Servotech Power Systems Ltd Management Discussions

Pursuant to Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a Management Discussion and Analysis Report covering performance and outlook is given below:

1. OVERVIEW

The objective of this report is to convey the Managements perspective on the Economy outlook and insight view of the companys products, as well as strategy, operating and financial performance, material developments in human resources, industrial relations, risks & opportunities and internal control systems and their adequacy in the Company during F.Y. 2022-23. This should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in this Integrated Report and Annual Accounts 2022-23.

2. ECONOMY OUTLOOK

The factors that drove inflation in 2022 are already reversing These include increase in commodity prices, expansive fiscal and monetary policy, and supply chain disruptions. Global inflation expected to fall from 8.7% in 2022 to 7% in 2023 on the back of lower commodity prices. Inflation is also declining in other major economies including Japan, China and India.

• GLOBAL ECONOMY:

According to the IMFs World Economic Outlook, April 2023, the baseline forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 percent in 2023 with advanced economic growth falling below 1 percent. Global headline inflation in the baseline is to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core) inflation likely to decline more slowly. Global Consumers are increasingly conscious of inflation and the environment. They are countering rising utility bills for electricity by gravitating more towards energy-efficient and environment friendly electrical appliances Industry peers are responding to this by inculcating greater energy efficiency features into their various products, promising significant payback periods as purchase justification in cases.

• INDIAN ECONOMY:

According to IMF, Indias economic growth is projected at 6.1 per cent in 2023, a 0.2 percentage point upward revision compared with the April projection which was 5.9%, reflecting momentum from stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment. This upward revision aligns with the growth forecasts presented by the government and the Reserve Bank of India (RBI), which have pegged GDP growth at 6.5% for FY24. However, India will remain the fastest growing major economy. Indias rising investment in the green economy, including clean and renewable energy, looking forward to the conversion of this fiscal responsibility into a medium-term framework anchoring Indias public finance.

Companies have been in search for better profits and lower labor costs through contract manufacturing in Asia. Due to this trend, some companies are now taking their business elsewhere with lower wages, or considering automation, to secure competitive production cost. When also considering all hidden costs of overseas contract manufacturing, including the import taxes, customs fees and freight expenses, many companies have realized that it is more reasonable to bring the manufacturing back home to automated factories, instead of searching for another low-cost labor country.

3. INDUSTRY STRUCTURE AND DEVELOPMENTS

• INDIAN ELECTRIC VEHICLE MARKET

The global electric vehicle market size was valued at USD 193.55 billion in 2022 and is projected to reach a value of USD 693.70 billion by 2030 at a CAGR of 17.30 percent over the forecasting period. Increased demand for fuel-efficient, high performance and low-emission vehicles, strict government pollution restrictions, falling prices for electric vehicle batteries and rising gasoline prices all contribute to the expansion of the electric vehicle market. There is more demand for fuel-efficient cars due to the recent increase in the price of gasoline and diesel.

As a result, an increasing need for high fuel-efficient technology fuels a spike in the market for electric vehicles. Additionally, governments and environment organisations worldwide pass strict emission standards and rules to lower car emissions in response to growing environmental concerns. This is predicted to increase consumer demand for electric vehicles, propelling market expansion.

Indian electric vehicle market size was USD 3.21 billion in 2022 to USD 113.99 billion in 2029 and expected to grow at a CAGR of 66.52 percent during the 2022-2029 forecast period. The growth of the electric vehicle (EV) market in India is being fuelled by several key factors, including government support, heightened environmental awareness, and technological advancements. People are becoming more conscious of the environmental impact of traditional fossil fuel-powered vehicles, EVs are becoming increasingly popular as a more sustainable and eco-friendly alternative. Advancements in battery technology and the availability of convenient charging options have further boosted the appeal of EVs.

The rising demand and adoption of electric micro-mobility vehicles such as electric two-wheelers and electric-three wheelers is an ongoing trend in the market. The Indian market is highly price-sensitive, and the majority of the Indian populace prefer two-wheelers for their daily transport due to rapidly growing traffic congestion. Therefore, in India two-wheelers Indian road traffic condition, is anticipated to boost the adoption of electric two-wheelers and three wheelers during the forecast period. The cheap product price and rising government initiatives toward e-mobility adoption are some other factors that help various brands to penetrate the Indian electrification market to grab revenue growth opportunities. Furthermore, the rising adoption of electric micro-mobility vehicles is an essential factor that has led to the growth of the India electric vehicle market.

• SOLAR INDUSTRY

India is shifting toward greater renewable energy generation while striving to improve energy access, affordability, and security. Its also poised to be one of the fastest growing economies in coming years, which will in turn sharply boost energy demand. Whether it meets those needs with fossil fuels or green alternatives has the potential to shift the trajectory of its greenhouse gas emissions for many more years to come. As a result solar power is a fast developing industry in India. Indian is anticipated to reach around USD 238 billion by 2030, growing at a CAGR of roughly 40% between 2023 and 2032 by supplying 79.07 GW by the end of this year and is projected to reach 195.11 GW in the next five years, registering a CAGR of 19.8% during the forecast period. Over the medium term, the Indian solar energy market is growing owing to the cost of solar power technology, solar systems are becoming more flexible, and solar power is greener way to make electricity. The market is also propelled by supportive government policies, particularly the Ministry of New and Renewable Energy (MNRE) plans to encourage renewable-based power generation. On the other hand, the solar energy market is restrained by issues like transmission and distribution losses and unpredictability in the continuity of power supply.

Nevertheless, India has a lot of solar irradiance and gets solar energy all year long. This means there are many places in the sunniest parts of the country, like Rajasthan, Gujarat, and Andhra Pradesh, where solar energy can be used. This, along with foreign investment and a lot of research and development projects to improve the technology, gives the Indian solar energy market a lot of chances to grow.

• LIGHTING INDUSTRY

The Global LED lighting market is projected to grow at a CAGR of 17.6 percent in value during 2023-2029. The global COVID-19 pandemic has been unprecedented and staggering, with light emitting diode lighting experiencing lower than-anticipated demand across all regions compared to pre-pandemic levels.

Consumers will realize the benefits of longer lights emitting diode life and increase in use of products like LED and recessed lights. Growth in display backlight applications, reduction in the cost of LED, longer lifespan, and high efficiency of these diodes are key factors that are expected to drive the LED lighting market growth.

• GLOBAL UV DISINFECTION EQUIPMENT MARKET

The global ultraviolet disinfection equipment market size was estimated at USD 3,629.3 million in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 6.9 percent from 2023 to 2030. Pandemic has a positive effect on Market Growth. UVC radiations provide physical disinfection and do not have residual effects such as chemical disinfection. Companies in the UV disinfection equipment market developed devices that sanitized various items such as wallets, smartphones, and others through UV light. These aspects fueled the growth prospects of the UV disinfection equipment market. Growing population rate around the globe is demanding a clean and high-quality environment is projected to foster the growth of ultra violet disinfection.

• INDIAN HEALTHCARE INDUSTRY

Healthcare has become one of the largest sectors of the Indian economy, in terms of both revenue and employment. It is expected to grow at a CAGR of 11.07% during 2023-27. The healthcare sector was expected to add over 7.4 million direct jobs in India during 2022.

Indias competitive advantage lies in its large pool of well-trained medical professionals. India is also cost-competitive compared to its peers in Asia and western countries. The cost of surgery in India is about one-tenth of that in the US or Western Europe. The low cost of medical services has resulted in a rise in the countrys medical tourism, attracting patients from across the world. Moreover, India has emerged as a hub for R&D activities for international players due to its relatively low cost of clinical research.

4. PRODUCT-WISE PERFORMANCE

Servotech emerged as a pioneer in providing solutions by integrating technology and innovation. It is engaged in the manufacturing, procurement and distribution of a range of high-end yet advanced solar products, EV chargers as well as energy-efficient lighting solutions. Company is doing exponential growth after entering into EV charging equipment and establishing EV charging tech infrastructure pan India expeditiously and bolster the nations progression towards the electric revolution. With a remarkable legacy of over two decades in establishing solar-powered infrastructure and commissioning projects on a massive scale pan India, Servotech is committed to not only setting the benchmarks but precedents one after the other in providing nothing but the best. With an aim to cater to our clients with utmost sincerity and devotion, the entity believes in not just serving but building forever-lasting relationships. Steering with expertise and driven by excellence, cutting-edge technological advancements coupled with game-changing innovations are central to Servotech, which has led to its astonishing success, overwhelmingly.

Brief glimpse of the some of the products of the Company are as mentioned below:

i. ELECTRIC VEHICLE CHARGER (EV CHARGER)

Ecocentrism approach among people increased demand for electric vehicles (EV). These emit fewer greenhouse gases and air pollutants than petrol or diesel cars and this takes into account their production and electricity generation to keep them running. Therefore, such as vehicle is seen as a possible replacement for current-generation automobiles, in order to address the issue of rising pollution, global warming, depleting natural resources, etc. Electric Vehicle Chargers are equipped with multiple communication protocols like GSM & Wi-Fi, and comply with authentication protocols such as RFID. Servotech is dealing in following categories of chargers:

a) AC Charger: The AC charger acts as regulator & controller. The Charge is delivered in AC mode to the onboard Charger of the Car (EV) and the onboard charger converts AC power to DC power and charges the battery. These chargers are much more widespread due to their installation and operations Cost is lower. At the same time, they are significantly smaller and their installation is simpler, faster and less expensive. These chargers are suitable for parking spots where the vehicle will stay parked for more time. These chargers are easily available and charge at a continuous rate.

b) DC Charger: DC charger has the converter inside the charger itself. That means it can feed power directly to the cars battery and doesnt need the onboard charger to convert it. DC chargers are bigger, faster, and an exciting breakthrough when it comes to EVs. DC Fast Charging bypasses all of the limitations of the on-board charger and required conversion, instead providing DC power directly to the battery, charging speed has the potential to be greatly increased. These are often used at midways, conventional fuel pumps & other fast charging locations.

ii. SOLAR PRODUCTS

The Company is engaged in the various projects wherein the Company has successfully installed solar systems. In addition, the Company is a pioneer in manufacturing solar inverters.

a) SOLAR INVERTER: A solar inverter is a crucial aspect of solar technology. The energy produced from solar panels is converted into usable electricity by a solar inverter so that it may be used in home or place of business. An uninterrupted power supply is provided by a hybrid solar power system with the help of storage batteries linked to the inverter. The batteries act as an inverter and backup in the event of a power loss. Company is currently dealing in below solar inverters;

• Elegant Plus

• FLARE

• On-Grid

• Green Light

b) SOLAR MANAGEMENT UNIT: SMU (solar management unit) is Indias special and unique device that converts your simple Inverter into Solar Inverter. SMU ensures priority usage of solar power to reduce grid (government electricity) consumption. Solar management unit (SMU) is embedded with a high speed microcontroller which increases the performance of the solar system. Solar management unit provides the ability to perform its task more reliably and efficiently.

c) SOLAR BATTERIES: Solar batteries are designed to harness solar energy efficiently, ensuring optimal battery capacity for solar lighting systems. These are used in off grid solar systems and hybrid solar systems where electricity generated by solar panels is transferred via solar inverters to solar batteries for storage which can be used later. Solar batteries store the electricity in the form of DC power. During power outages or whenever solar panels are not able to generate electricity, solar inverters take the power from solar batteries to run the home appliances by converting stored DC power into AC power.

d) PV PORT: PV port is a Solar PV system which uses sunlight to generate electricity. This product is specifically targeted to increase the adoption of rooftop solar by the residential consumers to overcome the several hurdles. The System contains intelligent controller for electrical flows and can be consumer based product which involves resale also.

e) POLY SOLAR PANEL: Polycrystalline solar panels are the most commonly used type of solar panels in India.

They are affordable and have a good efficiency rate.

Polycrystalline solar panels can be utilized in both small-scale and large-scale installations as they come in a vast range of power wattages. Since polycrystalline solar panels are cheaper and more eco-friendly to produce, they are also used in large solar, Farms, roof-mounted arrays, traffic-lights, houses etc.

iii. POWER & BACKUP

a) BATTERY: Tubular batteries are lead-acid batteries that are much larger than flat plate batteries. These batteries are commonly seen in UPS and inverter systems. The tubular batteries have a positive plate nestled within a tube wrapped in cloth that holds its electrodes power. These batteries provide up to a 30% longer service life than flat plate batteries with embedded feature of Low Resistance Fasteners and Heavy duty terminal

b) SERVO STABILIZER: Servo stabilizer protects the costly equipment from high and low voltage problems

• Air cooled servo Stabilizer: An air-cooled servo stabilizer is a device that is used to regulate the voltage in an electrical system. Air cooling type is more comfortable and convenient indoor. It consists of a transformer, an air-cooled heat sink, and a control unit. The transformer steps down the voltage from the power source and the air-cooled heat sink dissipates the heat generated by the transformer.

• Oil Cooled Servo Stabilizer: These are used in places where there is a high frequency of fluctuating voltage in the power supply. An oil cooled stabilizer guarantees that the fluctuation the power supply does not affect the electronic or electrical types of equipment

c) UPS:

• Domestic Inverter & UPS: This technology creates minimum water loss and increase the battery life immensely. It provides long backup for computers and save space which is ideal for modern day households.

• Commercial Inverter & UPS: These UPS are designed for heavy duty telecom applications and provide automatic protection for high and low vantage. This makes it absolutely safe to run everything from lights to ACs to lift and elevators, welding machines in a most cost effective manner.

iv. LED SEGMENT

SAARA LED lights are environmentally friendly and provide artistic lighting effects experience and have manifold benefits to the customers. These Lights provide bright and uniform illumination for fuelling stations and surrounding areas. The enhanced visibility from LED canopy lights increases safety for customers and employees, while the energy efficiency and long lifespan of LED lights reduce operating costs. It doesnt contain any harmful elements like mercury or lead in them like traditional incandescent bulbs. The LEDs also last longer than traditional HID high bay lighting, resulting in less maintenance and lower operating costs. These lights are excellent for illuminating storage facilities and warehouses as well.

v. OXYGEN CONCENTRATOR & UV DISINFECTANT

An oxygen concentrator is a device that concentrates the oxygen from a gas supply (typically ambient air) by separating oxygen from ambient air and removing contaminants. The device is approved for medical use and helps minimise all breathing related difficulties in patients. It is Portable and DIY-friendly device which can be used by both patients and caregivers alike.

UV-C Disinfectant technology can be used to inactivate microorganisms by damaging their genetic material and rendering them unable to replicate. It ensures optimal air circulation for excellent ventilation. Featuring intelligent sensors and controls, the purifier is suitable for use at quarantine, containment, and infection control rooms for maintaining a cleaner airflow.

5. STRENGTH

We are not only focusing on a sustainable low-carbon economy, but we are also providing solutions for energy storage, grid optimization, and electric mobility which results in less environmental impact. To accelerate towards the ground-breaking technologies, our commitment to innovation, strategic partnerships, and a steadfast focus on sustainability, we are well-positioned to seize the abundant growth opportunities that lie ahead. As we set forth on an accelerating path towards limitless expansion, we are experiencing an extraordinary shift in the realm of sustainable and environment-friendly energy. In addition to helping us on focus our actions for growth, the data captured across the value chain helps raise for creating win-win situations for the organization, business partners and employees

i. Competitive Strength

a. Highly skilled and efficient senior management execution team

b. Highly efficient, cost effective and up-to-date technology & safety Quality assurance

c. Diversified and large customer base d. Scaling the product and increased demand

ii. Business Strategy

a. Robust supply chain & logistics for timely delivery of products and execution of projects.

b. Remained dedicated to achieving its goal of becoming the most respected and valuable Company.

c. Expansion plan and diversification

d. Affordable pricing and enhancing customer base

e. Investing in advanced technology

iii. Overall Business Strategy shall be to

a) Maximize revenue through capacity expansion, diversification and increase in efficiency.

b) Reduction in cost of borrowing.

c) Enhancing production efficiency and minimize process losses.

d) Reduce operational costs and be cost competitive.

e) Have a customer centric approach.

f) Deliver value for money to customers.

g) Adopt best practices in all functions and processes.

6. OPPORTUNITIES AND THREATS

A. OPPORTUNITIES

i. Energy Diversity and Security: Due to Availability of energy efficient appliances, people are becoming aware and concerned about the environment as well as saving on their power bills. This reduces vulnerability to fluctuations in oil prices and enhances energy security by reducing reliance on fossil fuel imports.

ii. Technological Advancements and Job Creation:

Advancements of technology not only benefit the automotive sector but also have broader applications, such as energy storage for renewable energy sources and grid stability. It also creates jobs and innovation in battery manufacturing, renewable energy, and charging infrastructure.

iii. Market Growth and rising demand: In an emerging economy like India, demand for electric Vehicles and solar products is rising rapidly. This provides a significant opportunity for the industry to grow.

iv. Infrastructure development: Governments focus on Infrastructure developments such as roads, railways, ports, housing is increasing and is expected to create demand for electrical goods.

B. THREATS

i. Commodity price inflation: Raw material prices have been on the rise due to various supply chain bottlenecks caused by factors like geopolitical instability. This is leading to pressure on margins and poses a significant challenge to the business.

ii. Demand uncertainty: Economic Volatility and the increasing frequency and magnitude of disruptive events have affected the discretionary incomes and demand sentiment. This volatility is also affecting the predictability of demand and the ability to forecast and plan efficiently.

iii. Competitive Intensity: While the industry size for most categories is growing and expected to be healthy for the next several years, this in turn is attracting several more players, leading to much greater competitive intensity.

7. RISKS AND CHALLENGES

The Company relies on a robust and integrated risk management process that enables timely analysis and evaluation of threats. Our capacity to anticipate and adapt to industry developments not only enables us to minimise adverse impacts on the organisation but also helps us to capitalise on emerging opportunities. Risk identification, analysis, mitigation and monitoring are undertaken periodically by the Management. Our ability to comply with a regulatory framework empowers us to devise effective risk mitigation strategies that help to preserve the reputation and strength of our business. While management is positive about the Companys long term outlook, it is subject to a few risks and uncertainties, as discussed below.

i. Material availability and inflation risk: Unforeseen events that cause disruption along the value chain might cause bottlenecks and a rise in material prices. The explosives sector has material supply and volatility risks relating to chemicals, metals, minerals, and logistics.

ii. Increase in competition: Hyper competitiveness is normal, but it becomes a risk in case it leads to irrational behaviour in the market in terms of pricing and other trade practices.

iii. Non-availability of regular and quality power: Availability of quality electricity is the key for demand of electrical products, any substantial shortfall in the supply of electricity may hamper growth prospects for the industry.

8. FINANCIAL ANALYSIS

The Financial performance with respect to Operational performance of the Company is discussed in the Directors Report which forms part of the Annual Report.

9. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Servotech believes that our people are our greatest assets, who provide the company its unique competitive edge. The Company has adequate trained professionals to manage the affairs of the Company in the most efficient and prudent manner. The Company aims to develop, motivate and retain diverse talent. The Company seeks to maximize the potential of every employee by creating a purpose-driven, inclusive, stimulating, and rewarding work environment. The Company has been broadening and deepening employees relationships by continually looking for new opportunities and newer areas in the businesses to add value, proactively investing in building newer capabilities and reskilling the workforce.

Servotech appreciates the participation and contribution of employees, commitment, effective deployment of knowledge and expertise, integrity and maintenance of confidentiality and looks forward to their continuous participation in years to come.

Company continues to emphasize capability building, keeping the future in mind. The Company has made rigorous efforts to ensure that employees can handle challenges of the future, while staying abreast with the knowledge in relation to their respective functional domain. It also focuses on providing opportunities to each employee to grow and utilise their complete potential.

10. EMPLOYEE HEALTH AND SAFETY

We are making sincere efforts to abide by the highest safety parameters to create a safe workplace. We accord paramount importance to the health and safety of our workers by conducting safety drills and training sessions. Considering the risks and dangers associated with working on our products, we have developed a comprehensive health and safety policy that allows us to take proactive measure. To encourage sound business practices, higher productivity, reliability and prepare a more engaged workforce, it is important to cultivate a culture where health and safety are seen as beneficial behaviours.

Our facilities are designed and operated with the intention of preventing mishaps that might endanger our employees, external contractors or communities. We will continue to promote a culture where everyone recognises their respective roles, in making Servotech a safer place to work.

11. INTERNAL CONTROL SYSTEM

The Company has an adequate system of internal controls in place. It has documented policies and procedures covering all financial and operating functions. These controls have been designed to provide a reasonable assurance with regard to maintenance of proper accounting controls for ensuring reliability of financial reporting, monitoring of operations, protecting assets from unauthorised use or losses, and compliance with regulations. The Company has continued its efforts to align all its processes and controls with global best practices.

Further, in order to meet the robust internal control system in the organisation, the Company has adequate policies and procedures in place for its current size, and for growing future needs. These policies and procedures play a pivotal role in the deployment of internal controls. They are reviewed at periodic intervals to ensure relevance and comprehensiveness, and compliance is ingrained into the management review process. The Company believes that every employee has a role to play in fostering an environment in which compliance with regulations, and ethical behaviour are accorded due importance. Towards this, sessions are periodically held to increase employee awareness on the Companys code of conduct. The Audit Committee of the Board of Directors, comprising of independent directors and functions, regularly reviews audit plans, significant audit findings, adequacy of internal controls, compliance with accounting standards, etc. The documentation of major business processes and testing thereof including, financial closing, computer controls, and entity level controls, is executed as part of the compliance program.

12. CAUTIONARY STATEMENT

The statements in the ‘Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be ‘forward-looking statements within the meaning applicable to securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic, political, changes in government regulations, tax regimes, economic developments and various other internal and incidental factors. Company does not undertake to update any forward looking statements to reflect future events or circumstances. Investors are advised to exercise due care and caution while interpreting these statements.

13. KEY FINANCIAL RATIOS

The Company has identified following ratios as key financial ratios:

Sl. No.	Particulars	As at 31st March, 2023	As at 31st March, 2022	Changes
1.	Current Ratio(times) = Current Assets / Current liabilities	1.79	1.78	0.38%
2.	Debt-Equity Ratio (times) = Total Borrowings/Shareholders equity	0.52	0.42	24.43%
3.	Debtor Turnover (Days)1	121.35	96.24	26.09%
4.	Return on Equity Ratio (%)2 = Net Profit after taxes/Average Shareholders equity	13.0%	8.6%	51.59%
5.	Inventory Turnover ratio (times)3= Revenue from operations/Average inventory	18.62	9.74	91.08%
6.	Net Profit ratio (%)4 = Net Profit/Revenue from operations	4.25%	2.73%	55.27%
7.	Return on capital employed (% ) = EBIT/Capital employed (Average Total Equity + Debts)	13.1%	11.6%	12.45%
8.	Return on Investment (%) = EBIT/Average Total Assets	10.52%	8.72	20.70%
9.	Operating Profit Ratio5=Operating Profit/Revenue from Operation)	10.89%	6.41%	69.90%
10.	Interest Coverage Ratio6 =EBIT/Finance Cost	6.78	3.09	119.47%

Note:

1. Debtor Turnover Ratio increase due to increase in Total revenue against increase in average trade receivables.

2. Return on Equity Ratio increases due to significant increase in Net Profit during the year with positive contribution from key operating segments.

3. Inventory Turnover ratio increases due to significant increase in Revenue and slight increase in Inventory.

4. Net Profit Ratio increases due to significant increase in Profit after Tax in proportion of Total Revenue.

5. Operating profit Ratio increases due to significant increase in operating profit in proportion of Total Revenue

6. Interest coverage ratio increases due to improved earnings and lower principal repayments during the year.

14. DISCLOSURE OF ACCOUNTING TREATMENT

The Company has followed all the treatments in the Financial Statements as per the prescribed Accounting Standards.