ANNEXURE ‘G TO DIRECTORS REPORT 2022-2023
ECONOMIC OVERVIEW
Financial year 2022-23 witnessed a mixed operating environment as it had a healthy
business outlook while at the same time faced challenges around commodity price
fluctuations, rupee depreciation and accelerated inflation rates.
In the backdrop of global challenges, India continued its strong growth with a rebound
in private consumption and increase in government capital expenditure.
During the year, India became the worlds fifth largest economy and its GDP is
estimated to grow at 6.8% in FY23 (IMF World Economic Outlook). India is expected to
maintain leading growth in coming years. The consumer electrical and durables industry
continues to perform well with demand expanding on the back of increasing penetration,
urbanisation, electrification and higher share of spending for consumers.
The megatrends shaping the business landscape include consumers becoming more informed,
demanding and aspirational. Internet of Things (IoT) and smart connected homes are on the
rise with the younger population contributing to buying decisions in the home. There is a
clear preference for brands of trust and reliability as well as those ensuring deep
engagement with consumers using an omni-channel approach
INDUSTRY OVERVIEW
The Electronic and Refrigeration industry grew substantially, however a large portion
predicated on rise of raw material prices. Increase in commodity costs was effectively
passed on to the consumers, resulting in cost effectiveness and increase in margins Shift
from unorganised to organise and channel expansion helped the domestic business to
register volume growth despite the inflationary deterrents. Today, more than financial
challenges, leading businesses face environmental and social risks. The society at large
is facing extreme conditions such as pandemic, unpredictable climate and unprecedented
inflation. A fragmented recovery from the crisis created by the COVID-19 pandemic risks
widening the global divides at a time when countries urgently need to collaborate to
combat Climate Change. Under these circumstances, sustainability initiatives by the
business world could become key to resiliency and long-term value.
Opportunities
A. Industry growth and under penetration: Electricals and consumer durables categories
are still under penetrated and poised for strong growth on the back of increasing
urbanisation and personal disposable income.
B. Increasing electrification: Government efforts towards enhanced power availability
is continually increasing electrification in semi-urban and rural areas, along with stable
electricity supply in urban areas. This has translated into better demand for electrical
and consumer durable products in new and existing markets.
C. Infrastructure expansion: The governments strong focus on infrastructure expansion
including highway construction, railway modernisation and airport additions is expected to
create demand for electrical goods.
D. Favourable demographics: While the world is rapidly aging, Indias population is
among the youngest globally. With a median age of less than 29 years and 67% of the
population in the working age group of 15-64 years this is a key demographic dividend for
India.
E. Exports: A sizeable global market is looking to diversify its supply chain in order
to tide over any probable regional challenges or geopolitical issues. With a strong
business environment and enhanced ease of doing business, India is emerging as a strong
country and as a manufacturing alternative to other Asian countries.
F. Product Portfolio: With a strong full stack product portfolio across electricals,
industrial consumer the Company is well-positioned to capitalise on a great opportunity to
increase shelf space at the retail counter and share of wallet of the consumer. Alongside
providing a natural hedge in case of an economic downturn, a complete product portfolio
enhances the opportunity to cross sell with channel partners and final consumers.
G. Accelerated shift from unorganised to organised: A large portion of the consumer
electrical market continues to be unorganised. However, increasing brand awareness,
formalisation and aspirations, can accelerate the shift in consumer preference from
unorganised to organised, which shall be beneficial for the key players.
Risk and Concerns
A. Economic slowdown: Slowdown in the Indian economy due to global developments could
adversely impact growth in the short-term.
B. Commodity pressures: Sharp increase in commodity prices could lead to increase in
cost of finished goods thereby impacting affordability and consumer sentiment.
C. Competitive intensity: Irrational market behaviour with increased competitive
intensity could cause value erosion for the industry as a whole especially with the entry
of new disruptive players with access to low cost capital and extended ability to sustain
losses to capture market share. D. Power disruptions: Any impact on power distribution and
electricity delivery can impact the demand for electrical products. Availability of stable
and quality power supply continues to be an important factor for the industrys
growth prospects.
E. Pandemic: Deterioration in supply chain and demand due to the COVID-19 pandemic or
similar disruptions have emerged as a significant business risk.
F. Geopolitical crisis: Volatility in the commodity and foreign currency markets may
impact raw material availability due to geopolitical challenges in different geographies
around the world.
FINANCIAL OUTLOOK
Performance was broad-based with each of our Product lines contributing to the growth.
The quality and consistency of our results reflect our competitive edge and consumer
affinity. Your Company continued to meet consumers needs and improve the consumer
experience, making meaningful progress on the whole.
After three years of COVID-led disruptions, FY 2022-23 was in contrast a wholesome
year. The year saw a very encouraging with both B2B and B2C demand momentum continuing
from the previous year; however, commodity prices continue to add pressure and impact the
B2C end markets. Despite shrinkages in consumer spending, your Company continued the
growth trajectory with a strong product portfolio and brand. Rexnord continues to be a
leader in this market segment. Continued commodity price increases asserted pressures on
the margins as your Company took calibrated price increases, albeit not commensurate to
the raw material cost increases. Margins in the fan prices were very volatile given sharp
commodity price fluctuations.
A healthy balance sheet and strong cash flow generation provided us ample headroom to
continue investing strategically in our growth.
COMPETITION
Your Company maintain a constant focus on sharpening our competitive edge on all fronts
operational efficiency, optimal use of assets, high level of automation and backward
integration. Strong relationships with dealers, vendors and an effective governance
framework have been the key to our enduring enterprise. An effective organisational
culture, environment-friendly and socially responsible practices further help deliver
holistic change to achieve long-term social and environmental sustainability.
The following strategies have been adopted in order to suppress competition:
1. Your Company continued its strategy of investing in the long-term growth drivers,
including brand, omni-channel, innovation, digitisation, and talent. Our brands continue
to command top-of-the-mind awareness and is trusted by our customers. Our omni-channel
approach ensures that brand reaches out to a wide set of customers giving a seamless
experience whether it is traditional channel or modern formats. True to our DNA of
continuously innovating, we expanded our team of engineers who are working to boost
capabilities and serving consumers even better.
2. We continue to ensure a great fusion of professional rigour and entrepreneurial
mindset in our talent pool. I am glad to share that our success over the years has been
deeply rooted in the human capital we have developed and nurtured at Rexnord.
3. Our focussed investments have supported us to deliver across cycles, navigating
multiple macroeconomic disruptions. We envisage continuity in our approach to build a
strong and durable foundation for the next phase of growth.
4. Strengthening Product and Brand positioning- Over the years, we have relentlessly
invested in building our brand equity. This has significantly helped us in positioning the
brand as an industrial leader. FY 2022-23 witnessed greater heights by the company
achieving a remarkable gross sale vale (including GST) of 10000 lakhs signifying the we
are here only to excel.
5. We are recognised for our high-quality products and manufacturing strength powered
by deep innovation capabilities and sustainable practices. Regular and astute investments
in manufacturing and R&D have enabled us to build a varied product line. Our constant
endeavour is to sharpen our manufacturing edge on all fronts – quality, operational
efficiency, optimal use of assets, high level of automation, and backward integration.
6. Marketing advantage: Showcasing our robust manufacturing infrastructure to channel
partners and key customers serves as a marketing tool to enhance our brand recall. It
boosts the confidence of the sales team and trade partners, assuring them of good quality,
consistency, and technological superiority.
EXPORTS
Rexnords International Business contributes approximately 17.20% of the Companys
overall business. Our vision is to increase this contribution with accelerated growth in
products including AC fans, DC and EC fans and Shaded Pole motors. We are presently
supplying to more than 15 countries across the globe. During the past years, we have
invested heavily on HR resources, products, and channels to achieve the accelerated growth
in International Business and currently developing a road map to enter the developed
markets including Europe, US and Australia. At Rexnord we conduct a detailed Analysis on
every stage of our production which leads to lower manufacturing costs, better
efficiencies, and productivity improvement. Our in-house manufacturing operations
flexibilityto customise give the products as per diverse customer requirements.
This is particularly useful for the B2B business where product offerings can be adapted to
the requirements of the customers thus strengthening our position to serve the global
markets.
During FY 2022-23, our international business, remained in the same range across all
product categories i.e 1517.48 lakhs compare to 1516.78 lakhs last year. We are
continuing the investment on Certifications, Product Development for Different markets,
Brand building & Channel expansions across markets and geographies.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has robust internal financial controls systems, which is in line with
requirement of the Companies Act, 2013, which is intended to increase transparency &
accountability in an organisations process of designing and implementing a system of
internal control. The Company has a clearly defined Governance, Standard Operating
Procedures, Financial & Operational systems.
Our SAP ERP system facilitate mapping with role-based authority to business &
functional team to ensure smooth conduct of their operations across the organisation. The
Company has well established Internal audit function. Regular audit is performed for all
locations (Plants and Head office).
FINANCIAL AND OPERATIONAL PERFORMANCE:
Encouraging performance across product segments led to a revenue growth of 24%, however
Margins were under pressure due to spiralling cost inflation. We exited the year with a
positive momentum recording highest ever revenue. It has been a year of revival despite
transitional impact of Covid and commodity inflation. Overheads remained almost in the
same range. While the inflationary environment continues to pose a challenge, however, we
maintain a positive outlook on demand growth and gradual recovery of margins.
We have developed a strong financial capital framework with adequate foresight and
agility to drive effective growth. Our strong balance sheet enables us to direct our
growth capital swiftly efficiently towards emerging opportunities and for long-term value
creation. Armed with this prudent approach, we navigated through exceptional circumstances
brought on by the pandemic, transforming into a future-ready organisation with confidence
and purpose.
We continued investing in capacity expansion to fuel our next phase of growth. Our
total capital expenditure during the year was Rs 433.59 lakhs, which was primarily
directed towards enhancing our infrastructure and capabilities.
HUMAN RESOURCES:
We differentiate ourselves through culture of transparency, inclusion, collaboration
and excellence, making Rexnord a ‘Great Place to Work. Our policies and practices
are aimed at providing a conducive work environment to meet the aspirations of our people,
while ensuring their safety and well-being. We carry out continuous employee training to
upgrade skills and equip our people with the latest technologies in the market. We
regularly engage with our employees, with a special focus on ensuring their well-being and
retention. These training sessions included trainings on functional/behavioural and
technical topics, in close coordination with our in-house experts. Rexnord believes in an
equal opportunity approach. The employees within the organisation are evaluated solely on
the basis of their qualification and performance. We provide equal opportunities in all
aspects of employment, including retirement, training, work conditions, and career
progression, among others. This reinforces our commitment that equal employment
opportunities are key element of our growth and competitiveness. Further, Rexnord is also
committed to maintaining a workplace where each employees privacy and personal dignity is
respected and protected.
We have always strived to maintain the health and safety of our employees and
contractual workers, making it an utmost priority for the organisation. We have undertaken
several initiatives to prevent and reduce injuries at our plants, and ensuring safety for
all. Periodical Health check-ups are done to ensure the health the wellbeing of our
employees.
We at Rexnord believe in providing a homely environment for all its employees with
minimal stress in these difficult times. Under this initiative the company provides
Mid-day Meals to all its Employees at its cost to maintain a hygienic as well as a work
friendly environment. The total number of employees at the end of the year (including
executive directors) are 87.
DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS:
Ratio |
2022-23 |
2021-22 |
| Debtors Turnover ratio (times) |
20.25 |
26.62 |
| Inventory turnover (times) |
2.57 |
2.34 |
| Interest coverage ratio (times) |
7.90 |
16.98 |
| Current ratio (times) |
3.14 |
3.00 |
| Debt equity ratio (times) |
0.22 |
0.27 |
| Operating Profit |
11.60% |
18.60% |
| Net Profit Margin Ratio (%) |
7.26% |
12.97% |
RETURN ON NET WORTH:
The return on net worth of the Company remained 11.74% for the year as against 19.66%
in the previous year. The reduction in the return on net worth are mainly on account of
increase in material costs and effect of exceptional items.
CAUTIONARY STATEMENT:
Statement in the Management Discussion and Analysis describing the
Companys objectives, expectations, estimates or predictions may be forward looking
within the meaning of applicable securities laws and regulations. Actual results may
differ materially from those expressed in the statement due to external factors. Important
factors that could influence the Companys operations include global and domestic supply
and demand conditions affecting selling prices of finished goods, input availability and
prices, changes in Government regulations, tax laws, economic developments within the
country, Covid-19 situation in the Country and other incidental factors. The Company
assumes no responsibility to publicly amend, modify or revise any forward-looking
statements, on the basis, of any subsequent developments, events or information.
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