Master Components Ltd Management Discussions

You should read the following discussion and analysis of financial condition and results of operations together with our financial statements included in this Prospectus. The following discussion relates to our Company and is based on our restated financial statements. Our financial statements have been prepared in accordance with Indian GAAP, the accounting standards and other applicable provisions of the Companies Act.

Note: Statement in the Management Discussion and Analysis Report describing our objectives, outlook, estimates, expectations or prediction may be "Forward looking statement" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to our operations include, among others, economic conditions affecting demand/supply and price conditions in domestic and overseas market in which we operate, changes in Government Regulations, Tax Laws and other Statutes and incidental factors.

BUSINESS OVERVIEW

Our company, Master Components Limited is engaged in business of manufacturing and sub-assembling components of high quality plastic engineered goods. We have in- house manufacturing plant for the complete end to end process located at D-10A and D-10B, M.I.D.C, Ambad, Nasik -422010, Maharashtra. Our primary activity involves

We mainly play a connecting role and support the manufacturers of end user product. We are not linked with the consumer directly and therefore act as intermediate. Our customer base is mainly MNCs who are established player in their field. Major share of revenue are earned from Lear Corporations, Siemens AG, Schneider Electric, Atlas Copco, Vishay Inter technology etc. We are focused in moulding activities and provide innovative solutions as per our customer needs.

The knowledge and technology base that our Company has developed since inception is a strong base to outperform the competition in the market. This supports our Company to constantly upgrade the technologies to meet present and futuristic requirements of our customers. We ensure the quality of our products through rigorous testing including testing of materials and machines before and after manufacturing.

We are an ISO 9001:2015 certified company for implementing Quality Management Systems at our manufacturing facilities. We also have been certified from IATF (International Automotive Task Force) 16949-2016. We have implemented Kaizen, lean manufacturing and 5S (Sort, Straighten, Shine, Standardize and Sustain) to increase our operational efficiency. Our investment in value-adding upgraded equipment has resulted in twin benefits of consistent quality and improved functionality, ensuring enhanced efficiency.

Significant Developments after March 31, 2023 that may affect our Future Results of Operations

The Directors confirm that there have been no events or circumstances since the date of the last financial statements as disclosed in the Prospectus which materially or adversely affect or is likely to affect the profitability of our Company, or the value of our assets, or our ability to pay liabilities within next twelve months.

RECENT DEVELOPMENT

Impact of COVID-19

The pandemic outbreak has caused an economic downturn on a global scale, including closures of many businesses and reduced consumer spending, as well as significant market disruption and volatility. The demand for our products is dependent on and directly affected by factors affecting industries where our products are supplied. Our manufacturing operations were shut down from March 23, 2020 to April 17, 2020. After that, we were allowed to resume operations subject to certain adjustments in working patterns and limited workforce. We started supplying face shields to medical sector as it was in high demand and needs. We even started manufacturing throat swab and nose swab use for Covid test and supplied to medical sector. From June 01, 2020 we resumed with full strength and started our regular business in force. Despite the impact of the COVID-19 Pandemic, our revenue from operations for the Fiscal 2021 and for Fiscals 2022 was Rs. 1,325.28 lakhs and Rs. 1,823.78 lakhs respectively. We continue to closely monitor the impact that COVID-19 may have on our business and results of operations. It is difficult for us to predict the impact that COVID-19 will have on us, our customers or suppliers in the future.

FACTORS AFFECTING OUR RESULT OF OPERATIONS

Economic conditions in the markets in which we operate

Our results of operations are dependent on the overall economic conditions in the markets in which we operate, including India. Any change in macro-economic conditions in these markets, including changes in interest rates, government policies or taxation and political, economic or other developments could affect our business and results of operations. Our diversification to multiple sectors in India may perform differently and be subject to market and regulatory developments that are dissimilar to the markets in other parts of the world. While stronger economic conditions tend to result into higher demand for our products, weaker economic conditions tend to result into lower demand. Change in demand in the market segments we currently supply or improvement/deterioration in the market or a change in regulations, customs, taxes or other trade barriers or restrictions could affect our operations and financial condition.

Dependence of demand from end-user industries

We have a diversified customer base and believe that we have strong and long established relationships with most of our customers. Although our products are sold to a large number of customers across various markets, a significant portion of our revenue is derived from our top ten customers, which constitutes 77.14% of our revenue from operations for the period ended March 31, 2023. Significant reliance on these and other major customers may result in certain pricing pressures. Any loss or significant decrease in business from one or more of our significant customers would have an adverse effect on our sales. In addition, the income from these customers may vary from year to year. Demand for our products from these customers has a significant impact on our results of operations and financial condition, and our sales are particularly affected by the inventory and production levels of our key customers.

We cannot predict when our customers will decide to either increase or reduce inventory levels which may have an impact on us. We may experience reduction in cash flows and liquidity if we lose one or more of our major customers or if the amount of business from them is reduced for any reason. For majority of our customers, we have some arrangements which defines the terms and conditions of purchases by such customers. These purchase orders specify the price at which the products are to be supplied and the quantities are supplied based on delivery schedules provided by the customers based on their own demand and supply situation. Although our customers provide us with forecasts of annual business volumes, which enable us to predict our income for a portion of our business, the actual orders are only placed by way of on-going purchase orders. Actual production volumes may vary from these estimates due to variations in consumer demand for the related product leading to underutilized capacity or incurring additional expenditure to deploy additional resources to meet delivery timelines.

Our ability to successfully implement its strategy and its growth and expansion plans

Our revenue and our business operations have grown in recent years. Although we plan to continue to expand our scale of operations, we may not be able to sustain these rates of growth in future periods due to a number of factors, including, among others, our execution capability, our ability to retain, maintain & enter into new distribution agreement, our ability to maintain customer satisfaction, our ability to mobilise sufficient working capital, macroeconomic factors beyond our control such as decline in global economic conditions, availability of cheaper imported / domestic products / brands, competition within each product category from players in the organized and unorganized segments, the greater difficulty of growing at sustained rates from a larger revenue base, our inability to control our expenses and the availability of resources for our growth. There can be no assurance that we will not suffer from capital constraints, operational difficulties or difficulties in expanding existing business operations.

RESULTS OF OUR OPERATIONS

	For the year ended March 31,
Particulars	2023	% of Total Income	2022	% of Total Income	2021	% of Total Income
INCOME:
Revenue from Operations	2,070.26	99.05%	1,823.78	98.98%	1,325.28	99.82%
Other Income	19.77	0.95%	18.72	1.02%	2.44	0.18%
Total Income (A)	2,090.03	100.00%	1,842.50	100.00%	1,328.74	100.00%
EXPENSES:
Cost of Materials Consumed	1,569.13	75.08%	1,430.62	77.65%	973.75	73.34%
Change in Inventory	(25.13)	(1.20)%	(37.52)	(2.04%)	(28.83)	(2.17%)
Employee benefit expenses	171.38	8.20%	162.99	8.85%	130.78	9.85%
Finance costs	9.14	0.44%	15.77	0.86%	25.76	1.94%
Depreciation and amortization	83.30	3.99%	85.44	4.64%	91.83	6.92%
Other expenses	40.60	1.94%	44.85	2.43%	30.13	2.27%
Prior period expenses	-	0.00%	10.05	0.55%	-	-
Total Expenses (B)	1,848.43	88.44%	1,712.20	92.93%	1,223.43	92.15%
Net Profit / (Loss) before tax	241.60	11.56%	130.30	7.07%	104.29	7.85%
Less: Tax expense
Current tax	68.00	3.25%	37.12	2.01%	26.10	1.97%
Deferred tax	3.06	0.15%	(0.62)	(0.03)%	2.08	0.16%
Short/ Excess Tax provision for earlier	0.00	0.00%
				0.00%		0.00%
periods			0.07		(0.03)
Total Tax Expense	71.06	3.40%	36.57	1.98%	28.14	2.12%
Net Profit / ( Loss ) after tax	170.54	8.16%	76.14	5.73%	76.14	5.73%

Main Components of our Profit and Loss Account

Income

Our total income comprises of revenue from Sale of Products and other income.

Revenue from Operations

Our revenue from operations as a percentage of total income was 99.05%, 98.98% and 99.82% for the fiscals ended 2023, 2022 and 2021 respectively.

Other Income

Our other income comprises of interest income, foreign fluctuation income, administrative charges recovered and subsidies. Other income, as a percentage of total income was 0.95%, 1.02% and 0.18% for the fiscals ended 2023, 2022 and 2021 respectively.

Expenditure

Our total expenditure primarily consists of raw material consumed, change in inventory, employee benefit expenses, finance cost, depreciation expenses, other expenses and prior period expenses.

Cost of Raw Material Consumed

It consists of cost of raw materials consumed and other direct expenses which includes freight, custom duty, labour charges and electricity.

Change in Inventory

Change in Inventory comprises of difference in opening and closing balance of work in progress.

Employee Benefit Expenses

Employee benefit expenses comprises of salaries, director remuneration, bonus, medical claim charges, employee welfare expenses, contribution to PF, ESIC and gratuity.

Depreciation and Amortization Cost

Depreciation and Amortization Expenses consist of depreciation on the Tangible assets of our company i.e. Buildings, Furniture & Fixtures, Plant & Machinery, Computer, Office Equipments, Electrical Installations and Solar Energy installation.

Finance costs

Finance cost includes Interest on borrowings from bank and unsecured loans.

Other Expenses

Other expenses include Legal & professional expenses, Rent, Insurance expense, Repairs and Maintenance, Telephone and Internet charges, Hiring charges, Postage and courier charges, Auditors fees, Bank charges, Security Charges and Miscellaneous expenses.

Prior period expenses

Prior period expenses include change in provision for gratuity expense.

Provision for Tax

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.

Fiscal 2023 compared with fiscal 2022

Income

In fiscal 2023, our total income increased by 247.53 lakhs or 13.43%, from 1,842.50 lakhs in fiscal 2022 to 2,090.03 lakhs in fiscal 2023. The increase in the year 2023 was due to increase in orders of components and increase in range of components manufactured as compared to last year mostly in domestic markets.

Other income increased by 1.06 lakhs or 5.64%, from 18.72 lakhs in fiscal 2022 to 19.77 lakhs in fiscal 2023 as we recorded gain on foreign currency.

Cost of Materials Consumed

Cost of material consumed increased by 143.06 lakhs or 10.03%, from 1,426.08 lakhs in Fiscal 2022 to 1,596.13 lakhs in Fiscal 2023 as we purchased bulk quantity of raw materials to meet the requirement of production house. We even incurred increased labour charges and electricity expenses during the year 2023.

Change in Inventory

Inventory of Work-in – progress and Finished Goods changed from (37.52) lakhs to (25.13) lakhs.

Employee Benefit Expenses

Employee Benefit Expenses increased by 8.39 lakhs or 5.15%, from 162.99 lakhs in fiscal 2022 to 171.38 lakhs in fiscal 2023. This increase was mainly due to increase in salaries of employee and we also incurred increase in bonus expenses given better performance of team.

Financial Cost

Finance Costs decreased by 6.62 lakhs or 42.01%, from 15.77 lakhs in fiscal 2022 to 9.14 lakhs in fiscal 2023. This decrease was mainly due to repayment of term loan during the year.

Depreciation cost

Depreciation expenses were 85.44 lakhs in fiscal 2022 as compared to 83.30 lakhs in fiscal 2023.

Other Expenses

Other expenses decreased by 8.80 lakhs or 17.80% from 49.40 lakhs in fiscal 2022 to 40.60 lakhs in fiscal 2023. The decrease was majorly due to rate difference incurred during fiscal 2022. Other expenses were at same rate as previous year.

Profit/ (Loss) before Tax

The increase in scale of operations along with good margins has led to increase in our Profit before tax by 111.30 lakhs or 85.42% from 130.30 lakhs in fiscal 2022 to 241.60 lakhs in fiscal 2023.

Tax Expenses

The Companys tax expenses had increased by 34.50 lakhs from 36.57 lakhs in the Fiscal 2022 to 71.06 lakhs in Fiscal 2023 as tax liability increases with rise in profits earned during the year.

Profit/ (Loss) after Tax

After accounting for taxes at applicable rates, our Profit after Tax increased by 76.81 lakhs or 81.94 %, from 93.73 lakhs in fiscal 2022 to 170.54 lakhs in fiscal 2023.

Fiscal 2022 compared with fiscal 2021

Income

In fiscal 2022, our total income increased by 513.75 lakhs or 38.66%, from 1,328.75 lakhs in fiscal 2021 to 1,842.50 lakhs in fiscal 2022. The increase in the year 2022 was due to increase in orders of components and increase in range of components manufactured as compared to last year.

Other income increased by 16.28 lakhs or 667.71%, from 2.44 lakhs in fiscal 2021 to 18.72 lakhs in fiscal 2022 as we recorded gain on sale of plant & machinery and received subsidy from DIC in Fiscal 2022.

Cost of Material Consumed

Cost of material consumed increased by 456.58 lakhs or 47.10%, from 969.49 lakhs in Fiscal 2021 to 1,426.08 lakhs in Fiscal 2022 as we purchased bulk quantity of raw materials to meet the requirement of production house. We even incurred increased labour charges and electricity expenses for orders.

Change in Inventory

Inventory of Work-in – progress changed from (28.83) lakhs to (37.52) lakhs.

Employee Benefit Expenses

Employee Benefit Expenses increased by 32.21 lakhs or 24.63%, from 130.78 lakhs in fiscal 2021 to 162.99 lakhs in fiscal 2022. This increase was mainly due to increase in salaries of employee and pay of contract labours who are hired as per order, we also paid term insurance for employee and incurred increase in staff welfare expenses.

Finance Costs

Finance Costs decreased by 10.00 lakhs or 38.81%, from 25.77 lakhs in fiscal 2021 to 15.77 lakhs in fiscal 2022. This decrease was mainly due to decrease in borrowing from bank which reduced our interest cost during the year.

Depreciation Expenses

Depreciation expenses were 91.83 lakhs in fiscal 2021 as compared to 85.44 Lakhs in fiscal 2022.

Other Expenses

Other expenses increased by 15.01 lakhs or 43.63% from 34.39 lakhs in fiscal 2021 to 49.40 lakhs in Fiscal 2022. The increase majorly consisted of repairs and maintenance, rate difference paid and incurred during the year.

Prior Period Expenses

There was a prior period expense of 10.05 in Fiscal 2022 for gratuity.

Profit/ (Loss) before Tax

The increase in scale of operations has led to increase in our Profit before tax by 24.98 lakhs or 23.71% from 105.32 lakhs in fiscal 2021 to 130.30 lakhs in fiscal 2022.

Tax Expenses

The Companys tax expenses had increased by 8.42 lakhs from 28.14 lakhs in the Fiscal 2021 to 36.57 lakhs in Fiscal 2022 as tax liability increases with rise in profits earned during the year.

Profit/ (Loss) after Tax

After accounting for taxes at applicable rates, our Profit after Tax increased by 16.55 lakhs or 21.45 % from 77.18 lakhs in fiscal 2021 to 93.73 lakhs in fiscal 2022.

Cash Flows

	For the year ended March 31
Particulars	2023	2022	2021
Net Cash from Operating Activities	263.91	79.51	202.86
Net Cash from Investing Activities	(164.04)	(21.17)	(70.84)
Net Cash used in Financing Activities	(88.52)	(58.72)	(186.01)
Net Increase / (Decrease) in Cash and Cash equivalents	11.36	(0.92)	(54.00)

Cash Flows from Operating Activities

Net cash from operating activities for the fiscal 2023 was 263.91 lakhs as compared to the PBT of 241.60 lakhs for the same period. This difference is primarily on increase in trade and other receivables, current asset and change in inventory and payment of trade payables.

Net cash from operating activities for the fiscal 2022 was 79.51 lakhs as compared to the PBT of 130.30 lakhs for the same period. This difference is primarily on account of changes in inventory which resulted from substantial purchases of raw materials.

Net cash from operating activities in fiscal 2021 was 202.86 lakhs as compared to the PBT of 105.32 lakhs for the same year. This difference is primarily on account of changes in trade and other receivables, payment of other current liability and increase in trade payables.

Cash Flows from Investment Activities

In fiscal 2023 the net cash invested in investing activities was 164.04 lakhs. This was majorly on account of purchase of plant and machinery and additions in building.

In fiscal 2022 the net cash utilised in investing activities was 25.42 lakhs for purchases of plant & machinery.

In fiscal 2021, the net cash utilised in investing activities was 70.84 lakhs for purchases of plant & machinery and additions in buildings and electrical installations.

Cash Flows from Financing Activities

Net cash generated used financing activities in fiscal 2023 was 88.52 lakhs. This was on account of decrease in cash credit facility used by company and payment of term loan.

Net cash used in financing activities in fiscal 2022 was 58.72 lakhs. This was on account of repayment of long term borrowings and finance cost incurred during the year.

Net cash used from financing activities in fiscal 2021 was 186.01 lakhs. This was on account of repayment of both short-term and long term borrowings and finance cost incurred during the year.

OTHER MATTERS

1. Unusual or infrequent events or transactions

Except as described in this Prospectus, during the period/ years 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

Other than as described in the Section titled "Financial Information" and chapter titled "Managements Discussion and Analysis of Financial Conditions and Results of Operations" on page 131 and 154 respectively of this Prospectus respectively, to our knowledge there are no significant economic changes that materially affected or are likely to affect income from continuing Operations.

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

Other than as described in the chapter titled "Risk Factors" and "Managements Discussion and Analysis of Financial Conditions and Result of Operations" on page 23 and 154 respectively of this Prospectus respectively, best to our knowledge 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.

4. Future relationship between Costs and Income

Other than as described in the chapter titled "Risk Factors" on page 23 of this Prospectus, best to our knowledge there are no factors, which will affect the future relationship between costs and income or which are expected to have a material adverse impact on our operations and finances.

5. The extent to which material increases in revenue or income from operations are due to increased volume, introduction of new components or increased prices

Increase in revenues is majorly linked to increase in product line, introducing new customers and working to capture as much requirements of existing customer as possible. We have also made strategic investment in cost-efficient machines to cater the change in demand and trends of our product line.

6. Status of any publicly announced new services or business segments

Please refer to the chapter titled "Our Business" on page 85 of this Prospectus.

7. The extent to which the business is seasonal.

Our business is not seasonal in nature.

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

For year ended March 31, 2023, the revenue from our top 5 and top 10 customers constituted approximately 58.09 % and 77.14 % respectively of the revenue from operations. For year ended March 31, 2023, the purchases from our top 5 and top 10 suppliers constituted approximately 74.93 % and 87.36 % respectively of the purchases. For further details, please refer chapter "Our Business" on page 85 of this Prospectus.

9. Competition Conditions

We face competition from various domestic and international players in the market. We intend to continue competing rigorously to capture more market share and manage our growth in an optimal way. We expect that our commitment to quality, past record of timely execution and transparency will provide us with an edge over our competitors. Further we believe that our competition also depends on several factors which include changing business framework, competitive price, and delivery at given timeline and established relationship with clients, suppliers, brand recognition etc.