Pentagon Rubber Ltd Management Discussions

You should read the following discussion of our financial condition and results of operations together with our restated financial statements included in the Draft Red Herring Prospectus. You should also read the section entitled "Risk Factors" beginning on page 25 and "Forward Looking Statements" beginning on page 16, which discusses a number of factors, risks and contingencies that could affect our financial condition and results of operations.

The following discussion of our financial condition and results of operations should be read in conjunction with our restated financial statements for the period ended September 30, 2022 and years ended March 31, 2022, March 31, 2021 and 2020 including the schedules and notes thereto and the reports thereto, which appear in the section titled "Financial Information of our company" on Page No. 153 of the Draft Red Herring Prospectus. The financial statements presented and discussed herein have been prepared to comply in all material respects with the notified accounting standards by Companies (Accounting Standards) Rules, 2006 (as amended), the relevant provisions of the Companies Act and SEBI (Issue of Capital and Disclosure Requirements) Regulations. Our fiscal year ends on March 31 of each year. Accordingly, all references to a particular fiscal year/financial year are to the twelvemonth period ended on March 31 of that year. The forward-looking statements contained in this discussion and analysis is subject to a variety of factors that could cause actual results to differ materially from those contemplated by such statements

Overview

Our Company was originally incorporated on April 26, 2004 as "Pentagon Rubber Private Limited" under the provisionsof the Companies Act, 1956 with the Registrar of Companies, Punjab, H.P.& Chandigarh. Subsequently our Company was converted into Public Limited Company and name of company was changed from "Pentagon Rubber Private Limited" to "Pentagon Rubber Limited" vide fresh certificate of incorporation dated December 28, 2022 issued by the Registrar of Companies, Chandigarh.

Our Company is an ISO 9001:2015 and engaged in manufacturing of Rubber Conveyor Belt, Transmission Belts, Rubber Sheets and Elevator Belts. Our products are ever evolving & continually perfected using latest developments in raw materials. Our competence and expertise to Business-to-Business partners in a number of areas. This is carried from our material handling and ore transportation systems across to complete system integration, and we offer our products which meet the quality benchmark of various industries.

We have set up our manufacturing plant and managed under able guidance of a pool of seasoned professionals, the organisation has installed the best quality infrastructure and facilities. With a wide-spread network of stockiest and importers, we have expanded our business relations across boundaries having earned a good clientele in many countries. Our Company operates from its Registered Office situated Gulabgarh Road, Village Behra Dist. S.A.S. Nagar Derabassi Mohali Punjab-140507.

The manufacturing unit of Pentagon Rubber Limited is located in Dera Bassi, Punjab, which is 25 KMS from Chandigarh city. We have installed one of the longest conveyor belting presses in India, with a production capacity of 21mtr in a single stroke. This technology allows us to produce conveyor rubber belting up to 3150KN/m, making us one of the top manufacturers in India. The production capacity is over 300 sq km of conveyor rubber belt per year, and we have a modern laboratory of international standards that can produce conveyor belts as per DIN, BS, IS, ISO, SABS, AS, GOST, and CAN standards. We have a complete QAP & QC system that is followed in our manufacturing process, which includes rigorous and complete testing of in-process belts and finished belts.

Our manufacturing plant is managed by a team of experienced professionals. We have invested in top-of-the-line infrastructure and facilities to ensure the highest quality products. Our business has expanded domestically & globally through our approved vendor Status with various government & multinational corporations and importers, and we have earned a strong reputation and a loyal client base domestically & across many countries.

The experience and expertise of our team enables us to always offer the best product & solution to our clients. Over the years, we have bagged many prestigious Awards, which include Export Merit Award, Special Domestic Sales Awards and Top Domestic Sales Award from all India Rubber Industries association. This is an acknowledgment of our superior quality products & process controls.

Our Promoter Mr. Ashish Jain, Mr. Anil Jain, Mr. Saurabh Jain and Mr. Lalit Jain who have been instrumental in the growth of our business and actively advise us on finance, corporate strategy and planning. We have a strong management team with significant industry experience. Our Chairman and Managing Director, Mr. Ashish Jain, Whole Time Directors, Mr. Anil Jain & Mr. Saurabh Jain have 23, 37 and 19 years of experience respectively in Rubber industry, thus vast experience of the Promoters has been instrumental in determining the vision and growth strategies for our Company. We further believe that our market position has been achieved by adherence to the vision of our Promoters and senior management team and their experienceof over a decade in the industry in which our Company operates.

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

For details in respect of Statement of Significant Accounting Policies, please refer to Restated Standalone Financial Statements under chapter titled "Restated Financial Statements" beginning on page 153 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 25 of this Draft Red Herring Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:

1. Destructions in our manufacturing process.

2. Our ability to successfully implement our strategy, our growth and expansion, technological changes.

3. Fail to attract, retain and manage the transition of our management team and other skilled employees;

4. Our ability to protect our intellectual property rights and not infringing intellectual property rights of other parties;

5. Ability to respond to technological changes;

6. Failure to comply with regulations prescribed by authorities of the jurisdictions in which we operate;

7. Inability to successfully obtain registrations in a timely manner or at all;

8. General economic and business conditions in the markets in which we operate and in the local, regional and national economies;

9. Our ability to effectively manage a variety of business, legal, regulatory, economic, social and political risks associated with our operations;

10. Recession in the market;

11. Changes in laws and regulations relating to the industries in which we operate;

12. Effect of lack of infrastructure facilities on our business;

13. Failure to obtain any approvals, licenses, registrations and permits in a timely manner;

14. Changes in political and social conditions in India or in countries that we may enter, the monetary and interest rate policies of India and other countries, inflation, deflation, unanticipated turbulence in interest rates, equity prices or other rates or prices;

15. Uncertainty in relation to continuing effect of the COVID-19 pandemic on our business and operations.

16. Occurrence of natural disasters or calamities affecting the areas in which we have operations;

17. Conflicts of interest with affiliated companies, the promoter group and other related parties;

18. The performance of the financial markets in India and globally;

19. Any adverse outcome in the legal proceedings in which we are involved;

20. Our ability to expand our geographical area of operation;

21. Concentration of ownership among our Promoters.

RESULTS OF OUR OPERATION

							(Rs. in Lakhs)
			For the year ended
Particulars	For the period ended Septembe r 30, 2022	% of Total Income	March 31, 2022	% of Total Income	March 31, 2021	% of Total Income	March 31, 2020	% of Total Income
Revenue from Operations	2,103.80	99.92	3502.65	99.75	2316.39	99.86	1933.03	99.68
Other Income	1.70	0.08	8.94	0.25	3.31	0.14	6.22	0.32
Total Income (A)	2,105.51	100.00	3,511.59	100.00	2,319.69	100.00	1,939.25	100.00
EXPENDITURE
Cost of Material Consumed	1,652.80	78.50	2,666.28	75.93	1,707.24	73.60	1,501.48	77.43
Change in Inventories of	20.35	0.97	24.41	0.70	37.26	1.61	(19.41)	-1.00

 

		For the year ended
Particulars	For the period ended Septembe r 30, 2022	% of Total Income	March 31, 2022	% of Total Income	March 31, 2021	% of Total Income	March 31, 2020	% of Total Income
WIP, Finished Goods &
Stock in Trade
Employee benefits expense	99.23	4.71	176.75	5.03	166.16	7.16	124.08	6.40
Finance costs	34.32	1.63	73.88	2.10	75.45	3.25	67.01	3.46
Depreciation and amortization expense	13.67	0.65	39.10	1.11	54.97	2.37	46.91	2.42
Other expenses	78.04	3.71	215.17	6.13	170.72	7.36	119.95	6.19
Total Expenses (B)	1,898.41	90.16	3,195.59	91.00	2,211.80	95.35	1,840.01	94.88
Profit before
Exceptional Items(A- B)	207.10	9.84	316.01	9.00	107.89	4.65	99.24	5.12
Exceptional Items	-	-	-	-	-	-	-	-
Profit Before Tax	207.10	9.84	316.01	9.00	107.89	4.65	99.24	5.12
Tax expense :
(i) Current tax	57.54	2.73	58.46	1.66	10.99	0.47	8.02	0.41
(ii) MAT Credit Entitlement	-	0.00	-49.81	-1.42	-9.59	-0.41	-8.02	-0.41
(ii) Deferred tax	9.00	0.43	-1.30	-0.04	-3.81	-0.16	5.43	0.28
Total Tax Expenses	66.54	3.16	7.35	0.21	(2.41)	-0.10	5.43	0.28
Profit for the year	140.56	6.68	308.66	8.79	110.30	4.75	93.81	4.84

Review of Restated Financials, Key Components of Companys Profit and Loss Statement

Revenue from Sale of Services: Revenue from operations mainly consists from Sales of Products.

Other Income: Other Income Consist of Interest Income etc.

Expenses: Companys expenses consist of, Cost of Material Consumed, Changes in Inventories of Finished Goods, WIP & Stock in

Trade, Employee benefit expenses, Finance Cost, Depreciation and Amortization expenses & Other Expenses.

Cost of Material Consumed Expense: Cost of material consumes consists of opening stock, purchases, manufacturing expenses less closing stock.

Changes in Inventories of Finished Goods, WIP & Stock in Trade Expense: Changes in Inventories of Finished Goods, WIP & Stock in Trade consist of difference between opening stock & closing stock of Finished Goods, WIP & Stock in Trade.

Employee Benefits Expense: Employee benefit expenses includes Salaries and Wages, Directors Remuneration & Contribution to Statutory Funds, Gratuity Expenses etc.

Depreciation and Amortization Expense: We recognize Depreciation and Amortization expense on a WDV Basis as per the rates set forth in the Companies Act, 2013/ Companies Act, 1956, as applicable.

Other Expenses: Other expenses includes Rent Expense, Freight Expense, Rebate & Discount etc.

Fiscal 2022 compared with Fiscal 2021

Revenue from Operation

Revenue from operations had increased by 51.21% from 2316.39 lakhs in Fiscal 2021 to 3502.65 lakhs in Fiscal 2022. The change was primarily due to increase in sales.

Other Income

Other income had increased by 170.34% from 3.31 lakhs in Fiscal 2021 to 8.94 lakhs in Fiscal 2022 due to increase in other miscellaneous Income.

Cost of Material Consumed

Cost of Material Consumed had increased by 56.18% from 1707.24 lakhs in Fiscal 2021 to 2666.28 lakhs in Fiscal 2022. This increase was primarily due to higher sales of products.

Employee Benefit Expenses

Employee benefit expenses had increased by 6.37% from 166.16 lakhs in Fiscal 2021 to 176.75 lakhs in Fiscal 2022. This increase was primarily due to higher salary expenses.

Finance Costs

Finance Costs had decreased from 75.45 lakhs in Fiscal 2021 to 73.88 in Fiscal 2022. This was primarily due to lower interest paid during the financial year.

Depreciation and Amortization Expenses

Depreciation had decreased by 28.88% from 54.97 lakhs in Fiscal 2021 to 39.10 lakhs in Fiscal 2022.

Other Expenses

Other expenses had increased by 26.04% from 170.72 lakhs in Fiscal 2021 to 215.17 lakhs in Fiscal 2022. The increase was primarily due to increase in Freight Expenses & Rebate/Discount etc.

Tax Expenses

The Companys tax expenses had increased from (2.41) lakhs in the Fiscal 2021 to 7.35 lakhs in Fiscal 2022. This was primarily due to higher profit before tax during the financial year.

Profit after Tax

After accounting for taxes at applicable rates, our Company reported a net profit of 308.66 lakhs in Fiscal 2022 as compared to a net profit of 110.30 lakhs in Fiscal 2021.

Fiscal 2021 compared with Fiscal 2020

Revenue from Operation

Revenue from operations had increased by 19.83% from 1933.03 lakhs in Fiscal 2020 to 2316.39 lakhs in Fiscal 2021 was due to increase in sales during the year.

Other Income

Other income had decreased by 46.81% from 6.22 lakhs in Fiscal 2020 to 3.31 lakhs in Fiscal 2021 due to decrease in other miscellaneous Income.

Cost of Material Consumed

Cost of Material Consumed had increased by 13.70% from 1501.48 lakhs in Fiscal 2020 to 1707.24 lakhs in Fiscal 2021. This increase was primarily due to higher sales of products.

Employee Benefit Expenses

Employee benefit expenses had increased by 33.91% from 124.08 lakhs in Fiscal 2020 to 166.16 lakhs in Fiscal 2021. This increase was primarily due to higher salary expenses.

Finance Costs

Finance Costs had increased from 67.01 lakhs in Fiscal 2020 to 75.45 in Fiscal 2021. This was primarily due to higher interest paid during the financial year.

Depreciation and Amortization Expenses

Depreciation had increased by 17.19% from 46.91 lakhs in Fiscal 2020 to 54.97 lakhs in Fiscal 2021.

Other Expenses

Other expenses had increased by 42.32% from 119.95 lakhs in Fiscal 2020 to 170.72 lakhs in Fiscal 2021. The increase was primarily due to increase in Freight Expenses, Rebate & Discount etc.

Tax Expenses

The Companys tax expenses had decreased from 5.43 lakhs in the Fiscal 2020 to (2.41) lakhs in Fiscal 2021. This was primarily due to MAT Credit Entitlement during the financial year.

Profit after Tax

After accounting for taxes at applicable rates, our Company reported a net profit of 110.30 lakhs in Fiscal 2021 as compared to a net profit of 93.81 lakhs in Fiscal 2020.

Cash Flows

				(Rs in lakhs)
		For the year ended March 31,
Particulars	For the period ended September 30, 2022	2022	2021	2020
Net Cash from Operating Activities	256.48	18.75	(295.84)	157.58
Net Cash from Investing Activities	(2.78)	(26.76)	(37.13)	(72.16)
Net Cash used in Financing Activities	(244.14)	36.19	330.13	(83.50)

Cash Flows from Operating Activities

Net cash from operating activities for fiscal 2022 was at 18.75 lakhs as compared to the Profit Before Tax at 316.01 lakhs while for fiscal 2021 Net cash from operating activities was at (295.84) lakhs as compared to the Profit Before Tax at 107.89 Lakhs. This was primarily due to adjustments against adjustments against, changes in Working Capital.

Net cash from operating activities for fiscal 2021 was at (295.84) lakhs as compared to the Profit Before Tax at 107.89 lakhs while for fiscal 2020, net cash from operating activities was at 157.58 lakhs as compared to the Profit Before Tax of 99.24 lakhs. This was primarily due to adjustments against, changes in Working Capital.

Net cash from operating activities for fiscal 2020 was at 157.58 lakhs as compared to the Profit Before Tax at 99.24 lakhs.

Cash Flows from Investment Activities

In fiscal 2022, the net cash invested in Investing Activities was (26.76) lakhs. This was mainly on account of Purchases of Fixed Assets & increase in Non Current Assets.

In fiscal 2021, the net cash invested in Investing Activities was (37.13) lakhs. This was mainly on account of Purchases of Fixed Assets & increase in Non Current Assets.

In fiscal 2020, the net cash invested in Investing Activities was (72.16) lakhs. This was mainly on account of Purchases of Fixed Asset.

Cash Flows from Financing Activities

In fiscal 2022, the net cash from financing activities was 36.19 lakhs. This was on account of proceeds from Borrowings.

In fiscal 2021, the net cash from financing activities was 330.13 lakhs. This was on account of proceeds from Borrowings.

In fiscal 2020, the net cash from financing activities was (83.50) lakhs. This was on account of Payment of Interest & Borrowings.

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:

1. Unusual or infrequent events or transactions

There has not been any unusual trend on account of our business activity. There are no Unusual or infrequent events or transactions in our Company. The transactions are as per usual business operations.

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

Except for any change in economic policy affecting the our industry in India, there are no other significant economic changes that may materially affect or 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 sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section "Risk Factors" beginning on page 25 in 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.

4. Future changes in relationship between costs and revenues

Our Companys future costs and revenues will be determined by growth of industry in which we operate.

5. Increases in net sales or revenue and Introduction of new products or services or increased sales prices

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

6. Status of any publicly announced New Products or Business Segment

Our Company has not announced any new Product.

7. Seasonality of business

Our Companys business is not seasonal.

8. Dependence on few customers/ clients

The percentage of contribution of our Companys Top Customers/Clients for the year ended September 30, 2022 is as follows:

Particulars	Customers
Top Ten (%)	83.00%

9. Competitive conditions

Competitive conditions are as described under the Chapters "Industry Overview" and "Business Overview" beginning on pages 98 and 110, respectively of the Draft Red Herring Prospectus.

10. Details of material developments after the date of last balance sheet i.e. September 30, 2022

After the date of last Balance sheet i.e. September 30, 2022, the following material events have occurred after the last audited period:

a. Bonus Issue of 14,00,000 Equity Shares in ratio of 7:20 dated November 24, 2022.

b. Our Company converted from Private Limited to Public Limited Company vide certificate of Incorporation dated December 28, 2022 issued by the Registrar of Companies, Chandigarh.

c. Our Company has passed a Board Resolution for Initial Public Offer in Board Meeting held on January 07, 2023 and Shareholders Resolution in Extra-Ordinary Meeting held on January 11, 2023.

d. We have changed the designation of Mr. Ashish Jain as Chairman cum Managing Director, Mr. Anil Jain and Mr. Saurabh Jain as Whole-time Director with effect from January 11, 2023.

e. We have appointed Mr. Manish Verma and Mrs. Preet Kamal Kaur Bhatia as Independent Director with effect from January 11, 2023.

f. We have appointed Mrs. Shubhi Kishore as Company Secretary and Compliance Officer and Mr. Varun Jain as Chief Financial Officer of the Company with effect from January 16, 2023.

g. Our Company has constituted an Audit Committee ("Audit Committee"), Nomination and Remuneration Committee and Stakeholders Relationship Committee vide Board Resolution dated January 16, 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 Requirements) Regulations, 2015 applicable upon listing of the Companys Equity shares on SME platform of NSE.