Permanent Magnets Ltd Management Discussions

Global Economy

Global growth, estimated at 3.2% in 2023, is projected to continue at the same pace in 2024 and 2025, according to the IMF World Economic Outlook - April 2024.

The pace of expansion is low by historical standards, owing to both near-term factors, such as still-high borrowing costs and withdrawal of fiscal support, and tensions in

Israel-Iran & Russia-Ukraine; weak growth in productivity; and increasing geo-economic fragmentation. Global headline inflation is expected to fall from an annual average of 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging markets and developing economies.

The latest forecast for global growth five years from now - at

3.1% - is at its lowest in decades. The pace of convergence toward higher living standards for middle- and lower-income countries has slowed, implying a persistence in global economic disparities. The relatively weak medium-term outlook reflects lower growth in GDP per person stemming, notably, from persistent structural frictions preventing capital and labor from moving to productive firms. Dimmer prospects for growth in China and other large emerging market economies, given their increasing share of the global economy, will weigh on the prospects of trading partners.

Indian Economy

The Indian economy is poised to achieve a growth rate of 6.6% in FY25 as per the world bank estimates. If this prediction holds true, it would mark the fourth consecutive year of post-pandemic growth near to or above 7%, a remarkable feat that would underscore the Indian economys resilience and potential, auguring well for its future prospects.

The challenge of energy transition looms large, driven by mounting concerns over rising temperatures and the need to reduce carbon emissions. This has led to sustained pressure from international organizations and advanced nations on developing countries to transition away from fossil fuels and adopt greener energy alternatives.

Global EV Trends

The global electric vehicle market is experiencing significant growth, with electric car sales expected to reach around 17 Millions in 2024, accounting for more than one in five cars sold worldwide. This surge in sales reflects the increasing popularity and adoption of electric vehicles across various markets, driven by factors such as competition among manufacturers, falling battery and car prices, and ongoing policy support. Despite concerns about lower profit margins, volatile battery metal prices, and the phase-out of purchase incentives in some countries, global sales data remain robust.

In terms of regional trends, China is emerging as a major market for electric vehicles, with electric car sales expected to reach 45% of all cars sold. The Chinese governments policies, including subsidies and tax exemptions, have been instrumental in driving the growth of the electric vehicle market in the country. In Europe, the market share of electric vehicles is projected to be 25%, driven by the European Unions emission standards and the increasing popularity of electric vehicles among consumers. In the United States, the market share is expected to be over 11%, with states like California leading the way in electric vehicle adoption. Factors such as competition between manufacturers, falling prices, and government subsidies are key drivers of the increasing market share of electric cars. These regional trends indicate a growing demand for electric vehicles, driven by a combination of consumer preferences, technological advancements, and policy support.

Policy support is playing a crucial role in accelerating the adoption of electric vehicles. Various countries are implementing policies to encourage the growth of the electric vehicle market, including new emissions standards and industrial incentives. The European Unions emission standards, for example, are driving the adoption of electric vehicles among automakers, while countries like Norway and the Netherlands are offering generous incentives to encourage consumers to switch to electric vehicles. These initiatives are encouraging the growth of the electric vehicle supply chain, creating opportunities for value addition and job creation across EV supply chains in different economies. The policy landscape is evolving to support the transition to electric mobility, with governments recognizing the need to reduce emissions and promote sustainable transportation.

The future outlook for the electric vehicle market . These smartis promising, with expectations of strong growth driving significant investment in the EV supply chain. Investment announcements in EV and battery manufacturing have totaled almost USD 500 billion, indicating a growing confidence in the future of electric mobility. Forecasts suggest that the global electric vehicle stock will continue to increase, with scenarios projecting a substantial rise in EV sales by 2030. As the industry continues to evolve, it is likely that electric vehicles will become an increasingly important part of the global automotive landscape, driven by technological innovation, policy support, and growing consumer demand. The growth of the electric vehicle market will have significant implications for the energy sector, with electric vehicles expected to account for a significant share of global electricity demand by 2030. Overall, the global electric vehicle market is poised for continued growth, driven by a combination of technological, economic, and environmental factors.

Global Smart Meters

Smart meters have emerged as advanced electronic devices that play a pivotal role in recording crucial information related to electric energy consumption, such as voltage levels, current, and power factor. These meters provide consumers with a clearer understanding of their energy usage patterns while enabling electricity suppliers to monitor the system efficiently and accurately bill their customers. The global smart meters market is projected to reach approximately USD 65.31 billion by 2032, with an expected Compound Annual Growth Rate (CAGR) of more than 9%, up from USD 27.21 billion in 2022.

The adoption of smart meters has been steadily increasing worldwide, with the USA leading the way with around 68% of metering systems transitioning to smart meters. The EU and Canada account for approximately 50% of the market, while Australia has seen about 25% of metering systems adopt smart meters. However, in India, smart meters make up a small percent of the market, indicating significant potential for growth. Government policies across the globe are actively promoting Advanced Metering Infrastructures (AMIs) to drive automation and technological advancement, presenting exceptional growth opportunities, especially in markets with limited smart meter penetration.

One of the persistent challenges faced by the power distribution and supply industry is efficiently matching demand with supply. Smart electricity meters are expected to bridge this gap, significantly enhancing industry the advantage of timely failure detection, faster service accommodations, and accurate billing. For power companies, these meters reduce the reliance on manual meter readings, limit equipment and maintenance costs, and enable quicker restoration and maintenance processes. Moreover, they empower companies to track and mitigate power loss and theft effectively.

Furthermore, smart meters enable the integration of distributed energy resources and energy storage, facilitating effective supply management for specific uses like residential electric vehicle (EV) charging. Such automation leads to improved operational efficiencies, greater grid resilience, and precise meter readings. Anticipating the future, it is expected that the growth of the smart metering industry will be fueled by the development of smart grid networks and regulatory initiatives. These steps not only encourage the replacement of outdated metering systems with modern technologies but also contribute to the overall energy supply and consumption efficiency. In the long run, consumers can adjust their energy usage based on time-based pricing models, while supply and distribution companies can optimize capacity utilization, ultimately resulting in rationalized rates and enhanced resource management.

The North American region is anticipated to witness promising growth in the smart electric meter market, driven by the replacement of existing meters and the roll-out of new smart meters. Europe has also seen healthy growth in the installation of smart meters, primarily due to the increased adoption of renewable energy sources. The Middle East & Africa and Latin America have seen minimal penetration of smart meters so far, but countries like Brazil, Mexico, South Africa, and GCC countries are expected to witness high growth in the coming years.

India Smart Electricity Meters

The Government of India has approved the Revamped Distribution Sector Scheme (RDSS) to help Distribution Companies (DISCOMs) improve their operational efficiencies and financial sustainability. The scheme aims to provide result-linked financial assistance to DISCOMs to strengthen supply infrastructure based on meeting pre-qualifying criteria and achieving basic minimum benchmarks. The

RDSS has an outlay of 3,03,758 Crores over 5 years, from FY 2021-22 to FY 2025-26, with an estimated Government Budgetary Support (GBS) of 97,631 Crores.

Supportive Government Initiatives & Policy Push

The RDSS is part of the governments efforts to increase

DISCOMs billing efficiency, reduce transmission losses, and effectively bridge the demand-supply gap. A study by the Ministry of Power showcased that by using data analytics,

DISCOMs can potentially save around 10,000 Crores by mitigating power theft and increasing billing efficiency.

The scheme focuses on improving the financial viability of the power sector by reducing the gap between the cost of electricity supply and revenue recovery. It aims to achieve this by providing financial assistance for the modernization and of distribution infrastructure, including the installation of smart meters, feeder separation, and the creation of Supervisory Control and Data Acquisition (SCADA) systems.

Key Components of the RDSS

The RDSS consists of two components:

1. Metering Component: This component focuses on the installation of smart meters, feeder meters, and distribution transformer meters. The scheme provides financial assistance for the installation of smart meters in urban areas and the replacement of electromechanical and static meters with smart meters in rural areas.

2. Distribution Infrastructure Component: This component aims to strengthen the distribution infrastructure by providing financial assistance for the creation of SCADA systems, the modernization of substations, and the installation of Aerial Bunched Cables (ABC) in dense urban areas.

Expected Outcomes

The successful implementation of the RDSS is expected to lead to several benefits, including:

• Improved billing efficiency and reduction in Aggregate

Technical & Commercial (AT&C) losses

• Increased consumer satisfaction through better quality and reliable power supply strengthening • Reduction in the gap between the cost of electricity supply and revenue recovery

• Increased use of renewable energy sources and promotion of energy efficiency measures

Current Status of All India Smart Metering

State-Wise: Sanctioned, Awarded, Cumulative Achievement

State	Total Sanctioned	Awarded	Cumulative Achievement
Uttar Pradesh	3,09,78,280	3,09,78,280	11,86,953
Tamil Nadu	3,01,40,849	1,40,849	1,29,641
Maharashtra	2,35,64,747	2,35,64,747	2,66,219
West Bengal	2,12,08,759	37,24,273	98,050
Bihar	1,72,08,939	1,36,98,600	38,95,083
Gujarat	1,65,10,860	1,07,94,960	79,270
Rajasthan	1,49,00,527	6,25,571	6,07,357
Madhya Pradesh	1,34,44,401	48,84,284	10,00,418
Kerala	1,32,90,166	805	805
Punjab	98,30,007	10,45,200	8,02,826
Assam	69,21,329	70,16,629	22,08,059
Chhattisgarh	59,62,115	70,70,288	2,595
Andhra Pradesh	56,10,846	56,10,846	1,44,481
Himachal Pradesh	29,52,685	10,70,832	1,51,740
Jammu and Kashmir	21,34,095	20,72,763	5,70,769
Uttarakhand	15,84,205	15,84,205	0
Jharkhand	13,41,306	10,41,772	0
Haryana	10,00,000	10,00,000	8,47,467
Goa	7,41,160	0	0
Tripura	5,47,489	4,15,647	0
Meghalaya	4,60,000	0	0
Puducherry	4,03,767	0	0
Nagaland	3,17,210	3,17,210	0
Mizoram	2,90,039	656	656
Arunachal Pradesh	2,87,446	2,86,940	0
Delhi	2,60,000	2,60,000	2,60,000
Andaman and Nicobar	1,58,773	75,200	75,200
Manipur	1,54,400	1,54,400	0
Sikkim	1,44,680	1,44,680	0
Ladakh	58,930	58,930	42,400
Chandigarh	29,433	29,433	24,214
Telangana	8,882	8,882	8,882
Odisha	4,500	4,500	4,500
Grand Total	22,24,50,825	11,76,81,382	1,24,07,585

Company Overview

Permanent Magnets, incorporated in 1960, has over 60 years of rich experience in the magnets, magnetic assemblies, and shunts domain. The Company is a leading solution provider of electrical components and assemblies based on core technologies that find application in various including automobile, energy meter, renewable energy, aerospace & defense. Permanent Magnets has strong capabilities like Casting, Heat treatment, Hot chamber Die casting, Stamping, Molding, Assemblies.

PMLs distinctive expertise in metallurgy, mechanical engineering, electrical engineering and electronics enables it to offer comprehensive solutions to its clients. The Companys long-standing presence in the industry has provided it with an excellent understanding of clients quality requirements.

Moreover, PML possesses additional capabilities in design & simulation of components & modules, including customer-specific prototyping and in various metals & metallurgical processes.

PML works closely with its distinguished clientele from across industries, many of whom are global leaders in their respective fields. While in some cases, PML is one of the two-three suppliers for specific products, it is also the sole supplier for many of its clients. Permanent Magnets is a approved supplier of electrical components and assemblies to about 50% of the tier-1 automobile companies globally, in both traditional ICE vehicles and emerging technologies like EV. It is also a supplier to the top 3 electricity meter companies worldwide, and the Company holds a strong position in this segment with long-standing client relationships.

Risk and Concerns

Product Life Cycle Risk

The Company manufactures products that find application in smart metering systems, automobiles, telecom, gas meters and many such other application industries. Due to the constant underlying changes in these industries, some faster than the others, there is always a possibility of products (modules and components) witnessing maturing or declining trends in revenues. The Company must be cognizant of such trends and must prepare itself in accordance, as it has the potential to affect its performance in the future.

Macroeconomic Risk

Macroeconomic risks emerge from adverse economic conditions affecting the market, credit, liquidity, financial and capital market.

Any volatility in the money and capital markets may affect interest rate and borrowing costs and have an impact on the Companys business activities and exposure.

Technological Risk

Newer technologies are continuously emerging in our application industries. Changing technological trends might render electrical components and modules manufactured by the Company obsolete in the future. Thus, technological obsolescence, in its own industry or application industry, may affect the Companys performance in the future.

Competition Risk

If the competition offers better pricing and superior quality, technology, services, facilities and variety, it may impact sales revenue and profitability of the Company.

Policy & Regulation Change Risk

Products manufactured by the Company are used in multiple industries and in multiple jurisdictions, thus the Company must comply with multiple product and quality standards. If there are any adverse regulatory or policy changes in the jurisdiction to which the Company has exposure to, it may affect its performance in the future.

Exchange Rate

As the Company exports its products and imports some of its raw materials, volatility in the exchange rate might have an impact on the Companys business.

Internal Controls and Systems

There are established procedures for internal control on a Company-wide basis. Policies and procedures have been laid down to provide reasonable assurances that assets are safeguarded from risks of unauthorized use/disposition, and transactions are recorded and reported with proprietary accuracy and speed. These aspects are regularly reviewed during internal audits and statutory audits. In addition, the Company has also laid down adequate internal controls for financial reporting. During the year, such controls were tested, and no material weakness in their operating effectiveness was observed. The Finance and Accounts function is well-staffed with experienced and qualified personnel, and this team participates in the preparation and monitoring of budgets. The Audit Committee of the Board reviews internal Audit Reports periodically.

FY24 Performance Discussion

PMLs Total Income for the year reached 205.87 Crores, up from 188.19 Crores in the previous financial year, marking a 9% year-on-year increase. EBITDA (excluding other income) for the year was 35.43 Crores, compared to 41.27 Crores in the previous year, reflecting a 14% year-on-year decrease. Consequently, EBITDA margin decreased to 18% in FY24 from 23% in the previous financial year. Profit after Taxes for the year was 22.74 Crores, down from 29.75 Crores in the previous financial year, registering a decrease of 24% year-on-year.

Financial Ratios

Ratios	FY24	FY23	% Change	Remarks
Total Debt to Equity (Times)	0.05	0.03	60%	Due to increase in borrowings on account of capacity expansion projects.
Current Ratio (Times)	3.40	3.26	4%	N.A.
Interest Coverage (Times)	32.46	30.84	5%	N.A.
Debtors Turnover (Times)	4.23	3.79	10%	N.A.
Inventory Turnover (Times)	2.03	2.02	1%	N.A.
Operating Profit Margin (%)	22.58%	20.64%	9%	N.A.
Net Profit Margin (%)	15.81%	14.29%	11%	N.A.
Return on Net Worth (%)	26.81%	23.16%	16%	N.A.

Outlook

The coming few years present a promising outlook for PML, underpinned by several key factors. In the Domestic Smart Meters sector, robust industry tailwinds and supportive government policies contribute to a positive outlook. The Companys Alloys business has witnessed important developments including a new facility commissioned in Q4 and active discussions underway with potential customers for commercial supplies.

While the Electric Vehicle (EV) business currently faces a tepid outlook, the Company remains optimistic about compensating for this through growth in other verticals.

This diversification strategy demonstrates the Companys adaptability in navigating industry fluctuations.

A growing pipeline of customer projects within existing domains further bolsters the Companys prospects. Simultaneously, the Company is working on longer-term opportunities, including on Neodymium & Rare-Earth Magnets through its work in Quantum Magnetics. This forward-thinking approach positions the Company to deliver sustainable growth.

The Company is also actively pursuing forward integration and product stage scale-up in specific categories. A notable focus is on scaling up from magnets to assemblies in motors for the Automobile industry (Non-Current-Sensing Category). Any breakthroughs in this transition from components to modules could serve as a growth driver for the Company.

Throughout these initiatives, the Company maintains its commitment to business growth through additional capabilities and new growth drivers. This multifaceted approach, combining expansion in existing markets, exploration of new technologies, and vertical integration, positions the Company for sustained growth and resilience in the face of market challenges.

Industrial Relations and Human Resource Management

The Company believes that the motivation of employees is the key to its success. It is committed to equipping them with the required training and skills, enabling them to evolve with technological advancements and achieve financial goals. The Companys HR department was consistently in touch with the employees to guide and solve their problems. The Companys permanent employee strength stood at 155 as of March 31, 2024.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, estimates, expectations or projections may constitute “forward looking statements” within applicable laws and regulations. However, actual results may differ materially from those either expressed or implied in the statements. Important factors that would influence the include raw materials prices, product and application industrys performance, tax laws, interest rates, power cost, economic developments, and other factors within the country and the global economics domain.