Pattech Fitwell Tube Components Ltd Management Discussions

KEY MARKET INSIGHTS

The India metal forging market size was valued at USD 4.43 billion in 2022. The market is expected to grow from USD 5.08 billion in 2023 to USD 9.75 billion by 2030, exhibiting a CAGR of 9.8% during the forecast period. Developed in the past, forging is a process of metal forming that has evolved through the integration of innovative techniques. In the process, a metal is deformed with the use of compressive forces such as hammering, rolling, and pressing in controlled conditions for giving the material a desired geometric change. The process produces high-quality metal parts, consisting of alloy steel, stainless steel, and aluminum alloys, with enhanced material strength. The forging process offers a wide range of forging components having different materials, shapes, finishes, and sizes. In India, forging OEMs offer closed-die forged solutions that are used in the automotive industry. Indias market share in automotive forging is higher than other industries such as industrial machinery, railway, aerospace and defence, and others. The rising demand for the product is due to its application in construction, mechanical equipment, oil & gas, automotive, and aerospace, driving the market growth during the forecast period.

COVID-19 IMPACT

The COVID-19 pandemic had a massive impact on the Indian economy. The economic activities had contracted significantly due to the pandemic resulting in a negative demand shock across nearly all the forging products in India. According to the primary research, in India, roughly 60% of the demand for forged metal products comes from the domestic automotive industry. Therefore, the pandemic induced downturn in the automotive industry due to semiconductor chip shortage, supply chain disruption, and closed manufacturing facilities which hampered the growth of Indias domestic automotive and forging industry. For instance, according to the International Organization of Motor Vehicle Manufacturers (OICA), in 2020, the total automotive production volume in India declined by 25% compared to 2019.

INDIA METAL FORGING MARKET TRENDS

Increasing adoption of the ‘Industry 4.0 by key players in India metal forging industry to improve efficiency is the ongoing trend in the market. Industry 4.0 is the latest phase in manufacturing digitalization that involves multiple innovations that can be utilized through enhanced connectivity, processing power, and data analysis. The metal forging industry in India is not much developed in terms of advanced technologies. However, companies such as Bharat Forge, Sansera, and a few others have already adopted Industry 4.0 for their forging lines to boost efficiency.

In addition, collaborative research by partnering suppliers, end users, government, institutes, and other forging companies to enhance or develop significant existing and new technologies is an essential strategy adopted by different OEMs in the forging industry. The rising research and development activities by forging OEMs will aid the India metal forging market growth during the forecast period.

Increasing Demand for Forged Products in Power, Agriculture, Aerospace, and Defense to Drive Industry Expansion

Indian metal forging industry majorly caters to the high demand for forged products in the automotive sector. However, the recent slowdown in the automotive sector has diverted the focus of the leading metal forging key players on expanding their product portfolio for other non-automotive industries where the demand for forged products is increasing. These non-automotive industries include agriculture, power, and aerospace and defense. Hence, increasing investment and expansion of these sectors is positively influencing the market. The aerospace industry require various high-quality and lightweight metal forged parts. Therefore, increasing demand for critical forged products in the aerospace & defense industry is likely to drive the market growth. Increasing Export of Forging Products to Drive Market Growth

Globally, India is considered one of the major forging production hubs. The increase in domestic manufacturing capacity and competitiveness is helping Indias exports grow rapidly. According to the Engineering Export Promotion Council of India (EEPC), the forging sector is one of the key sectors for export growth. In addition, government initiatives such as ‘Make in India has boosted the manufacturing industry in the region by creating a positive business environment. The key players operating in the Indian metal forging industry are bagging export orders from various economies, which is likely to drive the market growth in India. In January 2022, Ramakrishna Forging bagged an export order of nearly INR 57.5 crore (USD 7.73 million) to supply spindles over a period of three years from one of the largest TIER-1 manufacturers from North America in the commercial vehicle segment.

Electrification in Automotive Industry to Slow Down the Market Growth

The domestic automotive industry in India is the leading customer for forged products and parts. Approximately more than 60% of the forging units in India are involved in automotive component manufacturing. Therefore, the Indian metal forging market is highly dependent on the domestic automotive industry. Currently, the automotive industry is going through once in a century revolution. Rising environmental concerns, government initiatives to promote green mobility, an increasing number of stringent emission regulations, and rising fuel prices are driving electrification in the automotive industry. Nearly all the leading automakers are focused on developing electric vehicles as future mobility solutions. However, electric vehicles have fewer moving parts and forged components compared to conventional vehicles. Thus, the developments in the domestic automotive industry are likely to hamper the growth of the India metal forging market during the forecast period.

Carbon Steel Segment Holds the Largest Market Share Owing to its Machinability, Good Strength, and Other Properties

Based on material, the India metal forging market is classified into carbon steel, alloy steel, stainless steel, aluminum, magnesium, titanium, and others. The carbon steel segment holds the largest India metal forging market share owing to its machinability, good strength, and other properties. Carbon steel is mainly used as raw material in forging manufacturing. It is preferred over materials in the automotive industry for manufacturing control arms, rocker arms, and crankshafts. It provides cost-effectiveness for structural application, balancing strength and ductility, malleability, high strength, toughness, temperature resistance, good machinability, wear resistance, and corrosion resistance in a mild atmosphere. These benefits of carbon steel have created tremendous demand in the automotive sector.

The alloy steel segment holds the second-largest market share. The segmental growth is attributed to its high strength and durability. These properties make it suitable for applications where robustness and resistance to wear are crucial, such as in automotive, aerospace, and industrial equipment.

Close Die Segment Dominants Due to its High Precision and Consistency

Based on technique, the India metal forging market is classified into closed die, open die, and ring forging. The closed die segment holds the maximum market share; it is also called impression die forging. The segmental growth is attributed to its high precision and consistency. Closed die forging allows for high precision and consistency in the production of complex shapes and intricate details. This makes it suitable for manufacturing components that require tight tolerances. Open die forging is the second-largest technique in the market. This process is increasingly preferred owing to less material waste, better fatigue resistance, valuable cost-saving, reduced chance of error or hole, improved microstructure, continuous gain flow, and finer gain size.

Small (100 MT to 12,500 MT) Segment Leads Installation Capacity Due to Rising Demand for Small Forging Parts

Based on installation capacity, the market is segmented into small (100 MT to 12,500 MT), medium (12,500 to 30,000 MT), and heavy (above 30,000 MT). The small (100 MT to 12,500 MT) segment holds the largest market share. The small installation capacity segment comprises forging units with a capacity of 100 MT to 12,500 MT. Most of the automotive parts are produced with the help of small installation capacity-based solutions. The rising demand for small forged parts such as connecting rods, yoke ends, rocker arms, control arms, and others boost the growth of the small installation capacity segment. The medium (12,500 to 30,000 MT) installation segment is anticipated to witness the fastest growth rate during the forecast period. This is due to the inclining focus of players to diversify their product portfolio for non-automotive industries such as industrial machinery, aerospace, mining equipment, and others.

Automotive to be Fastest Growing End-User Due to Rising Growth of Electric Vehicles

Based on end-user, the market is categorized into automotive, aerospace and defense, railway, industrial machinery, marine, and others (agriculture, power, mining, and construction). The automotive segment is the dominant segment and fastest-growing end-user in the market. The automotive segment comprises all the forging applications in the automotive industry, including demand for all the automotive forging parts such as connecting rods, camshafts, crankshafts, and others. The industry is growing considerably owing to the increasing demand for commercial and passenger vehicles and the growing adoption of electric vehicles. Hence, the rising automotive industry will propel the demand for forged parts and boost market growth. The aerospace and defence segment holds the second-largest market share. Increasing demand for lightweight aluminum and stainless steel forged parts in the aerospace and defense sector is driving the segment growth.

SEGMENT WISE OR PRODUCT-WISE PERFORMANCE & DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The company is primarily engaged in the business of Corrugated Plastic Sheets, which constitute a single reportable segment in accordance with Ind AS 108 "Segment Reporting".

Financial Highlights

INR In Thousand

*Since the Company was incorporated on August 22, 2022 upon conversion from Partnership Firm, therefore the financials are for the period 22-08-2022 to 31-03-2023.

FINANCIAL PERFORMANCE

During the year under review, the revenue from operation of the Company was stood at INR 3,77,158.82 Thousand as against that of INR 1,17,992.07 Thousand for previous year. Revenue from operation of the Company was increased by 219.65% over previous year. Profit before Tax for the financial year 2023-24 stood at INR 19353.88 Thousand as against Profit before Tax of INR 6545.01 Thousand making the net profit of INR 14,417.75 Thousand for the financial year 2023-24 as against the net profit of INR 4,865.73 Thousand for the financial year 2022-23.

RISK AND CONCERNS

The Company is exposed to various risks and uncertainties which may adversely impact its performance. The Companys future growth prospects and cash flow generation could be materially impacted by any of these risks or opportunities. The major risks as identified by the Company are demand-risks due to any resurgence in the COVID 19 pandemic, currency risk associated with imports, unfair competition, etc. The Company follows the Enterprise Risk Management (ERM) framework to manage and mitigate such risks which is primarily based on the integrated framework for enterprise risk management and internal controls developed by the Company. The other risks have already been discussed under "Threats & Risks" of this MDA Report.

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

The Company believes in establishing and building a strong performance and competency driven culture amongst its employees with greater sense of accountability and responsibility. The Company has taken various steps for strengthening organizational competency through the involvement and development of employees as well as installing effective systems for improving their productivity and accountability at functional levels. The Company acknowledges that its principal asset is its employees. Ongoing in-house and external training is provided to the employees at all levels to update their knowledge and upgrade their skills and abilities. As on March 31, 2024, the Company had total 09 full time employees. The industrial relations have remained harmonious throughout the year.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

Though the various risks associated with the business cannot be eliminated completely, all efforts are made to minimize the impact of such risks on the operations of the Company. Necessary internal control systems are also put in place by the Company on various activities across the board to ensure that business operations are directed towards attaining the stated organizational objectives with optimum utilization of the resources. Your Company has also put in place adequate internal financial controls with reference to the financial statements commensurate with the size and nature of operations of the Company. During the year, such controls were tested and no material discrepancy or weakness in the Companys internal controls over financial reporting was observed.

CAUTIONARY NOTE

Statements in this Report, describing the Companys objectives, projections, estimates and expectations may constitute forward looking statements within the meaning of applicable laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events. These statements are subject to certain risks and uncertainties. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The actual results may be different from those expressed or implied since the Companys operations are affected by many external and internal factors, which are beyond the control of the management. Hence the Company assumes no responsibility in respect of forward-looking statements that may be amended or modified in future on the basis of subsequent developments, information or events.