Sanghvi Forging & Engineering Ltd Management Discussions.

GLOBAL ECONOMIC OVERVIEW

IMF expects global economy to grow and reach levels of 3.3% in 2020 and 3.4% in 2021. Easing monetary policy, stronger cross-border cooperation and implementation of supportive fiscal policies aimed at boosting demand could drive improvement in global activity.

However, the outbreak of COVID-19 (novel coronavirus disease of FY 2019), declared a pandemic by the World Health Organization on March 11, 2020, derailed all estimates. The impact of COVID-19 spread across all nations and restricted their economic activity with lockdowns. As a result, the IMF has projected global output to decline by 4.9 % in CY 2020. However, it expects a sharp recovery in CY 2021 at 5.4%, provided the virus spread is successfully contained and economic activities return to pre-COVID levels. (Source: World Economic Outlook June 2020, International Monetary Fund)

Global economy has been impacted by various factors including COVID-19. As per the World Economic Outlook, Global growth is projected at -4.9% in 2020, COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated and the recovery is projected to be more gradual than previously forecast. In 2021, global growth is projected at 5.4%. Overall, this would leave 2021 GDP around 6.5% lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s. Effective policies are essential to forestall worse outcomes. Necessary measures to reduce contagion and protect lives will take a short-term toll on economic activity but should also be seen as an important investment in long-term human and economic health. The immediate priority is to contain the fallout from the COVID-19 outbreak, especially by increasing health care expenditures to strengthen the capacity and resources of the health care sector while adopting measures that reduce contagion. Economic policies will also need to cushion the impact of the decline in activity on people, firms, and the financial system; reduce persistent scarring effects from the unavoidable severe slowdown and ensure that the economic recovery can begin quickly once the pandemic fades.

INDIAN ECONOMY AND INDIAN FINANCIAL SECTOR

India has emerged as one of the fastest growing major economy in world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships. As per the provisional estimates of Central Statistics Organisation (CSO), the growth of Indias real GDP during financial year 2020 is estimated at 4.2%, as compared to 6.1% in financial year 2019. Further, COVID-19 outbreak has raised fresh challenges for the Indian economy, causing severe disruptive impact on both demand and supply side elements.

Indias GDP is expected to reach US$ 5 trillion by financial year 2025 and achieve upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms. India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behavior and expenditure pattern, according to a Boston Consulting Group (BCG) report. It is estimated to surpass USA to become the second largest economy in terms of Purchasing Power Parity (PPP) by 2040 as per a report by Price Waterhouse Coopers. The Indian Economy also has been adversely affected due to the effects of COVID-19. It is evident that the economic slowdown is real, consumer confidence is declining. Lending has been the most topsy-turvy space in the financial services in India. Even the most prudent ones, barring a few backed by large corporate groups, had to manage their books, capital & fund raising plans. The Government has taken a series of measures to generate demand and ease the liquidity by ensuring public sector banks lend further to Non-Banking Financial Companies (NBFCs), introducing partial credit guarantee scheme, etc. Outlook for the financial year 2020-21 right now is cautious from an industry point of view.

Industrial Business

The Company has engages in manufacturing components for Defence and Aerospace, Power, Oil & Gas, Construction

& Mining, Railways, Marine and General Engineering sectors. Having built robust capabilities, the Company has established itself as one of the leading players catering to top industrial customers globally.

Our Core Segment -Defense & Aerospace -Oil & Gas

Risk & Concerns

Besides the economic, regulatory, taxation and environmental risks and also the investment outlook towards Indian forging sector, your company is currently exposed to liquidity risk. The banks are reluctant to provide credit to this industry due to rising NPAs and lower profit in property business.

Human Resource Capital

We believe that people work best when there is a foundation of trust.

Human Capital is the most crucial asset of any company and no organization A cannot sustain without wholehearted peoples participation. We at Sanghvi have continued to invest in developing our teams to enhance their efficiency and with strong focus on developing skills and capabilities of our employees. Employee motivation is one of our key HR focus areas, where we regularly conduct workshops and training sessions for the overall holistic development of our people. Companys headcount stood at 227 as on March 31, 2020 and the average age of employees was 30 which is an indicator that our resource pool is young and dynamic and capable of adapting itself in the ever-changing environment. The Company is focused on creating a competitive but cordial working environment for the development of a talented and loyal workforce.

Internal Control Systems and their Adequacy

"The Company has, since inception, laid down a system of internal control which is commensurate with the size and nature of the business. Adequate and effective checks are in place to ensure that financial data is accurate and reliable. The internal control systems also ensure that the assets and interest of the Company are well protected. The internal audit is carried out throughout the year based on a systematic procedure covering all functions and aspects of the business. The internal audit reports are reviewed by the senior management and are placed before the audit committee of the Board of Directors along with actions taken. The audit committee undertakes a detailed review of the audit observations and actions to ensure that the internal audit system is effectively functioning. The recommended actions by audit are monitored and improvements are implemented which are regularly reviewed by the senior management. The IT system of the Company is based on a robust ERP system SAP ECC 6.00 which was implemented in 2008 for ensuring seamless connectivity of plants, sales offices and head office for better control facilitating faster and more reliable processing of transactions as well as generating accurate reports for faster decision-making. The Company also has a strong control system and management reporting system which serves as the backbone of the monitoring system of operations to ensure that business results are achieved and continuous improvement projects are undertaken".