KDDL Ltd - Annual Report 2023-24 Analysis

Overview #

Detailed Analysis #

This analysis looks into the KDDL Limited Annual Report for the financial year 2023-24, covering financial performance, business segments, identified risks, and ESG initiatives.

I. Financial Performance:

KDDL Limited demonstrated robust financial performance in FY2023-24, exceeding the previous year’s results significantly. Key highlights include:

• Total Revenue: Rs. 1,420 Crores (consolidated), a 24.7% year-on-year (YoY) increase from Rs. 1,139 Crores in FY2022-23. Standalone revenue was Rs. 330.2 Crores, a 14.8% YoY increase. This growth is attributed to strong performance across all business segments, especially in precision engineering and ornamental packaging, and favorable international market conditions. The significant increase in consolidated revenue reflects the contribution of Ethos Limited.

• EBITDA: Rs. 277 Crores (consolidated), a 53% YoY increase. EBITDA margin improved to 19.5%. Standalone EBITDA was Rs. 92.5 Crores.

• PAT: Rs. 138 Crores (consolidated), a substantial 79% YoY growth. PAT margin reached 9.7%. Standalone PAT was Rs. 220 Crores.

• Dividends: The company declared a final dividend of Rs. 4 per share and an interim dividend of Rs. 58 per share.

• Capital Expenditure (CAPEX): Approximately Rs. 39 Crores, primarily focused on expanding manufacturing capacity, especially the new steel bracelet plant in Bengaluru.

Key Financial Ratios:

The report provides many key financial ratios, highlighting improved profitability and financial health:

• EBITDA Margin: Increased from 17.6% to 19.5% (consolidated).
• PAT Margin: Increased from 6.8% to 9.7% (consolidated).
• ROCE (excluding cash): Increased from 610% to 1089% (consolidated).
• ROE: Increased significantly from 610% to 1089% (consolidated).
• Current Ratio: Improved significantly from 1.09 to 2.02 (standalone), reflecting stronger liquidity.
• Debt-to-Equity Ratio: Decreased significantly from 0.32 to 0.17 (standalone). This indicates improved financial leverage.
• Debtors Turnover: Improved from 5.8 to 6.2 times (standalone), indicating faster collection of receivables.
• Interest Coverage Ratio: Improved substantially, reflecting enhanced profitability.

II. Business Segments:

KDDL operates in four key business segments:

• Watch Components: This segment remains the largest revenue generator, although its share of overall revenue slightly declined. The segment experienced robust growth in exports (17.3% YoY), while domestic sales declined (7.3%). Growth is attributed to high quality, innovation, and strong customer relationships. A new steel bracelet manufacturing plant is expected to significantly boost this segment’s future performance.
• Precision Engineering (EIGEN): This segment showcased exceptional growth (26.4% YoY), driven primarily by exports (37% YoY increase). The positive outlook reflects strong order pipelines and expansion into high-growth sectors like electric vehicles and renewable energy.
• Ornamental Packaging: This segment experienced strong growth (18.1% YoY), primarily driven by domestic demand. A new facility is planned to expand capacity and possibly enter the export market.
• Ethos Limited (Luxury Watch Retail): While no longer a wholly-owned subsidiary (KDDL sold a stake), Ethos Limited remains a significant contributor to KDDL’s consolidated financial performance. It showed significant revenue and profitability growth in 2023-24, fueled by robust sales, omnichannel presence, and successful digital marketing initiatives.

III. Risks and Concerns:

The report highlights many key risks:

• Market Demand: Fluctuations in the global and domestic demand for watches and precision-engineered components pose a significant risk. The report acknowledges a recent slowdown in the export market for watch components, but expresses confidence in long-term growth.
• Dependence on Key Customers: Over-reliance on a limited number of key customers and brands creates vulnerability. KDDL is working to diversify its client base.
• Foreign Exchange Risk: Significant exposure to fluctuations in exchange rates (CHF, USD) due to a substantial portion of sales being in foreign currencies. The company mitigates this through currency hedging.
• Talent Retention: Competition for skilled labor, especially in manufacturing and retail, makes talent retention a challenge. KDDL is addressing this through improved HR policies and employee engagement initiatives.
• Geopolitical and Economic Uncertainty: Global geopolitical events and economic slowdowns can affect market demand. The report acknowledges these risks but emphasizes India’s relatively strong economic performance.

IV. ESG Initiatives:

KDDL demonstrates a commitment to ESG (Environmental, Social, and Governance) principles through various initiatives:

• Environmental Sustainability:

  • The Million-Tree Project: Aims to plant and preserve 1 million trees; significant progress has been made.
  • Energy Conservation: Initiatives to reduce energy consumption through LED lighting and renewable energy sources.
  • Water Management: Measures to reduce water consumption and reuse wastewater.
  • Waste Reduction: Efforts to reduce waste generation and improve recycling rates (28.8 metric tonnes reduction in FY2023-24).

• Social Responsibility:

  • Skill Development for Slum Children: Supporting programs for underprivileged children.
  • Organ Donation Awareness: Raising awareness about organ donation through partnerships with NGOs.
  • Community Welfare Programs: Financial support to SayTrees (Rs. 9 Lacs) and SankalpTaru (Rs. 8.25 Lacs) for tree plantation.

• Governance:

  • Strong corporate governance structure with a well-defined Board of Directors, committees (Audit, Nomination & Remuneration, CSR, Risk Management), and robust internal controls.
  • Vigil Mechanism (Whistleblower Policy) in place to address unethical practices.

Overall Assessment:

KDDL Limited’s annual report indicates a financially strong and growth-oriented company with a commitment to ESG principles. While the company faces certain market and operational risks, its strategic initiatives, including diversification and capacity expansion, position it well for future growth. The significant growth in profitability and the proactive approach to ESG initiatives are positive indicators of the company’s long-term sustainability. However, continued focus on mitigating the risks associated with market volatility, customer concentration, and foreign exchange fluctuations will be essential for maintaining its trajectory. Further details on the impact assessment of CSR initiatives would improve transparency.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The provided annual report gives slightly different figures for consolidated and standalone financial statements. Here’s a breakdown of the requested values, separating standalone and consolidated figures:

I. Standalone Financial Statements (for KDDL Limited only, excluding subsidiaries):

• Total Assets: Rs. 56,572.91 Lacs (Rs. 5.66 Billion)
• Current Assets: Rs. 25,696.73 Lacs (Rs. 2.57 Billion)
• Cash and Cash Equivalents: Rs. 13,605.11 Lacs (Rs. 1.36 Billion)
• Accounts Receivable (Trade Receivables): Rs. 5,150.55 Lacs (Rs. 515 Million)
• Inventory: Rs. 4,569.96 Lacs (Rs. 457 Million)

II. Consolidated Financial Statements (KDDL Limited and all subsidiaries):

• Total Assets: Rs. 1,64,152.72 Lacs (Rs. 16.42 Billion)
• Current Assets: Rs. 1,17,446.51 Lacs (Rs. 11.74 Billion)
• Cash and Cash Equivalents: Rs. 23,897.06 Lacs (Rs. 2.39 Billion)
• Accounts Receivable (Trade Receivables): Rs. 7,063.44 Lacs (Rs. 706 Million)
• Inventory: Rs. 48,982.37 Lacs (Rs. 4.90 Billion)

Important Note: All figures are in Indian Rupees (INR) and expressed in Lacs (1 Lac = 100,000). The significant difference between standalone and consolidated values highlights the substantial contribution of subsidiaries, especially Ethos Limited, to the overall financial picture of the KDDL Group.

Liability Analysis #

Similar to the assets, the liability figures differ between the standalone and consolidated financial statements. Here’s the breakdown:

I. Standalone Financial Statements (KDDL Limited only):

• Total Liabilities: Rs. 16,864.96 Lacs (Rs. 1.69 Billion)
• Current Liabilities: Rs. 12,702.80 Lacs (Rs. 1.27 Billion)
• Long-Term Debt (Non-current Borrowings): Rs. 3,213.69 Lacs (Rs. 321 Million) Note that this excludes current maturities of long-term debt.
• Accounts Payable (Trade Payables): Rs. 2,149.32 Lacs (Rs. 215 Million) This includes amounts owed to micro, small and medium enterprises.

II. Consolidated Financial Statements (KDDL Limited and all subsidiaries):

• Total Liabilities: Rs. 49,722.72 Lacs (Rs. 4.97 Billion)
• Current Liabilities: Rs. 32,715.89 Lacs (Rs. 3.27 Billion)
• Long-Term Debt (Non-current Borrowings): Rs. 4,425.71 Lacs (Rs. 443 Million) Note that this excludes current maturities of long-term debt.
• Accounts Payable (Trade Payables): Rs. 12,404.07 Lacs (Rs. 1.24 Billion) This includes amounts owed to micro, small and medium enterprises.

Important Note: All figures are in Indian Rupees (INR) and are expressed in Lacs (1 Lac = 100,000). The significant difference between standalone and consolidated values again underscores the substantial impact of including subsidiary companies’ financial positions within the overall group reporting. Remember that “Long-Term Debt” here represents the portion of debt not due within one year; the current portion is included under current liabilities.

Equity Analysis #

Again, we need to distinguish between the standalone and consolidated figures presented in the annual report:

I. Standalone Financial Statements (KDDL Limited only):

• Shareholders’ Equity: Rs. 39,707.95 Lacs (Rs. 3.97 Billion)
• Retained Earnings: Rs. 25,650.61 Lacs (Rs. 2.57 Billion)
• Share Capital: Rs. 1,262.42 Lacs (Rs. 126 Million)

II. Consolidated Financial Statements (KDDL Limited and all subsidiaries):

• Shareholders’ Equity: Rs. 73,395.52 Lacs (Rs. 7.34 Billion) This is equity attributable to the owners of the parent company.
• Retained Earnings: Rs. 12,889.45 Lacs (Rs. 1.29 Billion) This is for the parent company only; consolidated retained earnings are not directly stated.
• Share Capital: Rs. 1,262.42 Lacs (Rs. 126 Million) This remains consistent between standalone and consolidated statements as it represents only the Parent Company’s share capital.

Important Note: All figures are in Indian Rupees (INR) and expressed in Lacs (1 Lac = 100,000). The discrepancies between standalone and consolidated shareholders’ equity are primarily due to the inclusion of non-controlling interests in subsidiaries in the consolidated figures. The consolidated statement does not explicitly list consolidated retained earnings; rather, it shows the total other equity, which includes retained earnings for the parent company and reserves of subsidiaries.

Income Statement #

Operating Performance #

The annual report provides both standalone and consolidated figures. Here’s a breakdown of the requested data, separating the two:

I. Standalone Financial Statements (KDDL Limited only):

• Revenue: Rs. 35,062.51 Lacs (Rs. 350.6 Million)
• Cost of Revenue: Rs. 8,274.56 Lacs (Rs. 82.7 Million) This includes cost of raw materials consumed and changes in inventories.
• Gross Profit: Rs. 26,788 Lacs (Rs. 267.9 Million) (Revenue - Cost of Revenue)
• Operating Expenses: Rs. 29,968.58 Lacs (Rs. 299.7 Million) This includes employee benefits, finance costs, depreciation and amortisation, and other expenses.
• Operating Income: Rs. 2,540.1 Lacs (Rs. 254.0 Million) (Revenue - Cost of Revenue - Operating Expenses) Note that the report’s “Profit before tax” includes adjustments related to items of income/expense not directly from operations (like dividends and profit/losses on investments). The number shown here is calculated from the operating revenue, costs and operating expenses.

II. Consolidated Financial Statements (KDDL Limited and all subsidiaries):

• Revenue: Rs. 1,39,103.20 Lacs (Rs. 1.39 Billion)
• Cost of Revenue: Rs. 89,643.15 Lacs (Rs. 896.4 Million) This includes cost of raw materials consumed and changes in inventories.
• Gross Profit: Rs. 49,459.05 Lacs (Rs. 494.6 Million) (Revenue - Cost of Revenue)
• Operating Expenses: Rs. 1,23,428.40 Lacs (Rs. 1.23 Billion) This includes employee benefits, finance costs, depreciation and amortisation, and other expenses.
• Operating Income: Rs. 15,674.80 Lacs (Rs. 156.7 Million) (Revenue - Cost of Revenue - Operating Expenses) Note that the report’s “Profit before tax” includes adjustments related to items of income/expense not directly from operations (like dividends and profit/losses on investments). This number is calculated from the operating revenue, costs and operating expenses.

Important Note: All figures are in Indian Rupees (INR) and expressed in Lacs (1 Lac = 100,000). The significant difference between the standalone and consolidated figures emphasizes the substantial contribution of subsidiaries to the Group’s overall financial performance. The standalone statement shows a much smaller cost of goods sold because it excludes the costs of the consolidated entities. The consolidated revenue figures includes all sales revenue for the Group.

Bottom Line Metrics #

Again, we need to differentiate between the standalone and consolidated results:

I. Standalone Financial Statements (KDDL Limited only):

• Net Income (Profit for the Year): Rs. 22,004.96 Lacs (Rs. 220.0 Million)
• EBITDA: Rs. 92.5 Lacs (Rs. 92.5 Million) - note that this is taken from the “Growing Across Parameters” section and not directly calculated from the standalone Profit & Loss statement
• Basic EPS: Rs. 175.52
• Diluted EPS: Rs. 175.52

II. Consolidated Financial Statements (KDDL Limited and all subsidiaries):

• Net Income (Profit for the Year): Rs. 13,745.18 Lacs (Rs. 137.5 Million)
• EBITDA: Rs. 277.38 Lacs (Rs. 277.4 Million) - note that this is taken from the “Growing Across Parameters” section and not directly calculated from the consolidated Profit & Loss statement.
• Basic EPS: Rs. 81.90
• Diluted EPS: Rs. 81.90

Important Note: All amounts are in Indian Rupees (INR). The difference between standalone and consolidated figures again reflects the impact of including subsidiaries. The EBITDA figures are taken from a summary table and not a direct calculation from the income statement, making it potentially different from the income statement’s “Profit Before Interest, Depreciation and Exceptional Item” which is also called EBITDA by many entities. The standalone and consolidated EPS figures differ because of the different net income and number of shares outstanding.

Cash Flow #

Cash Flow Components #

Here’s a breakdown of the operating, investing, and financing cash flows, again separating the standalone and consolidated figures:

I. Standalone Cash Flow Statement (KDDL Limited only):

• Cash Flow from Operating Activities: Rs. 7,972.32 Lacs (Rs. 797.2 Million)
• Cash Flow from Investing Activities: Rs. 10,772.25 Lacs (Rs. 1.08 Billion)
• Cash Flow from Financing Activities: Rs. (9,850.06) Lacs (Rs. -985.1 Million)

II. Consolidated Cash Flow Statement (KDDL Limited and all subsidiaries):

• Cash Flow from Operating Activities: Rs. 9,786.82 Lacs (Rs. 978.7 Million)
• Cash Flow from Investing Activities: Rs. 6,552.45 Lacs (Rs. 655.2 Million)
• Cash Flow from Financing Activities: Rs. 1,721.20 Lacs (Rs. 172.1 Million)

Important Note: All figures are in Indian Rupees (INR) and expressed in Lacs (1 Lac = 100,000). The negative sign in parentheses indicates a net cash outflow for that activity. The substantial differences between the standalone and consolidated cash flow statements further emphasize the significant impact of the subsidiary companies’ financial activities on the overall Group’s cash flows. The investing activities of the standalone cash flow statement are especially different compared to the consolidated because the standalone statement only accounts for the direct investments of the parent company, which makes the investing activities much larger than the consolidated investing activities.

Cash Flow Metrics #

The annual report doesn’t directly provide a calculated free cash flow figure. Free cash flow (FCF) is typically calculated as operating cash flow less capital expenditures. We can, however, estimate it using the data provided, and examine the capital expenditure and dividends paid separately. Again, we need to differentiate between standalone and consolidated figures where possible:

I. Standalone Figures (KDDL Limited only):

• Capital Expenditure (CAPEX): The report mentions CAPEX of approximately Rs. 39 Crores (Rs. 390 Million) for the year. This is taken from the Chairman’s message and is not broken down in the financial statements.
• Dividends Paid: Rs. 7,522.27 Lacs (Rs. 752.2 Million) - this is from the Statement of Changes in Equity, representing both interim and final dividends.
• Estimated Free Cash Flow: To calculate FCF, we need the operating cash flow from the standalone statement: Rs. 7,972.32 Lacs (Rs. 797.2 Million). Therefore, an estimate of free cash flow is: Rs. 7,972.32 Lacs - Rs. 390.00 Lacs = Rs. 7,582.32 Lacs (Rs. 758.2 Million). This is an estimate because the actual CAPEX from the financial statement is not specified.

II. Consolidated Figures (KDDL Limited and all subsidiaries):

• Capital Expenditure (CAPEX): The consolidated CAPEX is not explicitly stated. However, it’s likely higher than the standalone figure because it would include CAPEX of all subsidiaries. The standalone CAPEX is estimated at Rs. 390 million
• Dividends Paid: The consolidated dividends paid are not directly stated but are included within the consolidated cash flow from financing activities. The dividends paid by the Parent Company are Rs. 7,522.27 Lacs.
• Estimated Free Cash Flow: The consolidated operating cash flow is Rs. 9,786.82 Lacs (Rs. 978.7 Million). Therefore, we cannot accurately estimate the consolidated FCF without knowing the consolidated CAPEX.

Important Note: All amounts are in Indian Rupees (INR). The standalone FCF is an estimate due to the absence of a precise CAPEX figure directly in the standalone cash flow statement. The consolidated FCF calculation is impossible without more detailed information on the consolidated CAPEX figure. The large difference between the standalone and consolidated statements highlights the significant impact of subsidiaries on the overall Group’s cash position and flow. A more precise FCF calculation would require access to more granular data and potentially require further assumptions.

Profitability Ratios #

Profitability ratios can be calculated using the data from the standalone and consolidated financial statements. However, keep in mind that some figures, like EBITDA, are taken from summary tables and may differ slightly from what would be calculated from the income statements. Also, the “profit before tax” values include non-operating income and expenses, meaning that a purely operational margin will be different.

I. Standalone Profitability Ratios (KDDL Limited only):

To calculate these accurately, we need to use the figures from the Standalone Statement of Profit and Loss:

• Gross Profit Margin: (Gross Profit / Revenue) * 100 = (26,787.00/35,062.51) * 100 = 76.4%
• Operating Profit Margin: (Operating Income / Revenue) * 100 = (2,540.1/35,062.51) * 100 = 7.24%
• Net Profit Margin: (Net Income / Revenue) * 100 = (22,004.96 / 35,062.51) * 100 = 62.77%
• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100 = (22,004.96 / ((25,322.99 + 38,445.53)/2)) * 100 = 54.86%
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100 = (22,004.96 / ((41,340.29 + 56,572.91)/2)) * 100 = 36.83%

II. Consolidated Profitability Ratios (KDDL Limited and all subsidiaries):

Again, using the figures from the Consolidated Statement of Profit and Loss for a more accurate calculation:

• Gross Profit Margin: (Gross Profit / Revenue) * 100 = (49,459.05 / 1,39,103.20) * 100 = 35.53%
• Operating Profit Margin: (Operating Income / Revenue) * 100 = (15,674.80 / 1,39,103.20) * 100 = 11.27%
• Net Profit Margin: (Net Income / Revenue) * 100 = (13,745.18 / 1,39,103.20) * 100 = 9.88%
• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100 = (13,745.18 / ((70,214.86 + 1,14,430.00)/2)) * 100 = 10.89%
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100 = (13,745.18 / ((1,16,052.51 + 1,64,152.72)/2))* 100 = 9.74%

Important Note: All percentages are rounded. The substantial differences between standalone and consolidated ratios underscore the significant influence of the subsidiaries’ financial performance on the overall Group results. These calculations use the figures provided directly within the statements of profit and loss and balance sheets. Use of the summary EBITDA values would provide differing operating margins and ROCE values. Using the “Profit Before Tax” values would provide a slightly different Net Profit Margin, as it is not a purely operational profit.

Liquidity Ratios #

Liquidity ratios assess a company’s ability to meet its short-term obligations. Calculations below use the figures from the balance sheets and are rounded to two decimal places. Remember that there are slight differences between the standalone and consolidated figures, reflecting the inclusion of subsidiaries in the consolidated statements.

I. Standalone Liquidity Ratios (KDDL Limited only):

• Current Ratio: Current Assets / Current Liabilities = 25,696.73 / 12,702.80 = 2.02
• Quick Ratio: (Current Assets - Inventories) / Current Liabilities = (25,696.73 - 4,569.96) / 12,702.80 = 1.66
• Cash Ratio: (Cash and Cash Equivalents) / Current Liabilities = 13,605.11 / 12,702.80 = 1.07

II. Consolidated Liquidity Ratios (KDDL Limited and all subsidiaries):

• Current Ratio: Current Assets / Current Liabilities = 1,17,446.51 / 32,715.89 = 3.59
• Quick Ratio: (Current Assets - Inventories) / Current Liabilities = (1,17,446.51 - 48,982.37) / 32,715.89 = 2.10
• Cash Ratio: (Cash and Cash Equivalents) / Current Liabilities = 23,897.06 / 32,715.89 = 0.73

Important Note: All ratios are rounded to two decimal places. The significant differences between standalone and consolidated ratios again reflect the influence of subsidiaries. A higher current ratio is generally preferred, indicating greater short-term liquidity. The quick and cash ratios provide a more conservative assessment of liquidity by excluding inventories (which may not be readily convertible to cash) and other less liquid assets. The consolidated current and quick ratios are substantially higher than the standalone, suggesting the consolidated entity has a much stronger short-term liquidity position. The consolidated cash ratio, however, is lower, suggesting that a greater portion of its current assets are tied up in less liquid forms than the standalone entity.

Efficiency Ratios #

Efficiency ratios measure how effectively a company uses its assets to generate sales. Calculating these requires some assumptions, as the annual report doesn’t explicitly state all necessary figures. We’ll use the available information and make reasonable assumptions to provide estimates. The results will differ between standalone and consolidated figures due to the inclusion of subsidiaries in the consolidated statements. Additionally, precise calculations are difficult without additional details on credit sales, which is not explicitly given in the reports.

I. Standalone Efficiency Ratios (KDDL Limited only):

• Asset Turnover: Net Sales / Average Total Assets. We’ll use the standalone net sales (net of export incentives) from the profit and loss statement of Rs. 33,561.42 Lacs. The average total assets are calculated as (41,340.29 + 56,572.91)/2 = 48,956.60. Therefore, Asset Turnover ≈ 33,561.42 / 48,956.60 ≈ 0.69 times.
• Inventory Turnover: Cost of Goods Sold / Average Inventory. Using the standalone cost of goods sold (Rs. 8,274.56 Lacs) and averaging the beginning and ending inventory values (Rs. 3,908.02 + Rs. 4,569.96) / 2 = Rs. 4,239.00 Lacs, we get: Inventory Turnover ≈ 8,274.56 / 4,239.00 ≈ 1.95 times.
• Receivables Turnover: Net Credit Sales / Average Accounts Receivable. Since the exact net credit sales is not directly provided, we will estimate it assuming the net credit sales is nearly identical to the net sales figure from the income statement. Averaging beginning and ending accounts receivable (Rs. 6,001.82 + Rs. 5,150.55)/2 = Rs. 5,576.19 Lacs. Therefore, Receivables Turnover ≈ 33,561.42 / 5,576.19 ≈ 6.02 times.

II. Consolidated Efficiency Ratios (KDDL Limited and all subsidiaries):

• Asset Turnover: Net Sales / Average Total Assets. Using the consolidated net sales figure (net of export incentives) and average total assets, we get: Net Sales ≈ 1,39,103.20 Lacs, Average Total Assets ≈ (1,16,052.51 + 1,64,152.72)/2 = 1,40,102.62 Lacs. Therefore, Asset Turnover ≈ 1,39,103.20 / 1,40,102.62 ≈ 0.99 times.
• Inventory Turnover: Cost of Goods Sold / Average Inventory. Using the consolidated cost of goods sold (Rs. 89,643.15 Lacs) and average inventory (Rs. 38,097.83 + Rs. 48,982.37) / 2 = Rs. 43,540.10 Lacs: Inventory Turnover ≈ 89,643.15 / 43,540.10 ≈ 2.06 times.
• Receivables Turnover: Net Credit Sales / Average Accounts Receivable. Again, using a reasonable assumption that the Net Credit Sales is approximately equal to Net Sales, and averaging the beginning and ending accounts receivable: Average Accounts Receivable ≈ (6,243.24 + 7,063.44)/2 = 6,653.34 Lacs. Therefore, Receivables Turnover ≈ 1,39,103.20 / 6,653.34 ≈ 20.90 times.

Important Considerations:

• Estimates: These are estimates due to the absence of precise data on net credit sales in the report.
• Industry Benchmarks: To meaningfully interpret these ratios, comparison with industry averages and competitors’ performance is necessary.
• Consolidated vs. Standalone: The considerable differences between standalone and consolidated ratios highlight the various operational characteristics of KDDL Limited and its subsidiaries. The higher Receivables Turnover Ratio for the consolidated entity may suggest more efficient credit management by some subsidiaries, or that the subsidiaries’ operations are less capital-intensive than the Parent Company.

The calculations shown above offer a reasonable approximation of the efficiency ratios. More precise calculations would require access to the missing data (like detailed credit sales figures). It’s also essential to remember that these ratios should be considered alongside other financial metrics and industry benchmarks for a more detailed evaluation of the Company’s performance.

Leverage Ratios #

Leverage ratios indicate the extent to which a company uses debt financing. The calculations below use data from the balance sheets and are rounded to two decimal places. Remember the distinctions between standalone and consolidated figures, reflecting the inclusion of subsidiaries in the consolidated statements. Also note that there are multiple ways to calculate these ratios and different approaches may be used depending on the specific needs and goals of the user.

I. Standalone Leverage Ratios (KDDL Limited only):

• Debt-to-Equity Ratio: Total Debt / Shareholders’ Equity = 16,864.96 / 39,707.95 = 0.42
• Debt-to-Assets Ratio: Total Debt / Total Assets = 16,864.96 / 56,572.91 = 0.30
• Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense. EBIT for the standalone entity is not directly available, so “Profit Before Interest and Taxes” is used instead of EBIT in this calculation: 2,678.70 / 885.07 = 3.02

II. Consolidated Leverage Ratios (KDDL Limited and all subsidiaries):

• Debt-to-Equity Ratio: Total Debt / Total Shareholders’ Equity = 49,722.72 / 1,14,430.00 = 0.43
• Debt-to-Assets Ratio: Total Debt / Total Assets = 49,722.72 / 1,64,152.72 = 0.30
• Interest Coverage Ratio: EBIT / Interest Expense. The consolidated EBIT is not available so “Profit Before Interest and Taxes” is used for the calculation instead: 18,623.09 / 2,622.37 = 7.10

Important Notes:

• Rounding: All ratios are rounded to two decimal places for simplification.
• Debt Definition: “Total Debt” generally includes both current and non-current liabilities. However, different users may modify this to exclude certain liabilities like accounts payable.
• EBIT vs. Profit Before Interest and Taxes: While EBITDA is frequently used as a proxy for operating income, many entities prefer to use EBIT as the appropriate figure to use. In the absence of this information in the report, the calculation is made using “Profit Before Interest and Taxes” which is directly available, as it is also a commonly used measure of profitability. The use of EBIT would give a different interest coverage ratio.
• Shareholder’s Equity: Consolidated shareholder’s equity is used in the consolidated calculation, reflecting equity attributable to the parent company.
• Interpretation: Lower debt ratios generally indicate less financial risk. A higher interest coverage ratio signifies a company’s greater ability to meet its interest obligations.

The consolidated and standalone debt-to-equity ratios are reasonably similar, which indicates the similar financial use for the Holding Company and its subsidiaries, though the consolidated debt is substantially larger in value. The interest coverage ratio is higher for the consolidated entity, suggesting a stronger ability to cover interest expense. This improved coverage ratio likely reflects the improved consolidated profitability. It is important to remember that these ratios provide only a partial picture of the company’s financial health, and should be used in conjunction with other financial indicators and industry benchmarks for a detailed analysis.

Market Analysis #

Market Metrics #

The annual report provides some of this information but not all, requiring calculations and assumptions.

I. Market Capitalization:

The report states:

• BSE Market Cap: Rs. 3,133.00 Crores (Rs. 31.33 Billion)
• NSE Market Cap: Rs. 3,074.41 Crores (Rs. 30.74 Billion)

These figures represent the market value of the company’s outstanding shares at the time of reporting. There’s a slight discrepancy between the BSE and NSE values likely due to differing trading volumes or timing of the data.

II. Price-to-Earnings Ratio (PE Ratio):

The PE ratio requires the market price per share and earnings per share (EPS). The report provides the EPS (both basic and diluted), but the market price is not explicitly stated, so a calculation isn’t possible without this additional information.

III. Price-to-Book Ratio (PB Ratio):

The PB ratio requires the market price per share and book value per share. Similar to the PE ratio, the market price per share is missing from the report, precluding the calculation. The book value per share can be approximated using the shareholders’ equity data from the balance sheet (both standalone and consolidated), which would need to be divided by the total number of shares outstanding.

IV. Dividend Yield:

Dividend Yield is calculated as (Annual Dividend per Share / Market Price per Share) * 100. Since the market price per share is not provided, we can’t calculate the dividend yield. The annual dividend per share needs to be calculated by summing the interim and final dividends (Rs. 58 + Rs. 4 = Rs. 62).

V. Dividend Payout Ratio:

The dividend payout ratio is calculated as (Total Dividends Paid / Net Income) * 100. Using the standalone figures:

• Standalone Dividend Payout Ratio: (7,522.27 / 22,004.96) * 100 ≈ 34.18%

Using the consolidated figures:

• Consolidated Dividend Payout Ratio: (7,493.35 + 501.48) / 13,745.18) * 100 ≈ 62.0%

Important Notes:

• Missing Data: The absence of the market price per share prevents the calculation of the PE and PB ratios, and an exact dividend yield.
• Data Discrepancies: The use of different Net Income figures (standalone vs. consolidated) and potentially different total dividend payouts may have led to different Dividend Payout Ratio.
• Approximation: The book value calculations would be an approximation, as the market value is not explicitly defined.

In summary, only the market capitalization and dividend payout ratio can be calculated directly using the provided data. The PE ratio, PB ratio, and dividend yield require additional information (market price per share) that is not provided in the annual report. The provided calculations are approximations and should be interpreted with caution given the data limitations. They would need to be supplemented by publicly available market data to arrive at definitive values.

Business Analysis #

Segment Analysis #

The annual report provides information on KDDL’s business segments, but not all the requested details are explicitly stated. We’ll piece together the available information to create a summary. Note that some data (like precise market share figures) are not provided directly.

Business Segment Overview:

Notes:

• Ethos Limited Revenue: The consolidated revenue figures include Ethos Limited’s performance. However, the report doesn’t clearly separate Ethos’ revenue from the consolidated total. A separate breakdown is unavailable in the provided documents. The significant growth reported for Ethos, however, suggests a major contribution to the overall growth.
• Operating Margins: Precise operating margins for each segment are not explicitly provided in the financial statements. The estimates above are based on the qualitative descriptions given in the report (e.g., “high” margins for watch components and precision engineering implying a high operating income as a percentage of revenue).
• Market Share Estimates: KDDL claims to be a leading manufacturer of watch components in India and a major player in the global precision engineering market, but precise market share percentages aren’t given. The estimates here are based on their claims and the descriptions provided, which are considered qualitative in nature.
• Revenue Growth: Growth rates are calculated by comparing FY2023-24 revenue figures with those for FY2022-23 (as available). Standalone revenue growth for watch components and for the whole company differs significantly from the consolidated revenue growth.
• Geographic Presence: The descriptions of geographic presence are based on the information given about sales in different markets and manufacturing locations.

This table provides a summary of available information about KDDL’s business segments. More detailed data would be needed for precise calculations of operating margins and market shares. The data on Ethos Limited is especially incomplete within the provided documents. More detailed financial data for individual subsidiaries would greatly improve the clarity of the analysis for this segment.

Risk Assessment #

The annual report identifies many key risk factors, but doesn’t always explicitly categorize them or quantify their likelihood and impact. We’ll summarize the risks, inferring categories and levels where possible, based on the descriptions provided:

Key Risk Factors Summary:

Notes:

• Impact Severity and Likelihood: These are inferred based on the qualitative descriptions of risk in the report. A more rigorous risk assessment would likely involve assigning numerical probabilities and impact scores.
• Mitigation Strategies: The report outlines some mitigation strategies, but further details could be beneficial for a detailed understanding. The mitigation strategies listed here are primarily taken from the provided document.
• Trends: The trends column reflects the general direction of the risks, indicating whether they are likely to increase, decrease, or remain stable in the coming periods.

This table provides a structured overview of the risks. The annual report’s qualitative descriptions are interpreted and categorised here for a more robust analysis. More detailed quantitative risk assessments would provide a more in-depth picture of the risks and their potential consequences.

Strategic Overview #

Management Assessment #

KDDL’s management highlights many key strategies, competitive advantages, market conditions, challenges, and opportunities in the annual report. Here’s a summary:

I. Key Strategies:

• Focus on Innovation and Quality: Continuously investing in R&D and adopting advanced manufacturing technologies to improve product quality and meet stringent international standards. This is evident in the adoption of lasers and advanced surface treatments in manufacturing.
• Strategic Expansion: Expanding manufacturing capacity and capabilities, especially with the new steel bracelet plant. This aims to cater to the increasing demand in the mid-to-high end Swiss and European watch markets and diversifies revenue streams.
• Diversification: Expanding into new market segments (e.g., electric vehicles, renewable energy) within the precision engineering business to reduce reliance on a single sector. The entry of the group into the Swiss watch making business is also an example of this.
• Enhanced Market Reach: Leveraging digital marketing and social media to broaden customer reach and engagement, especially in export markets.
• Brand Acquisition (Favre-Leuba): Acquiring established luxury brands to strengthen its position in the premium watch segment.
• Upgrading Value Chain: Moving towards higher-value, complex components and parts to increase margins and reduce reliance on low-margin businesses.

II. Competitive Advantages:

• Leading Watch Component Manufacturer: Established reputation as a leading manufacturer of high-quality watch components.
• Proven Track Record: Long history of meeting stringent quality standards and consistently delivering high-quality products to esteemed clients.
• Global Relationships: Strong ties with luxury watch manufacturers worldwide, fostering long-term partnerships.
• Customised Expertise: Ability to meet specific, customized requirements of luxury watch manufacturers.
• Trusted Partner: Built a strong reputation for reliability and consistent delivery.
• Advanced Manufacturing Capabilities: Utilizing cutting-edge technology and processes in its manufacturing operations. This is stated to include laser technology and advanced surface treatments.
• Strong Market Position (Ethos): Ethos Limited is reported as the largest retailer of premium luxury watches in India (at the time of the sale of the stake) providing a significant competitive edge.

III. Market Conditions:

• Robust Indian Watch Market: Strong growth potential in the Indian watch market is mentioned, driven by increased disposable income, a growing middle class, and increased participation of women in the workforce.
• Growing Global Demand for Precision Components: Increased demand for precision-engineered components, especially with the “China plus 1” strategy of global companies sourcing from various locations.
• Competitive Swiss Watch Market: The Swiss watch market remains highly competitive, with a cyclical demand and potential for slowdown in certain price segments.
• Sustainability Trend: The growing focus on sustainable practices in the watch and other engineering industries is creating both challenges and opportunities.

IV. Challenges:

• Export Market Slowdown: A recent slowdown has been seen in the export market for watch components due to many macroeconomic factors and reduced consumer confidence, despite the overall market remaining positive.
• Domestic Market Stagnation: The domestic market for watch components experienced stagnation in the second half of FY2023-24 due to high inventory levels among customers.
• Currency Fluctuations: Exposure to foreign exchange risks due to a significant portion of sales being denominated in foreign currencies.
• Talent Acquisition and Retention: Difficulty in finding and retaining qualified personnel in a competitive labour market.
• Supply Chain Disruptions: Vulnerability to global supply chain disruptions.

V. Opportunities:

• Expansion in the Steel Bracelet Market: The new steel bracelet plant represents a significant opportunity to expand into a new high-growth segment and capture a share of the international Swiss and European markets.
• Growth in Precision Engineering: Strong growth potential in precision engineering, driven by increasing demand in high-growth sectors.
• Favre-Leuba Relaunch: The acquisition of Favre-Leuba provides a significant opportunity to use an established brand and enter the premium Swiss watch market.
• Continued Expansion in India’s Luxury Watch Market: Ethos’ (prior to the stake sale) strong market position positions the group well to capitalise on the continued growth of the Indian luxury watch market.
• Sustainability Focus: The increasing consumer and industry emphasis on sustainable practices presents opportunities to differentiate and gain a competitive edge through environmentally responsible operations.

In conclusion, KDDL’s strategy focuses on leveraging its existing strengths, diversifying its operations, and capitalising on emerging market opportunities. While the company faces many challenges, its strong financial position, proactive risk management approach, and commitment to innovation and sustainability position it well for continued success and growth.

ESG Ratings #

The provided annual report does not contain ESG ratings from any specific rating agencies. While the report details various ESG initiatives undertaken by KDDL, it does not include scores or ratings from organizations like MSCI, Sustainalytics, Refinitiv, etc. To find ESG ratings, you would need to consult independent ESG rating providers’ databases.

ESG Initiatives #

KDDL’s annual report details many environmental, social, and governance (ESG) initiatives, although it lacks quantitative data in some areas, especially regarding the carbon footprint. Here’s a summary:

I. Environmental Initiatives:

• The Million-Tree Project: A flagship initiative aiming to plant and preserve 1 million trees in deforested regions. The report states that 77,892 trees have been planted as of the reporting date. Partnerships with Isha Foundation, SayTrees, and SankalpTaru are highlighted.
• Energy Conservation: The report mentions the adoption of LED lighting and exploration of renewable energy sources to reduce energy consumption. However, specific data on energy consumption and reductions are not available in the easily accessible portions of the annual report.
• Water Management: The report states that wastewater treatment plants are in operation to treat and reuse wastewater, but does not provide details or quantify its impact. Measures for reducing freshwater consumption are also mentioned, but no data is provided.
• Waste Reduction: The report highlights a waste reduction of 28.8 metric tonnes in FY2023-24. It mentions responsible waste disposal through third-party vendors, but details regarding waste generation and composition are not provided.

II. Carbon Footprint:

The annual report does not provide a quantified carbon footprint for KDDL. While various environmental initiatives are described, there’s no data on total greenhouse gas emissions (Scope 1, 2, or 3). This is a significant omission for a detailed ESG assessment. Calculations are made for certain aspects (like emission intensity in the consolidated financial statements), but the overall footprint remains undisclosed.

III. Social Initiatives:

• Skill Development for Slum Children: Collaboration with NGOs to provide skill development and computer training programs to underprivileged children.
• Organ Donation Awareness: Supporting organ donation awareness campaigns through partnerships with organizations like the MOHAN Foundation.
• Community Support: Financial grants provided to SayTrees and SankalpTaru for environmental initiatives.

IV. Governance Practices:

• Board of Directors: A various board with a balance of executive and independent directors. Regular Board meetings and committee meetings are mentioned.
• Board Committees: The existence and roles of the Audit Committee, Nomination & Remuneration Committee, CSR Committee, Risk Management Committee, and Stakeholders’ Relationship Committee are detailed. These are described in significant detail within the report.
• Internal Controls: Emphasis on establishing and maintaining a robust system of internal financial controls. Internal and external audits are regularly performed.
• Vigil Mechanism: A Whistleblower Policy is in place to encourage reporting of unethical practices.
• Compliance: The report mentions adherence to various legal and regulatory requirements related to corporate governance, environmental protection, and labor laws.
• Ethical Conduct: Strong emphasis on business ethics and integrity throughout the report.

V. Sustainability Goals:

While specific, quantified sustainability goals are not explicitly stated with deadlines, many initiatives point to overarching goals of:

• Environmental conservation: Reducing environmental impact through energy conservation, water management, and waste reduction. The Million-Tree Project specifically aims to plant 1 million trees by 2030.
• Social progress: Empowering underprivileged communities, promoting education, and enhancing access to healthcare and other social initiatives.
• Good Governance: Maintaining high ethical standards, transparency, and accountability in all business operations.

Overall Assessment:

KDDL’s annual report demonstrates a commitment to ESG principles through many initiatives. However, a lack of key quantitative data (particularly regarding carbon footprint and energy consumption) limits a precise evaluation of its sustainability performance. Providing more detailed data, including baselines, targets, and progress toward those goals would significantly strengthen the ESG reporting and allow for a more informed assessment.

Additional Information #

Operational Metrics #

The annual report does not provide a specific figure for R&D expenditure. While the report mentions investments in R&D and new product development, the actual amount spent is not disclosed.

Regarding employee count:

• Total Employee Count (Standalone): 2,282 (This number is stated in the “Growing Across Parameters” section)
• Total Employee Count (Consolidated): Not explicitly stated.

The standalone figure represents the total number of employees working directly for KDDL Limited. The consolidated figure is not given, so it is not possible to determine the exact number of employees in the subsidiary entities. The consolidated headcount is likely significantly higher.

Key Events #

Several significant events are mentioned in KDDL’s annual report for FY2023-24:

• Inauguration of New Steel Bracelet Plant (Bengaluru): A major CAPEX investment to expand manufacturing capabilities and enter the high-value steel bracelet market for Swiss and European watch brands. This is a key strategic move aimed at diversifying revenue streams and reducing reliance on the more volatile watch component market.

• Acquisition of Favre-Leuba Trademark: Acquisition of the Favre-Leuba trademark, a historic Swiss watch brand. This strategic move aims to establish KDDL as a player in the premium Swiss watch segment and opens new opportunities for growth in design, development, assembly, and marketing of watches.

• Planned Favre-Leuba Global Launch: A planned global launch of a new Favre-Leuba watch collection in August 2024, signaling a significant step in KDDL’s luxury watch ambitions.

• Ethos Limited Stake Sale: A strategic decision to sell a stake in Ethos Limited (the luxury watch retail subsidiary), generating substantial capital that will support further expansion and shareholder rewards.

• Expansion of Dial Manufacturing Capacity: The increase in production capacity for watch dials at the Derabassi plant, to 0.5 million, to cater to the growing demand in the medium-to-high end export market. This move strengthens the company’s presence and position within the export market.

• Establishment of New Packaging Facility: Plans to establish a new packaging facility near Chandigarh to increase capacity and potentially enter the export packaging market.

• Impairment of Investments: The recognition of an impairment allowance on investments in overseas subsidiaries due to the permanent diminution in their value. This highlights the risk factors associated with international investment.

These events reflect KDDL’s focus on strategic growth, diversification, expansion into the luxury watch sector, and proactive management of its investments. The success of these initiatives will be key to the company’s future performance.

Audit Information #

Auditor’s Opinion:

The independent auditor, S.R. Batliboi & Co. LLP, issued an unqualified opinion on both the standalone and consolidated Ind AS financial statements of KDDL Limited for the year ended March 31, 2024. This means the auditors found the financial statements to present a true and fair view in conformity with the accounting principles generally accepted in India.

However, there were some important points to note:

• Key Audit Matters: The auditor’s report highlights key audit matters. These matters, described in detail in the report, primarily concerned the impairment of investments in subsidiaries and the accounting of inventories. The auditor performed extensive procedures to address these matters. In particular, there was a detailed assessment of the management’s valuation process and a review of the various key assumptions used to determine the impairment allowance. For the inventory, the assessment of the internal controls surrounding physical inventory counts, the valuation of inventory and allowances made for inventory were reviewed.
• Emphasis of Matter (Consolidated): For the consolidated financial statements, an emphasis of matter paragraph highlighted the subsidiary Estima AG’s assessment of the recoverable amount of tangible assets. The auditor of Estima AG also included an emphasis of matter paragraph in their report. The opinion on the consolidated financial statements is not modified in respect of this matter.
• Other Information: The auditor’s opinion does not cover information included in the annual report that is not part of the financial statements themselves (the “other information”). However, the auditor did review the “other information” to check for any material inconsistency with the financial statements.

Key Accounting Policies:

The annual report outlines the following key accounting policies applied in preparing the financial statements:

• Basis of Preparation: The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS), as notified under the Companies (Indian Accounting Standards) Rules, 2015, and relevant Indian laws.
• Basis of Measurement: Primarily historical cost, except for certain financial assets and liabilities measured at fair value, and defined benefit plans.
• Current vs. Non-Current Classification: A 12-month operating cycle is used to classify assets and liabilities as current or non-current.
• Investments: Investments in subsidiaries, associates, and joint ventures are accounted for using the cost method, less impairment.
• Property, Plant, and Equipment (PPE): PPE is measured at cost less accumulated depreciation and impairment losses. Depreciation is calculated using the straight-line method, based on useful lives.
• Intangible Assets: Intangible assets are measured at cost less accumulated amortisation and impairment. Amortisation is done using the straight-line method based on estimated useful lives. Research costs are expensed, while development costs are capitalised under certain conditions.
• Inventories: Inventories are valued at the lower of cost and net realisable value, using methods such as weighted average cost.
• Employee Benefits: Short-term employee benefits are expensed as incurred. Post-employment benefits are accounted for as defined contribution plans (e.g., PF, ESI) and defined benefit plans (e.g., gratuity).
• Government Grants: Recognised when there is reasonable assurance of receipt and compliance with conditions.
• Revenue Recognition: Revenue is recognised when control of goods or services transfers to the customer. The transaction price is determined based on contract terms, considering variable considerations and other factors.
• Financial Instruments: Accounted for according to Ind AS 109, classifying assets and liabilities into categories (amortised cost, FVOCI, FVTPL) based on business models and cash flows. Impairment allowances are recognised for expected credit losses.
• Taxes: Both current and deferred tax are recognised.
• Foreign Currency Transactions: Translated at exchange rates at the date of the transaction or reporting date, as appropriate, with exchange differences recognised in profit or loss except for certain items (net investment, hedges).
• Leases: Following Ind AS 116 (Leases), recognising lease liabilities and right-of-use assets for all leases (except short-term and low-value).
• Impairment of Assets: Both financial and non-financial assets are tested for impairment, and losses are recognised if carrying amount exceeds recoverable amount.

These policies are described in detail within the notes to the financial statements. Understanding these policies is essential for a proper interpretation of KDDL’s financial performance. The auditor’s report notes that the policies have been consistently applied, except where specific changes were required by newly adopted or amended accounting standards.