Vilas Transcore Ltd Management Discussions

A GLOBAL ECONOMIC OUTLOOK

The global economy and trade are expected to maintain a steady trajectory in the coming years. Economic growth is projected to range between 2.6% and 3.1% for 2024, with a potential increase to 3.2% in 2025. These figures of the historical average growth rate of 3.8% recorded from

2000 to 2019, primarily due to tighter monetary policies, decreased government spending, and slower productivity improvements. Trade growth is anticipated to reach 3.3% in 2024, rising to 3.6% in 2025, although these rates are below the historical average of 4.9%, impacted by escalating trade barriers and geopolitical tensions.

Inflation rates are likely to decrease, with global inflation forecasted at 5.8% in 2024, down from 6.8% in 2023, and expected to further decline to 4.4% in 2025. Advanced economies are predicted to see a more pronounced drop in inflation, from 4.6% in 2023 to 2.6% in 2024. In contrast, inflation in emerging and developing economies is projected to remain relatively high at 8.1% in 2024, only slightly lower than 8.4% in 2023. The recent decline in inflation rates is prompting central banks worldwide to consider earlier-than-expected interest rate cuts, reflecting a shift in monetary policy as they respond to changing economic conditions.

(Source: IMF Report, OECD, World Bank, Deloitte, WTO)

Indias Economic Outlook

Indias real GDP grew by 8.2% in FY24, exceeding the 8% mark in three out of four quarters. For FY25, Indias real GDP is projected to grow between 6.5% and 7%. The IMF anticipates India will continue leading as the fastest-growing large economy over the next two years, driven by strong macroeconomic conditions, high corporate earnings, and moderate inflation.

Capital expenditure for FY24 stands atD9.5 lakh crore marking an increase of 28.2% on y-o-y basis, and 2.8 times the level of FY20, with substantial investments in infrastructure and various sectors. CRISIL forecasts infrastructure investment to total D143 lakh crore by FY30. Private capital expenditure is expected to increase to D6.5 lakh crore annually from FY24 to FY28, driven by emerging sectors like electric vehicles and electronics. Foreign direct investment in FY24 was USD 44 billion, and India is on track to surpass USD 5 trillion and approach USD 7 trillion by 2031. This growth will position India as the third-largest economy globally, supported by investments in infrastructure and reforms to improve the business climate.

(Source: IMF, Crisil, Ministry of Finance)

B POWER INDUSTRY

The power sector is crucial to Indias economic growth, contributing about 22% to the countrys final energy consumption. India ranks 3^rd globally in electricity generation and 4^th in total renewable capacity, with notable positions infallshort wind (4^th), solar (5^th), and hydro (6^th) capacities.

The sector continues to advance with significant enhancements in transmission and transformer capacities, reflecting its critical role in supporting

Indias energy needs and economic growth.

Transformer Industry

The power transformer market is set for significantexpansion by the end of 2028, driven by the growing number of global projects.electrification Power transformers are widely used across various sectors, including railways, share of theutilities, and shipbuilding. As demand rises for voltage transformers tailored for railway electrification, companies are focusing on enhancing designs and improving quality to meet diverse needs. Rising demand across various sectors, will significantly impact the CRGO (Cold-Rolled Grain-Oriented) lamination industry.

CRGO Lamination – Key Component in Transformers

Cold Rolled Grain Oriented (CRGO) lamination and the transformer industry are intricately linked, as the quality and efficiency of transformers heavily depend on the characteristics of CRGO steel. Technological advancements and the drive to modernize electrical grids are creating a favorable environment for companies like ours, which specialize in manufacturing critical transformer components. supply sources

Global Market Dynamics

The global CRGO steel market is driven by the increasing demand for efficient transformers in power generation, distribution, and renewable energy projects. China dominates the market with a significant production capacity, while India relies heavily on imports from countries like China, South Korea, Japan, and European nations to meet its growing demand.

Smaller suppliers from Japan and Europe also contribute to the CRGO steel market, but their limited production capacities often struggle to keep up with the rising global demand. As the transformer market evolves, India is expected to expand its role as a key player, leveraging its vast manufacturing base, skilled workforce, and competitive pricing.

Internationally, India is emerging as a preferred supplier of transformers for the US and European markets, especially in light of ongoing geopolitical tensions such as the Ukraine-

Russia conflict. These global supply chain disruptions highlight the importance of resilient and diversified - an area where Vilas Transcore is strategically positioned.

Domestic Market Dynamics

Indias domestic demand for CRGO steel is estimated to be between 250,000 to 260,000 MT per year, driven by the need for transformers in power generation, distribution systems, and renewable energy projects. The Indian governments focus on renewable energy capacity expansion, including solar and wind projects, is expected to further increase the demand for transformers and CRGO steel.

The Indian steel sector is poised for growth, with significant investments expected to enhance manufacturing capabilities and meet the rising domestic demand for CRGO steel. The transition to renewable energy sources and the modernization of electrical infrastructure will create further opportunities for CRGO manufacturers in India.

The push for energy efficiency and the adoption of green technologies in India are anticipated to boost the demand for high-quality CRGO laminations, as they help minimize energy losses in transformers. As a leading manufacturer of transformer components, companies in India are well-positioned to capitalize on these opportunities, particularly as the country focuses on integrating renewable energy and modernizing its electrical infrastructure.

In summary, the CRGO lamination sector is positioned for robust growth in both India and globally, driven by technological advancements and increasing demand for efficient energy solutions. However, stakeholders must navigate challenges related to competition, pricing, and quality assurance to capitalize on these opportunities.

C BUSINESS OVERVIEW

Vilas Transcore specializes in manufacturing and supplying components for the growth opportunities for CRGO manufacturers power distribution and transmission sector, serving transformer and power equipment manufacturers both domestically and internationally. Their product range includes CRGO lamination cores, CRGO slit coils, CRGO stacked cores, CRGO wound cores, and CRGO toroidal cores, all of which are essential for various types of transformers, including power transformers, distribution transformers, and current transformers across all voltage levels.

The Company operates two ISO 9001:2015 certified manufacturing facilities in Por near Vadodara, Gujarat, with a combined capacity of 12,000 MTPA. Equipped with advanced machinery, these facilities enable Vilas Transcore to produce high-quality CRGO laminations and cores tailored to customer specifications.

Over the years, Vilas Transcore has established longstanding relationships with large number of transformer manufacturers, including notable ones like Voltamp Transformers Limited, Shilchar Technologies Limited and Electrotherm India Limited, and is committed to maintaining high quality standards in its production processes.

Fiscal 2024 and Outlook

This year, the Company operated at full capacity with a utilization rate of approximately 90%. The Company achieved a production of 10,927 MT, the highest in the last four years. Despite receiving orders much higher than this, the Company could not fulfill them due to capacity constraints. To address this issue, the Company is expanding its capacity by 24,000 MTPA, increasing the total capacity to 36,000 MTPA - three times the current capacity. Additionally, we plan to introduce new products, such as radiators, which will position us as a hub for transformer ancillary components. These initiatives are projected to drive a growth of around 35-40% in the coming year.

Opportunities:

• Government Initiatives: The Indian governments focus on renewable energy, such as the National Solar Mission and wind energy projects, is expected to drive demand for transformers and CRGO laminations.

• Electric Vehicle (EV) Growth: The push towards electric vehicles will lead to increased demand for transformers in charging stations, creating opportunities for CRGO manufacturers.

• Infrastructure Development: Large-scale infrastructure projects, including smart grids and urban development, will further boost the demand for high-efficiency transformers.

• Sustainability Focus: As global energy policies shift towards sustainability, the demand for energy-efficient transformers using CRGO laminations will increase.

• Emerging Markets: Countries in Africa and Southeast Asia are investing in power infrastructure, providing

. significant

Challenges:

• Reliance on Imports: India has been unable to produce CRGO steel domestically and relies entirely on imports to meet the annual demand of around 250,000 – 260,000 tonnes.

• Use of Scrap CRGO: In the past, the use of scrap or inferior quality CRGO was prevalent in the industry, particularly in low-voltage distribution transformers, to reduce costs. This practice has led to increasedlossesandreducedefficiencyin transformers.

• Quality Control Issues: Ensuring the use of prime grade CRGO has been a challenge, with instances of "blending" prime grade CRGO with substandard material to reduce costs. Detecting such contamination is difficult.

E RISK MANAGEMENT

The Company follows a well-defined and exhaustive risk management process, which is integrated with its operations. This enables the Company to identify, categorise and prioritise operational, financial and strategic business risks. To address the identified risks, the Company continues to spend significant time, effort and human resources to manage and mitigate such risks. The Company has a well-established risk management policy and procedures based on which risks are identified and assessed across its business units and operations. The Company has in place adequate mitigation plans for the aforesaid risks and also takes various initiatives for the same. The concerned risks are reviewed from time-to-time by the Key Management alongwith the effectiveness of the mitigation strategies and their implementation process.

F EFFECTIVE INTERNAL CONTROL SYSTEM

The Company maintains robust and comprehensive internal control systems commensurate with its size and nature of business aimed to safeguard its assets and ensure the proper authorization, recording, and reporting of transactions. These internal controls are designed to optimise resource utilisation, enhance operational efficiency, monitor operations, and ensure compliance with relevant laws and regulations. These systems are also upgraded regularly for incremental improvements. The Company is also deploying Enterprise Resource Planning ("ERP") systems to enable a higher degree of system-based checks and controls ensuring protection of its assets and interests. The Audit Committee of the Board periodically reviews these systems. Internal audit is conducted by an Independent Professional Firm. Additionally, the Statutory Auditors have also affirmed the adequacy and effectiveness of the

Companys internal control systems, providing further assurance of their reliability and integrity. These internal control systems contribute to the Companys overall governance framework and to the overall accuracy and transparency.

AND KEY FINANCIAL RATIOS

Revenue for FY24 stands at 313 Crore with a robust growth of 10% Y-o-Y. Total volume stood at 10,927 MT, grew by 16% Y-o-Y. In terms of EBITDA, the Company has delivered a growth of 10% Y-o-Y with stable EBITDA margins of 11%. Companys PBT has increased to 31 Crore as against

27 Crore in FY23 and PAT has Increased to 23 Crore as against 20 Crore in FY23 with stable PAT margins of 7.35%.

Key Financial Ratios

INDUSTRIAL RELATIONS

Human capital has always been the most important and valuable asset for the Company. We place immense value on the employees, considering them essential to the Companys success and growth. We prioritise their development by offering extensive training programs aimed at enhancing their skills and knowledge. Our HR policies are designed with an objective to attract best talent and retain them. We are committed to creating an cultivating a fair, inclusive, supportive and collaborative work environment where all the employees can learn, develop, and achieve their full potential. W also have the goal of raising employees involvement in the decision making process and grooming them for leadership positions. The management is also dedicated to ensuring safety, occupational health, and environmental sustainability through planning, training, and task execution. As of 31^st March, 2024, our workforce consisted of 263 employees (workers and regular staff) an increase over the previous year - reflectingour commitment to strengthening our human capital. We firmly believe that investing in our employees and maintaining strong industrial relations will drive our continued success and growth.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis and any other part of the report describing the Companys objectives, projections, estimates and expectations may be forward-looking statements. Actual results may differ materially from those expressed or implied due to various risks and uncertainties. Important factors that could make a differenceto the Companys operations include raw material availability and prices, cyclical demand and pricing in the markets, exchange rate variations, global economic, social & demographic factors, changes in Government regulations and policies, tax statutes as well as overall economic developments within India and the countries in which the Company conducts business and other incidental factors.