Walchandnagar Industries Ltd Management Discussions.

Economic Overview

FY 2020-21 was predominantly about the Covid-19 pandemic and individuals, societies, companies & nations managing the pandemic. We saw a decline in the pandemic towards the end of the fiscal year before the second wave hit India in the month of March 2021.

The global economy contracted by 3.3% in FY 2020-21. Advanced economies showed a steeper decline of 4.7%, whereas emerging markets and developing economies declined by 2.2%. All economies except China went into recession, China showing 2.3% growth in the economy. The global economy is expected to see a rebound in the second half of FY 2021-22 with vaccine optimism leading to further opening of economies. Governments & Central banks are expected to maintain supportive policies until the recovery is firmly underway. The strength of recovery globally will depend on the success of the vaccine roll out. Initial signs of pick up in business sentiment is evident in terms of better GDP numbers across the developed world, falling rates of unemployment and a general buoyancy in stock markets globally.

The Indian economy contracted by almost 8% (as compared to growth rate of 4.2% in the previous fiscal year), making FY 2020-21 the first year of contraction since 1980. India saw sharper decline than other key economies due to a strict & early lockdown to control the spread of Covid-19. . However, India saw a V-shaped recovery since Q3 FY 2020-21. Amidst pandemic & lockdown conditions, digital adoption saw acceleration and industries are using various digital platforms for transactions & operations. The Reserve Bank of India (RBI), and the central & state governments provided critical support to the economy during this crisis. Even though the second wave of the pandemic has affected industries again from March 2021 to June 2021 due to partial lockdown & restrictions, India is hoping for better recovery in rest of the fiscal year 2021-22. In this context is heartening to note that despite rising inflation (both WPI and CPI), RBI has chosen to support the incipient recovery process via its accommodative monetary policy. Also supporting policy level measures by the government like continued emphasis on infrastructure, extending the employee guarantee scheme, direct benefit transfers, extension of the negative list for defence imports, etc will go a long way in giving a fillip to demand as well as investment.

Covid-19 & the Impact on Your Company (WIL)

WILs manufacturing facilities at Walchandnagar, Satara, Dharwad & all offices went under lockdown & restrictions as per government guidelines for first & second wave of pandemic. WIL took all the necessary precautions during operations to ensure health & safety of all employees and their families. Your Company is ensuring utmost safety of its employees by following measures such as vaccination camps for factory employees, usage of masks/gloves, regular temperature screening, setting up of disinfectant facilities, allowing workforce to work with social distancing, conducting comprehensive factory sanitization and strengthening work from home culture for our offices in the cities.

A wide business portfolio and factory locations that are away from highly affected areas & cities gave WIL a slight edge and natural protection from the pandemic. Even though the lockdown period affected operations, especially supply chain in Q1 FY 2020-21, WIL showed appreciable improvement in the operations during unlock period with better planning, discipline and dedication of our employees.

Performance Overview

Summary of the revenue & profitability for FY 2020-21 as compared to previous financial year is tabulated below:

Rs.in Lakhs

Particulars FY 2020-21 FY 2019-20
Total Income 35,067 31,822
EBIDTA (Before Exceptional Items & Exchange Currency fluctuations) 4,685 4,780
EBIDTA (After Exceptional Items & Exchange Currency fluctuations) 4,478 4,406
Profit / (Loss) Before Tax (PBT) (5,724) (6,546)
Profit / (Loss) After Tax (PAT) (5,724) (6,546)
Cash Profit / (Loss) (Including Exceptional Items) (3,428) (4,247)
Cash Profit / (Loss) (Excluding Exceptional Items) (3,428) (3,268)
Fully diluted EPS (15.04) (17.20)

(All figures in INR lakhs except EPS, which is an absolute number)

In spite of the disturbance due to pandemic and sales affected in Q1 FY 2020-21, WIL bounced back to have better income in subsequent quarters making this years revenue higher than that of previous fiscal year. Higher top-line in FY 2020-21 definitely shows improvement in operations, optimal use of manufacturing capacities and improved processes in the year. One of the most important measures in such times is cost control and cash conservation and your company has relentlessly worked towards this objective through measures like reduction of subcontracting activities, reduction of wastages on the shop-floor, liquidation of unwanted material, etc.

Your company has successfully completed execution of important projects including OPV-Gearboxes for Goa Shipyard Limited, Hairpin Heat Exchangers for NPCIL and various components for ISRO & Indian defence. WIL has also supported government in fighting the pandemic with supply of pressure gauges to DRDO for oxygen generating plants. In 2020-21, WIL has widened its business portfolio with establishment of two more businesses viz. Process Equipment Division (PED) & Railways. Also a series of steps were taken to strengthen product businesses i.e. completion of a strategic assignment to scale up the Crushing & Grinding business, improved customer connect via "Voice of Customer" exercises, creation of an umbrella structure for the Spares and Services business, initiation of new development for more efficient and higher capacity products like Centrifugal Machines and selective upgradation of critical equipment.

WIL has a healthy order book of INR 762 Cr as on 31st March 2021.

Hi-tech manufacturing covers most of the order book along with residual execution of EPC projects. Aerospace division carries the highest order book covering 32% of the total orders; which is a positive sign indicating your companys inclination towards hi-tech manufacturing for positive impact on the bottom-line.

Digitalization & Automation @ WIL

Amidst covid-19 pandemic, WIL has adopted digital platforms to communicate & transact, ensuring smooth operations with social distancing. Along with communication platforms, WIL has actively started investing in digitalization & automation of processes; which will result in faster & accurate processes with better control. Some of the initiatives at WIL include Automation in production booking on the shop floor, Barcode system for better inventory control, automated Supplier Relationship Management (SRM), Business Intelligence (BI) system, and more. Your company is also trying to establish itself through digital marketing with an active presence on social media, a revamped website and better brand awareness. We also plan to leverage the power of data - transactional, operational and financial through "Data Analytics" in order to gain more insights into our working, aid in decision making at all levels and thereby improve systems, processes and profitability.

Human Resources (HR)

The year gone by was challenging for industries in many ways with a necessity to handle the pandemic & manage the workforce accordingly. Our HR team was instrumental in caring for all our employees and family members affected by COVID. WIL has always given importance to professional development of the talent with opportunities & motivation. Emphasis on training and development of the workforce has been the focus area. Additionally, competency building programmes for leadership development and various engagement initiatives have been undertaken to sustain the employees motivation and maintain a harmonious work culture. Town-hall meetings as well as meetings between staff/workmen & top management have ensured dissemination of strategic direction & thinking across all levels within organization.

Risk Management & Internal control

The biggest risk at this time is clearly the uncertainty due to the pandemic affecting employees & operations. Your company has taken appropriate measures to mitigate this to certain extent by promoting work from home policy in offices wherever possible, selective attendance in offices as per guidelines, vaccination camps at factory, exploring ways for steady oxygen gas supply through collaborations, etc. WIL could successfully manage the pandemic in FY 2020-21 & is ready for the uncertainty to plan risk mitigation in near future. Another concomitant risk which we have faced is the rise in input cost particularly the price of steel which can affect profitability. However we have been alert to the situation and have taken mitigation measures like price revisions wherever possible, strategic buying, value engineering, etc.

Risk assessment & planning for mitigation has always been an annual exercise at WIL with periodic reviews throughout the year. Types of risks & priorities get modified with the changing business profile, economic scenario, and other critical external and internal factors. With a clear strategic decision, WIL would be focusing on the strategic hi-tech manufacturing business rather than the erstwhile EPC business. In the current scenario, WIL has adopted a balanced approach of stringent project management in case of newly accrued manufacturing orders and phase-wise completion & clearance of legacy EPC projects to effectively mitigate this risk.

In addition to the above, our internal audit function has a strong mechanism for Risk Based Internal Audit (RBIA) for end-to- end processes & necessary control, transaction audit to ensure monetary transactional accuracy, and accounting & control audits for various process transactions in the ERP system for ensuring proper discipline in the system.

Technology Upgradation & Product Development

WIL continues to be cognizant about emerging trends & importance of technology upgradation. We are continuously improving our manufacturing capabilities through automation as well as manual process improvements. Especially, our product business portfolio has tremendous scope for product development through advanced offerings to the customer. Technological advancements at the shop floor will help to save the manufacturing time & improve quality of the products, whereas product development will enable WIL to offer advanced features for our product to customers & to expand our product portfolio. WIL has also started to explore application of Internet of Things (IoT) in processes as well as products to have smart systems, more data, prediction capabilities and more control. Your company is also keen on increasing its geographical footprint by targeting the export market for identified products.

Strategic Directions

Your company has done a comprehensive exercise to chalk out strategic directions for the organization with a structured approach & a defined path towards fulfilling our aspirations in coming years. The immediate focus areas include revamping of processes including automation, building & nurturing talent and implementing a detailed succession plan, improving execution capabilities, investment in technological advancement, and expanding markets & product portfolio. A systematic work culture towards these strategic directions is expected to help your company achieve greater heights in years to come.

Cautionary Statement

The statements in the "Management Discussion and Analysis Report" describe your Companys objectives, projections, expectations, estimates or forecasts which may be "forward-looking statements" within the meaning of the applicable laws and regulations. Actual results may differ substantially or materially from those expressed or implied therein due to risks and uncertainties. Important factors that could influence the Companys operations, inter alia, include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in Government regulations, tax laws, economic, political developments within the country and other factors such as litigations and industrial relations.