2022-23.

India entered a pivotal phase in its S-curve, marked by rapid urbanisation, industrialisation, increase in household incomes and rising energy consumption. The country emerged as the fifth largest economy with a GDP of US$3.6 trillion and nominal per capita income of Rs. 123,945 in 2023-24.

In FY2023-24, India?s Nifty 50 index experienced a 30% growth, propelling India?s stock market to become the fourth largest globally with a market capitalisation of US$4 trillion. Foreign investment in Indian government bonds saw a significant increase in the final quarter of 2023. India ranked 63^rd out of 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Moreover, India?s unemployment rate decreased to 3.2% in 2023, down from 6.1% in 2018.

Outlook: India successfully tackled its global economic challenges in 2023 and is poised to continue as the world?s fastest-growing major economy backed by a growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass USD 4.34 trillion in 2025.

Union Budget FY 2024-25: The Interim Union Budget 2024-25 continued to prioritise capital expenditure spending, comprising investments in infrastructure, solar energy, tourism, medical ecosystem and technology. In 2024-25, the top 13 ministries in terms of allocations accounted for 54% of the estimated total expenditure. Of these, the Ministry of Defence received the highest allocation at Rs 6,21,541 Crore, constituting13% of the total budgeted expenditure of the central government. Other ministries with high allocation included Road transport and highways (5.8%), Railways (5.4%) and Consumer Affairs, food and public distribution (4.5%).

(Source: Times News Network, Economic Times, Business Standard, Times of India)

The engineering services market has grown steadily in recent years and expected to grow from $1147 billion in 2023 to $1188.41 billion in 2024. The engineering services market size is expected to see steady growth in the next few years, likely to grow to $1366.8 billion in 2028 at a compound annual growth rate (CAGR) of 3.6%. Steady economic growth in developed and developing countries is expected to be a favorable factor for the engineering services sector. The International Monetary Fund (IMF) projects a global real GDP growth of 3.6% from 2021 to 2023, with a focus on Asia and Africa driving this trend. The report highlights that Asia is anticipated to constitute 66% of the global middle-class population by 2030. Consequently, the sustained economic growth in developed and developing nations is contributing to the growth of the engineering services market.

Global nuclear reactor construction is driving this market; during the 28^th conference of the parties to the United Nations Framework Convention on Climate Change (UNFCCC) in December 2023 in Dubai, 25 countries (including France, the United Kingdom, and the United States and non-nuclear countries like Albania, Ghana, and Moldavia) pledged to triple the global installed nuclear capacity by 2050.

With an average annual urbanization of 3%, East Asia and Pacific urbanizing the fastest, likely to fuel engineering services growth in the region. The construction management segment accounts for a share of 23% of the global engineering service market and the industrial sector projected for a leading share of 21%. The EU is urbanised, with nearly 75% of its citizens living in cities and towns and 80% expected to do so by 2050. The US, China, Germany, the UK, and Japan are the largest country markets for Engineering Services. North America tops the global market with 38% market share.

(Sources: Thebusinessresearchcompany, Giiresearch,

Worldnuclearreport, Eca.europa.eu, Mordorintelligence, Factmr, Volza)

India?s engineering services market was valued at USD 65.3 billion in 2023 and expected to reach USD 88.77 billion by 2028, growing at a CAGR of 6.35% during the forecast period. Engineering is the largest industrial sector in India, accounting for 27% of the total factories in the industrial sector and representing 63% of foreign collaborations. The demand for engineering sector services is being driven by capacity expansions in industries like infrastructure, electricity, mining, oil and gas, refinery, steel, automobiles, and consumer durables.

FDI inflow for miscellaneous mechanical and engineering industries stood at US$ 4.42 billion between April 2000 and September 2023. Engineering accounted for about 25% of India?s total global exports in the goods sector and was one of the largest foreign exchange earners.

India?s engineering goods are exported to key markets such as the US, Europe, and China. Engineering exports in FY24 rose to $109.31 billion from $107.04 billion in the previous financial year, thus registering a growth of 2.13 per cent, engineering goods exporters expects the value of shipments from the sector to rise to $300 billion by 2030. North America and the European Union (EU) remained India?s top destinations for engineering exports with a share of 20% and 19%. (Sources: Mordorintelligence, IBEF, Businessstandard) Steel: India is the world?s second-largest producer of crude steel, with an output of 125.32 MT of crude steel and finished steel production of 121.29 MT in FY23. The annual production of steel is anticipated to exceed 300 million tonnes by 2030-31. By 2030-31, crude steel production is projected to reach 255 million tonnes. Under the Union Budget 2023-24, the government allocated Rs. 70.15 Crore (US$ 8.6 million) to the Ministry of Steel.

The steel sector?s capital expenditure target for FY 2023-24 was Rs. 10,300.85 Crore. Against this target, steel central public sector enterprises achieved a capex of Rs. 5414.51 Crore till November, 2023 (52.6%). In FY2024-25, India plans to increase infrastructure capital expenditure 11.1% year-on-year – to Rs. 11 trillion ($134 million) – that could increase domestic demand for steel. (Sources: IBEF, Pib.gov.in, GMKcenter) Nuclear power: Some 23 nuclear power reactors are installed in India. The Government initiated steps to increase nuclear power capacity from 7480 MW to 22480 MW by 2031-32. The construction and commission of ten reactors (8000 MW) is underway in Gujarat, Rajasthan, Tamil Nadu, Haryana, Karnataka and Madhya Pradesh.

In addition, the government accorded in principle approval to set up a nuclear power plant in cooperation with the USA at Kovvada in Srikakulam district in Andhra Pradesh. The government aims to build 11,000 MW of new nuclear power generation capacity by 2040, (Sources: Pib.gov.in,Theeconomictimes) Marine: As per report 2023, in the ship-building sector, the investment multiplier is around 1.82, which means that an infusion of approx. Rs 1.5 Lakh Crore in naval ship-building projects would accrue a circulation of Rs 2.73 Lakh Crore in the ship building sector due to the multiplier effect.

In a major move towards achieving India?s goal of becoming the ‘Global Hub for Green Shipbuilding? by 2030, GRSE signed a MoU in November 2023 with Shift Clean Energy (Shift), Seatech Solutions International (Seatech) and the American Bureau of

Shipping (ABS), to develop electric tugs E-VOLT 50. The E-VOLT

50 aims to reduce carbon emissions.

A plethora of initiatives are being undertaken by the government to boost the shipping industry. The Ministry of Ports, Shipping and Waterways (MoPSW), under the Amrit Kaal vision, has identified a total potential of 1,300 million tonnes per annum (mtpa) of cargo movement through coastal shipping by 2047.Shipbuilding is one of the top priority areas for the MoPSW. In a notable development, three major infrastructure projects worth more than Rs 40 billion were inaugurated in Kochi, Kerala on January 2024.

The Global Maritime India Summit, 2023, one of the largest maritime summits in the world, anchored Rs. 10 Lakh Crore of investment making a significant stride towards achievement of ‘Amrit Kaal Vision 2047? of Rs. 80 Tn investment. India plans to invest US$ 82 billion in port projects by 2035. FDI equity inflow in the Port industry is US$ 1.63 billion during the period April 2000 to September 2023. Jawaharlal Nehru Port Trust (JNPT) Special Economic Zone (SEZ) became the first of its kind operational port-based multi-product SEZ in India. (Sources: Pib.gov.in, IndiaInfrastucture, Theeconomictimes, IBEF) Oil and gas: India?s economic growth is related to energy demand. In view of this, the need for oil and gas is projected to increase, making the sector conducive for investment. India retained its spot as the third-largest consumer of oil in the world in 2023. Oil demand in India is projected to register 2x growth to 11 million barrels per day by 2045. Diesel demand in India is expected to double to 163 MT by 2029-30, with diesel and gasoline covering 58% of India?s oil demand by 2045. Consumption of natural gas in India is expected to grow by 25 billion cubic metres (BCM), registering an average annual growth of 9% until 2024. Crude oil imports increased by 5.7% and 0.9% during January 2024 and April-January 2023-24 respectively as compared to the corresponding period of the previous year.

The industry is expected to attract US$ 25 billion investment in exploration and production. India is already a refining hub with 23 refineries, and expansion is planned for tapping foreign investment in export-oriented infrastructure, including product pipelines and export terminals. State-run oil companies made a combined capital spending of Rs. 1,28,000 Crore in 2023-24, a fifth more than the capex target they had set at the beginning of the year and 12% more than the amount they spent the previous year. (Sources: IBEF, Theeconomictimes)

Manufacturing: The Indian manufacturing sector is experiencing a surge in investments, marking a significant milestone in the nation?s economic landscape. This has poised India?s manufacturing market to reach $1 trillion by 2025-26. India has potential to become a global manufacturing hub and by 2030, it can add more than US$ 500 billion annually to the global economy. According to the Department for Promotion of Industry and Internal Trade (DPIIT), India received a total foreign direct investment (FDI) inflow of US$ 48.03 billion in FY23. One of the initiatives by the Government of India?s Ministry for Heavy Industries & Public Enterprises is SAMARTH Udyog Bharat 4.0, or SAMARTH advanced manufacturing and rapid transformation hubs. This is expected to increase competitiveness of the manufacturing sector in the capital goods market. (Sources: IBEF, Businessstandard)

Urbanization: With urbanization, there is an increasing demand for sustainable and modern infrastructure in cities. This includes the development of smart cities, urban transport networks like metro rail services, and green infrastructure. The estimated urban population could be 590 million people by 2030, the number is rising 2.3 per cent each year.

Connectivity projects: Major projects like Bharatmala, Sagarmala, and the dedicated freight corridors aim to upgrade transportation. These initiatives are providing business opportunities in the area of project development, operations, and logistics. Bharatmala Pariyojana is the largest highway infrastructure programme in India, which aims at the development of 34,800 kilometres of national highway corridors at an investment of Rs 5.35 trillion approved in 2017. Some 15,549 km construction have been completed.

Government support: In the Union Budget 2023-24, the government committed an outlay of Rs. 10 Lakh Crore (US$ 120 billion) during 2023-24 towards infrastructure capital expenditure compared to Rs. 7.5 Lakh Crore (US$ 90 billion) of budgetary estimate during 2022–23.

Investment in R&D sector: Investment in engineering R&D sector is expected to reach USD 6.3 billion by 2025. India?s engineering R&D landscape comprises Global Capability Centres (GCCs), Engineering Service Providers (ESPs), start-ups, and India-based manufacturing companies.

Rapid adoption of advance technologies: Modern construction, design and engineering projects have become extremely complex and requires engineers for essential inputs from vivid background along with advance technologies like artificial intelligence, internet of things and IT solutions such as engineering analytics. (Sources: IBEF, Factmr, Urbanet)

€ Capital investment outlay for infrastructure is being increased 33% to Rs. 10 Lakh Crore (USD 122 billion) in 2023-2024, which could be 3.3 per cent of GDP and almost three times the outlay in 2019-20.

€ In recent years, there has been an increase in national highway construction pace - from an average of 12 kilometres per day in 2014-15 to around 34 kilometres per day in 2023-24.

€ The government launched the National Infrastructure Pipeline (NIP) with a forward-looking approach and with a projected infrastructure investment of around Rs. 111 Lakh Crore (US$ 1.3 trillion), during FY20-25 to provide quality infrastructure. The NIP has 8,964 projects with a total investment of more than Rs. 108 Lakh Crore (US$ 1.3 trillion) under different stages of implementation. Increased construction of National Highways (NHs)/roads over time, with 10,993 km of roads constructed in FY23 as compared to 6,061 km in FY16.

€ Total budgetary support for investment in the sector has been increasing rapidly in the last four years and stood at around Rs. 1.4 Lakh Crore (US$ 16.8 billion) during FY23

€ Under the Union Budget 2023-24, the government allocated Rs. 70.15 Crore (US$ 8.6 million) to the Ministry of Steel.

€ India is currently on the second stage of its ambitious nuclear program. The country is planning to construct 12 new nuclear power reactors by 2024.

€ The government allotted the Department of Atomic Energy an increased budget by 10,000 Crore (US$ 1.31 billion) per year for the next 10 years.

€ In FY 2023-24, major ports saw substantial investment exceeding Rs. 12,500 Crore through capital infusion, sanctioning and award of public private partnerships.

€ AICTE is implementing the Pradhan Mantri Kaushal Vikas Yojna (PMKVY) for technical institutes scheme through AICTE-approved technical institutions. Under this Scheme in the next three years, 10.5 Lakh youth are to be provided engineering Skills. (Sources:IBEF, Aicte-indi)

Lloyds Engineering Works Ltd is a customised engineering product and solutions providing company in India. It provides a complete package of engineering solutions by carrying out designing, engineering, manufacturing, fabrication and installation. Its products cover a whole array of categories in heavy equipment, machinery and systems for hydrocarbon sector, oil & gas, steel plant equipments, power plants, nuclear plant and boilers etc. Its facilities have been approved by various authorities like industrial Boiler Regulatory Authority, SGS UK, Petroleum and Explosives Safety Organisation etc. The Company has state-of-the-art manufacturing facilities in Murbad, Thane; the company is headquartered in Mumbai (235 employees as on 31^st March, 2024).

The Company caters to the following industries:

Hydrocarbon: Manufacturing and supplying process equipment such as pressure vessels, columns, reactors, heat exchangers, air/ gas /liquid dryer packages.

Steel: Fabrication of equipment for steel melting shop, manufacturing equipment in the hot rolling mill and cold rolling , ball mills, rotary dryer, WHR Boiler, DRI Plant and other equipment required for iron and steel making.

Nuclear: Lloyds Engineering is registered with BARC (Bhabha Atomic Research Centre) and NPCIL (Nuclear Power Corporation of India) for the supply of equipment based on basic design engineering provided by NPCIL and further design engineering, to be done by company for equipment.

Marine/Defence: The company is engaged in manufacturing and supplying products like a fin stabiliser required to be setup in navy warships and the electro-hydraulic steering gear for marine ships etc.

Ports, jetties and refineries: The company is engaged in the design, engineering and supply of critical components like swivel joints, seals, coupler hydraulic valve etc. It is a leading manufacturer of truck and wagon loading arms for handling different products. Power: The company is engaged in the design, and manufacture of thermal power plants and equipment in boilers, condensers, heaters etc.

Financial highlights (in Lakh) (Rs. in Lakh)

Debtors? turnover ratio: The ratio has decreased over the previous year on delay in collection.

Inventory turnover ratio: The ratio has improved because of better inventory management.

Interest coverage ratio: During the year, cash flow from operations improved and interest cost declined on account of repayment. Hence, the ratio improved.

Current ratio: Current ratio improved on account of better working capital management.

Debt-equity ratio: The company remains debt-free.

The Banks are cautious in their lending to the Corporate Sector perhaps on account of large Non-Performing Assets (NPA). This has impacted the investment by Public and Private Corporate Sectors in their expansion plans. Margins in the Engineering Industry continue to be under pressure. We are continuously up-grading our skills, modernization, and cost saving. Risk and concerns are being addressed on a continuous basis. The business has weathered the challenges posed by the COVID-19 pandemic by adopting safe working practices, encouraging work from home whenever needed, increasing the virtual meetings, virtual audits and inspections, online approvals amongst other measures. The Company?s strong financial statements & negligible financial leverage is advantageous to get benefit of the Risk faced by most of the industries.

The Company believes in systematic working and placing appropriate internal control systems and checks. Proper checks and systems are in place and regular reviews are held by the Head of Department and Senior Management to check that the systems and controls are adhered. The reviews also prescribe changes wherever required. The efficiency of Internal Control Systems is ensured as a combined result of the following activities:

1. Operational performance is reviewed in the Works as well as in the Corporate Office by the Senior Management through daily follow-up/weekly meetings.

2. Performance of each function is closely monitored by the Head of Department and Senior Management through daily/ weekly/monthly review meetings. Reviews of all independent functions are regularly undertaken. Cross functional activities are periodically reviewed.

3. Various policies are introduced from time to time to ensure effective functioning of various departments, such as Business Development, Projects, Procurement, Commercial, Finance, HR, etc.

4. Great care is taken at the time of estimation so that we are not only competitive but also, to add positive contribution towards the growth of the Company.

5. The Internal Auditors of the company conducts Financial, Operational and Management Audit of various functions and areas covered under Page [] of the Annual Report 2023-24. Their reports are placed before the Audit Committee / Board and appropriate actions as deemed fit are initiated based on the reports.

6. The Audit Committee / Board also oversees financial systems, procedures and internal controls and competent to call for any information/document from any department/ function.

Human Resources Department (HRD) works continuously for maintaining healthy working relationship with the workers and other staff members. The underlying principle is that workers and staff at all levels are equally instrumental for attaining the Company?s goals. The various functions are continuously strengthened by appropriate recruitment. Groups of Graduate Engineers are recruited every year & the Training programs are regularly conducted to update their skills and apprise them of latest techniques. The low attrition rate signifies healthy working relationship of employer and employee. Senior Management is easily accessible for counseling and redressal of grievances if any. The HR Department strives to maintain and promote harmony and co-ordination amongst Workers, Staff and Members of the Senior Management. The Company has framed an Employee Stock Option Scheme (ESOP) with rules and regulations as an incentive to employees to increase productivity at all levels. The Industrial Relations in the Company?s Units located at Murbad as well as in the Work Sites during the year under review was cordial.

The Management Discussion and Analysis describe Company?s projections, expectations or predictions and are forward looking statements within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company?s operations include economic conditions affecting demand and supply and price conditions in domestic and international market, changes in Government Regulations, Tax Regimes, Economic Developments, the Covid-19 pandemic, and other related and incidental factors.