Manaksia Ltd Management Discussions

Management Discussion and Analysis

Global economy

Overview

Global economic growth declined from 3.5% in 2022 to an estimated 3.1% in 2023. A disproportionate share of global growth in FY 2023-24 is expected to come from Asia, despite the weaker-than-expected recovery in China, sustained weakness in USA, higher energy costs in Europe, weak global consumer sentiment on account of the Ukraine-Russia war, and the Red Sea crisis resulting in higher logistics costs. A tightening monetary policy translated into increased policy rates and interest rates for new loans.

Growth in advanced economies is expected to slow from 2.6% in 2022 to 1.5% in 2023 and 1.4% in 2024 as policy tightening takes effect. Emerging market and developing economies are projected to report a modest growth decline from 4.1% in 2022 to 4.0% in 2023 and 2024. Global inflation is

expected to decline steadily from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024, due to a tighter monetary policy aided by relatively lower international commodity prices. Core inflation decline is expected to be more gradual; inflation is not expected to return to target until 2025 in most cases. The US Federal Reserve approved a much- anticipated interest rate hike that took the benchmark borrowing costs to their highest in more than 22 years.

Global trade in goods was expected to have declined nearly USD 2 Trillion in 2023; trade in services was expected to have expanded USD 500 Billion.

The cost of Brent crude oil averaged

USD 83 per barrel in 2023, down from USD 101per barrel in 2022, with crude oil from Russia finding destinations outside the European Union and global crude oil demand falling short of expectations.

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

Regional growth (%)	FY23	FY22
World output	3.1	3.5
Advanced economies	1.69	2.5
Emerging and developing economies	4.1	3.8

(Source: UNCTAD, IMF)

Outlook

Asia is expected to continue to account for the bulk of global growth in FY 2024-25. Inflation is expected to ease gradually as cost pressures moderate; headline inflation in G20 countries is expected to decline. The global economy has demonstrated resilience amid high inflation and monetary tightening, growth around previous levels for the next two years (Source: World Bank).

Indian economy

Overview

The Indian economy was estimated to grow 7.8% in the FY 2023-24 against 7.2% in FY 2022-23 mainly on account of the improved performance in the mining and quarrying, manufacturing and certain segments of the services sector. India retained its position as the fifth largest economy. The Indian rupee displayed relative resilience compared to the previous year; the rupee opened at H82.66 against the US dollar on the first trading day of 2023 and on 27 December was H83.35 versus the greenback, a depreciation of 0.8%.

In the 11 months of FY 2023-24, the CPI inflation averaged 5.4% with rural inflation exceeding urban inflation. Lower production and erratic weather led to a spike in food inflation. In contrast, core inflation averaged at 4.5%, a sharp decline from 6.2% in FY 23. The softening of global commodity prices led to a moderation in core inflation.

The nations foreign exchange reserves achieved a historic milestone, reaching USD 645.6 Billion. The credit quality of Indian companies remained strong between October 2023 and March 2024 following deleveraged Balance Sheets, sustained domestic demand and government-led capital expenditure. Rating upgrades continued to surpass rating downgrades in H2 FY24. UPI transactions in India posted a record 56% rise in volume and 43% rise in value in FY24.

Growth of the Indian economy

	FY21	FY22	FY23	FY24
Real GDP growth (%)	-6.6%	8.7	7.2	7.8

Growth of the Indian economy quarter by quarter, FY 2023-24

	Q1 FY24	Q2 FY24	Q3 FY24	Q4 FY24
Real GDP growth (%)	8.2	8.1	8.4	8

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

Indias monsoon for 2023 hit a five- year low. August was the driest month in a century. From June to September, the country received only 94% of its long-term average rainfall. Despite this reality, wheat production was expected to touch a record 114 Million Tons in the FY 2023-24 crop year on account of higher coverage. Rice production was expected to decline to reach 106 Million Metric Tons (MMT) compared with 132 Million Metric Tons in the previous year. Total kharif pulses production for FY 2023-24 was estimated at 71.18 Lakh Metric Tons, lower than the previous year due to climatic conditions.

As per the first advance estimates of national income released by the National Statistical Office (NSO), the manufacturing sector output was estimated to grow 6.5% in FY 202324 compared to 1.3% in FY 2022-23. The Indian mining sector growth was estimated at 8.1% in FY 2023-24 compared to 4.1% in FY 2022-23. Financial services, real estate and professional services were estimated to record a growth of 8.9% in FY 2023-24 compared to 7.1% in FY 2022-23.

Real GDP or GDP at constant prices in FY 2023-24 was estimated at H171.79 Lakh Cr as against the provisional GDP estimate of FY 2022-23 of H160.06 Lakh Cr (released on May 31, 2023). Growth in real GDP during FY 202324 was estimated at 7.3% compared to 7.2% in FY 2022-23. Nominal GDP or GDP at current prices in FY 202324 was estimated at H296.58 Lakh Cr against the provisional FY 2022-23 GDP estimate of H272.41 Lakh Cr.

The gross non-performing asset ratio for scheduled commercial banks dropped to 3.2% as of September 2023, following a decline from 3.9% at the end of March 2023.

Indias exports of goods and services were expected touch USD 900 Billion in FY 2023-24 compared to USD 770 Billion in the previous year despite global headwinds. Merchandise exports were expected to expand between USD 495 Billion and USD 500 Billion, while services exports were expected to touch USD 400 Billion during the year. Indias net direct tax collection increased 19% to H14.71 Lakh Cr by January 2024. The gross collection was 24.58% higher than the gross collection for the corresponding period of the previous year. Gross GST collection of H20.2 Lakh Cr represented an 11.7% increase; average monthly collection was H1,68,000 Cr, surpassing the previous years average of H1,50,000 Cr.

The agriculture sector was expected to see a growth of 1.8% in FY 2023-24, lower than the 4% expansion recorded in FY 2022-23. Trade, hotel, transport, communication and services related to broadcasting segment are estimated to grow at 6.3% in FY 2023-24, a contraction from 14% in FY 2022-23. The Indian automobile segment was expected to close FY 2023-24 with a growth of 6-9%, despite global supply chain disruptions and rising ownership costs.

The construction sector was expected to grow 10.7% year-on-year from 10% in FY 2023-23. Public administration, defence and other services were estimated to grow by 7.7% in FY 202324 compared to 7.2% in FY 2022-23. The growth in gross value added (GVA) at basic prices was pegged at 6.9%, down from 7% in FY 2022-23.

India reached a pivotal phase in its S-curve, characterised by acceleration in urbanization, industrialization, household incomes and energy consumption. India emerged as the fifth largest economy with a GDP of USD 3.6 Trillion and nominal per capita income of H123,945 in FY 2023-24.

Indias Nifty 50 index grew 30% in FY 2023-24 and Indias stock market emerged as the worlds fourth largest with a market capitalization of USD 4 Trillion. Foreign investment in Indian government bonds jumped in the last three months of 2023. India was ranked 63 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Indias unemployment declined to a low of 3.2% in 2023 from 6.1% in 2018.

Outlook

India withstood global headwinds in 2023 and is likely to remain the worlds fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves.

The Indian economy is anticipated to surpass USD 4 Trillion in FY 2024-25.

Union Budget FY 2024-25

The Interim Union Budget FY 202425 retained its focus on capital expenditure spending, comprising investments in infrastructure, solar energy, tourism, medical ecosystem and technology. In FY 2024-25, the top 13 ministries in terms of allocations accounted for 54% of the estimated total expenditure. The Ministry of Defence (MoD) has been allocated a record H6.22 Lakh Cr in the Regular

Union Budget for the FY 2024-25, marking the highest allocation among all ministries. 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, ddnews.gov.in)

Nigerian construction sector review

The construction industry in Nigeria expected to increase by 2.8% in 2024, with an average annual growth of 3.1% (2025 to 2027).

Growth in the industry will also be supported by investments in the oil and gas, electricity, transport, industrial, health, and education infrastructure projects. The government aims to secure foreign direct investment (FDI) totalling Nigerian naira (NGN) 2 Trillion (USD 4.8 Billion) by 2025, marking a significant rise from the Nigerian naira (NGN) 605.8 Billion (USD1.5 Billion) acquired in 2020.

Foreign Direct Investment (FDI) recorded the least with USD 119.18 Million (3.53%) of total capital importation in the beginning of 2024. In the beginning of 2024, the construction sector contributed 4.0% to the GDP.

(Source: orientalnewsng.com, globenewswire.com)

Nigerian metal packaging sector review

The Nigeria packaging market size is expected to stand at USD 0.89 Billion in 2024 and is expected to reach USD 1.03 Billion by 2029, growing at a CAGR of 2.96% (2024-2029).

The packaging industry in Nigeria is attracting investments due to the increasing investments in several end-user industries, such as the food processing industry, cosmetics, household care and others.

The global aerosol packaging market size is calculated at USD 7.37 Billion in 2024 and is expected to reach around USD 10.58 Billion by 2032, growing at a CAGR of 4.62% from 2024 to 2032. The increasing demand for aerosol packaging is driving the expansion of the aluminium packaging market. Rising demand for recycled products, urbanization and increased mobility, are boosting the need for packaged and frozen foods.

Growing awareness of environmental issues, along with government initiatives promoting metal packaging, is fuelling market expansion. The demand for metal packaging is being driven by manufacturers shift towards lighter, eco-friendly, and recyclable packaging solutions.

Company review

Manaksia Limited seems to have a diverse range of operations, particularly in Nigeria. The Companys, subsidiaries in Nigeria are engaged in the production of various steel products such as galvanized steel coils and sheets, color-coated steel and aluminum coils and sheets, as well as metal closures. Additionally, they manufacture paper packaging and nonferrous alloys, specifically for automotive applications. The Nigerian subsidiary also has the capability to produce white and kraft paper.

Key ratios

Regional growth (%)	FY24	FY23
EBITDA/turnover(%)	21	18
Debt-equity ratio	0.13	0.05
Return on net worth (%)	14	10
Book value per share (H)	83.98	171.58
Earnings per share (H)	11.53	16.30
Debtors turnover ratio	7.27	10.17
Inventory turnover (days)	51.24	49.76
Interest coverage ratio (x)	12.93	14.52
Current ratio (x)	4.90	5.88
Net profit margin (%)	10	9
Operating profit margin (%)	12	11

Reason for change in net worth as compared to the immediately previous financial year

Nigerian currency reported sharpest depreciation in any single year in recent memory, declining from 460.35 Naira to a US dollar at the start of the last financial year to 1662.35 Naira to a US dollar at its lowest before recovering to close the year under review at 1,330.26 Naira to a US dollar.

As all the Balance Sheet items were restated at the exchange rate prevailing as on March 31, 2024 and hence impacting the net worth accordingly.

Risk management

Currency risk

Manaksias manufacturing operations primarily occur in Africa, where they face exposure to fluctuations in foreign currencies. These currency fluctuations can significantly influence the Companys cost structure, earnings potential, and ability to settle foreign currency debts. Such instability poses economic risks and may hinder the Companys growth prospects.

Mitigation

In response to this risk, Manaksia has implemented strategies to hedge both its short-term and long-term foreign exchange exposures, aiming to mitigate their potential impact.

Regulatory risk

Manaksias operations are susceptible to the regulatory environment. Alterations in regulations have the potential to impact the Companys business practices and operations, introducing uncertainty and impeding growth.

Mitigation

Manaksia remains vigilant regarding the evolving regulatory landscape, ensuring adherence to pertinent regulations to foster business growth. By staying updated on regulatory changes, the Company can sustain operational efficiency and effectiveness.

Political risk

Manaksias business performance is susceptible to any shifts in Nigerias political landscape or policies. Such changes can introduce instability and uncertainty, potentially impeding the Companys growth and success.

Mitigation

Due to the broad appeal of Manaksias products, significant political shifts are expected to have minimal impact on the Companys operations. Its products meet the needs of a wide audience, providing a level of insulation from the effects of political changes.

Finance risk

The inability to secure cost-effective funding for capital expenditures may hinder Manaksias performance. If these investments cannot be financed effectively, it could have a detrimental effect on the Companys operations and growth prospects.

Mitigation

The Company reinforced its debt- equity ratio to 0.13 times in FY 202324 as against 0.05 times in FY 2022- 23; interest cover stood at 12.93x as on March 31, 2024.

Cultural risk

Manaksias failure to efficiently navigate cultural, linguistic, and regional variances between its importers and customers could have adverse effects on business performance.

Mitigation

Manaksia has forged robust relationships with its importers and customers, overcoming language and cultural differences. Roughly 90% of the Companys importers and customers have maintained partnerships for over five years, highlighting the enduring success of Manaksias relationship-building efforts.

Quality risk

The deterioration or damage of product quality during transportation poses a risk to Manaksias business.

Mitigation

To address the risk of product damage or quality loss during transportation, Manaksia has enacted rigorous quality control protocols. These measures guarantee that products remain in optimal condition throughout transit, meeting customers expectations upon delivery.

Competition risk

The caps and crowns market in Nigeria has experienced a notable increase in the number of small players catering to local beverage brands.

Mitigation

Benefiting from decades ofindustry experience and a profound grasp of market dynamics and consumer preferences, Manaksia is strategically positioned to capitalise on economies of scale. This affords the Company a distinct competitive advantage over smaller enterprises, enabling it to uphold its market position and foster business expansion.

Opportunities and Threats

A varied portfolio of products dealt with by the Company and considerable domestic and international geographical presence and reach have helped the Company to try and de-risk its business and meet the risks with suitable precaution.

Internal control systems and its adequacy

Manaksias internal control and risk management frameworks adhere closely to the principles delineated in the Companys corporate governance code. These systems are intricately woven into the fabric of the organizations structure, involving collaboration among various personnel to fulfil their designated roles. Oversight and direction are provided by the Board of Directors, which guides and supervises the Executive Directors and management, bolstered by monitoring committees assistance.

Human resources

Manaksia Limited places paramount importance on its workforce, acknowledging them as the cornerstone of its competitive edge. The Companys employees bring a wealth of diverse experiences from different sectors and industries, coupled with specialised technological expertise. Grounded in a commitment to innovation and advancement, the Companys HR philosophy challenges conventional norms to sustain competitiveness. Manaksia prioritises decisions that nurture both the professional growth and personal fulfilment of its employees, advocating for a balanced work-life dynamic and cultivating a culture of pride and belonging within the organization.

Cautionary statement

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be forward looking statements within the meaning of applicable securities laws and regulations. Forwardlooking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments.