Sudal Industries Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Global economic overview:

Global growth is projected to grow from $168.84 billion in 2022 to $255.21 billion by 2029, at a CAGR of 6.1% in the forecast period, 2022-2029.The global COVID-19 pandemic has been unprecedented and staggering, with aluminium experiencing lower-than-anticipated demand across all regions compared to pre-pandemic levels.

The Aluminium Extrusion market is expected to register fluctuating growth trends in the long term, while inflation and supply chain concerns are expected to continue in 2023. Shifting consumer preferences in a projected economic downturn scenario, amendments to industrial policies to align with growing environmental concerns, huge fluctuations in raw material costs triggered by prevailing geo-political tensions, and expected economic furbulences are noted as key challenges to be addressed by the Aluminium Extrusion industry players during the short and medium term forecast. Crude oil prices fluctuating to the tune of $60/barrel in one year are emerging to be a key concern for the Aluminium Extrusion market, as fuel and chemical prices are impacting many other segments. Concern of global economic slowdown, the Impact of war in Ukraine, lockdowns in China with resurging COVID cases, and the Risks of stagflation envisaging numerous market scenarios are pressing the need for Aluminium Extrusion industry players to be more vigilant and forward-looking. Robust changes brought in by the pandemic COVID-19 in the Aluminium Extrusion supply chain and the burgeoning drive for a cleaner and sustainable environment are necessitating companies to dlter their strategies. Dominating presence of major manufacturing sectors of aluminum extrusionsin countries, such as Ching, India, Vietnam, Japan, and South Korea are positively influencing the demand for the same. Chinaiis projected to play a crucial part for increasing the sales ofaluminum extrusion owing to its extensive construction sector. The Chinese government is planning to invest in transport and energy infrastructure. This, in tum, is likely to increase the demand for aluminum extrusion. Thus, Asia Pacific is expected to possess nearly 70% market share for aluminum extrusion. Resumption of industrial operations post-pandemic is projected to provide a push to the market growth. In addition, initiatives by government regarding economic development is expected to create lucrative opportunities for aluminum extrusion in North America.

COVID-19 IMPACT

During COVID-19 pandemic, extended lockdowns in key manufacturing industries such as construction, automotive, electronics, industrial machinery, and consumer appliances across all regions led to shortterm production halts. Thus, demand for Aluminium from the industrial sector suddenly went down. Due to supply chain disruptions across key consuming countries across all regions, in 2020, the year-on-year growth rate of the global market considerably dropped as compared to 2019. Moreover, the demand for bauxite ore across all regions was significantly impacted due to shortage of raw material & inventory, short-term production halt, economic slowdown, trade restrictions, and changing consumer behavior with response to the COVID-19 outbreak and other reasons. The post-Covid-19 pandemic recovery is being hit by a potentially huge global supply shock that will reduce growth and push up inflation. The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution. Economic damage from the conflict will contribute to asignificant slowdown in global growth in 2023. A severe doubledigit drop in GDP for Ukraine and a large contraction in Russia are more than likely, along with worldwide spill overs through commodity markets, trade, and financial channels. Even as the war reduces growth, will add to inflation. Fuel and food prices have increased rapidly, with vulnerable populations—particularly in low-income countries—most affected. Elevated inflation will complicate the trade-offs central banks face between containing price pressures and safeguarding growth. Interest rates are expected to rise as central banks tighten policy, exerting pressure on emerging market and developing economies. Moreover, many countries have limited fiscal policy space to cushion the impact of the war on their economies. The invasion has contributed to economic fragmentation as a significant number of countries sever commercial ties with Russia and risks derailing the post-pandemic recovery. It also threatens the rules-based frameworks that have facilitated greater global economic integration and helped lift millions out of poverty. In addition, the conflict adds to the economic strains wrought by the pandemic.

Global Aluminium Market Oullook:

ALUMINUM MARKET - GROWTH, TRENDS, COVID-19 IMPACT, AND FORECASTS (2022 - 2027)

The Aluminium Market is Segmented by Processing Type (Castings, Extrusions, Forgings, Rods and Bars, Sheets and Plates, and Other Processing Types (including Pigments and Powders)), End-user Industry (Automotive, Aerospace and Defence, Building and Construction, Electrical and Electronics, Packaging, Industrial, and Other End-user Industries), and Geography (Asia-Pacific, North America, Europe, South America, and Middle-East and Africa).

Market Overview

The aluminum market was evaluated at USD 112 billion in 2021 and is projected to register a CAGR of over 6% during the forecast period 2022-2027. Over the medium term, the major factor expected to drive the market studied includes increasing construction activities in the Asia-Pacific region. Growth in the electric vehicles market will likely provide new growth opportunities. On the flip side, the slowdown in the global automotive industry is expected to hinder the growth of the market in the forecast period 2022-2027. The Asia-Pacific region represents the largest market, and it is also expected to be the fastest-growing market over the forecast period due to increasing consumption from countries such as China, India, and Japan. Aluminum Market size reached USD 160 billion in 2022 and is poised to depict over 5% CAGR through 2023- 2032. The rising preference for aluminum packaging in the food and pharma sectors will propel the global market demand.

Key Market Trends

Increasing Demand from the Building and Construction Industry; In the building and construction industry, aluminium is the second most widely used metal. It is extensively used in windows, curtain walls, roofing and cladding, solar shading, solar panels, railings, shelves, and other temporary structures. Increasing construction activity worldwide is one of the key factors driving the market studied in recent times. The Asia-Pacific construction sector is the largest globally, and it is growing at a healthy rate, owing to increases in the population, middle-class incomes, and urbanization. This has accelerated the demand for hotels, shopping malls, high-rise buildings, arenas, and stadiums (both outdoor and indoor), in turn boosting the construction industry and driving the demand for aluminium in the region. [EE] Annual Report 2022-23

Corporate Overview

Asia-Pacific has the largest low-cost housing construction segment, led by Ching, India, and various Southeast Asian countries. China includes the largest construction market in the world, encompassing 20% of all construction investments globally. China is expected to spend nearly USD 13 trillion on buildings by 2030. In North America, the US is the largest market for residential construction and is one of the major growth

markets in the world.

Almost 80% of individuals prefer single-family housing as an end goal, and almost 70% of people are executing this goal, thus, resulting in an increase in the number of houses being constructed every year. Overdll, the recovering construction activities worldwide are expected to drive the demand for aluminium from the building and construction industry during the forecast period. The Indian electronics market is expected to reach USD 400 billion by 2025. Additionally, India is expected to become the world’s fifth-largest consumer electronics and appliances industry by 2025. The Indian packaging industry is expected to grow at 22% during the forecast period. Moreover, the Indian packaging market is expected to reach USD 204.81 billion by 2025, registering a CAGR of 26.7% between 2020 and 2025. In Japan, it is estimated that by 2025, the retail sales in the packaged food market are expected to reach USD 204.5 billion, a growth of 3.6% or USD 7 billion. Such projected growth in the packaging industry will likely drive the demand for aluminum used as foils during the forecast period. Indian Aluminium & Aluminium Extrusion Market Outlook The India aluminium extrusion market size was valued at $1.3 billion in 2019, and is projected to reach $2.5 billion by 2027, growing at a CAGR of 8.3% from 2020 to 2027. Increase in demand for lightweight materials in various end-user industries is the major growth driver of the aluminium extrusion market in India. However, high capital cost and slow productivity of aluminium extrusion restricts the market growth. Based on product, anodised extrusion is expected to witness highest India aluminium extrusion market growth. This is attributed to high chemical resistance of anodized extrusion, which are becoming increasinglyimportant for industrial applications. Due to the thick layer of aluminium oxide, it is highly resistant to corrosion. India has 400 die casting companies, making it one of the major suppliers of die cast parts in global market. Of these, over 25 units produce around 12000 tonnes of die cast parts per year. Aided by the 1.3 million tons of aluminium production, the Indian industry consumes over 0.28 million tons of die-castings. In general, the die casting market is highly correlative to automobile industry. Availability of skilled, cheaper labour force and the goverment incentives for small and medium scale industries, stringent emission norms, and favourable domestic environment for automobile industry is expected to drive die casting market in India.

OPPORTUNITIES AND THREATS

Opportunities -

Low penetration of motor vehicles in developing economies and growing industrialization in emerging economies provide wider opportunities for the growth of the Aluminium sector. ThreatsCompetition from low cost manufacturers is likely to continue.

COMPANY OVERVIEW AND GROWTH STRATEGY

Improved service, prompt response and wider reach to dealers, distributors and the satisfaction of customers have been our continued endeavour for business development. Success Drivers Integration:

RISKS AND AREAS OF CONCERN

The Company’s capability to assess and manage business risks is crucial in achieving targets. In the current economic scenario, the Company perceives the following risks and concems.

a) Market Competition: The Company is operating in a highly competitive market as market dynamics are forever changing with entry of new players in the field of extrusion manufacturing. New players are targeting resellers consequently old players who were earlier in reseller markets are turning towards end users creating competition for the Company. With free market economy now prevailing in India, high quality imported extrusions are freely available in the local market. Hence unless Indian Extrusion Industry, particularly in the unorganized sector undertakes technological up-gradation in the foreseeable future, over next five years, this sector may be wiped out of the market by availability of cheaper and superior quality imported products.

b) Delay in clearances/approval by Govt. agencies: There are delays in obtaining lease renewals for land mortgaged with financial institutions and banks. This adversely affects the financial facilities obtained from the Banks.

c) Competition from local manufacturers: Some of the customers prefer local suppliers for faster deliveries. Further to compete with local suppliers, we have to sacrifice our margin to neutralize the effect of higher Freight and Central Sales Tax. We are located in a comparatively under-developed part of the country and the demand in this part is not good enough to account for our capacity. We have to sell a substantial quantity (over 70%) in other parts of India where our redlization is lower compared to local supplies due to impact of the high freight and Central Sales Tax. d) Retention of experienced manpower. Company faces a challenge in retaining the trained work force. The Company has created employee friendly policies and a conducive environment for work life balance.

e) Price Inflation Risk: Fluctuating raw material prices have been witnessed too often over the past few years. Continuous monitoring of aluminium metal inventory in order to get maximum benefit or alternatively to minimize loss by keeping ideal inventory levels in each circumstance is a major challenge, and this is regularly monitored at the highest level in the Company.

RISK MANAGEMENT

Your Company has a system based approach to business risk management. Backed by a strong intemal control system, the current risk management framework consists of the following elements: A strong and independent Internal Audit Function carries out risk focused audits enabling identification of areas where risk management processes may need to be improved. The Audit Committee of the Board reviews Internal Audit findings and provides strategic guidance on internal controls. The Audit Committee closely monitors the internal control environment within the Company and ensures that Internal Audit recommendations are effectively implemented. The Senior Management of the Company periodically reviews the risk management framework to effectively address the emerging challenges in a dynamic business environment.

The Company strives to identify opportunities that enhance Organizational values while managing & mitigating risks that can adversely impact its future performance.

INTERNAL CONTROL SYSTEM

The internal control systems and procedure are continuously monitored to enhance its effectiveness and to be commensurate with the scale and nature of its operations. The Audit Committee reviews compliance to the Revenue Recognition of the Company. Internal audit activities are undertaken as per the Annual Audit Plan as approved by the Audit Committee and the committee reviews compliance with the plan. The Audit Committee regularly meets with the statutory auditors to review their observations on the financial reports.

DEVELOPMENT IN HUMAN RESOURCES & INDUSTRIAL RELATIONS

The Company continues to maintain a cordial and healthy relationship with its workforce.

To attract and retain good employees in the company, we are ensuring the best place to work. All efforts are being made to control cost so as to maintain present level of profitability. Industrial relations remained stable throughout the financial year 2022-23.

CAUTIONARY STATEMENT

Statements forming part of the Management Discussion and Analysis covered in this report may be forwardlooking within the meaning of applicable securities laws and regulations. Actual results may differ materially

Registered Office	For and on behalf of the Board of Directors of
A-5 MIDC Ambad Industrial Area,	Sudal Industries Limited
Mumbai Nashi Highway, Nashik -422010
	Sd/-	Sd/-
	Sudarshan S Chokhani	Mukesh V Ashar
Date: August 23, 2023	Managing Director	Whole-time Director & CFO
Place: Mumbai	DIN: 00243355	DIN: 06929024