Kundan Edifice Ltd Management Discussions

OF FINANCIAL CONDITION AND RESULTS OF OPERATION

You should read the following discussion of our financial position and results of operations together with our Restated Financial Statements which have been included in this Prospectus. The following discussion and analysis of our financial position and results of operations are based on our Restated Financial Statements for the financial year for the Financial Year ended March 31, 2023, for the Financial Year ended March 31, 2022, and for the Financial Year ended March 31, 2021, including the related notes and reports, included in this Prospectus prepared in accordance with requirements of the Companies Act and restated in accordance with the SEBI Regulations, which differ in certain material respects from IFRS, U.S. GAAP and GAAP in other countries. Our Company has not attempted to explain those differences or quantify their impact on the financial data included in this Prospectus. It is urged that you consult your advisors regarding such differences and their impact on our Companys financial information. Our Financial Statements, as restated have been derived from our audited financial statements for the respective period and years. Accordingly, the degree to which our Restated Financial Statements will provide meaningful information to a prospective investor in countries other than India is entirely dependent on the readers level of familiarity with Ind GAAP,

Companies Act, SEBI Regulations and other relevant accounting practices in India. Our fiscal year ends on March 31 of each year, so all references to a particular fiscal year ("Fiscal Year") are to the twelve-month period ended March 31 of that year. 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 27 and 18, respectively, and elsewhere in this Prospectus.

In this section, unless the context otherwise requires, any reference to "we", "us" or "our" refers to Kundan Edifice Limited, our Company. Unless otherwise indicated, financial information included herein are based on our "Restated Financial Statements" for the Financial Year ended March 31, 2023, for the Financial Year ended March 31, 2022 and for the Financial Year ended March 31, 2021 beginning on page 172 of this Prospectus.

BUSINESS OVERVIEW

Our Company is engaged into manufacturing, assembly and sale of light emitting diode ("LED") strip lights. We are original design manufacturer ("ODM") as we design, develop, manufacture and supply our products to customers who then further distribute these products under their own brands. We focus on unconventional form of lighting products i.e., LED strip lights that have varied application across industries such as real estate, railways, automobiles, decorative lighting, etc. For further details, please refer to the chapter titled "Business Overview" beginning on page 115 of this Prospectus.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE LAST FINANCIAL PERIOD

After the date of last financial year i.e., March 31, 2023, the following material events have occurred after the last audited period.

1. The Board of Directors of our Company appointed Girish Kumar Joshi, Satish Inani and Hariom Sarda as Additional Non-Executive Independent Directors vide Board Resolution dated March 27, 2023 and later regularized them as Non-Executive Independent Directors vide resolution passed by the Shareholders at the Extra-Ordinary General Meeting held on May 10, 2023.

2. Our Company was converted into Public Limited Company vide Special resolution passed by the Shareholders at the Extra-Ordinary General Meeting held on April 05, 2023 and a fresh certificate of incorporation dated May 08, 2023 issued by the Registrar of Companies, Maharashtra, Mumbai

3. Our Company has constituted an Audit Committee ("Audit Committee"), Nomination and Remuneration Committee and Stakeholders Relationship Committee vide Board Resolution dated

May 09, 2023 as per the applicable provisions of the Section 177 of the Companies Act, 2013 and also to comply with SEBI (Listing Obligations and Disclosure 221 Requirements) Regulations, 2015 applicable upon listing of the Companys Equity shares on NSE Emerge.

4. The Shareholders of our Company changed the designation of Divyansh Mukesh Gupta as Managing Director at Extra-Ordinary General Meeting held on May 10, 2023 and Mallika Mukesh Gupta as Whole-time Director at Extra-Ordinary General Meeting held on May 10, 2023.

5. The Board of Directors of appointed May 08, 2023 as Chief Financial Officer of Our Company vide Board Resolution dated May 10, 2023.

6. The Board of Directors of our Company approved the Initial Public Offering of Our Company in their meeting held on May 15, 2023.

7. The Shareholders of our Company approved the Initial Public Offering of Our Company at the Extra-Ordinary General Meeting held on May 16, 2023.

SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our business is subjected to various risks and uncertainties, including those discussed in the chapter titled "Risk Factors" beginning on page 27 of this Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:

any disruption in production at, or shutdown of, our manufacturing facility;

our business prospects;

future developments, trends and conditions in the industry and markets in which we operate;

change or volatility in interest rates, foreign exchange rates, equity prices or other rates or prices;

our business strategies and plans to achieve these strategies;

general economic, political and business conditions in the markets in which we operate;

renew and maintain statutory and regulatory permits;

dependency on our key customers and key suppliers;

competition from international and domestic companies;

fluctuations in foreign exchange rates;

changes in the legal, regulatory, economic and political environment in India;

general economic and business conditions in India and other countries;

Other factors beyond our control; and

Our ability to manage risks that arise from these factors.

SIGNIFICANT ACCOUNTING POLICIES

For further details, please refer to the chapter titled "Restated Financial Statements" beginning on page 172 of this Prospectus.

KEY PERFORMANCE INDICATORS

Set forth below is certain financial information and certain KPIs of our business.

( in lakhs, except percentages)

Particulars	As of March 31, 2023	As of March 31, 2022	As of March 31, 2021
Revenue from operations (1)	6,021.93	3,247.25	1,513.66
Growth in Revenue from Operations (%) (2)	85.45%	114.53%	134.17%
Restated Profit after Tax	513.09	167.82	77.22
PAT Margin (3) (%)	8.52%	5.17	5.10
EBITDA (4)	862.36	278.28	157.71
EBITDA Margin (5) (%)	14.32%	8.57%	10.42%
Return on Capital Employed% (6)	43.69%	20.41	16.40
Return on Equity% (7)	63.28%	56.37	59.45

Notes:

 

(1) Revenue from operations is the revenue generated by our Company from the sale of our products.

 

(2) Growth in Revenue from Operations (%) is calculated as Revenue from Operations of the relevant period minus Revenue from Operations of the preceding period, divided by Revenue from Operations of the preceding period.

 

(3) PAT Margin is calculated as restated profit after tax divided by revenue from operation.

 

(4) EBITDA is calculated as Restated Profit before tax plus finance costs and depreciation and amortization expenses less other income.

 

(5) EBITDA Margin is calculated by EBITDA divided by revenue from operations.

 

(6) Return on Capital Employed is calculated as earnings before interest and tax divided by Capital Employed. Capital Employed is calculated as the sum of net worth and total borrowings (includes short-term and long-term borrowings). Net worth is calculated as equity attributable to the owners of our Company. ⁽⁷⁾ Return on Equity is calculated as restated profit after tax divided by net worth.

Explanation of KPI Metrics:

Revenue from Operations	Revenue from Operations is used by our management to track the revenue profile of the business and in turn helps to assess the overall financial performance of our Company and volume of our business.
Growth in Revenue from Operations	Growth in Revenue from Operations provides information regarding the growth of our business for respective periods
EBITDA	EBITDA provides information regarding the operational efficiency of the business
EBITDA Margin (%)	EBITDA Margin (%) is an indicator of the operational profitability and financial performance of our Business
PAT	Profit after tax provides information regarding the overall profitability of the business.
PAT Margin (%)	PAT Margin (%) is an indicator of the overall profitability and financial performance of our business.
ROE (%)	RoE provides how efficiently our Company generates profits from shareholders funds.
RoCE (%)	ROCE provides how efficiently our Company generates earnings from the capital employed in the business.

DISCUSSION ON RESULTS OF OPERATIONS

The following table sets forth financial data from our restated financial statements of profit & loss for the Financial Year ended March 31, 2023, for the Financial Year ended March 31, 2022 and for the Financial Year ended March 31, 2021, the components of which are also expressed as a percentage of total revenue for such periods:

( in Lakhs)

	For the Financial Year ended
	March 31, 2023		March 31, 2022		March 31, 2021
Particulars	in lakhs	%*	in lakhs	%*	in lakhs	%*
(A) REVENUE
Revenue from Operations	6,021.93	99.60%	3,247.25	99.90%	1,513.66	99.42%
Other Income	24.43	0.40%	3.36	0.10%	8.77	0.58%
Total Income	6046.36	100.00 %	3,250.60	100.00 %	1,522.43	100.00 %
(B) EXPENDITURE
Cost of materials consumed	3,671.7	60.72%	2,378.98	73.19%	999.39	65.64%
Changes in Inventories of Finished, work in progress	68.00	1.12%	(161.68)	-4.97%	(6.54)	-0.43%
Employee Benefit Expenses	606.53	10.03%	292.98	9.01%	140.98	9.26%
Finance Costs	108.04	1.79%	63.02	1.94%	55.02	3.61%
Depreciation and Amortisation Expense	84.09	1.39%	43.46	1.34%	29.95	1.97%
Manufacturing and Other Expenses	809.50	13.39%	458.70	14.11%	222.12	14.59%
Total Expenses	5347.86	88.45%	3,075.46	94.61%	1,440.93	94.65%
Profit / (Loss) Before Tax	698.50	11.52	175.15	5.39%	81.50	5.35%
Less: Tax Expense
(1) Current tax	158.54	2.62%	29.24	0.90%	6.81	0.45%
(2) Mat Credit Entitlement	36.04	0.60%	(29.24)	-0.90%	(6.81)	-0.45%
(3) Deferred tax	(9.18)	-0.15%	7.32	0.23%	4.28	0.28%
Total Tax Expense	185.4	3.07%	7.32	0.23%	4.28	0.28%
Profit / (Loss) for the year	513.10	8.49%	167.82	5.16%	77.22	5.07%

*(%) column represents percentage of total revenue from operations.

Key Components of our Statement of Profit and Loss Based on our Restated Financial Statements Income

Our total income comprises of revenue from operations and other income.

Revenue from operations

Our primary revenue is from the sale of products, sale of services and other operating revenues.

Other income

Other income includes interest income, net gain/loss on foreign currency transactions and translation and other income. Expenditure

Our total expenditure primarily consists of the cost of materials consumed, employee benefit expenses, finance cost, depreciation and amortization expense, manufacturing and other expenses.

Cost of materials consumed

Cost of materials consumed comprises of the cost of raw materials utilized during the period i.e., opening stock of raw materials and purchases minus the closing stock of raw materials.

Changes in inventories of finished goods and work-in-progress

Changes in inventories of finished goods and work-in-progress consists of (i) inventories at the beginning of the period (finished goods and work in progress); and (ii) inventories at the end of the period (finished goods and work in progress), making up the change in stock of finished goods and work in progress.

Employee benefit expenses

Employee benefit expenses comprises of salary and wages, contribution to provident and other funds, gratuity expenses, staff welfare expenses and leave encashment.

Finance costs

Finance cost includes interest expense and other borrowing costs.

Depreciation and amortization cost

Depreciation Expenses consist of depreciation on property plant & equipments & Intangible Assets

Manufacturing and other expenses

Other expenses includes power and fuel, job work expense, factory expense, clearing & forwarding charges, laboratory & service charges, freight inward, inspection charges, rent, repairs to machinery, cash discount, insurance, auditors remuneration, loss on foreign currency transactions and translation, business promotion, commission and brokerage, printing and stationery, legal and professional fees, travelling and conveyance expenses and miscellaneous expenses, bad debts written off, loss on sale/ discard of property plant & equipment.

Provision for tax

The provision for current taxation 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.

COMPARISON OF FINANCIAL YEAR ENDED MARCH 31, 2022

TO FINANCIAL YEAR ENDED MARCH 31, 2021

Total revenue

Our total revenue increased by 86.00% from 3,250.60 Lakhs for the Financial Year ended March 31, 2022 to 6,046.36 lakhs for the Financial Year ended March 31, 2023. This increase was primarily due to an increase in revenue from operations.

Revenue from operations

Our revenue from operation increased by 85.45% from 3,247.25 Lakhs for the Financial Year ended March 31, 2022 to 6021.93 Lakhs for the Financial Year ended March 31, 2023, which is attributable to 2111% and 111% increases in revenue from sales of 120L AC HV FLEX & 60L AC HV FLEX, which resulted in Such sales growth is primarily due to the increase in demand cycle across all divisions and product lines following the easing of the COVID-19 restrictions. We experienced sharp increases in sales of LED Lights in Financial Year 2023. Our revenue of operation comprises of a) revenue from sale of products which consist of 5995.95 Lakhs for the Financial Year ended March 31, 2023 and 3228.01 Lakhs for the Financial Year ended March 31, 2022 b) revenue from sale of services which consist of 0.26 Lakhs for the Financial Year ended March 31, 2023 and 3.69 Lakhs for the Financial Year ended March 31, 2022 c) other operating revenue which consist of 25.73 lakhs for the Financial Year ended March 31, 2023 and 15.55 lakhs for the Financial Year ended March 31, 2022.

Other income

Our other income decreased by 61.74% from 8.77 Lakhs for the Financial Year ended March 31, 2021 to 3.36 Lakhs for the Financial Year ended March 31, 2022, primarily due to no net gain on foreign currency transactions.

Expenditure

Cost of material consumed.

Cost of material consumed increased by 54.34% from 2,378.98 Lakhs for the Financial Year ended March 31, 2022 to 3,671.70 Lakhs for the Financial Year ended March 31, 2023. This increase was in line with the growth in our total revenue.

Changes in inventories of finished goods and work in progress

Changes in inventories for the Financial Year ended March 31, 2022 was (161.68) Lakhs as compared to 68.00 Lakhs for the Financial Year ended March 31, 2022. The reason of such rise is mainly because the Company maintaining safety inventory levels in order to duly meet its present and future business demands.

Employee benefit expense:

The employee benefits expense increased by 107.02% to 606.53 Lakhs for the Financial Year ended March 31, 2023 from 292.98 Lakhs for the Financial Year ended March 31, 2022 primarily due to increase in employee and salary and wages. This increase was primarily due to increase in salaries & wages, bonus & other allowances for Fiscal 2022 on account of new hiring in Fiscal 2022 in line with our business growth.

Finance cost

The finance costs increased by 71.44% to 108.04 Lakhs for the Financial Year ended March 31, 2023 from 63.02 Lakhs for the Financial Year ended March 31, 2022, primarily due to increase in our working capital loans outstanding as at March 31, 2022 was 721.20 Lakhs as compared to 298.60 Lakhs as at March 31, 2022.

Depreciation and amortization expenses

Our depreciation and amortization expense increased by 93.49% to 84.09 Lakhs for the Financial Year ended March 31, 2023 from 43.46 Lakhs for the Financial Year ended March 31, 2022, due to addition in fixed assets during the Financial Year ended March 31, 2023.

Manufacturing and Other Expenses

Our other expenses were increased by 76.48% to 813.33 Lakhs for the Financial Year ended March 31, 2023 from 458.70 Lakhs for the Financial Year ended March 31, 2022, primarily due to increase in the following expenses: -

( in Lakhs)

Particulars	March 31, 2023	March 31, 2022	Change in value (%)
Power and Fuel	60.46	20.85	189.98
Job work Expense	256.48	213.76	19.99
Laboratory & Service charges	7.38	2.36	212.71
Freight Inward	103.62	41.14	151.87
Rent	96.17	53.85	78.59
Repairs to Machinery	20.87	18.73	11.43
Cash Discount	71.78	26.73	168.54
Legal and Professional Fees	41.11	19.24	113.67
Travelling & Conveyance Expenses	18.32	11.72	56.31
Miscellaneous Expenses	65.42	31.61	119.11

Tax expenses

Our tax expenses increased to 185.40 Lakhs for the Financial Year ended March 31, 2023 from 7.32 Lakhs for the Financial Year ended March 31, 2022, due to an increase in current taxes on account of profit generated by the Company and increase in deferred tax.

Profit after tax

For the various reasons discussed above, we recorded a profit after tax of 513.09 Lakhs for the Financial Year ended March 31, 2023 from a profit of 167.82 Lakhs for the Financial Year ended March 31, 2022.

COMPARISON OF FINANCIAL YEAR ENDED MARCH 31, 2022 TO FINANCIAL YEAR ENDED MARCH 31, 2021

Total revenue

Our total revenue increased by 113.51% from 1,522.43 Lakhs for the Financial Year ended March 31, 2021 to 3,250.60 lakhs for the Financial Year ended March 31, 2022. This increase was primarily due to an increase in revenue from operations.

Revenue from operations

Our revenue from operation increased by 114.53% from 1,513.66 Lakhs for the Financial Year ended March 31, 2021 to 3,247.25 Lakhs for the Financial Year ended March 31, 2022, which is attributable to a surge in demand following the easing of COVID-19 restrictions and the resumption of normal business growth in terms of revenue, which resulted in higher sales volume of LED lights. We experienced sharp increases in sales of LED Lights in Financial 2022.

Our revenue of operation comprises of a) revenue from sale of products which consist of 3228.01 Lakhs for the Financial Year ended March 31, 2022 and 1509.33 Lakhs for the Financial Year ended March 31, 2021 b) revenue from sale of services which consist of 3.69 Lakhs for the Financial Year ended March 31, 2022 and 2.17 Lakhs for the Financial Year ended March 31, 2021 c) other operating revenue which consist of 15.55 lakhs for the Financial Year ended March 31, 2022 and 2.16 lakhs for the Financial Year ended March 31, 2021

Other income

Our other income decreased by 61.74% from 8.77 Lakhs for the Financial Year ended March 31, 2021 to 3.36 Lakhs for the Financial Year ended March 31, 2022, primarily due to no net gain on foreign currency transactions.

Expenditure

Cost of material consumed.

Cost of material consumed increased by 138.04% from 999.39 Lakhs for the Financial Year ended March 31, 2021 to 2,378.98 Lakhs for the Financial Year ended March 31, 2022. This increase was in line with the growth in our total revenue (113.51%).

Changes in inventories of finished goods and work in progress

Changes in inventories for the Financial Year ended March 31, 2021 was (6.54) Lakhs as compared to (161.68) Lakhs for the Financial Year ended March 31, 2022. The reason of such rise is mainly because the Company maintaining safety inventory levels in order to duly meet its present and future business demands.

Employee benefit expense:

The employee benefits expense increased by 107.82% to 292.98 Lakhs for the Financial Year ended March 31, 2022 from 140.98 Lakhs for the Financial Year ended March 31, 2021 primarily due to increase in employee and salary and wages. This increase was primarily due to a 106.23% increase in salaries & wages, to 268.96 lakhs for Financial 2022 from 130.42 lakhs for Financial 2021 on account of new hirings in Financial 2022 in line with our business growth.

Finance cost

The finance costs increased by 14.54% to 63.02 Lakhs for the Financial Year ended March 31, 2022 from 55.02 Lakhs for the Financial Year ended March 31, 2021, primarily due to increase in bank loans.

Depreciation and amortization expenses

Our depreciation and amortization expense increased by 45.10% to 43.46 Lakhs for the Financial Year ended March 31, 2022 from 29.95 Lakhs for the Financial Year ended March 31, 2021, due to addition in fixed assets during the Financial Year ended March 31, 2022.

Manufacturing and Other Expenses

Our other expenses were increased by 106.50% to 458.70 Lakhs for the Financial Year ended March 31, 2022 from 222.12 Lakhs for the Financial Year ended March 31, 2021, primarily due to increase in the following expenses: (

			( in Lakhs)
Particulars	March 31, 2022	March 31, 2021	Change in value
Power and Fuel	20.85	13.78	7.07
Job work Expense	213.76	30.44	183.32
Laboratory & Service charges	2.36	0.71	1.65
Freight Inward	41.14	22.24	18.9
Rent	53.85	35.80	18.05
Repairs to Machinery	18.73	3.56	15.17
Cash Discount	26.73	15.48	11.25
Legal and Professional Fees	19.24	9.32	9.92
Travelling & Conveyance Expenses	11.72	7.07	4.65
Miscellaneous Expenses	31.61	29.45	2.16

Tax expenses

Our tax expenses increased to 7.32 Lakhs for the Financial Year ended March 31, 2022 from 4.28 Lakhs for the Financial Year ended March 31, 2021, due to an increase in current taxes on account of profit generated by the Company and increase in deferred tax.

Profit after tax

For the various reasons discussed above, we recorded a profit after tax of 167.82 Lakhs for the Financial Year ended March 31, 2022 from a profit of 77.22 Lakhs for the Financial Year ended March 31, 2021.

Information required as per item 11 (II) (C) (iv) of Part A of Schedule VI to the SEBI Regulations:

1. Unusual or infrequent events or transactions

To our knowledge, there have been no unusual or infrequent events or transactions that have taken place during the last three (3) years or may in the future affect our business operations or future financial performance.

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

Our business has been subject, and we expect it to continue to be subject to significant economic changes arising from the trends identified above in ‘Factors Affecting our Results of Operations and the uncertainties described in the Chapter entitled "Risk Factors" beginning on page 27 of this Prospectus. To our knowledge, except as we have described in this Prospectus, there are no known factors that we expect to bring about significant economic changes.

2. Income and Sales on account of major product/main activities

Income and Sales of our Company on account of main activities derives from the sale of our manufacturing products and other operating revenue.

3. Whether the company has followed any unorthodox procedure for recording sales and revenues Our Company has not followed any unorthodox procedure for recording sales and revenues.

4. 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 the chapter titled "Risk Factors" beginning on page 27 of this 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. To our knowledge, except as discussed in this Prospectus, there are no known trends or uncertainties that have or had or are expected to have a material adverse impact on revenues or income of our Company from continuing operations.

5. Future changes in relationship between costs and revenues

Other than as described in the chapters "Risk Factors", "Business Overview" and "Managements Discussion and Analysis of Financial Condition and Results of Operations" on pages 27, 115 and 225 respectively, including the disclosure regarding the impact of COVID-19 on our operations, to the knowledge of our management, there are no known factors that may adversely affect our business prospects, results of operations and financial condition.

6. Extent to which material increases in net sales or revenue are due to an increase in services

Increases in revenues are by and large linked to increases in volume of business.

7. Status of any publicly announced new products or business segment.

Other than as disclosed in the chapter titled "Business Overview" beginning on page 115 of this Draft Prospectus, as on the date of the Prospectus, there are no new products or business segments that have had or are expected to have a material impact on our business prospects, results of operations or financial condition..

8. The extent to which business is seasonal.

Our Companys business is not seasonal certain of our products are subject to cyclical demand. We are also affected by capital and maintenance expenditure cycles of our customers and end-users, particularly those customers in the LED lighting sector. For more information, please see "Risk Factors Our operating results may fluctuate from period to period or be subject to seasonality which may affect our business and financial condition." on page 27 of this Prospectus.

9. Any significant dependence on a single or few suppliers or customers.

Significant proportion of our revenues have historically been derived from a limited number of customers. The % contribution of our Company customer and supplier vis a vis the revenue from operations and raw materials purchased, respectively and for the financial year ended March 31, 2023, for the financial year ended March 31, 2022 and for the financial year ended March 31, 2021 are tabulated as follows:

		Fiscal 2023		Fiscal 2022	Fiscal 2021
Name of Products	Amount ( in lakhs)	As a % to revenue from operations	Amount ( in lakhs)	As a % to revenue from operations	Amount ( in lakhs)	As a % to revenue from operations
Top 10 customer *	5355.16	88.91%	2,925.14	90.08%	1,203.65	79.52%
Top 10 suppliers**	3135.48	69.89%	2,296.07	92.25%	959.08	75.17%

* as compared to revenue from operations ** as compared to cost of materials purchased

10. Competitive conditions.

Competitive conditions are as described under the chapter titled "Industry Overview" and "Business Overview" beginning on pages 104 and 115, respectively of this Prospectus.

Material developments subsequent to March 31, 2023

Except as disclosed in this Prospectus, there are no significant developments or circumstances that have arisen since March 31, 2023, the date of the last financial statements included in this Draft Prospectus, which materially and adversely affect or is likely to affect our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next twelve months.