s s power switchgear ltd Management discussions

GROUP OVERVIEW

The Company is a part of Power and T&D Equipment industry; focused on Switchgear, Protection & Control Systems, associated products and services. UK and India are the two Segments, emerging markets & developing economies (EMDEs) and UK are the focused geography, generating consolidated revenue for the group.

INDUSTRY AND SECTOR ATTRACTIONS:

Company growth is driven by development in following sectors and policies driven by governments.

POWER

? Renewable Energy (Solar, Wind and Hydro & Storage)

? Switchyard for larger Power evacuation including Nuclear

T&D GRID

? Distribution Company (DISCOM)reform

? Inter-Regional Transmission Lines (Green Corridor, West Africa Power Pool etc.)

? Sub-Station Automation

? 24x7 Power availability to all

? Smart City initiatives in India

? Urbanization in Bangladesh and Africa

? Rural Power development and Distribution Automation

RAILWAYS & MOBILITY

? Railway Network Electrification, Freight Corridor and Metro Systems

? Conversion of Diesel track into Electrical Track

? Railway shifting to 2x25kV system

? EV Mobility driving EV Charging Stations

? Hydro OEM, Cement Industry, O&G and Metal Industry OEM

? Tier 1 Electrical Equipment Manufacturing companies like GE, Toshiba, Siemens etc.

R3 BUSINESS

? Refurbishment, Retrofit and Renovation (R3) of Disconnectors, VCBs and Control and Relay Panels

? Spares

? Technical Service Selling - e.g. Engineering services, training, and technical supervision

? Packaged Product Offerings

As mentioned, the Company has five subsidiaries namely.

1. S&S Power Switchgear Equipment Limited, Maraimalai Nagar (S&SPSE)

2. Acrastyle Power (India) Limited, Maraimalai Nagar (APIL)

3. Acrastyle Switchgear Limited, United Kingdom (UK) (ASL)

4. Acrastyle Limited, United Kingdom (UK) (AL)

5. Acrastyle EPS Technologies Limited, Maraimalai Nagar (AEPS)

As required under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2016 with the Stock Exchanges, a Consolidated Financial Statement of the Company and all its subsidiaries are appended to this Annual Report. The Consolidated Financial Statements have been prepared in accordance with the relevant Accounting Standards.

INDUSTRY OUTLOOK:

Emerging & Developing Economies

The last couple of years have been very difficult for the world as a whole. The repeated waves of infections of Covid-19, and the resultant supply chain disruptions, rising energy & commodity prices, challenges in logistics and even rising inflation levels, have created challenging scenarios for governments across the world. CY2021 has been a mixed bag though. The first half of CY2022 witnessed recovery of the economy to pre-pandemic (pre- covid 19) levels. As per the World Economic Outlook (WEO) Report published by the International Monetary Fund (IMF) in April 2023, the rebound, continued at a slower pace than anticipated. The global economy is estimated to be at 3% in 2023 & 2024, as against a growth of 3.5% registered in CY 2022. The current WEO estimates are lower than the estimates shared in 2022, owing to the continuing of economic and geopolitical crisis as a result of the Russia-Ukraine war. The war-induced commodity price increases and energy price pressures have led to a surge in the inflation projections for both the ADEs and EMDEs. However, Global headline inflation is expected to fall from 8.7% in 2022 to 6.8% in 2023 and 5.2 % in 2024.

OUTLOOK

The outlook for the global economy remains cautious, with elevated inflation expected to persist, ongoing supply chain disruptions and high energy prices likely to continue. The WEO Report further states that the inflation is likely to pick up during the year, on the back of supply-demand imbalances. Much is also dependent on the broader geopolitical tensions, the ongoing climate emergencies and any disruptions arising from the pandemic. Overall, the higher broad-based inflation, are likely to have a profound impact on the projections for the developed nations as well as the EMDEs, going forward. In line with these, the global economy is expected to grow by 3.0% and 3.0%, respectively, in CY 2023 and CY 2024, respectively. However,EMDE, are likely to grow at a higher rate than global average.

INDIAN ECONOMY

As per the Economic Survey published in April 2023, the Indian GDP is estimated to have expanded by 6.8% in real terms in 2022. The latest figures released as per the WEO Report by the IMF, in April 2023, however, pegs the GDP growth for the year 2023 at 5.9% and 2024 at 6.3%. Despite these differing statistics, the Indian Economy is expected to remain buoyant, being tagged as the fastest growing major economy in the world. The growth of the economy seems to have been led by the agriculture and the allied sector, estimated to have grown by 3.9% in the fiscal, having had the least impact owing to the pandemic. The growth was led by the strong government impetus and stimulus packages in addition to a reasonable monsoon. The industrial sector witnessed a sharp rebound during the fiscal, witnessing an estimated expansion of about 11.8%. The sub-sectors of manufacturing, construction and mining too witnessed a similar surge, even when the national lockdowns were imposed. However, the service sector was the hardest hit by the pandemic, having grown by an estimated 8.2% during the corresponding fiscal. The country has witnessed a consumption boom during 2021-22 led by the government consumption. Private consumption has also witnessed a strong recovery, owing to the aggressive inoculation drives by the Government and earlier-than-expected normalization of the economic activities. The same has lent an added impetus through higher capex spends and investment outlays to provide a strong push to infrastructure building. This is also expected to aid growth from the medium to long term perspective. A recent surge in prices of energy, non-food commodities, input processes, freight costs and disruption of global supply chains, owing to the Ukraine-Russia war have created challenging times for policy-making as a whole. Hence, the Central Government has taken a cautiously optimistic approach to build enough cushion to bear the impact from these issues, through additional stimulus and policy support.

OUTLOOK:

Indias GDP growth in 2022-23 is being supported by the widespread vaccine coverage, gains from the supply- side reforms, easing of regulations, robust export growth and availability of fiscal space to ramp up capital sending. The growth projection as provided in the Economic Survey 2023, expects that the growth shall not

have major implications on account of pandemic related stress. Indias nominal GDP is forecast to rise to USD 8.4 Trillion by 2030 from USD 2.7 Trillion in 2021, making it the third largest economy in the world. These projections are likely to continue to project India as the fastest growing major economy in the world till 2026. Energy transition interstate grid TBCB projects and drive to have better power coverage will continue to drive electrical equipment growth higher than GDP growth.

POWER PLANT:

Retrofit of Thermal Power Plants, Flue Gas Desulphurisation (FGD) and generation of renewable power plant & Storage System is a transition. Due to plant move in energy products mix move from fossil fuel to renewable and focus has shifted to O&M & Retrofit & existing Plant till their exist. Hydroelectric Power Plant handled from India in various countries gives us opportunities for 10% - 15% hydro OEM.

POWER TRANSMISSION AND DISTRIBUTION INDUSTRY:

The demand for power has increased worldwide including India. Rising power demand as well as commitment towards utilizing Renewable sources of energy have led to widespread electrification initiatives across countries. This auger well for transmission capacity additions. The increase in renewable energy installations will expand the need for new transmission lines to deliver power to demand centres while infrastructure development projects will boost demand for increased grid connectivity in developing countries. However, the lack of strong policy mandates, political instability, and the lack of investment from utilities due to cash constraints are expected to challenge the growth. The market is expected to overcome these challenges as most governments are accelerating investments in the transmission network development. The worldwide power and distribution market is expected to increase in medium-term horizon, owing to advances in the US, China, and India. The combined market value of these nations is expected to account for 42.4% and 44.8% of worldwide electricity transmission and distribution markets, respectively, in 2024.

REGIONAL FOCUS:

Africa

Africas power sector investment plans are directed towards both, being a direct source of economic development and an enabler of future growth. The continent is still suffering from lack of electricity generation and it is the most fundamental goal of the power sector in sub-Saharan Africa. Approximately, with 600 Million Africans without access to electricity, the present momentum behind policy and investment plans is unlikely to fulfil the whole energy needs of Africas population. Despite the electrification rate having improved over the past decade, the penetration remains at 29% for rural areas and 84% for urban areas. The continent is aiming to enable better access to electricity by adding 60 Million new connections and 30 GW of cleaner, and more efficient generation capacity by 2030. Besides, the World Banks ‘Lighting Africa initiatives seek to provide access to 250 Million people through off-grid connections by 2030. Till 2024 the results in an additional 50 TWH of electricity from renewables, reaching a 26% share of total generation, up from 23% in 2021 and achieving a similar level to coal- fired generation (declining from 28% in 2021 to 26% in 2024). The renewables sources are set to supply the net demand of growth between 2022-24 at 60%

MENA:

With an annual capital expenditure of almost USD 30 Billion, the power sector in the MENA region is a major source of investment prospects. The rise in population, as well as rising energy consumption from the predicted expansion of the oil and petrochemical sectors, are expected to drive MENAs power demand and consequently generating capacity to new heights. The installed power generation in 2019 was 406 GW, and it will need to rise by 40% by 2030 to fulfil the anticipated demand. By 2030, the region is expected to continue to shift away from oil-based electricity generation and toward natural gas-based energy generation. Taking advantage of their abundant natural gas reserves, Saudi Arabia and Kuwait are leading the charge to replace oil-fired turbines with more efficient and less polluting gas turbines. Other countries in the region, on the other hand, do not have enough domestic gas to meet their electricity needs. MENA countries are looking at renewables, nuclear, and even coal power to increase generation security when gas is not economical or readily accessible, despite the predicted growth in gas fired generating capacity. Dubai has established a goal of achieving 75% sustainable energy by 2050. By 2030, the majority of nations in the region have set renewable energy targets ranging from anywhere from 13 to 52% of installed capacity. A total of 98 GW of new generation capacity is planned, with another 39 GW likely to be added to the planning pipeline by 2025. Integrating renewable energy into power systems necessitates policy changes and new legislation on the regulatory front. This entails assuring grid

flexibility and stability, incorporating new technologies like battery storage and electric vehicles, and developing financially viable business models.1

EASTERN EUROPE:

After demand for electricity in Europe fell by 1.3% in 2019 and 4% in 2020, it increased by more than 4% in 2021 to about the pre-pandemic level of 2019. Two factors that were the main drivers of the rebound, (1) The regions economy grew strongly, headed by the industrial sector; (2) Colder temperatures raised heating demand. However, in 2022 the demand is expected to grow at a slower pace of 1.7% owning to the recovery pace of the economy. The most notable development on the supply side in 2021 was the strong growth of coal-fired generation, increasing by more than 11% after a 20% decline in 2020. This was the first increase in coal-fired generation since 2012. The main reasons for this rebound of coal are the strong growth in demand coupled with relatively low growth in renewables generation in 2021 (up 1%, caused by exceptionally low wind speeds As a result, on year-on-year basis, Europes emissions surged by 8% in 2021 (4% higher emissions intensity). we expect a fall of 24% by 2024 compared with the pre-pandemic level of 2019 (emissions intensity down 27%). Going forward, the European power market is expected to undergo tremendous transformation. With the regions ambitious emissions targets, rapidly falling costs for clean technologies and the promise of widespread electrification place renewable power generation at the heart of the European energy transition. Europe uses wind and solar to generate a high amount of energy that keeps systems stable and reliable. Change in electricity generation, 2015-246 Change in electricity generation.

LATIN AMERICA:

This Market Require IEC & IEEE standard Compliance. Vertical Break Switch upto 360kV are different construction product needed in this market. We are working through on existing key accounts (e.g. KPIL) to access this market. We are developing on sales agent network in LATAM to grow the business further in this market. It is important to note that LATAM market primarily uses AIS substations.

SOUTHEAST ASIA:

Southeast Asia is expected to have the worlds fastest coal power capacity increase. Coal has a key role in Southeast Asias power generation sector due to plentiful regional supply, particularly in Indonesia, and comparatively inexpensive pricing. Indonesia, Vietnam, and the Philippines have the highest number of coal plants in Southeast Asia, between operational, under construction, and planned phases. With the predicted power demand growth of ~5% between 2022 - 2024 the electricity supply in Southeast Asia continues to be led by coal (around 43%), followed by gas (31%) and then renewables (25%). With the strong emphasis on Global emission targets, there is a strong rhetoric for the Southeast Asian countries to ensure the transition to greener, more sustainable energy sources.9 In line with the above, by 2025, the ASEAN countries aim to achieve 23% of its primary energy needs through renewable sources. The new generation of renewable energy sources, such as solar and wind energy, have gained a significant place in countries energy mix. The upper target for solar and wind energy output in the 8th Power Development Plan for 2021-2030, which also contains a vision for 2045, is 18.6 GW and 18 GW, respectively.

UK MARKET:

Energy Transition is leading to several wind farm projects. Integrating new disturbed energy plants to the national grid and new connection generation and generation demand. We continue to hold a leading share & Projection & contact system in UK -DNO market. Refurbishment & Retrofit of old substations are also giving us opportunity. With limited Players in the market this energy transition is giving growth to our UK demand by ~ 10%

INTEGRATED FACILITY AT MARAIMALAI NAGAR:

Maraimalai Nagar Site was expanded by its capacity by transferring all activities into one site. New Operation will have lower breakeven point and efficient and fast supply chain leading to working capital efficiency improvement. Project Blue Ocean helped in expansion of our facility which helped us for developing Inhouse Base fabrication, resulting in significant increase in Production capacity & reduced Assembly line stoppage. Subsequently cost saving in logistics, no of suppliers reduced, decreased MOP inventory, Percentage of Sales Margin Increased. New Plant approved by PGCIL, NTPC & STEG Tunisia

RISK AND INTERNAL CONTROLS

The Company maintains adequate internal control systems commensurate with the nature of its business and size and complexity of its operations. The internal control systems have been designed to provide reasonable

assurance about recording and providing reliable financial and operational information. The Internal Control process of the Company has been robust and provides reasonable assurance on the reliability of financial information, compliances with laws and regulations in force and realization and optimization of operations. It ensures documentation and evaluation of unit and entity level controls through existing policies and procedures, primarily to identify any significant gaps and define key actions for improvement.

These systems are regularly tested for their effectiveness by Statutory and Internal Auditors. The review also helps to evaluate adequacy of segregation of duties, access rights, delegation of authority, safeguarding assets, etc. The monitoring includes an annual exercise assessing in totality, how the entire internal control system addresses risks and how individual controls interface with each other to create the entire internal control environment. A formal system exists for periodic monitoring and reporting of the results of the internal control self-assessments.

The Internal control processes were audited by the statutory auditors as part of Internal Financial controls over financial reporting audit and termed these controls as adequate and operating effectively. In the highly networked IT environment of the Company, validation of IT security receives focused attention from IT specialist and Statutory Auditors.

The Company has appointed strong and independent internal audit firm of Chartered Accountants. Significant observations made by the internal auditors and follow up actions thereon are reported to the Audit Committee. The Audit Committee reviews the adequacy and effectiveness of the Companys internal control environment and monitors the implementation of internal audit recommendations. During the year, the Company has taken steps to review and document the adequacy and operating effectiveness of internal controls. Transactional processes have been automated by implementing SAP B1 in the company in India and this was the first year run through SAP B1.

OVERALL OUTLOOK

With 6 months of sales as opening order in hand, orderbook remains robust in FY24,. Energy Transition initiatives towards green energy, inter state and inter country grid integration, e mobility, railway infrastructure electrification and old grid automation and reelectrification are driving demand for our main products and services in emerging and developing markets.

With strong pipeline from Africa, Nepal, Vietnam and Indian customers we are positioned to witness significant improvement in Order Book and Sales in 23-24.

Focus on better inventory management, tight control of T&C and competitive sourcing will continue drive efficient working capital management. Driving Cash as No 1 Priority and measuring Cash Velocity will continue to help us in better cash management.

With existing frame agreements with our key customers and 6 months sales already covered by opening order in Hand, our order book remains robust. Energy transition initiatives in UK, Drive for Automation and encouragement to local manufacture has facilitated demand generation. Our strong position in market and focus on discovery of new segments & new customers for growth will help us in improved order book. Our pipeline is strong for domestic demands

In order to grow our business further we are driving New Business Development for Portable Relay Room. These are major projects and will help us to develop our business.

POTENTIAL IMPACT OF COVID ON FUTURE BUSINESS

Delay in Project implementation due to civil works. Also, decision making in African, Bangladesh and Domestic market slowed down.

CAUTIONARY STATEMENT

Please note these forward-looking statements are subject to numerous risks and uncertainties that are difficult to foresee, and actual outcome might differ.

For and on behalf of Board

Ashok Kumar Vishwakarma

Managing Director