Technocraft Industries (India) Ltd Management Discussions.

Industry structure and developments / BUSINESS OVERVIEW:

The Company is a multi-product manufacturing company manufactures high precision and sophisticated products, mainly for discerning worldwide markets. The Company enjoys a significant position in business industries viz., Drum Closures, Scaffolding systems & accessories, Engineering and Designing Services, Cotton Yarn, Fabric and Garments.

The product line of the Company expands beyond Drum Closures into Scaffolding systems and accessories and 100% Cotton Yarn, Fabric and Garments.

The Cotton Yarn division uses the most modern equipment to manufacture its product assuring world-class quality to its customer. Technocraft is certified ISO 9001:2000 for its Cotton Yarn division.

The Company has diversified operations and manufacturing including, vertically Integrated Textile division of manufacturing of Yarn, Fabric, Garments. It has facility of producing cotton yarn, melange yarn, also having facility of knitting, dyeing and printing and garmenting.

During the year under consideration, the Company has started its new state of the Art Yarn Manufacturing Unit at Amravati Maharashtra having capacity of 31008 spindles. Production capacity of the plant is 20 MTs of yarn per day with 30s Average count. Unit is equipped with highly sophisticated, fully automated machines like Rieter (Switzerland), Saurer (Germany), Muratec (Japan) and other counties. Quality Assurance Laboratory is equipped with latest testing equipment from Uster Switzerland.

Product range suitable to run in this plant is 26s to 40s Combed Compact Hosiery as well as warp yarn with Muratec QPRO Ex and Quantum 3 yarn clearers.

The COVID-19 pandemic is an evolving human tragedy declared a global pandemic by the World Health Organisation with adverse impact on economy and business. Worldwide Industries were impacted, in India as a result of the outbreak started with restrictions on movement of goods, closure of borders etc., in several states followed by a nationwide lockdown from the 25th of March 2020 announced by the Indian Government, to stem the spread of COVID-19. Due to this the operations in all the manufacturing unites, distribution centres, and warehouses got temporarily disrupted.

Drum Closure

Each steel drum requires one set of closure, a precision engineering product so as to ensure that the liquid inside does not spill out. The Company has designed and developed the next generation technology for manufacturing of drum closures. It also manufactures all its gaskets and clamps and offers a full range of drum closure products to its clients. With patented technology, there has been substantial reduction in manufacturing costs, improvement in quality and this has helped catapult TIIL to the second largest global manufacturer of steel drum closures.

Your Company is the second largest manufacturer of steel Drum Closures and continues to enjoy a worldwide market share of about 36% (excluding China). The Company produces a wide variety of closures and related equipment ranging from fully automatic flange insertion systems to cap-sealing tools. The Company caters to all leading steel drum manufacturing companies of the world. The Company has shifted its Rubber Plant in newly constructed Building within the Drum Closure Plant, which has resulted in to improvement in efficiency and reduction in cost of movement of materials and finished products. Company has also acquired a piece of land near its existing Drum Closure plant and has constructed state of the art factory building for moving its Plastic Closure Plant. Both the shifting have resulted in improvement in efficiencies for Drum Closure Division.

The company achieved the revenue from drum Closure segment Rs. 33,595.65 Lakhs as compared to Rs. 33,408.34 Lakhs for previous year, which is increased by 0.56%. Profit before Tax and Interest of the drum closures division was stable as compared to the previous year i.e. from Rs. 8,775.07 Lakhs to Rs. 8,695.76 Lakhs for this year. Out of the total revenue ofdrum division, approximately 90% of revenue was generated from Export Sales

Scaffoldings & Formwork

Scaffolding is a temporary structure used to support people and material in the construction industries, real estate and any other large structures. It is usually a modular system of metal pipes or tubes, although it can be from other materials also.

The Company is a leading Indian manufacturer and distributor of scaffoldings and formwork systems. The Company exports approx. 70% of scaffolding formwork out of India. The Company has been supplying scaffoldings to global markets for over 20 years. During the Financial Year the company has increased its domestic sale, as the Company has started supplying to various infra Projects.

Despite the volatile nature of construction and allied activities, the Scaffolding & Formwork (S&F) market is thriving in India and one can expect brighter times ahead.

With the government laying special emphasis on construction and infrastructural development in the 12th Five Year Plan, opportunities abound in the Indian Scaffolding and Formwork (S&F) Industry. With the demand rising in the wake of ongoing and future projects, S&F manufacturers are keeping pace with the Construction Industry.

The Company has strategically located state-of-the-art manufacturing facilities with installed capacities of 40,000 MT and 25,000 MT in India and China, respectively. The Company is positioned as an end-to-end solution provider owing to its well-integrated manufacturing capability. The Company supplies its products to a diversified set of end markets including oil & gas, power, refineries, petrochemical, infrastructure and commercial construction.

The Company is present in the premium segment of Scaffolding business. Scaffolding segment is growing on the back of the strong demand from the international infrastructure markets and also getting good response from infra projects in India.

The Companys Scaffolding segment comprises of Scaffolding and Formwork business. Its major revenues accrue from overseas markets. The Company is also started giving its scaffolding on renal basis; The Company is finding good scope and margin in this growing business.

Formwork Business

Formwork is the term given to either temporary or permanent molds into which concrete or similar materials are poured. Traditionally, formwork was built using easy to produce timber and plywood, or moisture-resistant particleboard. Over a period of time formwork is now made more of steels which are more durable and reusable.

Looking at Indian governments focus on rapid infrastructural development across the country by constructing railways, roads, bridges, dams, airports, power plants and many more, construction is now growing at a fast pace. Contractors have started adapting newer technologies, faster systems, advanced concrete techniques and better and established management tools.

Engineered Formwork Systems are built out of prefabricated modules with a metal frame - usually of steel or aluminum - and covered on the application (concrete) side with material having the wanted surface structure (steel, aluminum, plastic, timber, etc)

The Company has entered into manufacturing of sophisticated engineered Formwork systems for building, construction and infrastructure projects in India. The Company has state-of-the-art manufacturing plant in India and is well placed to play a larger role in the construction growth in India and overseas, with a network of offices at Mumbai and overseas.

MACHONE

MACH ONE is a very lightweight Formwork system made of high quality Aluminium Extrusion with admirable strength to take on the site conditions. The light weight panels ensure excellent finish, faster construction and high repetition. MACH ONE Aluminum forms is best suited for construction of residential units and mass housing projects. It is fast, simple, adaptable and cost effective. It produces total quality work which requires minimum maintenance and when durability is the prime consideration. The system is designed for maximum repetitions with very stringent tolerances, well designed edges to resist sight abuses. This system is most suitable for Indian condition as a tailor made aluminum formwork for cast in-situfully concrete structure

TEMPORARY LABOUR SHELTER

Turnkey solutions for corporations Workers are your frontline fighters in the war against a possible economic crisis. Keeping your workforce safe will ensure efficient productivity. Protect your work force through Technocrafts effective solution for manufacturing units. Build low cost housing compatible with Govt. of India Guidelines: Low Cost, Modular Two Levels, Optimum Space Utilization, Large Capacity of Beds, Spacious Rooms for People, Quick Assembly Easy Dismantling, Lower Space Requirement. Temporary On-site facility for 100 workers can be erected in 7 days.

The revenue of Scaffolding Segment was increased by 3.44% during the Financial Year 2019-20 as compared to previous Financial Year. The revenue generated from this division for the current financial year 2019-20 wasRs. 50,124.07 Lakhs and for the previous year Rs. 48,456.94 Lakhs.

Profit before Tax and Interest for the year was increased to Rs. 7,763.00 with that of previous year i.e., Rs. 7,756.46.

Yarn

The Company produces variety of products ranging from NE 20 to NE 40, Carded and Combed varieties of Cotton Yarn. The Spinning mill is equipped with world-class Swiss, Japanese, German, Spanish equipment. Currently, the Company exports approx. 71% ofyarn products mainly in Europe, Asia, Latin American countries etc.

The Company manufactures premium quality active wear products and provides superior service. Products are custom knit, dyed, finished, cut, sewn, decorated, packaged and distributed.

Being part of a diverse group, the Company has access to the latest trends in the European markets, thus enabling it to offer high quality products and latest fashions with Indian prices in a very short lead-time.

During the Financial Year the revenue of Yarn Division was decreased as compared to last Financial Year. Total revenue from the segment in the Financial Year 2019-20 was Rs. 26,719.89 Lakhs as compared to Rs. 27,227.92 Lakhs for previous year. This division generated loss before Interest and Tax of Rs. 487.57 Lakhs as compare to Loss of Rs. 587.07 Lakhs of last year amid challenging business environment.

Fabric/ Garments

Changing lifestyles and increasing demand for quality products are set to fuel the need for apparel and corresponding growth in Garment Units.

During the current Financial Year the revenue from the Garment Division was increased to Rs. 14,997.92 Lakhs as compared to previous year of Rs. 13,540.07 Lakhs, which is increased by 10.77%. Further, this segment generated loss before interest and tax of Rs. 677.00 Lakhs as compare to loss of Rs. 895.46 Lakhs for previous year, again due to challenging business environment.

Captive power generation

The Company has a coal based captive power generation plant of 15MW to cater to its power requirements, resulting into less dependence on state electricity board and surety of continuous power supply to all its divisions.

During the current Financial Year the revenue from power division was decreased to Rs. 5,134.66 Lakhs as compared to previous year of Rs. 5,324.96 Lakhs which shows decrease of 3.57%. However, profit before tax and interest was decreased to 513.17 Lakhs against 874.65 Lakhs of previous year.

Engineering & designing services through Subsidiary

Technosoft Engineering Projects Limited (‘Technosoft) is a subsidiary of the Company. Technosoft is a global technology services company offering broad-based engineering, designing and IT services using a variety of client-partnership models for delivery. Technosofts client base spans various industry verticals including heavy machinery, automotive, aerospace, manufacturing, oil & gas, high-tech, telecom, healthcare and financial services. The companys client base is widely spread globally including many clients from US, Canada, UK and Germany.

Technosoft has a strong team of over 300 engineers and designers located worldwide. Its engineers and designers are equipped with state-of-the-art hardware and software tools, including tools for 3-D modeling, Finite Element Analysis and process simulation.

Technosoft operates in North America through its subsidiaries, which provides general engineering & designing services OPPORTUNITY & FUTURE PLAN

For an enterprise there is nothing more important than to find and exploit new market opportunities. The Company is focusing in exploring new products in scaffolding / formwork ‘Temporary Labour Shelter and ‘Mach One are the some examples of it. The Company has also started new spinning unit at Amravati.

The Government of India has set an ambitious target of increasing the contribution of manufacturing output to 25 percent of Gross Domestic Product (GDP) by 2025.

The Government of India has taken several initiatives to promote a healthy environment for the growth of manufacturing sector in the country. Likewise Ministry of Heavy industries and Public Enterprises, in partnership with industry associations, has announced creation of a start-up center and a technology fund for the capital goods sector to provide technical, business and financial resources and services to start-ups in the field of manufacturing and services.

Focus of the company is to consolidate and grow its position in each of its core businesses which is Drum Closures, Scaffolding, Engineering & designing Services and Textiles. The Company sees the Drum Closure division growing at same or higher rate next year and this is certainly one of its core focus areas.

The Company is working strongly and increasing the sales and profitability in China which is one of the main growing markets for Drum Closures division. Drum Closure division is growing in China.

Government initiatives such as RERA, Affordable housing, Smart Cities etc. are expected to bring a transformational shift and boost growth of Indian real estate industry, which will create tremendous growth in scaffolding. Awareness towards safety will also generate more demand and growth for scaffolding business.

Outlook

2019-20 has been a challenging year with weakening consumer sentiment given the macro-economic conditions and finally, the COVID-19 outbreak and its terrible impact on lives and livelihoods. The human impact of the virus and the containment efforts have resulted in supply and demand disruptions, resulting in a sharper growth deceleration. The situation remains volatile with the trajectory of the virus undetermined, evolving hot spot geographies, the success of containment measures uncertain, the severity and duration of resulting economic crisis and the extent of structural damage unknown. There are many unknowns today and hence, the near-term outlook is extremely uncertain. We stand united with the nation in the fight against COVID-19 as we navigate our way through these dynamic uncertain times together. Our focus remains on safety of our people, protecting supply lines, serving demand, contributing to the society and optimising cost and cash.

Also based on slowing GDP growth in key markets, mainly Europe, political uncertainties like the USA-China trade dispute and the volatility in the pricing of the raw material, we expect more challenging and uncertain business conditions in the near future.

Despite the near-term ambiguity, we remain confident of the medium to long-term growth prospects of the Company.

RISK & THREAT

COVID-19- The disruption caused due to the COVID-19 pandemic which was started in FY 2019-20 shall also continue in the Financial Year 2020-21.

Global Slowdown - More than 70 % of TIILs revenue comes from global markets. Any slowdown in economic activities in global markets in general and U.S. market in particular may affect TIILs performance.

Foreign exchange - Being an export oriented company, the Companys competitiveness, revenue growth & margins may be affected in case Indian Rupee appreciates significantly against major global currencies in long run. In the short run, volatility in foreign exchange markets may affect the Companys profitability as it does not hedge its export receivables fully.

Commodity prices - Increase in commodity prices like steel & cotton may affect the Companys performance in case it unable to pass the rise in commodity prices to its customers.

Capital allocation - The Companys certain businesses generate significant cash flows and The Companys cash & cash equivalents/ Bank balance and investments were stood at Rs. 7,031.86 Lakhs and Rs. 27,555.01 Lakhs respectively as on March 31, 2020. TIILs management has plans to invest this amount into various businesses and keep looking for inorganic growth opportunities. Inorganic growth opportunities pursued in future may or may not generate economic returns as desired due to various factors. However, management has narrowed down focus to "engineering" area (considering managements background & expertise) while pursuing inorganic growth opportunities and evaluating certain opportunities in specialized drum closures/scaffolding segment and engineering services segment.

Market Share- any rise in competitive landscape in domestic or international markets can lead to reduction in market share and can affect profitability.

Business Segment Drum Closures Scaffolding Yarn Fabric Power Total
A. Segment Revenue 33,595.65 50,124.07 26,719.89 14,997.92 5,134.66 1,30,572.19
B. Segment Results (profit and loss before interest) 8,695.76 7,763.00 (487.57) (677.00) 513.17 15,807.36
Less: i) Finance Cost - - - - - 3,172.21
ii)Other un-allocable expenditure net of un-allocable income - - - - - (498.15)
Total Profit before tax - - - - - 14,181.39
C. Capital Employed (Segment assets -Segment liabilities) 13,996.16 42,378.32 33,117.24 13,391.15 2,378.93 1,05,261.80

Financing: The Companys growth strategy is dependent on the internal cash generation level and ability to draw external capital for growth projects.

Considering the industry volatility, Technocraft continued its journey of developing new markets and products and enhancing value added services to its customer.

The Company aims to address risks, opportunity and threat posed by the business environment by developing appropriate risk mitigation measure.

The Management has also put in place effective measures to monitor the Risk Management System and appropriate steps are taken to strengthen the existing business practices and policies to the overcome the challenges.

Risk Management System is a way to try alternative solution as to determine what works and what doesnt and testing and refining assumptions.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

Internal Control System plays an integral role in the Companys Success. It helps the management to monitor the effectiveness of the controls in an ever-changing environment. Internal control and risk management are critical in the process of setting and achieving operational, strategic, compliance and reporting objectives.

The Companys internal control policies are in line with its size and nature of operations and they provide assurance that all assets are safeguarded, transactions are authorised, recorded and reported properly following all applicable statutes and General Accepted Accounting Principles.

The Company has an Audit Committee, where all the members including the Chairman are independent directors, in order to maintain objectivity. Internal Auditor of the Company conducts audit in various functional areas. Audit planning and executions are oriented towards assessing the state of internal controls, making them stronger and addressing the risks in the functional areas of the Company. Internal Auditor, reports to the Audit Committee its findings and observations. Audit Committee meets at regular intervals to review audit issues and follow up on implementation of corrective actions.

Besides the above, the Company has also met the Internal Financial Control requirements as per Companies Act, 2013 where policies and procedures have been adopted by the Company for ensuring the orderly and efficient conduct of its business, including adherence to Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information. Audit Committee also seeks views of the statutory auditors on the adequacy of internal control systems in the Company. In compliance with Section 143(3)(i) of the Act, the Statutory Auditors have issued an unmodified report on the Internal Financial Controls over Financial Reporting which forms a part of the Independent Auditors Report also forming part of this Annual Report.

SEGMENT WISE FINANCIAL PERFORMANCE

The summarized segment-wise performance of the Company on standalone basis for the Financial Year 2019-20 is as follows:

Particulars FY 2019-20 FY 2018-19 Variance
Revenue from operations 1,18,876.42 1,15,105.30 2.28%
Profit before exceptional items and taxes 13,133.3 14,181.39 -7.39%
Exceptional items (net) - - -
Profit before tax 13,133.3 14,181.39 -7.39%%
Profit after tax 10,269.14 10,235.16 0.33%
Ratios FY 2019-20 FY 2018-19 Change%
Debtors Turnover 2.77 3.15 -12.02
Inventory Turnover 4.08 3.89 4.94
Interest Coverage Ratio 6.60 6.94 -4.98
Current Ratio 1.88 1.69 11.23
Debt Equity Ratio 0.83 0.85 -1.44
Operating Profit Margin % 17.05 17.01 0.24
Net Profit Margin % 8.37 8.64 -3.13
Return on Net Worth % 12.05 13.65 -11.77

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The Company believes that a good Human Resource Policies are very effective for supporting and building the desired organisation culture and to maintain the same our company takes actions on the day-to-day activities of the organization.

The Company continues to focus on creating strong and long term relationship with all employees as employee retention and development are among the highest priorities of the Company.

The Company is working on enhancing its competencies to take care of current and future business. Its employee strength as on March 31, 2020 was 1700. Human Resource and Industrial Relations departments have developed systems and policies on recruitment, performance management, learning and development, and employee engagement.

The workers union of the Company has maintained healthy and cordial industrial relations, and has been an equal partner in implementing Companys policies and achieving stretched operational targets, year on year.

PERFORMANCE SNAPSHOT

The standalone financial highlights for FY 2019-20 are as follows:

Key Financial Ratios

Change in Interest Coverage Ratio is on account of higher level of working capital facility required for business and term loan for expansion.

Net profit margin and return on net worth are lower mainly on account of reduction in net profit due to high cost raw material and higher interest on debt.

CAUTIONARY STATEMENT

Statements made in Management Discussion and Analysis Report describing the Companys objectives, estimates, expectations or predictions are "Forward looking Statement" within the meaning of applicable laws and regulations. They are based on certain assumptions and expectations of future events. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operation include global and Indian demand- supply condition, raw material availability, trained manpower, changes in Government regulations, tax regimes, economic development within India and the countries within which the Company conducts business and other incidental factors.