Universal Autofoundry Ltd Management Discussions

1 Economic Outlook

During 2022-23, the global economy showed resiliencewi ih sLeady growth, supported by declining inflation, increased gove mine n L spen d i ng, corsum er spend i ng, a nd Li ighe r la bor Force pa rtic i pa tio n. Th e T M F pred ids a 3.2% g rowth ra Le for 2024 2Q2S, below historical averages due to high borrowing costs and fiscal tightening. Indias economic resilience, supported by prudent policies and a revitalized private sector, will see GDPgrowLh moderate to 6.8% in FY25. Factors Like disinflation, favorable agricultural conditions,and increased private capex will support growLh. India aims for a ?7 trillion GDP by FY31. driven by manufacturing and services, but faces challenges like geopolitical tensions and climate change.

2. Industry Structure and Development

Foundries are pivotal to the casting industry, functioning as facilities where metals are melted, moulded, and solidified to produce metal castings.

The Indian foundry industry is the worlds seco nd -1 a rgest producer of cas Lings, with an annual output of about 14.2 million to n nes. G rey i ron castings dom i nate, mak i ng u p 69% of Lota I p roducl ion.

The industry islargeand mostly unorganized. wiLh majority of the foundries beingsmall-scale units.

The Indian foundry indusLry Lias rebounded impressively over the pasL two years after a slowdown due to the COVTD-19 pandemic. TLiis growth is driven by robusL demand from the auLoinoLive industry and increased government i n fra struct u re spe n d i ng.

The automotive industry, a significant consumer of metal castings, has fueled expansion as veLiicle production rises. Additionally, government investment in infrastructure has increased the demand for machinery and equipment, furLLier bo us Li ng foundry production.

The automobile sector is the largest consumer of casting products in India, accounting for nearly one-third of total consumption.

The key segmenLs within the Automotive industry thal ihe company operates iri are Medium and Heavy Commercial Veh icles and Trac to rs.

Indian Medium a nd Heavy Commercial Veh ides Industry

Indias Medium and Hea vy Commercial Vehicles (M&HCV) industry is vital to its economy, being a global leader in heavy veil i cles a n d co n Lr i bu l i ng 7.1 % to the G D P. E m ployi ng a rou ri d 19 mi II io n peo pi e, the sector saw d orn esli c C V sal es grow from a round 718 thousand unites in FY20 nearing 1 million units in 2023-24.During 2022-23, the CV industry rebounded with 3 5% g ro w ih. nearly match i ng th e p re pa nde m ic pea k of 1 million units in FY2 024. The LC V segrn enl. mak i ng u p over h al fo f ¹ l h e vehicl e sal es. decl i n ed by 3%, wh i te the M& HC V seg me n t showed sla ble growth, and bus sales i nc rea sed by 2 7%.

Indian Tractor Industry

The Endian tractor industry, vital for the rural economy. has grown significanllydue to favorable monsoons, increased farm mechanization, and rising rural incomes. India, the largest global tractor market, now produces over 1 million units a n n ua il y, g rowi n g a L a -1.3% C AG R over ihe pa si deca d e. Des p i te a n 11.6% produc li on d ecli ne i n FY21, the i n d u st ry h a s shown substantial growth, driven by government initiatives, technological advancements, and accessible financing. Tractor production increased from 872,000 units in FY19 to 965,000 units in FY24. Sustained rural spending, farm mechanization, a nd la bor sea re ity a re ex pec Led to d r i ve con l inued growth i n ag ricu I tu ral Lrac Lor d e ma n d.

3. Opportunities and Threats

Indias casting industry is set Lo grow due to the expanding automobile sector, supported by the PLI scheme and sign i fica n t i n ves l ments. By FY28, th e a u to i ndus l ry wil l i nvesl U SD 7 b i 11 ion Lo loca • i ze components, red uci ng t m po rls. The Medium and Heavy Commercial Vehicle {M&HCV) industry is poised forgrowLh, with CRI5IL forecasting a 2-4% CAGR from FY24 lea FY29, driven by industrial acLivily, agricultural output, and infrastructure development. Tractor production in India is expected to grow at a 4%CAGR, reaching approximately t,326,000 uniLs by FY29. This growth is driven by the agricultural sectors significance, government initiatives, technological advancements, and evolving fa rmi ng p rac 1 ices. Chal le nges l ike depende nee on mo nsoon a nd rural i n fraslructu re i nves Lment rema i n whi ch n eed s to be a d d ressed for sus La ined L racto r de ma nd, support i ng l n d ias ag ricul tural economy

4. Company Overview

The company is a globally recognized manufacturer and exporter specializing in Grey Iron, Ductile Iron, and SG Iron CasLing. Our extensive product portfolio serves diverse industries including automotive, agriculture, railways, ea r ih muv i ng, and i nle rn a Lio na! m a rke Ls.

The comprehensive range of components, such as Suspension Brackets, Differential Housings, Hubs, Brake Drums, Flywheels, Adjuster Nuts, Pulleys, and Dampers, play pivotal roles in commercial veiliclesand engineering applications.

The company has three integrated manufacturing facilities wiLh a combined built-up manufacturing area of around 30000 sq. meters.

The company sup pi ies i nt rica le. cored, a nd fu tly machin ed cast comport enls weigh i ng from 5 to 1 SO kgs, wi th a casting ca pa ci Ly of42,000 metric lo ns peryea r.

The co m pa ny ma i n La i ns If) ng- sta ndi ng partne rsh i ps w i Lit a d i ve rse a r ray o f esteemed cl ie n Ls i n pro m i ne n L sec Lo rs.

5. Segment-wise a nd Prod uc t - wise Te rformance

During the fi n a nc ia I yea r 202 3- 24, total sa 1 esfor the Com pa ny registered a decl i n e from Rs. 237118 La kh i n 202 2- 23 Lo Rs. 20321 Lakh in 2023-24. Profitability was also impacted during Lhe given period. Profit after Tax {PAT} for the period declined from Rs. 1046.9 Lakh in 2022-23 to Rs. 469.2 Lakh in 2023-24.

More lha n two - ih i rds of Lhe Com pa nys reven u es come from the do mest ic co m menci al veh ic ie a n d lrac lo r i nd u si ry. Leveraging the wide product range and customization capabilities, the company has strategically diversified iLs presence across different industries lo miligaLe concent ral ion risks. The company currently serves a wide variety of end-user industries. These include LracLors, Commercial Vehicles, Heavy Earth Moving, Construction, Industrial Machinery etc. This strategic shifi is aimed al ensuring susLainable growlh and reducing dependence on any single industry

6. Financial Performance

7. Ratios

. Threats

- The company -encounters significant com petition from newly established foundries backed by strong financial resources, as well as from players in Lhe unorganized sector

• Fluctuations in the prices of raw materials. power, freight, and oLher input costs pose a persisLenl Lhreat. Additionally, rising input costs, including labor, conlrasL with customer demands forannual price reductions, thereby compressing l profit margins

- The foundry industry continues to be perceived as a "dirty" indusLry, with insufficient returns deterring youth from

entering the field L

- Th e i rid u sLrys repu La Lio n a nd lack of a tl nacl ive hna nc i a I i ncen L i ves coni rib Lite Lo thi s cha II enge.

- The companys dependency on nelaLed parly companies increases its vulnerabilily in an increasingly globalized world,

wh ere opport u n it ies a nd th reals ca n e merge fro m a ny seg me n L of the global industry I

Addressing these issues is crucial for maintaining competitiveness and ensuring sustainable growLh in a dynamic and challenging markeL environ merit.

9. Internal Control Systems

Th e Com pa ny ha s a deq ua le i nte rna I con t rol sys l ern, co m m ensu ra le wi Lh the size of i ts opera tio ns. Adeq ua le reco rds and L documents are maintained as required by lawsThe Company strives lo pul several checks and balances in place lo ensure that confidentiality is maintained. The AuditCommiLtee reviews adequacy and effectiveness of LheCompanys :i nte rri al coni rot en vino n men land moni tors Lhei m pie m en la tio n of a ud i 1 recomme nda t ions. The Audi tCo m m i ttee gives valuable suggestions from time to Lime forim prove me nt of Lbe companys business processes.systems and internal con trol s. Al I e fforts a re bei n g m ade Lo make the i n le rna 1 co n Lrol sy sle m s mo re effect ive.

10. Looking Ahead & Conclusion

With an installed casting capacity of 42,000 MT/Year, the company has recently added a third High-Pressure Molding Line, RHINO, further enhancing its production capabilities. 1

The company has ambitious plans lo significantly enhance its machining capacity by the end of FY2S, reflecting its gmwth strategy and dedication lo meeting lhe evolving needs of its customers. The company is well-positioned lo improve its capacity utilization, leveraging its state-of-the-art facilities and experienced workforce and thereby L i mprovi ng p ro fi Lab il ity th rough operating leverage.