somi conveyor beltings ltd share price Management discussions

This Management Discussion and Analysis report presents the key performance highlights of the year 2022-23 pertaining to the Companys business. This discussions related to the Companys financial condition and result of operation should be read in conjunction with the Integrated Report presented in the earlier sections of this Annual Report, the Companys financial statements, the notes thereto and the other information included elsewhere in this Annual Report. The Companys financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS), complying with the requirements of the Companys Act 2013 and SEBI (LODR) Regulations, 2015.

FINANCIAL HIGHLIGHTS

The financial statements have been prepared in accordance with the requirement of the Companies Act, 2013, and applicable accounting standards issued by the Institute of Chartered Accountants of India. The management accepts the integrity and objectivity of these financial statements as well as the various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements are reflected in a true and fair manner and also reasonably present the Companys state of affairs and profit for the year.

The following table gives an overview of the financial results of the Company and its comparison with previous year results:

(Rs.in Lakhs)

	Year ended 31st March 2023	% of Revenue	% Growth / (% Decline)	Year ended 31st March 2022	% of Revenue
Revenue	9369.57	100.00%	63.98%	5713.85	100.00%
Earnings before interest, tax, depreciation	727.21	7.76%	24.34%	584.51	10.23%
Profit Before Tax	427.46	4.56%	66.18%	257.23	4.50%
Profit After Tax attributable to shareholders of the Company	346.81	3.70%	102.13%%	171.58	3.00%
Total Comprehensive Income for the period attributable to Owners	335.60	3.58%	95.59%	171.58	3.00%
Earnings per Share (in Rs.)	2.94	-	1.01%	1.46	-

During the year 2022-23, the Company has continued implementation of its business strategy to give a better performance as compared to previous year. Your Company achieved revenue from operations for the year aggregated to 9369.57 Lakh registering an increase of 63.98% over the previous years revenue of Rs. 5713.85 Lakh. Your Company was able to earn Net Profit Rs. 346.81 Lakh an increase of 102.13% as compared to previous year.

Segment-Wise and Product-Wise Performance

The Company has only one Segment which is manufacturing and sale of Industrial Conveyor Belts.

Key Financial Ratios

In accordance with the SEBI (Listing Obligations and Disclosure Requirements 2018) (Amendment) Regulations,2018, the Company is required to give details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios. The Company has identified the following ratios as key financial ratios: -

	Units	Year ended 31st March 2023	Year ended 31st March 2022	% Change	Reason for Change (In case if change is more than 25%)
Debtors Turnover	Days	125	167	(25%)	Due to higher revenue, receivable cycle increased
Inventory Turnover	Days	124	281	(56%)	Due to higher revenue, inventory cycle increased
Interest Coverage Ratio	Times	1.77	1.85	(4%)
Current Ratio	Times	2.19	1.99	10%
Debt Equity Ratio	Times	0.26	0.44	(40%)	Due to higher re-payment schedule in Term Loans within current FY, previously moratorium period exits hence repayment portion was comparatively low.
Operating Profit Margin	%	5.64%	6.22%	(9%)
Net Profit Margin	%	3.70%	3.00%	(23%)

Change in Return on Net Worth

S. No. Particulars	FY 23	FY 22	% Change	Reason for Change
1. Return on Net worth	5.31%	2.71%	96%	Due to higher revenue and PAT in quantum RONW increased.

INDUSTRIAL SCENARIO

In 2022, the size of the global conveyor belt market reached US$ 6.6 billion. Looking ahead, IMARC Group projects that the market will increase at a compound annual growth rate (CAGR) of 3.15% from 2023 to 2028, reaching US$ 8.0 billion. Some of the main market-driving drivers include the expanding automation, expanding infrastructure development, and the rising demand in the manufacturing sector.

The Russia-Ukraine war disrupted the chances of global economic recovery from the COVID-19 pandemic, at least in the short term. The war between these two countries has led to economic sanctions on multiple countries, a surge in commodity prices, and supply chain disruptions, causing inflation across goods and services and affecting many markets across the globe.

The India conveyor belt market reached a value of US$ 503.1 Million in 2022.

The ‘Make in India policy of the Government will also boost the conveyor belting industry in terms of its increased volume of markets as domestic manufacturers will be given precedence in the Indian market.

The Industry of Conveyor Belts has been witnessing a gradual shift in terms of consumer preferences from traditional conveyor belts to better quality premium products. It is also attracting healthy competitive environment, where players are applying different strategies to tap growing demand in the market space. The global Conveyor Belts market is fragmented and characterized by the presence of large international and regional vendors. Vendors compete in terms of price, brand image, turnaround time, quality, proximity to service centers, technical expertise and previous installation history. The industry is made up of several large players who provide a large variety of standard type commodities and many smaller niche players who offer more custom products and solutions.

ABOUT THE COMPANY

Somi Conveyor Beltings Limited ("The Company") being the pioneers of the conveyor belt industry and provider of innovative solutions to our customers for over three decades has emerged as one of the worlds leading conveyor belt manufacturer. The Company is engaged in manufacturing and distribution of premium quality customized Conveyor Belts to its clients across the globe that are used for different purposes.

The Company has wide range of Conveyor Belts include M-24, Tiger M-27(Superior Abrasion Resistance), HR Grade, SHR Grade, SHR T2 Upto 150 Deg Conveyor Belts, UHR Grade, UHR T3180 Deg Conveyor Belts, SEHR-36 & 72 (Crack-Resistant upto 350 Degree), Fire Resistant SEFR-81, Oil Resistant Conveyor Belts, SAR-36 Fusion Belt(Combination of Fabric Belt and Steel Wires), STA(Bullet Proof Aramid Fabric), Pipe Conveyor Belts (Streamlined Material Transportation with Unparalleled Efficiency), Steel Cord Conveyor Belts, Chevron, Rough Top, Rubber Sheets and Mattings etc.

Our plants are equipped with fully automatic and computerized machinery, operating on 100% PLC technology. We take immense pride in producing world-class quality conveyor belts under our brand name, Somiflex. With an installed capacity of 9,00,000 meters per annum, we offer a range of conveyor belts up to 2000mm in width, equivalent to Fenner, Yokohama, Dunlop, and Continental.

At SOMI CONVEYOR BELTINGS LTD, we cater to various industries, including cement, sponge iron, power, and mining sectors. Our products are well accepted by large industrial groups across the globe, owing to their superior quality and durability.

Our team of highly experienced and knowledgeable professionals, which includes engineers, quality analysts, management and administrative staff, and other specialized laborers, places a strong emphasis on the quality compliance of our goods to assure outstanding quality.

Somi Conveyor Beltings Limited today has grown tremendously in terms of quality, volume and variety, striving even further for the best. The goal of the Company is to manufacture and deliver the highest quality conveyor belts for applications in the commercial, industrial and consumer markets worldwide.

STRENGTHS

Our conveyor belts prioritize reliability durability and efficiency we use advanced technology and strict quality guidelines to ensure our products are of unmatched quality.

Our research and development team is dedicated to producing innovative products that cater to evolving industry needs we constantly update our existing product range.

Our commitment to innovation and quality doesnt come at a premium price we offer competitive rates for our high- quality conveyor belts, ensuring the dark lines receive crime value for investment.

OPPORTUNITIES

At present, the rising demand for conveyor belts in the manufacturing industry to streamline operations represents one of the key factors contributing to the growth of the market. Besides this, the growing adoption of conveyor belts due to the rising infrastructure development across the globe is offering a positive market outlook.

Additionally, the increasing utilization of conveyor belts in the aviation industry to transport products and baggage timely, conveniently, and provide abrasion resistance and durability is bolstering the growth of the market. Apart from this, the rising demand for conveyor belts in the mining and metallurgy sector to segregate metals and waste is impelling the growth of the market.

Moreover, the increasing emergence of automation in conveyor belts to increase productivity, improve quality, and reduce cost is offering lucrative growth opportunities to industry investors. In addition, technological advancements in the conveyor belts, such as single-row deep groove ball bearings that assist in optimizing performance capabilities, providing longer service life, and reducing downtime, are supporting the growth of the market. Furthermore, the increasing number of warehouses and distribution channels around the world is strengthening the growth of the market.

Your Companys product is regularly used for material handling purposes in different sectors such as mining, cement production, steel & iron, etc. and can transfer a large volume of materials in all directions with ease. The product is an ingenious way to increase productivity in industries and to reduce labor cost. Looking at the future scenario of Conveyor Belting Industry and increasing demand for the same in different industries, there are ample opportunities available and your Company will surely maximize its wealth in the coming years. In India the focus is on indigenous supply of product with the slogan "be vocal for Local". Many Government sectors have debarred Global tenders and the target is giving preference to domestic manufacturers to promote make in India. Additionally, the Government is initiating process of auctioning coal seams to private players for them to carry out production independently where there is a significant business opportunities for our product.

RISKS AND CONCERNS

The Companys robust risk management framework identifies and evaluates business risks and opportunities. The Company recognizes that these risks need to be managed and mitigated to protect its shareholders and other stakeholders interest, to achieve its business objectives and enable sustainable growth. The risk frame work is aimed at effectively mitigating the Companys various business and operational risks, through strategic actions. Risk management is embedded in our critical business activities, functions and processes.

The risks are reviewed for the change in the nature and extent of the major risks identified since the last assessment. It also provides control measures for risks and future action plans.

The Audit Committee has additional oversight in the area of financial risks, controls and Internal Audit reviews. The Company believes that the overall risk exposure of present and future risks remains within risk capacity.

The Business of the Company is exposed to several internal and external risks. It has to also deal with certain micro and macro risks that affect the Companys strategy implementation. The Company have in place robust framework, internal processes, systems and controls to monitor, manage, govern, mitigate risks and turning them into opportunities for strengthening the position of the Company.

Some of the key existing and emerging risks affecting the Company are as follows

Risk Type	Key Risk	Impact	Mitigation
Strategic Risk	Long term growth dependent on of capacity expansion	Capacities utilization across all the plants are inching up gradually and with business environment turning favorable growth in long term will be dependent on Capacity addition.	Debottlenecking exercise across all the facilities are being carried every quarter. Optimum scheduling of production across different products thereby improving yield. Possibility of setting up new lines wherein Company has project Management expertise.
Operational Risk	Employee Productivity and retention	Employee involvement and productivity is one of the key factors to be competitive in industry. Being a labour intensive sector employee welfare assumes significance	Company has strong commitment towards creating and providing safe working environment for its employee and stakeholders. Focused approach to retain key talent through multiple initiatives including providing cross functional access and experience. Focus on employee engagement. Increased focus on offering learning opportunities with allocation of funds for training requirements.
	Competition	The Company faces competition in the business field it operates in. As a result, the Company is exposed to dual risk of either being displaced by existing or new competitors or its products being replaced by product innovations and new technological features. Customer dissatisfaction on price, quality, delivery performance, and design could lead to loss of market share.	The Company ensures close cooperation with its key customers on product development. It has implemented strict product quality controls in order to reduce the likelihood of substitution. The company remains ahead on technology front on light weighting the products to offer best in class products to its customer.
Financial Risk	Credit Rating	Failure to maintain credit ratings could adversely affect cost of funds.	Regular exchange of information and updates with agency. Focused approach to work on areas of improvement and to build upon areas of strength. Close monitoring of triggers highlighted in rating rationale
	Credit Risk	Credit Risk Customer default can pose a significant challenge and impact the bottom line of the Company.	Systems are in place to assess the credit worthiness of new as well as existing customers.
Legal Risk	Regulatory environment & compliance	The Company is subject to numerous laws regulations and contractual commitments. Any failure to comply with same may impact the Company adversely.	The Company has policies systems and procedures in place with a strong commitment from the Board and the Executive Committee towards compliance.

OUTLOOK

The Company expects financial year 2023-24 to be a optimistically challenging year due to a few reasons. According to the World Economic Outlook (WEO) Russia-Ukraine conflict continues to overshadow the world economy, "Economic damage from the conflict will contribute to a significant slowdown in global growth in 2023 and add to inflation." Supply disruptions have become the norm and will result in higher and more broad-based inflation. The outlook remains positively upside.

There is a continuous thrust from the management to develop a strong R&D and technical service team to develop new products, explore new applications and understand better the changing customer needs.

Against such see-sawing outlook, SCBL continues with its cautious approach. The focus of your company continues to be on investing in good costs and cutting down bad costs, employee safety and conserving cash. The Company is cutting down on all avoidable costs and focusing on good costs - R&D, eTraining, brand building, etc.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company believes that internal controls is one of the key pillars of governance, which provides freedom to the management to operate within a framework of appropriate checks and balances. The Company maintains a robust framework of internal controls that are in accordance with the nature and size of the business. The framework addresses the evolving risk complexities and underpins the Companys strong corporate culture and good governance. The Internal Audit plan is approved by Audit Committee at the beginning of every year. The purpose of an internal audit is to examine and evaluate the internal controls and risks associated with the Companys operations. It covers factories, warehouses, and centrally controlled businesses and functions.

Internal checks and controls covering operations of the Company are in place and are constantly being improved upon. Adequate systems exist to safeguard Companys assets through insurance on reinstatement basis and maintenance of proper records. The company has well-defined procedures to execute financial transactions.

While these controls comply with the terms of the Companies Act, 2013, and the globally accepted framework issued by the Committee of Sponsoring Organisations (COSO) of the Treadway Commission, they are also regularly tested by statutory and internal auditors for their effectiveness. The framework is a combination of entity-level controls that include enterprise risk management, legal compliance framework, internal audit and anti-fraud mechanisms such as the Ethics Framework, Code of Conduct, Vigil Mechanism and Whistle-Blower Policy, and process-level controls. The Company has clearly defined the policies, SOPs, Financial & Operation RAPID (Delegation of Authority), and organisational structure to ensure smooth conduct of its business. The extensive risk-based process of internal audits and management reviews provides assurance to the Board with respect to the adequacy and efficacy of internal controls.

Internal audit reports are reviewed by the Audit Committee every quarter. The head of internal audit reports functionally to the Audit Committee and administratively to the Chairman and Managing Director of the Company. Key internal audit findings are presented to the Audit Committee in quarterly meetings. Further more, the Committee also monitors the management actions implemented as a result of the internal audit reviews. Therefore, it conducts regular audits and review processes to ensure that the systems are continuously strengthened to improve effectiveness. The management has evaluated the operative effectiveness of these controls and noted no significant deficiencies or material weaknesses that might impact the financial statements as of 31 March 2023.

The framework comprises of a well defined organisation structure, roles and responsibilities, documented policies and procedures, financial delegation of authority, ERP controls, among others. IT policies and processes ensure mitigation of business risks through controls. These policies are complimented by a management information and monitoring system, which ensures compliance with internal processes, as well as with applicable laws and regulations.

The Companys internal control environment ensures efficient conduct of operations, security of assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records and the timely preparation of reliable financial information.

Most importantly, the senior management adopts policy of ‘zero tolerance to non-compliance and promotes a culture of continuous innovation and improvement. The management also supports independent and objective internal auditing and implements recommendations of the internal audit.

HUMAN RESOURCES

Your Company strongly believes that to achieve continual success, a dedicated and devoted workforce is very much required to get high performance and improved productivity. This has been endlessly encouraged by evolving human resource management systems and processes of your Company. Your Company believes that its employees are its core strength and accordingly development of people and providing a best-in classwork environment is a key priority for the organization to drive business objectives and goals. Robust HR processes and policies along with Digital HR tools are in place, which enables building a stronger performance culture and at the same time developing current and future leaders.

Further, your Company is strongly focused towards utilisation of its manpower to the optimum level. The positive approach and cordial relationship between the Management and Unions has resulted in smooth industrial relations during the year under review. The relationship has developed over the years and has played a significant role in smooth running of your Company.

Our people form an integral part of our journey towards transformational, responsible and sustainable change. Our people policies are designed to provide an excellent work environment that is safe, conducive, harmonious and support all round development of our employees. Our transition towards a Greener, Stronger and Smarter future is augmented by our efficient and safe operations. Our Values, Code of Conduct, Human Rights policies and practices empower employees to raise their voice in case of any discrimination, without any fear of retaliation.

As on 31st March, 2023, the Company had 106 on roll employees. These employees provide an excellent combination of experienced and young workforce and talented technical managers.

STATUTORY COMPLIANCE

The Board regularly examines the declarations and the compliance report in relation to the applicable statutes, enactments, and rules of the laws applicable to the Company as well as the actions taken by the Company to address any instances of non-compliance, if any. Managing Director gives a declaration of compliance to the Board with respect to the applicable provisions of Companies Act, 2013, SEBI (LODR) Regulations, 2015 with the Stock Exchanges.

CAUTIONARY STATEMENT

Statements in the Management Discussion & Analysis describing the Companys objectives, projections, estimates and expectations may be ‘forward-looking statements within the meaning of applicable laws and regulations. Results could significantly vary from those stated or inferred. Climate, economic conditions that affect demand-supply and price dynamics in the domestic and international markets where the company operates, changes in governmental regulations, tax laws, and other statutes, as well as other incidental factors, are important variables that could have an impact on the companys operations.