Macpower CNC Management Discussions


Pursuant to Regulation 34(2)(e) of SEBI LODR Regulations 2015, a Management Discussion and Analysis report is given below:-

1. BUSINESS OVERVIEW

Your Company is engaged in manufacturing of CNC Turning Centres, Vertical Machining Canters, Horizontal Machining Centres, Cylindrical Grinder, Vertical Turret Lathe, Turn Mill Centres, Drill Tap Center, Twin Spindle VMC and also Multi-Tasking with sub-spindle and Robotic Automation. Adding to the solution capabilities, Macpower has also offered Robotic Automation integrated with CNC machines to cope up the demand of technology driven machining excellence. CNC Machining is a process used in the manufacturing sector that involves the use of computers to control machine tools. Tools that can be controlled in this manner include lathes, mills, routers and grinders. CNC stands for Computer Numerical Control. On the surface, it may look like a normal PC that control the machines, but the computers unique software and control console are what really set the system apart for use in CNC machining. Under CNC Machining, machine tools function through numerical control, a computer program is customized for an object and the machines are programmed with CNC machining language (called G-code) that essentially controls all features like feed rate, coordination, Position and RPM. With CNC machining, the computer can control exact positioning and speed.

Companys in house research and development approach allows us to offer customized solutions to our customers. Macpower CNC Machines Limited is an ISO 9001:2015 certified Company for Manufacture and Supply of CNC Metal Cutting Machines Our Company is well equipped with the latest infrastructure and equipment, well qualified skilled intellectual capital to support the manufacturing of high end technology driven machines.

We are also expanding our capacity to nearly 1500 machines per annum. This will help us to continue delivering growth at 20% CAGR for the next 3 to 5 year.

Further, as we have also been indicating, we have continuously been growing our order book in spite of strong revenue execution. This has led to our unexecuted order book as of 31st March, 2023, to grow to Rs.152.77 crores, which at the beginning of the year was Rs. 146.86 crores.

For more information please go through our website https://www.macpowercnc.com/company-profile/

2. ECONOMY OUTLOOK

a. WORLD ECONOMY

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russias invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024. Monetary policy should stay the course to restore price stability, and fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy. Structural reforms can further support the fight against inflation by improving productivity and easing supply constraints, while multilateral cooperation is necessary for fast-tracking the green energy transition and preventing fragmentation.

WORLD ECONOMY OUTLOOK;

The baseline forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 percent in 2023 with advanced economy growth falling below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly. Inflations return to target is unlikely before 2025 in most cases.

Rising interest rates and the developments in Eastern Europe will continue to cast a grim shadow on global economic stability. On the positive side however, the reopening of Chinas economy, higher global demand and slowing inflation projected across certain countries in the year ahead have seemingly paved the way for a healthy recovery.

According to the World Bank, investment growth in emerging markets and developing economies is likely to remain below its average rate of the past two decades. Unforeseen adverse shocks could further pull down the global GDP. Smaller nations are particularly vulnerable to such shocks because of their reliance on external trade and financing, limited economic diversification, elevated debt, and susceptibility to natural disasters. In order to mitigate the risks of global recession and debt distress in emerging markets & developing economies and to support a major increase in investment, well-concerted global and national level efforts are necessary.

b. INDIAN ECONOMY

India economy has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next few years, backed by its robust democracy and strong partnerships.

India, the third-largest economy in the world in Purchasing Power Parity (PPP) terms and the fifth- largest in market exchange rates, has reinforced the countrys belief in its economic resilience as it has withstood the internal and external challenges alike such as of mitigating external imbalances caused by the Russian-Ukraine conflict without losing growth momentum in the process. The Indian economy appears to have moved on addressing the challenges posed by the pandemic, staging a full recovery, ahead of many nations and positioning itself to ascend to the pre-pandemic growth path in Financial Year (FY) 2023-24.

India recovered from the pandemic in FY22 and positioned itself to ascend to the pre-pandemic growth path. According to the Economic Survey, the nominal GDP of India was estimated at US$ 3.5 trillion in March 2023.

During FY23, India faced challenges in reining inflation which was accentuated by the global geopolitical developments. The average retail inflation for FY23 was 6.7 per cent while in March 2023, the retail inflation came down to 5.7 per cent.

Indias Current Account Deficit (CAD) widened owing to high global commodity prices, the depreciation of the Indian Rupee and the increased quantum of imports to meet the requirements of a growing economy. Indias industrial output, as measured by the Index of Industrial Production (IIP), stood at 5.6 per cent on an annual basis in February 2023, according to recent National Statistical Office (NSO) data. That marked an improvement of 40 basis points sequentially, from growth of 5.2 per cent in factory output in January. The rise in industrial production was mainly driven by the manufacturing sector. Given these developments, India with a GDP growth estimated at around 7.2% in FY23 retained its position as the fastest-growing major economy.

India is set to be the second-fastest growing economy in the G20 in FY 2022-23, despite decelerating global demand and the tightening of monetary policy to manage inflationary pressures. GDP growth will slow to 5.7% in FY 2023-24, as exports and domestic demand growth moderate.

Recent economic developments in India are as follows:

Over the years, the Indian government has introduced many initiatives to strengthen the nations economy. The Indian government has been effective in developing policies and programmes that are not only beneficial for citizens to improve their financial stability but also for the overall growth of the economy. Over recent decades, Indias rapid economic growth has led to a substantial increase in its demand for exports. Besides this, a number of the governments flagship programmes, including Make in India, Start-up India, Digital India, the Smart City Mission, and the Atal Mission for Rejuvenation and Urban Transformation, are aimed at creating immense opportunities in India.

The Centre has also incentives the State Governments through interest-free loans and enhanced borrowing ceilings to prioritise their spending on Capex. With an emphasis on infrastructure intensive sectors like roads and highways, railways, and housing and urban affairs, the increase in Capex has large-scale positive implications for medium-term growth.

INDIAN ECONOMY OUTLOOK:

India is expected to sustain a 6.5 per cent-plus GDP growth in FY24. The economic progress in FY24 will be supported by robust domestic demand and a healthy pick-up in capital formation.

The Economic Survey 2022-23 highlighted that Indias economic recovery from the pandemic is complete and the economy is expected to grow in the range of 6% to 6.8% in the coming financial year 2023-24.

Global growth is projected to decline in 2023, but Indias growth is expected to be swift in FY24 with a vigorous credit disbursal and capital investment cycle.

The significant impetus to infrastructure creation in the Union Budget 2023 is expected to have a significant positive impact cascading on multiple sectors that support infrastructure creation. The visible challenges on the horizon are a global slowdown that could impede exports and persistently high inflation leading to continuing interest rate hikes by the RBI.

The expansion of public digital platforms and measures such as PM GatiShakti, the National Logistics Policy, and the Production-Linked Incentive schemes will support economic growth and boost manufacturing output.

3. INDUSTRY STRUCTURE AND DEVELOPMENT

Machine Tools Industry

Machine tool sector is a part of the capital goods industry. It is a sub-sector of the engineering industry included under the category heavy engineering units. Machine tool segment produces mother machines therefore plays a vital role in the technological up gradation, quality control and cost in the engineering & manufacturing sector.

Machine tools industry is a critical part of the manufacturing sector. The machine tools industry in India has been serving the need for manufacturing through the production of machine tools, accessories/attachments, subsystems and parts.

The Indian machine tools market size reached US$ 1.4 Billion in 2022 and is expected to reach US$ 2.5 billion by 2028, exhibiting a growth rate (CAGR) of 9.4% during 2023-28.

The Indian Machine Tool Industry which is presently about Rs. 7000-8000 crore is expected to see significant growth in the coming year. "The industry is expected to reach Rs. 9,500-10,000 crore in 2023-24.

The Indian machine tool industry is growing at a steady pace and, with the continuous support of the government, aims to grow even further and steadily positioned itself in the global market. .

India stands 17th in production and 12th in the consumption of machine tools in the world. The country is set to become a key player in the global machine tools industry and is likely to see substantial high-end machine tool manufacturing. Studies have rated India higher in terms of manufacturing capability and availability of quality engineers. This design strength gives the Indian machine tools industry a competitive advantage, in terms of special purpose machine tools.

Developments/ Road ahead:

Technology and Product Development

Having access to the latest technology is a key imperative for success in the Indian manufacturing sector. As companies look to source manufactured products from India, they expect the same level of technology and product development capability in India that is prevalent in other global markets. Indian machine tool manufacturers have responded to this challenge by focusing on improvement in capabilities and performance in technology, design and product development.

Productivity Improvement and Cost Reduction

The Indian manufacturing sector is highly competitive and continuous improvement in productivity and costs is imperative for players to sustain in the global market. Indian machine tool manufacturers have been focusing on critical areas such as, reduction of idle time, increased asset utilization; productivity through quality improvement; optimising processes; leveraging IT to increase productivity and better management of productivity through appropriate performance metrics.

Design and Innovation Capability

With user industries becoming more demanding, the machine tools sector faces the need to develop increasingly complex machine tools, to meet their customized requirements. At the same time, product development cycle times need to be crunched. This indicates that it is imperative for players to invest in R&D and develop robust design and innovation capabilities.

Rising Adoption of Internet of Things (loT) Technologies to Fuel Growth

One of the most prominent machine tools market trends is expected to be the increasing uptake of IoT in the manufacturing sector. This will be a result of escalating demand for information and access to information. Furthermore, producers are looking to bring down their production costs, streamline processes, and raise the safety quotient in their units. As a result, there is growing investment in IoT by manufacturers for improved management and control, which is propelling the machine tool market, especially CNC Machine tools

Adoption of CNC Machine Tools in Medical Sector:

CNC machines are capable of producing sophisticated surgical instruments, tiny screws and everything in between. In addition medical machined parts for the most complex devices require tight tolerances, which is capable through CNC machine tools. Adding to this, multi-tool and multiaxis machines, such as CNC Swiss turning centers, improve the manufacturing of medical parts with shorter cycle times and owing to the features allowing versatility during production. Moreover several medical equipment manufacturers such as Pulse systems are focusing on adopting CNC machine tools for advancements in manufacturing.

The Future of Machine Tool industry;

Machine tool industry has emerged in the new avatar courtesy of Digitalization and Industry 4.0. One of the oldest and traditional industries, the machine tool industry has walked many miles to achieve the current status.

In the coming years, digitalization will completely transform the Machine tool industry and the merger of these dynamic elements will result in process efficiency and productivity. Although the industry is flooded with numerous solutions, it is essential to identify the space, which requires transformation and adopt solutions accordingly. The industry is witnessing innovative technological solutions in every aspect of the processes.

The sensor integration, utilization of artificial intelligence (AI), and the integration of sophisticated simulation features, enable the advancements in machine performance and overall equipment effectiveness (OEE). Additionally, the advanced sensors and modern ways of communication, controlling, and monitoring systems allows creating new opportunities for smart services and new business models in the machine tool market. The digitally enhanced services are about to become part of each OEMs portfolio in the future.

Along with various innovative technologies, the market is laden with new trends, which will help to boost the machine tool industry. In the current digital age, mass customization, reduced time-to- consumer, error proofing using latest technologies are a few trends that require enhanced machine flexibility. It is essential to comprehend the new machines and utilize them to achieve maximum efficiency. Additionally, core aspects such as price, usability, longevity, process speed, quality, and greater machine flexibility are few characteristics of new machines.

Currently, data security, open communication interfaces, new information & communication technology (ICT) are essential elements to integrate digital applications and prominent automation solutions. This process will help to transform the machine tools into user friendly tools in the future.

Advancements in hardware and software are changing the Machine Tool Industry. Industry trends in the coming years are likely to focus on these advancements, especially as they pertain to automation.

The machine tool industry is expected to see advancements in:

a. CNC software advancements

b. Automated and IoT-ready machines

c. Artificial intelligence (AI)

d. Inclusion of smart features and networks

4. SWOT ANALYSIS:

STRENGTH

• Robust Team of Research & Development.

• Ever-growing production capacity.

• Wide range of products.

• Satisfied and prestigious Client base.

• Experienced and Visionary Management.

• Trained Workforce.

• Debt Free culture.

• Strong Operational and Financial Strength.

• Delivering value to end users

• Strong tender/ Government Business

• Dispatching Machines to defence sector, educational sector etc.

WEAKNESS

• Long manufacturing cycle.

• Inventory Maintenance of critical components.

OPPORTUNITIES

• High opportunities in defence sector:

Invoking Atmanirbhar Bharat (Self-Reliant India) initiative, the Ministry of Defence (MOD) has announced ban on the import of 101 items of defence equipment. As an equipment type comes under the import embargo, the military will be required to buy it from Indian defence manufacturers. This decision will offer great opportunity to the Indian defence industry to manufacture items on the negative list by using its own design and development capabilities or adopting the technologies designed and developed by the Defence R&D Organization to meet the requirements of the Armed Forces.

• Introducing PPP model in Indian Railways and privatisation of trains helps to boost some changes in the Railway sector as a whole, with a positive impact on machine tool industry.

• Growing demand of capital goods in the market.

• Presence of fewer major players in the machine tools industry.

• Automation and artificial intelligence opening doors for machine tools manufactures to manufacture high end machines with specifications.

• Make in India and Aatmanirbhar Bharat abhyan are triggering concepts for Indian Manufacturer and which will enhance in-house manufacturing and reduces burden of imports.

• There is opportunity and potentiality for Exporting of Machines and Machining components THREAT

• Entry of global players in the machine tools industry.

• Mobilization of funds in various segments of industry is very essential for demand pull in capital goods sector. This is to be maintained on macro-economic level otherwise poses a threat to capacity utilization of any machine tool company since, majority of machines roll out based on end users loan facilities.

• External factors such as political, environmental, technical etc

• Competition from international players manufacturing/supplying in India.

Disclaimer: This information has been collected through secondary research and

Company is not responsible for any errors in the same. All figures are approx.

Approach of Macpower

Your company is also taking all the stated points into consideration to take necessary steps to enter into newer industry segments, newer geographical markets, making changes in current product portfolio and incorporating feasible IoT to maintain the growth trajectory for it.

• Your company is vigilant enough with above factors and use to have internal restructuring mechanism to counter the above mentioned conditions to maximum extent.

5. PRODUCT WISE PERFORMANCE IN FY-2023

Sales in value - Product wise in 2022-2023

PARTICULARS

(INR in Lakh)

CNC

12,759

VMC

6,932

VTL

67

HMC

87

Note: Revenue from operations in the balance sheet is total of Sales + Selling of Parts + Selling of Scrap. Your company operates in single segment and thats why segment wise performance reporting is not applicable to your company.

6. RISKS & CONCERNS

The Company has adopted a comprehensive and integrated risk appraisal, mitigation and management process. The risk mitigation measures of the Company are placed before the Board of Directors periodically for review and improvement.

7. INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY

Your Company has an effective internal control and risk-mitigation system, which are constantly assessed and strengthened with new/revised standard operating procedure. The Companys internal control system is commensurate with its size, scale and complexities of its operations. The main trust of internal audit is to test and review controls, appraisal of risks and business processes, besides benchmarking controls with best practices in the industry.

The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements to strengthen the same, if needed. The Company has a robust Management Information System, which is an integral part of the control mechanism.

The Audit Committee of the Board of Directors, Statutory Auditors and Heads are periodically apprised of the internal audit findings and corrective actions taken. Audit plays a key role in providing assurance to the Board of Directors. To maintain its objectivity and independence, the Internal Audit functions reports to the Chairman of the Audit Committee.

8. OPERATIONAL PERFORMANCE

The following table gives an overview of the financial results of the Company:

[INR in Lakh]

Particulars

2022-23 2021-22 Change in %

Total Operating Revenue

20189 19012 6.2%

EBITDA

[Earnings before Interest, Tax, Depreciation and Amortization]

2067 2051 D.8%

PBT [Profit Before Tax]

1733 1839 - 5.8%

PAT [Profit After Tax]

1289 1284 D.4%

EPS [Earning Per Share]

1.88 12.84 D.4%

9. HUMAN RESOURCES

Your Company enjoys the support of committed and well satisfied human capital. Compensation packages offered by the company, recruitment process, training, motivation and performance appraisal, attract and retain the best talent. The Company had 554 permanent employees as on March 31, 2023. Industrial relations remained cordial throughout the year. Further, during the year there has been no complaints from employees and there are no strike/lockout/any such bitter event which effects the relationship between the Company and employees.

10. DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS ALONG WITH EXPLANATIONS.

Ratios

Units FY

22-23

FY

21-22

Change in % Reason

Debtors

Turnover

Time s 21.56 38.93 -45% During the year proportion of sales to Government & Semi-government organisation in comparison to Non-government buyer is more. Credit period of the sales to Government & Semi-government organisation remains on higher side, ratio in question is increased substantially in comparison with previous year.

Inventory

Turnover

Times 1.92 1.95 -2% -

Interest Coverage Ratio (ICR)

Times 75.26 118.13 -36.29% Lower ICR as compare to last year due to increase in Finance cost from 15 lakhs to 23 Lakhs, An interest coverage ratio of at least three (3) is generally considered the minimum acceptable amount for a company that has solid, consistent revenues.

Current

Ratio

Times 2.25 1.85 22% -

Debt-to- Equity Ratio

Is to 0.00 0.00 0% -

Operating Profit Margin

% 8.46% 9.22% -8.24%

Net Profit Margin

% 6.39% 6.74% -5%

Return on Equity

% 13.44% 15.18% -11%

Return on Net Assets

% 31.01% 32. 51% -5%

11. DETAILS OF CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR ALONG WITH A DETAILED EXPLANATION THEREOF

As stated aforesaid there is change in return on net worth as compared to the immediately previous financial year Net worth is increased due to increase in Profitability of the Company

Net worth of the as in the year 2021-22 was Rs. 84.70 Cr. and in the year 2022-23 it is Rs. 96.61 Cr.

12. DISCLOSURE OF ACCOUNTING TREATMENT:

The Company has followed all relevant Ind AS while preparing the financial statements.

Cautionary Statement:-

This document contains statements about expected events and financial and operational results of Company which are forward-looking. By their nature, forward-looking statements require the Company to make assumption; predictions and other forward-looking statements may not prove to be accurate. Readers are cautioned not to place under reliance on forward-looking statements as a number of factors could cause assumptions, and actual results and events to differ materially from those expressed here.

Place: Metoda, Rajkot For and on behalf of the Board of

Date: 11th August, 2023 MACPOWER CNC MACHINES LIMITED

[Rupesh J. Mehta] Chairman & Managing Director DIN: 01474523