Tirupati Forge Ltd Management Discussions

OVERVIEW

Tirupati Forge Limited (hereinafter referred to as TFL, the Company¹) is one of Indias one of the rapid growing companies across all forging based industry. We provide a wide range of customized Forging of Gears, forged and machine flanges, fittings, parts of automobiles, etc. Our strength lies in our wide bouquet of offerings enabled by our extensive network which brings major revenue from international market. We have developed world class technology systems to provide innovative solutions to improve transparency and visibility for our clients.

GLOBAL ECONOMY:

The calendar Year 2022 for the world was a year of volatility as economy faced multiple headwinds such as escalating geopolitical tensions. The year saw

geopolitical uncertainty with the prolonged Russia- Ukraine conflict and economic challenges leading to disruptions in the global supply chain and elevated inflation with increase in commodity and energy prices, food prices. The emergence of stress in financial markets complicates the task of central banks at a time when inflationary pressures

are proving to be more persistent than anticipated. This prompted central banks to aggressively tighten their monetary policy, which further impacted economic activity. Governments and central banks across economies had to strike a balance between fiscal policy and monetary policy to stoke growth, while restoring price stability.

The International Monetary Funds latest (April 2023) World Economic Outlook ("WEO") has estimated the world economic growth to have dropped down to 3.4% in 2022 from 6.3% in the previous year. Economic growth for Advanced Economies ("AE") and Emerging Markets and Developing Economies ("EMDE") are estimated to have slowed down to 2.8% in 2023 and settle at 3.0 % in 2024 respectively. Global inflation is expected to fall from 8.7% in 2022 to 7.0% in 2023 and 4.9% in 2024 because of lower commodity prices, even as core inflation is likely to decline slowly.

Overall, global economic activity remains resilient amidst the persistence of inflation at elevated levels, turmoil in the banking system, tight financial conditions, and lingering geopolitical hostilities.

World Economic Outlook Growth Projections

Particulars	Estimate	Projections
	2022	2023	2024
World output	3.4	2.8	3.0
Advanced Economies	2.7	1.3	1.4
United States	2.1	1.6	1.1
Euro Area	3.5	0.8	1.4
Japan	1.1	1.3	1.0
United Kingdom	4.1	-0.3	1.0
Other Advanced Economies	2.6	1.8	2.2
Emerging Market and developing Economies	4.0	3.9	4.2
China	3.0	5.2	4.5
India	6.8	5.9	6.3

*Projection Source: IMF, World Economic outlook updates, April 2023

Amidst the global economic turmoil of FY23, the Indian economy stood out for its resilient performance, largely driven by domestic consumption. The Indian economy remained remarkably resilient to external environment owing to ongoing policy reforms and prudent regulatory measures which ensured strong macroeconomic fundamentals and helped the country navigate global and

domestic challenges. Its fiscal year 2022-23 (FY23) benefitted from near universal vaccination that helped contact-intensive sectors such as trade, hospitality and transport stage a comeback.

Exports growth continued its FY22 momentum in the first half of FY23. Countrys MSME (Micro, Small and Medium Enterprises) sector witnessed a very healthy credit offtake. The government adopted a multi-pronged approach to control the increase in prices, and this included bringing the import duty on major inputs to zero, imposing an export ban on wheat products and export duty on rice, and reducing the basic duty on crude and refined palm oil. On the back of these efforts, the Monetary Policy Committee (MPC) projects CPI inflation to reduce to 5.2% for FY24, within its tolerance band of 4% +/- 2%, indicating stable economic conditions.

FY23 was significant for the Indian economy as it achieved the impressive feat of becoming the worlds fifth-largest economy. India surpassed China to become the worlds most populous nation. The Country has set a target of becoming an advanced nation by 2047 - its first centenary as an independent nation - on the back of accelerated development in infrastructure. The Indian Governments strong infrastructure push under the Prime Ministers Gati Shakti (National Master Plan for Multimodal Connectivity) initiative is likely to contribute significantly towards raising

industrial competitiveness. Further, the Production Linked Incentive (PLI) scheme announced by the Government is not only bolstering the countrys manufacturing sector, but also creating enormous employment opportunities.

As per National Statistical Office ("NSO"), Indias economic growth in real GDP is estimated at 7.0% in FY 2022-23 as against 9.1% in F.Y. 2021-22. Growth is estimated to decline to 6.1% in F.Y. 2023-24 before picking up to 6.8% in F.Y. 2024-25 with resilient domestic demand.

A. INDUSTRY STRUCTURE AND PERFORMANCE:

Global Automotive Industry:

CY 2022 was a challenging year for the global automotive industry. Total car sales during the year were up marginally by 0.7% to 67.2 million units. Supply chain disruptions, energy crisis, inflationary pressures, higher interest rates, fears of recession and shortage of magnesium and semiconductors were the major constraints. The passenger car registrations in the European region declined by 10.4% to 12.8 million units in CY 2022. In China, despite the re-emergence of COVID-19 pandemic, 21.7 million cars were sold in CY 2022. Car production in North America grew by 10.3% to 10.4 million units in 2022, primarily driven by strong demand in the US. Globally, the automotive industry is witnessing increased adoption of electric vehicles (EVs). This has resulted in higher investments towards development of EV infrastructure to support the growing EV demand.

Despite the macroeconomic headwinds, the outlook for the global automotive industry is positive with some vulnerability in near-term. The industry is expected to benefit from gradual economic recovery, easing of semiconductor crisis and supply chain pressures, moderation in inflation, improved consumer demand and development of new technologies in CY 2023. New car sales are projected to grow by 0.9% and commercial vehicle (CV) sales are likely to decline by 1.3% in CY 2023.

FY 2022-23 was a strong year for the Companys automotive export business. It registered a broad-based growth with revenues growing across geographies.

Indian Automobile Industry:

The Indian automobile industry has shown continued resilience in FY 2022-23, aided by global supply chain rebalancing and governments strong push for domestic manufacturing. Automotive sales remained strong across segment. The PV segment achieved record sales of 3,890,114 units in FY 2022-23 backed by sustained consumer demand, improved supplies from automakers, new launches and product upgrades from OEMs.

CY 2022 gone by saw India becoming the 3^rd largest automobile market after China and US. The Indian automotive industry is expected to sustain its growth momentum in 2023 despite the challenges such as escalating input costs, increased cost of ownership due to regulatory issues and higher inflation which can result in price hike of vehicles. However, factors such as improved consumer demand, wide availability of credit and financing options, population growth, and integration of wireless technology in cars and popularity of EVs are likely to fuel the growth of the automotive industry.

The Company engages in the manufacture of forging components for Renewables, Automotive, Construction, Mining, Engineering and Agriculture sectors in the industrials vertical etc. The Industrial segment is expected to witness mega opportunities, in the renewable energy space driven by the global urgency to combat climate change

B. COMPANY PERFORMANCE AND BUSINESS OUTLOOK

The Companys manufacturing presence in the overseas market has been a footprint close to its customers. The Company is engaged with the production of forging products only. However for convenience of existing client the company is doing trading of casting product but never engaged in casting procedure. The Company won new orders include a healthy mix of existing and new customers as well as traditional and new products. Over the past times, the Company has undertaken series of measures to turn around the financial performance on positive note.

C. RISK AND CONCERN

The Company operates in a business which is marked by cyclicality and is presently undergoing significant transformations and is very sensitive to policy changes. It is imperative to identify risks and take adequate mitigation measures. The risks may be internal as well as external in nature. The Companys Risk Management framework focus on ensuring that risks are identified and reasonably addressed on a timely basis and Risk Management process adapt to the changing business requirement.

SR. NO. PARTICUALRS	POSSIBLE RISK	MITIGATION STRATEGY j
QL Industry Risk	A global economic slowdown or continent- specific shocks may disrupt these markets and adversely affect the Companys revenue generation capability.	The Company look to find diversification of business into multiple industries such as Automotive, Defense, Oil and Gas, Mining and Construction, Power, Aerospace, E-mobility, etc. has enabled the Company to de-risk its business model. In addition, the Company has also diversified geographically with a global presence across 5 countries. The Company continues to evaluate and trying to add newer geographies and newer customers to its portfolio. With a diverse global presence, the impact of country-specific shocks will be minimal.
02. Foreian Exchanae Risk	The Companys Significant portion is generated from export. We are exposed to the risk of fluctuations in foreign currency. Any adverse or unfavorable movement in the exchange rates may adversely impact its profitability.	The Company practices various contracts to cover risk of exchange rate fluctuations.
03. Raw Material Risk	Unavailability of critical raw materials such as steel, aluminum, energy, etc. at competitive rates may interrupt Tirupati Forges operations and adversely impact margins and profitability.	Steel is the most crucial raw material for the Company, the availability of which is met through a various clients, thus ensuring continued supply at competitive prices.
04. Technology Risk	The Company operates in a highly competitive, regulated, and cyclical industry. The entire automobile industry is the midst of a technology transformation. The Company needs to drive more automation, efficiency and innovation led by technology to remain a preferred	The Company is embracing the transformative changes shaping the automotive industry and is proactively developing new growth engines. Investment in newer and best-in-class technologies will enable the Company to adapt to future changes and cater to emerging demands, thereby building capabilities to be future-ready.
	partner. Failure to stay abreast with the evolving technological developments may damage the Companys global competitive position.
05. Funding Risk	The Companys operations entail sustained investments in Capacity, technology, and extensive R&D. The need for such funds is even more critical in the present uncertain high risk operating context with possibility of scale-up of war, high inflation and supply chain issues to remain prepared for any exigencies. Unavailability of external sources of funds at competitive rates and at the right time may impact its business plans and profitability.	With its efficient utilization of working capital and prudent capital allocation capabilities, the Company has maintained good cash and equivalent position on the books. The Company also maintains sharp focus on reducing its fixed costs.
06. Talent Risk	Talented pool of employees and its retention are paramount For the Companys sustainable growth. Failure to retain skilled teams and high attrition levels may affect the day- to-day functioning of the Company and adversely affect its business operations.	The Company has peoplecentric policies and promotes across all the hierarchies. The robust HR policy of the Company ensures maintaining a conducive work environment and minimal attrition rates. Further, the Company encourages new talent acquisition and rewards Excellent employee performance.
07. AD/CVD DUTY RISK	The Company is exporting Carbon Steel Forged Flanges to USA under Importer of Records. So any future custom duties of AD/CVD will increase, then company has to pay this.	The Company is trying to get maximum profit in flange business so if any future duty will imposed then company could not suffer loss.

D. INTERNAL CONTROL SYSTEMS:

Tirupati Forge Limited (TFL) maintains adequate internal control systems including internal financial control systems, which provide, among other things, reasonable assurance of recording the transactions of its operations in all material aspects. This system also protects against significant misuse or loss of Company assets.

The Company has a system of carrying out internal audit, covering all business processes to review the internal control systems. The internal control system and mechanism is reviewed periodically by the Audit Committee to make it robust so as to meet the challenges of the business. The Company has an adequate and efficient Internal Control System, which provides protection to all its assets against loss from unauthorized use and for correct reporting of transactions. The internal control systems are further supplemented by internal audit carried out of the Internal Auditor of the Company and periodical review by the Management. The Company has put in place proper controls which are reviewed at regular intervals to ensure that transactions are properly authorized and correctly reported and assets are safeguarded. The Internal Control Systems are implemented to safeguard Companys assets from loss or damage, to keep constant check on cost structure and to provide adequate financial and accounting controls and implement accounting standards.

E. HUMAN RESOURCES

We remain steadfast in our mission to attract and retain top talent, promote a culture of continuous learning and development, encourage high performance, maintain positive industrial relations, and ensure a safe and inclusive workplace. Ensuring business operations, employee safety and welfare became the foremost concerns for Tirupati Forge. We give high priority to our employees health and safety, and one of the most effective ways to ensure this is to establish a safety culture in which safety is the responsibility of each and every employee.

We have a dedicated safety resource responsible for managing with promoting safety among all employees and implements different awareness and training programme.

Initiatives for Safety and Welfare:

1. Safe Environment at Workplace:

Tirupati Forge Limited followed a strict no visitor policy keeping in mind the social distancing norms. Physical meetings or visitors in exceptional cases were allowed only with a proper precautions. To maintain safe hygiene levels, employee transport vehicles, shop floor were disinfected multiple times in a shift.

2. Support System:

Tirupati Forge Limited has always been known for having a culture of a big extended family and strong support system. During these challenging times, this support was needed The most.

OUR PEOPLE ARE AT THE CORE OF OUR BUSINESS AND THE REASON FOR OUR SUCCESS:

We have implemented several initiatives to promote a culture of continuous learning. We have expanded our training programmes, including leadership development, technical training. Promoting high performance and excellence in all aspects of our business is essential during the integration process.

We have undertaken meaningful efforts to foster diversity in our workforce. We understand that diversity of thoughts, backgrounds, and experiences adds value to the Company.

F. PRODUCT WISE PERFORMANCE:

NAME OF PRODUCTS	F. Y. 2022-23 (Revenue)	F.Y. 2021-22 (Revenue)
Forged Articles	10,36,74,255/-	11,21,24,110/-
Flanges for Pipe Fittings	36,87,70,041/-	44,25,76,086/-
High Valued Fittings	23,80,00,422/-	14,46,24,262/-
Gear & Gearing	8,37,20,474/-	2,47,20,702/-
Agriculture Parts	62,39,635/-	1,36,27,574/-
Other Parts & Accessories	5,69,288/-	—

G. STRENGTHS. OPPORTUNITIES AND THREATS ANALYSIS:

Strengths

• Quality of products

• Products are used by automobile industry, refineries, oil pipelines, etc.

• Experienced Promoters

Threats:

•A faster shift to new mobility transport will have a meaningful impact on our business.

•Several new companies are entering the market, and existing rivals in adjacent product categories are also increasing their offerings.

•Volatility in raw material price - Mild Steel, Alloy Steel, Carbon Steel Stainless Steel, etc

Opportunities:

• Undertaking Government Contracts.

• The government has developed numerous programs to help manufacturers, such as the Production Linked Incentive (PLI) Scheme, which is a cornerstone of the governments endeavor to achieve an Atmanirbhar Bharat.

• The geopolitical tension and the high cost of various inputs needed for manufacturing is making global companies to shift some of their supply chain into India.

• Domestic producers are given a preference in the defence sector which will provide new opportunities to the industry

KEY FINANCIAL RATIO

In accordance with SEBI (Listing Obligations and Disclosure requirements 2018) (Amendment) Regulations 2018, the Company is required to give details of significant changes (Change of 25% or more as compared to the immediately previous financial year) in key sector specific financial ratios.

2022-23		2021-22
Sr. No. Ratio Name	Ratio	Sr. No. Ratio Name	Ratio	% Change
1 Debtors Turnover	64.36	1 Debtors Turnover	66.73	-3.56%
2 Inventory Turnover	5.90	2 Inventory Turnover	6.84	-13.73%
3 Interest Coverage Ratio	13.7	3 Interest Coverage Ratio	11.3	20.96%
4 Current Ratio	2.71	4 Current Ratio	1.67	62.47%
5 Debt Equity Ratio	0.28	5 Debt Equity Ratio	0.41	-32.33%
6 Operating Profit Margin	14.76%	6 Operating Profit Margin	10.41%	41.71%
7 Net Profit Margin	10.25%	7 Net Profit Margin	7.05%	45.26%
8 Return on Net worth	29.91%	8 Return on Net worth	26.16%	14.32%

Explanation:

• The significant change in the above mentioned ratios is due to change in profit and sales of The Company.

• During the year there were so many factors affected the profitability of the company.

• Improvement in the current ratio is due to substantial decrease in trade payable and provisions for current liabilities and income tax liability.

• Improvement in the debt equity ratio is due to repayment of working capital term loan prior than its repayment schedules and increase in net worth/shareholders fund due to increase in net profit during the year.

• Operating Profit Margin and Net Profit Margin improved as per the following reasons:

• Improvement in this ratio is attributable to change in Sales mix of products sold with higher margin products sold during the Financial Year compared to last Financial Year.

• There is favorable price variance for products sold in export market which lead to improvement in ratio.

• Fixed cost remains stable as compared to last Financial Year.

• There is increase in foreign currency fluctuation gain by 56%.

For and on behalf of the Board of

Tirupati Forge Limited

Hiteshkumar G. Thummar

Chairman & Managing Director

Date: August 19, 2023

Place: Hadamtala (Rajkot)