MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our restated financial statements attached in the chapter titled "Financial Information of the Company" beginning on page 141. You should also read the section titled "Risk Factors" on page 22 and the section titled "Forward Looking Statements" on page 17 of this Draft Red Herring Prospectus, which discusses a number of factors and contingencies that could affect our financial condition and results of operations. The following discussion relates to us, and, unless otherwise stated or the context requires otherwise, is based on our Restated financial Statements.
Our financial statements have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI (ICDR) Regulations and restated as described in the report of our auditor September 28, 2023 which is included in this Draft Red Herring Prospectus under "Financial Statements". The Restated Financial Information has been prepared on a basis that differs in certain material respects from generally accepted accounting principles in other jurisdictions, including US GAAP and IFRS. Our financial year ends on March 31 of each year, and all references to a particular financial year are to the twelve-month period ended March 31 of that year
OVERVIEW
Incorporated in 2014, we are an engineering-led manufacturer of (i) complex and critical precision engineered components and parts used in automotive sector ("auto components") and (ii) agricultural farm machineries designed to meet the diverse needs of modern farming ("agricultural implements"). Within the automotive sector, we manufacture, procure and supply a range of precision machined tubular assemblies, welded assemblies, precision brackets and sheet metal parts. Our wide range of offerings in this segment includes link assembly engine hangers, hinge body covers, front cover stay components, seat catch components, fuel filler cap components, main stand complete assemblies, front fender stay assemblies, engine guard plates, rear brake arm assemblies, separator breather, cable guide assemblies, battery tray components and many other parts, that are critical for the two-wheeler vehicles and various type of brackets such as cooling recovery reservoir brackets, exhaust tailpipe brackets, fuse block brackets, floor panel brackets, air cleaner inlet hose brackets for the passenger car vehicles.
Within the agricultural implements sector, we design, manufacture and supply a comprehensive range of agricultural implements that cater to different aspects of farming such as soil preparation, sowing, crop management, harvesting and crop residue management. Our wide range of offering in this segment includes various type of rotovators, seeders, super seeders, weeders, potato planter, potato digger, fertilizer spreader, mulcher, puddler, laser land leveller, disc ploughs and many other agricultural implements. We manufacture agricultural implements from our manufacturing unit located at Village Raian, Ludhiana, Punjab. The said unit was established in F.Y. 2014-15 and is located at a plot area of 6.74 acres, and is equipped with various machineries such as Broach Machine, Center Facing Machine, Beam Furnace, Deburring Machine, Gear Hobbing, Gear Shaver, Hydraullic Press, Laser Machine, Milling Machine, Plasma Machine, Power Grid, Cylindrical Grinder Machine, Drill Machines, Diameter Grinder, Laser Marking Machine etc. For Fiscal 2023, our revenue from operations were Rs. 15,116.04 Lakhs of which we derived 60.70% of revenue from auto components segment and 37.13% from agricultural implements segment.
The auto components are manufactured from our manufacturing unit based at Village Vithlapur, Ahmedabad, Gujarat, which was established in F.Y. 2015-16. The said unit is located at a plot area of 10 acres and is equipped with various machineries such as Robotic Welding Machines, lathe machine, surface grinder machine, press machine, paint shop setup etc. Our products are subject to stringent quality checks and testing in laboratories at our facilities. We have well-equipped laboratory, modern technology and testing equipments with supporting environment and facilities, to ensure that the products conform with the desired quality. Our R&D capabilities include in-house tool designing, design simulation, prototyping and testing abilities such as CMM (Faro Arm 6 Axis-3D), Weld Penetration, Universal Testing Machine, Salt Spray Testing Machine, Humidity Testing Machine, Hardness Tester. We also procure certain of the auto-components in the finished and unfinished form (bought out parts) from our Promoter Group entity, M/s New Swan Enterprises which includes fuel cap & bracket for seat latch, stay stopper rubber, body cover, plate engine guards, side stand and various other items.
As on date of this DRHP, our product portfolio has over 300 SKUs of agricultural implements and auto components. We also own 5 design registrations relating to our agricultural implements i.e. Mulcher, power weeder, crop planter, potato harvester and potato planter which are registered with the Patent Office, Government of India. In automotive segment, we supply most of our products directly to OEMs in finished (machined) condition. In the two-wheeler vertical, we have relationship spanning over 6 years with Honda Motorcycle and Scooter India ("HMSI"), which is our largest customer in terms of revenue for Fiscal 2023, over 3 years with MG Motors to which we supply passenger car components and over 3 years with Mahindra & Mahindra to which we supply agricultural implements. Within the domain of agricultural implements, our product distribution encompasses an extensive network of over 200 dealers, covering 11 states in India. Our reach also extends to supplying agricultural implements to notable OEMs such as Mahindra & Mahindra, John Deere India Pvt. Ltd. etc. We also export our agricultural implements to countries like Mauritius, Russia, Kazakhstan, South Africa, Sudan and Nepal. In fiscal 2023 and 2022, we derived 2.08% and 1.39% of our revenue from exports.
Key Performance Indicators of our Company
(? In Lakhs except percentages and ratios)
| Key Financial Performance |
FY 2022-23 |
FY 2021-22 |
FY 2020-21 |
| Revenue from operations(1) |
15,116.04 |
14,546.71 |
14,947.45 |
| EBITDA(2) |
2,022.34 |
1,149.28 |
1,061.56 |
| EBITDA Margin(3) |
13.38% |
7.90% |
7.10% |
| PAT(4) |
991.93 |
363.14 |
342.63 |
| PAT Margin(5) |
6.56% |
2.50% |
2.29% |
| RoE(%)(6) |
33.27% |
18.25% |
21.06% |
| RoCE (%)(7) |
24.86% |
12.64% |
12.56% |
Notes:
(1) Revenue from operation means revenue from sales, service and other operating revenues
(2) EBITDA is calculated as Profit before tax + Depreciation + Interest Expenses - Other Income
(3) EBITDA Margin is calculated as EBITDA divided by Revenue from Operations
(4) PAT is calculated as Profit before tax – Tax Expenses
(5) PAT Margin is calculated as PAT for the period/year divided by revenue from operations.
(6) Return on Equity is ratio of Profit after Tax and Average Shareholder Equity
(7) Return on Capital Employed is calculated as EBIT divided by capital employed, which is defined as shareholders equity plus Long term borrowings and Short term borrowings.
Explanation for KPI metrics
| KPI | Explanations |
| 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 |
| 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. |
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
For details in respect of Statement of Significant Accounting Policies, please refer to "Annexure IV of Restated Financial Statements" beginning on page 141 of this Draft Red Herring Prospectus.
Factors Affecting our Results of Operations
Our business is subjected to various risks and uncertainties, including those discussed in the section titled "Risk Factors" beginning on page 22 of this Draft Red Herring Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:
Discussion on Result of Operations
The following discussion on results of operations should be read in conjunction with the Restated Financial Statements for the financial years ended on March 31, 2023, March 31, 2022 and March 31, 2021.
Revenue from operations:
Revenue from operations mainly consists of revenue from sale of Agricultural Implements and Auto components.
Other Income:
Our other income primarily comprises of Drawback received, Exchange Rate Variance, Interest Received and Misc. Income.
Expenses:
Companys expenses consist of cost of material consumption, change in inventories of finished goods, Employee benefits expense, Finance costs, Depreciation and amortization and other expenses.
Cost of material consumed:
Our Cost of Material consumed comprises primarily of raw materials which includes CRC sheets, HR sheets, tubes, seamless tubes, fastner, drawbar EN 19, drawbar MS, MS strip, ERW pipe, sq pipe, coating powder and pretreatment chemicals. Our essential raw material for the production Auto Component is CRC sheets 1mm to 3mm, HR sheets 2mm to 5mm, erw tubes, fastner, drawbar EN 19, drawbar MS, MS strip, rubber components, coating powder and pretreatment chemicals. Our agricultural implements raw material included CRC sheets, HR sheets, tubes, seamless tubes, fastner, riger, springs, tines, drawbar EN 19, drawbar MS, MS strip, ERW pipe, sq pipe, forgings, casting, coating powder and pretreatment chemicals. We procure majority of the raw materials from the suppliers based in domestic market. We also procure certain of the auto-components in the finished and unfinished form (bought out parts) from our Promoter Group entity, M/s New Swan Enterprises which includes fuel cap & bracket for seat latch, stay stopper rubber, body cover, plate engine guards, side stand and various other components/parts.
Change in inventories of finished goods and work in progress:
Our changes in the inventory comprises of changes in the finished goods & work in progress.
Employee benefits expense:
Our employee benefits expense primarily comprises of Salary & Wages, contribution to PF & Other funds, Directors remuneration and Staff welfare expenses.
Finance Costs:
Our finance cost includes Interest expense and Other Borrowing cost.
Depreciation and Amortization Expenses:
Depreciation includes depreciation on Land, Building, Plant & Machinery, Furniture & Fixtures, Computer, Tools & Dies etc.
Other Expenses:
Our other expenses include Expenses such as consumable stores, job work charges, freight charges, power & fuel, Rent, Repairs and Maintenance, Sale Promotion, Security Expenses, Testing Charges, Travelling & conveyance etc.
Comparison of Financial Year 2023 with Financial Year 2022 (Based on Restated Financial Statements)
Total Income:
Total income for the financial year 2022-23 stood at 15,142.17 Lakhs whereas in Financial Year 2021-22 the same stood at 14,552.40 Lakhs representing an increase of 4.05%. The main reason of increase in total income was:
Revenue from Operations:
Revenue from Operations for the F.Y. 2022- 23 stood at ?15,116.04 Lakhs whereas in F.Y. 2021-22 the same stood at ?14,546.71 Lakhs representing an increase of 3.91%. The main reason for increase in revenue from operations were:
1) Increase in revenue from Automotive components from ?7,695.41 lakhs in FY 2021-22 to ?9,175.71 lakhs in F.Y. 2022- 23, representing an increase of 10.24% (y-o-y)
Other Income:
For F.Y. 2022-23, other income has been increased to ?26.13 Lakhs as against ?5.69 Lakhs in the Financial Year 2021-22 representing an increase of 359.53% which is mainly due to increase in income from Exchange rate variance & interest received.
Total Expenses:
For F.Y. 2022-23, total expense has decreased to ?13,768.01 Lakhs from ?14,044.91 Lakhs in the financial year 2021-22 representing a decrease of 1.97%. Such decrease was mainly due to increase in closing inventory of finished goods & work in progress.
Cost of Material consumed:
For F.Y. 2022-23, cost of material consumed was increased to ?9,985.29 lakhs from ?9,545.11 lakhs in the F.Y. 2021-22 representing an increase of 4.61%. Such increase was due to increase in volume of business operations of the Company.
Change in inventories of finished goods & work in progress:
The Change in inventories of finished goods and work in progress for the financial year ended on March 31, 2023 stood at ? (710.02) Lakhs as compared to ?312.29 lakhs in F.Y 2021-22. There is increase in the inventory of finished goods and work in progress for financial year 2022-23 as compared to the financial year 2021-22, due to increase in closing stock of finished goods and in work-in-progress as on March 31, 2023.
Employee benefits expense:
Our Company has incurred employee benefits expenses of ?1,960.45 Lakhs during the financial year 2022-23 as compared to
?1,894.14 Lakhs in the financial year 2021-22, representing an increase of 3.50%. The said increase is due the increase in salaries and wages.
Finance costs:
Finance costs for the F.Y. 2022-23 has decreased to ?355.80 Lakhs as against ?375.67 Lakhs during the financial year 2021-22, representing a decrease of 5.29%, which is mainly due to the decrease in Interest Expenses and bank charges.
Depreciation and Amortization Expenses:
Depreciation for F.Y. 2022-23 stood at ?333.90 Lakhs as against ?296.61 Lakhs during the financial year 2021-22, representing an increase of 12.57% due to significant addition in assets in F.Y. 2022-23.
Other Expenses:
For F.Y. 2022-23, other expenses were ?1,842.58 Lakhs as against ?1,621.09 Lakhs during the financial year 2021-22. The increase of 13.66% was mainly due to increase in Freight Charges, Consumable Stores, Interest on Income Tax, Legal, Professional & Consultancy Charges, Testing Charges and Travelling & Conveyance charges.
Restated Profit/ (Loss) before tax:
For financial year 2022-23, it has increased to ?1374.16 Lakhs as compared to ?507.49 Lakhs in the financial year 2021-22, representing an increase of 170.77% majorly due to:
Restated Profit/ (Loss) after tax:
The Company reported Restated Profit after tax for the financial year 2022-23 at 991.93 Lakhs in comparison to ?363.14 Lakhs in the financial year 2021-22, representing an increase of 173.15% majorly due to: -
Financial Year 2022 Compared to Financial Year 2021 (Based on Restated Financial Statements)
Total Income:
Total income for the financial year 2021-22 stood at ?14,552.40 Lakhs as compared to ?14,960.55 Lakhs in Financial Year 2020- 21 representing a decrease of 2.73% which was on account of below reasons:
1) Decrease in revenue from Sale of agricultural implements from Rs. 7600.15 lakhs in FY 2020-21 to Rs. 6517.59 lakhs in
F.Y. 2021-22, representing a decrease of 16.61% (y-o-y)
Revenue from Operations:
During the financial year 2021-22 the revenue from operation of our Company decreased to ?14,546.71 Lakhs as against ?14,947.45 lakhs in the Financial Year 2020-21, representing decrease of 2.68% which was on account of below reasons: -
1) Decrease in revenue from Sale of agricultural implements from Rs. 7600.15 lakhs in FY 2020-21 to Rs. 6517.59 lakhs in
F.Y. 2021-22, representing a decrease of 16.61% (y-o-y)
Other Income:
During the F.Y. 2021-22, the other income of our Company decreased to ?5.69 Lakhs as against ?13.11 lakhs in the Financial Year 2020-21 representing decrease of 56.61%. The decrease in the other income was mainly due to duty drawback less received.
Total Expenses:
The Total Expenses for the financial year 2021-22 decreased to ?14,044.91 Lakhs from ?14,472.78 lakhs in the Financial Year 2020-21 representing decrease of 2.96%. Such decrease was due to decrease in the volume of business operations of the Company.
Cost of Material consumed:
The Cost of Material consumed for the financial year 2021-22 stood ?9,545.11 Lakhs against ?9,677.88 Lakhs in the Financial Year 2020-21 representing a decrease of 1.37%. Such decrease was due to decrease in business operations of the Company.
Change in inventories of finished goods, work in progress and stock in trade:
The Change in inventories of finished goods and work in progress for financial year 2021-22 has been decrease as compared to the financial year 2020-21 of 6.60% was due to decrease in closing stock of finished goods and work in progress as on March 31, 2022.
Employee benefits expense:
Our Company has incurred ?1,894.14 Lakhs as Employee benefits expense during the financial year 2021-22 as compared to
?2,074.98 Lakhs in the financial year 2020-21 representing a decrease of 8.72%, which was on account of decrease in salary and wages, Gratuity expenses and staff welfare expenses.
Finance costs:
These costs were for the financial Year 2021-22 increase to ?375.67 Lakhs as against ?307.60 Lakhs during the financial year 2020- 21, representing an increase of 22.13% which was due to increase in interest expenses.
Depreciation and Amortization Expenses:
Depreciation for the financial year 2021-22 stood at ?296.61 Lakhs as against ?294.84 Lakhs during the financial year 2020-21, representing an increase of 0.60% which was due to increase in fixed assets.
Other Expenses:
Our Company has incurred ?1,621.09 Lakhs during the Financial Year 2021-22 on other expenses as against ?1,783.11 Lakhs during the financial year 2020-21 representing decrease of 9.09% due to decrease in Job work paid, Testing Charges, Security expenses & other charges
Restated Profit/ (Loss) before tax:
Restated Profit before Tax for the financial year 2021-22 was ?507.49 Lakhs as compared to Restated Profit before Tax of ?487.77 Lakhs during the financial year 2020-21, representing an increase of 4.04%
Restated Profit/ (Loss) after tax:
The Restated Profit after tax for the financial year 2021-22 was ?363.14 Lakhs as compared to Restated Profit after Tax of ?342.63 lakhs during the financial year 2020-21, representing an increase of 5.99% on account of below reasons:
-Total expenses of the company has decreased to ?14,044.91 lakhs in F.Y. 2021-22 from ?14,472.78 lakhs in F.Y. 2020-21.
Information required as per Item (II) (C) (iv) of Part A of Schedule VI to the SEBI Regulations:
An analysis of reasons for the changes in significant items of income and expenditure is given hereunder:
There has not been any unusual trend on account of our business activity. Except as disclosed in this Draft Red Herring Prospectus, there are no unusual or infrequent events or transactions in our Company.
There are no significant economic changes that may materially affect or likely to affect income from continuing operations.
Apart from the risks as disclosed under Section "Risk Factors" beginning on page 22 of the Draft Red Herring 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.
Other than as described in the sections "Risk Factors", "Our Business" and "Managements Discussion and Analysis of Financial Condition and Results of Operations" on pages 22, 96 and 174 respectively, to our knowledge, no future relationship between expenditure and income is expected to have a material adverse impact on our operations and finances.
(Rs. in lakhs)
| Particulars | F.Y. ended March 31, 2023 |
% of Revenue |
F.Y. ended March 31, 2022 |
% of Revenue |
F.Y. ended March 31, 2021 |
% of Revenue |
| Revenue From Agricultural implements (A) | ||||||
| Rotavators |
4,567.89 |
30.22% | 4,550.98 | 31.29% |
4,836.18 |
32.38% |
| Other Implements |
700.58 |
4.63% | 1,665.99 | 11.45% |
2,404.96 |
16.10% |
| Spare Parts |
344.63 |
2.28% | 300.62 | 2.07% |
359.01 |
2.40% |
| Total Revenue(A) |
5,613.10 |
37.13% | 6,517.59 | 44.80% |
7,600.15 |
50.88% |
| Revenue From Automotive Components (B) | ||||||
| Two Wheeler Parts |
8,951.80 |
59.22% | 7,507.00 | 51.61% |
6,900.26 |
46.20% |
| Four Wheeler Parts |
223.91 |
1.48% | 188.41 | 1.30% |
178.76 |
1.20% |
| Total Revenue (B) |
9,175.71 |
60.70% | 7,695.41 | 52.90% |
7,079.02 |
47.40% |
| Scrap from (A) and (B) : (C) |
327.23 |
2.17% | 333.71 | 2.29% |
257.64 |
1.72% |
| Total Revenue from Operations (A) + (B) + (C) |
15,116.04 |
100.00% | 14,546.71 | 100.00% |
14,936.81 |
100.00% |
Note - Figures are based on standalone financial statements.
Except as disclosed in the Chapter "Our Business" on page 96 of this Draft Red Herring Prospectus, our Company has not announced any new product or service.
Our both auto-components and agricultural segments are subject to seasonality. For details, please refer to risk factor "The cyclical and seasonal nature of automotive sales and production could adversely affect our auto-components business." and "Our agricultural implements business is subject to climatic conditions and is cyclical in nature. Seasonal variations and unfavourable local and global weather patterns may have an adverse effect on our business, results of operations and financial condition." on page 22 of this DRHP.
Our business is dependent on the sale of our products to few key customers. The loss of any of these customers or loss of revenue from sales to these customers could have a material adverse effect on our business, financial condition, results of operations and cash flows. We are dependent on few key customers, especially Honda Motorcycle and Scooter India("HMSI"), in the automotive sector. For Fiscals 2023 and 2022, HMSI contributed 50.12% and 46.00% of our revenue from operations, respectively, and our top five customers contributed 71.21% and 60.59% of our revenue from sale of products, respectively. The loss of these customers or a loss of revenue from sales to these customers may materially affect our business, financial condition, results of operations and cash flows.For further details, refer Risk Factor " Our business is dependent on the sale of our products to few key customers. The loss of any of these customers or loss of revenue from sales to these customers could have a material adverse effect on our business, financial condition, results of operations and cash flows."
Competitive conditions are as described under the Chapters "Industry Overview" and "Our Business" beginning on pages 80 and 96 respectively of this Draft Red Herring Prospectus.
After the date of last Balance sheet i.e., March 31, 2023, the following material events have occurred after the last audited period:
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