majestic auto ltd share price Management discussions


ANNEXURE E

1. Global Economy

The global economy remained uncertain with continued disruption in the supply chain, increased commodity prices due to the geo-political uncertainties and ebbing of the Pandemic. Supply disruptions, commodity price rises and pent-up demand have led to a high inflationary environment forcing Central Banks across the globe to adopt aggressive tightening monetary policy, resulting in a steep rise in the interest rates. Focused actions on returning inflation to targeted levels have started to exhibit some green shoots, however, Central Banks and the Policymakers continue to keep a close watch on these aspects.

As per the estimates of International Monetary Fund (IMF), the global growth should bottom out at 2.8 percent this year and expected to rise to 3 percent in 2024. Further, slowdown is concentrated in advanced economies especially United Kingdom and the Euro area, whereas Emerging and Developing countries are already showing signs of recovery and are expected to grow faster.

The IMF also forecasted that the Global headline inflation is expected to fall from 8.7 percent in 2022 to 7 percent in 2023 supported by lower commodity prices. However, it continues to keep a close watch on downside scenarios primarily due to the financial sector turmoil and the continuing geo-political tensions.

2. Industry Structure & Developments

The theme over the last year has been uncertainty, inflation, higher interest rates, and resilience. We came into the year with continuously rising interest rates and unrelenting inflation. While the global tech industry went through layoffs at a large scale, India was exceptionally resilient in business and in retaining employees. The uncertainty brought some pause to our clients, but they eventually wanted to take up office space. This uncertainty was also a huge factor in clients wanting flexibility that co-working spaces inherently provide. Therefore, conventional leases continue to compete with this recently significant portion of the market. The demand for office space has certainly bottomed out, but it is growing gradually, at best. Industrial land assets have certainly seen an uptick in demand as Indias Manufacturing sector is burgeoning again.

3. Indian Real Estate: Opportunities and Challenges /Threats/

Strategies

Challenges/Threats

• Rising Interest Rates

Over the past year RBI (and global central banks) have raised interest rates to curb inflation at a faster pace than we have seen in decades. Our largest cost head is finance cost, so this is certainly deeply impacting us.

• Supply in Noida Office Space

While our micro market has [finally] rebound in office space demand, we fear that the sheer number of upcoming properties on the Noida-Greater-Noida Expressway will soon lead to over-supply, again.

• The Road Ahead/Positive Approach

Weve been blessed with fantastic bankers to help cushion the rising cost of finance. This year we strive to enhance occupancy levels and improve cashflow management. There has been a significant uptick in property values, and even more pronounced deal flow. So, weve been able to strike deals to liquidate some of our industrial assets at prices favourable compared to the rental yield. This will eliminate the debt in our company, and leave room for further reinvestment. Of course, our subsidiary will still carry debt, since that is integral to the business model to enhance RoE.

Weve built new relationships with fantastic clients that should last a long time. This is really the key to enhance the value of our asset and have a healthy business going forward.

4. Segment-wise/ Product-wise Performance

You are already aware that, your Company has significant presence in Noida, UP. Your Company along with its subsidiary/associate companies etc. have range of Commercial real estate leasing, Factory space leasing, and Facility Management business.

Commercial Office Space: Existing tenants have extended their lease periods, and multiple prestigious new companies have taken up space in our facility. Some old tenants that had left during COVID have occupied some seats in our new co-working space in collaboration with Awfis. We hope to have higher occupancy in the coming months.

Industrial Assets: Weve already made deals to liquidate the last of our industrial property in Ludhiana, and the asset in Greater Noida. These transactions take time, and weve got highly reputed buyers to execute these transactions. We take this as a sign of a booming manufacturing demand for both of these locations, and Make-in-India as well.

Financial Investment Portfolio: We still have a sizeable holding in Hero MotoCorp that continues to pay dividend quite reliably. We look to reduce the concentration risk in one stock, but still grow this portfolio through good, diversified investment.

5. Outlook and Strategy

Our business resumes growth, even if it is gradual. Were pleased to see the quality of clients were able to get in our Sector 62, Noida facility.

The key elements of the strategy of the Company are the following:

• Cost Optimization and Cash Management:

• The Company strives towards creating efficient cost structures in line with the scale of the business. We expect to generate healthy cash flows to further deleverage the balance sheet and increased shareholders value.

• Company to consider sale /exit from non-core assets /slow moving investments if fetching better value and to reduce the debt.

• The Company is improving its financial parameters through better performance and ensures repayment of principal amount to reduce the interest burden.

• Upon continuous feedback from shareholders, company gave a substantial dividend last year. This will be considered again as cashflows allow, and the company is striving toward improving this position.

6. Outlook on Risks and Concerns

The Company is exposed to a number of risks such as economic, regulatory, taxation and environmental risks as well as sectoral investment outlook. Some risks that may arise in the normal course of business and could impact its ability to address future developments comprise credit risk, liquidity risk, counterparty risk, regulatory risk, commodity inflation risk and market risk. The Companys strategy of focusing on key products and geographical segments is exposed to economic and market conditions. The Company has implemented robust risk management policies that set-out the tolerance for risk and your Companys general risk management.

7. Internal Control Systems and Adequacy

The Companys internal controls are commensurate with nature, size and complexities of operations. These internal control systems ensure compliance with all applicable laws and regulations and facilitate optimum utilization of available resources as also protect the interests of all stakeholders. The Company has clearly defined policies, standard operating procedures (SOPs), financial and operational delegation of authority (DOA) and organizational structure for its business functions to ensure a smooth conduct of its business.

8. Discussion on Financial Performance with respect to Operational Performance

The details of the financial performance of the Company are reflected in the Balance Sheet, Statement of Profit & Loss and other Financial Statements, appearing separately. Highlights are provided below:

(Rs. in Lakhs)

Particulars March 31, 2023 March 31, 2022
Total Income 3225.03 2854.86
Profit Before Tax 767.65 758.34

The financial performance of the Company has been further explained in the Boards Report of the Company for the Financial Year 2022-23 appearing separately. The financial statements have been prepared in accordance with the requirement of Companies Act 2013, and applicable accounting standards as notified by Ministry of Corporate Affairs

(MCA).

9. Material developments in Human Resources / Industrial Relations front, Including number of people employed.

The Companys core focus areas are building organizational capability and capacity, leveraging and nurturing key talent, encouraging meritocracy and enhancing people utilization in alignment with its business strategy. The Company is undertaking the following steps:

• Strengthening and diversifying the advisors and consultants: Were bringing in specialists from real estate and other industries who will enhance all domains, while keeping costs low, especially fixed costs. Key advisors have been brought in across functions including Finance, Business Development, Project Management and execution, Marketing, IT and Hospitality.

• Various training and coaching programmes are being implemented to refresh and enrich its existing talent pool. The Company leverages diversity of knowledge, qualification, skill, professional experience, culture, geography and sectoral understanding to enhance its competitiveness. The Company believes in creating an inclusive environment, where diverse perspectives can enrich strategic perspectives. To enhance inclusiveness at work, our ‘gender sensitivity workshops sensitise the environment in strengthening our conduct towards women colleagues. The Companys holistic wellness programme sensitised employees around work-life balance and importance of a healthy lifestyle, emotional, physical well-being and prevention of diseases. Regular medical checks, structured monthly health programmes, health bulletins, health talks and awareness campaigns were periodically conducted. The Company also rolled out a structured program to vaccinate all its employees and their families along with contractors/ partners staff & their families.

10. Details of significant changes in key financial ratios along with detailed explanations thereof, including:

S. No. Particulars Financial Year 2022-23 Financial Year 2021-22
1 Current Ratio (in times) 1.29 1.61
2 Debt Equity Ratio1 (in times) 0.08 0.10
3 Debt Service Coverage Ratio (in times) 0.83 2.25
4 Return on Equity Ratio2 (in %) 0.04% 0.37%
5 Trade Receivables Turnover Ratio3 (in times) 11.73 6.42
6 Trade Payables Turnover Ratio (in times) 17.84 15.60
7 Net Capital Turnover Ratio (in times) 4.87 6.32
8 Net profit Ratio4 ( In %) 0.70% 8.62%
9 Return on Capital employed (in %) 2.41% 2.35%
10 Return on Investment (in %) 7.03% 5.56%

1Due to increase in repayment of borrowing & lease liabilities during the current year.

2Profit for the current year declined due to deferred tax recognised on account of lapse of unused tax loses.

3Due to reduction in trade receivables on account of bad debts written-off during the current year.

4Due to increase in income from invested funds during the current year.

11. Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof

Ratio FY 2022-23 FY 2021-22 Change % Reason for change
Return on Net Worth 0.04% 0.37% -89.19% Profit for the current year declined due to deferred tax recognised on account of lapse of unused tax loses.

11. Cautionary Statement

Certain statements in the Management Discussion and Analysis describing the Companys views on the industry, expectations/ predictions and objectives etc. may be forward looking within the meaning of applicable laws and regulations. Actual results may differ from those expressed or implied in these statements. The Companys operations may, inter-alia, be affected by the supply and demand situations, input prices and availability, changes in Government regulations, tax laws, government or court decisions and other factors such as industry relations and economic developments, possible risk of lockdown and/or restrictions in certain geographies with the resurfacing of Covid-19 etc. Investors should bear this in mind when considering the above statements.

On behalf of the Board of Directors Majestic Auto Limited

Mahesh Munjal
Date: July 28, 2023 (Chairman & Managing Director)
Place: Delhi (DIN: 00002990)