Pritika Engineering Components Ltd Management Discussions

Forward looking statement

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally.

The following discussions on our financial condition and result of operations should be read together with our audited consolidated financial statements and the notes to these statements included in the annual report. Unless otherwise specified or the context otherwise requires, all references herein to “we”, “us”, “our”, “the Company”, “Pritika” are to

Pritika Engineering Components Ltd.

ECONOMIC OVERVIEW

Indian Economy Outlook

Ten years ago, India was the 10th largest economy in the world, with a GDP of USD 1.9 trillion at current market prices. Today, it has ascended to the 5th largest, boasting a GDP of USD 3.7 trillion (est. FY24), despite the challenges posed by the pandemic and the legacy of an economy with macro imbalances and a distressed financial sector. The last few years journey has been shaped by numerous substantive and incremental reforms that have significantly propelled the countrys economic progress. These reforms have also endowed India with economic resilience, equipping it to handle unforeseen global shocks in the future.

In the next three years, India is projected to become the third-largest economy in the world, with a GDP of USD 5 trillion. The government, however, has set a more ambitious goal of achieving developed country status by 2047. With the ongoing journey of reforms, this goal is attainable. These reforms will be more impactful with the active participation of state governments. Full participation from the states will be achieved when reforms include changes in governance at the district, block, and village levels, making them more citizen-friendly and small business-friendly, particularly in areas such as health, education, land, and labor, where states play a significant role.

The strength of domestic demand has driven the economy to a growth rate exceeding 7 percent over the last three years. As previously discussed, the robustness of domestic demand, including private consumption and investment, can be traced back to the reforms and measures implemented by the government over the past decade. The supply side has also been bolstered by investments in both physical and digital infrastructure and initiatives to boost manufacturing. These factors have collectively stimulated economic activity in the country. Accordingly, in FY25, real GDP growth is expected to be close to 7 percent.

There is, however, considerable potential for the growth rate to surpass 7 percent by 2030. The rapid development of physical infrastructure will reduce the Incremental Capital-Output Ratio (ICOR), allowing private investments to translate into output more swiftly. The Insolvency and Bankruptcy Code (IBC) process has freed up economic capital that was previously unproductive. The expanding digital infrastructure is continuously enhancing institutional efficiency. Technological progress is accelerating, driven by increased collaboration with foreign partners in goods and services production. Decisive measures have been taken to accelerate human capital formation. Finally, the overall investment climate is becoming more favorable, with sustained improvements in the ease of doing business.

The expansion of the tax base that the GST facilitates will strengthen the finances of both the Union and state governments, enabling growth-enhancing public expenditures. The increasing credibility of the Reserve Bank of India (RBI) in controlling inflation will anchor inflationary expectations, providing a stable interest rate environment for businesses and the public to make long-term investment and spending decisions.

According to the International Monetary Fund (IMF), between 2012 and 2019, following the global economic crisis and the diminishing impact of the immediate stimulus measures taken by affected countries, global economic growth at constant prices averaged 3.4 percent. The growth rate was similar in the five-year period between 2014 and 2019. Between 2023 and 2028, the IMF projects global economic growth to be around 3.1 percent. Additionally, data from the World Trade Organization (WTO) indicate that, in value terms, world trade barely grew during either period (2012-19 or 2014-19). In volume terms, the growth rate averaged 2.4 percent. Despite this lackluster global economic and trade growth backdrop, between 2014 and 2019, Indias economy grew at a compounded annual growth rate of 7.4 percent at constant prices. This data underscores the internal strengths of the Indian economy, demonstrating its capacity to grow despite unfavorable global conditions. Therefore, it is feasible for the Indian economy to grow in the coming years at a rate exceeding 7 percent, bolstered by the strength of the financial sector and other recent and future structural reforms. The elevated risk of geopolitical conflicts remains an area of concern. Priority areas for future reforms include skilling, improving learning outcomes, health, energy security, reducing the compliance burden for MSMEs, and achieving gender balance in the labor force. Under reasonable assumptions regarding inflation differentials and the exchange rate, India can aspire to become a USD 7 trillion economy in the next six to seven years (by 2030). This will be a significant milestone in the journey to delivering a quality of life and standard of living that meet and exceed the aspirations of the Indian people.

Source: Department of Economic Affairs Government of India

(https://dea.gov.in/sites/default/files/The%20Indian%20Economy%20- 20A%20Review_Jan%202024.pdf)

Indian Auto-Components Industry

The auto ancillary industry in India has experienced significant growth, achieving a turnover of Rs. 5.6 lakh crore in 2022-23, a substantial increase of 32.8% from the previous year. This growth was primarily driven by domestic OEM supplies, which made up around 66% of the industrys turnover. The domestic aftermarket contributed about 12%, and exports constituted approximately 22.3% in FY23. Despite challenges like the faster growth of imports compared to exports, the industry maintained a surplus in exports, showcasing its competitive edge in global markets.

In terms of employment and economic contribution, the auto ancillary sector is crucial, providing direct employment to 1.5 million people and contributing 2.3% to Indias GDP. Projections suggest that by 2026, the industrys GDP contribution could rise to 5-7%, with direct employment opportunities expanding to 3.2 million individuals, highlighting its potential as a key driver of economic growth and job creation.

The industry is set for further expansion, with forecasts predicting it will reach a turnover of US$ 200 billion by FY26. Government initiatives like the Production Linked Incentive (PLI) schemes and supportive policies are fueling investments and driving growth. Major players such as Tata Motors, Ola Electric, Bosch, and Apollo Tyres have announced significant investment plans, demonstrating the sectors appeal to both domestic and foreign investors.

Indias strategic position in the global automotive landscape is clear, as the country is the largest producer of tractors, the second-largest of buses, and the third-largest of heavy trucks worldwide. Additionally, the focus on electric vehicles (EVs) is increasing, with substantial investments and policy support aimed at boosting EV manufacturing and infrastructure development. These advancements, along with partnerships with international entities like JBIC and initiatives such as the FAME Scheme for EVs, are propelling the auto ancillary industry towards a dynamic and growth-oriented future. Source: (https://www.ibef.org/industry/auto-components-presentation)

Indian Agricultural Tractor Market

The India Agricultural Tractor Market is projected to grow from USD 2.37 billion in 2024 to USD 3.13 billion by 2029, with a compound annual growth rate (CAGR) of 5.80%. This growth is fueled by several factors, including increased demand due to higher Kharif sowing, improved cash flows for farmers, normal monsoon seasons, government rural spending, and exemptions from lockdown restrictions. As a key player in the global tractor market, India sells between 600,000 and 700,000 tractors annually.

The market is predominantly led by Indian OEMs such as Mahindra & Mahindra Limited, TAFE, International Tractors Ltd (Sonalika), and Escorts Limited, with significant participation from international companies like Deere & Company and CNH. Government initiatives, including subsidies and support for farm mechanization, are key drivers of market growth.

Trends in farm mechanization show an increasing use of tractors, supported by subsidies from both central and state governments. The availability of easy credit, low-interest loans, and concessions like tax exemptions for small tractors make it easier for farmers to purchase equipment. Custom hiring services for tractors are also gaining popularity, bolstered by government schemes and initiatives across various states, which contribute to market expansion and higher adoption rates of tractors for agricultural practices.

The agricultural tractor market in India is marked by consolidation, with major players like Mahindra & Mahindra Ltd at the forefront. Investments in new products, expansions, acquisitions, and R&D are driving business growth and innovation within the industry.

About Pritika Engineering Components Ltd.

Pritika Engineering Components Limited is a subsidiary of Pritika Auto Industries Limited. The company is engaged in the business of manufacturing of precision machined components primarily for the automotive industry, especially for tractors, trucks, and other commercial vehicles, etc. The company caters to the tractor industry in the automotive sector with major dependency on Original Equipment Manufacturers. The company manufactures various Tractors & Automobile components like End Cover, Cover Sealed Brake, Differential Case, Cover Hydraulic Lift, Cover Transcase, Front Wheel hub, Fly Wheel Housing, Rear Axle Casings, Hydraulic Lift Covers, Brake Housing & Front Engine Supports etc.

CONSOLIDATED FINANCIAL OVERVIEW

The consolidated performance of the Company for the financial year ended March 31, 2024, is as follows: Total revenue from operations at Rs. 87.32 crore for the year ended March 31, 2024, as against Rs. 82.32 crore (net of taxes) for the corresponding previous period, an increase of 6.07%.

The EBIDTA (earnings before interest, depreciation and tax, excluding other income) was Rs. 11.44 crore for the year ended March 31, 2024, as against Rs. 10.30 crore for the corresponding previous period, an increase of 11.07%.

The PAT (profit after tax) was Rs. 3.36 crore for the year ended March 31, 2024, as against Rs. 3.28 crore for the corresponding previous period, a rise of 2.44%.EPS was at Rs. 2.74.

RESOURCES AND LIQUIDITY

As on March 31, 2024, the consolidated net worth stood at Rs. 39.74 crore and the consolidated debt was at Rs. 60.25 crore. The net debt to equity ratio of the Company stood at 1.52 as on March 31, 2024.

BUSINESS PERFORMANCE

Pritika registered a growth of 6.07% in revenue clocking a turnover of Rs.87.32 cr in FY24. The Company produced 9549 tons of machined casting during the year. Above 90% of the revenue was contributed by the tractor components segment while the rest was from the commercial vehicle segment. With capacity in place, Pritika is focusing on higher production and better utilization in future, based on a good order book. The Company is also adding high-value products and trying to improve operational efficiencies, while expanding export revenues. The Company is dealing in single segment i.e. manufacturing of Auto Components/parts.

DEVELOPMENTS IN BUSINESSES DURING THE YEAR:

Trial Production Commences at New Plant in Punjab: Meeta Castings Limited, a wholly-owned subsidiary of Pritika, has started trial production at its new plant in Hoshiarpur, Punjab, with a capacity of 12,000 tons per annum, bringing the overall capacity to 24,000 tons per annum. The plants total CAPEX is Rs. 23.61 crore. The facility will focus on higher weight products, enhancing the existing product suite.

RISKS AND CONCERNS

The company encounters various risks, both internal and external, as it conducts its daily operations and works towards its long-term goals. A comprehensive policy is developed, and dedicated risk workshops are conducted for each business vertical and key support functions. These workshops focus on identifying, assessing, analyzing, and either accepting or mitigating risks to a level deemed acceptable within the organizations risk appetite. The risk policy undergoes periodic reviews to ensure its effectiveness and relevance.

KEY FINANCIAL RATIOS

There was no significant change i.e. 25% or more in the key Financial Ratio except in the following:

Particulars	Year ended	Year ended	Change
	31.03.2024	31.03.2023
Debt Equity Ratio	0.90	0.66	35.25%
(in times)
Return on Equity (in %)	10.93%	16.02%	-31.78%
Net Capital Turnover	8.72	17.96	-51.46%
Ratio (in times)

Debt Equity Ratio has increased due to increase in debt, Return on Equity has decreased due to increased equity capital & regrouping of last year figures. Net Capital Turnover Ratio has decreased due to increase in equity capital.

The Company faces the following Risks and Concerns:

Economy and Market Risk

The Companys expansion is closely tied to the cyclical nature of the agricultural and automotive sectors. The fluctuations in the Indian commercial vehicle and tractor industries directly influence the demand for associated components. Given the significant impact of the automotive sector on economic growth, any downturn in the overall economy would have repercussions on the commercial vehicle industry.

Credit Risk

Pritika has established a credit policy to handle its credit exposure, including procedures for credit limit requests and approvals. Before bidding on projects, the company conducts thorough research on clients financial health and project potential. It diligently follows up with clients to ensure payments are made according to schedule. The company has optimized its processes to create a targeted and proactive receivables management system, ensuring collections are received on time.

Interest Rate Risk

The company has effectively handled its debt-equity ratio by employing a combination of loans and internal cash flows. It has also efficiently managed its working capital to maximize cost optimization in terms of overall interest expenses.

Contractual Risk

Pritika adheres to a rigorous procedure for assessing the legal risks associated with contracts and determining its legal obligations according to relevant contract laws. It meticulously evaluates worst-case scenarios and, as a strategic measure with input from advisors, incorporates stringent terms to limit liabilities to the fullest extent feasible.

Competition Risk

As is typical across industries, growth prospects bring about increased competition. We encounter competition at various levels, including from domestic and multinational firms. Pritika has established distinct advantages in project execution, quality, and timely delivery, making it resilient against competitive pressures. Additionally, the company maintains a competitive edge through ongoing investments in technology and employee development. Our robust and enduring client base, consisting of both large and mid-sized enterprises, contributes to a healthy order backlog and shields the company from this risk. We also mitigate this risk through our focus on infrastructure quality, customer-centric approach, and innovative solutions tailored to customer needs, supported by competitive pricing and an assertive marketing strategy. Our disciplined project management practices, along with prudent financial and human resource management and cost control measures, further strengthen our resilience against competitive challenges. Therefore, we anticipate minimal impact from this risk.

Input Cost Risk

Changes in raw material prices, power costs, and other input expenses could impact our profitability and cost efficiency. These risks, particularly those related to raw material pricing and power availability, are potentially significant and require vigilant monitoring.

Liability Risk

This risk pertains to our responsibility for any harm caused to cargo, equipment, lives, or third parties, potentially impacting our business negatively. The company seeks to mitigate this risk through contractual commitments and insurance coverage.

OPPORTUNITIES

? Rising Agricultural Sector Growth

? Supportive Government Policies for Agriculture ? Expanding Commercial Vehicle Market ? Favorable Export Conditions

? Utilization of Tractors Beyond Agriculture ? Investment Opportunities and Increased FDI

THREATS

? Competitive pressure from both local and global competitors

? Economic volatility and regulatory shifts affecting market demand and profitability ? Technological progress potentially rendering current products outdated ? Vulnerability of the agricultural sector to adverse weather conditions and monsoons ? Fluctuating labor and raw material expenses posing risks ? Challenges in attracting and retaining skilled workforce ? Potential slowdown across the agricultural industry

INTERNAL CONTROL SYSTEMS AND ADEQUACY

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

There has not been any significant change in such control systems. The control systems are reviewed by the management regularly. The same are also reviewed by the Statutory Auditors and Internal Auditors from time to time. Additionally, the Company has adopted various policies and procedures to safeguard its interest. These policies and procedures are reviewed from time to time. A proper reporting mechanism has been implemented in the organization for reporting any deviation from the policies and procedures. Compliance audit is conducted from time to time by external agencies on various areas of operations.

HUMAN RESOURCES

Pritika has Human Relations and Industrial Relations policies in force. These are reviewed and updated regularly in line with the Companys strategic plans. The human relations team continually conducts training programs for talent development. The Company aims to develop the potential of every individual associated with it as a part of its business goal. Pritika leverages a mix of experienced as well as young talent to drive growth.

The company values its human resources as the principal drivers of change. The Company focuses on providing individual development and growth in a work culture that encourages team work and high performance.

As on March 31, 2024, the Company had a workforce of 386 (permanent and contractual).

OUTLOOK

Based on the positive trajectory observed in the tractors and ancillary sub-sectors industry during FY23, PECL anticipates a continued upward trend in FY24. Despite challenges posed by macro-economic volatility and geopolitical tensions, the market has shown resilience, buoyed by a robust monsoon and supportive government policies that have stimulated growth in the agricultural sector.

The automotive sector is also experiencing a rapid recovery, driven by optimistic consumer sentiment. PECL foresees a promising long-term outlook, especially with major global players establishing a strong presence in India for engineering, manufacturing, and global sourcing. The introduction of new products by OEMs, fueled by technological advancements and increasing demand, is expected to contribute positively to industry-wide growth. Additionally, the implementation of new emission norms is likely to spur manufacturing activities and drive demand for components. Indias role as a supplier of high-value automotive components to the global market further strengthens the industrys prospects.

PECL is strategically positioned to leverage emerging opportunities both domestically and internationally. The Companys access to the US market through Pritika Auto Industries reduces reliance on the domestic market and enhances overall performance. PECLs enduring relationships with clients underscore the trust and confidence OEMs have in the Companys capabilities and expertise.

Continuing its focus on operational excellence, PECL aims to optimize existing capacity utilization and plans to expand production capacity in the upcoming year to meet anticipated demand. This strategic move will enable PECL to target a broader market segment and increase its market share. Furthermore, embracing new technologies like Lost Foam Technology and a strategic shift towards higher-weight products are expected to drive improved profitability, benefiting the Company and its stakeholders.

The Indian auto-components industry is on track to become the third largest globally by 2025, and PECL is well positioned to seize the forthcoming opportunities, driving sustained growth and value creation for its shareholders and stakeholders alike.

ANNUAL REPORT ON CSR ACTIVITIES for the financial year 2023-24

[Pursuant to Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014]

1. CSR Policy- Brief Outline and Overview

The policy has laid down guidelines for the company to make a positive contribution to the society, mainly through promotion of education and healthcare. The policy is available on the website of the company at https://www.pritikaengineering.com/csr-policy.pdf. The CSR Committee ensured that the activities were carried out as per the CSR Policy of the company. Implementing agencies were appointed to carry out the projects/programs.

2. Composition of CSR Committee

The committee consists of following members as on 31^st March, 2024

S. No Name of Director	Designation/ Nature of Directorship	Number of meetings of CSR Committee held during the year	Number of meetings of CSR Committee attended during the year
1 *Mr. Raminder Singh Nibber	Chairman, Non-Executive Director	02	02
2 Mrs. Neha	Member, Independent Director	02	02
3 Mr. Ajay Kumar	Member, Non-Executive Director	02	02

* Mr. Raminder Singh Nibber, Chairman of the committee ceased to be Member of Committee due to his demise on 12th March 2024.

3. Web link where Composition of CSR committee, CSR Policy and CSR projects approved by the board are disclosed on the website of the company: https://www.pritikaengineering.com/management.html

4. The provisions of Impact Assessment are not applicable on the company.

5. Details of the amount available for set off in pursuance of sub-rule (3) of rule 7 of the Companies (Corporate Social responsibility Policy) Rules, 2014 and amount required for set off for the financial year, if any: N.A.

S. No. Financial Year	Amount available for set- off from preceding financial year (in Rs)	Amount required to be set- off for the financial year, if any (in Rs)
	NA

6. Average Net Profit of the company as per Section 135(5): Rs. 357.00 lakh

7. (a) Two percent of average net profit of the company as per section 135(5): Rs. 7.14 lacs

(b) Surplus arising out of the CSR projects or programmes or activities of the previous financial years: Nil (c) Amount required to be set off for the financial year: Nil (d) Total CSR obligation for the financial year (7a+7b- 7c): Rs. 7.14 lacs

8. (a) CSR amount spent or unspent for the financial year:

Total Amount			Amount Unspent (in lacs)
Spent for the Financial Year. (in lacs)	Total Amount transferred to Unspent CSR Account as per section 135(6)		Amount transferred to any fund specified under Schedule VII as per second proviso to section 135(5)
	Amount.	Date of transfer	Name of the Fund	Amount	Date of transfer
4.65			NA

(b) Details of CSR amount spent against ongoing projects for the financial year:

S. No.

Name of the Project.

Item from the list of activities in Schedule VII to the Act

Local area (Yes/No)

Location of the project.

Project duration.

Amount Allocated for the project (in Rs.).

Amount spent in the current financial

Amount transferred to Unspent CSR Account for the project as per Section 135(6) (in Rs.).

Mode of Implementation Direct (Yes/No).

Mode of Implementation - Through Implementing Agency

State

District

Name

CSR Registration number.

NA

(c) Details of CSR amount spent against other than ongoing projects for the financial year:

(1) (2)	(3)	(4)	(5)		(6)	(7)	(8)
S. No. Name of the Project	Item from the list of activities in Schedule VII to the Act	Local area (Yes/ No)	Location of the project		Amount spent for the project (in lacs)	Mode of implemen tation - Direct (Yes/No)	Mode of implementation - Through implementing agency
			State	District			Name	CSR registr ation number
1 Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water.	Menstrual Hygiene Awareness Program for women.	Yes	Punjab	Hoshiarpur	4.50	No	Rani Breast Cancer Trust, Registered Trust (Regd. Under S. 12 A & S. 80 G of Income Tax Act 1961)	CSR00 002412
2 BJF Stars Program 2 years residential program for IIT/AIEEE entrance .	Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects	Yes	Chandigarh	Chandigarh	5.00	No	Bhai Jaitajee Foundation India (BJFI)	CSR00 005563
TOTAL					9.50

9. (a) Details of Unspent CSR amount for the preceding three financial years: NIL

S. No. Preceding Financial	Amount transferred to Unspent CSR Account	Amount Spent in the reporting Financial Year (Amount in lakh)		Amount transferred to any fund specified under Schedule VII as per section 135(6), if any			Amount remaining to be spent in succeeding financial years. (Amount in lakh)
Year	under section 135(6) (Amount in			Name of the Fund	Amount (in lakh)	Date of transfer
	lakh)
1 2022 -23					NA
2 2021 -22	NA	NA	NA		NA		No
3 2020 -21					NA

(b) Details of CSR amount spent in the financial year for ongoing projects of the preceding financial year(s):

S. No. Project ID	Name of the Project	Financial Year in which the project was commenced	Project duration	Total amount allocated for the project (Amount in lakh)	Amount spent on the project in the reporting Financial Year. (Amount in lakh)	Cumulative amount spent at the end of reporting Financial Year. (Amount in lakh)	Status of the project- Completed/ Ongoing
				NA

10.In case of creation or acquisition of capital asset, furnish the details relating to the asset so created or acquired through CSR spent in the financial year (asset-wise details).

(a) Date of creation or acquisition of the capital asset(s). Nil

(b) Amount of CSR spent for creation or acquisition of capital asset. Nil

(c)Details of the entity or public authority or beneficiary under whose name such capital asset is registered, their address etc. Nil (d) Provide details of the capital asset(s) created or acquired (including complete address and location of the capital asset). Nil

11.Specify the reason(s), if the company has failed to spend two per cent of the average net profit as per section 135(5). N.A.