Machino Plastics Ltd Management Discussions

ECONOMY OVERVIEW

The Indian automobile industry has historically been a good indicator of how well the expansion and technological advancement. India is the worlds third-largest Automobile market. The rising logistics and passenger transportation industries are driving up demand for commercial vehicles. Future market growth is anticipated to be fueled by new trends including the electrification of vehicles, particularly three-wheelers and small passenger automobiles.

India has a strong market in terms of domestic demand and exports. In November 2023, total passenger vehicle sales reached 3,34,130. Sales of Passenger Vehicles in November 2023 have been the highest, with a marginal growth of 3.7%, compared to November 2022.

India is also a prominent auto exporter and has strong export growth expectations for the near future. In addition, several initiatives by the Government of India such as the Automotive Mission Plan 2026, scrappage policy, and production-linked incentive scheme in the Indian market are expected to make India one of the global leaders in the two-wheeler and four-wheeler market. The Indian auto industry is expected to record strong growth in 2024-25.

The Governments initiative by introducing battery-swapping policy, expansion of Indian National Highways and adding advanced technologies including alternate fuel systems such as compressed natural gas (CNG), Bharat Stage VI compliant flexfuel engines, electronic control units (ECU) for safety, advanced driver assist systems and e-quadricycles, under the Production linked incentives (PLI) scheme for automobiles has attracted new investment has further provided boost to the industry.

Industry Structure & Development

The Company is planning to expand its business and has laid down Foundation stone on 13th May, 2024 for construction of new manufacturing plant in Kharkhoda. This new plant will provide capacity enhancement to meet the requirements of Maruti Suzukis new manufacturing plant at IMT Kharkhoda, which is expected to be commissioned in the Financial Year 2025-26. The Company manufactures the plastic injection moulded automotive components i.e. bumpers, instruments panels, grills etc. as original equipments and for spare parts market primarily for Maruti Suzuki India Limited (MSIL) at two of its manufacturing locations in Gurugram & Manesar in the state of Haryana.

The company has put up tool room manufacturing for mould manufacturing, repairs and their refurbishment facilities in Manesar, Haryana for captive use and to service its customer in a cost efficient manner. The company has received positive response from the market.

The company has been dealing in all size plastics automotive components. The company has 63 nos. injection molding machines, sizes ranging from 100 Ton to 3150 Ton clamping force. The company also provides job work facilities for Industrial Products like pallets, garbage bins etc. The company also manufactures moulds for in house requirements and others like MSIL, Daikin, VECV etc.

Opportunities & Threats

Growing market of India has already attracted all major automotive companies to start operation here. India is expected to be one of major auto hub in the world map soon. India could be a leader in shared mobility by 2030, providing opportunities for electric and autonomous vehicles.

The principal customer of the company is Maruti Suzuki India Limited (MSIL) and growth of the company currently depends mainly on the growth of MSIL. However company does not have plant at Gujarat to cater to Suzuki Motor Gujarat.

MSIL continues to be the leader in Indian car market and has closed the financial year 2023-24 with domestic sale of 1,852,256 units and total sales of 2,135,323 units. Marutis domestic sales in 2023-24 represents a growth of 12.61% over 2022-23 and total sales in 2023-24 represents a growth of 8.6% over 2022-23.

Your company is positively working towards expanding its operation to other customers.

The small to large size of machine range helps your company to cater to all types of customers part requirement. Moreover, the machines are versatile to process virtually all types of polymers and can make not only automotive but also other plastic goods by changing moulds. Thus, your company has immense capability to keep pace with the growing and diverse requirement of MSIL as well it has the possibilities for other business besides automotive.

The possible threats to the company can be:

• Fluctuating Market conditions

• Uncertain Monsoon Impacting Market Growth

• Technological Disruptions

• Reduction in market share of main customer

• Rising Competitions and main customer policy of in house production of Bumpers and IP

• Volatility in fuel prices

• Sustainability Targets Influence Policies/ Government Policies

• Limited Geographical presence at main customer all plant locations

Segment-wise or Product-wise Performance

Currently your company has single segment and it operates in manufacturing of injection moulding plastic components and moulds/dies and is trying to diversify its product and range of industry it caters to. Your company now also has capabilities in moulding smaller and intricate functional and aesthetic parts in automotive and other industries.

Your Company has also received tooling business from customers other than MSIL and making efforts in exploring alternate business opportunities in mould making and for replacement market.

Indian economic review

Amidst the global energy crisis and continued supply-chain disruptions, the automotive industry players are exploring options to reintroduce the sector. By implementing cloud computing and electric vehicles technology, the industry is entering fast into a revolutionized age with the primary aim of offering the consumer a value-added experience. This sectors share of the national GDP increased from 2.77% in 1992–1993 to around 7.1% presently. It employs about 19 million people directly and indirectly. The Indian automotive industry has many opportunities for vehicle manufacturers, making it a viable option for business expansion. The electric vehicle (EV) market is estimated to reach Rs. 50,000 crores in India by 2025.

India accomplished a significant milestone, with the sale of 8,47,439 EVs in FY24 (till August 2023). A y-o-y growth of 209.17% was witnessed with 1.02 million registered EVs in FY23, as compared to FY22. India is on track to become the largest EV market by 2030, with a total investment opportunity of more than US$ 200 billion over the next 8-10 years.

With demand still buoyant in the passenger vehicle segment despite challenges of commodity price increases, many automobile manufacturers are upbeat to embrace new technologies, especially in the electric mobility space, which is expected to witness a slew of launches in both four- and two-wheeler categories in the coming year.

Financial year	FY 19-20	FY 20-21	FY 21-22	FY 22-23	FY 23-24
GDP Growth (%)	3.87	(5.83)	9.05	7	6.9

Outlook

The automotive outlook study has sized the global passenger vehicles and commercial vehicles combined sales were 92 million units in 2023 and is projected to reach 95 million units in 2024, witnessing a YoY growth of 3.1% from 2023 to 2024. The automotive industry growth is influenced by various factors such as adoption of electric vehicles, development and manufacturing of long-range batteries along with installation of fast and ultra-fast charging points, introduction of autonomous vehicles and deployment of 5G connectivity. In addition, the automotive industry overview also covers several significant variables that have contributed to the used automobile, or preowned car, markets considerable expansion in recent years. The automotive industry is currently under constant pressure to adapt to new changes due to technological advancements and end-user preferences. Adoption of latest trends for customers is the foremost agenda of the OEMs and EV solution providing companies. Whereas, the study also focusses on the rising demand for electric vehicles, advancements in autonomous, 5G connectivity, smart & automated manufacturing, shared mobility and online sales of vehicles in automotive industry shaping the future market.

The automotive industry will face another subdued year in 2024, weighed down by slow consumer spending, high interest rates and disruption to supply chains due to geopolitical tensions. The only bright spot will be the electric vehicles market, with sales expected to soar by 21% as governments and consumers try to mitigate the worsening effects of climate change. Dedicated to achieving zero emission targets, the OEMs have planned to invest over USD 500 Billion by 2030 for EV production facilities. Moreover, OEMs have attempted to regulate the EV battery supply chain to further cut down the raw material, manufacturing and maintenance of the batteries.

Automotive Outlook Key development trends is as follows:

1. Connected car launches grew constantly across all regions.

2. Ride-hauling operators continue to diversify service offerings.

3. L3 automated driving features witnessed limited launches in 2023.

4. Rising adoption of EVs across all segments, reduction in battery prices, growth in charging infrastructures.

5. China dominating the automotive market.

Indian Automobile Sector

The automotive industry in India is set to expand at a compound annual growth rate (CAGR) of 11.3% till 2027. This growth will most likely occur due to factors like rising disposable income, wide availability of credit and financing options, and growth of population. Furthermore, with the growth of the passenger transport sector and the rise in demand for commercial vehicles, the potential for future growth of Indias automotive sector is pretty high.

A report by India Energy Storage Alliance estimated that the EV market in India is likely to increase at a CAGR of 36% until 2026. In addition, a projection for the EV battery market is forecast to expand at a CAGR of 30% during the same period.

Apart from this, industry-friendly policies and initiatives by the Indian Government will also play a major role in fueling this development in the years to come.

The future growth expected in the domestic automobile industry will give a fillip to the auto component sector. The Indian automobile industry as a whole offers great potential considering the low penetration along with rising income levels and a rapidly growing middle class. These factors will witness a boost in demand for passenger cars and two wheelers. With the automobiles industry fast growing in terms of volume and number of players, your company foresees a bright future.

The Manesar Plant and new manufacturing plant in Kharkhoda of the company is now the focus area for all future growth of the company.

Risks & Concerns

The automotive market stands at a critical juncture as sustainability targets are exerting a significant influence on regulatory policies, driving organizations towards greener initiatives. As the industry sets out to bring in electric vehicles (EVs), manufacturers face the formidable task of overhauling their product lines and production facilities. This transition requires substantial investment in new technologies, charging infrastructure, and consumer education on electric mobility.

In 2023, the automotive industry will face global headwinds such as the energy crisis, slower global demand, and ongoing supply-chain issues. Despite these challenges, global new-vehicle sales are projected to remain fiat, with new-car sales increasing.

Favourable government policies such as the extension of FAME-II scheme till 2024, enhancement of incentives for two-wheelers and launch of the production-linked incentive (PLI) scheme for auto and auto component sector will provide enormous support to the sector as it adopts advanced technologies.

Though India rides on some inherent strength, following risk factors exist which the auto component manufacturers may have to counter with:

• Technological Disruptions & Consumer Demand: Consumer preferences and market dynamics are evolving rapidly in response to technological disruptions. The auto sector is experiencing rapid developments, including electric vehicles (EVs), ADAS and advanced connectivity features. Keeping up with these innovations requires substantial investment in research and development, infrastructure, and workforce training.

• Rising input costs: The prices of raw materials, such as steel and aluminum, have been increasing globally, which has led to higher input costs for the automobile industry. This has put pressure on companies to increase prices or absorb the costs, which can impact their profitability.

• Infrastructure challenges: The development of electric vehicle infrastructure, such as charging stations, is still in its early stages in India. This can be a challenge for companies that are looking to introduce electric vehicles to the market, as consumers may be hesitant to purchase these vehicles if charging infrastructure is not readily available.

• Sustainability Targets Influence Policies: The automotive market stands at a critical juncture as sustainability targets are exerting a significant influence on regulatory policies, driving organizations towards greener initiatives.

• Economic slowdown can derail the prospects of the industry.

• Intense competition from counterparts may add further pressure on margin of manufacturers.

Currently, the energy crisis, gas shortages, rising inflation and Federal Reserve rates, labor shortages, high consumer demand, unpredictability in the supply chain and arising threat of cyber-attacks are some of the handicaps being faced by the automotive industry.

Exchange rates fluctuations coupled with movement in prices of Crude Oil and down-stream Petrochemicals, trade war, any government sanctions on supply chain etc. are all concern areas.

The overall trend is challenging, but remaining competitive in this changing scenario will be the toughest challenge. The combination of low manufacturing costs along with quality systems would give an edge to companies in terms of pricing and quality. Expansion and diversification will help break into new markets. It would be imperative for these companies, which are largely based on traditional management practices, to imbibe technology in a big way. The SMEs can exploit these opportunities through joint ventures, collaboration and technical tie-ups. Knowledge, specialization, innovation and networking will determine the success of the SMEs in this globally competitive environment.

Your company is power, manpower and capital intensive business. Power is obtained from Maruti from its co-shared power plant which runs on gas and DHBVN Ltd and DG Set. The increase in per unit cost of power supply will materially affect the cost of production. Company has installed 1350 K.W. Solar Power Plants at its Manesar Plant and Gurgaon plant which is likely to generate 15 lacs units in a year. This will help in power cost management. Your company has availed net metering facility from UHBVN/DHBVNL/HVPNL for both Gurugram & Manesar plant of the Company which in turn will save the energy bills.

Risk Management Report

Your Company believes that, periodic review of various risks which have a bearing on the business and operations is vital to proactively manage uncertainty and changes in the internal and external environment so that it can limit the negative impact and capitalize on opportunities.

Risk management framework enables a systematic approach to risk identification, leverage on any opportunities and provides strategies to manage, transfer, avoid or minimize the impact of the risks and helps to ensure sustainable business growth with stability of affairs and operations of the Company.

Keeping the above in view, your Companys risk management is embedded in the business processes. As a part of review of business and operations, your Board with the help of the management periodically reviews various risks associated with the business and products of the Company and considers appropriate risk mitigation processes. However, there are certain risks which cannot be avoided but the impact can only be minimized. The risks and concerns associated with each segment of your Companys business are discussed while reviewing segment-wise Management Discussion and Analysis. The other risks that the management review includes: a) Industry and services risk: This includes economic risks like demand and supply chain, profitability, gestation period etc.; services risks like infrastructural facilities; market risks like consumer preferences and distribution channel etc.; business dynamics like inflation/defiation etc.; competition risks like cost effectiveness. b) Management and operational risks: This includes risks to property; clear and well-defined work process; changes in technology/ upgradation; R&D risks; agency network risks; personnel and labour turnover risks; environmental and pollution control regulations; locational benefits near metros. c) Market risks: This includes raw material rates; quantities, quality, suppliers, lead time, interest rate and forex risk. d) Political risks: This includes elections; war risks; country / area risks; insurance risks like fire, strikes, riots and civil commotion, marine risks, cargo risks etc.; fiscal/monetary policy risks including taxation risk. e) Credit risks: This includes creditworthiness; risks in settlement of dues by clients and provisions for doubtful and bad debts. f) Liquidity risks: This includes risks like financial solvency and liquidity; borrowing limits, delays; cash/ reserve management risks and tax risks.

g) Disaster risks: This includes natural calamities like fires, _oods, earthquakes, etc.; man made risk factors arising under the Factories Act, Mines Act, etc.; risk of failure of effective disaster management plans formulated by the Company. h) System risks: This includes system capacities and system reliability risks; obsolescence risk; data integrity risk and coordination and interface risk. i) Legal risks: This includes contract risks; contractual liabilities; frauds; judicial risks and insurance risk. j) Government policies: This includes exemptions, import licenses, income tax and sales tax holidays, subsidies, tax benefits etc. k) Financial Risk: This includes risks associated with fluctuations in foreign currency rates, import duties and taxes, fluctuation in the price of various inputs including raw material supplies and underutilized capacity. Your Company reviews forward exchange contracts/ derivative contracts to analyze foreign exchange exposure. Both the operational and financial risks are constantly assessed, and adequate steps are taken from time to time to mitigate them successfully.

Financial Performance

Net turnover of your Company has increased by 1.95% from Rs.33126.77 lakhs in 2022-23 to Rs.33773.92 lakhs in current year. Your Company has earned a pre-tax profit of Rs.524.28 lacs as compared to profit of Rs.214.15 lakhs in the last year. Company has earned cash profit of Rs.1943.92 lakhs as compared to Rs.1501.10 lakhs in 2022-23.

Ratios

The following are analytical ratios for the year ended March 31, 2024 and March 31, 2023

Particulars	Numerator	Denominator	For the year ended March 31, 2024	For the year ended March 31, 2023	Variance
Current Ratio	Current assets	Current liabilities	0.84	0.71	19.18%
Debt Equity Ratio	Total debt	Shareholders equity	1.62	1.72	-5.81%
Debt Service Coverage Ratio5	Earnings available for debt service1	Debt service2	1.35	1.06	27.13%
Return on Equity6	Net profit after taxes	Average shareholders equity	7.00%	3.19%	119.54%
Inventory Turnover	Revenue	Average inventory	11.94	15.74	-24.15%
Ratio
Trade receivable	Revenue	Average trade	6.94	7.82	-11.18%
Turnover Ratio		receivable
Trade payable	Purchases3	Average trade	6.82	11.58	-41.13%
Turnover Ratio7		payables
Net Capital Turnover Ratio8	Revenue	Average working capital	-17.96	-10.34	73.73%
Net Profit Ratio9	Net loss	Revenue	1.09%	0.48%	127.11%
Return on Capital employed10	Earnings before interest and taxes	Capital employed4	8.21%	6.14%	33.67%
Return on Investment11	Earnings before interest and taxes	Average total assets	6.24%	4.92%	26.83%

1. Long term borrowings + Short term borrowings.

2. Net Profit after taxes + Non-cash operating expenses + Interest + other adjustments like loss or gain on sale of Fixed assets etc.

3. Interest + Lease payments for the current year + Repayments of long term borrowings

4. Purchase of raw material + stores and spares including repair & maintenance + packaging

5. Total equity + Lease liabilities + Total borrowings + Deferred tax liability – Intangible assets

Reasons for variations

6. Debt Service Coverage ratio has increased primarily due to increase in earnings available for debt service and decrease in repayments of long term borrowings.

7. Return on Equity ratio has increased primarily due to increase in turnover and higher profitability thereof.

8. Trade payable turnover ratio has decreased primarily due to an increase in purchase or raw material and increase in balance of trade payables at the yearend, which led to increase in average trade payables.

9. Net capital turnover ratio has decreased primarily due to an increase in current assets which led to decrease in working capital 10. Net profit ratio has increased primarily due to increase in turnover and higher profitability thereof. 11. Return on Capital employed has increased primarily due to increase in turnover, higher profitability and decrease in borrowings.

12. Return on Investment ratio primarily increased due to increase in turnover and higher profitability thereof.

Internal Financial Control System and their adequacy

The Companys internal audit system has been continuously monitored and updated to ensure that assets are safeguarded, established regulations are complied with and pending issues are addressed promptly Your company has adequate internal control systems commensurate with its size and operations, although not documented. The company regularly gets its accounts audited from the internal auditor.

Further internal audit has been out sourced to M/s Goel Garg & Co., Chartered Accountants. The Audit covers all the areas e.g. Finance, HR, Purchase, Statutory Compliance etc. and regular audits are conducted by Internal Auditors.

Further, the audit committee reviews reports presented by the internal auditors on a routine basis. The committee makes note of the audit observations and takes corrective actions wherever necessary. It maintains constant dialogue with statutory and internal auditors to ensure that internal control systems are operating effectively. Based on its evaluation (as provided under section 177 of the Companies Act, 2013 and Regulation 18 of SEBI Listing Regulations, the Audit Committee has concluded that as of 31st March, 2024, the Internal Financial Controls were adequate and operating effectively.

M/S. KMGS & Co. Chartered Accountants, the Statutory Auditors of the Company audited the financial statements included in this Annual Report and issued a report on the internal controls over financial reporting (as defined in Section 143 of the Companies Act, 2013)

Contingent liabilities and commitments: (i) Contingent liabilities not provided for

Demand under the Central Excise Act of Nil (Previous year 24.87 lakh)

Demand dropped in full in appeal at Customs, Excise & Service Tax Appellate Tribunal, New Delhi by order dated 12 March 2024.

(ii) Guarantees

In respect of bank guarantees: 299.28 lakh (Previous year Nil)

(iii) Commitments

Estimated amount of contracts, remaining to be executed on machinery / spare parts of machinery (net of advances) 370.93 lakh (approx.) payable in USD 86,390 and JPY 5,42,55,000 (Previous year 6.01 lakh (approx.) payable in USD 7,300).

Human Resources/Industrial Resources

The Company believes that the quality of employees is the key to its success. In view of this, it is committed to equip them with skills, enabling them to evolve with technological advancements.

During the year, various initiatives had been taken by the Company to improve the performance and productivity levels in various departments of the company. The company has its own in-house technical center in the plant to train the new recruits before their placement that helps in optimum utilization of resources as well as maintaining quality standards. It also indulges into and implements various HR initiatives and activities including employee welfare, special rewards, performance review system and various employee motivation activities.

Health, Safety and Environment remains our top priority. Periodic audits are carried out both internally as well as through external agencies to identify gaps and to define action items for continuous improvement, ensuring a safe workplace for employees.

The company has already undertaken KAIZEN with an aim to become a world-class company. Your company has already adopted the suggestions scheme in the company which is increasing the employees participation in managing the company.

Cautionary Statement

Management Discussion and Analysis Report may be forward looking statement. Actual result may differ materially from those expressed or implied depending upon global and Indian regulations, tax regimes, and economic developments within India and overseas.