Nelcast Ltd Management Discussions.


The Domestic Medium & Heavy Commercial Vehicle industry registered a negative growth of about 45% due to slow down in the economy and various new regulations. Due to delay in onset of the monsoon, fl ooding in several areas and negative sentiment, the Tractor industry registered a negative growth of about 11% in the year. However, despite the delay in onset, the monsoon was an excellent monsoon and supported by increased Minimum Support Prices (MSP), farm sector reforms, credit availability and strong rural sentiment, the tractor industry is expected to have a strong rebound in 2020-21. The recovery in the Commercial Vehicle industry is expected to be muted due to the implementation of new Bharat Stage VI emission norms, Covid-19 lockdowns reducing demand and delay in the rebound of the economy. However, if the government infrastructure spending picks up or if a well incentivised vehicle scrapping policy is implemented, this could spur the sector forward and accelerate the recovery.


The Company supplies castings for Commercial Vehicles, Tractors, Off-Highway Vehicles and Railways. The Company enjoys the confi dence from its valued customers for providing quality products. In the medium to long term, the projected growth of domestic auto industry and ambitious export plans are likely to benefit the Company. The Company continually reviews its business plan and draws out action plans to leverage on its opportunities and counter any threats. The Companys main strength is the ability to make a very large range of castings required by most of our customers. The main threat to which the industry is exposed to is volatility of commodity prices affecting the input costs structure. Volatility and seasonality have a significant impact on capacity utilisations in the industry which would result in stiff price competition during lean periods like the current slowdown. However, the Company strives to create sustainable profitable growth by continuing to focus on technology and quality while offering wide range of products to diversifi ed segments and customers, which will give us a competitive edge in the market.


The Company deals in only one segment i.e., Iron Castings. Therefore, segment wise performance is not applicable for our Company.


While the operations of the Company and our customers were disrupted as a result of the various lockdown restrictions implemented by the Central and State governments starting from 22nd March 2020 and the overall market environment is quite uncertain due to continuing across the country and the world, the tractor and export demand appear to be quite strong for the Company as we have emerged from the worst of the lockdown and should drive the recovery of the company from the lockdown. In the upcoming year, the Company is also in the final stages of developing several new products used in BSVI Commercial vehicles, new models of Tractors, Off-Highway Vehicles and Exports. These new products will for a backbone for long-term growth for the Company.


Economy and Market Risk:

There are possible risks on the horizon, both global and domestic. Economic recession gripped global economy following the lockdown due to the Covid-19 pandemic. The Companys growth is linked to that of the Commercial Vehicle and Tractor industries, which are cyclical in nature. This cyclical nature might affect the demand. Since the Automotive industry plays a major role in enabling economic growth, any slowdown in the overall economy will affect demand. The global automotive industry is also amidst experiencing the situation of a cyclical slowdown complicated further by the impact of Covid-19. However, the Company has been developing its exports and products in other segments viz. off-highway, railways etc. to counter this risk.


Particulars 2019-20 2018-19
(i) Debtors Turnover Ratio (months) 2.47 1.67
(ii) Inventory Turnover Ratio (months) 2.86 1.77
(iii) Interest Coverage Ratio 4.24 9.71
(iv) Current Ratio 1.67 1.43
(v) Debt Equity Ratio 0.50 0.43
(vi) Operating Profit Margin (%) 10.30 9.53
(vii) Net Profit Margin (%) 6.24 4.46
(viii) Return on Net Worth (%) 8.57 9.73

1. The change in Debtors Turnover Ratio and Inventory Turnover Ratio is due to reduction in sales.

The sales have been impacted due to slowdown in the auto industry.

2. Interest coverage ratio was at 4.24 compared to 9.71 of previous year. The change is due to higher borrowings for the expansion project and reduction in profits.

3. The change in Net Profit Margin Ratio is due to change in income tax rate which has resulted in reduction of Deferred Tax Liability.


Human Resource is a continuous and ever evolving function at our Company. The Company believes that human resources enable the Company to consistently meet customer requirements and deliver exceptional performance for growth. The Company continues to maintain its record on cordial industrial relations. The Company believes that human resources are its most valuable assets and is thus committed to the welfare of its employees and their families. The Company continues to invest in people through various initiatives viz. training programmes, upgradation of knowledge etc which enable the work force to meet out the challenges. As on 31st March 2020, the employee strength of the Company was 1066.


The Company is fully committed to the ultimate goal of employee safety. Safety management is integrated with the overall Environment, Health and Safety (EHS). The Company has been certified under Integrated Management System (IMS) which consists of Energy (EnMS), Occupational Health & Safety (OHSAS) and Environmental (EMS) Management System to meet the compliances of the standards ISO 50001:2011, OHSAS 18001:2007 and ISO 14001:2015 respectively. The Company aims to be a preferred organization for all stake holders through the scaling performance of Energy, Safety, Health and Environment.


Statement in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward looking statements" and based on certain assumptions/ expectations and current scenario and the input available. Actual results might differ substantially or materially to those expressed or implied. Important developments including global or domestic trends, political and economic environment in India or Overseas might affect the Companys operations.