Foseco India Ltd Management Discussions

INTRODUCTION

FOSECO, the Foundry Technologies Division of Vesuvius Group plc, is deeply involved in advancing foundry manufacturing processes through innovative technologies. With manufacturing facilities strategically located in key foundry markets worldwide, Foseco India stands as a premier provider of consumables and solutions for the foundry industry. The name "Foseco" originates from "FOundry SErvices COmpany," a concept that took root in the town of Birmingham, England, in 1932. Renowned globally, the Company has evolved into an indispensable entity within the foundry industry, renowned for delivering top-notch consumable products across various sectors. Foseco India caters primarily to ferrous and non-ferrous foundries serving diverse end markets, from large custom castings to high-volume automotive components. Renowned as a global leader in products and services for the foundry industry, Foseco India is dedicated to enhancing casting quality and foundry efficiency. With a relentless focus on technical service and cutting-edge technology, backed by substantial investment in research and development, Foseco India consistently delivers business-enhancing solutions to its clientele. Its manufacturing facilities are strategically located near key foundry markets. Foseco India invests in training its engineers, integrating them into a global network of experts. By combining local manufacturing, expertise, and leveraging global knowledge of foundry processes, Foseco India fosters a unique relationship with its customers. Through optimisation processes and product performance, the Company equips its customers with the products and solutions for manufacturing sound castings, enabling them to achieve maximum benefits.

FOSECO INDIAS BUSINESS MODEL

Foseco India operates a robust, adaptable, and profit-generating business model that prioritises strong customer relationships and local presence. Over the decades, it has cultivated brand equity for its products by emphasising reliability, technology, and service. Offering a wide array of foundry technologies, services and consumable supplies, Foseco India is backed by unparalleled expertise in foundry processes and product applications. By understanding customer needs and delivering unique solutions, Foseco India distinguishes itself from its competitors. These solutions are provided to customers by a team of experts dedicated to consistently improving casting quality through collaborative partnerships with foundries. The value Foseco India adds includes enhancements in process capability, casting yields, resource utilization, efficiency, and the creation of new business opportunities.

Foseco Indias Key Strengths

• Solutions Offering: Our local and international team continuously work on developing new toolkits based on detailed knowledge of customers processes so as to offer innovative/customised solutions

• Products Offering: Full range of high quality products and services

• Innovation: Industry-leading technologies with a focus on continuous innovation

• Technical Support: Access to Foseco Indias extensive application engineering resources

• Proximity: Global presence and extensive reach in India

FOUNDRY PROCESS AND OUR STRATEGY

The Foundry Process

Foundries play a crucial role in Indias industrial development, serving as factories where castings are manufactured through the melting of metal, pouring the molten liquid into moulds, and allowing it to cool and solidify into desired shapes. These foundries produce metal products utilized in various sectors such as railroads, engines, tractors, mining equipment, earth-moving machinery, pipe components, power , petrochemical and gas industries, and machinery for manufacturing everyday consumer products. Foseco India stands as a prominent supplier of consumable products, solutions, and related services across different aspects of the foundry process, illustrated below -

Casting Quality As a Driver For Demand

In todays dynamic foundry landscape, the Companys products typically comprise less than 5% of a foundrys overall production cost. However, they play a significant role in elevating product quality, enhancing manufacturing efficiency, and mitigating the environmental footprint of the casting process. Additionally, the Companys solutions contribute to optimising the ratio of finished castings to the volume of metal poured an essential metric for assessing foundry efficiency.

As the complexity of castings continues to escalate, particularly driven by the automotive sectors pursuit of lightweighting, there is an increasing demand for cleaner metal, improved flow into moulds, and more consistent solidification. This necessitates advanced technologies and methodologies to meet these evolving challenges. The Companys services are at the forefront of addressing these demands, leveraging computer modelling, casting simulation, and casting methoding capabilities to provide tailored solutions. By embracing these latest trends, the Company empowers foundries to stay competitive, enhance productivity, and meet the stringent quality standards of modern manufacturing practices.

Business Strategy in the Current Landscape

Foseco India embraces a forward-looking strategy known as "Solution Partnering," built upon key pillars of strength: product technology, application expertise, process knowledge, process control, and customer relationships. These solutions are designed to enhance customer business performance while simultaneously minimising environmental impact through the use of eco-friendly products that conserve natural resources. The Company remains committed to refining its solution offerings continuously, with the aim of delivering maximum value to its customers in alignment with the latest industry trends and demands.

Product Technology: The Company is the only supplier that offers products and services across the entire foundry process in both ferrous and non ferrous areas. This global proprietary consumable product technology consists of:

Process Knowledge: Foseco Indias engineers possess in-depth understanding of customers processes for manufacturing of casting from melting to post-cast treatment.

Process Control: Foseco Indias range of sophisticated and state-of-the-art process control equipments help ensure process management, measurement, consistency, improved productivity and reliability of cast components.

Customer Relationships: Foseco India is deeply committed to fostering customer partnerships based on the sharing of expertise and knowledge. This belief underpins Foseco Indias strategy, as it recognises that collaborative relationships with customers lead to the most significant performance enhancements. This approach aligns with the latest trends in customer-centric business models, emphasising the importance of mutual collaboration and shared insights to drive innovation and success.

Our offerings to various metal types are:

Iron

The realm of iron casting is divided primarily between grey and ductile iron, with grey iron comprising the majority of cast metal. Grey iron casting remains a cost-effective and resilient method for producing components that do not necessitate enduring extreme mechanical stress. While all iron casting processes require filters and coatings, grey iron casting exhibits lower shrinkage upon solidification, thereby reducing the reliance on feeding system utilisation. Conversely, ductile iron production demands more advanced products to manage the high shrinkages of metal during solidification. These insights reflect the latest trends in iron casting, emphasising efficiency, adaptability, and the utilisation of advanced technologies to meet evolving industry demands.

Steel

Steel is extensively utilised in castings to manufacture components requiring exceptional mechanical performance. Steel casting stands out as one of the most exacting casting processes, characterised by elevated melting temperatures and a heightened tendency for shrinkage. Consequently, there is a heightened demand for specialised products such as high-performance feeders, high-temperature-resistant filters, robust coatings, and technical expertise tailored specifically to this segment. These insights underscore the latest trends in steel casting, emphasizing the need for advanced solutions and expertise to meet the rigorous demands of modern manufacturing.

Aluminium/Non-Ferrous

Aluminium casting represents the fastest-growing segment within the foundry market, particularly in light of its significant share in the automotive industry. With the ability to be molten below 700?C, aluminium can be cast in iron moulds which can be reused. Foseco India remains at the forefront of this trend, focusing on the supply of fluxes, filters, and machinery aimed at enhancing the composition and cleanliness of the metal. This underscores the latest trend in the industry, emphasizing the importance of technological advancements to meet the evolving demands of aluminium casting in EV industry and weight reductions in the automotive industry.

ECONOMIC AND INDUSTRIAL HIGHLIGHTS

The Global Economy

In 2023, the global economy continued to wrestle with the enduring repercussions of the tumultuous events of 2022. The persistent challenges that continued from the previous year cast a shadow over economic prospects. The year 2023 also saw continued tightening of money markets. A silver lining was a resilient U.S. economy and Chinas real GDP growing from 3% in 2022 to 5.2% in 2023. Russias invasion of Ukraine continued to ripple through geopolitical landscapes, intensified the tensions and disrupted global supply chains. This resulted in sustained spikes in commodity prices, especially for energy resources, contributing to inflationary pressures across various regions. Inflation emerged as a significant concern, with prices of all essential commodities soaring to levels unseen in decades. The global economy encountered substantial threats in 2023 due to persistent shipping delays and challenges. These disruptions made the global economy susceptible to logistical disturbances, necessitating collaborative efforts from governments, industry players, and international bodies to build infrastructure, streamline processes, and become resilience against future shocks. The shipping worries of 2023 posed considerable risks to the stability and expansion of the global economy, emphasising the imperative for proactive measures to strengthen supply chains and mitigate risks associated with logistical disruptions.

As warned by the IMF in 2022, the threat of a global recession loomed large, with ongoing geopolitical tensions, inflationary pressures and the enduring impacts of the pandemic casting a shadow over economic stability. Reflecting on the events of 2023, it became apparent that the global economy will remain entangled in complex challenges, necessitating proactive measures to mitigate risks and cultivate sustainable growth in an increasingly interconnected world.

Indian Economy Opportunities and Threats

The Indian economy is prepared to ascend to new heights, surging above the 6.5% average GDP growth in the last decade. India is poised to harvest substantial dividends from its recent investment-driven expansion, fostering sustainability.

The year 2023 has been noteworthy for the Reserve Bank of India (RBI) led Monetary Policy. Throughout the year, the central bank has effectively managed to temper inflationary pressures while simultaneously sustaining economic growth. In contrast to the rate hikes witnessed in 2022, the year 2023 has been characterised by a largely stable interest rate environment. With the exception of the February policy, during which the RBI raised the repo rate by 25 basis points (bps) to 6.50%, a rate that has been maintained since, the central bank opted to maintain a consistent stance by holding rates steady in the subsequent five consecutive policy reviews through 2023. This measured approach reflects the RBIs commitment to striking a balance between inflation control and fostering economic growth. The surge in capital expenditure signifies a paradigm shift in economic dynamics. The Government of India has ramped up the spending and further fuelled the growth trajectory which prompted the state governments to bolster their CapEx spending.

As we stride into 2024, the global economic landscape remains shrouded in uncertainty, urging us to maintain a vigilant watch over global demand and cost dynamics. Yet, amidst the challenges lies an opportunity for growth. Indias resilient economy and domestic consumption will help us to grow in 2024.

Foundry Market Insights

India is the second-largest casting producer in the world, behind China. The Indian foundry industry manufactures metal cast components for applications in automotive, tractor, railways, machine tools, pipes, defence, aerospace, construction, mining, textile, cement, electrical, power machinery, pumps/valves, wind turbine generators etc. On the positive side, Indias foundry industry is expected to benefit from several factors. The governments focus on infrastructure development and initiatives such as the National Infrastructure Pipeline (NIP) could drive demand for cast metal products in sectors like construction, transportation, and energy. Additionally, the emphasis on "Make in India" and domestic manufacturing could lead to increased demand for castings in various industries. Furthermore, the global trend towards lightweighting in automotive and aerospace industries presents an opportunity for Indian foundries to produce high-quality castings using innovative materials and processes. The growing adoption of electric vehicles (EVs) also opens up new avenues for foundries to supply components for electric drivetrains and battery systems.

However, Indian foundries will also face challenges in 2024. Fluctuations in raw material prices, particularly for metals like iron, steel, and aluminium, could impact production costs and profitability. Moreover, the volatility in global markets and geopolitical tensions may affect export-oriented foundries.

Another key challenge is the need for technological advancement and innovation to meet evolving customer requirements and stringent quality standards. Indian foundries will need to invest in automation, digitalisation, and process optimisation to enhance efficiency, productivity, and competitiveness.

Overall, while the outlook for Indian foundries in 2024 is promising, success will depend on the industrys ability to adapt to changing market dynamics, embrace innovation, and leverage opportunities for growth in both domestic and international markets.

Key growth Drivers of the Market

In the latest outlook for the Indian foundry industry, expansion is fuelled by robust domestic demand within the economy. Despite potential affordability challenges in the lower segments of the automotive market, overall automotive demand is anticipated to grow steadily. This growth is further bolstered by increased economic activities and ongoing construction projects, particularly driving demand for medium and heavy commercial vehicles as well as off-road vehicles.

Government initiatives, such as heightened spending on railways, are also contributing to the growth trajectory of foundries catering to this sector. Additionally, the imperative for electricity generation, coupled with the increasing focus on clean energy sources, is expected to drive demand for power generation equipment and windmill components. The tightening of environmental regulations and adherence to OEM specifications are driving forces compelling foundries to upgrade their technologies and processes. Many foundries are actively exploring opportunities to capture export markets and position themselves as viable alternatives to China, aligning with the "China Plus One" strategy.

Amidst these dynamics, Foseco India remains steadfast in its commitment to technological advancement and innovation. As a result, it continues to emerge as a preferred solution provider for foundries, positioning itself at the forefront of the industrys evolution.

FOSECO INDIAS PERFORMANCE HIGHLIGHTS

In 2023, Foseco India experienced significant growth, marked by an increase in revenue, enhanced profitability, and the effective management of total trade working capital. Despite persistent high raw material costs, and occasional spikes in certain cases, the Company was able to assist its customers to navigate through these challenges by offering solutions and therefore gained market share. Consequently, it was able to recoup its rising costs from the market by delivering exceptional value. Moreover, Foseco Indiadisciplined approach to collections led to a reduction in trade receivables days, further bolstering our financial stability.

Amidst the evolving market dynamics, Foseco India has remained at the forefront of technological innovation, introducing products tailored for both ferrous and non-ferrous foundries. In alignment with our dedication to sustainability, our focus on new product development prioritises solutions that offer tangible environmental benefits. With tightening environmental regulations and increasingly stringent OEM specifications, we have proactively led the charge in providing our customers with solutions that ensure compliance. Our comprehensive suite of products and services not only aids in cost reduction and productivity enhancement but also facilitates sales growth for our clients. Furthermore, our commitment to expanding accessibility has led to the strengthening of our distribution network, allowing us to reach a wider array of foundries. As we extend our reach to smaller foundries, we are also introducing products and solutions tailored to meet their unique requirements.

In order to enhance our ability to cater to an expanding customer base, we are actively bolstering our team, refining our processes, and fortifying our capabilities. This involves the recruitment of additional personnel, streamlining our operational workflows, and intensifying efforts in training and global networking. With a positive outlook on future opportunities, we are confident that these strategic investments will serve as catalysts for realising our growth ambitions.

In the upcoming year, the Company anticipates leveraging innovative strategies to propel sustainable growth while solidifying our dominance across all divisions and geographical regions within the foundry industry. As we navigate through 2024, our primary objective is to enhance market penetration and bolster our competitive standing in the foundry sector, with a steadfast commitment to optimising profitability and working capital efficiency. Looking ahead, we are dedicated to advancing our safety protocols and maintaining unparalleled product quality standards, our unwavering dedication to the well-being of our workforce and the satisfaction of our customers.

Financial Performance

Table 1: Abridged Profit and Loss Account (Rs. in lakh)

Particulars	2023	2022
Total Revenue from Operations	47,741	40,674
Other Income	2,148	748
Total Expenses	(41,562)	(35,289)
Profit Before Exceptional Item and Tax	8,327	6,133
Exceptional Item (Income)	1,188	--
Profit Before Tax (PBT)	9,515	6,133
Total Tax Expense	(2,217)	(1,536)
Profit After Tax (PAT)	7,298	4,597

Table 2: Key Financial Ratios

Particulars	2023	2022	Reason for Increase/ Decrease of 25% or More
PBIT/ Total Revenue	19.9%	15.1%
PAT/ Total Revenue	15.3%	11.3%
Return On Capital Employed	29%	26%
Return On Net Worth	21%	19%
Debt Equity Ratio	--	--
Current Ratio	2.84	2.91
Interest Coverage Ratio	--	--
Debtors Turnover	5.11	4.80
Inventory Turnover	9.79	10.75
Operating Profit Margin	17.4%	15.1%
Net Profit Margin	15%	11%	Increase in sale and income from exceptional item

During the year under review, the Company witnessed an increase in total revenue by 17.4% over the previous year. Sales was strong due to robust demand of Companys products witnessed in the domestic market despite persistent high raw material prices. This was backed by frequent visits to customers, understanding their problems and assisting them by offering solutions that helped in gaining market share. Consequently, the Company was able to recoup the rising costs from the market by delivering exceptional value. All these measures resulted in improvement in Net Profit Margin by 4% over the previous year. The Company generated Rs. 5,710 lakh net cash from its operating activities in 2023 as against Rs. 5,871 lakh in 2022.

Disclosure of Accounting Treatment Adoption of Indian Accounting Standards (Ind-AS)

The Company has followed the Indian Accounting Standards (Ind-AS) for drawing-up its accounts as prescribed by the Institute of Chartered Accountants of India, in the preparation of financial statements. There are no audit qualifications in the Companys financial statements for the year under review.

Health, Safety, Environment & Sustainability

The Company strives to achieve the highest standards of HSE practices, having adopted an Integrated (Quality, Health, Safety and Environment) Management System (IMS) accredited to ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018. The Company has well established HSE standards and monitoring process for each of its operations. Every employee is required to conduct safety audits and suggest safety improvement opportunities. These improvement opportunities are reviewed by HSE team members and wherever feasible these are implemented in the safety culture journey. It also runs continuous improvement programs for employees health and environment. To increase HSE awareness amongst employees, the Company regularly conducts internal competition and participates in competitions organised by trade bodies. The Company has launched sustainability drive with the defined targets to reduce its environmental

footprint in terms of CO2^{, energy, waste and water. It has}

invested in its own generation of green energy source by solar power project in Pune with the capacity of 565 kWP. The Company has implemented specific measures to reduce its CO emissions and neutralised its Scope-2 emissions 2 with green energy contracts.

Quality

The Company is acknowledged in the market for its consistent product quality and technical expertise. The consistent quality products adds value in the customer processes. The Company is committed to support customers with reliable products, which it strives to deliver through best-in-class quality management in its production sites. Its quality systems define the commitments and responsibilities which apply to all aspects of the business. To demonstrate this, the Company has an established process to address customer complaints which ensures participation from cross functional expertise and thus committed to ensure customer satisfaction. The problem-solving methodology 8D PPS (Practical Problem-Solving) enhances the problem solving capability of team members which is recognized in the form of regional contest and awards.

Operations

Foseco India has state of the art manufacturing facilities in Pune and Puducherry. It serves Indian markets and also support other countries through inter-company sales. It also imports products from its group manufacturing locations in other parts of the world. Foseco India operates in a cellular manufacturing structure. Each cell is “a factory within a factory” and has end-to-end responsibility of the entire supply chain process from purchase to manufacturing process to despatch. This workflow ensures that the entire cell team is responsible for safety, quality, production, cost and product delivery. The Company is progressively using operational excellence tools to standardise its processes and activities and ensure efficient systems to delight customers. With the Lean philosophy, focusing on people participation and engagement through initiatives like Kaizen Factory, the Company is becoming more flexible to take new challenges in customer satisfaction.This creates a healthy competition with rewards and recognition, enhancing the culture of continuous improvement. These initiatives are very well backed by innovative engineering practices and solutions. Foseco India has constantly carried out improvement initiatives to maintain and upgrade its manufacturing facilities through revenue expense and CapEx.

Human Resources

Foseco India has been guided by a persistent commitment to its Core Values and a "People First" approach. As custodians of these values, the Human Resources department has established them as a strong foundation of our identity, reflecting them in all aspects of our HR lifecycles. Our dedicated and focussed efforts in formulating and implementing people strategy has cultivated Foseco India into an "Great Workplace" where every individual feels esteemed, respected and empowered to unleash their maximum potential.

The year 2023 stands out as a significant and remarkable chapter in the journey of Foseco India Limited. Our dedication, combined with the implementation of best HR practices, has led to numerous internal and external recognitions, rewards and accolades which holds up our Employer Brand Equity. Through continuous engagement with our workforce, we achieved full participation and attained an impressive employee engagement score conducted by Mercer Sirota globally. Furthermore, we were honoured as a Future-Ready Organisation by the Economic Times for our proactive measures in sustainability and Diversity, Equity, and Inclusion (DEI). This recognition was further augmented by receiving the Bronze award from Confederation of Indian Industries in their event "Ideathon 2023" for our innovative approach towards industrial relations, showcasing our unwavering commitment to excellence and human resource development. During the year, notable progress was achieved in the HR lifecycle through the successful attraction and onboarding of strategic talents crucial for bolstering business performance and ensuring our market leadership and customer service. The HR function has served as a keystone in driving business advancement by adeptly recruiting key personnel for leadership role, frontline sales resources and ensuring seamless transitions in various support roles. As a technology-driven organisation, we have initiated the development of a Future Ready-Talent pipeline by recruiting and nurturing young talent. The Graduate Engineer program was launched in 2021-22 which is progressing successfully and contributing significant value. We have institutionalised a well-structured talent management process which is well embedded together with our business priorities. In the Company, we have initiated and expanded people development initiatives in line with functional developmental needs as-well-as building cohesive culture within the organization. We have defined a Competency Framework and started sensitisation of our employees, which is the foundation for the future organizational development initiatives. Some of our key people development initiatives were-Effective Living and Leadership towards bringing sustainable change in our workforce; awareness session on DEI for inclusivity and eliminating unconscious bias, Project Management and Leadership Development Programme. We are investing significantly to improve our competencies in Foundry Process Technical Capabilities under our Centre of Excellence initiatives.

The year-round initiatives towards employee career development, employee engagement, employee care and experience, and performance have created stronger engagements, connect and helped us in creating "Play to

Win" culture which will ensure organisational effectiveness in 2024 and beyond.

Corporate Social Responsibility Initiatives

During the year, the Company continued its CSR initiatives in the areas of education, healthcare, social causes and environment with greater zeal. Its CSR activities are primarily focussed on the disadvantaged, vulnerable and marginalised segments of society.

Foseco India has partnered with renowned Non-Governmental Organisation (NGOs) to fulfil its CSR objectives. CSR projects are undertaken with the aim of uplifting the social lives of the people living in the rural areas, providing education to the deprived, and skill-building. The continued association with Jehangir Hospital for detecting juvenile diabetes in young boys and girls and supporting their families by distributing medicine and diabetics kits for the treatment of diabetes has started bearing fruits with the results that the children are having access to better treatment and medicine from the hospital. The Company is sensitive towards environment and social requirements. It had supplied biomass cookstoves under the banner of “Happy Family Kit” to the deserving and needy families in the slum, rural, and semi-urban communities. This project is gaining in popularity as it has helped women in rural areas to cook food without burning excess fuel, thereby taking care of the environment. This year, Foseco India has taken up a novel project of providing modern amenities and infrastructure to a village which is deprived with basic necessities, near its plant. The project will get completed over a period of three years. The village has a school which is in need of a library and other infrastructure, which is being built by Foseco India.

In the area of education, the Company is building infrastructure in a residential school near its plant. The school provides free education and boarding at its premises to children of migrant workers and labourers residing nearby. In the previous year, Foseco India provided bunk-beds to the school with the aim of providing recreation to the residential students. The Company is glad to inform that these initiatives are drawing more children living in the vicinity of the school to take admission in the school and avail these facilities.

During the year, some ambitious projects were completed, which the Company was committed to delivering. Foseco India will keep working on social projects that fall within the scope of its CSR Policy, which will provide significant assistance to society in the long run.

Information Technology

The Companys IT systems are very robust and are running seamlessly to lend support to people working from anywhere. The IT processes of the Company are accredited to ISO 9001:2015.

Internal Control Systems and Their Adequacy

The Company adopts a rigorous system of Internal Control and Risk Management to ensure all assets are safeguarded and protected against loss from unauthorised use or disposition and that transactions are authorised, recorded, and reported quickly. In addition, the Company has a well-structured system of risk assessment and risk reporting.

The Companys internal controls are supplemented by an extensive programme of internal audits, review by management and documented policies, guidelines and procedures. The internal controls are designed to ensure that financial and other records are reliable for preparing financial information and other data and for maintaining accountability of assets. During the year, due care has been exercised by the Company with respect to all the requirements of its Law and Listing Regulations.

Cautionary Statement

Statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates and expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results might differ materially from those expressed or implied. Important developments that could affect Foseco India operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which it operates, changes in government regulations, tax laws, and other factors such as litigation and industrial relations.

For and on behalf of the Board of Directors

Ravi Moti Kirpalani

Chairperson

DIN: 02613688

 

Place: Gurugram

Date: February 23, 2024