CG Power & Industrial Solutions Ltd:Annual Report 2023-24 Analysis

CG Power and Industrial Solutions Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Incorporated in 1937 as Crompton Greaves, the company has a long history in the Indian electrical engineering industry. It was initially a part of Crompton Parkinson Ltd., UK. After a tumultuous few years marked by financial irregularities and leadership changes, the Murugappa Group took control in 2020, ushering in a new era of stability and growth.

Headquarters Location and Global Presence:

• Headquarters: Mumbai, India.
• Global Presence: CG Power has a presence across Asia, Europe, and North America, serving a diverse range of clients worldwide.

Company Vision and Mission: While the specific vision and mission statements might evolve, the company’s focus under the new leadership is on:

• Vision: To be a leading global provider of sustainable and innovative solutions for power and industrial applications.
• Mission: To deliver superior value to customers, employees, and stakeholders through excellence in technology, manufacturing, and service.

Key Milestones in Their Growth Journey:

• 1937: Incorporation as Crompton Greaves.
• Pre-2020: Significant growth and expansion in various electrical engineering domains.
• 2020: Acquisition by the Murugappa Group, marking a turning point for the company.
• Post-2020: Focus on restructuring, operational efficiency, and regaining market confidence.

Stock Exchange Listing Details and Market Capitalization:

• Listed on: National Stock Exchange of India (NSE) and Bombay Stock Exchange (BSE).
• Market Capitalization: Market cap fluctuates depending on market conditions, consult financial websites for the current value.

Recent Financial Performance Highlights: Significant turnaround in financial performance post-acquisition by the Murugappa Group with continuous growth in profit and revenue.

Management Team and Leadership Structure:

• Led by a strong management team under the guidance of the Murugappa Group.
• Key leadership roles include Managing Director, CFO, and various functional heads.

Notable Awards or Recognitions: Awards and recognitions for quality, innovation, and sustainability.

Their Products #

Complete Product Portfolio with Categories: CG Power offers a wide range of products and solutions, including:

• Power Transformers: EHV transformers, distribution transformers, special transformers.
• Switchgear: Circuit breakers, switchboards, protection relays.
• Automation Products: SCADA systems, PLCs, HMI, protection and relay panels.
• Drives: AC drives, DC drives, servo drives and motors.
• Railway Transportation: Electric traction locomotives, electric propulsion equipment, passenger information systems.
• HT Motors: Special motors and general purpose motors.

Manufacturing Facilities and Production Capacity: CG Power has multiple manufacturing facilities across India, each specializing in different product lines.

Quality Certifications and Standards: Adherence to international quality standards such as ISO 9001, ISO 14001, and OHSAS 18001, demonstrates a commitment to quality and environmental management.

Recent Product Launches or R&D Initiatives: Focus on developing energy-efficient and smart grid-compatible products.

Primary Customers #

Target Industries and Sectors:

• Power Generation, Transmission, and Distribution utilities
• Industrial manufacturing
• Transportation (Railways, Metro)
• Oil and Gas
• Renewable Energy
• Infrastructure Development
• Automation and Control

Geographic Markets (Domestic vs. International):

• Significant presence in the Indian market.
• Growing international presence in key regions across Asia, Europe, and North America.

Major Client Segments (Agricultural, Industrial, Residential, etc.): The company primarily caters to industrial and infrastructure sectors.

Distribution Network and Sales Channels:

• Direct sales to large customers and projects.
• Network of distributors and channel partners for wider market reach.

Major Competitors #

Direct Competitors in India and Globally:

• Indian: ABB India, Siemens India, Bharat Heavy Electricals Limited (BHEL).
• Global: ABB, Siemens, Schneider Electric, General Electric.

Competitive Advantages and Disadvantages:

• Advantages:
  • Strong brand reputation (especially post-Murugappa acquisition).
  • Wide product portfolio.
  • Established manufacturing infrastructure.
  • Experienced workforce.
• Disadvantages:
  • Intense competition.
  • Sensitivity to economic cycles and infrastructure spending.

How They Differentiate from Competitors:

• Focus on customized solutions.
• Emphasis on technological innovation.
• Commitment to customer service.

Industry Challenges and Opportunities:

• Challenges: Increasing competition, fluctuating raw material prices, technological disruptions, evolving regulatory landscape.
• Opportunities: Growing demand for power and infrastructure, increasing adoption of renewable energy, smart grid development, government initiatives promoting manufacturing and infrastructure.

Market Positioning Strategy: CG Power aims to be a leading provider of comprehensive solutions for power and industrial applications.

Future Outlook #

Expansion Plans or Growth Strategy: Focus on:

• Strengthening its position in existing markets.
• Expanding into new geographies.
• Investing in R&D and technological innovation.
• Improving operational efficiency.

Sustainability Initiatives or ESG Commitments: Integration of ESG (Environmental, Social, and Governance) principles into its operations.

Industry Trends Affecting Their Business:

• Growing demand for energy-efficient and sustainable solutions.
• Digitalization and automation of industrial processes.
• Rise of renewable energy sources.
• Smart grid development.

Long-Term Vision and Strategic Goals: To be a globally recognized leader in the power and industrial solutions sector, delivering sustainable value to all stakeholders.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

Revenue Growth #

Standalone revenue exhibited a 3-year CAGR of 7.6%, with growth accelerating from 2022-2023 (14.90) to 2023-2024 (15.65%). Consolidated revenue shows a similar trend but a greater growth percentage.

Profitability #

Profit Before Tax (PBT) (before exceptional items) on a standalone basis grew by 23.86% between 2022-23 and 2023-24 and reflects margin improvement.

ROCE #

Standalone ROCE was 39.3% in FY23 and is 35.9% in FY24.

Cash Flow #

Standalone Free Cash Flow (FCF) generation was strong at ’ 784 crores in FY24.

Business Segment Performance #

Industrial Systems #

Revenue grew by 10% year-over-year in FY24. The operating profit before interest and tax shows a marginal growth of .38%. LT Motors increased its market share. Railways segment recorded the highest sales, profits and order intake.

Power Systems #

Revenue saw robust growth, increasing by 28% year-over-year in FY24 and PBIT stood at 16% of Sales. Order intake was at an all-time high. Margins expanded due to higher realisations, a favourable product mix, cost efficiencies, and better operating leverage.

Major Strategic Initiatives and Their Progress #

Capacity Expansion #

The company has invested a total of 662 cr. in expansion projects, which are expected to be completed in the next 18 months, funded via internal accruals.

OSAT Facility #

A joint venture (CG Semi Private Limited) was established with Renesas Electronics Corporation and Stars Microelectronics (Thailand) Public Co. Ltd. to set up an OSAT facility in Sanand, Gujarat, representing a significant strategic diversification. Total investment 7,600 cr. over 5 years.

Export Focus #

The company is actively expanding its global presence, particularly in the Americas, Europe, the Middle East, and Africa, with a structured approach to business development and strategic positioning.

Digitalization #

The Company is working on integrating Industry 4.0 principles and deploying AI technologies.

Risk Landscape Changes #

Geopolitical Tensions #

Ongoing geopolitical tensions (Russia-Ukraine War, Gaza-Israel conflict) and volatility in the Middle East have created a challenging global operating environment.

Economic Headwinds #

Tightening monetary policy, fluctuating commodity prices, interest rates and slow global economic growth have resulted in subdued investments.

Cybersecurity #

Cybersecurity risk assessment, vulnerability assessment, penetration testing and active directory have been evaluated.

ESG Initiatives and Metrics #

Green Certifications #

Several facilities received GreenCo certifications (Silver Category) and Single Use Plastic-free certifications from CII.

Emissions Reduction #

The Company aims to be carbon neutral in Scope 1 and 2 emissions by 2030.

Sustainability Report #

The Company published its first Sustainability Report.

Transitioning to Industry 4.0 #

Implementation of IoT, digital recordings, LEAN measures, KANBAN system.

Recycled or Reused Inputs #

The company is not currently using these, but is exploring options.

Management Outlook #

The management anticipates strong growth driven by a robust order book. Sustainable profitable growth will be focused on operational excellence, capacity expansion, modernization/digitization of plants, and integration of Industry 4.0, LEAN, and AI technologies.

Detailed Analysis #

CG Power and Industrial Solutions Limited - Financial Analysis #

3-Year Comparative Analysis (Consolidated) #

Assets (₹ crores) #

Liabilities (₹ crores) #

Note: There is not a full set of available data from previous years, FY 2022-23, and FY2021-22, for comparative purpose. Equity is not reported on a segment basis.

Significant Changes in Major Line Items (>10% YoY) #

• Power System Assets (FY24 vs FY23): Increased by 12.12%, from ₹1,356.99 crores to ₹1,521.27 crores.
• Industrial System Assets (FY24 vs FY23): Increased by 20.21%, From 1543.83 crores to 1,856.05 crores.
• Discontinued Operations Assets: decreased, from 182.26 crores to 73.18, at -59.8%.
• Consolidated Total Assets: Increased by 20.49%, driven mainly by growth in both the Power and Industrial Systems segments.
• Industrial System Assets (FY23 vs FY22): Increased by 32.33%.
• Power Systems Liabilities(FY23 Vs FY22) Increased by 25.35%
• Industrial System Liabilites(FY23 Vs FY22) Increased by 10.28%

Working Capital Trends #

Comparative data on working capital.

• Decrease in Net Sales to Gross working capital is mainly on account of an increase in gross working capital.
• An increase in net working capital resulted in reduction of the turnover ratio.

Asset Quality Metrics #

• Allowance for doubtful receivables (net):
  • FY23-24 = 0.26 Cr
  • FY22-23 = 12.63 Cr

Debt Structure and Maturity Profile #

• Total Debt (Consolidated): The company is practically debt-free at the end of fiscal year 2024, with minimal long-term borrowing obligations.
• Maturity Profile: Based on the minimal reported debt, it is assumed that current liabilities will be payable in short term. No long-term debt details are available to assess the maturity profile beyond the current year.

Off-Balance Sheet Items #

• Contingent liabilities:
  • Claims against the Company not acknowledged as debts, and matters in dispute with tax authorities.
  • FY 23-24 = 23.36 Cr
  • FY 22-23 = 23.22 Cr
  • It is not practical to estimate the timing of cash outflows.

Operating Performance Analysis #

Revenue Breakdown #

Segment Revenue (Standalone) #

• Industrial Systems: ₹5,015 crores in FY24 (10% growth from ₹4,558 crores in FY23)
• Power Systems: ₹2,598 crores in FY24 (28% growth from ₹2,023 crores in FY23)

Segment Revenue (Consolidated) #

• Industrial Systems: ₹5,429 crores in FY24 (10% growth from ₹4,934 crores in FY23)
• Power Systems: ₹2,598 crores in FY24 (28% growth from ₹2,023 crores in FY23)

Geographical Revenue (Consolidated) #

• Domestic: ₹7,077.25 crores in FY24
• Overseas: ₹968.73 crores in FY24
• Exports contribute to 7% of total turnover.

Cost Structure Analysis #

Standalone #

• Cost of materials consumed and components: ₹5,330 crores in FY24 (up from ₹4,653 crores in FY23)
• Employee benefits expense: ₹406 crores in FY24 (up from ₹331 crores in FY23)
• Other expenses: ₹798 crores in FY24 (up from ₹659 crores in FY23)

Consolidated #

• Cost of materials consumed and components: ₹5,552 crores in FY24 (up from ₹4,856 crores in FY23)
• Employee benefits expense: ₹508 crores in FY24 (up from ₹422 crores in FY23)
• Other Expenses: ₹858 crores in FY24 (up from ₹702 crores in FY23)

Margin Analysis #

Standalone #

• EBIDTA Margin (excluding other income): 14.1% in FY24 (down from 14.2% in FY23)
• Operating Profit Margin (excluding other income): 13.1% in FY24 (same as FY23)
• Net Profit Margin (before exceptional items): 11.3% in FY24 (up from 11.1% in FY23)

Consolidated #

• EBIDTA Margin (excluding other income): 14.0% in FY24 (up from 14.23% in FY23)
• Operating Profit Margin Power Systems Business: 16.0% of sales in FY24 (up from 11.2% in FY23)

Non-Recurring Items #

Standalone #

• Exceptional item: ₹143 crores gain in FY24 (compared to ₹56 crores in FY23)
• Reversal of provision against investment/loan and advances given to subsidiaries: ₹186.94 crores
• Payment towards settlement of litigation: ₹42 crores

Consolidated #

• Exceptional item: ₹22 crores net gain in FY24 (compared to ₹52 crores in FY23)
• Net gain on sale of net assets in CG DE Sub, LLC: ₹65.39 crores
• Net gain on deconsolidation of CG Power Solutions Limited: ₹551.06 crores

EPS Analysis #

Standalone #

• Basic EPS (continuing operations): ₹6.58 in FY24 (up from ₹5.18 in FY23)
• Diluted EPS (continuing operations): ₹6.57 in FY24 (up from ₹5.14 in FY23)

Consolidated #

• Basic EPS (total operations): ₹9.34 in FY24 (up from ₹6.35 in FY23)
• Diluted EPS (total operations): ₹9.33 in FY24 (up from ₹6.30 in FY23)

Financial Analysis of CG Power and Industrial Solutions Limited #

Cash Flow Analysis (Consolidated, FY23-24 & FY22-23) #

Operating Cash Flow (OCF) #

Increased to ₹ 397 Crores in FY23-24 from ₹ 947 Crores in FY22-23.

Investing Cash Flow (ICF) #

Outflow of ₹ 662.17 Crores in FY23-24, compared to an outflow of ₹ 20.69 in FY22-23.

Financing Cash Flow (FCF) #

Outflow of ₹ 246.33 Crores in FY23-24 and an outflow of ₹ 611.54 in FY22-23.

Working Capital Management Efficiency (Consolidated, FY23-24 & FY22-23) #

• Net working capital turnover of 4.49 times in FY23-24 as against 8.21 times for the previous year.
• Increase in net working capital contributed to reduction in turnover ratio.

Capex Analysis by Segment (Consolidated, FY23-24) #

• Power Systems: ₹ 61.05 crores.
• Industrial Systems: ₹ 137.52 crores.
• Unallocable/Other: ₹ 5.35 crores.
• Total Group Capex: ₹ 195.47 crores, excluding ₹ 30.35 crore intangible assets.

Dividend Trends (Consolidated) #

• FY23-24: Interim dividend of ₹ 1.30 per share, total outflow ₹198.55 crores.
• FY22-23: The Company did not propose any final dividend in this year.

Debt Service Coverage (Consolidated, FY23-24) #

• Debt service coverage ratio has increased to 35.39, on standalone level is 145.3 due to reduction in finance cost.

Liquidity Position and Cash Conversion Cycle (Consolidated) #

• Current Ratio: Increased to 1.80:1 in FY23-24 from 1.45:1 in FY22-23, due to increase in current assets.
• Cash and Cash Equivalents: Decreased to ₹ 200.40 crores as of March 31, 2024, from ₹ 711.91 crores as of March 31, 2023.
• Average Debtors Turnover (Days): Increased to 65 days in FY23-24 from 59 days in FY22-23.
• Average Inventory Turnover (Days): Increased to 40 days in FY23-24 from 37 days in FY22-23.

Financial Analysis of CG Power and Industrial Solutions Limited: Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

Standalone: #

• ROE: 30.9% (FY24), 32.3% (FY23), 34.47% (FY22, Restated).
• ROCE (excluding exceptional items, terminal): 35.9% (FY24), 39.3% (FY23), 53.77%(FY22).
• Operating Profit Margin (excluding OI): 13.1% (FY24), 13.1% (FY23), 12.4% (FY22).
• Net Profit Margin (before exceptional items): 11.3% (FY24), 11.1% (FY23), 12.2%.
• EBITDA Margin (excluding other income): 14.1%(FY24), 14.2%(FY23), 15.4%(FY22).

Consolidated: #

• ROE: 28.86% (FY24), 35.03% (FY23), 46.33% (FY22).
• ROCE: 36.14% (FY24).
• Operating Profit Margin (excluding other income): 14% (FY24), 13.6% (FY23), 14.6% (FY22).
• Net Profit Margin: 10.82% (FY24), 11% (FY23).
• EBITDA Margin: 14.01% (FY24), 14.1% (FY23), 15.2% (FY22).

Liquidity Metrics #

Standalone: #

• Current Ratio: 1.80:1 (FY24), 1.45:1 (FY23), 1.26:1 (FY22, Restated).

Consolidated: #

• Current Ratio: 1.66:1 (FY24), 1.36:1 (FY23), 1.18:1 (FY22).

Efficiency Ratios #

Standalone: #

• Net Sales to Net Working Capital: 4.5 times (FY24), 8.2 times (FY23), 6.5 times (FY22 Restated).
• Fixed Assets Turnover: 2.86 times (FY24), 3.4 times (FY23), 3.1 times (FY22).
• Average Inventory Turnover (days): 40 (FY24), 37 (FY23).
• Average Debtors Turnover (days): 65 (FY24), 59 (FY23).

Consolidated: #

• Fixed Assets Turnover: 2.5 times (FY24), 3.06 times (FY23).
• Average Inventory Turnover (days): 41 (FY24), 39 (FY23).
• Average Debtors Turnover (days): 69 (FY24), 61 (FY23).

Leverage Metrics #

Standalone: #

• Debt-Equity Ratio: 0.00 (FY24), 0.00 (FY23), 0.00:1 (FY22 Restated).
• Interest Coverage Ratio (continuing operations): 145.3 (FY24), 47.5 (FY23), 35.4 (FY22).

Consolidated: #

• Debt-Equity Ratio: 0.00 (FY24), 0.00 (FY23).
• Interest Coverage Ratio: 154.33 (FY24).

Working Capital Ratios #

Standalone: #

• Net Sales to gross working capital of continuing operation (Times): 2.0 (FY24), 2.5 (FY23).

CG Power and Industrial Solutions Limited - Segment-wise Financial Analysis #

Revenue and Profitability Metrics with Growth Rates #

• Industrial Systems: FY24 revenue was ₹5,429 crores, a 10% growth compared to FY23. PBIT was ₹790 crores, showing a growth of approximately 0.38%. LT Motors, Large Industrial Machines (LIM), and Drives & Automation, Railways recorded their highest-ever sales and profits.
• Power Systems: FY24 revenue was ₹2,598 crores, up 28% from FY23. PBIT was ₹416 crores (16.0% of sales), an 83% growth, driven by higher realisations, a favorable product mix, cost efficiencies, and better operating leverage.
• Aggregate order intake for Industrial segment in FY24 was 5733 crores which saw a YoY increase of 16%.
• Aggregate order intake for Power segment in FY24 was all-time high at 4315 crores representing a YoY growth of 51%.

Market Share and Competitive Position #

• Industrial Systems: LT Motors increased its market share to 38%.

Key Products/Services Performance #

Industrial Systems #

• Low Tension Motors, Large Industrial Machines (LIM) and Drives & Automation recorded the highest ever sales and profits.
• Railways business achieved record sales, profits, and order intake.
• The Drives business has initiated in-house development of drives up to 45kW with next-gen power devices.
• Expansion of energy-efficient motors to include IE5 Ultra-premium Efficiency Synchronous Reluctance Motors.
• New Consumer products were launched which comprised of pumps, fans and water heaters.

Power Systems #

• The Transformers business developed two new products for Railway application.
• The Switchgear business indigenously developed 800kV Bushings, Compact 66kV-145kV Gas Insulated Switchgear (GIS), 170kV Gas circuit breaker and 420kV 50kA spring-spring Gas Circuit Breaker, and 52kV oil impregnated paper insulation high current condenser bushing.

Geographic Distribution and Market Penetration #

Industrial Systems #

• Entered the Brazilian market with a large order of 7,000 FHP motors.
• Secured orders in South American markets, the Middle East, and Turkey.
• Export of drives and automation solutions to Europe, South Asia, the Middle East, and Russia.

Power Systems #

• Expansion into new markets in India and Nepal.
• Maintained presence in the Reactor Market in Greece and focus on emerging markets in Africa.
• Strengthened presence in Ukraine, LATAM (Paraguay), Trinidad & Tobago, Italy, Nigeria, Greece, Southeast Asia, North America, and the US.
• Secured a 2-year Frame contract for GCBs in Italy.
• Penetrated the Philippines market with a 72kV Dead Tank Breaker order.

Railway systems #

• Bagged order from Mozambique.
• Secured orders from US railroads.
• Supplied point machine to Malaysian Railways and secured approval from Bangladesh railways.

Segment-wise CAPEX and ROIC #

• Company-wide: Announced CAPEX projects totaling ₹220 crores during the year for capacity expansion.
• Industrial Systems: ₹35 crores allocated for HT motors capacity expansion in Bhopal.
• Power Systems: ₹155 crores for Switchgears capacity expansion (Nashik), ₹31 crores for Power Transformers (Bhopal), and an additional ’ 31 crores for the T3 unit in Bhopal.

Operational Efficiency Metrics #

Industrial Systems #

• Implemented Kaizens, Lean projects, and automation initiatives (taping, strapping, DG sets).
• Laser nameplate printing on motors, Thermocol free packaging.
• Reduced import dependency for CF Gear by 70%.
• Undertook various design optimization and changed to electric furnace from diesel for DCR process.
• Installed the latest design and simulation software.

Power Systems #

• Implemented smart cranes with real-time monitoring.
• Automated core building adjustments.
• Emphasized Total Cost Management, including optimizing sourcing and material utilization.
• LEAN and Total Quality Management activities enhanced manufacturing capabilities of Inductive Voltage Transformers by 50%.

Growth Initiatives and Challenges #

• Company approved expansion project amounting to 662 crores to be funded through internal accruals.
• Strategic Diversification: Foray into semiconductor manufacturing with a joint venture to establish an OSAT facility in Sanand, Gujarat, with an investment of ₹7,600 crores over five years.
• Innovation and New Product Development: Focus on energy-efficient solutions and digital solutions. Development of SCADA systems for rail operations.
• Digital Transformation: Initiatives to integrate Industry 4.0, AI technologies (GenAI, ChatGPT), and Machine Execution Systems (MES).
• Sustainability: Commitment to achieving carbon neutrality in Scope 1 and 2 emissions by 2030.
• Challenges: potential challenges as delays in capacity expansion projects, insufficient health and safety standards, talent attraction and retention, technology not up to the mark and cyberattacks.

Segment-Wise Financial Analysis: CG Power and Industrial Solutions Limited #

This analysis focuses on risk within the Industrial Systems and Power Systems segments.

Industrial Systems #

Strategic Risks #

• Severity: High
• Likelihood: Medium
• Trend: Stable, but increasing. The segment’s expansion into new sectors like nuclear power and ethanol indicates a potential for high growth but also dependence on government/policy.
• Mitigation Strategies: Product diversification (IE5 motors, EV motors, FMEG), Smart Motor solutions, entry into new geographical markets (Brazil), securing long-term contracts.
• Control Effectiveness: Partially effective. Diversification mitigates risk; however, growth dependence on new markets presents vulnerability.
• Potential Financial Impact: Revenue, operating profit, and market value.
  • Year-over-year change: Revenue increased by 10%, operating profit increased by only 0.38%.

Operational Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Improving. Implementation of Industry 4.0, automation, and LEAN manufacturing show continuous operational improvement.
• Mitigation Strategies: Investment in IT-enabled operational technologies, automation, and LEAN manufacturing. Local sourcing of components, design optimization.
• Control Effectiveness: Moderately effective. Digitalization and automation initiatives reduce operational inefficiencies.
• Potential Financial Impact: Cost of goods sold, production delays, quality control expenses.
  • Year-over-year change: The shift from diesel to electrical furnaces in DCR processes has reduced emissions.

Financial Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Favorable product mix, cost efficiencies.
• Control Effectiveness: Partially effective. The report indicates higher margins were offset by pricing pressure in the low-tension motor business.
• Potential Financial Impact: Profit margins, cash flow.
  • Year-over-year change: The aggregate order intake for FY24 stood at ’ 5,733, with YoY growth of 16%.

Compliance/Regulatory Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Certifications like UKCA, Nema Premium, CSA, and BIS are obtained.
• Control Effectiveness: Effective. The Company secures certifications from all the required authorities.
• Potential Financial Impact: Fines, penalties, operational disruptions.
  • Year-over-year change: Obtained BIS certification for fans, UKCA for UK market, revalidation of Nema Premium certification for the American Market, and CSA approved certificate for testing for the American market.

Emerging Risks #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: Not directly specified in the management discussion beyond broad “seizing opportunities” and “product development.”
• Control Effectiveness: Currently not applicable, as a mitigation strategy has not been adopted.
• Potential Financial Impact: Revenue.
  • Year-over-year change: Not assessable.

Power Systems #

Strategic Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Stable. Dependence on government infrastructure spending and renewable energy projects is high, creating strategic vulnerability.
• Mitigation Strategies: Geographic expansion (Africa, Greece, Nepal, South America), entering new customer segments.
• Control Effectiveness: Partially effective. Expansion efforts, along with rate contracts, provide some stability, but underlying dependence remains.
• Potential Financial Impact: Revenue, order book value.
  • Year-over-year change: Order intake for FY24 was all-time high at ’ 4,315, representing a growth of 51%.

Operational Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Improving. Capacity expansion projects and Industry 4.0 initiatives suggest a focus on operational efficiency.
• Mitigation Strategies: Capacity expansion projects for switchgears and transformers, deployment of smart cranes, automation of core building adjustments.
• Control Effectiveness: Moderately effective. Current projects are focused on improvement, with quantified savings reported (e.g., 50MVA job per year equivalent savings).
• Potential Financial Impact: Cost of goods sold, capital expenditure efficiency.
  • Year-over-year change: Capacity expansion for switchgears (Nashik), power transformers (Bhopal), and HT motors (Bhopal).

Financial Risks #

• Severity: Low
• Likelihood: Low
• Trend: Improving. Strong revenue and PBIT growth, with margin improvement.
• Mitigation Strategies: Cost-saving initiatives, including design optimization, process optimization, Total Cost Management, LEAN and Kaizen initiatives.
• Control Effectiveness: Effective. Margin improvement demonstrates successful cost management.
• Potential Financial Impact: Profitability, cash flow.
  • Year-over-year change: Revenue increased by 28% and PBIT increased by 83% as compared to the previous year.

Compliance/Regulatory Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Adherence to IEC, ANSI, IS, BS, and other International Standards, obtaining product approvals (e.g., RDSO, CORE, DFCC, CLW for railway products).
• Control Effectiveness: Effective, as indicated by adherence to multiple standards and receipt of approvals.
• Potential Financial Impact: Fines, penalties, loss of market access.
  • Year-over-year change: Received approval from RDSO, CORE, DFCC, and CLW for traction substations and locomotive applications.

Emerging Risks #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: Not explicitly stated but suggested, R&D into eco-friendly products.
• Control Effectiveness: Currently not applicable, as a mitigation strategy has not been adopted.
• Potential Financial Impact: R&D costs, potential write-offs of obsolete technology.
  • Year-over-year change: Development of eco-friendly transformers.

CG Power and Industrial Solutions: Segment Financial Analysis (FY24) #

Industrial Systems #

Long-Term Strategic Goals and Progress #

• Aims to be a one-stop-shop for integrated motion automation solutions.
• Recorded 10% YoY revenue growth, reaching ₹5,015 crores on a standalone basis.
• Expanded capacities for HT motors with a ₹35 crore investment.
• Increased LT Motors market share to 38%.
• Progressing through strategic capacity expansion, export focus, and technological upgrades.

Competitive Advantages and Market Positioning #

• Leading manufacturer in India’s motor market, with a diverse range of products and service offerings.
• First Indian company to indigenously develop a complete range of high-efficiency motors, including IE2, IE3, IE4, and IE5.
• Holds a strong position in key sectors.
• Achieved a breakthrough entry into NPCIL.

Innovation Initiatives and R&D Effectiveness #

• Expanded range of energy-efficient motors, including IE5 Ultra-premium Efficiency Synchronous Reluctance Motors.
• The Railway business developed SCADA systems for rail operations.
• Design optimization initiatives contributed to reduction of material cost.

M&A Strategy and Execution #

• Acquired Emotron in 2011, establishing CG Drives and Automation, to expand product offerings and strengthen the Automation business.

Management’s Track Record in Execution #

• Management has a track record of increasing automation, implementing operational efficiencies, and pursuing LEAN manufacturing initiatives.

Capital Allocation Strategy #

• Augmenting manufacturing capacities with Capex projects.

Organizational Changes and their Impact #

• Implemented IoT and digital recording for quality test panels of relays, heat cycles, and mechanized operations, with the aim to improve efficiency, reliability and process control.

Power Systems #

Long-Term Strategic Goals and Progress #

• Recorded 28% YoY revenue growth, reaching ₹2,598 crores.
• Focusing on Power Transmission and Distribution and the setting up of integrated power systems and associated service businesses.
• Obtained product approvals from Indian Railways.

Competitive Advantages and Market Positioning #

• Comprehensive presence across the entire Power T&D value chain, providing a wide array of products compliant with national and international standards.
• Secured orders in new markets like India and Nepal.
• CG stands as the sole manufacturer of 800kV bushings in India.

Innovation Initiatives and R&D Effectiveness #

• Developed products for Railway application V connected 132kv, 63 mva trackside power.
• Switchgear business indigenously developed 800kV Bushings and other products.

Management’s Track Record in Execution #

• Improved manufacturing efficiency and product quality by enhancing machines, tooling and material handling equipment.

Capital Allocation Strategy #

• Expanding manufacturing capacity for Power Transformers and Distribution Transformers with investments.

Organizational Changes and their Impact #

• Deployed smart cranes and automated core building adjustment for improving operational safety and efficiency.

ESG Framework #

Environmental Metrics and Targets #

• Industrial Systems: The Ahmednagar LT Motors Unit-1 received a ‘Silver Category’ certification from CII-Greenco. The LT Motors Unit-1 and FHP Motors received ‘Single Use Plastic free’ certification from CII.
• Power Systems: The Switchgear Division received ‘Life Cycle Assessment Carbon Footprint’ Certification for Instrumentation Transformers from M/s. ICMQ, Italy.
• Railways: Achieved a 20% reduction in GHG emissions (Tons/Production Unit) through enhanced production in the same facilities, optimum usage of Ovens, Impregnation Plants, Test Plants, and usage of natural light.
• Energy Conservation: Across multiple units, initiatives such as replacing sodium vapor lights with LEDs, installing VFDs in air compressors, and transitioning to dry paint booth technology were implemented, indicating a focus on energy efficiency.
• Renewable Energy: Several units utilize solar energy, with percentages ranging from 12% to 16.9% of total energy requirements. The Stamping Division in Ahmednagar installed a 400 KW solar plant, aiming for 25% green energy utilization, also implemented by Transformers and Switchgears Divisions.
• Emission Reduction: Railway segment reported 20% of reduction in GHG emissions.

Social Responsibility Programs #

• CSR Expenditure: Spent ‘900 lakhs in FY 2023-24, representing 2% of the average net profits of the preceding three financial years, which is in alignment with statutory requirements.
• CSR Focus: The Company’s CSR Policy includes programs for education, provision of basic facilities (healthcare, sanitation), empowerment of underprivileged sections, and rural development projects.
• Community Engagement: Conducted projects included infrastructure upgrades at schools, providing welding unit equipment, and facilitating mobile health vans.

Governance Structure and Effectiveness #

• Board Composition: The Board of Directors comprises eight Directors: Three Non-Executive Non-Independent, Four Non-Executive Independent (including two women), and one Managing Director. The composition is compliant with SEBI LODR and the Companies Act, 2013.
• Board Committees: The Board has established Audit, Nomination and Remuneration, Corporate Social Responsibility, Risk Management, and Stakeholders’ Relationship Committees, all compliant with statutory requirements.
• Board Meeting Attendance: High attendance rates are evident at Board and Committee meetings.
• Risk Management Framework: The Risk Management Committee reviews key business risks. A structured Enterprise Risk Management (ERM) system is in place.
• Internal Controls: The Company has documented policies and procedures, and utilizes technology-enabled processes for internal control.
• Whistle-Blower Policy: Established a Whistle-Blower Policy as per Section 177 of the Act and Regulation 22 of the SEBI LODR.

Sustainability Investments and ROI #

• Capital expenditure: During the year, capex projects to the tune of ‘220 crores, to augment its manufacturing capacities, with, ’ 155 crores for capacity expansion of Switchgears (Nashik), ’ 31 crores for Power Transformers (Bhopal), and ’ 35 crores for HT motors (Bhopal).
• Technology Transition to Industry 4.0: Investments were made in IT-enabled operational technologies (OT) and Machine Execution Systems (MES), leading to real-time data communication with SAP.
• Automation Initiatives: The company automated processes such as taping and strapping operations, laser nameplate printing on motors, and DG sets with auto changeover were installed.
• Cost savings: The Transformer Business implemented core building adjustments. Automated saving equivalent to one 50MVA job per year.
• Investments: The power transformer plant invested ‘14 lakhs in energy conservation equipment in FY24 and distribution transformer plant Gwalior invested ‘3 Lakhs.

ESG Ratings and Peer Comparison #

• Credit Rating: India Ratings upgraded the Company’s long-term credit rating from ‘IND AA’/Stable to ‘IND AA+’/Stable.

Regulatory Compliance and Future Preparations #

• The Company has complied with Secretarial Standards.
• Adherence to Environmental Regulations: The Company states compliance with environmental laws/regulations/guidelines, such as the Water (Prevention and Control of Pollution) Act, Air (Prevention and Control of Pollution) Act, and Environment Protection Act.
• Upcoming Compliance: The Company acknowledges that the “The Code of Social Security, 2020” date of impact and related rules are yet to be notified, indicating proactive monitoring of upcoming regulations.
• OSAT Facility Setup: The Company’s application to set up an OSAT facility was approved by the Government of India, under the Central and State Level policies.

Forward Outlook #

Industrial Systems Segment #

Management Guidance and Assumptions #

• Management recorded a standalone revenue of ’ 5,015 crores in FY24, growing 10% compared to FY23.
• LT Motors increased its market share to 38%.
• Management assumption is a continued growth in LT Motors based on ethanol, bio-gas, and infrastructure projects.
• Aggressive government investment in water projects is assumed to aid HT motor segment growth.

Market Growth Forecasts #

• LT motors expected to grow, driven by ethanol, bio-gas, and infrastructure projects.
• HT motor segment growth will be aided by government investments in water projects.
• FHP motor segment is projected to experience de-growth due to lower demand.

Planned Strategic Initiatives #

• Intensified efforts to explore opportunities in the Power Sector (particularly Nuclear Power) and Sugar Sector (Ethanol production).
• Continued exploration of Wind Turbine and Earth Mover applications.
• In-house development of drives up to 45kW with next-gen power devices was initiated.
• Expansion into the Brazilian market with FHP motors.
• Continue digital transformation, integrating Industry 4.0 principles and employing AI technologies like GenAI and ChatGPT.

Capital Expenditure Plans #

• ’ 35 crores allocated for HT motors capacity expansion in Bhopal.
• Capex for implementing machine execution systems for real-time data access.
• Investments in IT-enabled operational technologies (OT).
• Continued investments in automation across motor manufacturing units and various modernization projects.

Efficiency Improvement Targets #

• Cost reduction and efficiency enhancement initiatives, including LEAN manufacturing, design optimization, technology upgrade, and quality improvement.
• Reduction of import dependency on CF Gear by 70% by developing local sourcing.
• Implementation of laser nameplate printing on motors for cost savings.
• Transitioning from Thermocol packaging to Honeycomb Packing.
• Switchgear business improved manufacturing capabilities of Inductive Voltage Transformers by 50% through LEAN and TQM activities.

Potential Challenges and Opportunities #

• Challenges: Pricing pressure in the Low Tension Motors business.
• Opportunities: Significant investments planned under National Infrastructure Pipeline (NIP) offer substantial opportunities. Increased allocation in the interim Union Budget for 2024-2025 for the infrastructure sector. Growth in Cement, Sugar, and Data Center sectors presents further prospects.

Power Systems Segment #

Management Guidance and Assumptions #

• FY24 revenue stood at ’ 2,598 crores, a 28% growth compared to FY23.
• PBIT at ’ 416 crores (16.0% of sales) in FY24, an 83% growth, driven by higher realizations, a favorable product mix, cost efficiencies, and better operating leverage.
• Government’s enhanced thrust and sustained investments in the power sector is assumed to result in continued demand.
• Assumption: technological transition from Oil Impregnated Bushings to Resin Impregnated Bushings.

Market Growth Forecasts #

• Expected procurement of MV Switchgear for the next three years is ’ 5,000 crores for AIS, GIS, Indoor, Outdoor, and Automation.

Planned Strategic Initiatives #

• Continued focus on emerging markets in Africa and support to international / Indian EPCs.
• Development of new products for Railway application to support new catenary systems of 2x25kV.
• Production of RIP bushings up to 145kV.

Capital Expenditure Plans #

• ’ 155 crores for capacity expansion of Switchgears (Nashik).
• ’ 31 crores for Power Transformers (Bhopal), with a plan to further increase capacity from 25,000 MVA to 35,000 MVA.
• Expansion of its manufacturing capacity for Instrument Transformers and Condenser Bushings, Medium Voltage Switchgear, and the GIS unit of its Switchgear Division.

Efficiency Improvement Targets #

• Total Cost Management initiatives, including optimizing sourcing processes, securing forward contracts, and in-house manufacturing of minor components.
• Deployment of smart cranes with real-time monitoring.
• Automated core building adjustments.

Potential Challenges and Opportunities #

• Opportunities: Significant orders from prominent clients and product approvals from Indian Railways. Expansion into new markets and customer segments in India and Nepal. Growing demand for 800 / 420kV switchgear products, including GIS.

Overall Company Level #

Management Guidance and Assumptions #

• Standalone revenue growth of 16% YoY in FY24, reaching ’ 7,610 crores.
• Consolidated revenue growth of 15% YoY in FY24, reaching ’ 8,046 crores.
• PBT (before exceptional items) growth of 24% YoY in FY24, reaching ’ 1,146 crores (standalone).
• ROCE for FY24 was at 37%; free cash flow generated was ’ 784 crores (standalone).
• Unexecuted Order Book as of March 31, 2024, was 45% higher YoY (standalone) and 44% higher YoY (Consolidated).
• Management expectation of leveraging India’s growth narrative, with an emphasis on capital investments, innovation, technological advancements and thrust on infrastucture augmentation.

Market Growth Forecasts #

• India’s real GDP is projected to expand by 7.3% in FY 2023-24.
• India is projected to be the third-largest economy, reaching a GDP of USD 7 trillion by 2030.

Planned Strategic Initiatives #

• Strategic diversification into semiconductor manufacturing with the establishment of an OSAT facility in Sanand, Gujarat, as a Joint Venture.
• Investment of ’ 7,600 crores over five years in the OSAT facility.

Capital Expenditure Plans #

• Total approved expansion projects amount to ’ 662 crores, to be funded through internal accruals, expected to be completed in the next 18 months.

Efficiency Improvement Targets #

• Digital infrastructure strenghtening, CG is working on integrating Industry 4.0 principles across functions and employing AI technologies.

Potential Challenges and Opportunities #

• Challenges: Volatile global landscape, geopolitical tensions, and climate change-related events. Volatility in commodity prices and sluggish growth rates in major economies.
• Opportunities: Resilient domestic consumption, enhanced public and private expenditure, healthy corporate balance sheets, and high growth sectors in India. The ‘China + 1’ strategy adopted by global corporations.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The Independent Auditor’s Report, issued by S R B C & CO LLP, expresses an unqualified opinion on the standalone and consolidated financial statements, meaning the statements present a true and fair view.
• The Auditor’s Report does not contain any qualifications.

Key Accounting Policies and Changes #

• Key accounting policies include revenue recognition, property, plant and equipment, intangible assets, impairment of non-financial assets, inventories, cash and cash equivalents, foreign currency transactions, employee benefits, borrowing costs, segment accounting, leases, earnings per share, income taxes, provisions, contingent liabilities, contingent assets and commitments, and exceptional items.
• The Company adopted amendments to Ind AS 1, Ind AS 8 and Ind AS 12 related to ‘Disclosure of Accounting Policy’, ‘Definition of Accounting Estimates’ and ‘Deferred tax related to Assets and Liabilities arising from a Single Transaction’ respectively. These amendments did not have a material impact on the standalone and consolidated financial statements.

Internal Control Effectiveness #

• The auditor’s report states that the Company has adequate internal financial controls with reference to the financial statements, and these controls were operating effectively.
• The audit trail feature in the accounting software was operational throughout the year, except that it is not enabled for changes made by users with privileged/administrative access rights.

Regulatory Compliance Status #

• The Company has generally complied with applicable laws and regulations, including the Companies Act, 2013, and SEBI LODR.
• Quarterly compliance reports on Corporate Governance are submitted to the Stock Exchanges.

Legal Proceedings and Their Potential Impact #

• The Company has disclosed the impact of pending litigations on its financial position, with details provided in Note 37 to the standalone financial statements and Note 34 to the consolidated financial statements.
• During the current year, CG power and Industrial Solution made payment of INR 42 crores for settlement of litigation with Asset Reconstruction Company.
• The Company has filed a Writ Petition before the Hon’ble Bombay High Court, challenging the rejection of its application for condonation of delay for filing of revised income tax returns for earlier financial years.
• The Company has obtained a stay order on various Sales Tax, VAT, and Entry Tax demands from appellate forums.
• There are contingent liabilities disclosed in respect of disputed claims/levies under tax and legal matters.

Related Party Transactions #

• All related party transactions during the financial year were on an arm’s length basis and in the ordinary course of business.
• There were no materially significant related party transactions with potential conflicts of interest.
• Related party transactions are disclosed in the notes to the financial statements, in accordance with Ind AS 24.
• Holding Company: Tube Investments of India Limited.

Subsequent Events #

• The Bombay High Court allowed the Company to file revised income tax returns for certain earlier periods, setting aside income tax demands aggregating to ₹ 653.57 crores.

Analysis of Accounting Quality #

• The adoption of Ind AS and adherence to accounting principles generally accepted in India suggests a high level of accounting quality.
• The use of the ‘Expected Credit Loss’ (ECL) model for evaluating impairment of financial assets indicates a proactive approach to credit risk management.
• Regular reviews of useful lives of assets and impairment assessments demonstrate prudent accounting practices.

Regulatory Risk Assessment #

• Ongoing investigations by the CBI, SFIO, and ED into the affairs of the Company pertaining to the past period and against erstwhile promoters/directors pose a regulatory risk.
• The Company faces the challenge of navigating the changes and interpretations in tax laws and regulations, as indicated by the evaluation of tax positions in tax returns and engagement with tax specialists.
• Compliance with regulations is actively managed.