Yuken India Ltd Management Discussions.

The global economy reported de-growth of 3.5% in 2020 compared to a growth of 2.9% in 2019, the sharpest contraction since World War II. This steep decline in global economic growth was largely due to the outbreak of the novel coronavirus and the consequent suspension of economic activities across the world. This led to global supply chain disruptions, resulting in a de-growth in some of the largest global economies.

In 2020, global economic activity was affected by the pandemic, resulting in a contraction of 3.5% after a slow growth 2.9% in 2019. G20 countries experienced

an aggregate slowdown of 3.2%, with the Euro area contracting by 6.8%, UK by 9.9%, Japan by (-) 4.8% and the US by (-)3.5%. Among major economies, India contracted by 8% while China was the only major economy to record a growth of 2.3% in 2020.

Regional growth % 2020 2019
World output (3.5) 2.9
Advanced economies (4.9) 1.7
Emerging and developing economies (2.4) 3.7

Performance of some major economies

United States: The country witnessed a GDP de-growth of 3.4% in 2020 compared to a growth of 2.3% in 2019.

China: The countrys GDP grew 2.3% in 2020 compared to 6.1% in 2019 despite being the epicentre of the outbreak of the novel coronavirus.

United Kingdom: Britains GDP contracted 9.9% in 2020 compared to 1.4% growth in 2019, 2x the annual contraction recorded in the aftermath of the global meltdown in 2009.

Japan: Japan witnessed a contraction of 4.8% in 2020, the first instance of a contraction since 2009. (Source: CNN,

IMF, Economic Times, trading economics, Statista, CNBC)

The global economy is projected to grow by 5.5% in 2021 largely due to the successful roll-out of vaccines across the globe, coupled with policy support in large economies. (Source: IMF). Drivers of resilience and growth have been different across economies, with the US being led by household spending, while emerging markets and East Asia are catalysed by industrial production, exports and the commodity boom. Europe is benefiting from a resumption in world trade, while its consumer spending remains constrained.

There could be a combination of pent- up demand, accumulated household savings and the easing of restrictions as vaccination progresses could spur inflation, especially as cost pressures and temporary supply disruptions emerge due to surging demand and strict containment measures. However, the idle and spare global manufacturing capacity could keep inflation in check.

The Indian economy passed through one of the volatile periods in living memory in FY 2020-21.

At the start of 2020, India was among five largest global economies; its economic growth rate was the fastest among major economies (save China); its market size at 1.38 billion was the second largest in the world; its rural population of the underconsumed was the largest in the world.

The Indian government announced a complete lockdown in public movement and economic activity from the fourth week of March 2020. As economic activity came to a grinding halt, the lockdown had a devastating impact on an already- slowing economy as 1.38 billion Indians were required to stay indoors - one of the most stringent lockdowns enforced in the world.

The outbreak of the novel coronavirus and the consequent suspension of economic activities due to the pandemic-induced lockdown, coupled with muted consumer sentiment and investments, had a severe impact on the Indian economy during the first quarter of the year under review. The Indian economy de-grew 23.9 per cent in the first quarter of FY 2020-21, the sharpest de-growth experienced by the country since the index was prepared.

The Indian Government announced a bold economic stimulus to combat the sharp slowdown caused by the lockdown, its various measures aimed at easing liquidity and credit unavailability faced by the MSME sector to reinvigorate economic activity. Similarly, various measures targeted at incentivizing investments in economic segments and labour reforms, helped improve sentiment and attract global investments, strengthening Indias self-reliance for critical needs.

The Indian and state governments selectively lifted controls on movement, public gatherings and events from June 2020 onwards, each stage of lockdown relaxation linked to corresponding economic recovery. Interestingly, as controls relaxed what the country observed was a new normal: individuals were encouraged to work from home; inter-city business travel was replaced by virtual engagement; a greater premium was placed on the ownership of personal mobility modes (cars and two-wheelers); there was a sharp increase in home purchase following the need to accommodate an additional room for home working.

The result is that Indias relief consumption, following the lifting of social distancing controls, translated into a full-blown economic recovery. A number of sectors in India - real estate, steel, cement, home building products and consumer durables, among others - reported unprecedented growth. India de-grew at a relatively improved 7.5 per cent in the July-September quarter and reported 0.4 per cent growth in the October-December quarter and a 1.6% growth in the last quarter of the year under review.

The result is that Indias GDP contracted 7.3% during FY 2020-21, largely on account of the sharp depreciation of the first two quarters. This sharp Indian recovery - one of the most decisive among major economies - validated Indias robust longterm consumption potential.

During FY 2020-21, while the Agricultural sector posted a growth of 3%, the Industrial sector contracted by 7.4% and the Services sector was hit the hardest with a decline of 8.4%. As a result, consumption expenditure declined 7.1% while Gross Fixed Capital Formation contracted 12.4%. A decline in global commodity prices helped contain inflation, with Consumer Price Index inflation rising 6.18% and Wholesale Price Index inflation rising 1.2% during the year.

Y-o-Y growth of the Indian economy

FY18 FY19 FY20 FY21
Real GDP growth (%) 7 6.1 4.2 -7.3

Growth of the Indian economy, FY 2020-21

Q1, FY21 Q2, FY21 Q3FY21 Q4,FY21
Real GDP growth (%) (23.9) (7.5) 0.4 1.6

(Source: Economic Times, IMF, EIU, Business Standard, McKinsey)

Indian economic reforms and recovery

There were a number of positive features of the Indian economy during the year under review.

India reported improving Goods and Services Tax (GST) collections month-on- month in the second half of FY 2020-21 following the relaxation of the lockdown, validating the consumption-driven improvement in the economy.

The per capita income was estimated to have declined by 5% from Rs.1.35 lakh in FY 2019-20 to Rs.1.27 lakh in FY 2020-21, which was considered moderate in view of the extensive demand destruction in the first two quarters of FY 2020-21.

The Indian currency strengthened from a level of H76.11 on 1st April, 2020 to a USD to H73.20 as on 31st March, 2021 after peaking at H76.97/ USD on 21st April, 2020 (Source: Poundsterlinglive, exchangerates.org.uk)

Indias foreign exchange reserves continue to be in record setting mode - FY 2020-21 saw USD 101.5 billion dollars accretion in reserves, the steepest rise in foreign exchange reserves in any financial year; Indias forex reserves are ranked third after Japan and China and can cover more than a years import payments.

India jumped 14 places to 63 in the 2020 World Banks Ease of Doing Business ranking and was the only country in the emerging market basket that received positive FPIs of USD 23.6 billion in 2020; the country ranked eighth among the worlds top stock markets with a market capitalisation of USD 2.5 trillion in 2020.

The Indian government initiated structural reforms in agriculture, labour laws and medium-small enterprise segments. The labour reforms were intended to empower MSMEs increase employment, enhance labour productivity and wages.

The government approved amendments to the Essential Commodities Act and brought an ordinance to allow farmers to sell their crop to anyone; the changes to the Essential Commodities Act, 1955, were intended to deregulate agricultural commodities (cereals, pulses, oilseeds, edible oils, onions and potatoes from stock limits). The government approved the Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, to ensure barrier-free trade in agriculture produce.

The Government relaxed foreign direct investment (FDI) norms for sectors like defence, coal mining, contract manufacturing and single-brand retail trading.

The Union Cabinet approved the production-linked incentive (PLI) scheme for 10 sectors. These incentives could attract outsized investments, catalysing Indias growth journey.


The emergence of the second COVID-19 wave dampened outlook for a strong projected rebound in real GDP growth of 10.5% in FY 2021-22, which had been supported by a strong revival achieved in Q4 FY 2020-21 and impact of fiscal stimulus packages under AtmaNirbhar 2.0 and 3.0 schemes, increased capital outlays and the promotion of investments in the Union Budget 2021-22.

As a result of the setback caused by the second wave, real GDP growth for FY 2021-22 may finish lower than expected before India returns to robust growth in FY 2022-23 with a projected 6.8% growth over FY 2021-22.

Despite recent developments, Indias economic activity has been gathering strength with demand and supply sides staging an appreciable recovery, improved mobility and optimism due to a sustained vaccination rollout programme, growth-enhancing proposals in the Union Budget and reasonably favourable monetary conditions. However, Indias growth outlook could also depend on the trajectory of global economic recovery, in view of external trade linkages, hardening crude oil prices and competition in the export markets.

Global hydraulic components industry review

The global hydraulic component industry is estimated to reach a market valuation of USD 61.3 billion in 2020. Growing at a CAGR of 3.6% from 2020-2027, the global hydraulic market is estimated to be a valued at USD 78.3 billion by 2027. During the same period, hydraulic pumps and motors, and valves is expected to grow at a CAGR of 4.4% and 3.2% respectively. This growth is largely attributed to the growing demand in the construction and mining industry for hydraulic components owing to their safety and efficiency.

The United States of America holds about 26.98% of the global hydraulic market, estimated at USD 16.5 billion in 2020. During the period of 2020-27, the Asia Pacific region is poised to witness the largest growth in the hydraulics components market, with China alone expected to reach a value of USD 16.6 billion, growing at a CAGR of 6.6% in the same period. Among other vital geographic markets Europe, barring Germany, is also expected to reach USD 16.6 billion by 2027. The growth in the hydraulics industry is largely being led by the developing APAC countries such as India and China, as manufacturing of hydraulics would be much cheaper there than in a developed country.

With the adoption of Industrial Internet of Things (IIoT) hydraulics component industry has been given a digital makeover, making them more efficient as it allowed dynamic supervision of the machinery. Hydraulic components are equipped with sensors and digital interface which allows users to operate machines from a single display interface. Owing to the competitive nature of the hydraulic industry companies are investing in R&D to constantly upgrade their products and stay ahead of the competition.


The growing investment in infrastructural development will foster the growth of the hydraulics component industry. By 2030, the global construction industry, led by India, China and the US, is expected to reach USD 15.5 trillion, owing to increasing number of construction investments in these parts of the world.

(Source: Marketwatch, Market and Market, PRnewswire)

Indian hydraulic components industry review

The hydraulic machinery is used in various industries such as construction, aerospace and defence, steel plants, mining and agriculture machinery among others. Therefore, the growth trajectory of these industries has a direct impact on the hydraulic components industry.

The Covid-19 virus, which had forced worldwide industrial lockdowns, caused a decline in the hydraulics industry due to the suspension of all industrial activities for months.

In a post-pandemic environment, the hydraulics industry is likely to see a boost as the various sectors it caters to has witnessed demand recovery following the lockdown. These sectors include core sectors such as road construction, rural development and mining, where the government has allocated large brackets for infrastructural development.

(Source: Equipment India)

Outlook and growth drivers

Infrastructure: The infrastructure sector is an integral part of a countrys economy. The National Infrastructure Pipeline currently comprises of 7400 infrastructure projects across roads and railways. Upcoming infrastructure projects such as construction of new roads, highways, and freight corridors etc. will increase the demand for hydraulic components and equipment.

Urbanisation: Rising urbanisation will play an important role in Indias economic growth. It is estimated that between the period of 2019 and 2035, 17 out of 20 of the fastest growing cities will be from India. By 2030, Indian cities are expected to be at the forefront of the countrys economic growth, contributing around 70% to the countrys GDP

Manufacturing: With initiatives such as Atmanirbhar Bharat and Make in India, the Government intends to position India as the manufacturing hub of the world. Also, after the outbreak of the coronavirus pandemic countries seeking to shift their supply chain from China are looking at India as a favorable alternative.

Core sectors: Core sectors like steel and coal are important indicators of economic growth in a country. By 2030-31, steel production is set to increase to 300 million tonnes and Coal India has set the target of producing one billion tonnes of coal by 2023-24. This indicates the massive industrialization that is set to take place in the coming years.

Rising population: India is set to overtake China as the worlds most populous country in 2025. In order to meet the demands of its rising population, India advance in terms of economy and infrastructure. The government is already set in motion a series of economic and infrastructural projects in order to meet its USD 5 trillion economy target by 2024-25. (Source: Economic Times, Equipment India)


Yuken India is set to benefit from the upcoming growth in the hydraulics industry as:

It is a well-established brand with decades of experience

It offers a variety of products to address diverse customer needs

Its brand is known for maintaining superior service standards and fast delivery time

Its products are at par with global benchmarks while still being available at affordable prices

It undertakes research to enhance product development capabilities

It has years of experience in customer engagement with a sizeable market share


Rising input costs

Altering customer choices

Expensive technology upgradation

Need to continuously develop new products

Unstable foreign currency Highly competitive global market Increasing competition Environmental threat due to oil leaks

Financial analysis (Consolidated)

Gross revenues decreased by 9% to Rs.223.47 crore during FY20-21 compared to Rs.246.22 crore during FY 2019-20.

Operating profit (EBITDA) stood at Rs.24.27 crore compared to Rs.18.67 crore during FY 2019-20.

Finance costs decreased by 6.93 % from H 10.88 crore to Rs.10.13 crore during FY 2020-21.

Total expenses stood at Rs.218.62 crore, including tax expenses stood at Rs.1.52 crore and deferred tax charge/ (benefit) worth H(0.95) crore.

Profit after tax including other comprehensive income (OCI) stood at Rs.4.96 crore compared to Rs.2.78 crore during previous year.

Net worth stood at Rs.178.07 crore as on 31st March, 2021 compared to Rs.173.76 crore on 31st March, 2020.

Property, plant and equipment and intangible assets including investment property increased by 15 % to Rs.120.24 crore during FY 2020-21 from Rs.104.64 crore during FY 2019-20.

Capital work-in-progress for the year has decreased to Rs.12.56 crore during FY 2020-21 compared with Rs.23.13 crore during FY 2019-20

Cash and cash equivalents stood at Rs.5.85 crore as on 31st March, 2021 compared to H0.98 crore as on 31st March, 2020.

Key financial ratios

Particulars FY 2020-21 FY 2019-20
EBIDTA/Turnover (%) 11 8
Net profit/Turnover (%) 2 1
Debt-equity ratio 0.16 0.24
Current ratio 1.25 1.40
Interest coverage ratio 1.53 1.02
Inventory Turnover (number of days), excluding residential units from JDA. 98 81
Debtors Turnover (number of days) 112 100
Return on Networth ( %) 6 4
Book value per share (H) 148.39 144.80
Earnings per share (H) 4.38 2.52

Internal control systems and their adequacy

The organisational culture of Yuken India has been built on the foundation of transparency and accountability.

The Company practices fair and comprehensive corporate governance through the implementation of its Code of Conduct and various policies formed in compliance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Company has Prevention of Sexual Harassment Policy modeled after Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

The Company has a proactive Audit Committee that routinely oversees and controls internal processes. The Committee of the Board and the Constitution of the Company ensures that the accounting policies and internal procedures are in compliance with the requirements of Section 177 of the Companies Act,

2013 and Regulation 18 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

The Company believes that its people are its strength, and their talent is an asset. Thus, the Company has framed its human resource policies that encourage creativity, talent and performance. The Company has consistently strived to provide a platform for professional growth of its employees. The Company had 440 employees as on 31st March, 2021.