Gandhi Special Tubes Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Pursuant to Schedule V to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a Management Discussion and Analysis Report covering business performance and outlook (within limits set by Companys competitive position) is provided below:

1. ECONOMIC OVERVIEW

a. Global Economy

During FY 2023-24, the global environment remained challenged by the ongoing war in Europe and was further disrupted by the continuing conflict in the Middle East. Uncertainty around both these conflicts and their resultant impact on the supply chain routes led to volatility in the global financial and commodity markets. Inflation, which had reached historically high levels the previous year, eased, providing significant support in a subdued demand environment across many geographies. However, contrary to the years beginning expectations, the slowing inflation was not enough to push the monetary authorities to look at a dovish monetary stance.

b. Indian Economic Overview and Outlook

Despite the challenging global landscape during the year, India emerged as the fastest-growing major economy, driven by a robust push in capital formation with public investment leading the path. The large domestic consumption basket in the country also supported this growth, though overall, it showed signs of moderation from the earlier years. Government-led strategic reforms, substantial investments in physical and digital infrastructure, initiatives like Make in India and the Production-Linked Incentive (PLI) scheme bolstered the countrys growth, resilience, and self-reliance. India grew by over 8% for three consecutive quarters, reaffirming its position as a standout performer amidst sluggish global growth trends.

Looking ahead to FY25, a normal south-west monsoon is expected to bolster agricultural activity. Urban households are likely to increase discretionary spending, supported by rising income levels according to the RBIs consumer survey, which bodes well for strengthening private consumption. The outlook for fixed investment appears promising with optimistic business sentiment, robust corporate and bank balance sheets, substantial government capital expenditure, and indications of a recovery in private capital expenditure. Despite these positive indicators, there are significant potential challenges posed by geopolitical tensions, volatility in international financial markets, supply chain disruptions, and extreme weather events. Nevertheless, taking these factors into account, the RBI has projected Indias real GDP growth for FY25 at 7.0%.

2. COMPANY OVERVIEW AND BUSINESS DESCRIPTION

Your Company delivers innovative and reliable tubular solutions to a diverse range of industries & niche markets in core sectors such as automotive and commercial vehicles, hydraulic systems and general engineering. Our team manufactures tailor-made seamless steel tubes, high-pressure tubes, welded tubes, and coupling nuts to meet the specific needs of our clients. We blend our advanced technical expertise with uncompromising standards to provide the highest quality with utmost accuracy.

These products are mainly supplied to the Original Equipment Manufacturers (OEMs) of the automotive sector, Farm Equipment manufacturers, Construction equipment manufacturers and other Engineering Industries.

3. STRENGTH, OPPORTUNTIES AND THREAT Strengths

• Only integrated facility in India for small diameter cold drawn seamless steel tubes

• Drawing upon a rich legacy of over 38 years, the Company has developed an intimate understanding of diverse customer expectations across industries.

• Established OEM relationships - Over 30 years of strong partnerships with top customers and OEMs.

• Capability to fulfil orders of any quantity faster than local peers, offering superior operational flexibility to our customers.

• Only local player of scale and quality approved by majority of the leading local and global OEMs.

• Strong financials of Gandhi Special Tube Limited reflect its potential to generate long-term value for its shareholders, customers, and other stakeholders.

Opportunities

• Improved Agri-credit availability and finance penetration in the Automotive Sector has been creating demand for the Companys products.

• Early onset of monsoon and IMDs affirmation of above-normal rainfall is expected to boost rural sentiments.

• Increased allocation for capital spending in the in the Interim Union Budget 2024-25 is expected to lead to infrastructure development in segments like roads, metros, railways etc. which would significantly boost commercial and rural demand.

• Urban Consumption remained strong on the back of improved income levels. Private Consumption should gain steam with further pick up in rural activity and steady urban demand .

The mandatory scrapping of old vehicles will likely increase demand for new vehicles, as old ones must be replaced with newer models.

Threat

• Fluctuation in the price of raw materials such crude oil and natural gas will have an impact on production and consequently on profit.

• Interest rates are expected to remain elevated due to ongoing inflationary pressures, which could diminish consumer spending power.

• Fear of Global Recession, and geo- political challenges may impact the production and profitability of the Company.

• High international commodity prices and logistic disruptions may aggravate input costs leading to inflation.

• Increase in cost of ownership due to increase in commodity and fuel prices.

4. PRODUCT WISE PERFORMANCE

More than 80% of the companys revenue comes from the production of seamless steel tubes, while the remaining revenue is generated from other products such as welded tubes and cold-formed coupling nuts.

5. BUSINESS OUTLOOK

FY24 began on a modest note following a strong FY23. The first half started positively with a surge in sales volumes. However, growth moderated in the second half due to factors such as a high base effect, elections in five states, and upcoming general elections. Urban demand remained robust, evidenced by sustained double-digit growth in domestic air passenger traffic and household credit. In rural areas, tractor and two-wheeler sales slowed down. The governments emphasis on infrastructure development, coupled with increased activity in e-commerce, construction, replacement demand, and mining, boosted the demand for Seamless and Welded Tubes. Despite these factors, the overall commercial vehicle (CV) industry experienced modest growth of 2% in FY24, underscoring the cyclical nature of the sector.

The long-term growth prospects for the Indian tractor industry are optimistic, driven by factors such as improved affordability, increasing demand for farm mechanization, advancements in agricultural technology, and sustained governmental efforts to boost the agricultural sector. However, the industry faces potential downturns in demand in the event of significant fluctuations in the monsoon. An untimely or unevenly distributed monsoon could particularly impact business revenue, especially in the tractor, 2W and PW segment.

Nevertheless, your Company continues to focus on cost optimization, improving supply chain management and increasing labour productivity.

6. RISK AND MITIGAT ION

• Industry and macroeconomic risks

Industry and macroeconomic risks are inherent due to the Companys operations in a volatile and cyclical industry. The Companys operations and future performance hinge on the unfolding of these prevalent macroeconomic trends. Adverse regulatory or economic conditions in the global market can directly and adversely impact our revenue, earnings, cash position, and overall outlook.

• Foreign exchange risks

As the Company operates internationally, the Company undertakes transactions denominated in foreign currencies. The import of steel and its related consumable, and the export of finished tubes involve dealings in foreign currency. Therefore, any fluctuation in forex and interest rates will have a direct impact on the Companys operations.

• Risks to direct costs

Volatility in costing and/or utilisation of steel products, raw materials, energy, equipment or any other direct cost will have an impact on the Companys margins. The Company keenly monitors the price movements and undertakes the necessary strategy or adopts remedial measures to offset this risk.

• Legal risks related to tax structure

As an Indian entity, the Company is liable to various kinds of direct and indirect taxation applicable at various stages of the business. In light of this, the Company has in place a competent process and mechanism to deal with the constantly evolving tax environment that includes control framework for existing tax risks, the process for identifying and reporting new risks as well compliance to the same.

• Environmental law risks

Due its reliance on natural resources, the Companys business operations are subject to local environmental laws, especially at its manufacturing sites. The cost and compliance that is associated with such regulations can directly impact the Companys daily operations. As a responsible organisation, the Company follows all mandated guidelines and laws and adhere to norms with respect to the environment.

• Information technology risks

Information is an invaluable asset and your organization is very committed in safeguarding the same from internal & external threats, through adoption of best practices in Information Security. Your Organization has a undertaken Cyber security assessments during the FY 23-24 to identify gaps and mitigate the same.

Your Organization has also invested in various security tools and adopted best practices to ensure the confidentiality, integrity and availability of Information remains unscathed.

Some additional external risk factors that your Company might be exposed to are:

Volatility in Raw Material cost - Local and global uncertainties stemming from unpredictable global events have led to disruptions in supply chains and distribution networks, consequently driving up the costs of raw materials

Gas Price Volatility - Fluctuation in gas price can impact cost of production.

Currency volatility - Fluctuations in foreign exchange rates can impact the cost of imported raw materials and profitability of the Company.

Cyber Threats - Risk of Cyber Attacks are an ever growing threat that could lead to the loss of confidential information, impact business operation and potentially damage the Company reputation.

7. INTERNAL CONTROL SYSTEMS

Your Company has a well-established internal control system in place which is commensurate with the size and nature of its business. The internal control system ensures that all the assets of the Company are safeguarded from loss, damage or disposition. Checks and controls are in place to ensure that transactions are adequately authorized and recorded and that they are reported correctly. The internal control system is supplemented by an internal audit by a firm of independent Chartered Accountants and statutory audit which is periodically reviewed by the management and Audit Committee.

No material issues in relation to the adequacy of Companys control systems were reported during the year.

The Audit Committee of the Board regularly reviews compliance with the Companys policies, procedures and statutory requirements in consultation with the Statutory Auditors and the Internal Auditors, who also attend the Audit Committee meetings.

8. FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year, Net Sales escalated by approximately 2.28% and Net Profit escalated by 17.41 %.

Major Financial Ratios:

Sr. No.	Ratio Description	FY 2024	FY 2023	Change (%)
1	Debtors Turnover (in days)*	42	39	8%
2	Inventory Turnover Ratio* (in days)	91	53	73%
3	Interest Coverage Ratio	Not Applicable in the absence of interest payment
4	Current Ratio	6.79	:8.46	-20%
5	Debt Equity Ratio	Not Applicable in the absence of any debt
6	Operating Profit Margin (%)	40.02	36.36	10%
7	Net Profit Margin (%)	30.33	27.38	11%
8	Return on Net Worth	24.80	25.86	-4%

• Debtors Turnover: The above ratio is used to quantify a Companys effectiveness in collecting its receivables or money owed by customers. The ratio shows how well a Company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. It is calculated by dividing turnover by average trade receivables.

• Inventory Turnover: Inventory Turnover is the number of times a Company sells and replaces its inventory during a period. It is calculated by dividing turnover by average inventory.

• Current Ratio: The Current Ratio is a liquidity ratio that measures a Companys ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities.

• Operating Profit Margin (%): Operating Profit Margin is a profitability or performance ratio used to calculate the percentage of profit a Company produces from its operations. It is calculated by dividing the EBIT by turnover.

• Net Profit Margin (%): The net profit margin is equal to how much net income or profit is generated as a percentage of revenue. It is calculated by dividing the profit for the year by turnover.

• Return on Net Worth: Return on Net Worth (RoNW) is a measure of profitability of a Company expressed in percentage. It is calculated by dividing total comprehensive income for the year by capital employed during the year.

Capital Investment of Rs. 349.90 Lakhs was made during the year. The entire capital investment has been made out of the Companys internal cash accruals.

9. HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The Company believes that nurturing and strengthening the human resource is vital in creating a unique organizational structure consisting of harmonious relationships. The Company also considers its human capital a critical factor to its success. The Company also provides suitable environment for development of leadership skills which enables it to recruit and retain quality professionals in all the fields. The attrition rate is lower than the rate prevailing in the automotive sector. The Company has drawn up a comprehensive human resource strategy, which addresses key aspects of human resource development such as:

The code of conduct and fair business practices;

Evolution of performance based compensation packages to attract and retain talent.

Skill development of all Blue collared workforce to enable them to effectively meet the productivity and quality deliverables. There were total 385 number of employees (including contractual employees) under the payroll of the Company.

10. SAFETY, HEALTH AND ENVIRONMENT (SHE) MANAGEMENT

Your Company continues to adopt the best safety practices that have reduced the accident and severity rate. The initiation of new personnel in Safety, Health and Environment (SHE) Management practices, before their deployment to the shop floor, contributed to a significant reduction in unsafe practices. Constant upgradations in technology, safety equipment provisions and regular safety inspections of the plant and machinery are also carried out to mitigate any hazards. This is progressively taking the Company towards achieving the target of Zero Accidents.

11. CAUTIONARY STATEMENT

Statements made in this Management Discussion and Analysis describing your Companys objectives, projections, estimates and expectations are "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied.

The Management is confident that your Company with its quality products, enduring relations with OEM and commitment of staff will continue to sustain its growth and pay out by way of dividend to the shareholders in the year 2024-2025.

	For GANDHI SPECIAL TUBES LTD.
	Manhar G. Gandhi
	Chairman and Managing Director
	DIN: 00041190
Place: Mumbai
Date: 28 May, 2024