United Drilling Management Discussions


Annexure-7

Global economy overview

The year 2022 marked a significant milestone in the global economic recovery from the devastating impact of the Covid-19 pandemic. While the world witnessed substantial growth and stabilization, it also faced ongoing challenges stemming from the pandemic and geopolitical developments.

In 2022, the global economy experienced an estimated growth rate of approximately 3.4%. This growth was supported by a combination of effective monetary and fiscal policies, increasing vaccination rates, and the gradual easing of restrictions, which allowed for the resumption of economic activities. However, the pace of global recovery was hindered by various factors, including the Russian invasion of Ukraine, unprecedented inflation, a pandemic-induced slowdown in China, higher interest rates, a global liquidity squeeze, and quantitative tightening by the US Federal Reserve.

Consequently, global growth is projected to decline to 2.8% in 2023, as central banks raise interest rates to combat inflation and geopolitical issues continue to exert pressure on economic activity. Despite these challenges, the global economy continues to demonstrate resilience and modest improvement. However, it is important to note that these estimates fall below the long-term global growth average of 3.0%.

Global economic growth (real GDP growth in %)

(Source: https://www.imf.org/-/media/Images/IMF/Publications/WEO/2023/ April/English/growth-projections.ashx?h=2160&w=3841&la=en)

In 2022, the global economy experienced a significant rise in inflation due to various factors such as moderate spending, disrupted trade, and higher energy expenses. However, the situation began to change in the last quarter of 2022 when central banks responded by increasing interest rates, and fuel and energy commodity prices started to decrease. As a result, global headline inflation started to decline. Although the decline is happening at a slower pace than initially predicted, it is expected that global inflation will decrease from 8.7% in 2022 to 7.0% this year and further drop to 4.9% in 2024.

The year 2022 witnessed significant progress in the global economic recovery, but it was not without its share of obstacles. While the world experienced notable growth and stabilization, it also grappled with ongoing risks arising from the pandemic and geopolitical developments. Looking ahead, the global economy is expected to face further challenges in 2023, leading to a slight decline in growth. Nonetheless, the global economy remains resilient, and although the estimates fall below the long-term average, there is still room for cautious optimism.

Outlook

While the balance of risks remains skewed towards the downside, there has been a moderation in these risks. There is a possibility of a stronger boost from pent-up demand in various economies or a faster decline in inflation. However, it is important to note that certain factors could exacerbate debt distress and lead to sudden repricing in financial markets. These factors include the rise in central bank rates to combat inflation, ongoing geopolitical conflicts, and the potential tightening of global financing costs. Therefore, it is crucial for most economies to prioritize achieving sustained disinflation. This necessitates the implementation of macro-prudential tools and the reinforcement of debt restructuring frameworks to maintain financial and debt stability.

In conclusion, the global economy is gradually recovering from the repercussions of the pandemic, and there are positive projections for inflation and growth in the upcoming years. Nevertheless, the persistent geopolitical and economic challenges continue to pose risks to the economy. To mitigate these risks effectively, it is imperative to adopt measures that are targeted and provide better fiscal support. Additionally, strengthening multilateral cooperation is essential to safeguard the gains from the rules-based multilateral system and attain sustainable economic growth.

Indian economy overview

India has once again demonstrated its unwavering determination and ability to achieve robust economic growth, even in the face of global uncertainties, persistent inflation, and ongoing geopolitical challenges.

According to the latest report from the Ministry of Statistics and Programme Implementation, Indias GDP is projected to grow by 7% in FY23, compared to 9.1% in FY22. This slight decrease in the year-on-year growth rate can be attributed in part to the fading of pandemic-induced base effects, which had contributed to higher growth figures in the previous fiscal year.

The governments substantial capital expenditure disbursements, along with the recovery in auto sales and improved capacity utilization at a macro level, have played a crucial role in driving Indias economic progress. The Centre for Monitoring Indian Economy (CMIE) reported that new projects worth _6 trillion were announced in the December quarter, marking a significant 44% increase compared to the previous year. Additionally, Indias exports surged by 14% to reach a record US$770 billion in FY23, primarily driven by the services sector. However, imports reached a new peak of US$892 billion due to subdued demand for goods amid global challenges.

Looking ahead, the World Bank expects Indias GDP growth to moderate to 6.3% in FY24, mainly due to a sluggish recovery in private capital expenditure and a projected decrease in urban consumption. Furthermore, the recent increase in interest rates by the central bank (with the benchmark repo rate raised by 250 basis points between May 2022 and February 2023) is anticipated to impact private sector performance and capital expenditure. The International Monetary Fund (IMF) has also revised its GDP growth estimate for India in FY24 to 5.9%, down from its initial projection of 6.1%.

As India forges ahead, it is essential to acknowledge the challenges that persist, such as inflationary pressures and geopolitical fractures. These factors necessitate a proactive approach from policymakers and stakeholders to ensure sustainable and inclusive growth. By addressing these challenges head-on, India can further strengthen its economic foundations and create an environment conducive to long-term prosperity.

Additionally, Indias exports surged by 14% to reach a record US$770 billion in FY23, primarily driven by the services sector. However, imports reached a new peak of US$892 billion due to subdued demand for goods amid global challenges.

Indias economic growth

(Source: https://www2.deloitte.com/us/en/insights/economy/asia-paci_c/ india-economic-outlook.html)

Despite high inflation, the Indian economy achieved a remarkable GDP growth rate of ~7% in FY23. This impressive performance can be attributed to the sustained growth in GST collections, electronic toll collections, and the volume of e-waybills generated, all of which indicate a promising momentum. Furthermore, key indicators of manufacturing activity, such as the PMI-manufacturing, the Index of Industrial Production, and the Index of Core Industries (ICI), demonstrate a steady growth in this sector. Similarly, indicators of the services sector, including UPI transactions and high credit demand, also point towards sustained expansion.

In order to foster a virtuous cycle of infrastructure investment and job creation, the Union Government has significantly increased the capital expenditure outlay to _10 lakh crore, representing a remarkable 33% increase compared to the previous year. This substantial boost in infrastructure spending, particularly in tier II and tier III cities, is expected to have a profound impact on the Indian economy, generating new employment opportunities and stimulating overall growth. Overall, the demand conditions in India remain favorable for supporting economic activity. As we approach the coming financial year, India stands with confidence, underpinned by a foundation of macroeconomic stability. However, it is important to remain vigilant against potential political and geo-economic risks that may arise.

Outlook

According to projections from the World Bank, Indias GDP is expected to grow by 6.3% in FY24, driven by domestic demand and increased public investment. Additionally, there is a possibility of a decline in Indias retail inflation rate from 6.6% to 5.2% in FY24. This growth is likely to be supported by various factors such as broad-based credit expansion, improved capacity utilization, and a reduction in trade deficits.

The governments implementation of production-linked incentive schemes is expected to provide further momentum to the economy, particularly benefiting downstream sectors. Despite an increase in interest rates, the outlook for private business investment remains positive. Moreover, Indias economy has minimal exposure to Chinese economic weakness, which helps protect its long-term growth prospects.

With broad-based credit growth, improved capacity utilization, and the governments focus on capital spending and infrastructure development, investment activity is expected to receive a significant boost. As a result, firms operating in the manufacturing, services, and infrastructure sectors are optimistic about their business outlook. However, there are some downside risks to consider, including prolonged geopolitical tensions, tightening global financial conditions, and a slowdown in external demand.

Global oil and gas industry overview

Over the past few years, the global oil & gas industry has undergone a profound transformation, weathering the storms of the Covid-19 pandemic and Russias invasion of Ukraine. Despite the challenges, the industry emerged resilient and revitalized, and even in 2023, it continued its impressive recovery, fueled by various factors.

Consumer sentiment rebounded, economic activities surged, and trade flows increased, all contributing to a surge in demand for oil & gas products. As travel restrictions eased and economies reopened, the industry experienced a robust revival, with global refinery operating rates reaching new heights in response to the escalating demand.

Moreover, the power sector played a crucial role in driving this steady growth, as it embraced gas to oil switching following the energy crisis and elevated natural gas prices. This strategic move provided additional support to the industrys upward trajectory, reafirming its potential for sustainable progress.

In terms of demand, the global oil demand increased by 2.3 mb/d to reach 101.6 mb/d in 2022 and is projected to climb by 2.2 mb/d in 2023 to reach 102.1 mb/d, a new record. Buoyed by surging petrochemical use, China will account for 70% of global gains, while OECD consumption remains anaemic.

However, growth in world oil demand is set to lose momentum over the decade as the energy transition gathers pace, with an overall peak looming on the horizon. Led by continued increases in petrochemical feedstocks, total oil consumption is expected to grow at a much lower rate. For 2023, global production is forecast to increase by 1.6 mb/d to 101.5 mb/d, as non-OPEC+ expands by 1.9 mb/d. In 2024, global supply is set to rise by 1.2 mb/d to a new record of 102.8 mb/d, with non-OPEC+ accounting for all of the increase.

Amidst favorable conditions, the global oil and gas market showcased remarkable growth, surging from $6,989.65 billion in 2022 to a formidable $7,330.80 billion in 2023, achieving an impressive CAGR of 4.9%. However, the progress faced an unexpected impediment in the form of the Russia-Ukraine conflict, temporarily disrupting the market dynamics. The war led to economic sanctions affecting multiple nations, a surge in commodity prices, and significant supply chain disruptions, thereby triggering inflation in the prices of goods and services and exerting its impact on various markets worldwide.

Yet, with the gradual abating of the wars influence, the oil and gas market is anticipated to recover its momentum, poised to reach an astounding $8,670.91 billion in 2027, demonstrating a steady CAGR of 4.3%. The resilience and adaptability of the industry are likely to pave the way for renewed growth and stability in the coming years.

Global Oil and Gas Market

(source: https://www.researchandmarkets.com/reports/5781047/oil-gas-global-market-report#:~:text=The%20global%20oil%20and%20 gas,least%20in%20the%20short%20term.)

Global oil prices trend

(Source: https://www.statista.com/statistics/326017/weekly-crude-oil-prices/)

Key trends observed in the global oil and gas industry Tight supply

There is a reason most investment banks and energy consultancies keep forecasting higher prices of oil going forward despite considerable worry among traders about the state of the global economy. The reason is called supply and the explanation for the bullish price forecasts is that supply of crude oil is tightening on a global level. OPEC+s recent decision to reduce production by another 1.16 million barrels daily amid a price slump driven by factors outside of the industry is one example of where supply is headed but its not the only one.

The U.S. shale industry that went through a veritable boom during the last decade has transformed into a much more frugal, much more efficiency-oriented industry. The shale boom was proclaimed over last year, repeatedly, and there is little reason to believe these particular reports are exaggerated. U.S. shale oil output will continue rising, as long as the price is right, but it wont be rising at what the industry previously saw as its usual fast pace.

Need for higher investments

While supply tightens both organically and artificially, demand for oil is being forecast at higher levels this year than last. The International Energy Agency expects oil demand to hit a record this year and exceed supply in late 2023. And the industry is preparing to respond. According to the report that global upstream investments will continue their rebound that began last year, hitting some $470 billion this year. However, about half of that increase would be the result of higher costs rather than greater ambitions in production growth.

OPECs growing influence

A few years ago analysts argued that because of the advent of U.S. shale, OPEC is losing relevance, fast. Then came OPEC+, Saudi Arabia teamed up with Russia, and the larger organization came to account for an even higher portion of global oil supply than OPEC on its own used to.

As the latest move by the extended cartel shows, that organization is perfectly ready and willing to pull the markets strings to its advantage. It has no obstacles to doing that because OPEC+ is made up of state-owned companies. There is no investor activist pressure on these companies. Notably, there is no government pressure because all the OPEC+ governments are too aware of the benefits of oil revenues to just drop them in the name of a higher goal in the form of the energy transition.

Fuelling a greener future

There is an increasing transformation of energy systems away from fossil fuels to renewable and clean energy. The world is likely to continue its transition towards cleaner and more sustainable energy sources. Governments and industries may focus on reducing carbon emissions and investing in renewable energy technologies. This transition could impact the demand for traditional oil and gas products.

The reason is called supply and the explanation for the bullish price forecasts is that supply of crude oil is tightening on a global level. OPEC+s recent decision to reduce production by another 1.16 million barrels daily amid a price slump driven by factors outside of the industry is one example of where supply is headed but its not the only one.

Outlook

Amidst the turbulence of demand-supply imbalances, the oil and gas sector has borne the brunt of the war crisis and ensuing energy politics, leading to sharp price distortions that caught markets off guard. Looking ahead, oil and gas prices are anticipated to experience upward pressure due to Europes impending stricter energy import restrictions from Russia and the expected resurgence in demand as the pandemic recedes.

While the oil and gas industry has dealt with supply disruptions and price fluctuations before, the current situation presents a unique challenge. An intricate interplay of economic, geopolitical, trade, policy, and financial factors has exacerbated under investment issues and triggered a profound readjustment in the broader energy market. This has led to a "trilemma" of concerns encompassing energy security, supply diversification, and low-carbon transition.

Given these concerns, the industry foresees oil demand to grow in the next decade, but at a much slower pace compared to the previous one. Moreover, uncertainties loom large due to the evolving energy transition and supply tactics of OPEC+ and other major producers. All of these factors are set to maintain oil and gas markets on a volatile trajectory while simultaneously shaping a new world order concerning market dominance in the long run.

Overview of the India oil and gas industry

The Indian oil and gas industry, as one of the eight core sectors, wields significant influence over the decision-making processes of other vital segments of the economy. Presently, India stands as the worlds third-largest consumer of energy and oil, trailing only China and the United States. Additionally, it ranks as the fourth-largest importer of lique_ed natural gas (LNG). The growth of Indias economy is intrinsically linked to its energy demands, thus creating a favorable environment for investment within the sector. Notably, India has successfully maintained its position as the third-largest global oil consumer throughout 2022.

In the FY23, the Indian oil and gas industry displayed a nuanced performance. A gleaming achievement emerged as crude oil production soared by 2.5%, surging to an impressive 36.7 million tonnes. This remarkable growth was fuelled by the successful expansion of production, particularly from novel oil fields like the Mangala field in Rajasthan.

Conversely, there were challenges to navigate. Refining throughput experienced a slight decline of 0.6%, settling at 230.4 million tonnes. This dip was primarily influenced by a confluence of factors, most notably the lingering repercussions of the COVID-19 pandemic and the ongoing Russo-Ukrainian war. Nevertheless, the industrys resilience in the face of these adversities showcases its unwavering determination to thrive amid tumultuous circumstances.

In the financial year 2022-23, Indias appetite for petroleum products soared to unprecedented heights, underscoring a robust demand for transportation fuels and other refined commodities. The consumption of major fuels, including diesel, petrol, and lique_ed petroleum gas (LPG), surpassed all previous records, signifying a remarkable growth in the demand for crude oil. Additionally, this consumption pattern acts as a reliable indicator to track the nations industrial activity and domestic consumption trends.

With a total consumption of 222.30 million tonnes of petroleum products in 2022-23, India witnessed a staggering 10.2% year-on-year increase, setting a new milestone compared to the previous record of 214.13 million tonnes in 2019-20. The pandemic-induced slump in demand during 2020-21 was followed by a modest recovery in 2021-22. However, in the fiscal year 2022-23, demand surged past pre-COVID levels, as the various sectors of the economy made a triumphant comeback from the pandemics_impact.

In the FY23, the Indian oil and gas industry displayed a nuanced performance. A gleaming achievement emerged as crude oil production soared by 2.5%, surging to an impressive 36.7 million tonnes.

Moreover, as of March 2023, the Indian oil & gas industry encompasses 26 sedimentary basins, covering a vast area of 3.4 million square kilometres. This extensive region spans from the land to shallow waters up to 400-meter depth and even further to the Exclusive Economic Zone (EEZ) in deepwater. Regarding refining capacity, India boasts an impressive refining capacity of approximately 251 million metric tonnes per annum (MMTPA) as of October 2022, boasting 23 state-of-the-art refineries.

Global economic growth (real GDP growth in %)

(Source: https://ppac.gov.in/uploads/rep_studies/1681883210_Snapshot_ of_India_Oil_Gas_data_Mar_2023_upload.pdf) [*projected]

Indias natural gas infrastructure

• A total of 22,335 km of the natural gas pipeline is operational and about 12,995 km of the gas pipeline is under construction as of December 2022.

• Target to increase the pipeline coverage by ~54% to 34,500 km by 2024-25 and to connect all the states with the trunk natural gas pipeline network by 2027.

• As on 31.01.2023, 10.5 million domestic PNG connections and 5,118 CNG stations have been established.

• As per the Minimum Work Programme, the authorized CGD entities authorized have to provide 123.3 million PNG connections and establish 17,700 CNG stations by 2030.

• Liquefied Natural Gas (LNG) supply is forging ahead on both coasts with 06 operational LNG terminals. The total capacity of LNG terminals stands at 42.7 MMTPA.

Indias net oil & gas imports (in $ billion)

(Source: https://ppac.gov.in/uploads/rep_studies/1681883210_Snapshot_ of_India_Oil_Gas_data_Mar_2023_upload.pdf) [*projected]

Growth drivers for the Indian oil & gas industry Indias growing energy demand

Expected to grow at about 3% per annum by 2040, compared to the global rate of 1%. Further, 25% of the global energy growth between 2020 and 2040 is envisaged to come from India due to the fast-growing economy and demographic dividend.

Unified tariff for natural gas pipelines and review of domestic gas pricing

Unified tariff aims to benefit the consumers located in the areas where currently the additive tariff is applicable, facilitating the development of gas markets. Domestic Natural Gas Price shall be 10% of the Indian Crude Basket Price. Further, for the gas produced from nomination fields, the price shall be subject to a floor ($4/MMBTU) and a ceiling ($6.5/MMBTU).

Favorable policies

National Data Repository (NDR), Discovered Small Field Policy (DSF), Marketing and Pricing freedom for natural gas, National Seismic Programme (NSP) of unapprised areas Planned 2D Seismic Survey for 48K LKM.

Government incentives

Early production royalty concession of 10%, 20% and 30% for Category I, II and III basins respectively

Setting up LNG stations

Any entity can set up LNG stations in any Geographical Area in India even if they do not have a City Gas Distribution license

Outlook

Indias remarkable journey in the development of its energy sector stands as a testament to its progress in achieving high economic growth and elevating living standards. The oil and gas industry, playing a pivotal role in meeting the escalating demands of transportation and industrialization, has undergone a series of transformative reforms. These reforms have not only bolstered the sectors position and heightened its efficiency but have also fostered competitiveness, reduced emissions, and expanded fuel accessibility nationwide.

As Indias income rises and its infrastructure continues to expand, the energy sector is poised to experience significant growth, becoming a key player in driving the nations prosperity and progress. In summary, Indias ever-increasing consumption of petroleum products highlights the nations dynamic economic growth, while the projections for the future signal a promising outlook for the countrys energy sector. The vast expanse and advanced capabilities of the Indian oil & gas industry underscore its strategic importance on both regional and global levels.

Company overview

UDTL, a distinguished manufacturer of top-notch drilling tools and products, stands as the unrivalled leader in Indias oil and gas exploration sector, offering a comprehensive range of oil drilling, production, and exploration solutions. Commencing its journey in 1985, United Drilling Tools Ltd. (hereafter referred to as UDTL) now commands the lions share in the Indian market for drilling tools and products. The companys eminence is founded upon its robust manufacturing and research infrastructure, cutting-edge equipment, rigorous quality control, and a highly skilled team.

Presently, UDTL boasts a diverse portfolio of drilling tools across four pivotal product lines, such as wireline and well service equipment, gas lift equipment, downhole tools, and large OD casing connectors. These innovative offerings have been thoroughly tested and proven in the field, adhering to international standards such as ISO 9001 and American Petroleum Institute (API) certifications (License No. 5CT-0565, 5L-0424, 7-1-0393, 19G1-0008, 19G2-0010).

Along with catering to the needs of Indias oil and gas industry, UDTL has also made commendable strides in international markets. The Company established long-term partnerships with esteemed government and private entities in India, such as Oil and Natural Gas Corporation Limited and Oil India Limited, among others. Moreover, the company collaborates with renowned global brands, forging strong relationships to expand its presence on the international stage.

The success of UDTLs endeavours is reflected in its diversified revenue streams, generated through collaborations with government organizations, private sector companies, and exports within the oil and gas sectors. UDTLs commitment to excellence and unwavering dedication positions it as a true pioneer in the Indian oil and gas drilling industry, consistently driving the exploration and production domains to new heights.

Our core strengths

Research: With a focus on research & development, we plan to regularly introduce new high-quality and precision-engineered products used in the upstream oil & gas industry.

Market leadership: The Company is a market leader in the Indian oil drilling tools and equipments manufacturing. We intend to sustain this leadership and grow our presence in the international markets.

Product portfolio: The product portfolio comprises niche products assuring integration and synergy in operating facilities.

Strong collaborations: The Company has well-founded technical partnerships with renowned global players.

Synergies: The Company lays great emphasis on synergies, which has augmented its quest for global leadership and helps to keep its competitive advantage.

Our operational excellence

We have an integrated operations with processes ranging from research to designing to manufacturing of high-precision and niche drilling tools and equipment. This allows us the flexibility to focus on manufacturing products that enjoy encouraging demand and offer better price. We leveraged this advantage to run our manufacturing units at optimum capacity utilisation to cater to the rising demand.

We undertake initiatives like improving process efficiencies and dedicated research and development on an ongoing basis to drive operational excellence. Our ability to regularly introduce new products within the existing manufacturing facilities validates the operational excellence achieved by UDTL. Further, we are focused on enhanced usage of data and analytics to take real-time and focused decisions.

SWOT Analysis: S- Strengths

a) Analysis suggests that over the next few years, the company can expect better growth than the industry as a whole.

b) In India, since the labour and overhead costs are 1/5th of what are in USA and Europe, where most of these equipments are Manufactured at present, the Indian companies manufacturing such equipments have a great advantage over them.

c) Relative to others in the Industry, the Companys products have a very high proprietary content which greatly strengthens the Companys competitive position.

d) At the present time, the Companys products are believed to be of excellent quality, and are highly differentiated in the market.

e) The market itself is strong and is growing rapidly and price competition is negligible.

f) For new Competitors, entry into this type of business would be considered very difficult and expensive, which secures the Companys competitive position and increases its value.

g) Customers buy from the Company because its products are import substitute, high-quality and reasonably priced.

h) Since, Technology is well tested and approved in the Domestic and International Market, there is no risk of products failure.

i) Long-standing client relationship.

j) The company being a registered MSME, has got price preference by the Indian public sector companies in buying the equipments over other large and international producers.

W- Weakness

a) Our Company is among the smaller firms in its market, the companys competitive position is slightly weakened.

b) The Company is relatively small in the SME segment and has not had enough funds and time to grow.

c) The companys sales are presently concentrated among small number of NOCs, Customers.

d) Limited exposure in the international market.

e) Moderate scale of operations and tender-based nature of business

O- Opportunities

a) There will be a continuous increase in demand for Oil and Natural Gas and the need for Drilling more Wells will also be increasing on a continuous basis.

b) The price of Oil in the international market has increased. This has also increased the Demand for the equipment.

c) There is no major business risk in the market for these products because the demand is growing regularly and the competition is limited to 3-4 players, in the World, who are significant players.

d) Since the customers are more and more becoming cost-conscious and the image of Indian products is increasing in the World as quality products, acceptance of Indian products in this field is increasing.

e) Besides the international market, there is substantial domestic market also which will always be there for the next 50 years, till the Demand for Oil is there.

f) The quest for Oil is increasing 10% annually due to rise in demand for cars, power plants, infrastructure, etc. Therefore, the demand for Oil will also keep on increasing and the requirement for these products will also be increasing by 15-20% per year.

T- Threats

a) In India, only 20% of the Domestic Oil Consumption is produced locally. The balance oil is imported by our Country by spending 40% of the total foreign exchange earned every year.

b) Rising focus on green and clean energy

c) Rising popularity of EV

d) Economic downturn leading to a proportionate and direct impact on the business

Financial review

Established over three and a half decades ago, UDTL has developed a diverse product portfolio, with solid process expertise to provide solutions from renowned Indian to global majors. In the last couple of years, the Company emphasized on being more agile, while it remained committed to its long-term sustainable growth strategies.

Revenue from operations, excluding other income, stood at _119.34 crores in FY23. EBITDA stood at _18.44 crores.

Revenue contribution from the domestic market stood at 96.59% while 3.41% came in from exports. Steady demand in key export geographies resulted in higher export revenues. Domestic Revenues for FY23 stood at _115.27 crores, compared to _159.93_crores in FY22.

P&L analysis

Particulars FY22 FY23 Change
(_ in crore) (_ in crore) in %
Revenue from operations 164.42 119.34 (27.42)
Employee Benefits Expense 10.82 11.54 6.56
Interest cost 0.82 0.82
EBITDA 75.14 18.44 (75.46)
PBT 71.64 14.64 (79.56)
PAT 50.35 10.11 (79.92)
EPS (in _) 24.80 4.98 (79.92)

Key financial ratios

Ratios FY22 FY23
Trade Receivables Turnover 3.25 3.14
Inventory Turnover Ratio 0.88 0.60
Interest Coverage Ratio 66.56 16.52
Current Ratio 5.22 6.63
Debt-Equity Ratio 0.07 0.02
Net Profit Ratio 30.71 8.65
Return on Equity Ratio 23.23 4.19

Analysis of Balance Sheet

Particulars FY22 FY23 Change
(_ in crore) (_ in crore) in %
Total equity 239.82 246.27 2.69
Long-term borrowings 0.07 0.04 (42.85)
Short-term borrowings 17.83 4.93 (72.34)
Total non-current assets 98.72 89.15 (9.69)
Trade receivables 40.89 34.06 (16.70)
Cash and cash equivalents 1.83 1.83 -
Land 0.62 3.76 509.67

As on March 31st March, 2023, the Companys Equity Capital stood at _246.27 crores compared to _239.82 crores as of 31st March, 2022.

Total long-term borrowings of UDTL as of 31st March, 2023 stood at _0.04 crore vis-?-vis _0.07 crore as on 31st March, 2022. We repaid debt worth _12.94 crore during the year.

Our tangible asset as of 31st March, 2023 stood at _27.75 crore vis?-vis _23.35 crore as on 31st March, 2022, an increase of 18.85%.

Cash and cash equivalents as of 31st March, 2023 stood at _1.83 crore vis-?-vis _1.83 crore as on 31st March, 2022, as no change during the year.

Risk management

The objective of Risk Management at UDTL is to create and protect shareholders value by minimizing threats or losses, and identifying and maximizing opportunities & capitalizing on core strength. From being a market leader in the domestic space to establishing itself as an emerging player in the international market, UDTL is perfectly positioned to deal with multiple market risks in a fast-paced business environment.

UDTL has adopted several strategies to assess, identify, and successfully mitigate risks arising from time to time.

The Risk Management Committee of the Board periodically reviews adherence to compliances, providing sound framework for identification, effective management of risks in a time bound manner. Respective teams at senior hierarchy have been strengthened to maintaining comprehensive system to promptly identify risks, assess their materiality and take measures to minimize likelihood of losses. On this front, policy on Risk Management, Risk Assessment & Minimization Procedures are implemented with the right earnest, zeal & commitment to agreed timelines.

Our risk management process
Identification and assessment approach Prevention and control strategy Monitoring Reviewing and reporting on the risk
Forecasting and calculating the probability of occurrence, magnitude, category and rating of the risk. Devising plan of actions to prevent risk, temper its strength and reduce its aftermaths. Gauging the potency of controls, reacting to the revelations and continuously honing the method. Overseeing the process at regular intervals (at least annually).

 

Risk type Significance and meaning UDTLs mitigation strategies
Macro-economic and uncertainty in external environment The Companys operations are exposed to political and economic risks, commercial instability and global events beyond the control of the Company which might have adverse impact on it. Further, uncertain situation like pandemic i.e. outbreak of Covid-19, Russia-Ukraine War, Climate Change will affect the Company and led to slow down in its operations. The Companys derives its revenue from the oil & gas sector. This sector is one of the key sectors for some of the major economies in the globe, including in India. Governments "Atma Nirbhar Bharat Abhiyan", "Make in India" drive will give much needed impetus to the Oil and Gas supply. This is likely to drive revenue growth of UDTL. UDTL maintains strong balance sheet, liquidity position and relationship with Stakeholders which enables it to mitigate any uncertainties, unforeseen challenges.
Business continuity risk The companys business may not be relevant in the coming years. The Company chooses to be present in the oil and gas industry, one of the core sectors of the economy and critical to national growth. The Company has strategically expanded its presence into relevant high-growth segments ensuring the sustainability of its business growth.
Quality risk Inability to maintain the quality of the products as well as adhered to relevant quality standards might have adverse impact on the Companys reputation as well as profitability. The Company possesses over three and a half decades ago of domain knowledge across various precision-engineered products like wire line and well service equipment, gas lift equipments, down-hole tools and large OD casing connectors. State-of-the-art manufacturing units, focused management and committed production and quality control team makes us the preferred choice for the customers; not only in India, but across the globe. UDTL adheres to stringent API International standards. Your Company has received several quality certification, appreciation for adhering to maintaining strict QC norms.
Technology risk With the advancement of technology there is a growing need to improve operational efficiency and ensure better customer satisfaction. UDTLs manufacturing facilities are equipped with state-of-the-art machines and equipment that helps it to increase its operational efficiency; continuously monitor changes in technology conform to international standards. To stay ahead of its peers and helps match the international requirement in terms of product quality.
Currency risk Foray in International Market, UDTL is exposed to volatility in the exchange rate, impacting its Profitability. For Import of Raw Material, the Company enters into forward contracts, as deemed fit & meet out of export earnings.
Environment risk Inability to maintain its environmental risks in prescribed limits might adversely affect operations. UDTL has a strong policy in place to address any unforeseen situation arising due to environmental changes on its activities.
Human Capital risk A skilled and talented workforce is the key to an organizations success. Unable to retain or acquire competent and experienced employees may hamper growth. The Company has a strong retention and succession policy in place. Training programmes are conducted quite often to assess competence, learning, areas for improvement, etc.

Our risk mitigation plan

The Board takes the following steps as a part of its risk management and mitigation plan: Defines the roles and responsibilities of the Risk Management Committee Participates in major decisions affecting the organizations risk profile Integrates risk-management reporting with the Boards overall reporting framework

The Company functions under a well-defined organization structure. Flow of information is well defined to avoid any conflict or communication gap between two or more departments. Second-level positions are created in each department to continue the work without any interruption in case of nonavailability of functional heads. Proper policies are followed in relation to maintenance of inventories of raw materials, consumables, key spares and tools to ensure their availability for planned production programmes. Effective steps are being taken to reduce the cost of production on a continuing basis, taking various changing scenarios in the market.

Internal control systems and their adequacy

The Company has a well-framed internal control system commensurate with the size and nature of its business. The internal control systems are reviewed and modified periodically to keep up with the changes in the business environment and statutory requirements.

The framework is monitored by the internal audit team of the Company. The Audit Committee of the Board is periodically apprised of the internal audit findings. The Audit Committee reviews the efficacy and effectiveness of the internal control system, takes corrective actions and suggests measures for strengthening it. The Company has a robust Management Information System which forms an integral part of the control mechanism.

Human resource and Industrial relations

Human resource has become increasingly important for the manufacturing sector owing to the limited availability of skilled manpower in the sector. UDTL, being one of the most established brands in the industry, focused on creating a strong team equipped to address a diverse range of competencies.

Human capital is pivotal to the Company. The Company fosters a safe, inclusive and collaborative work environment for the overall growth and welfare of the employees. The HR policies of the Company are aimed at attracting, nurturing and retaining talented employees in a constantly evolving business environment while ensuring trust, transparency and teamwork amongst its employees.

Training and skill development are critical for contributing to the overall growth of personnel and the organisation. The Company organises training and development sessions for its workforce, motivating and empowering them to unleash their full potential. Further, we focus on following a fiat communication structure to make it a lucid one when it comes to the employees sharing their view with the management. Such initiatives aid in the recruitment and retention of top talent across the sector and this has helped the Company enjoy the support of committed and well satisfied human capital. The Company provides an engaging workplace environment, attractive growth opportunities and fair compensation. The Company enjoys one of the highest employee retention rates in the industry; it creates leaders within the organisation, strengthening prospects. As of 31st March, 2023, UDTL had 342 employees in its work-force.

Cautionary Statement

The statements made in this report describing the Companys objectives, estimations, expectations, projections, outlooks, constitute forward-looking statements within the meaning of applicable securities laws and regulations. Actual results may differ from such expectations, projections, among others, whether express or implied. The statements are based on certain assumptions and future events over which the Company has no direct control. The Company assumes no responsibility to publicly amend, modify and revise any of the statements on the basis of any subsequent developments, information or events.

For and on behalf of Board

United Drilling Tools Limited

Sd/-
Pramod Kumar Gupta
Date: 14/08/2023 Chairman & Managing Director
Place: Noida DIN: 00619482