Sunita Tools 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 Draft 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, Sunita Tools Limited is engaged in the business of manufacturing of high quality engineered goods. We have in-house manufacturing plant for the complete end to end process which is located at Plot A, S No. 66, Valiv heavy Industrial area, Valiv phatta, Vasai East, Palghar, Maharashtra, India. Our primary activity involves production of following items:

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. Major share of revenue are earned from Mutual Engineering Pvt. Ltd, CTM India Ltd (Mothersons Group), Abhijeet Dies & Tools Pvt. Ltd, Sidel India Pvt Ltd, Master Moulds Pvt. Ltd etc. We are focused in producing mould base & machining parts and provide innovative solutions as per our customer needs.

The mould base industry is an essential component of the larger manufacturing sector. By providing high-quality mould bases, it supports the production of a wide range of products across industries such as automotive, consumer goods, electronics and more. This industrys contributions are vital in enabling innovation, growth, and competitiveness in these sectors. By utilizing standardized mould bases, manufacturers can save significant time and cost in product development and production. The mould base industry offers a variety of standardized designs and components, reducing the need for starting from scratch in every project. This efficiency helps in accelerating the manufacturing process and reducing time-to-market.

We are focusing on adopting new technologies and innovations to improve the manufacturing process and enhance product quality. This includes the use of advanced materials, computer-aided design (CAD), and computer-aided manufacturing (CAM) software, precision machining techniques, and automation. These advancements drive efficiency, accuracy, and overall productivity in the production of mould bases.

The mould base industrys precision, customization options, efficiency, collaboration, innovation, and contribution to the manufacturing sector make it an integral part of the global manufacturing ecosystem. Its ability to deliver high-quality mould bases plays a significant role in enabling the production of various products efficiently and to the desired specifications.

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 Draft 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

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 87.39% 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 mobilize 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 INCOME:	2023	% of Total Income	2022	% of Total Income	2021	% of Total Income
Revenue from Operations	1,384.44	97.68%	873.47	98.27%	666.36	96.36%
Other Income	32.89	2.32%	15.41	1.73%	25.14	3.64%
Total Income (A)	1,417.33	100.00%	888.88	100.00%	691.50	100.00%
EXPENSES:
Cost of Materials Consumed	877.71	61.93%	323.55	36.40%	203.44	29.42%
Change in Inventory	-442.83	-31.24%	31.85	3.58%	-15.66	-2.26%
Employee benefit expenses	202.34	14.28%	169.04	19.02%	149.19	21.58%
Finance costs	155.02	10.94%	115.11	12.95%	135.89	19.65%
Depreciation and amortization	51.11	3.61%	41.42	4.66%	37.10	5.37%
Other expenses	237.27	16.74%	127.38	14.33%	154.21	22.30%
Total Expenses (B)	1,080.62	76.26%	808.35	90.94%	664.18	96.06%
Net Profit / (Loss) before tax	336.71	23.74%	80.53	9.06%	27.32	3.94%
Less: Tax expense
(i) Current tax	-	0.00%	-	0.00%	-	0.00%
(iii) Deferred tax	1.98	0.14%	-0.47	-0.05%	0.66	0.09%
(b)Short/ Excess Tax provision for earlier periods	-2.98	-0.21%	-	0.00%	-	0.00%
Total Tax Expense	(1.00)	-0.07%	(0.47)	-0.05%	0.66	0.09%
Net Profit / ( Loss ) after tax	337.71	23.81%	80.99	9.11%	26.66	3.85%

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 97.68%, 98.27%, 96.36% for fiscal year ended on FY 2023, FY 2022 and FY 2021 respectively.

Other Income

Our other income comprises of Interest income, Rent income. Other income, as a percentage of total income was 2.32%, 1.73%, 3.64% for the fiscal year ended on FY 2023, FY 2022 and FY 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 Change in Inventory, purchase of raw materials.

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

Employee Benefit Expenses

Employee benefit expenses comprises of salaries, director remuneration, annual leave encashment, bonus, skilled worker training stipend, staff 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, Vehicle.

Finance costs

Finance cost includes Interest, processing fees, stamp duty charges on borrowings from bank and unsecured loans.

Other Expenses

Other expenses include Transport charges, Store consumables, Legal & professional expenses, Power & fuel, Mould base accessories, Labour charges, Rent, Insurance expense, Repairs and Maintenance, Telephone and Internet charges, Hiring charges, Postage and courier charges, Auditors fees, Bank charges and Miscellaneous expenses.

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 certainty 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 revenue from operations increased by 510.97 lakhs or 58.50%, from 873.47 lakhs in fiscal 2022 to 1,384.44 lakhs in fiscal 2023. The increase in the year 2023 was due to increase in number of orders and increase in range of products manufactured as compared to last year.

Other income increased by 17.48 lakhs or 113.43%, from 15.41 lakhs in fiscal 2022 to 32.89 lakhs in fiscal 2023 due to increase in rent income & interest income in Fiscal 2023.

Cost of Material Consumed

Cost of material consumed increased by 554.16 lakhs or 171.27%, from 323.55 lakhs in Fiscal 2022 to 877.71 lakhs in Fiscal 2023 as we purchased bulk quantity of raw materials to meet the requirement of production house.

Change in Inventory

Inventory of Work- in – progress changed from 31.85 lakhs to (442.83) lakhs.

Employee Benefit Expenses

Employee Benefit Expenses increased by 33.30 lakhs or 19.70%, from 169.04 lakhs in fiscal 2022 to 202.34 lakhs in fiscal 2023. This increase was mainly due to increase in salaries of employee, we have paid leave encashment for employee and there is increase in staff welfare expenses.

Finance Costs

Finance Costs increased by 39.91 lakhs or 34.67%, from 115.11 lakhs in fiscal 2022 to 155.02 lakhs in fiscal 2023. This increase was mainly due to increase in borrowing from bank which increased our interest cost during the year.

Depreciation Expenses

Depreciation expenses were 41.42 lakhs in fiscal 2022 as compared to 51.11 Lakhs in fiscal 2023.

Other Expenses

Other expenses increased by 109.89 lakhs or 86.27% from 127.38 lakhs in fiscal 2022 to 237.27 lakhs in Fiscal 2023. The increase majorly consisted of power & fuel, mould base accessories, labour charges, repairs and maintenance, transport cost, professional charges paid and incurred during the year.

Profit/ (Loss) before Tax

The increase in scale of operations has led to increase in our Profit before tax by 256.18 lakhs or 318.12 % from 80.53 lakhs in fiscal 2022 to 336.71 lakhs in fiscal 2023.

Tax Expenses

The Companys tax expenses had decreased by 0.53 lakhs from (0.47) lakhs in the Fiscal 2022 to (1.00) lakhs in Fiscal 2023 as tax liability decreased due to (short)/excess provisions of earlier years.

Profit/ (Loss) after Tax

After accounting for taxes at applicable rates, our Profit after Tax increased by 256.72 lakhs or 316.98 %, from 80.99 lakhs in fiscal 2022 to 337.71 lakhs in fiscal 2023.

Fiscal 2022 compared with fiscal 2021

Income

In fiscal 2022, our revenue increased by 207.11 lakhs or 31.08%, from 666.36 lakhs in fiscal 2021 to 873.47 lakhs in fiscal 2022. Increased in revenue was due to increase in sales.

Other income decreased by 9.73 lakhs or 38.70%, from 25.14 lakhs in fiscal 2021 to 15.41 lakhs in fiscal 2022 as there was decrease in rent amount during Fiscal 2022.

Cost of Material Consumed

Cost of material consumed increased by 120.11 lakhs or 59.04%, from 203.44 lakhs in Fiscal 2021 to 323.55 lakhs in Fiscal 2022 due to increase in raw material purchases.

Change in Inventory

Inventory of Work-in – progress & finished goods changed from (15.66) lakhs to 31.85 lakhs.

Employee Benefit Expenses

Employee Benefit Expenses increased 19.85 lakhs or 13.31%, from 149.19 lakhs in fiscal 2021 to 169.04 lakhs in fiscal 2022. These expenses are increased due to increases in salary & wages.

Finance Costs

Finance Costs decreased by 20.78 lakhs or 15.29%, from 135.89 lakhs in fiscal 2021 to 115.11 lakhs in fiscal 2022. This decrease was mainly due to repayment of term loans during the year which as a result improved our finance cost.

Depreciation Expenses

Depreciation expenses were 37.10 lakhs in fiscal 2021 as compared to 41.42 lakhs in fiscal 2022.

Other Expenses

Other expenses decreased by 26.83 lakhs or 17.40 % from 154.21 lakhs in fiscal 2021 to 127.38 lakhs in Fiscal 2022. During Fiscal 2022 there was decrease in insurance expenses.

Profit/ (Loss) before Tax

The increase in revenue from operations has led to increase in our Profit before tax by 53.21 lakhs or 194.77 % from 27.32 lakhs in fiscal 2021 to 80.53 lakhs in fiscal 2022.

Tax Expenses

The Companys tax expenses had decreased by 1.13 lakhs or 171.21 % from 0.66 lakhs in the Fiscal 2021 to (0.47) lakhs in Fiscal 2022 due to change in deferred taxes .

Profit/ (Loss) after Tax

After accounting for taxes at applicable rates, our Profit after Tax increased by 54.33 lakhs or 203.79 %, from 26.66 lakhs in fiscal 2021 to 80.99 lakhs in fiscal 2022.

Cash Flows

	For the year ended March 31
Particulars	2023	2022	2021
Net Cash from Operating Activities	(274.21)	262.00	321.91
Net Cash from Investing Activities	(233.70)	(50.37)	(31.54)
Net Cash used in Financing Activities	502.73	(200.58)	(294.62)
Net Increase / (Decrease) in Cash and Cash equivalents	(5.18)	11.05	(4.25)

Cash Flows from Operating Activities

Net cash from operating activities for the fiscal 2023 was (274.21) lakhs as compared to the PBT of 336.71 lakhs for the same period. This difference is primarily on account of changes in inventory, changes in Short term loans and advances, changes in Trade receivables.

Net cash from operating activities in fiscal 2022 was 262.00 lakhs as compared to the PBT of 80.53 lakhs for the same year. This difference is primarily on account of change in inventory, changes in trade payables and increases in trade receivables.

Net cash from operating activities in fiscal 2021 was 321.91 lakhs as compared to the PBT of 27.32 lakhs for the same year. This difference is primarily on account of change in inventory, decrease in trade receivable.

Cash Flows from Investment Activities

In fiscal 2023 the net cash utilized in investing activities was 233.70 lakhs for purchases of plant & machinery, office equipment, vehicles, computer, renovation of factory building.

In fiscal 2022 the net cash utilized in investing activities was 50.37 lakhs for purchases of plant & machinery, office equipment, vehicles, computer, renovation of factory building.

In fiscal 2021, the net cash utilized in investing activities was 31.54 lakhs for purchases of plant & machinery and office equipment, vehicles, computer, renovation of factory building.

Cash Flows from Financing Activities

Net cash received in financing activities in fiscal 2023 was 502.73 lakhs. This was on account of proceeds of short & long term borrowings.

Net cash used in financing activities in fiscal 2022 was 200.58 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 294.62 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 Draft 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 128 and 154 respectively of this Draft 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 22 and 154 respectively of this Draft 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 22 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 84 of this Draft 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 64.14% and 87.39% respectively of the revenue from operations. For year ended March 31, 2023, the purchases from our top 5 and top 10 suppliers constituted approximately 94.63% and 99.76% respectively of the purchases. For further details, please refer chapter "Our Business" on page 84 of this Draft 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.