Tarapur Transformers Ltd Management Discussions.

INDUSTRY OVERVIEW

India is on the verge of becoming major power nation among developing economies. Electricity is a key constituent for the economic growth of the country and is directly linked to GDP of the country. There has been a surge in demand for power in India due to increase in capacity utilisation, industrialisation, urbanisation and population.

Distribution Transformers play a very important and vital role in delivering electricity to the last mile. It can be rightly said that the distribution industry is bringing light in the life of the people. The thrust by the Indian Government to provide quality power to each village and every household through various schemes of electrification like DDUGJY/ IPDS/ RAPDRP/ Saubhagya has given a huge fillip to the demand of distribution transformers all over India. The government plans to add 93 GW by 2022, this would fuel the demand for power transmission and distribution equipment in the country.

Further, For the rapid development of the domestic electrical equipment industry, such as generation equipment (boilers, turbines, generators) and transmission & distribution (T&D) and allied equipment like transformers, cables, transmission lines, switchgears, capacitors, energy meters, instrument transformers, surge arrestors, stamping and lamination, insulators, insulating material, industrial electronics, indicating instruments, winding wires, etc. which encompassing the complete value chain in power generation, transmission and distribution, a holistic Mission Plan launched by the Department of Heavy Industry (DHI), Government of India, with support from IEEMA.

The India Power & Distribution Transformer market is forecast to reach $2.9 billion by 2022.

Government is taking major steps to strengthen the power transmission & distribution network and has undertaken initiatives such as UDAY for financial turnaround of power distribution companies. Further, the Government of India has projected an investment of INR 146,000 crore in power transmission sector by f.y. 2019 to strengthen the transmission network thus increasing the demand for power transformers.

With implementation of UDAY and other discom schemes there is a huge acceleration of infrastructural amendment in India. This has in luenced invitation for bides for refurbishment and up-gradation of existing T&D network. Thanks to Indian government in bailing out most of the discoms in order to make them financially self-sufficient so that they distribute electricity at reasonable cost to domestic and industrial users. It has really taken care of all the issues spread across India right from remotest village to the nearest town. So naturally transformers are on demand all across India because energy distribution always needs this single most important device in the network that is transformer.

Opportunities:

In order to make growth in the industry, the government has launched schemes like DDUGJY, IPDS and NEF for improving distribution sector since distribution sector is a link between consumers and utilities. All these projects will lead to lot of demand of transformers in coming 3 years. But only there must be properly and timely implementation of these projects.

Other growth of the industry is based on the design. The design should be in such a way that material required for manufacturing transformers should be available freely (many suppliers) and less customized materials need to be ordered. The windings should be made easy so that workmen find them easy to assemble. The other growth driver is coordination between different departments (active path and tanks).

Threats

Indias transformer market is predominantly unorganized with many small participants catering to the smaller distribution transformer markets. This makes the market more competitive and price sensitive rather than quality.

Economic growth has stabilized and downside risks have fallen. The company will have good opportunity to secure projects orders. Although there is stiff competition in the market, yet because of vide product range, innovation and Adoption of new technologies. The company has taken various initiatives with an aim to address these concerns.

Ratio:

There is no significant change in the financial ratio as compared to the previous financial year.

In the current year, the Return on Networth of the company is 0.19% compared to -28.96% in the previous year. The company earned Profit in the current year which result into showing the positive result in return on networth of this year.

Product-wise performance:

During the financial year 2018-19, your Company has achieved total turnover of Rs. 1581.04 Lakh and has incurred net Profit of Rs. 73.49 Lakh.

The Company has net worth of about Rs. 3924.51 Lakh as on March 31, 2019.

OUTLOOK FOR THE COMPANY:

The demand of distribution transformers will keep on increasing due to increase in generation capacity of both conventional and non-renewable sources due to increase in per capita consumption of electricity and new avenues like electric vehicle charging stations etc. The demand will also increase due to replacement of old transformers with energy efficient transformers.

Large outlay by the Government on infrastructure projects and ambitious target of solar and wind energy projects is likely to improve tender / enquiry in pipeline for potential business. Initiatives such as UDAY, DDUGJY, aggressive renewable energy target, the new hydro policy and the massive transmission connectivity plans is expected to gradually ease competitive pressure. These reforms are ambitious. If executed properly, they could have a significant impact on the sector in the next few years. With this background, the Company looks forward to improve business in volume term in current year, but margin continued to be under pressure in view of surplus capacity with organized sector players in industry. As the number of competitors in the higher range of power transformers manufacturing is very small, the board still foresees a bright future for the Company. However, the targeted profitability will be achieved only after the Company meets the minimum qualifying criteria set up by various utilities who happen to be our main customers.

RISK & CONCERNS

The major risk factors affecting the Company are over capacity in industry, non-lifting of ready materials due to cash constraints at customers end building inventory and liquidity issues, increase in receivable positions due to delay in payment by certain customers, uncertainty in execution of low fixed price orders. The wide fluctuation of rupee against US Dollars also affects margin since the key raw materials, viz. copper, transformer oil, special steels for lamination, etc., are of import origin. Our future results of operations could potentially be affected by the following factors:

• Our ability to manufacture transformers as per the requirement of our clients;

• Our ability to continuously operate and maintain our manufacturing facilities optimally;

• Our ability to continue to source raw material at competitive rates;

• Our ability to manufacture transformers using the latest technologies in terms of modern materials, components and processes.

• Our ability to generate working capital funds at reasonable interest rates.

HUMAN RESOURCES AND INDUSTRIAL RELATION:

The company has maintained very harmonious & cordial Industrial relations. There is continuous emphasis on development of human resources through training. The issues pertaining to workers are resolved in harmonious and in cordial manner through regular interactions. We believe whatever we achieved from where we started our journey long back is the result of the orts of our team. So, we consistently aim to provide a sustainable environment for learning right from the stage of recruitment to retention.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Internal audit was carried out by firm of Chartered Accountants, who conduct the audit on the basis of Annual Audit Plan. The processes include review and evaluation of the effectiveness of the existing processes, controls and compliances. It also ensures adherence to policies and systems, and mitigation of the operational risks perceived for each areas under audit. Significant observations including recommendations for improvement of the business processes were reviewed by the management before reporting to the Audit Committee. The committee has reviewed the Internal Audit procedures, findings and status of implementation of the agreed action plan.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis Report, describing the Companys objectives, projections and estimates, are forward-looking statements and progressive within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the companys operations include global and domestic demand and supply conditions affecting selling prices, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.

On behalf of the Board of Directors,
For Tarapur Transformers Limited
Sd/-
Suresh More
DIN: 06873425
Chairman Mumbai, 13th May, 2019