Shilchar Technologies Ltd Management Discussions

Economic Overview Indian economy

The Indian economy has demonstrated remarkable resilience and growth in 2023-24, showcasing its ability to thrive amidst global challenges. The latest estimates indicate a robust GDP growth rate for FY24 of 8.2%, surpassing earlier projections and positioning India as one of the fastest-growing major economies worldwide.

This impressive performance can be attributed to a combination of factors, including strategic policy initiatives, increased public investment, and a resurgence in private consumption. The governments focus on capital expenditure, particularly in infrastructure development, has played a pivotal role in stimulating economic activity and creating a multiplier effect across various sectors.

Looking ahead, the economic outlook for India remains optimistic. Projections suggest that the growth momentum is likely to continue, with forecasts indicating a growth rate of around 6.9% for FY25. This sustained high growth trajectory, especially in the face of global economic headwinds, underscores the fundamental strength and resilience of the Indian economy.

The manufacturing sector has emerged as a key driver of growth, expanding by 8.9% year-on-year in the March quarter of 2024. This robust performance reflects the success of government initiatives aimed at boosting domestic production and enhancing Indias competitiveness in global markets.

Despite these positive indicators, challenges remain. The agricultural sectors growth has been modest, and there is a need to address uneven economic recovery across different segments of society. The governments commitment to inclusive growth is evident in its focus on rural development and social welfare programs, aimed at ensuring that the benefits economic expansion reach all sections of the population.

Indias economic policies continue to prioritise fiscal prudence alongside growth. The government has set a fiscal deficit target of 5.9% of GDP for FY24, demonstrating its commitment to maintaining macroeconomic stability while supporting economic expansion.

As India navigates the evolving global economic landscape, it is well-positioned to capitalise on emerging opportunities. The countrys large domestic market, young demographic profile, and ongoing structural reforms provide a strong foundation for sustained growth in the coming years.

In conclusion, Indias economic performance in FY24 has been commendable, characterised by robust growth, improved manufacturing output, and strategic policy initiatives. While challenges persist, the overall trajectory suggests that India is on track to further consolidate its position as a key player in the global economy.

Industry Overview India transformer industry

The Indian transformer industry has been experiencing robust growth in recent years, driven by a combination of strong domestic demand, supply shortages, improved realisations, and increasing export opportunities. This positive trend is expected to continue, supported by several key factors that are shaping the current industry landscape.

Government initiatives for grid-level investments & upgradation and the rapid expansion of renewable energy capacity, particularly in the solar sector, are significant drivers of transformer demand. The improved capital expenditure outlook from both public and private sectors further bolsters this growth trajectory. Additionally, exports are emerging as a crucial demand driver, with Western countries, especially the United States and Europe, showing strong demand interest due to their ageing grid infrastructure, improving mix of renewable energy in the generation capacity and global transformer supply constraints. The transformer market in India is broadly categorised into power transformers and distribution transformers. The power transformer segment, characterised by high technology requirements and stringent pre-qualification norms, is primarily driven by central government and industrial expenditures. In contrast, the distribution transformer market is more fragmented and largely influenced by state government spending. Both segments are experiencing substantial growth, fuelled by the expansion of solar, wind, and other renewable energy capacities, necessitating upgrades at both grid and distribution levels. Several factors are propelling the demand for transformers in India. The solar capacity addition, projected to increase from 15 GW to over 50 GW annually in the next 6-7 years, is driving demand for specialised transformers unique to solar applications. Additionally, the national grid upgradation, spearheaded by entities like Power Grid Corporation of India Limited (PGCIL), is expected to double investments over the next 4-5 years, further stimulating demand.

The transformer market is also benefiting from increased capital expenditure in traditional sectors such as steel and cement, as well as emerging sectors like data centres and corporate adoption of captive green energy solutions. This diversification of demand sources contributes to the industrys robust outlook. Furthermore, the global supply constraints, particularly in the United States and Europe, are creating significant export opportunities for Indian transformer manufacturers. This international demand, coupled with favourable government policies aimed at addressing increasing energy needs, is expected to drive sustained growth in the Indian transformer market.

In conclusion, the Indian transformer industry is poised for continued expansion, supported by a combination of domestic infrastructure development, renewable energy growth, industrial demand, and export opportunities. This positive outlook presents significant opportunities for companies like

Shilchar Technologies to capitalise on the growing market and contribute to Indias evolving energy landscape.

India power sector

The Indian power sector experienced significant growth and transformation in FY24, mirroring the robust economic performance of the country. With Indias GDP growing at an impressive 8.2%, the energy sector saw corresponding increases in demand and infrastructure development.

Electricity demand surged by 7.4% to reach 1,626 billion units (BU), while peak demand hit a record high of 243 GW, representing a 13% increase year-on-year. This unprecedented growth in demand, particularly the peak observed in September

2023, underscores the evolving energy consumption patterns wwin India.

The sector faced challenges due to irregular monsoon rainfall, which led to a 17% decrease in hydroelectric power generation.

To ensure energy security, the government implemented measures such as mandating the blending of imported coal and directing imported coal-based plants to operate at full capacity. These actions, along with announcements of new thermal capacities by several states, highlight the ongoing importance of conventional power sources in meeting Indias growing electricity needs.

Significant strides were made in improving the efficiency power distribution and transmission. Aggregate Technical and Commercial (AT&C) losses improved to 15.4%, driven by enhancements in billing and collection efficiencies. The transmission sector saw substantial investments, with bidding concluded for 29 projects worth 53,000 crore under the Tariff Based Competitive Bidding (TBCB) mode.

Renewable energy continued to gain momentum, with the government setting ambitious targets for capacity addition.

A record 22.9 GW of renewable capacities were auctioned in 2023, more than double the previous years figure. To address intermittency issues, there was increased focus on Pumped Storage Plants (PSP) and battery energy storage systems, with record-low tariffs discovered for tenders including storage components.

The electric vehicle (EV) sector showed remarkable growth, with sales crossing 1.5 million units in 2023, representing a 49% year-on-year increase. The governments approval of the "PM - eBus Sewa" program to deploy 10,000 electric buses nationwide further underscores the push towards electrification in the transportation sector.

Looking ahead, the power sector is poised for continued growth, with electricity demand expected to increase by 5.5-6.0% in FY25. The ongoing focus on renewable energy, improvements in distribution efficiency, and the rapid adoption of electric vehicles are likely to shape the future of Indias power sector, presenting a lot of challenges as well as opportunities.

Renewable energy sector

The Indian renewable energy sector experienced remarkable growth and transformation in FY24, solidifying its position as a key driver of the countrys energy transition. According to the Central Electricity Authority (CEA), the share of installed renewable energy capacity in Indias total generation mix increased from 22% (78 GW) in FY19 to an impressive 33% (144 GW) by FY24. This growth is reflected in the rising contribution of renewables to total electricity generation, which expanded from 9% to 13% during the same period. of

In response to the Ministry of New and Renewable Energys

(MNRE) ambitious directive to tender 50 GW of renewable capacities annually, India witnessed a record-breaking year in

2023. The country auctioned 22.9 GW of renewable capacities, more than doubling the previous years figure. This surge was primarily driven by increased solar volumes (70%) and complex bids (24%), which combine wind, solar, and energy storage solutions. The trend continued into early 2024, with complex bids accounting for nearly 50% of auctions in the January-March period.

While bidding and tendering activities gained momentum, solar and wind auction tariffs experienced an upward trajectory. Solar tariffs increased by approximately 3% year-on-year in 2023, while wind tariffs rose by about 10%. This uptick in tariffs was partly attributed to higher borrowing costs in the sector.

As India progresses towards its net-zero goal by 2070, the need for round-the-clock (RTC) power has highlighted the critical role of energy storage solutions. Significant developments were observed in both Pumped Storage Plants (PSP) and Battery Energy Storage Solution (BESS) sectors. Following the governments issuance of final guidelines in April 2023 to promote PSP development, numerous states and private players announced their participation in this sector.

In conclusion, the Indian renewable energy sector continues to demonstrate robust growth and innovation, driven by supportive government policies, increasing private sector participation, and a growing focus on energy storage solutions. These developments position India favourably to achieve its ambitious renewable energy targets and contribute significantly to global climate change mitigation efforts.

Company Overview

Shilchar Technologies Limited, incorporated in 1986, has established itself as one of Indias most prominent and respected manufacturers of Power & Distribution and Electronics & Telecom transformers. The Companys journey reflects a strategic evolution in its product portfolio, transitioning from R-core transformers in the 1990s to Ferrite transformers in 1995, and ultimately focusing on Distribution & Power transformers from 2004-2007.

At the heart of Shilchars operations is its state-of-the-art manufacturing facility in Gavasad, Vadodara. This flagship plant boasts an impressive annual transformer manufacturing capacity of 4,000 MVA, with ongoing expansion plans set to increase this to 7,500 MVA. The facility is equipped with cutting-edge technology, including PLC-based fully automated foil winding machines, PLC-based autoclave, and a fully automated transformer oil filling system. A key feature of this plant is its dedicated NABL accredited testing laboratory. With its 3 testing laboratories equipped with automatic testing panels for simultaneous testing, Shilchar ensures the highest quality standards are met in all its products.

Shilchars product range extends to transformers up to

50 MVA, 132 KV Class, catering to a diverse array of industries. The company has built a strong reputation for delivering custom-designed, high-quality transformers that meet specific customer requirements. This commitment to quality and customization has been a cornerstone of Shilchars success over the past few decades.

A significant feature in Shilchars growth story has been its expansion into international markets. Over the last decade, the company has successfully established itself as an internationally sought-after brand, with exports now contributing approximately 52% to its top line. Shilchars global footprint extends across North America, South America, and the Middle East, among other regions.

The company serves a wide range of sectors, including Private Utility Companies, Renewable Energy (Solar, Wind & Hydel), Sugar, Steel & Hydrocarbon Industries, Large Scale EPC Contractors, Corporate Clients, and Power Plant Developers.

This diverse customer base underscores Shilchars versatility and its ability to meet the varied needs of different industries.

As part of its strategic growth plan, Shilchar is consolidating its operations at the Gavasad site. The companys older manufacturing facility in Bil, Vadodara, will be phased out once the current expansion at Gavasad is complete. Given the substantial land parcel available at Gavasad, Shilchar plans to concentrate all future capacity investments at this location for the foreseeable future, positioning itself for sustained growth and operational efficiency.

With its strong design capabilities, robust manufacturing setup, commitment to quality, growing international presence, and strategic focus on expansion, Shilchar Technologies Limited is well-positioned to continue its trajectory as a prominent player in the transformer industry, both in India and globally.

FY24 Performance Review

Shilchar Technologies Limited demonstrated exceptional financial performance in FY24, with Revenue from Operations surging to 39,687.82 Lakhs, marking a robust 42% year-on-year growth from 28,024.12 Lakhs in FY23. The companys operating profitability significantly improved, as evidenced by the EBITDA (excluding Other Income) of 11,329.94 Lakhs in FY24, a significant 113% increase from 5,308.24 Lakhs in the previous year. This translated into a substantial expansion of the EBITDA margin, which rose from 19% in FY23 to 29% in FY24. Profit After Tax mirrored this strong performance, growing by 113% to reach 9,188.81 Lakhs, up from 4,312.24 Lakhs in FY23. Notably, Shilchar Technologies maintains a robust financial position with a debt-free balance sheet and substantial cash reserves, positioning the company favourably for future growth initiatives.

Key financial ratios

Particulars	FY23	FY24	% Change	Explanation for more than 25% change
Current Ratio	2.56	3.07	19.96%
Debt-equity Ratio	-	-	-
Debt Service Coverage Ratio	8.26	-	-100%	Due to increase in profitability, term loan repaid and reduction of interest of credit facilities.
Return on Equity (ROE)	42.86%	55.52%	29.52%	Due to increase in profitability.
Inventory Turnover (Times)	10.26	9.60	-6.39%
Trade Receivables Turnover Ratio (Days)	3.48	4.27	22.84%
Trade Payables Turnover Ratio (Days)	5.20	6.28	18.53%
Net Capital Turnover Ratio (Times)	3.39	2.41	-28.83%	Due to increase in working capital in proportion to increase in sales.
Net Profit Ratio	15.39%	23.15%	50.46%	Due to increase in profitability of the Company.
Return on Capital Employed (ROCE)	47.36%	58.24%	22.73%
Return on Investment (ROI)	9.90%	9.27%	-6.35%

Effectiveness of Internal Control

Systems

The Company maintains robust and comprehensive internal control systems to safeguard its assets, prevent unauthorised use or disposal, and ensure the proper authorization, recording, and reporting of transactions. These internal controls are designed to optimise resource utilisation, enhance operational efficiency, monitoroperations,andensurecompliancewith mly believe that investing in our relevant laws and regulations. Additionally, the auditors have affirmed the adequacy and effectiveness of the Companys internal control systems, providing further assurance of their reliability and integrity. These measures contribute to the Companys overall governance framework and instil confidence in the accuracy and transparency of its financial and operational activities.

Human Resource Development and Industrial Relations

Shilchar Technologies places immense value on its employees, considering them essential to the companys success and growth. We prioritise their development by offering extensive training programs aimed at enhancing their skills and knowledge. Our objective is to attract top talent and retain them by positioning ourselves as a preferred employer. We cultivate a collaborative and supportive work environment that promotes open communication and mutual respect. The management is dedicated to ensuring safety, occupational health, and environmental sustainability through meticulous planning, training, and task execution. During the period under review, Shilchar Technologies maintained its status as a "Zero Discharging Pollution Unit." As of 31st March, 2024, our workforce exceeded 130 permanent employees and 320 indirect employees, reflecting our commitment to strengthening ourhumancapital.We employees and maintaining strong industrial relations will drive our continued success and growth.

Cautionary Statement

Statements in the Management Discussion and Analysis and any other part of the report describing the Companys objectives, projections, estimates and expectations may be forward-looking statements. Actual results may differ materially from those expressed or implied due to various risks and uncertainties. Important factors that could make a difference to the Companys operations include economic and political conditions in India and other countries, in which the Company may operate. Other factors that may impact the Companys operations include volatility in interest rates, changes in government regulations and policies, tax laws, statutes, and other incidental factors. The Company does not intend to update these statements.