Sona Machinery Ltd Management Discussions

OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our restated financial statements attached in the chapter titled "Financial Information of the Company" beginning on page 137. You should also read the section titled "Risk Factors" on page 22 and the section titled "Forward Looking Statements" on page 17 of this Draft Red Herring Prospectus, which discusses a number of factors and contingencies that could affect our financial condition and results of operations. The following discussion relates to us, and, unless otherwise stated or the context requires otherwise, is based on our Restated Financial Statements.

Our financial statements have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI (ICDR) Regulations and restated as described in the report of our auditor dated November 25, 2023 which is included in this Draft Red Herring Prospectus under "Financial Statements". The Restated Financial Information has been prepared on a basis that differs in certain material respects from generally accepted accounting principles in other jurisdictions, including US GAAP and IFRS. Our financial year ends on March 31 of each year, and all references to a particular financial year are to the twelve-month period ended March 31 of that year.

BUSINESS OVERVIEW

We are a diversified agro-processing equipment manufacturer, manufacturing equipments for the processing of rice, pulses, wheat, spices, Barnyard Millet etc. Our product portfolio includes Grains Pre-Cleaner machines, Rotary Drum Cleaner, Vibro Classifiers, Stone Separator Machines, Paddy De-Husker, Husk Aspirator, Rice Thick/Thin Grader, Rice Whitener, Silky Polisher, Multi Grader, Length Grader, Belt Conveyer, Bucket Elevator etc. along with the complete projects for rice mills and ethanol distilleries. Our services encompass engineering, erection, supervision, and machine commissioning, delivering a comprehensive end-to-end solution for the milling section which includes grain unloading and milling solution upto pre-masher for ethanol distilleries and paddy unloading to rice packaging for rice mill industries.

Our company started its operations in January, 2021 when it purchased the fixed assets and stock for a consideration of Rs. 465.17 lakhs from "M/s Sona Foods India", which is a proprietorship concern of Narendra Kumar, father of our promoter, Vasu Naren. M/s Sona Foods India is a manufacturing concern which is manufacturing agro-processing equipments since year 2003. Vasu Naren joined the family business i.e. M/s Sona Foods India in year 2015 and now he is looking after the overall business operations of the company.

The companys product portfolio comprises of various equipments including support services for all the equipments manufactured and supplied by the company. As on the date of this Draft Red Herring Prospectus, we are manufacturing and supplying agro-processing equipments under various categories like cleaning, grading, blending, material handling etc. Currently, we have a manufacturing unit situated at Ghaziabad, Uttar-Pradesh with a total area of approx. 52,205 sq. ft. and a warehouse for storage of our material and finished goods. Our manufacturing facility is equipped with requisite infrastructure including machineries and other handling equipment to facilitate smooth manufacturing process.

Our products are spread across various parts of India and we have generated 99.40%, 96.88%, 97.61% and 97.85% of our total revenue from domestic sales for the period ending August 31, 2023 and fiscal year ending 2023, 2022 and 2021 respectively. Further, the company has also exported small portion of its products to the countries like Nigeria, Bangladesh, Kenya, Nepal etc. and generated around 0.60%, 3.12%, 2.39% and 2.15% of our total revenue from export sales for the period ending August 31, 2023 and fiscal year ending 2023, 2022 and 2021 respectively.

Our Company is managed by our Promoter, Vasu Naren who has over 08 years of experience in the milling equipment manufacturing industry and is looking after the overall business operations of the company including sales, marketing, design, quality etc. He is supported by our Chief Financial Officer and Whole Time Director, Shweta Baisla, who has approx. 2 years of experience in same industry and taking care of legal and financial aspects of the company. Their understanding of the consumer difficulty, intuitive entrepreneurship and involvement in key aspects of our business has helped accelerate and drive our profitable growth. We believe that the sector-specific experience and expertise of our promoter has contributed significantly in the growth of our Company.

The following table sets forth certain key performance indicators for the years indicated:

		As of and for the year/period ended
Key Financial Performance	August 31, 2023*	FY 2022-23	FY 2021-22	FY 2020-21
Revenue from Operations(1)	2,703.69	8,096.63	4,451.59	604.19
EBITDA(2)	294.85	1,166.51	530.99	40.40
EBITDA Margin(3)	10.91%	14.41%	11.93%	6.69%
PAT(4)	187.77	770.96	330.02	28.22
PAT Margin(5)	6.95%	9.52%	7.41%	4.67%
RoE(%)(6)	15.23%	102.33%	162.63%	118.52%
RoCE (%)(7)	18.11%	80.01%	77.64%	81.67%

Notes:

(1) Revenue from operation means revenue from sales and other operating revenues

(2) EBITDA is calculated as Profit before tax + Depreciation + Interest Expenses - Other Income ⁽³⁾ ‘EBITDA Margin is calculated as EBITDA divided by Revenue from Operations

(4 PAT is calculated as Profit before tax – Tax Expenses

(5) ‘PAT Margin is calculated as PAT for the year divided by revenue from operations. ⁽⁶⁾ Return on Equity is ratio of Profit after Tax and Average Shareholder Equity

(7) Return on Capital Employed is calculated as EBIT divided by capital employed, which is defined as shareholders equity plus total borrowings {current & non-current}.

Awards and Accreditations

3 ISO 9001:2015 for Quality Management Systems by Das System & Services Pvt Ltd

3 Top 10 Industrial Service Provider 2022 by Industry Outlook

3 Prestigious Brands Asia 2022 by Barc Asia

3 Prestigious Brands Asia 2023 by Barc Asia

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

For details in respect of Statement of Significant Accounting Policies, please refer to "Annexure IV of Restated Financial Statements beginning" on page 137 of this Draft Red Herring Prospectus.

Factors Affecting our Results of Operations

Our business is subjected to various risks and uncertainties, including those discussed in the section titled "Risk Factors" beginning on page 22 of this Draft Red Herring Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:

1. General economic and business conditions in the markets in which we operate and in the local, regional, national and international economies;

2. Disruption in our manufacturing facilities.

3. Disruption in supply of Raw Materials;

4. Our ability to respond to technological changes;

5. Adverse natural calamities having significant impact on regions where we are having projects under implementation;

6. Our ability to attract and retain qualified personnel;

7. Inability to promptly identify and respond to changing customer preferences or evolving trends;

8. Any change in government policies resulting in increases in taxes payable by us;

9. Changes in laws and regulations that apply to the industries in which we operate.

10. Our ability to grow our business;

11. General economic, political and other risks that are out of our control;

12. Inflation, deflation, unanticipated turbulence in interest rates, equity prices or other rates or prices; 13. Companys ability to successfully implement its growth strategy and expansion plans;

14. Failure to comply with regulations prescribed by authorities of the jurisdictions in which we operate; 15. Inability to successfully obtain registrations in a timely manner or at all;

16. Occurrence of Environmental Problems & Uninsured Losses;

17. Conflicts of interest with affiliated companies, the promoter group and other related parties; 18. Any adverse outcome in the legal proceedings in which we are involved; and

19. Concentration of ownership among our Promoter.

20. Global distress due to pandemic, war or by any other reason.

Discussion on Result of Operations

The following discussion on results of operations should be read in conjunction with the Restated Financial Statements for the period ended August 31, 2023 and for the financial years ended on March 31, 2023, March 31, 2022 and March 31, 2021.

			For the financial period/ year ended
Particulars	For the period ending 31.08.2023	% of Total Income	FY 2022-23	% of Total Income	FY 2021- 22	% of Total Income		FY 2020-21	% of Total Income
Revenue From Operation	2,703.69	99.63	8,096.63	99.74	4,451.59	99.97		604.19	99.65
Other Income	9.93	0.37	21.43	0.26	1.48	0.03		2.14	0.35
Total Income	2,713.62	100.00	8,118.06	100.00	4,453.07	100.00		606.33	100.00
Cost of Material Consumed	1,767.76	65.14	5,126.18	63.15	2,906.86		65.28	548.93	90.53
Changes in inventories of finished goods	-205.65	-7.58	-63.06	-0.78	57.52		1.29	-131.91	-21.76
Employee Benefit Expenses	463.20	17.07	942.88	11.61	466.84		10.48	88.09	14.53
Finance Cost	6.54	0.24	51.43	0.63	7.55		0.17	-	-
Depreciation and	40.54	1.49	85.83	1.06	64.48		1.45	11.57	1.91
Amortization Expenses
Other Expenses	383.53	14.13	912.92	11.25	488.00		10.96	58.67	9.68
Total Expenditure	2,455.92	90.50	7,056.18	86.92	3,991.25		89.63	575.36	94.89
Profit/(Loss) Before Exceptional & extraordinary items & Tax	257.70	9.50	1,061.88	13.08	461.81		10.37	30.97	5.11
Exceptional Item			-		-			-
Profit/(Loss) Before Tax	257.70	9.50	1,061.88	13.08	461.81		10.37	30.97	5.11
Tax Expense:
Tax Expense for Current Year	69.68	2.57	300.68	3.70	134.16		3.01	5.61	0.93
Deferred Tax	0.24	0.01	-9.76	-0.12	-2.36		-0.05	-2.86	-0.47
Net Current Tax Expenses	69.92	2.58	290.92	3.58	131.80		2.96	2.75	0.45
Profit/(Loss) for the Year	187.77	6.92	770.96	9.50	330.02		7.41	28.22	4.65

Revenue from operations:

Revenue from operations mainly consists of revenue from manufacturing and supplying of agro-processing equipments including support services like engineering, erection, supervision, and machine commissioning, delivering a comprehensive end-to-end solution for the milling section.

Other Income:

Our other income primarily comprises of Interest Income, Duty Drawback, income from Remission of Duties or Taxes on Export Products Scheme etc.

Total Expenses:

Companys expenses consist of Cost of Goods Sold, Changes in inventories of finished goods, Employee benefits expense, Finance costs, Depreciation and amortization and other expenses.

Purchase of Material:

Our material comprises of purchases of Raw Material.

Changes in the Inventory:

Our changes in the inventory comprises of changes in the Stock of WIP and finished goods.

Employee benefits expense:

Our employee benefits expense primarily comprises of Salaries & Wages, Staff Welfare Expenses, Gratuity, Leave Encashment, and Contribution to provident Fund.

Finance Costs:

Our finance cost includes Interest expense and Other Borrowing cost.

Depreciation and Amortization Expenses:

Depreciation includes depreciation on Property, Plant & Equipments, Furniture & Fixture, Motor Vehicle, Computer & Accessories etc.

Other Expenses:

Our other expenses include Rent, Insurance expenses, Freight, Software Expenses, Travelling Expenses, Job work charges, Commission and Brokerage Expenses, other Miscellaneous expenses like Advertising, Conveyance, Courier charges, Factory Expenses, Legal & Professional charges etc.

For the Period ended August 31, 2023 (Based on Restated Financial Statements)

Total Income:

Total income for the period ending August 31, 2023 stood at 3 2713.62 Lakhs.

Revenue from Operations:

During the period ending August 31, 2023 revenue from operations stood at 3 2703.69 Lakhs.

Other Income:

During the period ending August 31, 2023, other income was 3 9.93 Lakhs.

Total Expenses:

The Total Expenses for the period ending August 31, 2023 stood at 3 2455.92 Lakhs.

Cost of Material Consumed:

During the period ending August 31, 2023, cost of material consumed stood at 3 1767.76 lakhs.

Changes in inventories of finished goods:

During the period ending August 31, 2023, changes in inventories of finished goods was 3 (205.65) lakhs

Employee benefits expense:

Our Company has incurred 3 463.20 Lakhs as Employee benefits expense for the period ending August 31, 2023. Finance costs:

Finance costs for the period ending August 31, 2023 was 3 6.54 Lakhs.

Depreciation and Amortization Expenses:

Depreciation for the period ending August 31, 2023 was 3 40.54 Lakhs.

Other Expenses:

Other Expenses for the period ending August 31, 2023 stood at 3 383.53 Lakhs.

Restated Profit before tax:

The Company reported Restated profit before tax for period ending August 31, 2023 of 3 257.70 Lakhs.

Restated profit after tax:

The Company reported Restated profit after tax for period ending August 31, 2023 of 3 187.77 Lakhs.

Comparison of Financial Year 2023 with Financial Year 2022 (Based on Restated Financial Statements) Total Income:

Total income for the Fiscal year March 31, 2023 stood at 3 8118.06 Lakhs. Total income for the financial year 2021-22 stood at 3 4453.07 Lakhs representing significant increase of 82.30%. The main reason of increase i.e. 81.88% is due to increase in the revenue from business operations of the company. Revenue from top two product categories i.e. Material Handling and Milling & Grading Machines in F.Y 2022-23 has increased by 3 2585.19 lakhs in comparison to F.Y 2021-22.

Revenue from Operations:

During the Fiscal year 2023 revenue from operations was 3 8096.63 Lakhs. Revenue from Operations for the financial year 2021-22 stood at 3 4451.59 Lakhs representing significant increase of 81.88%. The main reason of increase was due to increase in the business operations of the company. Revenue from top two product categories i.e. Material Handling and Milling & Grading Machines in F.Y 2022-23 has increased by 3 2585.19 lakhs in comparison to F.Y 2021-22.

Other Income:

During the Fiscal year 2023, other income was 3 21.43 Lakhs. For financial year 2021-22, it was 3 1.48 Lakhs representing an increase of 1350.16 %. The increase was mainly due to increase in the amount forfeited on account of non-performance of services by vendors.

Total Expenses:

The Total Expenses for the Fiscal year 2023 stood at 3 7056.18 Lakhs whereas the same was 3 3991.25 lakhs in Fiscal year 2022. The total expenses represented an increase of 76.79% as compared to previous year. The increase in total expenses was mainly due to increase in the production and revenue of the company.

Cost of Material Consumed:

Total cost of material consumed for fiscal year ending 2023 stood at 3 5126.18 lakhs whereas the total cost of material consumed for fiscal year ending 2022 was 3 2906.86 lakhs representing an increase of 76.35% due to increase in the production and revenue of the company.

Changes in inventories of finished goods:

During the fiscal year ending March 31, 2023, changes in inventories of finished goods was increased by 3 120.58 Lakhs. Employee benefits expense:

Our Company has incurred 3 942.88 Lakhs as Employee benefits expense for the Fiscal year 2023. It stood at 3 466.84 Lakhs during the financial year 2021-22, representing an increase of 101.97%. The said increase is due to the significant increase in salaries and Director Remuneration of the company.

Finance costs:

Finance costs for the Fiscal year 2023 was 3 51.43 Lakhs and for financial Year 2021-22, it was 3 7.55 Lakhs, representing an increase of 581.45%, which is mainly due to the increase in Interest Expenses and other borrowing cost.

Depreciation and Amortization Expenses:

Depreciation for the Fiscal year 2023 was 3 85.83 Lakhs. For financial year 2021-22, it stood at 3 64.48 Lakhs, representing an increase of 33.11% due to increase in the fixed assets of the Company.

Other Expenses:

Other Expenses for the Fiscal year 2023 stood at 3 912.92 Lakhs. For Financial Year 2021-22, other expenses were 3 488.00 Lakhs. The significant increase of 87.08% was mainly due to increase expenses like Insurance Expenses, Software Expenses, Job work Charges, Commission and Brokerage Expenses, Advertisement expenses, Foreign exchange gain/loss, finance cost, legal and Professional charges etc.

Restated Profit/ (Loss) before tax:

Restated Profit before tax for the Fiscal year 2023 was 3 1061.88 Lakhs. For financial year 2021-22, it was 3 461.81 Lakhs, representing an increase of 129.94% which was due to the increase in the revenue of the company which increased by 81.88%.

Restated Profit/ (Loss) after tax:

The Company reported Restated profit after tax for the Fiscal year 2023 at 3 770.96 Lakhs. For financial year 2021-22, it stood at

3 330.02 Lakhs, representing an increase of 133.61% in Fiscal year 2023 as compared to fiscal year 2022 due to increase in the revenue of the company which increased by 81.88%.

Comparison of Financial Year 2022 with Financial Year 2021 (Based on Restated Financial Statements)

Our company was incorporated in year 2019, but started its operations in January, 2021 when it purchased the fixed assets and stock for a consideration of Rs. 465.17 lakhs from "M/s Sona Foods India", which is a proprietorship concern of Narendra Kumar, father of our promoter, Vasu Naren. Since the business operations began in the last quarter of FY 2020-21 only, revenue from operations was generated and recorded for three months only, which is not comparable with F.Y 2021-22.

Information required as per Item (II) (C) (iv) of Part A of Schedule VI to the SEBI Regulations:

An analysis of reasons for the changes in significant items of income and expenditure is given hereunder:

1. Unusual or infrequent events or transactions

There has not been any unusual trend on account of our business activity. Except as disclosed in this Draft Red Herring Prospectus, there are no unusual or infrequent events or transactions in our Company.

2. Significant economic changes that materially affected or are likely to affect income from continuing operations.

There are no significant economic changes that may materially affect or likely to affect income from continuing operations.

3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section "Risk Factors" beginning on page 22 of the Draft Red Herring Prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

4. Future changes in relationship between costs and revenues

Other than as described in the sections "Risk Factors", "Our Business" and "Managements Discussion and Analysis of Financial Condition and Results of Operations" on pages 22, 90 and 175 respectively of this Draft Red Herring Prospectus, to our knowledge, no future relationship between expenditure and income is expected to have a material adverse impact on our operations and finances.

5. Total turnover of each major industry segment in which our Company operates

Our business activity primarily falls within a single business and geographical segment, i.e., is engaged in the business of manufacturing and supplying of agro-processing equipments including support services like engineering, erection, supervision, and machine commissioning, as disclosed in "Restated Financial Statements" on page 137 of this Draft Red Herring Prospectus, we do not follow any other segment reporting.

6. Status of any publicly announced New Products or Business Segment

Except as disclosed in the Chapter "Our Business", our Company has not announced any new product or service.

7. Seasonality of business

Our business is subject to seasonality. For further information, see "Risk factor" - "The agriculture sector is seasonal in nature. We experience the effects of seasonality, which may result in our operating results fluctuating significantly and also, reduce our sales" on pages 22 of this Draft Red Herring Prospectus, respectively.

8. Dependence on single or few customers

Given the nature of our business operations, we do not believe our business is dependent on any single or a few customers. For further information, see "Our Business" on pages 90 respectively.

9. Competitive conditions

Competitive conditions are as described under the Chapters "Industry Overview" and "Our Business" beginning on pages 77 and 90 respectively of this Draft Red Herring Prospectus.

10. Details of material developments after the date of last balance sheet i.e. August 31, 2023.

After the date of last Balance sheet i.e., August 31, 2023, the following material events have occurred after the last audited period:

1. The Authorized Share Capital of the Company was increased from 3 10,00,000 divided into 1,00,000 Equity Shares of 3 10/- each to 3 15,00,00,000 divided into 1,50,00,000 Equity Shares of 3 10 vide Extra Ordinary General Meeting held on September 11, 2023.

2. The Board of Directors in their meeting held on September 13, 2023 allotted 1,00,00,000 Bonus shares in the ratio of 100:1 i.e., one Hundred Equity shares for every one Equity share held by each shareholder.

3. The company has approved the Audited Financial statements for the financial year ending March 31, 2023 in the Board meeting dated September 04, 2023.

4. A special resolution passed by the shareholders at the Extra Ordinary General Meeting held on September 21, 2023, the name of our Company was changed from "Sona Machinery Private Limited" to "Sona Machinery Limited" vide a Certificate of Incorporation Consequent upon conversion to public company dated October 17, 2023 issued by the Registrar of Companies, Delhi.

5. The company has approved the Audited Financial statements for the period ending August 31, 2023 in the Board meeting dated November 20, 2023.

6. The Company has approved the Restated Financial Statements for the period ended August 31, 2023 and for the financial year ending March 31, 2023, March 31, 2022 and March 31, 2021 in the Board meeting dated November 25, 2023.

7. The Issue has been authorized by our Board pursuant to a resolution passed at its meeting held on November 01, 2023 and by our Shareholders pursuant to a special resolution passed pursuant to Section 62(1)(c) of the Companies Act, 2013 at the Extra Ordinary General meeting held on November 06, 2023 to raise funds by making an Initial Public Offering.

8. Our Company has approved the Draft Red Herring Prospectus vide resolution in the Board Meeting dated November 29, 2023.