Holmarc Opto-Mechatronics Ltd Management Discussions

You should read the following discussion of our financial condition and results of operations together with our restated financial statements for the financial year ended on 31^st March 2023, 31^st March 2022 and 31^st March 2021 including the notes and significant accounting policies thereto and the reports thereon, which appear elsewhere in this Draft prospectus. You should also see the section titled "Risk Factors" beginning on page 21 of this Draft prospectus, which discusses a number of factors and contingencies that could impact our financial condition and results of operations. The following discussion relates to our Company, unless otherwise stated, is based on restated audited financial statements.

These financial statements have been prepared in accordance with Ind GAAP, the Companies Act and the SEBI (ICDR) Regulations and restated as described in the report of our auditors dated August 02, 2023 which is included in this Draft prospectus under the section titled "Financial Information as Restated" beginning on page 185 of this Draft prospectus. The restated financial statements have been prepared on a basis that differs in certain material respects from generally accepted accounting principles in other jurisdictions, including US GAAP and IFRS. We do not provide a reconciliation of our restated financial statements to US GAAP or IFRS and we have not otherwise quantified or identified the impact of the differences between Indian GAAP and U.S. GAAP or IFRS as applied to our restated financial statements.

This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those described under "Risk Factors" and "Forward Looking Statements" beginning on pages 21 and 15 respectively, and elsewhere in this draft prospectus

Accordingly, the degree to which the financial statements in this draft prospectus will provide meaningful information depends entirely on such potential investors level of familiarity with Indian accounting practices. Our F.Y. ends on March 31 of each year; therefore, all references to a particular fiscal are to the twelve-month period ended March 31 of that year. Please also refer to section titled "Certain Conventions, Use of Financial, Industry and Market Data and Currency Presentation" beginning on page 13 of this draft prospectus.

BUSINESS OVERVIEW

Holmarc Opto-Mechatronics Limited is incorporated in the year 1993 by our promoters Mr. Jolly Cyriac and Mr. Ishach Sainuddin. Our Company manufactures variety of scientific and engineering instruments for research, industry and education i.e. Imaging Instruments, Measuring Instruments, Spectroscopy, Analytical Instruments, Lab Instruments, Physics Lab Instruments, Breadboard/Table Tops, Opto-mechanics, Optics, Linear & Rotation Stages, Motorized Linear & Rotation Stages, Industrial Automation etc.

Our manufacturing facility spread over approx. 29,984 sq.ft. situated at Building No. 11/490, B7, H.M.T. Industrial Estate, Kalamassery, Kanayanoor, Ernakulam 683503, Kerala is equipped with latest machineries, equipment and instruments which is capable to manufacture diverse products. With state-of-the-art machines, equipment and instruments, Holmarcs technicians and engineers bring out quality products, each distinct and best in its kind. All our departments, be it optics design, optics manufacturing, mechanics design, electronics R&D or software development are all manned by experienced professionals in the respective disciplines. Holmarc is unique in its approach to providing after sales service. We give maintenance and modification support for all our products as long as our customer needs it irrespective of warranty or year of purchase. We do not make any of our products obsolete, rather encourage our users to modify and use as long as it is technically possible.

Holmarc Opto-Mechatronics Limited is an ISO 9001:2015 certified company for designing, developing and manufacturing scientific instruments and devices for Industries, Research and Educational Institutes. We have successfully implemented quality management system as per industry standard. The goal of the company is to design, manufacture and service quality products that consistently meet our customers requirement and needs.

Our Company is engaged in manufacturing of following products:

Imaging Instruments	Breadboard/Table Tops
Measuring Instruments	Opto-mechanics
Spectroscopy	Optics
Analytical Instruments	Linear and Rotation Stages
Lab Instruments	Motorized Linear and Rotation Stages
Physics Lab Instruments	Industrial Automation

Holmarc is unique in its capabilities to develop and manufacture products which require in-house multi-disciplinary capabilities in optics, mechanics, electronics, physical sciences and software. Products which we developed with our multi-disciplinary resources for commercial manufacture include Hologram Microscope, Fluorescence Microscope, Monochromators, Spectrometers, Nano fiber Electrospinning units. Many of these products are exclusive, innovative and unique in design. Holmarcs unique products also include Robotic Thin Film Coating System popularly known as Silar Coating Unit, Automated Spray Pyrolysis System for solar cells, Automated Lees disc apparatus for thermal conductivity measurements, Tribo-electric Measurement Station for load cell testing, Magneto-optic Kerr Effect Station (MOKE) for material study, LBIC and PL (Laser Beam Induced Current Measurement and Photo-Luminescence) system.

Holmarc manufactures variety of import substitute products for Indian market which as well can find wide export market. Products which come under this category are Quantum Efficiency Measurement Station for solar cells, UV Laser Marking Station for photo-lithography, Automated Rotary Antenna Positioners, Spectroscopic Ellipsometer for thin film measurements, UV Ozone Cleaner, Spectroscopic Reflectometer, Photo Detector Measurement System, Raman Spectrometer, etc.

Over the last three decades, Holmarc has developed a number of products with unique designs for scientific and engineering applications. Our Company has developed over 800 products with standard specifications and have developed numerous customized products as well.

Holmarc, from its very beginning has maintained cordial and professional relationship with all major research and educational institutes in India. Our Research and Development department constantly interacts with leading research institutes in India for development and up-gradation of our products.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE LAST AUDITED PERIOD

In the opinion of the Board of Directors of our Company, since the date of the last audited period i.e. March 31, 2023 as disclosed in this draft prospectus, there have not arisen any circumstance that materially or adversely affect or are likely to affect the trading or profitability of our Company or the value of its assets or its ability to pay its material liabilities within the next twelve months except as follows:

1. The Board of Directors have decided to get their equity shares listed on EMERGE Platform of National Stock Exchange of India Limited and pursuant to Section 62(1)(c) of the Companies Act 2013, by a resolution passed at its meeting held on May 23, 2023 proposed the Issue, subject to the approval of the shareholders and such other authorities as may be necessary.

2. The shareholders of the Company have, pursuant to Section 62(1)(c) of the Companies Act 2013, by a special resolution passed in the Extra Ordinary General Meeting held on May 30, 2023 authorized the Initial Public Offer.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATION

1. Covid-19 pandemic.

2. Our dependence on limited number of customers/suppliers/brands for a significant portion of our revenues;

3. Any failure to comply with the financial and restrictive covenants under our financing arrangements;

4. Our ability to retain and hire key employees or maintain good relations with our workforce;

5. Impact of any reduction in sales of our services/products;

6. Rapid Technological advancement and inability to keep pace with the change;

7. Increased competition in industries/sector in which we operate;

8. General economic and business conditions in India and in the markets in which we operate and in the local, regional and national economies;

9. Changes in laws and regulations relating to the Sectors in which we operate;

10. Political instability or changes in the Government in India or in the government of the states where we operate could cause us significant adverse effects; 11. Failure to obtain any applicable approvals, licenses, registrations and permits in a timely manner; 12. Occurrence of natural or man-made disasters could adversely affect our results of operations and financial condition and 13. Our inability to successfully diversify our product offerings may adversely affect our growth and negatively impact our profitability.

SIGNIFICANT ACCOUNTING POLICIES:

Our significant accounting policies are described in the section entitled "Financial Statements as Restated" beginning from page no. 185 of the draft prospectus.

SUMMARY OF THE RESULTS OF OPERATION:

The following table sets forth select financial data from restated profit and loss accounts for the financial year ended on 31^st March 2023, 31^st March 2022 and 31^st March 2021 and the components of which are also expressed as a percentage of total income for such periods.

	March 31, 2023		March 31, 2022		March 31, 2021
Particulars	in lakhs	% of Total Revenue	in lakhs	% of Total Revenue	in lakhs	% of Total Revenue
Income
Revenue from Operations	2,903.67	99.49%	2,102.34	99.27%	1,553.06	98.71%
Other Income	14.77	0.51%	15.50	0.73%	20.28	1.29%
Total Revenue	2,918.44	100.00%	2,117.84	100.00%	1,573.34	100.00%
Expenditure
Cost of Material Consumed	792.70	27.16%	502.04	23.71%	364.93	23.19%
Change in Inventories	(74.89)	-2.57%	11.57	0.55%	(48.64)	-3.09%
Employee Benefit Expenses	1,222.95	41.90%	991.07	46.80%	838.34	53.28%
Other Expenses	461.11	15.80%	311.95	14.73%	252.75	16.06%
Total Expenses	2,401.88	82.30%	1,816.63	85.78%	1,407.39	89.45%
Profit Before Interest, Depreciation and Tax	516.56	17.70%	301.21	14.22%	165.95	10.55%
Depreciation & Amortisation Expenses	84.99	2.91%	63.74	3.01%	54.04	3.43%
Profit Before Interest and Tax	431.57	14.79%	237.47	11.21%	111.91	7.11%
Financial Charges	23.92	0.82%	16.22	0.77%	12.40	0.79%
Profit before Taxation	407.65	13.97%	221.25	10.45%	99.51	6.32%
Extraordinary Items	73.84	2.53%	0.00	0.00%	(2.19)	-0.14%
Profit before Taxation but after Extraordinary items	481.49	16.50%	221.25	10.45%	97.32	6.19%
Provision for Taxation	107.32	3.68%	69.34	3.27%	45.67	2.90%
Provision for Deferred Tax	18.03	0.62%	(3.29)	-0.16%	(17.15)	-1.09%
Total	125.35	4.30%	66.06	3.12%	28.52	1.81%
Net Profit after adjustments	356.14	12.20%	155.19	7.33%	68.80	4.37%

MAIN COMPONENTS OF PROFIT AND LOSS ACCOUNT

Income

Our total income comprises of Revenue from Operations and Other Income

Revenue from Operations

Our revenue from operations comprises of Domestic Sales, Services, Export Sales and Freight & Packing Charges

Other Income

Our other income comprises of interest income, profit on foreign exchange and others

Expenditure

Our total expenditure primarily consists of cost of material consumed, changes in inventories, employee benefit expenses, financial charges, depreciation and amortization expenses, other expenses.

Cost of Material Consumed

Cost of materials consumed comprises of difference in opening and closing balance of stock, purchase of raw materials.

Change in Inventories

Change in Inventories comprises of difference in opening and closing balance of work in progress & finished goods.

Employee Benefit Expenses

Employee benefit expenses comprises of salaries, directors remuneration, staff welfare expenses, contribution to PF & other funds.

Depreciation and Amortization Cost

Depreciation and Amortization Expenses comprises of depreciation on the Tangible assets of our company i.e. Buildings, Furniture & Fittings, Plant & Equipment, Vehicles, Computer and Office Equipment.

Financial Charges

Finance cost comprises of Interest on Borrowings.

Other Expenses

Other expenses comprises of Advertisement Charges, Packing charges, Postage, Parcel and Courier Charges, Transporting and Delivery charges, Administrative expenses, Bank Charges, Consumption of stores and spare parts, Manufacturing Expenses, Audit Fees, Compliments and Gifts, Accounting Expenses Conveyance Charges, Donation & Subscription, Foreign Exchange (Gain)/Loss, General Expenses (Tea & Refreshments), Insurance expenses, Printing & Stationery, Power and Fuel, Professional & Technical Charges, Rent, Repairs & Maintenance, Business Promotion Expenses, Rates and Taxes, Telephone Expenses, Travelling Expenses, Security and Service Charges, Water Charges, Depositary Charges, Liquidated Damages, Discount paid and Miscellaneous Expenses.

Provision for Taxation

The provision for current tax is computed in accordance with relevant tax regulation. Deferred tax is recognized on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or subsequently enacted as on balance sheet date. Deferred tax assets are recognized and carried forward to the extent that there is a virtual certainly that sufficient future taxable income will be available against which such deferred tax assets can be realized in future.

COMPARISON OF THE FINANCIAL PERFORMANCE OF FISCAL 2023 WITH FISCAL 2022

Total Revenue

The total revenue for FY 2022-23 was increased to 2918.44 Lacs as against 2117.84 Lacs in the FY 2021-22 primarily due to increase in revenue from operations of the Company.

Revenue from Operations: The revenue from operation of the company for FY 2022-23 was increased to 2903.67 Lacs as against 2102.34 Lacs in the FY 2021-22.

Reason for increase in Revenue from Operations:

(1) Increase in Purchase Orders;

(2) Easing out of Covid restrictions ;

(3) Increase in Production due to increase in Capital Investments by addition in plant & machinery;

(4) Optimum utilisation of Employee Strength, Raw Material Inputs etc.

Other Income: The other income of the company for FY 2022-23 was decreased to 14.77 Lacs as against 15.50 Lacs in the FY 2021-22. This decrease was mainly due to decrease in forex gain during the financial year.

Total Expenses

The total expenses for the FY 2022-23 was increased to 2401.88 Lacs as against 1816.63 Lacs in the FY 2021-22. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Cost of Material Consumed: The total Cost of Material Consumed for the FY 2022-23 was increased to 792.70 Lacs as against 502.04 in the FY 2021-22. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Changes in Inventories: The changes in inventories for the FY 2022-23 was (74.89) lacs as against 11.57 lacs in the FY 2021-22. This was mainly due to increase in closing work in progress and finished goods.

Employee Benefit Expenses: The Employee Benefit Expenses for the FY 2022-23 was increased to 1222.95 lacs as against 991.07 in the FY 2021-22. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Finance Cost: The Finance Cost for the FY 2022-23 was increased to 23.92 Lacs as against 16.22 Lacs in the FY 2021-22. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Other Expenses: The Other Expenses for the FY 2022-23 was increased to 461.11 Lacs as against 311.95 Lacs in the FY 2021-22. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Depreciation and Amortisation Expenses: The Depreciation and Amortisation expenses for FY 2022-23 was increased to 84.99 lacs as against 63.74 lacs in the FY 2021-22. This increase was mainly due to addition in tangible assets.

Total Tax Expenses: The total tax expenses for FY 2022-23 was increased to 125.35 lacs as against 66.06 lacs in the FY 2021-22. This increase was mainly due to increase in Profit before Tax

Profit/ (Loss) Before Tax: The restated Profit before Tax for FY 2022-23 was increased to 407.65 Lacs as against 221.25 Lacs in the FY 2021-22. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Profit/ (Loss) After Tax: The restated Profit after Tax for FY 2022-23 has been increased to 356.14 Lacs as against 155.19 Lacs in the FY 2021-22. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

COMPARISON OF THE FINANCIAL PERFORMANCE OF FISCAL 2022 WITH FISCAL 2021

Total Revenue

The total revenue for FY 2021-22 was increased to 2117.84 Lacs as against 1573.34 Lacs in the FY 2020-21 primarily due to increase in revenue from operations of the Company.

Revenue from Operations: The revenue from operation of the company for FY 2021-22 was increased to 2102.34 Lacs as against 1553.06 Lacs in the FY 2020-21. The increase in revenue is due to increase in demand of goods manufactured by us and repeated work orders from existing clients.

Other Income: The other income of the company for FY 2021-22 was decreased to 15.50 Lacs as against 20.28 Lacs in the FY 2020-21. This decrease was mainly due to decrease in forex gain and others during the financial year.

Total Expenses

The total expenses for the FY 2021-22 was increased to 1816.63 Lacs as against 1407.39 Lacs in the FY 2020-21. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Cost of Material Consumed: The total Cost of Material Consumed for the FY 2021-22 was increased to 502.04 Lacs as against 364.93 in the FY 2020-21. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Changes in Inventories: The changes in inventories for the FY 2021-22 was 11.57 lacs as against (48.64) lacs in the FY 2020-21. This was mainly due to increase in opening of finished goods.

Employee Benefit Expenses: The Employee Benefit Expenses for the FY 2021-22 was increased to 991.07 lacs as against 838.34 in the FY 2020-21. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Finance Cost: The Finance Cost for the FY 2021-22 was increased to 16.22 Lacs as against 12.40 Lacs in the FY 2020-21. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Other Expenses: The Other Expenses for the FY 2021-22 was increased to 311.95 Lacs as against 252.75 Lacs in the FY 2020-21. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Depreciation and Amortisation Expenses: The Depreciation and Amortisation expenses for FY 2021-22 was increased to 63.74 lacs as against 54.04 lacs in the FY 2020-21. This increase was mainly due to addition in tangible assets.

Total Tax Expenses: The total tax expenses for FY 201-22 was increased to 66.06 lacs as against 28.52 lacs in the FY 2020-21. This increase was mainly due to increase in Profit before Tax.

Profit/ (Loss) Before Tax: The restated Profit before Tax for FY 2021-22 was increased to 221.25 Lacs as against 99.51 Lacs in the FY 2020-21. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

Profit/ (Loss) After Tax: The restated Profit after Tax for FY 2021-22 has been increased to 155.19 Lacs as against 68.80 Lacs in the FY 2020-21. This increase was mainly due to increase in volume of operation during the FY as mentioned in revenue from operation above.

AN ANALYSIS OF REASONS FOR THE CHANGES IN SIGNIFICANT ITEMS OF INCOME AND EXPENDITURE IS GIVEN HEREUNDER:

1. Unusual or infrequent events or transactions

Except as described in this Draft Prospectus, during the periods under review there have been no transactions or events, which in our best judgment, would be considered unusual or infrequent.

2. Significant economic changes that materially affected or are likely to affect income from continuing operations.

There are no significant economic changes that may materially affect or likely to affect income from continuing operations except the Covid-19 pandemic which is still to be controlled. However, Government policies governing the sector in which we operate as well as the overall growth of the Indian economy has a significant bearing on our operations. Major changes in these factors can significantly impact income from continuing operations.

3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section "Risk Factors" beginning on page 21 in the draft prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

4. Expected Future changes in relationship between costs and revenues

Our Companys future costs and revenues will be determined by demand/supply situation, Government Policies and Taxation and Currency fluctuations.

5. Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or increased sales prices

Changes in revenue in the last financial years are as explained in the part "Comparison of the financial performance of above.

6. Total turnover of each major industry segment in which our Company operates

The Company is mainly engaged in manufacturing of wide and diversified range of products i.e. Imaging Instruments, Measuring Instruments, Spectroscopy, Analytical Instruments, Lab Instruments, Physics Lab Instruments, Breadboard/Table Tops, Optomechanics, Optics, Linear & Rotation Stages, Motorized Linear & Rotation Stages, Industrial Automation and others. Therefore, there are no separate reportable segments.

7. Status of any publicly announced New Products or Business Segment

Our Company has not announced any new product other than disclosed in this draft prospectus.

8. Seasonality of business

Our business is not seasonal in nature.

9. Competitive conditions

Competitive conditions are as described under the Chapters "Industry Overview" and "Our Business" beginning on page

87 and 107 respectively of the draft prospectus.

10. Details of material developments after the date of last balance sheet i.e., March 31, 2023

Except as mentioned in this draft prospectus, no circumstances have arisen since the date of last financial statement until the date of filing the draft prospectus, which materially and adversely affect or are likely to affect the operations or profitability of our Company, or value of its assets, or its ability to pay its liability within next twelve months.