magna electro castings ltd share price Management discussions


MANAGEMENT DISCUSSION AND ANALYSIS REPORT:

Overview:

MAGNA recognizes its role as a responsible corporate citizen to the Society at large and all the stakeholders involved in its day to day business activities. Magna would like to persue above objective by following ethical business standards.

The financial statements presented here have been prepared in accordance with the various regulatory enactments in force.

Industry structure and Development:

The Indian foundry industry manufactures casting components for various applications in Auto, Tractor, Railways, Infrastructure industries and others. The Indian Foundry Industry has a turnover of approx. USD 19 Billion. Exports account for approx. USD 3 Billion.

There are about 4500 foundries out of which nearby 80% fall under the MSME Segment. As per the latest reports, India occupies the 2nd spot in the world for manufacture of casting components.

Since the volume of exports is relatively negligible, there is vast scope for export of casting components.

Operations:

The Operating Revenue of the Company has increased by 21.20% from Rs.13584.04 Lakhs in the previous year to Rs.16464.29 Lakhs in the current year. Further the Profit Before Tax has also increased by 123.38% from Rs.1034.90 Lakhs in the previous year to Rs.2311.75 Lakhs in the current year. The increase in operating revenue and profitability was due to the pickup in both the Domestic Markets as well as the Export Markets. The Export Revenue has also registered an increase of 28.15% over the previous year.

The raw material cost were relatively stable during the financial year ended 31st March, 2023. However the power tariff was increased by TANGEDCO and this was resulted in a marginal increase of 3.5% in Power Cost.

The Wind Energy Division generated a revenue of Rs.397.48 Lakhs during the year as against Rs.461.13 Lakhs, in the previous year. One Wind Energy Generator 750 KW was disposed off during the financial year 2022-23.

During the year, the Company has invested Rs.144 Lakhs in the equity shares of First Energy TN1 Private Limited for generation of Solar Power on a Captive User basis. This project was commissioned during the last week of December, 2022 and has since been generating Solar Power.

Opportunities:

The Indian Casting Production is expected to expand at an compounded Annual Growth rate of 12%. This is possible because of various initiatives by the Government and with the heavy investment in infrastructure related projects which are in pipeline. Under this circumstance, the Company has industrial growth opportunities to be capitalized in next couple of years.

Threats:

The highly volatile raw material cost coupled with lack of skilled manpower in critical operations are major threats to the Company. The container cost though it has come down from its peak level has negated the availability of Export market due to increased competitiveness.

Environment, Safety and Energy Conservation Policy:

The Company is constantly focusing its attention on Environment, Clean Energy, Safety and other related parameters. The Company is therefore constantly investing its resources in the above key areas. During the year, the Company has invested in Solar Power Generation Project for generation of Clean Energy. This is in addition to the existing Wind Energy Generators. The generation from this Solar Project as well as from the existing Wind Energy Generators will meet almost 90% of the Companys power demand at its existing capacity limits. The Company is also investing in Sand Reclamation Plants as a part of its drive to preserve precious natural resources like sand.

Risks and Concerns:

Availability of skilled manpower, especially after the post pandemic period is a real cause of concern. The Company is taking various steps to mitigate the risk area.

Internal control systems and their adequacy:

The Company has adequate Internal Financial Control Systems in place. It has also engage the third party consultants to assess the adequacy or otherwise of tis Internal Control Systems and to suggest various measures to improve the controls. This is also been monetarized at periodical intervals by the Audit Committee of the Board.

Personnel:

Magna concentrates on employees safety measures, good infrastructures, healthy food and sanitation facilities etc., at its workplace. Further the Company ensures utmost care for employees safety at workplace by providing necessary equipments and safety measures and guidelines at regular intervals. During the pandemic period,the Company took various measures to protect the life of employees.

Key Financial Ratios:

There is significant change in some key financial ratios when compared with previous year and below are ratios;

Particulars

2022-23 2021-22

Trade Receivables Turnover Ratio

4.26 3.98

Trade Payables Turnover Ratio

4.87 5.40

Inventory Turnover Ratio

15.79 14.43

Working Capital Turnover Ratio

3.22 2.99

Interest Coverage Ratio

67.89 times 38.39 times

Current Ratio

3.24 2.73

Debt Equity Ratio

0.01 0.06

Operating Profit Margin

17.35% 11.25%

Net Profit Margin

10.40% 5.69%

Return on Net worth

18.15% 9.87%

Return on Capital Employed

24.86% 13.63%

Further the Company confirms that there is no different accounting treatment has been followed than prescribed in accounting standard while preparing financial statements.

Detailed explanations for significant changes in key financial ratios:

The difference in Interest Coverage Ratio and Debt Equity Ratio is due to decrease in utilization of Cash Credit Limit. As of date, there is no long term debt in the Company.

The difference in Inventory Turnover Ratio is due to improvement in inventory management.

The difference in Profit Margin and Returns are due to increase in profitability of the Company.

Cautionary Statement:

The statements in this Management Discussion and Analysis Report describing the Companys views, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those either expressed or implied. Any investment by shareholders/ investors should therefore be based on their individual analysis.