OBSC Perfection Ltd Management Discussions

OPERATIONS

The following discussion is intended to convey managements perspective on our financial condition and results of operations for the Year ended on March 31, 2022, March 31, 2023 and March 31, 2024. You should read the following discussion of our financial condition and results of operations together with our restated financial statements included in the Draft Red Herring Prospectus. You should also read the section entitled "Risk Factors" beginning on page 31 of this Draft Red Herring Prospectus, which discusses several factors, risks and contingencies that could affect our financial condition and results of operations. The following discussion relates to our Company and is based on our restated financial statements, which have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI Regulations. Portions of the following discussion are also based on internally prepared statistical information and on other sources. Our fiscal year ends on March 31 of each year, so all references to a particular fiscal year ("Fiscal Year") are to the twelve - month period ended March 31 of that year.

In this section, unless the context otherwise requires, any reference to "we", "us" or "our" refers to OBSC Perfection Limited (erstwhile "OBSC Perfection Private Limited"), our Company. Unless otherwise indicated, financial information included herein are based on our "Restated Financial Statements" for Financial Year ended on March 31, 2022, March 31, 2023 and March 31, 2024 included in this Draft Red Herring Prospectus beginning on page 188.

BUSINESS OVERVIEW

We are a precision metal component manufacturer offering a diversified suite of precision engineering products which are high-quality engineered parts across end-user industries and geographies. We primarily cater to top original equipment manufacturers ("OEMs") who ultimately supply various components and parts to top automotive manufacturing companies of India. In non-automotive sector, we cater to manufacturers of Defense, Marine & Telecommunication Infrastructure industries. At present, our core expertise lies in serving the automotive industry i.e. supplying OEMs, however, were actively expanding our reach beyond automotive, leveraging our capabilities to develop a strong presence in defense, marine, and telecommunication infrastructure sectors. As a result of which, currently, majority of our business comes from auto industry and defense, marine, and telecommunication infrastructure sectors forms a small portion of our business. We largely supply to our domestic customers, however, we have an international presence also through export sales.

We recorded an increase in our revenue from operations by 103.47% from Rs. 5,653.41 lakhs in the financial year 2022 to Rs. 11,503.03 lakhs in the financial year 2024 on account of increased capacity to meet growing demand of existing customers in addition to new customers addition and also foraying into new industries like Defense and Marine over last 3 years led to increase in revenue. While our Profit after Tax have increased by 239.12% from Rs. 360.11 lakhs in the financial year 2022 to Rs. 1,221.21 lakhs in the financial year 2024 on account of increasing scale of revenue with addition of new machineries which led to improved operational efficiency.

We operate out of four strategically located manufacturing facilities with three of our manufacturing facilities including our principal manufacturing facilities at Pune, Maharashtra, a prominent auto hub i.e. Unit I (principal manufacturing facility), Unit II, Unit IV and one at Chennai, Tamil Nadu, another major automotive centre. This strategic placement allows us to be close to our core customers - Original Equipment Manufacturers (OEMs) in the automotive industry. This proximity translates to several advantages, including streamlined logistics, faster response times, and deeper collaboration with our valued clients, etc.

We manufacture a wide range of precision metal components including but not limited to cut blanks, shafts / spline shafts, torsion rods, piston rods, rack bar semi-finished, pinion, drive shafts, gear shifters, cable end fittings, sensor boss, sleeves, push plate, hubs, housing - brass and aluminium, fork bolt, fasteners, connectors, ball pin, ball pin housing, flange, male female ring, dozing adapter, housing for a diversified base of customers. As on the date of the Draft Red Herring Prospectus, we have a product portfolio of 24 products.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE LAST FINANCIAL YEAR:

In the opinion of the Board of Directors of our Company, there have not arisen, since the date of March 31,

2024 as disclosed in this Draft Red Herring Prospectus, any significant developments or any circumstance that materially or adversely affect or are likely to affect the profitability of our Company or the value of its assets or its ability to pay its material liabilities within the next twelve months.

KEY FACTORS AFFECTING THE RESULTS OF OPERATION:

Our Companys future results of operations could be affected potentially by the following factors:

1. General economic conditions in India, changes in laws and regulations.

2. Changes in revenue mix, including geographic mix of our revenues.

3. Changes in Fiscal, Economic or Political conditions in India.

4. Increased market fragmentation.

5. Competition with existing and new entrants

6. Technology System and Infrastructure Risks

OUR SIGNIFICANT ACCOUNTING POLICIES

For Significant accounting policies please refer Significant Accounting Policies, "Note 2" beginning under Chapter titled "Financial Information of our Company" beginning on page 188 of the Draft Red Herring Prospectus.

RESULTS OF KEY OPERATIONS

The following table sets forth select financial data from our restated financial statement of profit and loss for the financial years ended March 31, 2024, 2023 and 2022 the components of which are also expressed as a percentage of total revenue for such financial years:

in lakhs)

Particulars	For the year ended on
	31.03.2024	% of Total Income	31.03.2023	% of Total Income	31.03.2022	% of Total Income
Revenue from operation	11,503.03	99.07%	9,635.85	99.43%	5,653.41	99.66%
Other income	108.38	0.93%	55.18	0.57%	19.01	0.34%
Total Revenue	11,611.41	100.00%	9,691.03	100.00%	5,672.42	100.00%
Consumption & Manufacturing Expenses	6,966.78	60.00%	7,328.24	75.62%	4,546.13	80.14%
Purchases - Finished /Traded goods	1,979.67	17.05%	802.33	8.28%	242.14	4.27%
Changes in inventories of Finished goods, WIP and Stock-in-trade	-411.34	-3.54%	-153.94	-1.59%	-251.63	-4.44%
Employee Benefits Expenses	427.75	3.68%	275.04	2.84%	154.39	2.72%
Finance Cost	268.88	2.32%	183.99	1.90%	149.34	2.63%
Depreciation and Amortisation Cost	272.53	2.35%	214.38	2.21%	145.89	2.57%
Other Expenses	464.08	4.00%	410.38	4.23%	254.00	4.48%
Total Expenses	9,968.33	85.85%	9,060.41	93.49%	5,240.25	92.38%
Profit Before Tax	1,643.08	14.15%	630.62	6.51%	432.16	7.62%
Tax Expenses	421.87	3.63%	173.23	1.79%	72.05	1.27%
Profit (Loss) for the Year	1,221.21	10.52%	457.39	4.72%	360.11	6.35%

Review of Restated Financials

Revenuefrom Operations: Revenue from operations mainly consists of sale of products. Sale of products are from following segments: 1) Automotives 2) Marine 3) Defence & 4) Telecom.

Other Income: Other income includes Interest income, Duty drawback and Net gain on foreign currency transactions and translations.

Total Income: Our total income comprises revenue from operations and other income.

Total Expenses: Companys total expenses consist of Purchases of material, Changes in inventories of Finished goods, WIP and Stock-in-trade, Employee benefit expenses, finance costs, depreciation and amortization expenses, and other expenses.

Changes in inventories of Finished goods, WIP and Stock-in-trade: Changes in inventories consists of costs attributable to an increase or decrease in inventory levels during the relevant financial period in Finished goods, WIP and Stock-in-trade.

Employee Benefits Expense: Employee benefit expense includes Salary & Wages, Staff Welfare Expenses, Bonus, Directors Remuneration.

Finance Cost: Finance cost includes interest expense.

Other expenses: Other expenses mainly consist of Freight, Octroi & Packing Outwards, Rent expense, Travelling and conveyance expense, Legal and professional fees, Rebate & discounts, etc.

COMPARISON OF F.Y. 2024 WITH FINANCIAL YEAR 2023:

Revenue from Operations

The Companys revenue from operations in the financial year 2023-24 is Rs. 11,503.03 lakhs. This represents Rs. 1,867.18 lakhs or 19.38% increase compared to the previous financial years revenue from operations of Rs. 9,635.85 lakhs. This increase is primarily due to increase in Sales from the Automotive segment of Rs. 1,952.94 lakhs and Defense segment of Rs. 28.10 lakhs.

Other Income

Other Income in the financial year 2023-24 increased by Rs. 53.20 lakhs or by 96.41%, reaching Rs. 108.38 lakhs in comparison to the Rs. 55.18 lakhs incurred in the Financial Year 2022-23. This increase was primarily due to increase in Net gain on foreign currency transactions and translation of Rs. 41.52 lakhs and increase in Other non-operating income of Rs. 7.93 lakhs.

Consumption and Manufacturing expenses

Consumption and Manufacturing expenses for the financial year 2023-24 amounted to Rs. 6,966.78 lakhs constituting 60.00% of total income.

Purchases - Finished/ Traded goods

Purchases - Finished / Traded goods increased by 146.74%, reaching Rs. 1,979.67 lakhs in Financial Year 2023-24 as compared to the Rs. 802.33 lakhs incurred in the Financial Year 2022-23.

Changes in inventories of Finished goods, WIP and Raw materials

There was an increase of Rs. 411.34 lakhs for Fiscal 2024 as compared to an increase of Rs. 153.94 lakhs for Fiscal 2023, primarily attributable to a higher inventory of Finished goods at the end of Fiscal 2024.

Employee Benefits Expenses

Employee benefit expenses in the Financial Year 2023-24 increased by 55.52%, reaching Rs. 427.75 lakhs in comparison to the Rs. 275.04 lakhs incurred in the Financial Year 2022-23. This rise in employee expenses primarily stemmed from increases in salaries and wages, which went up by Rs. 109.06 lakhs and Bonus expense, which went up by Rs. 16.20 lakhs.

Finance Costs

Finance Costs in the Financial Year 2023-24 increased by 46.14%, reaching Rs. 268.88 lakhs in comparison to the Rs. 183.99 lakhs incurred in the Financial Year 2022-23. This rise in finance costs primarily stemmed from increases in Interest expense on borrowings, which went up by Rs. 69.66 lakhs and increases in Interest expense on Associate Companies, which went up by Rs. 9.67 lakhs.

Depreciation and amortization expenses

Depreciation and amortization in the Financial Year 2023-24 increased by 27.12%, reaching Rs. 272.53 lakhs in comparison to the Rs. 214.38 lakhs incurred in the Financial Year 2022-23. The increase in depreciation was primarily due to addition in assets.

Other Expenses

Other expenses in the Financial Year 2023-24 increased by 13.09%, reaching Rs. 464.08 lakhs in comparison to the Rs. 410.38 lakhs incurred in the Financial Year 2022-23. This rise in other expenses was primarily attributed to several factors, including Rs. 56.70 lakhs increase in Rent expenses, Rs. 31.28 lakhs increase in Freight, Octroi & packing outwards, Rs. 20.89 lakhs increase in Travelling & conveyance expenses, Rs. 15.68 lakhs increase in Legal and professional expenses.

Tax Expenses

Tax expenses increased by 143.53%, reaching a total of Rs. 421.87 lakhs in the financial year 2023-24, in contrast to the Rs. 173.23 lakhs in the financial year 2022-23.

Profit after Tax (PAT)

Due to the aforementioned factors, the profit experienced an upswing, primarily driven by the growth in total income and a decrease in total expenses as a percentage of total income. The Profit After Tax (PAT) for the financial year 2023-24 reached Rs. 1,221.21 lakhs, marking a notable increase from Rs. 457.39 lakhs in the financial year 2022-23. In the financial year 2023-24, PAT constituted 10.52% of the total revenue, in contrast to 4.72% in the fiscal year 2022-23.

COMPARISON OF FINANCIAL YEAR 2023 WITH FINANCIAL YEAR 2022:

Revenue from Operations

The Companys revenue from operations in the financial year 2022-23 is Rs. 9,635.85 lakhs. This represents Rs. 3,982.44 lakhs or 70.44% increase compared to the previous financial years revenue from operations of Rs. 5,653.41 lakhs. This increase is primarily due to increase in Sales from the Automotive segment of Rs. 4,098.09 lakhs.

Other Income

Other Income in the financial year 2022-23 increased by Rs. 36.17 lakhs or by 190.32%, reaching Rs. 55.18 lakhs in comparison to the Rs. 19.01 lakhs incurred in the Financial Year 2021-22. This increase was primarily due to increase in Duty drawback of Rs. 37.50 lakhs.

Consumption and Manufacturing expenses

Consumption and Manufacturing expenses for the financial year 2022-23 amounted to Rs. 7,328.24 lakhs constituting 75.62% of total income.

Purchases - Finished / Traded goods

Purchases - Finished / Traded goods increased by 231.35%, reaching Rs. 802.33 lakhs in Financial Year 202223 as compared to the Rs. 242.14 lakhs incurred in the Financial Year 2021-22.

Changes in Inventories of Finished goods, WIP and Raw materials

There was an increase of Rs. 153.94 lakhs for Fiscal 2023 as compared to an increase of Rs. 251.63 lakhs for Fiscal 2022, primarily attributable to a higher inventory of WIP at the end of Fiscal 2023.

Employee Benefits Expenses

Employee benefit expenses in the Financial Year 2022-23 increased by 78.15%, reaching Rs. 275.04 lakhs in comparison to the Rs. 154.39 lakhs incurred in the Financial Year 2021-22. This rise in employee expenses primarily stemmed from increases in salaries and wages, which went up by Rs. 89.48 lakhs and Staff welfare expenses, which went up by Rs. 14.01 lakhs.

Finance Costs

Finance Costs in the Financial Year 2022-23 increased by 23.20%, reaching Rs. 183.99 lakhs in comparison to the Rs. 149.34 lakhs incurred in the Financial Year 2021-22. This rise in finance costs primarily stemmed from increases in Interest expense on borrowings, which went up by Rs. 25.39 lakhs.

Depreciation and Amortisation Expenses

Depreciation and amortization in the Financial Year 2022-23 increased by 46.94%, reaching Rs. 214.38 lakhs in comparison to the Rs. 145.89 lakhs incurred in the Financial Year 2021-22. The increase in depreciation was primarily due to addition in assets.

Other Expenses

Other expenses in the Financial Year 2022-23 increased by 61.57%, reaching Rs. 410.38 lakhs in comparison to the Rs. 254.00 lakhs incurred in the Financial Year 2021-22. This rise in other expenses was primarily attributed to several factors, including Rs. 25.59 lakhs increase in Rebate & discounts, Rs. 24.04 lakhs increase in Rent expenses, Rs. 15.16 lakhs increase in Travelling & conveyance expenses, Rs. 14.75 lakhs increase in Freight, Octroi & packing outwards and Rs. 13.94 lakhs increase in Security charges.

Tax Expenses

Tax expenses increased by 140.43%, reaching a total of Rs. 173.23 lakhs in the financial year 2022-23, in contrast to the Rs. 72.05 lakhs in the financial year 2021-22.

Profit after Tax (PAT)

Due to the aforementioned factors, the profit experienced an upswing, primarily driven by the growth in total income and a decrease in total expenses as a percentage of total income. The Profit After Tax (PAT) for the financial year 2022-23 reached Rs. 457.39 lakhs, marking a notable increase from Rs. 360.11 lakhs in the financial year 2021-22. In the financial year 2022-23, PAT constituted 4.72% of the total revenue, in contrast to 6.35% in the fiscal year 2021-22.

Cash Flow

The table below summaries our cash flows from our Restated Financial Information for the financial years ended on 2024, 2023, and 2022:

Particulars	FY 2024	FY 2023	FY 2022
Net cash (used in)/ Generated from operating activities	520.41	145.47	638.63
Net cash (used in)/ Generated from investing activities	(1,068.17)	(1,383.43)	(597.00)
Net cash (used in)/ Generated from finance activities	545.66	1,258.97	(101.60)
Net increase/ (decrease) in cash and cash equivalents	(2.10)	21.01	(59.97)
Cash and Cash Equivalents at the beginning of the period	60.51	39.49	99.46
Cash and Cash Equivalents at the end of period	58.41	60.51	39.49

Cash Flow from/(used in) Operating Activities

Net cash generated from operating activities Fiscal 2024 was Rs. 520.41 lakhs and our profit before tax that period was Rs. 1,643.08 lakhs. The difference was primarily attributable to depreciation of Rs. 272.53 lakhs, Interest expense of Rs. 268.88 lakhs, and thereafter change in working capital of Rs. (1,418.17) lakhs respectively, resulting in gross cash generated from operations at Rs. 753.53 lakhs. We have income tax paid of Rs. 233.12 lakhs.

Net cash generated from operating activities in the Fiscal 2023 was Rs. 145.47 lakhs and our profit before tax that period was Rs. 630.62 lakhs. The difference was primarily attributable to depreciation of Rs. 214.38 lakhs,

Interest expense of Rs. 183.99 lakhs, and thereafter change in working capital of Rs. (649.50) lakhs respectively, resulting in gross cash generated from operations at Rs. 378.83 lakhs. We have income tax paid of Rs. 233.36 lakhs.

Net cash generated from operating activities in the Fiscal 2022 was Rs. 638.63 lakhs and our profit before tax that period was Rs. 432.16 lakhs. The difference was primarily attributable to depreciation of Rs. 145.89 lakhs, Interest expense of Rs. 149.35 lakhs, and thereafter change in working capital of Rs. (92.23) lakhs respectively, resulting in gross cash generated from operations at Rs. 635.07 lakhs. We have income tax paid of Rs. (3.57) lakhs.

Cash Flow from/(used in) Investing Activities

In the Fiscal 2024, our net cash used in investing activities was Rs. (1,068.17) lakhs, which was primarily for Purchase of PPE of Rs. (1,052.69) lakhs, Increase in Non-Current Assets of Rs. (28.25) lakhs, Sale of PPE of Rs. 5.10 lakhs and Interest received of Rs. 7.68 lakhs during the said period.

In the Fiscal 2023, our net cash used in investing activities was Rs. (1,383.43) lakhs, which was primarily for Purchase of PPE of Rs. (1,355.29) lakhs, Increase in Non-Current Assets of Rs. (28.81) lakhs and Interest received of Rs. 0.66 lakhs during the said period.

In the Fiscal 2022, our net cash used in investing activities was Rs. (597.00) lakhs, which was primarily for Purchase of PPE of Rs. (554.18) lakhs, Increase in Non-Current Assets of Rs. (42.92) lakhs and Interest received of Rs. 0.11 lakhs during the said period.

Cash Flow from/(used in) Financing Activities

In the Fiscal 2024, our net cash generated from financing activities was Rs. 545.66 lakhs. This was primarily due to proceeds from borrowings of Rs. 814.53 lakhs, and interest expense of Rs. (268.88) lakhs.

In the Fiscal 2023, our net cash generated from financing activities was Rs. 1,258.97 lakhs. This was primarily due to proceeds from borrowings of Rs. 1,442.96 lakhs, and interest expense of Rs. (183.99) lakhs.

In the Fiscal 2022, our net cash used in financing activities was Rs. 101.60 lakhs. This was primarily due to proceeds from borrowings of Rs. 47.74 lakhs, and interest expense of Rs. (149.35) lakhs.

Information required as per Item 11 (II) (C) (iv) of Part A of Schedule VI to the SEBI Regulations:

1. Unusual or infrequent events or transactions

To our knowledge there have been no unusual or infrequent events or transactions that have taken place during the last three years other than shut down of business due to COVID-19.

2. Significant economic changes that materially affected or are likely to affect income from continuing operations.

Our business has been subject, and we expect it to continue to be subject to significant economic changes arising from the trends identified above in ‘Factors Affecting our Results of Operations and the uncertainties described in the section entitled "Risk Factors" beginning on page 31 of this Draft Red Herring Prospectus. To our knowledge, except as we have described in this Draft Red Herring Prospectus, there are no known factors which we expect to bring about significant economic changes.

3. Income and Sales on account of major product/main activities

Income and sales of our Company mainly consists of sale of products from following segments:

1) Automotives 2) Marine 3) Defence & 4) Telecom.

4. Whether the company has followed any unorthodox procedure for recording sales and revenues

Our Company has not followed any unorthodox procedure for recording sales and revenues.

5. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section titled "Risk Factors" beginning on page 31 in this Draft Red Herring Prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

6. Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or services or increased sales prices.

Increases in revenues are by and large linked to increases in volume of business.

7. Total turnover of each major industry services in which the issuer company operated.

The Company is in the business of, the relevant industry data, as available, has been included in the chapter titled "Industry Overview" beginning on page 119 of this Draft Red Herring Prospectus.

8. Status of any publicly announced new products or business services.

Our Company has not announced any new services or business services.

9. The extent to which business is seasonal.

Our Companys business is not seasonal.

10. Any significant dependence on a single or few suppliers or customers.

The % of contribution of our Companys suppliers vis-a-vis the total revenue from operations respectively for the Fiscal 2022, 2023 and 2024 is as follows:

Particulars	Top Suppliers as a percentage (%) of total purchases
	Fiscal 2024	Fiscal 2023	Fiscal 2022
Top 5	68.85 %	57.73 %	73.11 %
Top 10	82.14 %	69.78 %	81.50 %

The % of contribution of our Companys customers vis-a-vis the total revenue from operations respectively for the Fiscal 2022, 2023 and 2024 is as follows:

Particulars	Top Customers as a percentage (%) of total sales
	Fiscal 2024	Fiscal 2023	Fiscal 2022
Top 5	49.78 %	55.46 %	67.47 %
Top 10	70.10 %	80.73 %	85.25 %

11. Competitive conditions.

Competitive conditions are as described under the Chapters titled "Industry Overview" and "Our Business" beginning on pages 172 and 128, respectively of this Draft Red Herring Prospectus.