National Standard (India) Ltd Management Discussions

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(-1.59%)
Jul 25, 2024|03:40:00 PM

National Standard (India) Ltd Share Price Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS

Cautionary Statement

Statements in this report on Management Discussion and Analysis may be forward looking statements within the meaning of applicable laws or regulations. These statements are based on certain assumptions and reasonable expectation of future events. Actual results could however differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in government regulations, tax regimes, economic developments within India and other incidental factors. The Company assumes no responsibility in respect of the forward-looking statements herein, which may undergo changes in future on the basis of subsequent development.

(a) Industry structure and developments: Indian Economic Overview

The financial year 2023 started on a rather gloomy note with the Russia-Ukraine conflict and the resultant energy price inflation - often Indias Achilles heel. However, India has weathered the storms of the previous year remarkably well. It remained an oasis of calm in a troubled global macro conditions. Led by efficient vaccination roll out, India emerged stronger than some of the other larger economies. To fight the inflationary pressures, global central banks led by the US Fed have raised benchmark policy rates substantially. This also forced RBI to raise policy rates by an unprecedented 250 bps in the financial year 2023 - fastest increase in policy rates in last two decades. However given the fiscal prudence adopted by the Indian Government during the early part of the pandemic period, Indian macro conditions remain conducive of robust growth in spite of the above normal inflation seen recently which remain manageable to a large degree. Despite the challenges, Indian economy grew by 7.2% in FY23 (Source: NSO) showcasing the structural nature of growth.

The Indian economy appears to have moved on after its encounter with the pandemic, staging a full recovery in FY22 ahead of many nations and largely ascending to the pre-pandemic growth path in FY23 and beyond. At the same time three key challenges remain entrenched largely from global macro side which will pose hindrance to Indias potential of growth. First, inflation is likely to remain at an elevated level even though it may have already peaked. Secondly, aggressive tightening of monetary policies across the central banks of advanced economies is likely to cause a global slowdown this year, impacting trade as well as may also result in capital outflows and a rising imbalance in the balance of payment account. Third, higher energy prices is likely to keep the CAD at a higher level thus pressuring the currency. Additionally on the domestic front - uneven spread of the recovery has meant that parts of the economy have still not reached their pre-pandemic levels leading to slower rural recovery.

The governments focus has rightly been on sectors such as infrastructure, construction, and manufacturing that create jobs for workers across all skills. PLI schemes for various industries rolled out over the past few years have started to bear fruit. Though still in infancy, these sectors have huge potential to effectively kick-start the manufacturing engine for the country thus diversifying the growth drivers of growth for the country. Growth is expected to be brisk in FY24 on the back of robust credit growth, positive capital investment cycle given the demand as well as the strengthening of the balance sheets of the corporate and banking sectors. Further support to economic growth will come from the expansion of public digital platforms and path-breaking measures such as PM Gati Shakti, the National Logistics Policy, increased spending on various transportation infrastructure and the Production-Linked Incentive schemes to boost manufacturing output. RBI expects GDP growth for FY24 to be 6.5% which will translate into general optimism in the economy and job sentiments

Indian real estate industry overview

Real estate sector in general and housing sector in particular has always played a critical role in shaping the various economies in the world. The multiplier effect of housing sector through direct and indirect as well as through induced impact is significantly large on both the GDP as well as employment generation. There are a number of ancillary industries which support the growth of real estate construction sector, like cement, steel, other non-ferrous metals, tiles, glass, brick, and certain consumer durables etc. Further, the industries that provide the inputs to these ancillary industries also gain momentum. Hence, due to the inter-linkages among all the sectors of economy, the overall economic impact of a real estate far exceeds the direct impact especially in employment generation.

India by virtue of its demography and development cycle is at a place where demand for quality urban housing is immense which is only going to strengthen with each passing year as India graduates from being a low income economy to a middle income economy. As per industry estimates, India would see creation of 100 million new households who will become home ownership capable by way of rise in income levels by the end of the decade. This creates an once in a lifetime opportunity for the Indian real estate industry.

Due to the structural nature of demand, Indian real estate industry has continued to gain momentum during FY23 despite the uncertainties posed by global economic slowdown as well as steep interest rate hikes. While the office market staged a comeback in the post-pandemic period with back to office normalization, the residential market further gained on the momentum seen in FY22. Despite the 250 bps repo rate hike, the robust performance of the sector especially in the housing segment signifies the strength of the underlying demand for property.

(b) Opportunities

We are very optimistic about the affordable and mid-income segment of the housing market over the longer term. We believe that as India moves from a low-income economy to a mid-income economy, this segment of the market will grow faster. Residential real estate is consolidating in favour of organised and branded developers at an accelerated pace.

Though the industry is in the early stages of a multi-year upcycle, we continue to keep a watchful eye for challenges like cost increase due to geopolitical tensions, increase in interest rates, constant regulatory changes, recession in economies etc., which, if they fructify, will impact this upward trajectory. Further, the lending to real estate developers by the NBFCs and HFCs was already limited after the crisis in real estate sector and the pandemic has further deteriorated the liquidity situation for many developers who had to resort to alternative funding in absence of long term loans from banks.

However, the Company does not have any construction projects as on the date of this report.

Segment-wise or product-wise performance

The Company operates in single segment of real estate development.

(c) Outlook

The real estate sector is one of the most globally recognized sectors. In India, real estate is the second largest employer after agriculture and its share in Indias GDP is slated to double by the end of this decade. The real estate sector comprises four sub sectors - housing, retail, hospitality, and commercial.

As the sector trends on the growth path, it has to realign to face new realities and meet greater expectations. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. It is also expected that this sector will incur more nonresident Indian (NRI) investments in both the short term and the long term.

(d) Risks and concerns

The real estate sector is heavily dependent on manpower. During the pandemic, the sector was badly hit due to reverse migration of construction workers which affected the construction activity severely, leading to delayed timelines for project completion. Hence, there is a need for development of technologically less labour intensive alternative methods of construction. Further, the increase in land prices, inputs costs are also risks to the industry. Higher interest cost would dent margins and may have a direct effect on the customers cash flow as well. Increase in end product prices coupled with tight liquidity may impact demand. The various taxes and levies would add to the costs and this is likely to squeeze margins as end product prices may not go up correspondingly. The company has a Risk Management Policy, which is being periodically reviewed.

(e) Internal control systems and their adequacy.

The internal control commensurate with the activities is supplemented by continuous review by the management. The internal control system is designed to ensure that every aspect of the companys activity is properly monitored.

(f) Discussion on financial performance with respect to operational performance.

The details of financial performance and operation performance are given in the directors report.

(g) Material developments in Human Resources / Industrial Relations front, including number of people employed. The Company does not have any employee. The KMPs are deputed by the holding company.

(h) Details of Significant Changes in key financial ratios:

Significant Changes in Key Financial Ratios :

2023

2022

Changes

Reason for change

(i) Debtors Turnover:

1.97

2.54

-22.55%

NA

(ii) Inventory Turnover:

2.76

0.88

215.14%

Increase in Inventory Turnover ratio is due to increase in sales

(iii) Interest Coverage Ratio

N.A.

N.A.

N.A.

N.A.

(iv) Current Ratio:

27.39

25.22

8.62%

N.A.

(v) Debt equity Ratio:

N.A.

N.A.

N.A.

N.A.

(vi) Operating Profit Margin (%)

0.43

0.76

-42.97%

Change in Operating profit Margin is due to decrease in revenue and operating profit as compared to previous year.

(vii) Net Profit Margin (%)

0.48

0.97

-50.80%

Reduction in Net Profit ratio is due to decrease in profit after tax compared to last year

(i) Disclosure of Accounting Treatment:

In preparation of these financial statements, the Company has followed the prescribed Indian Accounting Standards and no different treatment had been followed.

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