Modern Insulators Ltd Management Discussions

Economic and Industry Overview

The objective of this report is to convey the Managements perspective on the external environment as well as strategy, operating and financial performance, material developments in human resources and industrial relations, risks and opportunities etc. The power sector is a strategic and critical sector and power supply system supports the entire economy. According to Ministry of Power, in last one decade India has added huge power generation capacity resulted into power surplus country as against power deficit country earlier. Power sector is the key growth driver for the insulators industry. However, domestic insulator demand has affected due to deferment of projects by state utilities etc.

Global Economic Outlook

Global growth is likely to rise from 2.90 % to 3.1% in 2024. Inflation is expected to continue to cool, although in many countries the price pressure will take longer to unwind than it took to emerge.

Geopolitical uncertainty is elevated, with nearly half of the worlds population already voting or heading to the polls this year. Hot wars and trade tensions are flaring, which could fuel more isolationist policies. The resulting risk is more frequent bouts of inflation and activist monetary policies.

Prospects for 2025 are better, with inflation expected to return towards target and central banks more confident to cut policy rates from the current restrictive levels. The silver lining is a tailwind for big-ticket consumer purchases and business investment.

Indian Economy

Despite a sluggish global economy, India maintained its trajectory as one of the fastest growing economies in the world. This economic growth can be primarily attributed to robust domestic consumption and less reliance on foreign imports. While government initiatives facilitated domestic demand, increased investments to bolster manufacturing sector and improve digital and physical infrastructure mitigated supply chain issues effectively. The governments emphasis on improving infrastructure, as evident through initiatives such as the PM Gati Shakti National Master Plan, logistics upgradation and industrial corridors, is anticipated to increase industrial competitiveness and spur future growth. With the improvement of business accessibility, the general investment climate is growing more favorable.

Global power sector overview

Global electricity demand rose moderately in 2023 but is expected to rise at a faster rate over the next three years, growing by an average of 3.4% annually through 2026. Global electricity demand is expected to more than double from 25,000 terawatt-hours (TWh) to between 52,000 and 71,000 TWh by 2050, due to the growth in emerging markets energy needs and electrification across the economy.

Total annual investments in the energy sector are projected to grow by about 5 percent per annum and may cross $1.5 trillion by 2040. Investments in T&D networks are projected to experience the highest growth of between 4 to 8 percent per annum, reaching between $0.6 trillion and $1.2 trillion by 2040. Investments in renewable power are also expected to increase under all scenarios, reaching $0.5 trillion to $1.0 trillion per annum by 2040, driven by significant new wind- and solar-capacity additions. The rapid growth of renewables, supported by rising nuclear generation, is set to displace global coal-fired generation, which is forecast to fall by an average of 1.7% annually through 2026.

The transport sector is projected to see a steep growth in power demand, driven by passenger electric vehicles. The rapidly expanding production of solar PV modules and electric vehicles, and the processing of related materials, will support ongoing electricity demand growth in Asian Countries while the structure of its economy evolves. By 2050, global passenger battery electric vehicle car is projected to reach 1.3 billion—almost equal to the total number of all cars today.

Under all scenarios, power demand is projected to grow across the globe, driven by several factors that differ by region, including population growth, increasing wealth per capita, and electrification. Although China, India, and North America are projected to represent more than half of the global power demand growth.

Indian power sector overview

India is the third-largest producer and consumer of electricity worldwide, with an installed power capacity of 442.85 GW as of April 30, 2024. Growing population along with increasing electrification and per-capita usage will provide further impetus. Power consumption in India in FY23 logged a 9.5% growth to 1,503.65 billion units (BU).

Over the past few decades, the country has seen the fastest growth rate among major economies. Following a 7% increase in Indias electricity demand in 2023, we expect growth above 6% on average annually until 2026. While renewables are set to meet almost half of this demand growth, one-third is expected to come from rising coal-fired generation.

To meet Indias 500 GW renewable energy target and tackle the annual issue of coal demand-supply mismatch, the Ministry of Power has identified 81 thermal units which will replace coal with renewable energy generation by 2026.In the Budget for 2024, the governments power sector initiatives have been allocated funds that are 50% higher. Increased funds have been allocated to green hydrogen, solar power, and green-energy corridors. 100% FDI allowed in the power sector has boosted FDI inflow in this sector. Schemes such as Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY) and PM-Surya Ghar: Muft Bijli Yojanaare expected to augment electrification across the country. As per the National Infrastructure Pipeline 2019-25, energy sector projects accounted for the highest share (24%) out of the total expected capital expenditure of Rs. 111 lakh crore (US$ 1.4 trillion).

Business Performance Review Insulators Division

During the year under review, the division has registered a turnover of Rs. 397.04 crores as against Rs.389.57crores and profit before interest & depreciation of Rs.45.78 crores as against Rs. 41.83crores of previous year. In spite of shrink in domestic demand company has achieved higher turnover due to increase in exports. Also inspite of steep rise in input costs company has been able to improve profitability by taking various initiatives to reduce cost and better process control etc.

Terry Towels Division

The turnover of this division has been Rs.46.25 crores as against Rs. 41.39 crores and Profit before interest & depreciation have beenRs.1.33 crores as against Loss of Rs.2.96crores of previous year.

Exports

The company is the largest exporters of H.T. Porcelain Insulators from India. The Company has achieved export turnover of Rs.192.30 crores during the year as compared to Rs.176.39 crores in previous year showing as impressive growth of about 9%. The company has been able to achieve growth in the export business by adding new customers and continuous communication with all existing valued overseas customers as well as keeping supply chains flowing in spite of the geo-political tensions in various International regions.To strengthen its presence in international market, the company is making tremendous efforts by exploring new markets for insulators having high value additions like RTV Coating, customised product for special applications etc. We are also focusing on promotion of PLRI in overseas market to increase our share in overseas transmission line projects.This would help the company to enhance its ability to cater the diverse needs of global customers and strengthen its presence in all corners of global marketfurther.

The company is continuously focusing to economize the manufacturing by way of R&D activities, better process control and optimum utilization of its productive resources so that companys product remain competitive in terms of quality and price in the international market. With the growing inconvenience of European customers to source from China, the company seized this opportunity to increase business in Europe. Concerted efforts are also on to add new customers in developing countries like Bangladesh, Sri Lanka, Nepal, Peru, Nigeria, Ethiopia and other south East Asian Countries.

Simultaneously an ever-evolving business landscape, the company has also priorities to get approval from different overseas utilities. The company has Successfully completed Factory Audit by Italian Utility & Hitachi-HVDC Global sourcing unit. The company has also successfully completed the ESG audit on behalf of Spanish Utility.. The company has also submitted Pre-Qualification documents to MEW- Kuwait & SEC- Saudi Arabia. Company has received Special Export award from Capexil for five years i.e. from 2017-18 to 2021-22.

ANALYSIS AND REVIEW

The company continues to be a leader in the manufacture of Extra High Voltage Insulators in the country. Despite stiff competition, buyers show interest in companys products for its quality & timely delivery hence the company is confident for achieving better working results in the coming year. The company has a well-equipped R & D laboratory, which takes care of the stringent quality requirements of customers and ensures quality and reliability in each and every product manufactured. In-house R&D activities have a thrust on qualitative development to replace expensive input raw material & to bring consistency in quality of the product under manufacture and save cost by way of process control.

The company has a fully equipped foundry to cater demand from various segments apart from fulfilling companys major captive requirement of castings in required time frame.

OPPORTUNITIES & CHALLENGES

Indias transmission segment has made remarkable progress over the years, evolving from a fragmented network into a well-integrated and interconnected grid. Electricity demand in the country has increased rapidly and is expected to rise further in the years to come. In order to meet the increasing demand for electricity in the country, massive addition to the installed generating capacity is required.

With ongoing investments in grid modernisation, capacity expansion, and the integration of technologies, the future outlook of Insulators industry is promising. Railway electrification is happening over nine times faster than what it was a decade ago and further increase demand of insulators in the coming months.Also we are putting all our efforts to promote Long Rod Insulators to all potential SEBs & private TSPs.

In Exports, increased demand of insulators seen in various markets. Opportunities are seen in Asia Pacific, Europe, North America, Middle East and Africa as they are going for the increase in transmission capacity. With a growing emphasis on grid modernization and the need to upgrade aging power infrastructure, the Middle East and Africa region demonstrates remarkable growth potential in the electric insulator market. The countries like Oman, Kuwait, Saudi Arabia are investing heavily in power infrastructure to support their growing economies.

RISKS & CONCERNS

The broader economic trends are poised to directly affect a companys growth potential. Persistent inflation has resulted in increase in commodity prices worldwide. Furthermore, the delay in anticipated decrease in central bank interest rates may dampen growth and strain economies, especially in emerging markets. It is thereby important to manage cost pressures to sustain the Companys overall performance in these conditions.

OUTLOOK

The overall domestic insulator demand was sluggish in last few years but is expected to rebound over next few years as stalled projects are moving to the execution stage now. Capex in power sector as announced in union budget may drive demand for the insulator industry in the power generation, transmission, and distribution sectors.