Lloyds Engineering Works Ltd Management Discussions

Indian Engineering Sector Drivers

• Robust demand: Demand in the engineering industry segment is driven by investments and capacity creation in core sectors like power, infrastructure developments, mining, oil and other sectors like the general manufacturing sector, automotive and process industries, and consumer goods industry.

• Higher Investments: To enhance opportunities for private investment in infrastructure - Infrastructure Finance Secretariat is being established who will assist all stakeholders for more private investment in infrastructure, including railways, roads, urban infrastructure, and power.

• Policy support: An amount of 54.22 crore (US$ 6.5 million) utilized under the Scheme on ‘Enhancement of Competitiveness in Indian Capital Goods Sector in the financial year 2020-21.

• Attractive opportunities: In Budget 2023-24, Government has committed an outlay of 10 lakh crore (US$ 120 billion) during 2023-24 towards infrastructure capital expenditure compared to 7.5 lakh crore (US$ 90 billion) during 2022-23.

India?s capex landscape has been growing energetically since FY19, evident in Government spending data and nominal GDP growth. India is back on the new capex upcycle, after 15 years of the last infrastructure supercycle which halted in 2008. The Government has launched the PLI scheme which is expected to attract a capex of ~Rs3tr over the next five years.

Year	Nominal GDP growth (%)	Centre + State capex growth (%)
FY18	11.0	(12.9)
FY19	10.6	13.8
FY20	6.2	0.1
FY21	(1.4)	8.7
FY22	18.4	35.1
FY23 (B.E.)	15.9	17.5

Source: CMIE, Bloomberg

The government?s commitment to maintain growth by empowering the states to accelerate capital expenditure along with programs such as Atmanirbhar Bharat, Power for All, Digital India, National Logistics Policy, National Rail Plan, and Green Hydrogen Policy, to name a few, are encouraging for the nation?s economy. India is rightly positioning itself to be a high-end manufacturing hub, and the incremental capital expenditure is expected to be concentrated in areas where India needs to reduce its dependency on global supply chains. The longterm growth prospects depend on attracting consistent investments. While private capex is likely to remain healthy over the next couple of years, public capex will sustain led by various government initiatives.

Lead Indicators are also in sync.

India?s index of industrial production (IIP) grew 5.2% YoY in Jan 2023 vs. 4.7% YoY growth in Dec 2022. Manufacturing contributed the most to the headline index,with a growth of 3.7%. Cumulatively, during Apr- Jan, IIP grew by 5.4%, while capital goods outperformed with a growth of 13.7%. . The cumulative output of eight core industries during Apr 2022-Jan 2023 rose by 7.9% YoY, as compared to a 11.6% growth recorded in the same period a year ago.

Government PLI Scheme

To enhance India?s integration into the global value chain, ‘Make in India 2.0? is currently focusing on 27 sectors, which include 15 manufacturing sectors and 12 service sectors. 24 sub-sectors have been chosen that will meet the need for import substitution, have huge export potential and lead to increased employment opportunities in India. The government has launched the PLI scheme which is expected to attract a capex of ~Rs3tr over the next five years. With domestic production substituting imports going ahead, the trade deficit is likely to reduce significantly. The sectors for which the PLI Scheme has been announced currently constitute ~40% of India?s total imports. The scheme spread across 14 sectors, will enhance India?s manufacturing capex by 15%-20% from FY23F. The PLI scheme across these key specific sectors is poised to make Indian manufacturers globally competitive, attract investments in core competency and cutting-edge technologies, ensure efficiency, create economies of scale, and make India an integral part of the global value chain.

Company

Lloyds Steels Industries Ltd is a complete Process plant equipment providing Company in India. It provides a complete package of engineering and infrastructure Solutions by carrying out Designing, Engineering, Manufacturing, Fabrication and Installation. Its products cover a whole array of categories in Heavy Equipment, Machinery and Systems for Hydrocarbon Sector, Oil & Gas, Steel Plant Equipments, Power Plants, Nuclear Plant, Boilers and Turnkey Projects.

Its facilities are been approved by various authorities like Industrial Boiler Regulatory Authority, SGS UK, Petroleum and Explosives Safety Organisation etc.

The Company has its state of art manufacturing facilities located at Murbad, Thane and is headquartered in Mumbai with 388 employees.

The company caters to the following industries,

o Hydrocarbon: Manufacturing and Supplying Process Equipment such as Pressure Vessels, Columns, Reactors, Heat Exchangers, Waste Heat Recovery Boilers, Air/Gas /Liquid Dryer Packages

o Steel: Fabrication of various equipment for Steel melting shop, manufacturing equipment in the Hot Rolling Mill and Cold Rolling

Mill Ball Mills, Rotory Dryer and various other equipment required for iron and steel making

o Nuclear: Lloydsteels is registered with BARC & NPCIL for the supply of various equipment based on the basic design engineering by NPCIL and further design engineering, done by LSIL for the equipment

o Marine/defence: Manufacturing and supplying various products like a Fin Stabiliser required to be setup in various Navy warships, The Electro-Hydraulic Steering Gear for Marine ships etc

o Ports, Jetties & Refineries: Design, engineering & supply critical components like Swivel Joints, Seals, Coupler Hydraulic valve etc. Leading manufacturers of Truck and Wagon Loading Arms for handling different products.

o Power: Design, and manufacturing of thermal power plants and their various equipment thereof in likes as boilers, condensers, heaters etc

Performance

During the current financial year, the Company has executed orders/ jobs by supplying critical equipment?s such as Column, Pressure Vessels, Dryers, Waste Heat Recovery Boiler Package and items, Construction of Mounded Storage Vessels (LPG) and Fire Water Tanks, Steel Ladles, Items for SMS Billets, Loading / Unloading Arms, Spares for various items, carried out erection, installation and commissioning work and provided technical services to various Public and Private Sector Companies and Government Bodies /Agencies in diversified areas and fields broadly covering Refinery & Petroleum, Oil & Gas, Power, Steel Plant Equipments, Mining, Nuclear Projects, Ports and Naval Shipyard amongst others.

Order Book Movement (INR Crore)

The Company began its FY23 order book with INR 377 cr and received a record INR 608 cr of fresh orders across various industries. The company with its swift execution capabilities executed orders worth INR 312 cr. The closing order book is INR 682.9 cr, which is ~2.2x of

FY23 Revenue. The Order book has grown by ~1.8x YoY in FY23. It offers strong revenue visibility for the company as the typical delivery schedule is 10-15 months. The increasing order book across sectors and better profit margins will enable us to strengthen our key financial matrices in the medium to long term.

a. Risk & Concerns:

The Banks are cautious in their lending to the Corporate Sector perhaps on account of large Non-Performing Assets (NPA). This has impacted the investment by Public and Private Corporate Sectors in their expansion plans. Margins in the Engineering Industry continue to be under pressure. We are continuously up-grading our skills, modernization, and cost saving. Risk and concerns are being addressed on a continuous basis. The business has weathered the challenges posed by the COVID-19 pandemic by adopting safe working practices, encouraging work from home whenever needed, increasing the virtual meetings, virtual audits and inspections, online approvals amongst other measures. The Company?s strong financial statements & negligible financial leverage is advantageous to get benefit of the Risk faced by most of the industries.

b. Internal Control System and Audit:

The Company believes in systematic working and placing appropriate internal control systems and checks. Proper checks and systems are in place and regular reviews are held by the Head of Department and Senior Management to check that the systems and controls are adhered. The reviews also prescribe changes wherever required. The efficiency of Internal Control Systems is ensured as a combined result of the following activities:

1. Operational performance is reviewed in the Works as well as in the Corporate Office by the Senior Management through daily follow-up/weekly meetings.

2. Performance of each function is closely monitored by the Head of Department and Senior Management through daily/weekly/monthly review meetings. Reviews of all independent functions are regularly undertaken. Cross functional activities are periodically reviewed.

3. Various policies are introduced from time to time to ensure effective functioning of various departments, such as Business Development, Projects, Procurement, Commercial, Finance, HR, etc.

4. Great care is taken at the time of estimation so that we are not only competitive but also, to add positive contribution towards the growth of the Company.

5. The Internal Auditors of the company conducts Financial, Operational and Management Audit of various functions and

areas. Their reports are placed before the Audit Committee / Board and appropriate actions as deemed fit are initiated based on the reports.

6. The Audit Committee / Board also oversees financial systems, procedures and internal controls and competent to call for any information/document from any department/ function.

c. Human Resources and Industrial Relations:

Human Resources Department ("HRD") works continuously for maintaining healthy working relationship with the workers and other staff members. The underlying principle is that workers and staff at all levels are equally instrumental for attaining the Company?s goals. The various functions are continuously strengthened by appropriate recruitment. Groups of Graduate Engineers are recruited every year & the Training programs are regularly conducted to update their skills and apprise them of latest techniques. The low attrition rate signifies healthy working relationship of Employer and Employee. Senior Management is easily accessible for counseling and redressal of grievances if any. The HR Department strives to maintain and promote harmony and co-ordination amongst Workers, Staff and Members of the Senior Management. The Company has framed an Employee Stock Option Scheme (ESOP) with rules and regulations as an incentive to employees to increase productivity at all levels.

The Industrial Relations in the Company?s Units located at Murbad as well as in the Work Sites during the year under review was cordial.

d. Cautionary Statement:

The Management Discussion and Analysis describe Company?s projections, expectations or predictions and are forward looking statements within the meaning of applicable laws and regulations.

Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company?s operations include economic conditions affecting demand and supply and price conditions in domestic and international market, changes in Government Regulations, Tax Regimes, Economic Developments, the Covid-19 pandemic, and other related and incidental factors.

e. Key Financial Ratios:

In accordance with the SEBI (Listing Obligations and Disclosure Requirements 2018) (Amendment) Regulations, 2018, the Company has identified the following ratios as key financial ratios:

Particulars	2022-23	2021-22
Operating Profit Margin (%)	17.02	26.20
Net Profit Margin (%)	11.78	11.87
Return on Net Worth (%)	18.85	4.40
Current Ratio Inventory Turnover Ratio	1.85 3.83	5.13 1.48
Debtors Turnover Ratio	16.06	5.37
Debt - Equity Ratio	0.27	0.19
Interest Coverage Ratio	15.22	14.64

For and on behalf of the Board of Directors Lloyds Steels Industries Limited
Dated : 27th April, 2023 Place : Mumbai	Sd/- Mukesh R. Gupta Chairman