Kranti Industries Ltd Management Discussions

inDustRyst RuctuRe anD DeVeloPMent gloBalecono My

According to IMF World economic Outlook (Apr-2023), The global economy is yet again at a highly uncertain moment, with the cumulative effects of the past three years adverse shocks most notably, the COVID-19 pandemic and Russias invasion of Ukraine manifesting in unforeseen ways. Spurred by pent-up demand, lingering supply disruptions, and commodity price spikes, inflation reached multi highs last year in many economies, leading central banks to tighten aggressively to bring it back toward their targets and keep inflation expectations anchored. A return of the economy to the pace of economic growth that prevailed before the bevy of shocks in 2022 and the recent financial turmoil is increasingly elusive. More than a year after Russias invasion of Ukraine and the outbreak of more contagious COVID-19 variants, many economies are still absorbing the shocks. The recent tightening in global financial conditions is also hampering the recovery. As a result, many economies are likely to experience slower growth in incomes in 2023, amid rising joblessness. Moreover, even with central banks having driven up interest rates to reduce inflation, the back to price stability could be long. Over the medium term, the prospects for growth now seem dimmer than in decades. The baseline forecast is for global output growth, estimated at 3.4 percent in 2022, to fall to 2.8 percent in 2023, before rising to 3.0 percent in 2024. This forecast for the coming years is well below what was expected before the onset of the adverse shocks since early 2022. Compared with the January 2022 WEO Update forecast, global growth in 2023 is 1.0 percentage point. Monetary policyprojectionsare consistent with achieving the Reserve Bank of Indias inflation over the medium term, despite a recent uptick in inflation exceeded the upper target band. inDian econoMy

According to ADB (Asian Development Bank), despite the global slowdown, Indias economic growth rate is stronger than in many peer economies and reflects consumption and lesser dependence on global demand The Government of Indias strong infrastructure push under the Prime Ministers Gati Shakti (National Master Plan for MultimodalConnectivity) initiative, logistics development, and industrial corridor development will contribute raising industrial competitiveness and boosting future growth Improving labor market conditions and consumer confidence will drive growth in private consumption. The central governments commitment to significantly quipment: increase capital expenditure in FY2023, despite targeting a lower fiscaldeficit of 5.9% of GDP, will also spur demand. Helped by recovery in tourism and other contact services, the services sector will grow strongly in FY2023 and FY2024 as the impact of COVID-19 wanes. However, manufacturing growth in FY2023 is expected to be tamped down by a weak global demand, but it will likely improve in FY 2024. autoMoBile inDustRyin inDia of The automotive industry is a highly competitive market which is witnessing growth owing to factors such as increasing disposable income, the availability of the financingoptions, rising urban population, close substitutes which are equipped with best technological advancements such as active and passive safety systems, comfort features, and high performing powertrains. The market also enjoys growth due to the dynamic Indian public transportation network and the growing logistic landscape. According to sector Society of Indian Automobile Manufacturers (SIAM), The industry produced a total of 2,59,31,867 vehicles including Passenger Vehicles, Commercial Vehicles, Three Wheelers,

Two Wheelers, and Quadricycles in April 2022 to March 2023, as against 2,30,40,066 units in April 2021 to March 2022.The overall Commercial Vehicles domestic 7,16,566 to 9,62,468 unit in FY-2022-23, compared to the previous year. The overall demand for cars in India has been increasing due to factors such as rising disposable incomes, urbanisation,andimproved accessibility to vehicle financing. Passenger Car Market: The Indian passenger car market has experienced substantialgrowth, with a market value of US$ 32.70 billion in 2021. It is projected to reach US$ 54.84 billion by 2027, growing at a CAGR of over 9% from 2022 to 2027. This indicates the increasing demand for passenger cars in India.

commercial Vehicles:

Economic Growth and Infrastructure Development: The demand for commercial vehicles is closely tied to economic growth and infrastructure development. As industries expand, logistics and transportation requirements increase, driving the demand for commercial vehicles and the components they require. relatively robust domestic

tractors:

Agricultural Sector Performance: The performance of the agricultural sector plays a significant role in the demand for tractors and their components. Factors such as government to policies, monsoon patterns, productivity and agricultural influence the demand for tractors, subsequently impacting the demand for components supplied by Kranti Industries.

Construction

Infrastructure Investments: Infrastructure development, including road construction, urban development projects, and industrial projects, drives the demand for construction equipment. Kranti Industries benefits from this demand as their components are used in the manufacturing of construction equipment.

The commercial vehicle (CV) industry in India is projected to maintain its growth momentum, with an estimated 20-22% growth in FY23. Medium and heavy commercial vehicles (MHCV) are expected to grow at a rate of 22-24%, while light commercial vehicles (LCV) are likely to grow by 18-19%. The industry recorded a strong volume growth of 60.2% y-o-y in H1FY23, indicating a positive trend. Factors driving growth include an overall improvement in economic activities, infrastructure development, higher fleet utilization, the e-commerce sector, and a rebound in replacement demand However, challenges such as increasing interest costs, a slowdown in exports, and inflation pressures could dampen the growth momentum. Industry players need to address these challenges effectively to sustain growth in CV sector.

electric Vehicle Manufacturers:

Shift Towards Electric Mobility: The global and domestic push electric mobility has increased the demand for electric vehicles (EVs) in India. As EV manufacturers ramp up their production, there is a growing demand for specialized components for EVs, including those supplied by Kranti Industries. The Government of India is also pushing for the development of electric vehicle ecosystem by providing incentives such as FAME schemes (Faster Adoption and Manufacturing Electric and Hybrid Vehicles in India). Manufacturers are also investing heavily and announcing partnerships to create infrastructure across the country.

Electric Vehicle (EV) Market: India has been focusing on electric vehicles to reduce emissions. The EV market in India is estimated to reach Rs. 50,000 crore (US$ 7.09 billion) by 2025 significan SalesofEVshavebeenontherise,with of 168% YoY growth in 2021, reaching 329,190 units sold. The EV market is expected to grow at a CAGR of 36% until 2026

New Vehicles Registrations in FY23 (

	Fy23	Fy22
FOUR WHEELER (INVALID CARRIAGE)	2,840	2,713
HEAVY GOODS VEHICLE	2,80,181	2,61,589
HEAVY MOTOR VEHICLE	5,837	5,819
HEAVY PASSENGER VEHICLE	15,116	13,133

 

	Fy23	Fy22
LIGHT GOODS VEHICLE	6,11,744	5,98,497
LIGHT MOTOR VEHICLE	42,55,835	41,18,890
LIGHT PASSENGER VEHICLE	1,90,295	1,64,852
MEDIUM GOODS VEHICLE	37,002	38,582
MEDIUM MOTOR VEHICLE	13,274	13,926
MEDIUM PASSENGER VEHICLE	19,053	15,847
OTHER THAN MENTIONED ABOVE	56,062	50,847
THREE WHEELER(NT)	34,180	31,963
THREE WHEELER(T)	7,41,827	6,44,740

FaDa Data

category	units sold	units sold	growth
	(Fy 23)	(Fy 22)	(in %)
Two-wheeler	1,59,95,968	1,34,94,214	19
Three-wheeler	7,67,071	4,17,108	84
Passenger Vehicles	36,20,039	29,42,273	23
Commercial Vehicles	9,39,741	7,07,186	33
Tractor	8,27,403	7,66,545	8

i MP oRtsu Bstitution anD HigHeR outsouRcing By oeMs in inDia:

Significant demand for automobiles also led to the emergence of more original equipment and auto components manufacturers. As a result, India developed expertise in automobiles and auto components, which helped boost international for Indian automobiles and auto components. Hence, the

Indian automobile industry has a considerable impact on the auto component industry. Hence, there is a huge scope for automobile component exports and also increasing substitution of imports in India. Indias auto component industry is broadly classified into organised and unorganised sectors. While the unorganised sector consists of low-valued items and mostly . serves the aftermarket category, the organised sector serves VaahanData) OEMs and includes high-value precision instruments. As per the Automobile Component Manufacturers Association (ACMA) forecast, auto component exports from India is expected to reach US$ 30 billion by 2026. The auto component industry is projected to record US$ 200 billion in revenue by 2026(US$ 56.60 billion in FY22). Strong international demand and resurgence in the local original equipment and aftermarket segments are predicted to help the auto component industry grow 20-23%.

About Us

Kranti Industries is a leading manufacturer of advanced auto components, dedicated to innovation and cutting-edge technology. Our expertise lies in precision machined castings for various applications in the automotive industry, including transmissions, axles, chassis, engines, and other critical parts. With our state-of-the-art machine shop and end-to-end solutions, we deliver exceptional quality and reliability to our customers.

Over the years, our relentless pursuit of excellence has positionedus as a trusted supplier of precision machined components for industries such as oil engines, tractors, construction, electric vehicles, and more. Our commitment to staying at the forefront of technological advancements has enabled us to incorporate world-renowned machining centres into our operations. From multi-axis machining centres to CNC turning, vertical turret lathes, horizontal machining centers, and vertical machining centres, we possess the latest machinery to meet the diverse needs of our clients.

With a rich experience of over four decades in precision machining, Kranti has established three well-equipped units across Pune and a joint venture in Rajkot. What started as a small machining unit has now evolved into a sprawling facility spanning around 7,000 square meters, equipped with state-of-the-art infrastructure. Today, we proudly serve as a single-source supplier to renowned OEMs in various industries, solidifying our position as a trusted partner for their component requirements. At Kranti Industries, we continue to push the boundaries of innovation and craftsmanship, ensuring that the highest standards of quality, precision, and reliability. With a dedicated focus on customer satisfaction and a commitment to delivering excellence, we are poised to shape the future of the auto component industry.

Review of Capabilities

Kranti Industries boasts an impressive range of capabilities and resources that position it as a leader in the manufacturing industry. With over four decades of experience, the company has established itself as a reliable and trusted player in the market. The organization operates five production plants in India, including group companies, which provide a strong foundation for its manufacturing operations.

The companys production facilities are equipped with 78+ state-of-the-art production machines, demonstrating their commitment to utilizing advanced technology. These machines are complemented by best-in-class inspection facilities, ensuring the highest quality standards are met throughout the manufacturing process. Additionally, Kranti Industries prioritizes real-time data monitoring to enhance operational efficiency and effectiveness. Kranti Industries boasts a substantial manufacturing capability, with a production facility spread across approximately 7,000 square meters in three different units located in Pune, a major engineering and IT hub in India. This strategic location enables easy access to skilled manpower and technical resources, contributing to the companys success.

The companys commitment to continuous improvement is evident in its expansion plans. Kranti Industries is in the process of setting up a new manufacturing plant spanning 3,000 square meters, expected to be operational by the third quarter of the financial year 2023. This expansion will further enhance their production capacity and capabilities.

The range of machinery at Kranti Industries is impressive, including 5-axis turn mill machining centers, CNC turning centers, CNC turning with auto-loader, vertical machining centers, vertical 5-axis turn mill centers, horizontal machining centers, vertical turret lathes, co-ordinate measuring machines, 5-axis horizontal machining centers, and HMC with linear pallet pool system. These advanced machines enable the company to handle a wide variety of manufacturing requirements and deliver precise and high-quality components.

Products & Performance in Fy23

Kranti Industries offers a diverse range of high-automotive components. The first product, Differential Housing, showcases their expertise precision-engineered housings for differentials, ensuring efficient power transmission and smooth operation in vehicles Axle Components, another key product, highlights Krantis specialisation in producing components that contribute to the stability and manoeuvrability of vehicles axle systems. Transmission Components, the third product, exemplify Krantis proficiency in manufacturing critical systems, ensuring optimal performance and seamless gear shifting.

Components, which encompasses various automotive parts designed to meet the specific and applications. Through their commitment to technological advancements and stringent quality standards, Kranti Industries delivers reliable and innovative solutions categories to meet the demands of the automotive industry.

Products - Revenue Breakup Market Segment

Tractors have the highest market segment share, accounting for 73.57%.

Construction equipment holds a significant portion market at 8.63%.

Electric vehicles have a substantial market segment share of 14.04%.

Automotive including Commercial Vehicles make up 1.07% of the market.

Other categories market segment.

Product Range based on the Market Segment

Axle parts account for 41.32% of the product range.

Differential product range.

Transmission holds a 21.14% share in the product range.

Other categories collectively make up 6.94% of the product range.

Expenses: a) Cost of Material, Operation, and Incidental Cost: across these product Year Ended March 31, 2023: INR 6,130.23 Lacs Year Ended March 31, 2022: INR 6,072.45 Lacs YoY Change: 0.95% increase

b) Changes in Inventories of Finished Goods and Work-in-

Progress:

Year Ended March 31, 2023: INR (32.33) Lacs of the Year Ended March 31, 2022: INR 23.68 Lacs YoY Change: N/A

c) Employee Benefits Expenses:

Year Ended March 31, 2023: INR 991.34 Lacs Year Ended March 31, 2022: INR 991.65 Lacs represent 2.69% of the YoY Change: -0.03% decrease

e) Finance costs:

Year Ended March 31, 2023: INR 225.95 Lacs Year Ended March 31, 2022: INR 199.48 Lacs YoY Change: 13.29% increase

f) Depreciation and Amortisation Expenses:

Year Ended March 31, 2023: INR 392.47 Lacs Year Ended March 31, 2022: INR 389.97 Lacs YoY Change: 0.64% increase

g) Other Expenses:

Year Ended March 31, 2023: INR 1,137.69 Lacs Year Ended March 31, 2022: INR 1,253.97 Lacs YoY Change: -9.28% decrease

oPPoRtunities anD tHReats oPPoRtunities

Increasing outsourcing opportunities due to realignment of global supply chains.

Growing use of precision components, driven by EVs and stringent emission norms.

Initiatives by Government for promotion of automobile industry Automotive Mission Plan 2026, Vehicle scrappage policy, CAFE norms, BS-VI norms, etc

. tHReats

Faster adoption of EVs in CV/tractors can impact the overall business growth in the powertrain segment.

Economic uncertainty: Based on the current and future market environment estimates, the base cost of material is expected to be volatile.

outlooK

A relentless focus on cost management, fiscal prudence, value engineering and customer partnering has enabled the Company to record a creditable performance demonstrating its ‘Engineering Advantage. The Company isconfident that it can utilise future opportunities and face future challenges with agility in order to meet the shareholders expectation sustainable growth and profitability. The key focus areas are:

Debt reduction and thereby savings in interest cost

Increasing the Value Addition per product

To Sustain the EBITDA margins

Retaining the existing Customer base and increasing wallet share

New Products/ Services from Existing Customer

Enhance profitability by

Enhance the share of non-automotive business.

inteRnal contRol systeMs anD tHeiR aDeQuacy

The Company maintains adequate and effective internal control systems commensurate with its size and complexity. It also ensures that they are recorded in all material respects to permit preparation of financialstatements in conformity with established accounting principles, along with the assets of the Company being adequately safeguarded against significant misuse or loss. In the opinion of the Management, the Company has adequate internal audit and control systems to ensure that all transactionsof are authorized,

An independent internal audit function is an important element of the Companys internal control systems. This is supplemented through an extensive internal audit programme and periodic review by the management and the Audit Committee. The internal control systems comprise extensive internal and statutory audits. The Corporate Governance practices instituted by the Company are mentioned in detail the chapter on Corporate Governance which forms part of the Annual Report.

Review of Human Resources

Human Resources development continues to be a top focused area which will ensure intentions are converted to emphasis was on reskilling and upskilling to enable the teams in navigating change and remaining compliant processes. Industrial Relations with employees cordial throughout the year under review. Our ongoing objective is to investinourpeopleandenhance Industries has implemented our people processes, aiming to improve the organisations human capital and deliver superior service to stakeholders. We recognise that human capital is a criticalcomponent of a successful organisation, and therefore, attracting, developing, and retaining the right talent remains a strategic imperative We continue to with the growth and execution of new projects, recruitment has been a key focus, and we have successfully attracted professionals to join our team. This year, we have on boarded new talent across various levels within the organisation to and responds address gaps. Currently, we have over 275 employees working directly and indirectly for the company. Our management is committed to creating a conducive and ting the risk of fluctuations in demand. mitiga environment that enables employees to excel through various engagement programs. We provide better tools, technology, and techniques at the workplace to harness the latent potential of our workforce and improve individual and group performance. The Human Resources department organises regular training and development programs to sharpen skills, update concepts, and expand knowledge. Criticalfunctional te financial heads have also received external technical training to prepare them for upcoming projects. We prioritise occupational safety and health measures in all work areas, including manufacturing and zones. At our Company, we strive to foster a culture of continuous learning, where every and professional growth. We emphasise the importance of de-stressing techniques and maintaining a growth mindset, as in its workforce, e work culture. By investing positiv learning thrives through sharing and supporting others. We tes the firmly believe that a happy individual performs . continuityinoperations well. Throughout the year, we have maintained cordial industrial relations, further reinforcing our commitment to a harmonious work environment.

Risk & Risk Mitigation

The Risk Committee maintains an active oversight of the risk and the effectiveness of the risk mitigation strategies and plans in place by the Company. Identified key risks of the Company includes Strategic Risk, Operational Risk, Environment, Safety and Governance (ESG) Risk and Information & Cyber Security e growth indicators. The GDPpositiv

Risk. The Company has a robust risk mitigation plan to minimize identified risks through continuous monitoring and mitigating actions as may be required.

Supply Chain Risk: Kranti Industries has established strong relationships with reliable suppliers and implemented a robust supply chainmanagementsystem.Thecompanyhasidentified alternative suppliers, maintains buffer stocks, and continuously monitors and evaluates supplier performance to mitigate the risk of disruptions or delays in the supply of raw materials and components.

Technological Risk: Kranti Industries has invested in research realities.The and development (R&D) to stay updated with the latest advancements in auto component manufacturing. The withevolving company continuously upgrades its machinery and equipment, adopts new technologies, and provides employee training to remained enhance technical expertise and mitigate technological risks.

Quality Assurance Risk: Kranti stringent quality control measures at every stage of the manufacturing process. Regular inspections,quality checks, and testing are conducted to ensure that components meet or exceed industry standards. The company has implemented a robust quality management system and obtained necessary certifications to enhance ourfullattentiontothisaspect.Inline credibility and mitigate quality-related risks.

MarketRisk: closely monitors market trends, Kranti customer demands, and competitor activities. to changes in the market proactivelyidentifies by diversifying its customer base and exploring new markets or industries, reducing dependency on a single market segment work and Financial Risk: Kranti Industries maintains a strong financial through effective financial risk management. The position company manages working capital efficiently, optimises inventory levels, and maintains a healthy cash flow. Regular financial performance reviews, risk assessments, and appropriatemeasuresareimplementedto risks such as liquidity risks, currency exchange risks, and interest rate risks.

TalentAcquisition Kranti Industries focuses on attracting and retaining skilled and talented employees. The to personal company offers competitiveremunerationpackages, provides opportunities for professional growth and development, and fostersa Kranti of talent shortages and Industries ensures

Regulatory and Compliance Risks: Kranti Industries stays updated with relevant regulations and compliance requirements in the automotive industry. The company adheres to legal and regulatory standards, obtains necessary certifications, and maintains transparency in business practices to mitigate regulatory and compliance risks.

India - Economic Outlook

The economic outlook for India in FY24 appears promising, expansion in with

Q4FY23, reaching 6.1%, has been applauded by economists and experts. The overall growth of the economy in FY23 was also impressive, standing at 7.2%. Economists project real GDP growth for FY2024 at 6.0%, with a potential downside risk if certain weather conditions affect the monsoon rains. However, there are factors that could provide an upside to GDP estimates, such as increased capital expenditure by the government and states, as well as swift execution of infrastructure projects. It is anticipated that inflation will moderate in FY2024 compared in India and abroad, conditions the previous fiscal year, which is positive for household budgets and consumption. Nevertheless, challenges remain, including the impact of rising home loan EMIs on urban households budgets and consumption, the contraction employment, and the potential effects of certain weather conditions on crops, food prices, and the economic outlook for India in FY24 holds promise, but it is essential to monitor these factors closely.

Auto Components Industry Outlook

With respect to auto components, the auto components industry is also expected to witness 5% to 8% growth in revenue in FY24, primarily due to strong demand from the domestic market. (ICRA)

Cautionary Statement

This Management Discussion and Analysis Report may contain certain forward-looking statements based on various assumptions about the Companys present and future business strategies and the operating environment. However, it is important to note that actual results and information may differ materially from these statements due to risks and uncertainties. Factors that can contribute to such differences include economic and political volatility in interest rates and the securities market, and the impact of new government regulations and policies on the Companys businesses and its ability to execute its strategies. in exports affecting The information presented in this report is current as of the referenced date, and the Company is under no obligation to farm incomes. Overall, update it. While the Company has obtained information from sources believed to be reliable, the accuracy or completeness of such data cannot be guaranteed.