Magna Eletrocasting Ltd Management Discussions.

Overview:

Magnas corporate vision is to ensure a sustainable business model, provide customers with products and services consistently conforming to customer requirements at the right time, cost and quality and maintain a leadership position in the segments in which it is operating. This objective is sought to be achieved through total employee involvement, plant improvements, continuous process developments and conforming to ethical business practices.

The financial statements presented here have been prepared in compliance with the requirements of the Companies Act, 2013, various statutory enactments and Indian Accounting Standards.

Foundry Industry:

The industry manufactures a wide array of products that cater to diverse industries of national economic importance. Majority of the production is consumed by the automobile sector. Now, the Indian Foundry Industry is facing major challenges in the form of high input costs, shortage of skilled manpower and lack of clarity in policy making. Further the ongoing trade war between US and China has created a complex situation especially for the foundry industry. Notwithstanding this, the Indian Auto Industry on whom the foundry industry is dependent upon is going through a drastic change in structure. The change over to BS VI and the introduction of electric vehicles forces a twin problems for the Indian Foundry Industry.

Indias Export of Casting Products is very insignificant compared to the global industry demand. Hence the opportunity is there for the Indian Foundry to tap the export market.

The Companys performance during the year 2019-20: Foundry Division:

The Turnover of the Company has reduced from Rs. 12292.39 Lakhs to Rs. 9632.13 Lakhs, Consequent upon this, Profit Before Tax has also substantially dropped from Rs. 1501.68 Lakhs in the previous year to Rs. 850.10 Lakhs in the current year.

The above decline in operating revenue and profitability is because of the weak demand for castings from both the export and domestic market during the year, coupled with the impact of COVID 19 in March 2020, the details of which have been dealt with separately in this report elsewhere.

Further the increase in prices of key raw materials and other input costs affected the profitability of the Company.

Wind Energy Division:

The Wind Energy Division generated an income of Rs. 454.13 Lakhs as against Rs. 520.79 Lakhs Lakhs in the Previous year. The reduced revenue is because of the low wind velocity during the year.

Outlook:

The Company has developed 118 new products which includes proto parts and other regular parts. Further to that the Company expects to derive benefit from such new developments in forthcoming years as already stated in Boards Report.

The Company also strives to enter into new customer segments which will help the Company to increase sales.

COVID-19 Impact and Analysis:

The Management has considered the impact of COVID-19 on the business operations of the Company for the financial year ended 31st March, 2020 and 31st March, 2021 and after taking into consideration fair valuation, estimates, realisability is of the opinion that the risk factors have been appropriately assessed. The Management is of the opinion while that there will not be any change in going concern concept, the financials for the two financial years will be impacted. The reasons which the Management foresee as possible threats/ are possible disruptions in supply chain, availability of key raw materials and the demand from customers. The Management is of the opinion that no adjustments are required to the financial statements presented therein and that the same have been appropriately accounted for.

Opportunities and Threats:

The thrust on infrastructure development, road construction, coal production, power generation, housing policies is driving the demand for castings from the foundry industry. Besides, the Governments focus on manufacturing in India and other policies will also drive demand for castings. The Company is in a position to grab the opportunity in the years to come and confident to improvise the growth of turnover and profitability. The Company has necessary and well equipped production facilities to reap the benefits of the growth opportunities.

The Economic demand slow down presents a real challenge to growing volumes. The inflation figures, and recent emerging developments across the world, like Corona virus has potential to de stabilize existing business model of the Industry.

The introduction of BS VI Standard has also resulted in the sluggish offtake in the Automobile Industry and this will have an impact on the Castings Industry.

Environment, Safety and Energy Conservation Policy:

The Company is aware of its responsibility to raise awareness about environmental issues that are part of the industry, including issues raised by regulatory and customer-driven forces. Further the Company has a history of, and continues to assess the impact and to innovate processes and products that are more sustainable from both economic and environmental dimensions.

The Company is committed to conserve natural resources and to protect the same for future generations. Currently the Company is involved in Project for Reclamation of Green Sand, this will enable the Company to conserve precious natural resources apart from being environmental friendly. Further the Company is constantly taking necessary efforts to conserve energy by adopting new technologies to the extent possible.

Risks and concerns:

Cost of production is highly dependent on material and labour cost which is the major part of the expenses. Value addition is one of the solutions to mitigate the risk. The risk mitigation measures are placed before the Audit Committee and the Board for its periodical review and improvements.

Internal control systems and their adequacy:

The Company is having well established and adequate Internal Control Systems commensurate to the size of the business. The actual performances are reviewed and compared with budget, the deviations from there is addressed regularly. The Company is also having established internal audit team, statutory audit teams and Audit Committee of Board of Directors to control internal systems adequately.

Personnel:

The Company aims to achieve sustained growth through developing a skilled, motivated and committed workforce by providing necessary trainings at all levels of employees. Magna also 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.

Key Financial Ratios:

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

Particulars 2019-20 2018-19
Debtors Turnover Ratio 94 days 94 days
Inventory Turnover Ratio 10 times 14 times
Interest Coverage Ratio - 103 times
Current Ratio 4.34 3.38
Debt Equity Ratio - -
Operating Profit Margin 13.71% 17.03%
Net Profit Margin 6.79% 9.05%
Return on Networth 9.10% 16.10%

The reduction in sales and profitability during the financial year 2019-20 has significantly affected the Inventory Turnover Ratio, Net Profit Margin and Return on Networth.

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

Cautionary Statement:

Statements in this Management Discussion and Analysis 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.