NIBE Ltd Management Discussions

Your directors are pleased to present the Management Discussion and Analysis Report for the year ended on March 31, 2024. Investors are cautioned that these discussions contain certain forward-looking statements that involve risk and uncertainties including those risks which are inherent in the Company?s growth and strategy. The Company undertakes no obligation to publicly update or revise any of the opinions or forward-looking statements expressed in this report consequent to new information or developments, events or otherwise.

Global economic overview:

The baseline forecast is for the world economy to continue growing at 3.2 percent during 2024 and 2025, at the same pace as in 2023. A slight acceleration for advanced economies where growth is expected to rise from 1.6 percent in 2023 to 1.7 percent in 2024 and 1.8 percent in 2025 will be offset by a modest slowdown in emerging market and developing economies from 4.3 percent in 2023 to 4.2 percent in both 2024 and 2025. The forecast for global growth five years from now at 3.1 percent is at its lowest in decades. Global inflation is forecast to decline steadily, from 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies.

https://www.imforg/en/PublicationsWE0#:~:text=Global%20growth%20is%20projected%20to,is%20complicating%20 monetary%20policy%20normalization.

Indian Economy:

The Indian economy will achieve a growth rate at or above 7% for FY24, and some predict it will achieve another year of 7% real growth in FY25 as well. If the prognosis for FY25 turns out to be right, that will mark the fourth-year post-pandemic that the Indian economy will have grown at or over 7 per cent. That would be an impressive achievement, testifying to the resilience and potential of the Indian economy. It augurs well for the future.

A major reform over the last nine years is the transition in the engagement of the government with the private sector for the development agenda. The private sector is now entrusted as a co-partner in development. Accordingly, the government?s disinvestment policy has been revived. A New Public Sector Enterprise (PSE) Policy for Aatmanirbhar Bharat has been introduced to minimise the presence of the government in the PSEs to only a few strategic sectors. Many initiatives have been introduced under the Aatmanirbhar Bharat and Make in India programmes to enhance India?s manufacturing capabilities and exports across industries. Production Linked Incentives (PLI) are being provided to firms to attract domestic and foreign investments and to develop global champions in the manufacturing industry. Strategic sectors, such as defence, mining, and space, have been opened up to enhance business opportunities for the private sector. The FDI policy has also been further liberalised, with most sectors now open for 100 per cent FDI under the automatic route. Defence sector is witnessing significant surge in India, led by Government of India?s efforts over the last decade to put in place policies to reduce imports and drive self-reliance, focus on developing indigenous world-class products and encourage exports. In FY 2022-23, the Defence sector in India achieved a significant milestone, with defence production crossing Rs. 1 lakh crore mark on the back of consistent effort by the Ministry of Defence (MoD). This is a rise of more than 12% as compared to FY 2021-22. https://dea.gov.in/sites/default/files/The%20Indian%20Economy-A%20Review Jan%202024.pdf

Business and Industry Environment:

The Indian defence industry is likely to accelerate with rising concerns about national security. Demand for defence equipment in India has been growing due to the ongoing territorial disputes with Pakistan and China along the Western, Northern and Eastern borders of the country. Over the last five years, India has been ranked among the top importers of defence equipment to gain technological advantages over rival countries such as China and Pakistan.

To modernise its armed forces and reduce dependency on foreign suppliers for defence procurement, several initiatives have been taken by the government to encourage ‘Make in India? activities via policy support initiatives.

India?s defence budget of US$ 74.7 billion ranked fourth highest globally in 2024. India has the world?s fourth largest defence expenditure, as of 2022, and has set a target of US$ 6.02 billion (Rs. 50,000 crore) worth of annual defence exports by 2028-29.

In the Interim Budget 2024-25, US$ 2.9 billion (Rs. 23,855 crore) was allocated to DRDO, while a corpus of US$ 12.0 billion (Rs. 1 lakh crore) was earmarked for Deep Tech, offering long-term loans to tech-savvy companies to foster innovation in defence technologies within India.

As per the Union Budget 2022-23, 25% of the defence R&D budget has been earmarked for private industry and start-ups which will pave the way for the innovation of new defence technologies in India.

Defence exports of US$ 2.63 billion in FY23-24 are up by 32.5% from last year. Defence exports grew by 334% in the last five years; India now exports to over 85 countries due to collaborative efforts. https://www.ibef.org/industry/defence- manufacturing

Operational Performance

The company has strategically set-up two plants in Pune and one plant in Bangalore. Plant 1 in Pune is underlining the Company?s commitment to delivering high-quality products and services in this sector. Plant 2 is dedicated to the production of heavy fabricated structures, Missile Complex, Small Arms Production with capability of 16 m and 12 m Vertical Machining Centre with 7 micron accuracy. Plant in Bangalore is dedicated to Electronics Manufacturing.

The Company primarily focused on precision weapons, surveillance communication equipment, Protective Vehicles, Defensive/ Deterrence Systems and Components.

During the financial year 2023-24, the Company has commenced the commercial production of its state of art and first in India 16 Mtr. VMC Machine of make Zayer, Spain equipped with the latest Siemens control system, 840D, with machine feature X-16 Mtr, Y-5.75Mtr, Z-1.75 Mtr ensuring unparalleled precision and efficiency, equipped with universal head 1X360 deg accuracy and repeatability with 7 microns. This machine is capable of machining critical large size components like missile launcher, sub frames, launching platforms in Defence, Space and Aerospace applications

During the financial year 2023-2024, Standalone Revenue from operations was at Rs. 2,78,99.98 Lakhs as against Rs. 10,495.28 Lakhs in financial year 2022-23 registering a growth of 165.83%. Profit before taxation for financial year 2023-24 stood at Rs. 2,940.68 Lakhs as against 627.27 Lakhs in financial year 2022-23.

Total Consolidated Revenue from operations for financial year 23-24 was at Rs. 28,183.79 Lakhs and Profit before taxation for FY 2023-24 stood at Rs. 2,597.84 Lakhs.

Nibe has also executed ‘Licensing Agreement? to use technology of Solar Heated Shelters which has been developed by DRDO. DRDO grants a non-exclusive license for 10 years from date of its execution to utilize the technology for manufacture of Solar Heated Shelters in India and for sale in licensing region.

Risk Management:

The Company has a well-devised risk management process aimed at identifying, prioritizing, mitigating and monitoring risks. The key risks impacting its business include economic, foreign exchange, raw material, technology, funding, talent, changes in Government policies and cyber security risks. The Company has undertaken measures to mitigate these risks.

Risks:

• Challenges on inflation and supply chain persists globally. These macroeconomic conditions remain critical to business growth of the Company.

• Central banks globally are increasing rates to cool down inflation. This may have an adverse impact on the Company?s end customers demand and subsequently impact growth.

• Ensuring proper working of all our equipment is a key operational risk. Any shortfall on that front may impact the Company?s ability to meet customer requirements on time.

• With rising shortage of skilled labour, retaining workers remains a risk for the Company to mitigate.

• Changing technology paradigm and dynamic customer needs are important to remain relevant and sustain business growth.

• Given the global nature of the Company?s business, any disruption of movement of goods to its customers is a key operational risk.

Opportunities:

• The government has developed numerous programs to help manufacturers, such as the Production Linked Incentive (PLI) Scheme, which is a cornerstone of the government?s endeavor to achieve an Atmanirbhar Bharat.

• The scheme?s goal is to stimulate domestic defence manufacturing in strategic and emerging areas, improve the cost competitiveness of domestically-made goods, and increase local capacity and economies of scale.

• Increase in defence spending by all major countries and the focus on infrastructure globally is acting as a tailwind for the Company?s industrial business.

• Domestic producers are given a preference in the defence sector which will provide new opportunities to the industry. Threats

• Any shift of Government policies may have a meaningful impact on our business.

• Several new companies are entering the market, and existing rivals in adjacent product categories are also increasing their offering.

Internal Control Systems and their Adequacy

The Company has a robust internal control system that authorizes, records, and reports transactions to safeguard assets and protect against loss from unauthorized use or disposition. The internal controls ensure the reliability of data and financial information to maintain accountability of assets. These internal controls are supplemented by extensive internal audits, management review, and documented policies, guidelines, and procedures.

Human Resource Development

The Company believes that human capital is a critical factor of success and hence constantly strives to strengthen its work ethics, work culture and align the workforce towards the common goal. Current workforce of the Company is rightly poised to navigate through the current Volatile, Uncertain, Complex situation and to always maintain industry leading quality standards while maintaining the highest service levels.

The Company continues to focus on upgrading knowledge and skill levels among its employees through various Learning & Development, training activities to enable them to move up the ladder. The Company has well defined HR policies in place which enables it to build a strong performance-oriented culture, belongingness to work and commitment to work.

Cautionary Statement

The statements within this Management Discussion and Analysis report, articulating the Company?s objectives, projections, estimates, expectations, or predictions, are considered forward-looking in compliance with applicable laws and regulations. These statements rest upon specific assumptions and anticipations of forthcoming events. However, it is crucial to acknowledge that actual results may substantially deviate from both expressed and implied expectations.

Several pivotal factors have the potential to significantly impact the Company?s operations. These encompass fluctuations in finished goods prices, raw material costs and their availability, fluctuations in global and domestic demand-supply dynamics, shifts in exchange rates, alterations in Government regulations and tax structures, as well as economic developments within India and the nations with which the Company maintains business ties.

It is essential to note that the Company disclaims any responsibility concerning the forward-looking statements presented herein, as they may evolve in the future due to subsequent developments, additional information, or unforeseen events.