pennar industries ltd share price Management discussions


MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL ECONOMIC OVERVIEW

The year 2021 was defined by global economies making a strong attempt at recovery while battling the resurgence of COVID-19. In 2022, just as countries were regaining their footing, the war in Ukraine posed the threat of severe economic damage. This terrible humanitarian crisis has contributed to a slowdown in global growth in 2022, augmenting the inflationary trends that crept up in 2021.

Fuel and food prices have seen the most impact, owing to which low-income countries have suffered severely. According to projections made in the World Economic Outlook (April 2022), global growth is likely to decelerate from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This is lower than what was projected in January 2022, by 0.8 and 0.2 percentage points, respectively.

Moreover, an increase in commodity prices (owing to the war), as well as the broadening price pressures have contributed to an adjustment of 2022 inflation projections. It now stands at 5.7% and 8.7% for advanced economies, and emerging and developing economies respectively.

Outlook

The crisis in Ukraine has certainly served as a curveball to economies across the world that were on the cusp of restabilizing. This is largely because many countries have limited fiscal policy space to offset the impact of this unexpected challenge to their economy. As many countries put an end to their commercial ties with Russia, the move certainly poses a threat to global postpandemic recovery. In fact, it has added deepened the economic strains caused by the outbreak of COVID-19 in CY2020 and CY2021.

As highlighted by the WEO, its imperative that governments focus on positive structural change and welcome digital transformation with open arms to meet the challenges faced by their respective economies. We also find ourselves in complete agreement with The International Monetary Funds outlook that states, "Multilateral efforts to respond to the humanitarian crisis, prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change, and end the pandemic are essential".

INDIAN ECONOMIC OVERVIEW

Indias Gross Domestic Product (GDP) for the financial year 2021-22 (FY2022) expanded to 8.7%, which was the highest in 22 years (as far as back series data is concerned). This growth was recorded after a 7.3% contraction in FY2021—owing to the pandemic and the measures taken by the government to control it. In fact, this was Indias first economy contraction in 40 years.

The Economic Survey of India (2021-2022) also shed light on the nations economic performance. For the period of 2021-2022, agriculture and allied industries were predicted to grow by 3.9%, industry by 11.8%, and services by 8.2%. Moreover, demand for consumption was projected to increase by 7.0%, Gross Fixed Capital Formation (GFCF) by 15%, exports by 16.5%, and imports by 29.4%.

The report also drew attention to the governments approach towards curbing the second waves economic impact. It highlighted the safety nets created to lessen the blow to vulnerable sectors of society, as well as to the business sector. This was in addition to a sizeable increase in capital investment aimed towards promoting growth, in combination with supply-side reforms that facilitate long-term expansion.

Given the unpredictability faced by the nation, the report also spoke about the governments flexible and multi-layered reaction, which is based on a framework that incorporates feedback loops and 80 High Frequency Indicators (HFIs).

In 2020-21, total investment project announcements touched a record high of Rs.19.3 lakh crore—nearly 78% higher than pre-pandemic levels. As per a private survey, the private sector took home almost 69% of the proposed investments. This was a marked increase from pre-pandemic levels, which stood at about 49% in FY2020 and 30% in FY2017 and FY2018.

In FY2022, Indias trade deficit increased sharply by 87.5%, at $192.41 billion, compared to the deficit of $102.63 billion during the previous year. This is owing to merchandise exports in FY2022 that crossed a record high of $418 billion, and imports (primarily petroleum), that rose steeply by 43.18% to $610 billion, creating a trade gap of $192 billion. With this, the nations merchandise trade struck the $1 trillion milestone in FY2022.

In another vein, as per the Global Innovation Index 2021, India has moved up two places, to the 46th position (from the 48th position in 2020), making it to the top 50 list. In 2021, India was also ranked 1st amongst all 10 economies that belong to Central and Southern Asia. Furthermore, the nation ranked 57th for innovation inputs and 45th for innovation outputs.

Outlook

The Economic Survey of India (2021-2022) stated that indicators of macroeconomic stability are proof that our economy is well-equipped to meet the challenges of 2022-23. However, given the surge in COVID cases in 2022, as well as the war in Ukraine and accompanying inflationary trends, the economy is experiencing a slow-down in growth. This, in combination with supply chain issues as well as geopolitical tensions has resulted in the World Bank revising its GDP growth forecast for India (for FY2023) twice in 2022. It was first revised from 8.7% to 8%, and now stands at 7.5%.

Given the unique predicament that we find ourselves in, it is safe to say that measures taken towards curbing inflation and boosting growth are what will help the economy. The services and agriculture sectors have been performing well (and are likely to continue to do so). Moreover, the governments efforts towards lessening compliance issues and improving ease of doing business may help Indian exports touch $1 trillion by next year.

As the fastest growing economy in the world, the efforts taken by the government will help maintain the momentum that has been built over time.

With regards to the manufacturing sector, the implementation of Production-Linked Incentives is a move in the right direction. This, along with directives such as reduced corporate tax rate (for new manufacturing entities), concessional tax regime, and changes and concessions pertaining to custom duties are aimed at spurring rapid growth.

INDUSTRY OVERVIEW

AUTOMOBILES

Indias automobile industry contributes 7.1% to the countrys GDP, and 49% to the manufacturing GDP. It offers employment to ~35 million people (both directly and indirectly). According to the Indian Brand Equity Foundation, the countrys annual production of automobiles in FY2021 was 22.65 million vehicles. Moreover, in the period between April-October 2021, 13 million vehicles were produced. The sector also received the most FDI in the first four months of FY2022: 23% of $27.37 billion. Furthermore, the government of India is actively encouraging foreign investment in the automobile sector and has allowed for 100% FDI under the automatic route.

When it comes to sales, as per the Society of Indian Automobile Manufacturers (SIAM), automobile wholesales dropped by 6.3% to 1,75,13,596 units in FY2022, and the sale of two- wheelers fell by 11%. However, passenger vehicle sales grew 13.2% to 30,69,499 units in FY2022, compared to 27,11,457 units in FY2021. Sales of passenger cars stood at 14,67,056 units, utility vehicles at 14,89,178 units and vans at 1,13,265 units. On the whole, the automobile industry witnessed degrowth in FY2022, amounting to (-) 6%.

In the arena of exports, passenger vehicle exports from India increased by 43% per in FY2022, as per data from SIAM. Total passenger vehicle (pV) exports stood at 5,77,875 units FY2022, as compared to 4,04,397 units in the previous fiscal year. Additionally, passenger car shipments saw a 42% growth at 3,74,986 units, and utility vehicle exports climbed 46%, at 2,01,036 units. Lastly, export of vans increased to 1,853 units in FY2022, from 1,648 units in FY2021.Union Budget 2022

Union Budget 2022

While the automobile industry did not find any mention in the Union Budget 2022, several provisions, initiatives and investments are likely to benefit the industry indirectly. For instance, the 35.4% increase in capex expenditure towards infrastructure will prove beneficial to the commercial vehicle sector, especially M&HCV segment. This is a welcome move as this particular segment has seen a dip in demand in recent years.

Under the governments Gati Shakti program, national highways will be expanded by 25,000km in FY2023. This will indirectly help boost the demand for commercial vehicles, and also benefit the tyre and construction sectors.

The highlight of this years budget was the introduction of a battery-swapping policy for EVs, which is likely to make them more attractive to customers. Tax benefits were also extended to manufacturing companies as well as start-ups in line with Atmanirbhar Bharat.

Outlook

Predictions suggest that the industry will recover by FY2023, and that EVs, especially two-wheelers will grow in demand. In the next four years, by 2026, Indias automobile industry is likely to reach the $251.4-282.8 billion mark.

However, its growth hinges on the availability of inexpensive skilled labor, advanced R&D and cost- efficient steel production. As a whole, the auto industry is also ripe for further investment.

Pennar has proven to be a reliable partner in the automobile components sector for a variety of reasons:

• Wide ability in handling critical auto components

(braking and suspension, auto electricals, chassis & body, etc.)

• High volume production capability to meet the bulk demand

• A dedicated product development cell

• Excellent in-house support infrastructure for tool design, development, and manufacturing ability to produce components, sub-assemblies as well as finished products

• Well versed in JIT concepts

The company foresees a major opportunity in the two-wheeler segment, with the country transitioning from BS-IV to BS-VI emission norms. Some of the new motorcycles and scooters will have to mandatorily move to telescopic front fork systems. This will provide the business with a major opportunity for growth in the tubular front fork segment. Our CRSS portfolio also has a range of products, servicing the automotive sectors. Some of these have significant growth opportunities while some others are subject to low entry barriers, diminishing market share and high competition. Over the medium term, this business unit will have moderate growth in line with the overall increase in the infrastructure, automotive and process engineering sectors in India.

RAILWAYS

India is home to the fourth largest railway network in the world, with a total route length of ~68,000km long, covered by a running track length of 99,235km. Typically, the Indian Railways are responsible for running 13,523 passenger trains and 9,146 freight trains every single day. As of March 2020, the Indian Railways employs 12,54,000 individuals, and is expected to hire another 1,48,463 people by CY2023. This is a sharp increase, as in the past few years, the average number of people hired has been 43,678 per year.

The revenue growth of this segment has been consistently good. As of March 2022, the revenue was $23.30 billion, as compared to FY2021s gross revenue of $16.89 billion. As far as freight earnings are concerned, the Indian Railways experienced a YoY growth of 21.81%. Earnings were $17.68 billion in FY2022 (until March 2022) as compared to $16.04 billion in FY2021. Lastly, total passenger revenue stood at $4.66 billion until March 2022, as compared to $2.03 billion in FY2021.

Union Budget 2022

The Union Budget 2022 has spelled out several reforms, investments and initiatives aimed at giving the Indian Railways an impetus. For instance, the Ministry of Railways was allocated a higher sum of Rs.1,40,367.13cr. Also, as part of the governments Gati Shakti program, 400 Vande Bharat trains will be launched in the next 3 years, along with 100 Gati Shakti cargo terminals. The Budget also spoke of 100% electrification of broad gauge routes by 2023, along with the launch of an automatic train protection system. Lastly, it mentioned that 2,000km of Indias rail network will be brought under the indigenous world-class technology—KAWACH.

The government has also promised implementation of special services to aid farmers, extension of the railway network to more remote areas, as well as employment generation in the manufacturing division.

Outlook

The Indian Railways is recording commendable growth. It is expected that in the next five years, the Indian railway market will account for 10% of the global market, making it the third largest. It also holds the potential to generate a million jobs.

In addition to this, the policy allows for 100% FDI in railway infrastructure. This, along with other initiatives taken by the government (such as allowing private operators to run passenger trains and revamping railways stations across the nation), are likely to bring in greater investment to the sector. Estimates peg it at $7.5 billion in the next five years.

Pennar has been a regular supplier of railway wagon components to the Indian Railway Sector. The railways vertical has shown a high growth in revenue in the past.

Pennar supplies custom-designed cold roll-formed profiles that find application in the manufacture of railway wagons because of their superior strength to weight ratio that is an alternative for the conventional hot rolled sections of nonuniform thickness. The company has developed and continues to supply stainless steel sections for modern-day stainless-steel wagons. The company has made its mark as a major supplier of key sections, including heavy fabricated parts, for railway coaches.

Over the years, Railways has proved to be a significant growth engine for our Metal Formed Business. Our engineering ability, focus on quality, and value-added service, has earned us a trusted supplier ranking and robust order inflow from the sector. Pennar serves seven customers in the Railways segment, of which major customers include Integral Coach Factory— Chennai, Modern Coach Factory— Raebareli, Texmaco Rail & Engineering Ltd.—Kolkata, Hindustan Engineering India Ltd.—Kolkata, Cimmco Ltd.—Kolkata, and BEML Ltd—Bangalore. In FY2020, Pennar had increased its capacity for the Railways Division, and had set up greenfield integrated coach manufacturing facility at Raebareli with the capacity of manufacturing about 20 coaches per month.

ENGINEERING AND CAPITAL GOODS

Of all the industrial sectors in India, engineering is considered to be the largest. This highly-organized sector employs around 4 million people in India, both skilled and unskilled. It is responsible for, or represents 63% of all foreign collaborations. As per the National Association of Software and Service Companies (Nasscom), Indias share in the global engineering and research and development (ER&D) market is likely to reach $63 billion by 2025.

Owing to heightened infrastructure investment and industrial production, the engineering industry has witnessed incredible growth in the last few years. As it is closely-integrated with the manufacturing and infrastructure sectors, its importance will only grow in the context of the India marching towards becoming a superpower. With this in mind, in 2019, the government announced an investment of $1.5 trillion, aimed at infrastructure development (over the course of 5 years). However, it is believed that the country will require $3.36 trillion (additionally) as investment by 2029.

On a similar note, capital goods contribute 12% to the Indian economy. The industrys turnover was estimated to be ~$92 billion in 2019 and is projected to reach $115.17 billion by 2025. Within this segment, top export subsectors are heavy electrical and power equipment, earthmoving and mining machinery, and process plant equipment.

As a whole, they make up 85% of Indias total export of capital goods.

100% direct FDI is also permitted for this particular sector. This has been matched by great interest from investors, who are impressed by the countrys advantage (when compared to other nations) with regards to cost of manufacturing, innovation, technology and favorable regulatory policies.

As far as exports are concerned, the nation exports engineering goods primarily to US and Europe. The two sectors account for over 60% of all exports.

In FY2022, engineering goods exports hit a record high of $111 billion. Of this total, goods amounting to around $16 billion were exported to the US alone. April 2022 also witnessed exports worth $9.73 billion. This indicates a growth of 21.97%, when compared to exports of $7.97 billion in April 2021. For FY2023, the target for engineering exports has been set at $127 billion. This translates into $10.58 billion worth of exports a month (on a pro-rata basis). By 2030, the export of engineering goods is expected to reach $200 billion.

Union Budget 2022

By way of the Union Budget 2022, the government has given a massive push to the sector. It has allocated a sum of $26.52 billion to enhance transport infrastructure.

Outlook

The company is engaged in the manufacture of large diameter welded tubes mainly for nonauto application which is largely imported.

Recently, Pennar Industries has also expanded into wider diameter tubes, opening more business opportunities. In the Engineering segment, the company focuses on three streams of opportunities:

• Growth in existing product portfolio driven by the migration to BS-VI norms

• Growth from innovative product lines for new markets

• Growth from large diameter tubular product

In FY2020, the Company had doubled its cold drawn welded (CDW) tubes manufacturing capacity. The Company had also set up a greenfield plant to produce CDW tubes of up to 150 mm diameter and the thickness of 10 mm. Currently, the Company has an installed capacity to manufacture 1,500 tonnes of CDW tubes per month.

The Company incurred a CAPEX of Rs.650 million in FY2020, to take its CDW capacity to 3,000 tonnes per month, which became operational during FY2021. The new facility is catering to the hydraulic cylinder tube requirement of consistently growing Construction and earth moving equipment sector, including propeller shafts for high payload heavy vehicles.

The precision electric resistance welded (ERW) tubes from the same plant will be supplied to structural for airport, stadia, idlers for conveyors, axles for light and heavy commercial vehicles. In addition to that, the Company recently ventured into servicing high-end sectors such as aerospace and nuclear power, through its production facility in Hyderabad. The Company intends to cater to the domestic and global aerospace industry by supplying value-added precision engineered products as per customers bespoke specifications.

WHITE GOODS

Heavy consumer durable goods and/or large home appliances, such as washing machines, air conditioners, stoves, refrigerators, etc., fall under the ambit of the white goods industry. In the Indian scenario, this industry stood at $9.84 billion in 2021 and is projected to grow to $21.18 billion by 2025. On the whole, in May 2021, the output of the industry increased by 98.2%, which is a significant escalation when compared to a 70.3% decline in May 2020.

Within the white goods industry, the air conditioner segment is expected to grow to $9.88 billion by FY2026 from $3.84 billion in FY2021. Similarly, the refrigerator market is likely to grow to $6.72 billion, LED lights market is set to grow to $8.12 billion and personal appliances segment is on track to grow to $1.36 billion by FY2026.

As of FY2021, exports of electronic goods amounted to $11.1 billion. In FY2022, electronic exports rose $15 billion, with primary export countries being the United Arab Emirates,

Sri Lanka and the United States of America. Simultaneously, in FY2022, the electronics trade deficit also hit a record $56 billion. However, experts believe that it will drop sharply in the coming years. This is largely because of the anticipated increase in exports owing to the Production-Linked Investment (PLI) scheme announced by the government.

Moreover, policy support by way of relaxed licensing rules and approval of 51% FDI in multibrand and 100% FDI in single-brand retail has also given the white goods industry a push in the right direction. Between April 2020 and June 2021, FDI in the electronics goods industry clocked in at $3.19 billion.

Outlook

Growth in this segment is likely in the future.

As the investment in rural infrastructure and electrification increases, demand for consumer durables and white goods is set to strengthen in rural, as well as tier 2 and 3 cities. This, coupled with growing aspirations, rising disposable income and easier access to credit will steer the sector towards greater heights. For instance, consumer durable loans in India grew to $3.29 billion in FY2021 from $3.15 billion in FY2020.

Additionally, the central governments Production- Linked Investment Scheme, Export Promotion Capital Goods Scheme and Duty Drawback Scheme will provide the segment the support that is necessary to scale up in the coming years. In the second round of applications for the PLI scheme (opened in March 2022), 19 Indian and global companies filed applications.

RENEWABLE ENERGY (SOLAR)

Indias renewable energy sector is considered to be the fourth most attractive market in the world. As of 2020, the nation was ranked fourth and fifth in wind power and solar power respectively. With ample support from the government, the renewable energy segment is also attracting the eye of investors. Off-grid solar products are especially performing well. In the first half of 2021, they recorded sales of 3,29,000 units.

By 2030, the government is aiming to achieve about 450GW (Gigawatt) of installed renewable energy. Of this, over 60% (~280GW) is expected from solar. To this end, Indias installed capacity with regards to solar power has already gone by a staggering 19.3x in the last 8 years, to 56.6GW in June 2022.

The government has allowed 100% FDI under the automatic route. And, with $196.98 billion worth of renewable energy projects on the horizon, the Indian market is viewed as a great investment opportunity.

Union Budget 2022

Under Atmanirbhar Bharat, the government has approved the implementation of a Production- Linked Incentive Scheme for high-efficiency solar PV modules, allocating an additional Rs.19,500cr towards it. This has brought the total allocation of funds to Rs.24,000cr, as opposed to the earlier Rs..4,500cr. It is believed that this infusion will help add 45GW-worth of manufacturing ability. The Solar Energy Corporation of India (responsible for the development of the renewable energy market) was also allocated Rs.l,000cr.

To increase investment in the renewable energy segment as a whole, the government has introduced sovereign green bonds. Additionally, Budget 2022 spoke of firing 5-7% biomass pellets in thermal power plants to accrue 38MMT (million metric tons) of CO2 savings annually.

Outlook

The government has expressed a desire to reduce Indias total projected carbon emission by 1 billion tons by 2030, while decreasing the carbon intensity of the economy by less than 45%. The goal is to achieve net-zero carbon emissions by 2070. Owing to policies that focus on renewable energy, and with a potential capacity of 363GW, northern India is likely to become the hub for renewable energy in India.

The government has also proposed setting up a green city in each state, where all houses will be powered by solar rooftop systems. Additionally, solar parks will be situated on the outskirts, and green cities will adopt electric, mobility-enabled transport systems.

Moreover, with the government focusing more on green hydrogen, electric vehicles and manufacturing of solar equipment, increased investment can be expected in the Indian renewable energy industry by FY2023. This is projected to reach $80 billion in around four years.

COMPANY OVERVIEW

Pennar Industries Limited (PIL) is one of the leading engineering companies in India, renowned for providing innovative engineering solutions. An epitome of quality, precision, and perfection, Pennar is driven by an unrelenting desire to excel with experience spanning over three decades.

The Company started its journey with the first manufacturing plant at Isnapur, near Hyderabad, and since then it has proven itself as Diversified Engineering Company with End-To-End Capabilities. The Company has a well-diversified product portfolio classified into Engineered Products and Engineering Solutions, catering to six sectors, namely: Automotive, Construction, General Manufacturing, White Goods, Railways, and Solar. Pennar Industries has a pan-India presence with Ten manufacturing facilities situated across the Country. Pennar also has two international plants, one in USA and another in France. These facilities include laser cutting, plasma cutting, transfer presses and CNC machines that enable it to make products of remarkably high quality. All the plants are ISO certified and operate under strict SOPs.

Pennar operates three subsidiaries:

• Pennar Global Inc.

• Pennar GMBH

• Enertech Pennar Defense and Engineering Systems Private Limited.

Driven by guiding philosophy of maximising customer satisfaction with products and services par excellence, Pennar has successfully proven its identity as a Powerhouse of Engineering Excellence.

OUR STRENGTHS

Using the latest equipment and tools: Equipped with a state-of- the-art press shop with tool maintenance facilities that ensure high-precision products, catering to a range of industries. Reinforced by a tool room comprising more than 2,500 tools and dies, one of the largest die repositories in India

Resilience through straddling diversified sectors:

Wide product mix caters to the growing needs of consumer appliances, automobile, and general engineering sectors

Uncompromising attention to Quality: Each of the Companys manufacturing units are ISO 9001:2008-certified. Tubes manufacturing plant has received the TS 16949:2009 certification.

Discerning and reputable Clientele: Caters to brand-enhancing customers like VE Comml Vehicles, Tata Motors, Ashok Leyland, Integral Coach Factory, Texmaco, BEML, BHEL, L&T, Godrej, Haier Appliances, Brakes India, Lloyds, Alstom Power, Thermax, HCC, Tecumseh, IFB, TVS Motors, and Johnson Lifts, among others

Talented pool of Human Capital: More than 2,000+ employees, with a cumulative experience of over a million person-days, resulting in excellence in a variety of fields and applications

ENGINEERED PRODUCTS - BUSINESS OVERVIEW

PERFORMANCE HIGHLIGHTS SUMMARY FOR ENGINEERING PRODUCTS:

Segment FY2021 FY2022 Change
Structural railway components for Coaches, Wagons, and other parts (Revenue) to seven customers Rs. 1,411 million Rs. 1,464 million 4%
Industrial components to Automobile & White Goods sectors (Weight) 8,027 MT 17,280 MT 115%
Precision Tubes (Revenue & Weight) to more than 350 customers Rs. 2,013 million 23,188 MT Rs. 2,916 million 27,515 MT 18%
ESP electrodes, building materials, special grade CRSS, and solar MMS (Revenue) Rs. 5,078.8 million Rs. 6,309 million 24%

KEY STRATEGIES SHAPING THE ENGINEERED PRODUCTS BUSINESS:

Entering into Defence & Aerospace: With an aim to cater to new emerging industries that have high growth capabilities, the Company plans to expand its presence and skills to service new value added businesses such as defence manufacturing, aerospace (precision machining), nuclear power, and precision auto & engineering components.

Pennar Industries entered the aerospace industry by having a production facility in Hyderabad. The Company is now capable to cater to the domestic and global aerospace industry by supplying value-added precision engineered products as per customers bespoke specifications.

Climbing up the value chain through niche capabilities: The Company aims to move up the Value Chain by strengthening the niche engineering capabilities. To facilitate this, it plans to expand its product offerings and engineering capabilities across multiple sectors and evolve component manufacturing towards higher value addition and precision engineering. The Company also aims to increase the share of critical components manufacturing to strengthen customer engagement further and create entry barriers.

ENGINEERED PRODUCTS

The Engineering Products of Pennar Industries offers a wide range of products to diverse industries and is an expert in critical, customised components accessories. Pennar Industries is the preferred supplier for many blue-chip companies. Leveraging the heritage of over 35 years, the Company has over 1,500 Engineered Products in its portfolio and Twelve manufacturing plants with ISO 9000 Certification. The Engineered Products vertical of the Company has strong designing and manufacturing capabilities and caters to diverse sectors through its robust manufacturing facilities and pan India sales network.

AUTOMOBILES SECTOR

Pennar Industries is experienced in manufacturing a wide range of critical automotive components. Our excellent infrastructure and lean manufacturing capabilities enable us to produce high quality products at acceptable prices. Our best-in-class cost-effectiveness has made us the preferred partner of leading names in the automotive industry. The Company provides Following Products:

• Special grade CRSSs (Cold Rolled Steel Sheets)

• Critical components

• CDWs (Cold Drawn Welded Tubes) and ERWs (Electric Resistance Welding Tubes)

• Pennar has proven to be a reliable partner in the Automobile Components sector for a variety of reasons:

• Wide ability in handling critical Auto Components (Braking and Suspension, Auto Electricals, Chassis & Body, etc.)

• High volume production capability to meet the bulk demand

• A dedicated product development cell

• Excellent in-house support infrastructure for tool design, development, and manufacturing Ability to produce components, sub-assemblies as well as finished products

• Well versed in JIT concepts

The Company foresees a major opportunity in the two-wheeler segment. Some of the new motorcycles and scooters will have to mandatorily move to telescopic front fork systems. This will provide the business with a major opportunity for growth in the tubular front fork segment.

Our CRSS portfolio also has a range of products, servicing the automotive sectors. Some of these have significant growth opportunities while some others are subject to low entry barriers, diminishing market share and high competition. Over the medium term, this business unit will have moderate growth in line with the overall increase in the infrastructure, automotive and process engineering sectors in India.

CONSTRUCTION & INFRASTRUCTURE SECTOR

With extensive experience of over three decades, Pennar Industries produces structural steel products for several companies in the Construction and the Infrastructure sector. The Company provides three types of products under this sector:

Building components Civil Infrastructure Hydraulic Cylinders

The three main products that make up the Building Components sector are Purlins, Roofing Sheets and Decking Profiles. The products manufactured for Civil Infrastructure include Metal Crash Barriers and Sheet Pilings, which are mainly used for safety and protection systems. Another product manufactured for this sector is Hydraulic Cylinders, which are used for construction equipment, building ships, and bulk cargo handling, amongst others.

With more than 15 years of experience in the Hydraulic Cylinders industry, Pennar has garnered comprehensive design and development capabilities. Pennar Industries also has a thorough exposure to global technical requirements for Hydraulic Cylinders, and possess the ability to meet them precisely.

The Company is rapidly expanded the structural engineering services vertical which services metal building and structural fabrication companies in the US and other geographies. The boom in eCommerce business has started getting more jobs in logistics and warehousing in the USA. In India, sectors such as warehousing, building construction and the capital goods are expected to grow strongly over the next few years, and Pennar has cohesive capabilities to take advantage of these opportunities.

GENERAL ENGINEERING

The Engineering Segment of the Company consists of cold-rolled steel strips and precision steel tubes viz., Cold Drawn Welded tubes (CDW) and Electric Resistance Welded tubes (ERW). These products primarily cater to the needs of the automotive, boiler, bicycle, general engineering, and process industries. The Company is further engaged in the manufacture of large diameter welded tubes mainly for non-auto application which is largely imported. Recently, Pennar Industries has also expanded into wider diameter tubes, opening more business opportunities.

In the Engineering segment, the Company focuses on three streams of opportunities -

• Growth in existing product portfolio driven by the migration to BS-VI norms

• Growth from innovative product lines for new markets

• Growth from large diameter tubular product

The precision electric resistance welded (ERW) tubes from the same plant will be supplied to structural for airport, stadia, idlers for conveyors, axles for light and heavy commercial vehicles. In addition to that, the Company recently ventured into servicing high-end sectors such as aerospace and nuclear power, through its production facility

in Hyderabad. The Company intends to cater to the domestic and global aerospace industry by supplying valueadded precision engineered products as per customers bespoke specifications.

WHITE GOODS

Pennar Industries caters to the White Goods industry and specialises in customised components accessories for refrigerators and air conditioners. The Company has the requisite facilities and processes to cater to high volume requirements with lean lead times. Pennar can work closely with customers to develop products specifically with the end application in mind, and has proven to be a reliable partner in the cost and quality sensitive white goods sector for a variety of reasons:

• Market leader for Compressor shells supply to leading OEMs

• Enable Just-In-Time supply to enhance efficiency & productivity

• Dedicated product development cell for new developments

• Tool design, development and manufacturing supported by excellent infrastructure

• Ability to produce components, sub-assemblies as well as finished products

The Company leverages its long-lasting engineering insights to extend into this business. The Companys plants in Patancheru and Chennai are equipped with state-of-the-art equipment and press shops and tool maintenance facilities that ensure the fabrication of high precision quality products supported by a centralised CNC room.

• The different Applications for Refrigerators & AC Components include:

• Door and Side Panels

• Compressor Shells and Other Accessories

• Rotary compressor housings Railways

RAILWAYS

Pennars Railways business has been catering to the requirements of the Indian Railways for over three decades. Pennar supplies several critical structural and stability components for goods wagons and passenger coaches.

The different Applications for Railway Components include:

• Profiles for railway wagons and coaches

• Rail Coaches (Conventional, EMU, MVRC) & Wagons

• Underframe components for coaches and wagons

• Fabrication of side walls, end walls and roofing assemblies for LHB coaches

Pennar has been a regular supplier of railway wagon components to the Indian Railway Sector. The Railways vertical has shown a high growth in revenue in the past. Pennar supplies custom- designed cold roll-formed profiles that find application in the manufacture of railway wagons because of their superior strength to weight ratio that is an alternative for the conventional hot rolled sections of non-uniform thickness. The Company has developed and continues to supply stainless steel sections for modern-day stainless- steel wagons. The Company has made its mark as a major supplier of key sections, including heavy fabricated parts, for railway coaches.

Over the years, Railways has proved to be a significant growth engine for our Metal Formed Business. Our engineering ability, focus on quality, and value-added service, has earned us a trusted supplier ranking and robust order inflow from the sector. Pennar serves major customers in the Railways segment, of which major customers include Integral Coach Factory - Texmaco Rail & Engineering Limited - Wabtec India Industrial (P) Ltd. - Controller Of Stores (Mcf) - Rites Limited.

SOLAR MODULE MOUNTING STRUCTURES

Pennar manufactures Solar Module Mounting Structures to support the Solar PV panels.

The structures and structural component manufacturing capacity of Pennar currently stands at 40,000 MT per annum, which translates to approximately 1GW worth of solar capacity.

We also have an in-house tool room that caters to the requirements of projects with various sectional requirements. These unmatched features have enabled us to service the requirements of multiple customers, thus proving us as the market leaders in Solar Module Mounting Structures.

The Company has strategically located its manufacturing plants to enable quick delivery.

The most significant advantage that customers have in choosing Pennar for their Solar Module Mounting Structures is the strategic location of manufacturing plants. Our plant at Tarapur is close to the epicentre of Solar projects in Gujarat & Rajasthan. In contrast, our plants in Chennai, Patancheru & Isnapur can cater to markets in AP, Tamil Nadu, Orissa, Karnataka and other neighbouring states.

Being the largest cold roll-formed steel section manufacturer in India, Pennar Industries has supplied mounting structures and structural components to various solar plants.

PRE-ENGINEERED BUILDING PRODUCTS (PEBS)

PEBS was set up in 2008 and began commercial operations in 2010. The PEBS division has expertise in designing, fabrication and erection of customised preengineered steel buildings, building components and structural steel. Pennar Industries caters to the overseas market through its subsidiaries a Pennar Global (PGI) established in 2017, headquartered in Houston, Texas. The current customer base of the overseas operations includes the Metal Building, Structural Steel, Hydraulics, Precision Tubes and Engineering Services sectors. The Company is gradually adding focus to areas of Industrial Manufacturing, Security Barriers, Solar and 3D modelling for the automotive, and building sectors. In FY 2022, the Company continued to expand its business outreach.

Performance Highlights of Pre-Engineered Building

• Pennar Industries has shown consistent growth over the last ten years in Pre-Engineered Building Products

• Over 750 projects completed in the span of FY2010-2022

• Caters to over 950 customers

• Cumulative Orders executed worth Rs. 6150.81 crores

• Cumulative Products delivered - 552,209.18 MT (as on 31st March 2022).

• Order book as on 31st March, 2022 was Rs. 440.76 crores.

Key Strategies shaping the Engineering Services Business

Market Leadership: Pennar Industries Limited is one of the leading players in preengineered buildings and structural steel in India and has expertise in the design, fabrication, and erection of customised pre-engineered steel buildings, building components and structural steel.

Extensive Product Offerings: The Company offer diverse products and services such as factory buildings, warehouses, power plants, commercial centres, high-rise buildings, aircraft hangars, defence installations, sports stadiums, industrial racking systems, cold-form structures for low-cost housing, metro stations, solar module mounting structures, and telecom transmission towers.

Strong Engineering Capabilities: With a best-inclass project management and engineering team, Pennar Industries is one of the few companies in India to offer leakproof roofing systems. It also has a technical alliance with NCI Group Inc., a leading steel building player in the USA, to help with the technical knowledge and supply of standing seam roofing panel systems in India under the brand name Double Lok?.

Focus on High Growth Areas: The Company plans to increase focus on high growth and newly emerging portfolios like High Rise Steel Buildings (commercial & residential), and Cold Form structures for lowcost housing projects.

Innovative Manufacturing: The Company has one of the best plants in India, with modern technology and high precision equipment, sourced from leading suppliers across the world. The world- class manufacturing facility is 29,000 sq. m. big and is built on a 33-acre plot in Sadashivpet near Hyderabad, with a total production capacity of 90,000 MTPA.

Offering Solar EPC Solutions: Company aims to offer end-to-end Solar EPCs by making Solar PV Panels and Solar MMS, while also supplying installation and erection services.

Upselling into Manufacturing: The Company plans to expand its presence into the US market by supplying design and engineering services, converting current outsourcing orders into inhouse manufacturing orders, leading to lower project costs and higher profitability.

Design & Engineering Services - Business Overview

Pennar Industries, through PEBS Pennar, launched the Design & Engineering Services in 2014 to leverage Pennars large structural engineering team capabilities. The Company provides design, detailing and other engineering solutions to companies in the metal buildings and structural engineering space in the US and other advanced markets. This is an increasingly important segment to the Company, as it makes a larger contribution to the Companys EBITDA margins.

The current customer base of the overseas operations includes the Metal Building, Structural Steel, Hydraulics, Precision Tubes and Engineering Services sectors. Companys focus areas is also growing in areas such as Industrial Manufacturing, Security Barriers, Solar and 3D modelling for the automotive, and building sectors.

Performance Highlights of Design & Engineering Services

• Over 12500 projects completed during FY2016- 2022

• Over 3500 projects completed during FY2022

• Caters to over 10 customers in the USA market

• Cumulative Orders executed worth USD$ 23.5 Million

• Cumulative Order book as on 31st March, 2022 was USD$ 3.8 Million

• Cumulative Mn Hours Billed as on 31st March 22 - 1.3 Million

• Build capabilities to execute large sized & complex projects over USD $30000

Water Treatment Solutions - Business Overview

Pennar Industries is a player in the field of water treatment chemicals; water and environment infrastructure turnkey solutions; and fuel additives and has an extensive range of high-performance speciality water treatment chemicals. The Company operates in water and wastewater treatment, Sewage treatment, Brakish water and sea water desalination for industrial application. It also offers effluent recycle plants and zero liquid discharge plants using various advanced and environmentally friendly technologies. companys offering includes diverse EPC and O&M solutions, as well as standard plants in the above domain.

The Companys standard plants offerings consist of Pre-engineered and skidmounted water and wastewater treatment plants with short delivery cycles and low footprint to meet customer needs in urban, realty and MSME segment. It also offers a wide range of performance chemicals for water treatment applications like cooling water, boiler water, wastewater treatment dosing, liquid and solid fuel additives, paper chemicals manufactured at its own plant under the brand name "PENNTREAT"with an aim to increase its reach to take the performance chemicals and standard plants to a larger base of potential customers. Under its EPC portfolio, the Company has executed very prestigious projects in Cement,

Oil and Gas, Chemical, Infrastructure, and other process industries including Mine wastewater treatment and recirculation for industrial usage. These projects are being executed by the company for very reputed industrial houses in the country.

Pennar Industries aims to be a significant player in the industrial and municipal water treatment and wastewater treatment solutions. The Company also plans to standardise water treatment plants, which will be pre-engineered and skid mounted with short delivery cycles to meet customer requirements in Urban, Realty and the MSME industrial segment. Currently, the Company has a network of 16 dealers. It plans to expand up to 21 dealers across India. It aims to use this dealer network to take the performance of the chemical business along with standard plants to a larger base of potential customers. Keeping in mind the small-scale customers, the Company plans to standardise these products.

Key Technology Alliances

TOTAL, France: This involves collaboration with the fourth-largest petroleum company in the world and a global leader in the fuel additives and petroleum refining market

Tech Universal, UK: The involves an exclusive technology collaboration with UKs leading EPC & technology provider and one of the leading global players in the water treatment industry.

Performance Highlights of Water Treatment Solutions

• Over 10 projects completed during FY 2021-2022

• Number of new clients - 02 in FY 2022; Total accumulated client count - 70

• Total number of dealers - 04 as on 31-03-2022

FINANCIAL REVIEW

Consolidated Financial Performance
Particulars ( in million) FY2020-21 FY2021-22
Revenue from Operations 15,440 22828
EBITDA 1315 1884
PBT 37 559
PAT 28 419
Ratio Analysis FY2020-21 FY2021-22 Variance
Debt Equity Ratio 0.84 0.80 5%
Operating Profit Margin (%) 8.5% 8.25% -3%
Net Profit Margin (%) 0.18% 1.84% 1022%
ROCE(%) 3.34% 4.91% 47%
ROE (%) 0.4% 5.85% 1427%

INTERNAL CONTROLS & THEIR ADEQUACY

The Company has set in place an effective internal control system, which undergoes continuous review. In addition, corrective measures are taken to enhance their efficiency. In accordance with the highest industry standards, the Company has been accredited with ISO 9001 (quality systems). The Companys robust ERP system defines queries for detection of exceptions and detection of deviating transactions, real-time analytics on transactional data, unmatched flexibility when changing reporting structures and even real-time simulation of business scenarios.

HUMAN RESOURCES

Pennar Industries has an excellent track record of cordial and harmonious industrial relations and, over the years, not a single man-day was lost on account of labour unrest. In view of its aggressive growth plans, the Company enhanced its focus on improving human resource productivity and efficiency. The Company took steps for upgrading the knowledge base of its employees by continuous training. A systematic learning and development plan is in place to identify training needs, provide training and evaluate the learnings. The Company imparts training on behavioural safety aspects along with process-based training to enhance employee and improve productivity. The Company continues to take care of employee welfare. It organised camps for checking the health of operatives and staff by ESI and other medical agencies. Thus, HR has built an open, transparent and meritocratic culture to nurture human capital. Performance orientation and ethics are high priority areas for the Company. The work environment and career opportunities help retain talent.

CSR INITIATIVES

Corporate Social Responsibility at Pennar has always been significant as we believe in giving back to the society and country. All our CSR initiatives are aimed at this philosophy. During the year, we continued with village school adoption. We provided assistance towards teachers salary, books, uniforms, drinking water, food, and school furniture at Tarapur (Maharashtra), Ankenapalli, Chandpur and Bandalguda Villages in Telangana. Further, we supported municipality civic maintenance and management at Patancheru and Chitukul area for resident welfare, provided drinking water to Bandalguda Villagers and infrastructural support to various institutions to help them improve their residents basic social need. As per our CSR initiatives, we endeavour to improve the social wellbeing of the residents in and around the town/ village of our plants which are located Patancheru, Isnapur, Velchal, Sadashivpet, Periapalam (Chennai).

CAUTIONARY STATEMENT

This document contains statements about expected future events, financial and operating results of Pennar Industries, which are forwardlooking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that the assumptions, predictions, and other forwardlooking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications and risk factors referred to in the managements discussion and analysis of Pennar Industries Annual Report, FY2021-22.