RMC Switchgears Ltd Management Discussions

Economic Environment Overview

Indias growth story in the domestic and global landscape

The Indian economy is charting a course of robust growth in the financial year 2023-2024, building on the strong foundations laid in previous years. Poised to continue its trajectory as the worlds fastest-growing economy, India sets its sights on reaching high middle- income status by the centenary of its independence in 2047, with a parallel commitment to tackling climate change and achieving net-zero emissions by 2070.

According to the First Advance Estimates of National Income for the fiscal year 2023-24, Indias economy is set to experience robust growth, marked by a 7.3% increase, which builds upon the 7.2% growth observed in the previous year. This estimate is higher than the IMFs December 2023 projected growth of 6.3 per cent. Even if the IMFs projections prove accurate, Indias GDP would still expand at least two percentage points more than Chinas.

Moodys, a prominent rating agency, recently revised its 2024 GDP growth projection for India upwards, signalling confidence in the Indian economy bolstered by vigorous manufacturing activities and significant investments in infrastructure. The agencys adjustment, articulated in its Global Macro Outlook for 2024-25, elevates the growth forecast to 6.8% from an earlier projection of 6.1%. This revision is a response to Indias robust economic performance and data surpassing expectations in 2023. Moodys anticipates that India will sustain its position as the fastest-expanding economy among the G-20 nations throughout the forecast period. With diminishing global challenges, Moody projects that Indias economy will comfortably achieve a real GDP growth rate between 6.0% and 7.0%, predicting a 6.8% expansion for the calendar year 2024, expected to moderate slightly to 6.4% in 2025.

Key Performance Indicators (KPIs) that support this outlook:

? A reduction in the general government fiscal deficit from over 13% in FY 2020-21 to an estimated 9.4% in FY 2022-23.

? Public debt decreased from over 87% of GDP to around 83% during the same period.

? An increase in revenues and the gradual withdrawal of pandemic- related stimulus measures contributed to fiscal consolidation.

? Commitment to capital spending, particularly on infrastructure, aimed at bolstering growth and competitiveness.

Budgetary support to fuel growth in FY25.

? The Union Finance Minister declared that the capital expenditure budget for the fiscal year 2024-25 will see an 11.1% increase, reaching a total of 11,11,111 crore. This represents 3.4% of the GDP.

? The projected fiscal deficit for the fiscal year 2024-25 stands at 5.1% of GDP, aligning with the fiscal consolidation path outlined in the 2021-22 Union Budget. By the fiscal year 2025-26, it is anticipated to decrease to 4.5%.

? An allocation of 1.3 lakh crore has been earmarked for a fifty-year interest-free loan to states, intended for capital expenditure.

Main Opportunities:

The opportunities for India in the financial year 2024-2025 lie in harnessing its robust domestic demand and vigorous investment activities. The Governments focus on infrastructure investment creates vast opportunities for growth and competitiveness in various sectors. Additionally, the countrys progress in reducing extreme poverty and its strategic initiatives to deal with climate change open doors to green, resilient, and inclusive development.

Outlook for the Indian Economy:

? Short Term: The economy is expected to face some moderation due to persisting headwinds like rising borrowing costs and inflationary pressures, with a projected real GDP growth of 6.3% in FY 2023-24.

? Medium Term: With the gradual withdrawal of fiscal stimulus, an increase in revenue, and sustained investments in infrastructure, the economy is likely to maintain a steady growth trajectory.

? Long Term: Indias long-term economic prospects are shaped by its aspirations for high middle- income status by 2047 and net-zero emissions by 2070. Achieving these goals will require climate-resilient growth and broad-based gains for the population, accompanied by growth- oriented reforms and job creation to match labour market entrants.

Make in India

In fiscal year 2024, Indias manufacturing industry showcased a notable performance compared to FY2023, underpinned by strategic government initiatives, including the Production-Linked Incentive (PLI) schemes and a focus on enhancing manufacturing capabilities across various sectors. This period witnessed an acceleration in the Make in India initiative, aimed at transforming the country into a global manufacturing hub. The Governments emphasis on infrastructure development, innovation, and digitalisation played a pivotal role in boosting the sectors productivity and competitiveness on the global stage.

The manufacturing sectors growth was further bolstered by increased domestic demand and a stronger emphasis on export-oriented production, benefiting from easing global trade tensions and recovery in key markets. However, challenges such as supply chain disruptions, competition from imports, particularly in electronics and chemicals, and regulatory complexities posed hurdles to achieving even higher growth rates.

Electric Enclosure Manufacturing in India

The Electrical Enclosures Market refers to the industry involved in designing, manufacturing, and selling enclosures that protect electrical or electronic equipment. These enclosures are essential for safeguarding components from environmental conditions, such as dust, water, and other contaminants, and protecting people from electrical hazards. Electrical enclosures are utilised across various sectors, including industrial, commercial, residential, and infrastructure projects.

Indias electric enclosure manufacturing industry has emerged as a crucial sector within the broader electrical equipment manufacturing landscape, catering to the growing demand for protective enclosures across various applications such as industrial, residential, commercial, and infrastructure projects. These enclosures are vital for housing electrical and electronic equipment, ensuring safety, and protecting against environmental factors.

Performance Analysis:

FY2024 vs. FY2023

In FY2024, Indias electric enclosure manufacturing industry witnessed a robust growth trajectory, driven by increased investments in infrastructure development, renewable energy projects, and industrial automation. This growth signifies an acceleration compared to FY2023, where the industry rebounded from the disruptions caused by global supply chain challenges. The Governments push towards electrification and digitalisation of services, along with the Make in India initiative, further bolstered the industrys expansion.

Indias Smart Meter Opportunity

The smart meter sector in India represents a significant growth opportunity, propelled by considerable investments and strategic initiatives. The countrys market for smart meters was valued at a notable USD 223.4 million and is forecasted to surge to USD 3,267.7 million by 2031, with a robust CAGR of 34.57% during the forecast period of 2023-2031.

Indias commitment to revamping its power infrastructure is evidenced by the aggressive rollout of smart meters under the Energy Efficiency Services Limited (EESL). The installation of 3.6 million smart meters nationwide up to April 2023 is just the beginning, with an expansive mandate across multiple states to improve distribution companies billing and collection efficiency (DISCOMs).

These smart meters are integral to Indias vision for a future-proof energy grid, offering web-based monitoring systems that promise to reduce commercial losses drastically. This technological leap is expected to significantly boost revenue streams for the energy sector while also delivering on financial commitments to reform Indias energy landscape.

The fiscal year 2023-2024 marks a period of heightened ambition, with financial incentives from the Government, such as the 664 billion boost for power sector reforms and a separate 1.4 trillion earmarked to transform power infrastructure and practices.

The smart meter market is ripe with potential, further catalysed by the digital transformation within the energy sector. Leveraging data analytics could yield substantial savings by curtailing power theft and enhancing billing efficiency, thus redefining customer service and opening new avenues for business models in the energy sector.

Opportunities and Outlook

The increasing demand for energy, industrial automation, the adoption of smart grid technologies, growth in renewable energy sectors, and infrastructure development projects globally drive the market.

The Indian Governments budget for 2024-25 brings to light several initiatives and policies with significant ramifications for the Electrical Enclosures Manufacturing Industry. The allocation of increased capital expenditure by 11.1 percent to ~Rs 11,00,000 crore is set to bolster infrastructure development, which can improve supply chain and logistics efficiencies vital for this sector. Furthermore, encouraging research and innovation through a substantial corpus with fifty-year interest-free loans stimulates technological advancements within the Electrical Enclosures market, potentially developing more innovative and efficient products.

The Production-Linked Incentive (PLI) schemes, which have already positively impacted the consumer electronics industry, indicate the Governments support for domestic manufacturing capabilities. This could significantly boost the Electrical Enclosures sector, enhancing its domestic and global competitive edge.

However, the industry faces challenges, notably from international competition, which could affect sectors like Electrical Enclosures where efficiency and cost-effectiveness are crucial. Additionally, the complex tax structure and high GST rates on certain products could pose hurdles, emphasising the need for a more supportive regulatory framework to facilitate growth and innovation in this industry.

Company Strategic Overview

Our competitive edge

Diverse IP Level Protection and

Advanced Locking Systems:

With a wide range of IP protection, our products are designed to ensure maximum safety against environmental ingress, making them suitable for Indias varied climatic conditions. This versatility is key in a country where infrastructure projects span diverse geographies and ecological conditions.

Compliance with Indian Standards:

Our adherence to Indian Standards ensures that our products meet the regulatory reguirements and quality benchmarks necessary for widespread adoption nationwide. This compliance is crucial for gaining trust and acceptance in government and private sector projects, which are pivotal growth areas in the Indian economy.

Wide Range of Applications:

The application scope of our products covers a significant part of - the electrical infrastructure needs.

This broad applicability ensures our presence in multiple segments of the energy distribution chain, from residential to industrial sectors, aligning with Indias focus on energy access, renewable energy adoption, and infrastructure modernisation.

Material Versatility:

Using SMC, Polycarbonate, and Mild Steel (Deep Drawn & Fabrication)

. provides options for durable,

lightweight, and cost-effective solutions catering to different market needs and preferences. This material versatility is especially beneficial in a market like India, where cost-effectiveness and durability are key decision-making factors.

Alignment with the ‘Make in India Initiative:

By manufacturing products that support the infrastructure and

energy sectors, the Company aligns with the Make in India initiative, which aims to transform India into a global manufacturing hub. This strategic alignment positions the Company to benefit from government incentives and taps into the growing domestic and international demand for Indian- manufactured goods.

V Opportunities in Renewable Energy and Smart Cities:

Focusing on products tike smart I meter enclosures and distribution boxes for various transformers resonates with Indias push towards renewable energy sources and smart city projects. These sectors are expected to see substantial investment and growth, providing a fertile ground for deploying advanced electrical enclosures.

Our strategic objectives

1. Financial Performance:

The Company experienced remarkable financial growth, with significant revenue and profit margin increases. This success is a testament to the teams dedication and the strong trust from customers and partners.

2. Strategic Market Expansion: RMC made strategic advancements into untapped markets, particularly in Eastern India, leveraging the RDSS Scheme to widen its market presence. The Company also established a dominant position in the Smart Metering Segment among AMISP companies, highlighting its competitive edge. Additionally, the Company is scaling up its manufacturing capacity to 400,000 Smart Metering Enclosures annually to meet the demand surge from AMISP projects. This strategic increase in production is poised to significantly bolster RMCs contribution to the power sectors transformation and utility infrastructure modernisation.

3. Innovation in IoT Power Solutions:

Marking a significant stride, RMC announced its entry into IoT power solutions, targeting a market opportunity worth approximately 30,000 crores. This move signals the Companys transition into a leading entity in power technology, promising a future of growth and innovation.

4. Expansion into Water IoT Solutions:

RMC has ventured into the water management sector with the launch of Intelligent Hydel Solutions Private Limited, a subsidiary focused on addressing Indias critical water management needs. Holding a majority stake, RMC is set to deliver smart, IoT-driven solutions for water distribution, treatment, and conservation. This strategic move not only underscores RMCs diversification into an essential service area but also reinforces its dedication to supporting sustainable development across the country. With Intelligent Hydel Solutions, RMC is poised to impact water resource management with innovative technologies and expertise in electrical systems, thereby contributing to Indias environmental sustainability and smart infrastructure.

5. Building Higher Margin Businesses:

RMC is committed to continuously developing higher-margin business sectors that are both technology and execution-driven, focusing on custom utility solutions that cater to specific needs and complex challenges.

6. Commitment to Sustainability:

The Companys focus on sustainability and purpose-driven solutions is evident in its product development, aiming to enhance safety standards through IoT technology integration.

7. Operational Excellence:

Operational reforms have improved delivery timelines, quality assurances, and a 45% reduction in work-in-progress materials, enhancing the Companys competitive advantage.

8. Human Capital Development: RMC emphasises the development of its workforce through HR strategy refinements, skill enhancement, and mentorship, underlined by the upcoming Performance Improvement Plan.

9. Customer-Centric Approach: With a mission to ensure safety against electrocution and electrical theft, RMCs offerings have deeply resonated with its clientele, fostering trust and driving growth.

10. Financial Stewardship:

RMCs robust financial foundation and prudent fiscal strategies are geared towards sustained growth, financial asset optimisation, and shareholder value maximisation.

Our Financial Performance

During FY2023-24, our company actively participated in a wide range of tenders totaling approximately 600 crores. These tenders, primarily focused on RDSS Turnkey and Smart Meter Enclosure projects, are nearing the final stages of their financial bid openings, with high expectations for the proceedings to unfold imminently.

Over the past financial year, we secured orders totaling approximately 250 crores from EPC contractors, demonstrating our strong industry presence. Our current order book stands at about 500 crores, reflecting our consistent performance and the trust we have built in the sector.

The Government of India is soon launching the second phase of RDSS

Particulars	FY 2023-2024	FY 2022-2023
Return On Equity (ROE) (in %)	31.63%	28.06%
Current Ratio (in times)	1.64	1.65
Debt Equity Ratio (in times)	0.83	1.02
Net Profit Ratio (in %)	8.62%	9.37%
Net Capital Turnover Ratio (in times)	3.53	3.82
inventory Turnover Ratio (in times)	12.72	9.06

Part 2, themed as "Modernization of Electrical infrastructure," with a larger financial outlay of 5 lakh crores, which will open up a new array of opportunities for our company.

Notably, our turnover for FY 202324 reached 172.6 crores, marking a 37.8% increase from the previous fiscal year. Despite facing challenges such as cyclones and heavy rainfall, our commitment to resilience and excellence remains unwavering. Our journey through these competitive and challenging times showcases our strategic foresight, operational excellence, and dedication to maintaining our leadership in the industry.

Our People

Effective people management is crucial to the success of RMC, with a strong emphasis on employee wellbeing, development, and performance as key factors contributing to its achievements. The organisation values its workforce highly, considering them a pivotal resource, and is committed to maintaining an optimal level of skilled personnel. it adheres to the principle of placing relevant talent in the right roles, recognising human capital as its most invaluable asset. RMC proactively updates its HR strategies to stay competitive in the ever-changing global market, aiming for transparency, strength, and excellence.

The Company takes pride in its diverse and skilled workforce, which combines the experience of seasoned professionals with the dynamism and innovation of younger employees. This blend ensures senior managements wisdom complements the younger staffs vibrant energy, fostering a culture of growth and success. The HR team actively engages with employees, offering guidance and addressing their concerns, which has resulted in maintaining positive and respectful labour relations throughout the year.

Our Internal Control Systems and Their Adequacy

The Company maintains a robust internal control framework that matches the scale and complexity of its operations and the nature of its business. The Audit Committee regularly assesses this framework for its efficiency and effectiveness, ensuring resources are optimally used, financial activities are accurately and promptly reported, statutory compliances are met, and assets are protected against unauthorised access. The Audit Committee also oversees the execution of audit findings, including improvements to the Companys risk management practices and policies.

The organisation is committed to systematic operations and implementing appropriate safeguards. With an internal control mechanism tailored to its operational scope and business nature, the Company ensures the protection of assets, authorisation, accurate documentation, and proper reporting of transactions. internal controls are integral to the Companys routine management and governance, aiming for the orderly execution of business activities, adherence to Company policies, asset security, error and fraud prevention, and the reliability of financial records and reporting. The internal Audit function independently verifies the effectiveness of risk management, control, and governance processes, suggesting enhancements for operational, systemic, and control efficiencies. This includes following up on the implementation of the audit committee recommendations.

Comprehensive reports from the internal Auditor are regularly presented to management and the Audit Committee, which also reviews and evaluates the internal audits scope and effectiveness in consultation with the internal Auditor. Additionally, the Audit Committee solicits feedback from internal auditors on the internal control system and audit scope, providing further insights into control assessments and identifying areas for operational improvement through an effective internal control system.

Cautionary Statement

Certain statements in the management discussion and analysis report relating to the Companys objectives, projections, outlook, expectations, estimates and others may constitute forward-looking statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations, whether expressed or implied. Several factors could make a significant difference to the Companys operations. These include climatic and economic conditions affecting demand and supply, government regulations and taxation, and natural calamities over which the Company has no direct control.