Modison Ltd Management Discussions

Global Economic Outlook

Global growth is projected at 3.1 percent in 2024 and 3.2 percent in 2025, with the 2024 forecast 0.2 percentage point higher than that in the October 2023 World Economic Outlook (WEO) on account of greater-than-expected resilience in the United States and several large emerging market and developing economies, as well as fiscal support in China. The forecast for 2024-25 is, however, below the historical (2000-19) average of 3.8 percent, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth. Inflation is falling faster than expected in most regions, in the midst of unwinding supply-side issues and restrictive monetary policy. Global headline inflation is expected to fall to 5.8 percent in 2024 and to 4.4 percent in 2025, with the 2025 forecast revised down.

On the upside, faster disinflation could lead to further easing of financial conditions. Looser fiscal policy than necessary and then assumed in the projections could imply temporarily higher growth, but at the risk of a more costly adjustment later on. Stronger structural reform momentum could bolster productivity with positive cross-border spillovers. On the downside, new commodity price spikes from geopolitical shocks--including continued attacks in the Red Sea--and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions. Deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts could also cause growth disappointments.

Source: International Monetary Fund, April 2024

Indian Economic Review and Outlook

India?s economy is expected to slow in 2024 after this year?s blistering pace, which is forecast to equal pre-pandemic growth - a rarity, as growth has generally slowed globally. The year 2023 proved to be valuable for Indian diplomacy, as the country displayed its ability to work with the world?s largest economies at the G20 Summit.

Economic growth is driven by consumption and investment; there are no real drags looking forward. India?s weaker 2024 growth is forecast to be a part of the global slowdown that is affecting all regions, including Asia, which is home to most of India?s key trading partners. Consumers and investors are bullish on the economy, meaning there is room to expand in both the near and medium term.

Inflation has been a challenge for a couple of years, but it is heading back toward manageable levels. To fight inflation, the Reserve Bank of India raised its policy rate during 2022 and early 2023 from 4% to 6.5%. The rate is expected to stay elevated through 2025 and cause a pullback in investment as financing costs remain high.

Source: KPMG - Global economic outlook December, 2023

Global Electrical Equipment Industry

The electrical equipment market consists of sales of products that generate, distribute and use electrical power by entities (organizations, sole traders and partnerships) that produce products that generate, distribute and use electrical power. The electrical equipment market is segmented into electric lighting equipment; household appliances; power generation, transmission and control; batteries and wires and cables.

The global electrical equipment market is expected to grow at a compound annual growth rate (CAGR) of 7.7%. The growth is mainly due to the companies rearranging their operations and recovering from the COVID-19 impact, which had earlier led to restrictive containment measures involving social distancing, remote working, and the closure of commercial activities that resulted in operational challenges. The market is expected to reach $1661.61 billion in 2025 at a CAGR of 7%. The rapid pace of innovations in electronics technology is stimulating consistent demand for newer and faster electronic equipment.

Source: The Business Research Company - The Global Electrical Equipment Market Report

The Indian Electrical Equipment Industry

India?s electrical equipment industry is divided into two broad segments - Generation equipment (boilers, turbines, generators) and Transmission & Distribution (T&D) and allied equipment like transformers, cables, transmission lines, etc.

The India - electrical equipment market is projected to reach a value of USD 52.98 billion at a CAGR of 11.68% between 2022 and 2027. The India electrical equipment market is experiencing significant growth due to rapid urbanization and infrastructural development. The market includes various segments such as power distribution equipment, transmission equipment, and generation equipment. Indias government initiatives like Make in India have encouraged domestic manufacturing and boosted the electrical equipment sector.

India is the third-largest producer and consumer of electricity worldwide, with an installed power capacity of 429.96 GW as of 31^st January, 2024. As of 31^st January, 2024, India?s installed renewable energy capacity (including hydro) stood at 182.05 GW, representing 42.3% of the overall installed power capacity. As of January 31, 2024, Solar energy contributed 72.31 GW, followed by 44.95 GW from wind power, 10.26 GW from biomass, 4.99 GW from small hydropower, 0.58 from waste to energy, and 46.93 GW from hydropower.

The non-hydro renewable energy capacity addition stood at 15.27 GW in FY23, up from 14.07 GW in FY22. Indias power generation witnessed its highest growth rate in over 30 years in FY23. Power generation in India increased by 6.80% to 1,452.43 billion kilowatt-hours (kWh) as of January 2024. According to data from the Ministry of Power, Indias power consumption stood at 1,503.65 BU in April 2023. The peak power demand in the country stood at 243.27 GW in January 2024. The coal plants registered a PLF of 73.7% for the first nine months period in FY23 compared to 68.5% in FY22 for the same period.

The market is experiencing rapid growth, marked by a rising market growth rate and a surge in demand for various components. Electric construction equipment, generators, switches, sockets, lighting, meters, panels, automation solutions, solar and wind technologies, batteries, inverters, voltage regulators, circuit breakers, and connectors are key players in this expanding market. The increasing emphasis on renewable energy sources like solar and wind has further propelled the demand for cutting-edge electrical components. Mostly electricity consumed in India is generated using renewable energy sources. From efficient lighting solutions to advanced circuit breakers, Indias electrical equipment sector is at the forefront of innovation, meeting the evolving needs of a dynamic and growing market.

Source: Ministry of Power website

India brand equity foundation website

India - Electrical Equipment Market Report 2023-2027

Indian Power Transmission & Distribution Industry

The Indian power market is expected to register a CAGR of more than 3% during the forecast period of 2024-2029. Currently, in India, the power market is undergoing a significant transformation phase owing to the efforts taken by the government to improve electricity access in the country, along with its plans to increase the share of renewables in the countrys power generation mix.

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 in line with the renewable energy target for 2030.

In order to meet India?s 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.

Factors, such as population growth in India are a strong propeller for the power market. The degree of urbanization in the country will also have significant implications on the trend of energy consumption because of the increase in demand from industries that use energy for construction and manufacturing. However, huge investment is required to set up and modernize power generation, transmission, or distribution networks, and weak private sector investment is holding back the power market in India.

Source: Mordor Intelligence

https://www.ibef.org/industry/power-sector-india - March Power Report.

Switchgear (LV/MV/HV) Industry

Based on voltage, the India switchgear market is segmented into low, medium, and high. During the forecast period, the high voltage category is expected to grow at a significant rate. High-voltage switchgear is used in power systems with voltages greater than 36kV. To ensure safe and dependable operation, high-voltage circuit breakers are integrated into this switchgear. Increasing advancements in substation and power plant infrastructure have raised the demand for this segments product.

During the forecast period between 2023 and 2029, the India switchgear market size is projected to grow at a CAGR of 7.12% reaching a value of Usd 18.23 million by 2029. The growth of the India switchgear market is being driven by the rapid growth in the power distribution sector. The Indian government has made significant investments in infrastructure development, including the construction of new or expanded airports, metro stations, and electrical distribution networks. This is projected to propel the switchgear industry forward. According to an article released by IBEF, the Indian governments focus on creating future infrastructure is obvious, as evidenced by a slew of initiatives introduced recently. Gati Shakti, the USD 1.3 trillion national master plan for infrastructure, has been a leader in bringing about systematic and comprehensive reforms in the sector and has already made great progress. Furthermore, the increasing integration of smart monitoring and control equipment into power grid infrastructure in India is bolstering market growth.

Switchgear is a centralized collection of circuit breakers, switch-fuse units, off-load isolators, relays, high rupturing capacity (HRC) fuses, surge arrestors, contactors, and switches to manage electrical devices. It is offered as low, medium, and high-voltage switchgear and is made up of gas- insulated switchgear (GIS) and air-insulated switchgear (AIS). It is extremely dependable, can be manually regulated, and enhances energy efficiency and safety. It is directly connected to the supply system and is used to de-energize equipment for testing and maintenance while managing various voltage capabilities. It aids in the protection and isolation of power systems from fault currents, as well as the control of power distribution on a wide scale. Aside from that, it helps to reduce system damage by blocking power flow in equipment.

Source: The Silver Institute

Blue Weave consulting - Website

Silver Contacts

For both high-power transmission and low-current identifiable power connector applications, silver contact finishes are recommended. Silver has a unique collection of material properties, including the maximum thermal and electrical conductivity of any metal, as well as a low hardness. When current travels through a clean silver-to-silver contact interface, adherently bound metal-to-metal asperity junctions generate a relatively large conducting area (less constriction). Low contact resistance, good thermal-rise efficiency, and high vibrational stability are all advantages of this one-of-a-kind combination of features. Silver is well suited for use in power applications because of these qualities. For both high-power transmission and low-current identifiable power connector applications, silver contact finishes are preferable. For both high-power transmission and low- current identifiable power connector applications, silver contact finishes are recommended. Silver has a unique collection of material properties, including the maximum thermal and electrical conductivity of any metal, as well as a low hardness. When current travels through a clean silver- to-silver contact interface, adherently bound metal-to-metal asperity junctions generate a relatively large conducting area (less constriction). Low contact resistance, good thermal-rise efficiency, and high vibrational stability are all advantages of this one-of-a-kind combination of features. Silver is well suited for use in power applications because of these qualities. For both high-power transmission and low-current identifiable power connector applications, silver contact finishes are preferable.

About Modison Limited

Founded in 1965, Modison Limited ("ML", or "Modison") is a brand to reckon with in the manufacturing of electrical contacts for switchgear in India and globally. Modison stands amongst a handful of companies around the world that manufactures electrical contact materials and finished contacts for all the areas of the switchgear industry including Low, Medium, High and Extra High Voltage. It also produces goods for dominant sectors such as automotive, engineering, aerospace, marine, defense, and railways. The company is certified for ISO 9001:2015, ISO 14001:2015, and OHSAS 18001:2007, and its lab is qualified by the National Accreditation Board for Laboratories (NABL) for chemical and mechanical research, demonstrating its standards of excellence.

The Modison group has plants at two locations in Western India namely Vapi and Silvassa, employing more than 500 people. Modison also has a robust in-house R&D department that is dedicated to developing and manufacturing products using best-in-class technology and equipment for ensuring continual improvements in productivity, cost reduction and development of defect-free products.

Modison has the advantage of developing a wide range of silver contacts for diverse industries. Its plant is amongst the largest single site for High Voltage electrical contact manufacturing globally, thereby enjoying a low-cost advantage.

Business Review

During the year FY 2023-24, Modison Limited sustained its growth in high voltage & low voltage. Although, volatility in silver price, higher inventory costs and the volatile geopolitical situation, the Company continued its performance. The Company streamlined its operations and recorded increased market presence amongst its customers. Adverse input cost movement including silver impacted profitability in short terms. Given Modison?s organisational efficiency, we remain optimistic about growth in the coming years.

We have started our capex since last year for upgradation of our existing facilities by infra expansion, both green and brown field, procuring automated machinery and robots etc. This will augment efficiency and enable us to cater to the increasing product demand. During last year we have started the construction of new factory at our existing premises and at new plot near to existing factory. All these facilities will be available for use during the financial year 2024-25.

High Voltage (HV), Medium Voltage (MV) and Low Voltage (LV) segment:

This segment is our primary business and the largest revenue contributor, which has continued to add volume and revenue growth. In order to minimise geopolitical disruptions and other global challenges, our key clients opted to consolidate their suppliers. Many of our global customers are changing their supplier base from China to India, which will enhance our business in upcoming years.

Our Strategy

We continue to believe in a four-pronged strategy for growth which includes employee wellbeing, innovation and automation, financial stability & Lean implementation, and employee upskilling and development.

Our ‘Employee-first? emphases on extending care and support to our employees and manage all our stakeholders as well. We have continued to extend our CARAE offering to match the medical, mental health, and financial needs of our workforce.

In FY 2024-25 our approach will be on cost optimization & innovation that include new product development, automation, new market development. This will sharpen our focus on profit generation. Lean manufacturing will continue be the bedrock of our strategy while Safety - Integrity - Quality remains integral, zero-tolerance values.

In FY 2024-25 we are also going to upskill & enhance our employee competencies. Our recent lateral recruits in strategic roles of Operations, Finance, HR, R&D and Projects will start to yield results in the coming years. With a new Performance Management System (PMS), we will aim at accelerating employee development. Our new flat organisation structure enables streamlined decision-making and lowers transactional costs. We have also implemented a Reward & Recognition scheme to create an environment of Performance Excellence, which has started showing desired results and is expected to add significant value to our organisation.

We have adopted kaizen Scheme across the organisation to enable the culture of innovation and improve effectiveness and efficiency in the Organisation. This will enable us to meet dynamic market challenges.

Financial Review (Standalone)

Rs in lakhs

Particulars	FY24	FY23	Increase/ Decrease %
Total Income	40,523.00	33,620.77	20.53%
EBITDA	3,822.49	2,337.14	63.55%
PAT	2,134.33	1,117.28	91.03%
EPS (Rs.)	6.58	3.44	91.28%

Financial Ratios

Particulars	FY24	FY23	% change	Reason for change (i.e. more than 25%)
EBITDA Margin %	9.43%	6.95%	35.68%	Due to increase in Profit before Tax
Net Profit Margin %	5.26%	3.32%	58.43%	Due to increase in Profit after Tax
Interest Coverage Ratio	11.30	9.95	13.57%	-
Debtors Turnover Ratio	6.79	6.05	12.23%	-
Current Ratio	2.74	4.80	(42.92%)	Due to increase in current liabilities
Inventory Turnover Ratio	4.26	4.30	(0.93%)	-
Debt to Equity Ratio	0.16	0.03	433.33%	Due to increase in Bank Borrowings.
Return on Net Worth %	10.94%	6.16%	77.60%	Due to increase in Profit after Tax

Opportunity

It has been Company?s endeavor to continuously invest in capacity and in capability. Since most of Company?s HV competitors are from Europe it is imperative that Company remain in sync with the global manufacturing norms and the same has been achieved with fair degree of certainty and success.

The expansion and upgradation of refinery is well and truly established and is on its way to pay rich haul with respect to Company?s overall growth trajectory and strategy. The Company?s current capacity is in line with the future expansion plan and at the same time is north bound with respect to capability which enables it to remain in sync with international competition.

Threats, Risks and Concerns

Commodity price risk

Given that copper and silver are the primary raw materials used by Modison, the Company is subject to the risk of price volatility.

Measures undertaken

The company is a net exporter, hence has a natural hedge. Further, the Company has thoughtful hedging policy to cover the risk on commodity exchanges.

Competitive threat

The Company?s finished products may be subject to competition. Also, product substitution is a risk.

Measures undertaken

The Company takes special care in understanding customer requirements and reaches out to the customers on a regular basis. This allows to innovate and introduce newer products to match the customers? growing demands. Silver contacts are an integral part of switchgears and are expected to remain so in the foreseeable future. Also, Good R&D/ Development led innovation and customer connect program will create a barrier

Capital allocation risk

The Company?s capital expenditure may be subject to time or cost overrun and may not yield the desired benefits.

Measures undertaken

The Company undertakes market feasibility study prior to expansion or new product launches and linked with market demand assessment.

Operational risk

The Company?s operations may be subject to various interruptions including supply chain delays, accidents and natural disasters and pandemics.

Measures undertaken

Modison has a strong supply-chain arrangement along with necessary disaster management systems to mitigate risks and accidents and act in a timely manner. The Company has sufficient insurance cover in line with its business operations along with a robust Business Continuity Plan to overcome any pandemic-induced and other natural and accidental issues.

Human Resources

Modison believe people are the biggest asset of an organisation, irrespective of the sector it operates in. They are a powerful enabler of growth and development. Modison also believes in creating a people-centric environment that fosters individual growth along in line with organisational growth. The Company is focused on upskilling and reskilling its people to match global standards and they do this through targeted training and development initiatives. Company has taken multiple initiatives to motivate its work force.

Internal Control Systems and their Adequacy

The Company is in charge of establishing and maintaining adequate and effective internal financial controls, as well as financial statement preparation and presentation. The assertions on internal financial controls are in accordance with the Companys broader criteria. Material miss-statements in financial reporting due to error or fraud may occur and go undetected due to the inherent limitations of internal financial controls, including the possibility of collusion or improper management and control override. Furthermore, projections of any evaluation of internal financial controls are subject to the risk that the internal financial controls will become insufficient as conditions change, or that the degree of compliance with policies and procedures will deteriorate. An organizations ability to act ethically and in accordance with its abilities and objectives requires a strong, complete internal control system. For the Company, we have established a strong internal control system to ensure that operations are effective and efficient, that laws and regulations are followed, that assets are protected, and that financial and management reporting is accurate. The Company employs highly qualified and experienced personnel who are responsible for designing, implementing, maintaining, and monitoring the internal control environment.

Research and Development Capabilities

Modison?s growth and diversification rests on its research, development, and design capabilities. We believe that our R&D pipeline has the potential to substantially increase our revenues and profits. Therefore, to keep up with global and industry standards, the Company invests significantly in R&D with a strong focus on import replacements, efficiency, technological advancements. The Company is regularly improving its existing products & knowhow.

Cautionary Statement

The statements in this report on "Management Discussion and Analysis", describing the Companys objectives, estimations, expectations or projections, outlook etc., may constitute forward looking statements within the meaning of the applicable Rules, Laws and Regulations. Actual results may vary from such expectations, projections etc., whether express or implied. These statements are based on certain assumptions and expectations of future events over which the Company has no direct control.