Omax Autos Ltd Management Discussions

Your directors have the pleasure of presenting the Management Discussion and Analysis

Report for the financial year ended on 31st March, 2023.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Globally, the automotive industry has recovered in the last year post running into some hurdles caused by the COVID-19 pandemic struck in the last quarter of FY 2019-20. During the year under review, the Indian economy saw a rebound in key infrastructure segments such as roads, highways, construction, power and mining. The manufacturing sector across the board witnessed a rebound following the increase in consumer spending and market sentiment. Original Equipment Manufacturers (OEMs) and automotive part manufacturers witnessed a significant improvement in their manufacturing capacity utilization. We witnessed numerous new product developments in the pipeline in preparation for the new Real Drive Emissions (BS6 Phase 2) norms which were to take effect from April 1st 2023. The new norms effectively meant vehicles across all segments would need to conform to emission norms in real world on-road running conditions and not only during testing in a laboratory environment. These stricter CO2 emission requirements called for re-designing of vehicles by the original equipment manufacturers. In the last quarter of 2022-23, the market witnessed a surge in demand ahead of these norms coming in place which would effectively increase the price of vehicles by approximately 8-10%.

The Company continues to operate in sheet metal component manufacture and supply, supplying primarily to auto-manufactures and railways. The Indian autocomponents industry can be broadly classified into the organized and unorganized sectors. The organized sector caters to the OEMs and consists of high-value precision components while the un-organized sector consists of lowvalued products and caters mostly to the aftermarket customers.

The auto-component industry by and large depends upon the automotive industry. Its growth is broadly synonymous with the growth of automotive industry. Indian Automotive industry has been one of the largest automotive industries in the world. Most of the major car and truck manufactures are present and manufacture in India; the Indian Auto Component industry has become an attractive supplier base for global markets.

The Indian auto-components industry has experienced healthy growth over the last few years. The auto-components industry accounts for more than 2.3% of Indias GDP and employs about more than 1.5 million people directly and indirectly. The overall industry is putting efforts immensely to become the 3rd largest in the world by 2025. A stable government framework, increased purchasing power, large domestic market, and an ever increasing development in infrastructure have made India a favorable destination for investment.

In recent years, various global automobile OEMs have made their footprints in India. Their increased presence in the Indian manufacturing landscape has significantly increased the localization of their components in the country. India has become the preferred designing and manufacturing hub for global auto OEMs for local sourcing and exports.

The Company also supplies sheet metal components to Indian Railways. Indian Railways has shown steady growth over the years. Freight and Passenger earnings are the two largest components of revenues for Indian Railways. With increasing participation expected from private players, both domestic and foreign, due to favorable policy measures, both passenger and freight traffic is expected to grow rapidly over the medium to long term. Government of Indias focus on infrastructure is a major factor which will accelerate growth of railways. The Company hopes to benefit from the same

Impact of Covid-19:

As the adverse impact of the pandemic came to an end in the last year, the Indian economy witnessed a shift in growth across various industries. Sectors which had largely benefited from the surge in the "online" economy witnessed a correction and sectors which were adversely effected such as brick and mortar retail, automotive, etc. experienced revival in demand.

As the company is dealing in sectors which saw a revival in consumer demand, it witnessed growth in revenues across key sub segments in the commercial vehicle industry. While goods demand was aided by an increase in infrastructure spending by the government as well as increased consumer spending, the passenger commercial vehicle demand was aided by a revival in demand from schools and state transport authorities.

The Company witnessed growth in revenue from Rs 253 crores in 2021-22 to Rs 315 crores in 2022-23, the Company is expecting to have the turnover of Rs.350- 380 crores in 2023-24. The business of the Company with the existing client "Tata Motors" has also been normal which is to create diversified opportunities in terms of capacity utilization. Volvo Eicher is one of the new clients got introduced in the business and the setup of the New Railways plant also has got the influence over the business of the Company.

OPPORTUNITIES AND THREATS

In the advent of growing concerns over excessive use of fossil fuels and increasing pollution levels, the government has pushed for shifting to electric vehicles. The Government of India has plans to make a major shift to electric vehicles by 2030. Globally, countries have already started shifting to electric vehicles. Hence, the relevance of internal combustion engines run by fossil fuels would lose relevance in long run. Hence, the electric vehicle segment would throw a big opportunity for Indian manufactures. India can be a global manufacturing hub for electric vehicles. Manufacturers may look at not only producing EV models for domestic market but also for exports. Electric vehicles are a sunrise opportunity as India has over 70 per cent two- wheelers and these could be made into electronic vehicles. Government has proposed that two- wheelers and three- wheelers sold in the country to be shifted to electric ones in a phased manner. There is a huge opportunity in this segment.

The global transportation industry, has now made a shifting towards electric, electronic and hybrid cars, which are considered more fuel efficient, safe, environment friendly and reliable mode of transportation. In coming times, this will open up new segments and opportunities for auto-component manufacturers. The industry has to be prepared for this and need to adapt itself to the changes through systematic Research and Development of new products and technologies.

The last Union Budget seeked to complement macro-economic level growth, focusing on microeconomic level all-inclusive welfare. The faster roll-out of EV charging infra and battery swapping is set to accelerate the adoption of clean mobility in the country. The last Budget had rightly allocated the highest ever Capex of $ 100 billion (INR 7.5 lakh crore), up 34% over the last year, aimed at creating & improving our logistics infrastructure This, while following the agreed pathway on the fiscal deficit (4.5% by FY 25-26).

The allocation of INR 20,000 crore for infrastructure projects and 25,000 kms of additional National Highway network during FY23 was a welcome move. This positively impacted the transportation industry and the auto sector at large. The special focus towards clean technologies and electric vehicles for public transport will positively impact companies manufacturing and supplying technology to electric buses and commercial vehicles. The move to boost the rural economy with the announcement of an MSP payment of INR 2.73 lakh crore coupled with other benefits will aid the farming sector and is bound to enhance the rural economy and sentiments. The concessional corporate tax of 1 5 % for more than one year till March 2024 will provide the much-needed impetus for the COVID impacted manufacturing segment. This is further bolstered by the eagerly anticipated re-look at the SEZ act, which will boost the competitiveness of the Indian manufacturers.

The battery swapping policy will certainly have a positive impact on electrification of vehicle segments such as City buses, Taxis, 3W as most of these operate in a more or less fixed territory and in cases of buses, one entity, i.e. the transport corporation can own the swapping stations locate within the depots which creates an end to end control viz. over the vehicle as well as the fuel, i.e., the battery which in turn aids in the demand management of batteries. In addition, 2W applications would also benefit on account of this. This would also need a cloud- powered interconnected network which would also boost connectivity solutions. Given the expected increases prices of battery raw material, steps must also be taken to ensure technology absorption can be brought about in cell level manufacturing.

Vehicles powered by Compressed Natural Gas (CNG) will also have a key role to play in addition to electric battery powered vehicles give the fact that the government has invested significantly in exponentially increasing the number of CNG filling stations across the country. Last year CNG prices increased following the advent of the Russia-Ukraine war, reducing the price advantage for consumers as compared to purchasing diesel powered vehicles. However, in the coming year, gas prices are expected to fall, thereby reinvigorating the demand for intermediate and light commercial vehicles powered by CNG.

With increasing participation expected from private players, domestic and foreign, due to favourable policy measures, both passenger and freight traffic is expected to grow rapidly over the medium to long term. The Government of Indias focus on infrastructure is a major factor which will accelerate growth of railways. Railway infrastructure plans to invest Rs 50 lakh crore (US$ 715.41 billion) by 2030.

The plan envisages the creation of a future-ready railway system that can not only meet the passenger demand but also increase the modal share of railways in freight to 40-45 per cent from the present level of 26-27 per cent. As per the National Rail Plan, the freight ecosystem is expected to grow from the present level of 4,700 MT to 8,200 by 2030. The next 10 years will see a very high level of CAPEX in the railway sector as capacity growth has to be accelerated such that by 2030 it is ahead of demand.

As more projects are taken on hand and several sources of capital funding are developed, the CAPEX will increase further in coming years and the railway system will emerge as an engine of national growth.

Presence of such a large number of players in the Automobile industry results into extensive competition, every company eating into others share leaving little scope for new players. Further, currently, global economic slowdown following the Covid pandemic, Increasing fossil fuel prices ,new emission norms, and policy uncertainty about electric vehicles are some of the impeding factors for slowdown in the industry.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

The Company operates in a single segment of metal sheet components and parts.

Commercial Vehicles (CV)

The CV industry experienced a good recovery from the covid impact in the last financial year. The recovery was driven by revival in key segments of the economy such as construction, mining, highway construction, tourism and reopening of schools.

Railways

Railway business was impacted due to the increase in the raw material prices and the fixed price nature of railway contracts with the production units.

OUTLOOK

The outlook looks bright as we expect the momentum in the increase in consumer spending and key infrastructure segments to continue. Increasing interest rates in an effort by the RBI to control inflation will have an impact on this outlook.

Currently, the Indian economy driven largely by domestic demand has remained resilient amidst a global economic slowdown. As major auto OEMs ramp up their investment to compete in the emerging electric vehicle sector, these technological changes in the industry have to face cost pressures also. There is also uncertainty of the impact on demand following the change in emission norms from BS VI Phase 1 to BS VI Phase 2. There will be also cost pressure due to this new technology and it will also impact profit margins. Further, global automobile demand has also been remained subdued due to looming lowdown in the western part of the world resulting in an adverse impact on export demand. Hence, the outlook for the auto sector will remain positive but with caution to some of these headwinds in short to medium term.

In the railway sector, we see some interesting developments. The Indian Railway network is growing at a healthy rate. In the next few years, the Indian railway market is expected to be one of the largest markets. Indian Railways is targeting to increase its passenger and freight traffic significantly. The government has also announced a significant investment outlay in railway infrastructure. It would boost the railway sector significantly.

Baring the impact of Covid 19, the industrys long- term growth prospects in India will continue to be healthy. The management of the Company is optimistic about the outlook of the company in medium to long term. With reduction in costs and increasing operational efficiency, the Company is expected to perform reasonably in 2022-23.

RISKS AND CONCERNS

The Company is an automotive component manufacturer; hence, its business is largely dependent on the health of the automotive sector. The health of automotive sector and auto component sector is dependent on various factors viz. general economy of the country, global economy, disposable income with consumers, interest rate, fuel prices, finance options, regulatory norms, input costs etc. Given the fact that the Indian economy and the automobile sector is experiencing a gradual recovery, its impact would be felt in autocomponent industry and on the Company as well. Further, in the aftermath of the Covid crisis it will be seen how the industry and economy revive themselves.

The Companys customer base is not very broad. The Companys major turnover comes from very few customers. Any significant business risks to these customers can have consequent impact on the Company. The management is putting its best effort to widen its customer base.

The auto industry is driven by technology and the same is undergoing very rapid change. A technological shift may make the existing technology obsolete in a very short period of time. Whoever cannot adapt to the pace of technology, may miss the bus. If it impacts any of the major customers of the Company, it may impact the Company as well.

The Company, being an auto component manufacturer, uses Steel and Cast- iron sheets as major raw materials. Prices of these raw materials used in manufacturing have become increasingly volatile in recent years, impacting consumer demand. However, the auto component industry is insulated by the original equipment manufacturers who compensate their suppliers for increase in raw material prices and suppliers pass on the benefit when raw material prices decrease, keeping operating margins intact.

The Company operates in a single segment of metal sheet components and parts. This sector has already been very competitive. A lack of diversification into new business segments may also have an impact on the future prospects of the Company.

The Company currently has a sound product base catering to the demand of the customers. Considering that technologies are changing very fast and new products and technologies are being developed rapidly, the Company will also face the risk of new product development or new technology development. The business of the Company may be hampered if the Company fails to keep pace with the new product or technology requirements of its customers.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

For the purposes of effective internal financial control, the Company has adopted various policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

In respect of the adequacy of internal financial controls with reference to the Financial Statements, the Company has, inter alia, established various control systems which have been already reported in the last Annual Report. There have not been any significant changes in such control systems. The control systems are reviewed by the management regularly. The same is also reviewed by the Statutory Auditors and Internal Auditors from time to time. The Company has also adopted various policies and procedures to safeguard the interests of the Company. These policies and procedures are reviewed from time to time. There has also been proper reporting mechanism implemented in the organization for reporting any deviation from the policies and procedures. Compliance audits are also conducted from time to time by external agencies in various areas of operations.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial performance of the Company has improved this year as compared to last year through concentrated efforts made to reduce debt, fixed cost burden and ramp up sales. The Company achieved a turnover of Rs. 315 crores compared to Rs.253 crores in the previous year. The increase is primarily due to a rebound in the commercial vehicle segment. The Company recorded an increase in EBIDTA margin from operations to 9% in 2022-23. Operationally, there was no other setback for the Company during 2022-23, except the Railway business being impacted due to the steep increase in raw material prices due to geopolitical issues; prices going forward are expected to settle in the coming few months. The company has set up two manufacturing units in Uttar Pradesh for its CV and Railways business. Long Member Plant (LM Plant) has started its operations and New Railway Plant (NR Plant) is fully commissioned and is in the process of executing trial orders. Overall, the operational performance of the Company was satisfactory during 2022-23 and is expected to improve significantly in the next financial year considering the revival being seen in core sectors of the economy related to infrastructure.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED.

The company recognizes the importance of human values and ensures that proper encouragement, both moral and financial, is extended to employees to motivate them and can curb the threat posed by COVID-19. The human resources received commensurate attention during the year considering the growth of the organization and the need arising therefrom.

Due to cyclic nature of the business, the Company had unwillingly the Company had to reduce its manpower in some plants to rationalize the cost. The Company has a cordial relationship with its human resources.

The Company has initiated many programs on up- skilling / training its manpower. As an ongoing exercise, the Company has continued to look at, identify, create and execute seamlessly, initiatives which enhance productivity and efficiency. The Company continues to invest in people through various initiatives which enable the work force to meet the production requirements and challenges related thereto and to infuse positive enthusiasm towards the organization.

key Ratio
particulars	2022-23	2021-22	2020-21	2019-20	2018-19
debtor turnover ratio
opening debtors	1,929.56	3,294.18	11,674.17	12,969.78	16,743.45
colsing debtors	1,098.45	1,929.56	3,294.18	11,674.17	12,969.78
avarage debtors	1,514.00	2,611.87	7,484.17	12,321.98	14,856.62
revenue from operations	30,077.78	22,220.20	16,148.51	46,667.78	99,164.35
debtor turnover ratio	19.87	8.51	2.16	3.79	6.67
rev from operations/average debtors
inventory turn over ratio
opening inventory	2,790.68	3,047.52	4,590.90	7,436.65	5,510.36
closing inventory	1,670.33	2,790.68	3,047.52	4,590.90	7,436.65
avarage inventory	2,230.51	2,919.10	3,819.21	6,013.78	6,473.51
revenue from operation	30,077.78	22,220.20	16,143.51	46,667.78	99,164.35
inventory turn over ratio	13.48	7.61	4.23	7.76	15.32
Rev from operations /avarage inventory
operating profit margin %
EBIT	545.96	-877.75	3,213.88	3,206.68	3,322.67
revenue from operation	30,077.78	22,220.20	16,148.51	46,667.78	99,164.35
oeparting profit margin %	1.82%	-3.95%	-19.90%	6.87%	3.35%
(EBIT/revenue from operations
net profitmargin %
profit after tax andcomprehensive income	-2,439.18	2,346.47	-859.82	4,219.71	-111.36
net sales &other income	31,561.20	25,377.26	18,353.22	48,833.21	1,00,443.00
operating profit margin%	-7.73%	9.25%	-4.68%	8.64%	-011%
Net profit /sales (incld other income)
Return on net Worth
profit after tax and comprehensive income	-2,439.18	2,346.47	-859.82	4,219.71	-111.36
opening shareholders equity	31,029.53	28,683.09	27,125.72	22,905.99	23,017.35
closing share holders equity	28,590.35	31,029.53	28,683.09	27,125.72	22,985.99
avg share holders equity	29,809.94	29,.856.31	27,904.40	25,015.35	22,961.67
return on net worth	-8.18%	7.86%	-3.08%	16.87%	-0.48%