Kingfa Science & Technology (India) Ltd - Annual Report 2023-24 Analysis

Overview #

Detailed Analysis #

This analysis examines Kingfa Science & Technology (India) Limited’s (Kingfa India) annual report for the fiscal year 2023-24, focusing on financial performance, business segments, risks, and ESG (Environmental, Social, and Governance) initiatives.

I. Financial Performance:

Kingfa India reported a solid financial performance in FY23-24, exhibiting growth across key metrics despite global economic uncertainties.

• Revenue: Total revenue from operations increased to ₹148,771.56 lakhs (₹140,370.26 lakhs in FY22-23), a 5.99% growth. This growth is commendable considering the fluctuating global market conditions. The report highlights a 5.99% top-line growth, driven by a combination of increased domestic sales (5.99%) and export sales (3.58%).

• Profitability:

  • Operating Profit (PBIDT): Showed significant improvement, reaching ₹18,788.68 lakhs compared to ₹12,987.63 lakhs in the previous year, a growth of 44.7%. This demonstrates operational efficiency and cost control measures.
  • Profit Before Tax (PBT): Increased substantially to ₹16,419.72 lakhs from ₹10,959.24 lakhs, reflecting improved profitability.
  • Profit After Tax (PAT): Rose to ₹12,252.25 lakhs from ₹8,141.03 lakhs, a 50.4% increase. This demonstrates strong financial health.
  • Profitability Ratios:
    • Profit before tax (%) increased from 7.81% to 11.04%.
    • Profit after tax (%) increased from 5.80% to 8.24%.
    • Operating Profit Margin increased from 8.26% to 11.39%.
    • Net Profit Margin increased from 5.80% to 8.24%.

• Return on Investment:

  • Return on Capital Employed (ROCE): Improved to 27.29% from 22.80%, indicating efficient use of capital.
  • Return on Equity (ROE): Increased to 23.24% from 19.14%, suggesting strong returns for shareholders.

• Earnings Per Share (EPS): Increased significantly to ₹101.17 from ₹67.22, driven by higher profitability.

• Debt: The Debt-Equity ratio improved significantly, decreasing from 9.11% to 5.53%. This suggests a stronger financial position and reduced reliance on debt financing.

• Liquidity: The Current Ratio improved from 1.37 to 1.80, indicating improved short-term liquidity.

II. Business Segments:

Kingfa India’s primary business is the manufacturing and sale of modified thermoplastics, specifically long glass fiber reinforced polypropylene (PP-LFT). The report details significant growth in this area, driven by increasing demand from the automotive industry and other sectors. The company also has a smaller, but growing, PPE (Personal Protective Equipment) division.

• Modified Thermoplastics: This is the core business, contributing 100% of the company’s turnover. The report emphasizes the increasing demand for lightweighting solutions in the automotive industry, which directly benefits Kingfa India’s PP-LFT products. The company highlights its advanced impregnation technology as a key competitive advantage. The five-year financial data clearly shows the significant growth trajectory of this segment.

• PPE Division: This division focuses on masks and gloves, showing growth in FY23-24 with the addition of nitrile gloves to its product portfolio and a patent received for an exhalation valve in its 5-ply mask. While not a major contributor to overall revenue yet, it represents a diversification strategy and potential future growth area.

III. Risks and Concerns:

The annual report acknowledges many key risks:

• Raw Material Price Volatility: The price of polypropylene, a key raw material, is subject to fluctuations influenced by crude oil prices and global supply chain dynamics. The company mitigates this risk through strategic sourcing, diversification of suppliers, and price pass-through mechanisms to customers.

• Foreign Exchange Risk: The company’s import of raw materials exposes it to fluctuations in exchange rates. Hedging strategies are used to manage this risk.

• Credit Risk: The report acknowledges credit risk associated with trade receivables, but states that this risk is managed through credit approval processes, credit limits, and monitoring of customer creditworthiness.

• Commodity Price Risks: While the company manages price risks effectively, it remains susceptible to unpredictable commodity market fluctuations.

• Industry Dependence: The significant reliance on the automotive sector, especially the passenger vehicle segment, presents a potential risk if demand weakens in this sector. The company is proactively mitigating this risk by diversifying into non-automotive sectors.

• Logistics and Supply Chain Disruptions: The report notes increased logistics costs and potential supply chain disruption due to the piracy issue in the Red Sea. The company’s response includes maintaining higher safety stock levels and exploring alternative routes.

IV. ESG Initiatives:

Kingfa India demonstrates a commitment to ESG through various initiatives:

• CSR Activities: The company allocated ₹111.35 lakhs for CSR activities, exceeding its mandated 2% of average net profit. Projects focused on education, infrastructure development, and healthcare in local communities. Specific projects detailed include building classrooms, toilets, and computer labs in schools, and providing assistive devices for visually impaired individuals.

• Environmental Initiatives: While specific quantitative data on energy consumption, water usage, and waste generation is presented, the report doesn’t elaborate on specific targets or reduction strategies beyond general statements of commitment to sustainability and a goal of carbon neutrality by 2050 for all Kingfa units. This is an area where more specific and measurable targets would strengthen the report’s credibility.

• Social Initiatives: Focus on employee well-being (health insurance, safety training) and community development through CSR activities.

• Governance: The report details the structure and functioning of various board committees (Audit, Nomination & Remuneration, Stakeholder Relationship, CSR, and Risk Management), indicating a commitment to robust corporate governance practices. The company also highlights its compliance with relevant laws and regulations.

V. Overall Assessment:

Kingfa India’s annual report presents a positive picture of strong financial performance and a commitment to responsible business practices. The company has demonstrated growth across key financial metrics, driven by its core business in modified thermoplastics. However, the report could benefit from:

• More granular data on ESG performance: Specific, measurable, achievable, relevant, and time-bound (SMART) targets for environmental initiatives, with progress updates, would improve transparency and accountability.

• Detailed explanation of risk mitigation strategies: While the report mentions risk mitigation strategies, a more in-depth discussion of the implementation and effectiveness of these strategies would be beneficial.

• Enhanced disclosure on supply chain sustainability: More information on efforts to ensure sustainable sourcing practices throughout the value chain would add value to the ESG disclosures.

Despite these areas for improvement, the report shows a healthy financial position, strategic growth plans, and a commitment to responsible business conduct, suggesting a positive outlook for the company’s future.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

Based on Kingfa Science & Technology (India) Limited’s Annual Report 2023-24:

• Total Assets: ₹99,443.78 Lakhs (as of March 31, 2024)
• Current Assets: ₹72,544.79 Lakhs (as of March 31, 2024)
• Cash and Cash Equivalents: ₹499.89 Lakhs (as of March 31, 2024)
• Accounts Receivable (Trade Receivables): ₹40,413.08 Lakhs (as of March 31, 2024)
• Inventory: ₹24,213.36 Lakhs (as of March 31, 2024)

Remember that these figures are presented in Indian Rupees (₹) and in Lakhs (1 Lakh = 100,000).

Liability Analysis #

Based on Kingfa Science & Technology (India) Limited’s Annual Report 2023-24:

• Total Liabilities: ₹40,609.99 Lakhs (as of March 31, 2024) Note: This is calculated by subtracting total equity from total assets.

• Current Liabilities: ₹40,209.99 Lakhs (as of March 31, 2024)

• Long-Term Debt: ₹376.20 Lakhs (as of March 31, 2024). Note: This includes lease liability and other non-current financial liabilities.

• Accounts Payable (Trade and Other Payables): ₹34,734.80 Lakhs (as of March 31, 2024). Note: This excludes amounts payable to related parties, which are reported separately.

Remember that these figures are presented in Indian Rupees (₹) and in Lakhs (1 Lakh = 100,000). There might be slight variations depending on rounding in the original report.

Equity Analysis #

Based on Kingfa Science & Technology (India) Limited’s Annual Report 2023-24:

• Shareholders’ Equity: ₹58,857.59 Lakhs (as of March 31, 2024). This is calculated by subtracting total liabilities from total assets.

• Retained Earnings: ₹31,491.13 Lakhs (as of March 31, 2024)

• Share Capital: ₹1,211.05 Lakhs (as of March 31, 2024)

These values are in Indian Rupees (₹) and in Lakhs (1 Lakh = 100,000). Minor discrepancies may exist due to rounding in the original report.

Income Statement #

Operating Performance #

Based on Kingfa Science & Technology (India) Limited’s Annual Report 2023-24:

• Revenue: ₹148,771.56 Lakhs

• Cost of Revenue: This isn’t explicitly stated as a single line item. To approximate it, we need to sum the relevant expenses from the Statement of Profit and Loss: Cost of raw materials and components consumed (₹109,088.88 Lakhs) + Purchase of traded goods (₹5,755.34 Lakhs) + Changes in inventories of finished goods, work-in-progress, and traded goods (₹704.54 Lakhs) = ₹115,548.76 Lakhs (approximately). This calculation assumes that all these items directly relate to the cost of generating revenue.

• Gross Profit: Revenue (₹148,771.56 Lakhs) - Approximate Cost of Revenue (₹115,548.76 Lakhs) = ₹33,222.80 Lakhs (approximately)

• Operating Expenses: This requires summing many expense categories from the Statement of Profit and Loss: Employee benefits expense (₹2,937.70 Lakhs) + Finance costs (₹560.87 Lakhs) + Depreciation and amortization expense (₹1,838.20 Lakhs) + Other expenses (₹11,771.17 Lakhs) = ₹17,107.94 Lakhs.

• Operating Income (Operating Profit): This is provided directly in the report as ₹18,788.68 Lakhs. Note that this number differs from a simple calculation of Gross Profit minus Operating Expenses likely due to accounting adjustments not explicitly detailed.

All figures are in Indian Rupees (₹) and in Lakhs (1 Lakh = 100,000). There is a degree of approximation in the Cost of Revenue and Gross Profit calculations due to the presentation format of the financial statements. The Operating Income is a reported figure and therefore more accurate.

Bottom Line Metrics #

Based on Kingfa Science & Technology (India) Limited’s Annual Report 2023-24:

• Net Income (Profit After Tax): ₹12,252.25 Lakhs

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): This isn’t explicitly provided, but we can calculate an approximation. Start with Profit Before Tax (₹16,419.72 Lakhs), then add back Depreciation and Amortization expense (₹1,838.20 Lakhs) and Finance costs (₹560.87 Lakhs) to arrive at an approximate EBITDA of ₹18,818.79 Lakhs.

• Basic EPS: ₹101.17

• Diluted EPS: ₹101.17

All figures are in Indian Rupees (₹) and in Lakhs (1 Lakh = 100,000) except for EPS which is per share. The EBITDA is an approximation due to the way the financial statements are presented; it’s more likely the reported figure of ₹18,818.79 Lakhs is more accurate given the internal accounting adjustments.

Cash Flow #

Cash Flow Components #

Based on Kingfa Science & Technology (India) Limited’s Statement of Cash Flows for the year ended 31 March 2024:

• Operating Cash Flow: ₹1,610.21 Lakhs (Net cash generated from operating activities after deducting direct taxes)

• Investing Cash Flow: ₹192.16 Lakhs (Net cash used in investing activities, indicating more cash outflow than inflow from investments)

• Financing Cash Flow: ₹(832.90) Lakhs (Net cash outflow from financing activities, indicating more cash used for financing than generated)

All figures are in Indian Rupees (₹) and in Lakhs (1 Lakh = 100,000). A negative value indicates a net cash outflow.

Cash Flow Metrics #

The provided annual report does not directly state free cash flow (FCF) as a line item. Calculating FCF requires information not explicitly presented in a readily usable format. To estimate FCF, we’d need to make assumptions and adjustments.

• Capital Expenditure (CAPEX): The report states that capital expenditure on energy conservation equipment was ₹5.05 Lakhs, however, this is only a small part of the total CAPEX. The report does not provide the total capital expenditure for the year. The “Purchase of Property, Plant and Equipment” from the investing cash flow section (₹2,088.61 Lakhs) provides a better (but still imperfect) approximation of CAPEX. However, this number may include other items not strictly considered CAPEX.

• Dividends Paid: The report mentions a recommended final dividend of ₹10 per share, totaling ₹1,211.05 Lakhs. However, this dividend was recommended by the board and is subject to shareholder approval. Therefore, the actual dividends paid during FY23-24 are not yet determined at the time of the report’s publication.

To calculate Free Cash Flow (FCF), we would typically use a formula such as:

FCF = Operating Cash Flow - Capital Expenditures + Proceeds from Asset Sales

However, due to the missing information on total CAPEX, and the uncertainty regarding actual dividend payment, a reliable FCF calculation is not possible based solely on the provided data. The report provides insufficient detail to accurately estimate FCF.

Financial Ratios #

Profitability Ratios #

Kingfa Science & Technology (India) Limited’s profitability ratios for FY23-24, with some approximations due to the report’s presentation:

• Gross Profit Margin: This requires approximating the Cost of Revenue (see previous responses). Using the approximated cost of revenue (₹115,548.76 Lakhs), the Gross Profit Margin is approximately (₹148,771.56 Lakhs - ₹115,548.76 Lakhs) / ₹148,771.56 Lakhs = 22.37%.

• Operating Margin: Operating Income (₹18,788.68 Lakhs) / Revenue (₹148,771.56 Lakhs) = 12.63%

• Net Profit Margin: Net Income (₹12,252.25 Lakhs) / Revenue (₹148,771.56 Lakhs) = 8.23%

• Return on Equity (ROE): The report states ROE as 23.24%.

• Return on Assets (ROA): This requires calculating Net Income after tax (₹12,252.25 Lakhs) / Average Total Assets. The report does not provide average total assets; therefore, a precise ROA cannot be calculated.

All percentages are approximate, especially the Gross Profit Margin due to the estimation of the Cost of Goods Sold. The ROE is a directly reported figure. To get a precise ROA, the average total assets would need to be calculated from the beginning and ending total asset values.

Note: The calculations here for Gross Margin and Operating Margin might differ slightly from those performed by a professional accountant due to the way specific cost items are classified and the level of detail presented in the provided financial statements. The Net Profit Margin uses the reported Net Income, which is the most reliable number.

Liquidity Ratios #

Kingfa Science & Technology (India) Limited’s liquidity ratios for FY23-24:

• Current Ratio: The report states the current ratio as 1.80. This is calculated as Current Assets (₹72,544.79 Lakhs) / Current Liabilities (₹40,209.99 Lakhs).

• Quick Ratio: This ratio is not explicitly provided in the report. To calculate it, we would use the formula: (Current Assets - Inventory) / Current Liabilities. Using the figures from the report, the Quick Ratio would be (₹72,544.79 Lakhs - ₹24,213.36 Lakhs) / ₹40,209.99 Lakhs = 1.20.

• Cash Ratio: This ratio is also not explicitly provided. It’s calculated as (Cash and Cash Equivalents) / Current Liabilities. Using the values from the report, the Cash Ratio is ₹499.89 Lakhs / ₹40,209.99 Lakhs = 0.012.

All ratios are calculated using the figures from the balance sheet as reported in the annual report. Remember that these are point-in-time measurements, and a more detailed liquidity assessment would involve analyzing cash flow trends over time. The Current Ratio is a directly reported number. The Quick and Cash Ratios are calculated here.

Note: Minor differences might occur in calculated ratios compared to those a professional accountant would generate, mainly due to rounding and the inclusion/exclusion of certain items in current assets and liabilities. The reported Current Ratio figure is most reliable.

Efficiency Ratios #

Kingfa Science & Technology (India) Limited’s efficiency ratios for FY23-24, with some approximations due to the report’s presentation:

• Asset Turnover: This ratio is not directly provided in the report. To calculate it, we need the average total assets. Since this isn’t explicitly given, an approximation is necessary. Assuming a relatively constant asset level throughout the year (this is an assumption that could impact the accuracy of the calculation), we can use the year-end total assets: Revenue (₹148,771.56 Lakhs) / Total Assets (₹99,443.78 Lakhs) = 1.49. This is an approximation and may not reflect the actual average asset level throughout the year.

• Inventory Turnover: This ratio is also not explicitly given. We need the Cost of Goods Sold (COGS). Using our earlier approximation of COGS (₹115,548.76 Lakhs) and the year-end inventory (₹24,213.36 Lakhs) we can approximate the Inventory Turnover ratio as ₹115,548.76 Lakhs / ₹24,213.36 Lakhs = 4.77. This calculation is subject to the accuracy of the approximated COGS. The report states the stock turnover as 4.35, this discrepancy in calculation is due to the manner of inventory calculation.

• Receivables Turnover: This ratio also isn’t directly provided. The calculation is Net Credit Sales / Average Accounts Receivable. The report does not provide the Average Accounts Receivable; therefore, using year-end data as an approximation, we get ₹148,771.56 Lakhs / ₹40,413.08 Lakhs = 3.68. This calculation is an approximation and would differ with average Accounts Receivable being calculated. The report states debtor turnover as 3.90, the reason for this discrepancy is the method of average receivable being calculated

All calculations are approximations due to limitations in the reported data. The report gives some efficiency ratios like inventory turnover, debtor turnover. The reason for the difference is in the manner of calculation of average inventory and average receivables. To obtain more precise figures, average values for assets, inventory, and receivables would be required, which the report does not supply.

Leverage Ratios #

Kingfa Science & Technology (India) Limited’s use ratios for FY23-24, with some approximations because the report doesn’t explicitly provide all necessary components in a readily usable way:

• Debt-to-Equity Ratio: The report provides this ratio directly as 5.53%. This indicates a relatively low level of financial leverage.

• Debt-to-Assets Ratio: This ratio is not directly provided. To calculate it, we need total debt and total assets. Total assets are provided (₹99,443.78 Lakhs). Total debt requires summing the current and non-current portions of borrowings and other liabilities. Using the figures from the balance sheet this would be ₹2,963.85 Lakhs (current borrowings) + ₹145.90 Lakhs (current lease liabilities) + ₹2.00 Lakhs (other non-current liabilities) + ₹144.86 Lakhs (non-current lease liabilities) + ₹118.99 Lakhs (Deferred tax liabilities) = ₹3,575.60 Lakhs (approximately). Thus, the Debt-to-Assets ratio is approximately ₹3,575.60 Lakhs / ₹99,443.78 Lakhs = 3.59%. Note this is an approximation as it does not include all liability items. The report provides this ratio as 5.53%. The reason for the difference is the manner of calculation of Total debt.

• Interest Coverage Ratio: This ratio is not explicitly provided. It is calculated as Earnings Before Interest and Taxes (EBIT) / Interest Expense. Using the approximation for EBIT (Profit Before Tax + Interest Expense = ₹16,419.72 Lakhs + ₹560.87 Lakhs = ₹16,980.59 Lakhs) and the Interest Expense (₹560.87 Lakhs), we get an approximated Interest Coverage Ratio of ₹16,980.59 Lakhs / ₹560.87 Lakhs = 30.27. The report provides this ratio as 31.94. The slight difference is due to the calculation method used.

All figures are in Indian Rupees (₹) and in Lakhs (1 Lakh = 100,000) except for the debt-to-equity ratio which is a percentage. The Debt-to-Assets and Interest Coverage ratios are approximations due to the limitations in data provided in the annual report. The Debt to Equity ratio is the most reliable figure.

Market Analysis #

Market Metrics #

The Kingfa Science & Technology (India) Limited annual report does not provide sufficient information to directly calculate all the requested market-related ratios. Several require market data (share price) which isn’t fully included.

• Market Cap: This requires the number of outstanding shares multiplied by the current market price per share. The report provides the number of outstanding shares (12,110,461), but does not provide a single current market price. The high and low prices are given for each month, but a single current market cap cannot be calculated from this data.

• P/E Ratio (Price-to-Earnings Ratio): This requires the market price per share divided by the earnings per share (EPS). Since a current market price isn’t given, the P/E ratio cannot be calculated.

• P/B Ratio (Price-to-Book Ratio): This is calculated using the market price per share divided by the book value per share. The report does give the book value per equity share (₹486.01), but lacks a current market price. Thus, the P/B ratio cannot be determined.

• Dividend Yield: This requires the annual dividend per share divided by the market price per share. The recommended dividend per share is ₹10, but the actual dividend paid and the current market price are both unknown, preventing calculation of the dividend yield.

• Dividend Payout Ratio: This requires the total dividends paid divided by the net income. The report provides neither the total dividends paid (as it’s subject to shareholder approval) nor the net income in a way allowing a precise calculation of the dividend payout ratio. An approximation could be made if the shareholder approve the proposed dividend, which would make it ₹1211.05 Lakhs / ₹12252.25 Lakhs = 9.88%. However, this is a hypothetical payout ratio pending shareholder decision.

In summary, only an approximation can be made for the dividend payout ratio, assuming shareholder approval of the proposed dividend. The remaining market-related ratios (Market Cap, P/E, P/B, Dividend Yield) cannot be calculated with the data provided in the annual report. This data is not the responsibility of the company to supply.

Business Analysis #

Segment Analysis #

Kingfa Science & Technology (India) Limited’s Annual Report 2023-24 provides limited detail on segment performance, especially market share data. The information available is summarized below:

Segment 1: Modified Thermoplastics

• Name: Modified Thermoplastics (primarily long glass fiber reinforced polypropylene - PP-LFT)
• Revenue: ₹148,771.56 Lakhs in FY23-24 (constitutes 100% of total revenue)
• Growth Rate: 5.99% (compared to FY22-23)
• Operating Margin: The report does not directly give an operating margin breakdown by segment. The overall operating profit margin is 12.63%. Attributing this entirely to the Modified Thermoplastics segment would be an oversimplification, as the PPE segment also contributes to operating income. A more precise calculation would require a segment-specific operating profit breakdown.
• Market Share: The annual report does not provide specific market share data for the modified thermoplastics segment.
• Key Products: Long glass fiber reinforced polypropylene (PP-LFT) compounds and other modified thermoplastic materials. The report highlights the use of these materials in automotive applications.
• Geographic Presence: Operates across India with plants in Pune (Chakan), Puducherry, and Manesar (Gurgaon). Exports to 9 countries are also mentioned.

Segment 2: PPE (Personal Protective Equipment)

• Name: PPE Division
• Revenue: The report does not provide separate revenue figures for this segment. It’s described as a smaller, but growing division.
• Growth Rate: Not specified numerically.
• Operating Margin: Not provided separately.
• Market Share: Not specified.
• Key Products: 5-ply masks (with a patented exhalation valve), and Nitrile gloves.
• Geographic Presence: Primarily domestic, though export potential is mentioned.

Overall Limitations:

The report’s lack of detailed segmental breakdowns prevents a complete analysis of each business unit’s profitability, growth, and market share. The consolidated figures provided reflect the combined performance of both segments and additional information from Kingfa would be needed for a precise analysis.

Risk Assessment #

Kingfa Science & Technology (India) Limited’s Annual Report 2023-24 highlights many key risk factors. A complete assessment requires judgment on impact severity and likelihood, which are often subjective and depend on various factors. The table below attempts a structured analysis, recognizing the limitations of interpreting the report’s qualitative descriptions:

Severity and Likelihood: The assessment of “High,” “Medium,” or “Low” for both severity and likelihood is subjective based on interpretations of the annual report’s descriptions. A professional risk assessment would provide a more quantitative and detailed evaluation.

Mitigation Strategies: The report highlights many risk mitigation strategies, but often lacks detailed explanations of their effectiveness.

Trends: The trends column summarizes the direction of each risk factor based on the report’s insights. The future direction of these trends, however, remains uncertain.

It’s essential to note that this is an analysis based on the information presented in the annual report. A more detailed risk assessment would require additional data and deeper analysis.

Strategic Overview #

Management Assessment #

Kingfa Science & Technology (India) Limited’s management highlights many key aspects in its discussion and analysis:

Key Strategies:

• Growth above market trends: Aggressively pursuing business opportunities across various industry segments while investing in capacity expansion, technology, and human resources. This proactive approach aims to capitalize on India’s growing manufacturing sector.

• Product Diversification: Expanding product offerings beyond the core modified thermoplastics segment into areas like PPE to reduce reliance on single sectors and increase market reach.

• Geographic Expansion: Strengthening domestic market presence while actively seeking export opportunities in various regions, including Africa and Southeast Asia.

• Technological Leadership: Continuous investment in R&D and state-of-the-art facilities to develop innovative material solutions and maintain a technological edge. This includes creating new alloys and modified materials to meet evolving customer needs and addressing challenges such as lightweighting, enhanced material properties, and sustainability.

• Customer Focus: Building and maintaining strong relationships with customers through technical support, customized solutions, and prompt delivery. This includes workshops and direct engagement with key accounts.

• Supply Chain Optimization: Managing raw material costs and supply chain risks through diversified sourcing, close collaboration with suppliers, and appropriate inventory management practices.

Competitive Advantages:

• Advanced Impregnation Technology: The company’s proprietary technology for producing long fiber reinforced thermoplastics (LFT) provides superior product quality and performance compared to competitors.

• Technical Expertise and R&D: A well-equipped laboratory and a strong R&D team enable the company to develop innovative and customized material solutions. This is further strengthened by collaborations with Kingfa’s global R&D resources.

• Localization: Focusing on localizing the manufacturing of engineering plastics compounds, reducing lead times and providing a more responsive service to Indian customers.

• Strong Relationships with Global Kingfa: Leveraging Kingfa’s global network and resources for technology, expertise and material sourcing.

Market Conditions:

• Growing Indian Economy: The overall positive economic climate in India presents significant opportunities for growth in the manufacturing sector.

• Demand for Lightweighting: Increasing demand for lightweight materials in the automotive industry, especially in passenger and commercial vehicles, provides a strong impetus for Kingfa India’s PP-LFT products.

• Rise of Electric Vehicles: The burgeoning EV market creates opportunities for developing specialized materials to meet the specific requirements of this sector.

• Emphasis on Sustainability: Growing awareness of environmental concerns creates a demand for sustainable material solutions.

Challenges:

• Raw Material Price Volatility: Fluctuations in polypropylene prices, linked to crude oil prices, impact profitability.

• Foreign Exchange Fluctuations: Changes in exchange rates affect import costs and profitability.

• Supply Chain Disruptions: Global supply chain disruptions and regional issues (like piracy) create uncertainty in logistics and increase costs.

• Intense Competition: The modified thermoplastics market is competitive, requiring continuous innovation and cost management.

• Regulatory Changes: Compliance with evolving government regulations and standards (like BIS approvals) requires ongoing efforts and resources.

Opportunities:

• Expansion into Non-Automotive Sectors: Significant potential for growth by expanding into appliances, electric vehicles, and other sectors.

• Export Market Penetration: Growing export opportunities to various countries, especially in Africa and beyond.

• Development of High-Value Products: Focus on developing and marketing specialized materials and solutions, catering to the needs of specific industries.

• Sustainability Initiatives: Positioning the company as a provider of environmentally friendly material solutions.

In summary, Kingfa India’s strategies emphasize proactive growth, technological leadership, and customer focus to navigate market challenges and capitalize on opportunities presented by the expanding Indian economy and evolving industry trends. However, the company will need to effectively manage various risks, especially those related to global market volatility, to realize its ambitious growth goals.

ESG Ratings #

The provided annual report for Kingfa Science & Technology (India) Limited does not include ESG ratings from any external rating agencies. While the report details the company’s ESG initiatives, it does not cite any scores or ratings from organizations like MSCI, Sustainalytics, Refinitiv, or others that provide such assessments.

ESG Initiatives #

Kingfa Science & Technology (India) Limited’s Annual Report 2023-24 provides information on its environmental, social, and governance (ESG) performance, although the level of detail varies across different areas.

Environmental Initiatives:

The report mentions many initiatives but lacks specific quantitative data for many of them. Key aspects include:

• Energy Conservation: The report details many energy-saving measures implemented across its plants, including upgrading lighting systems to LEDs and optimizing compressor operations. However, it doesn’t provide a total energy consumption figure or a carbon footprint calculation. The total capital investment on energy conservation is reported as ₹5.05 Lakhs.

• Water Management: The report states that water usage is managed, and water discharge is treated before release, but specific data on water withdrawal, consumption, and discharge volumes is limited. Further, it states that a mechanism for Zero Liquid Discharge has not been implemented.

• Waste Management: Information on waste generated and managed is provided but does not have details of specific targets or reduction strategies.

Carbon Footprint:

The report does not provide a quantified carbon footprint for the company’s operations. It mentions a long-term goal of carbon neutrality by 2050 for all Kingfa units, but lacks short-term targets or progress updates.

Social Initiatives:

• Employee Well-being: The company focuses on employee well-being through health insurance, safety training, and providing sanitary pad hygiene machines. The report also highlights efforts in skill upgradation and performance reviews. However, there is no information provided about their employee satisfaction or retention rate.

• Community Development (CSR): The company’s CSR spending exceeded its mandated 2% of average net profit, with investments in projects related to education, infrastructure (schools and community facilities), and healthcare.

Governance Practices:

The report emphasizes strong corporate governance, detailing the structure and functions of its board committees (Audit, Nomination & Remuneration, Stakeholder Relationship, CSR, and Risk Management). It also mentions adherence to the Code of Conduct and various compliance mechanisms.

Sustainability Goals:

• Carbon Neutrality: A long-term goal to achieve carbon neutrality by 2050 for all Kingfa units. However, there’s a lack of near-term targets or progress indicators toward this ambitious goal.

• Sustainable Sourcing: The report mentions sustainable sourcing procedures but provides limited quantitative data on their implementation.

Overall:

While Kingfa India’s annual report highlights various ESG activities, its transparency and quantitative disclosure could be significantly improved. The report lacks specific, measurable targets and progress updates for many environmental and sustainability initiatives. A more detailed disclosure on key environmental metrics (e.g., greenhouse gas emissions, water usage, waste generation) and associated reduction targets is needed to assess its overall sustainability performance. The emphasis on social initiatives through CSR is commendable, but further quantifiable data on their impact would improve reporting.

Additional Information #

Operational Metrics #

Based on Kingfa Science & Technology (India) Limited’s Annual Report 2023-24:

• R&D Expenditure: The total R&D expenditure for FY23-24 was ₹1,892.06 Lakhs. This is a combination of capital expenditure (₹512.74 Lakhs) and recurring expenditure (₹1,379.32 Lakhs).

• Employee Count: As of March 31, 2024, the total number of employees (including permanent and non-permanent) was 270. The total number of workers (including permanent and non-permanent/contract) was 354.

All figures are in Indian Rupees (₹) and in Lakhs (1 Lakh = 100,000) except for the employee count, which is a headcount.

Key Events #

Kingfa Science & Technology (India) Limited’s annual report highlights the following significant events during FY23-24:

• Capacity Expansion: Continued strengthening of the greenfield manufacturing facility at Chakan, Pune, with the addition of new compounding lines. Procurement of additional lines for further expansion was initiated.

• Laboratory Expansion: The state-of-the-art laboratory facility, commissioned in the previous year, saw the addition of equipment and two more laboratory lines, enhancing technical capabilities.

• New Product Launch: The PPE division launched Nitrile gloves, expanding its product portfolio.

• Patent Granted: Kingfa India received its first patent for an exhalation valve developed for a 5-ply mask.

• BIS Approvals: Completed the BIS approval process for ABS compounds. The process is underway for PP compounds.

• Industry Engagement: Active participation and organization of seminars and workshops to engage with existing and potential customers, and to showcase new technologies and products. In-house workshops were conducted at leading EV manufacturers’ locations.

• Employee Development: Strengthening of technical, marketing, finance, and sourcing teams with new hires. Training programs conducted, both in India and at the company’s headquarters in China, for employees across various departments.

• Export Growth: Successful expansion of exports to South Africa and Thailand, with ongoing efforts to enter new export markets in Africa and other regions.

• Increased Logistics Costs: Rise in logistics cost toward the year-end, due to the piracy issue in the Red Sea impacting imports and impacting inventory management.

• Raw Material Price Trends: Raw material prices softened during parts of the year but showed some volatility.

These events illustrate a year of growth, expansion, and strategic development for Kingfa India. The company managed challenges related to logistics and raw material costs while making significant progress in its operational, technological, and market expansion objectives.

Audit Information #

Auditor’s Opinion:

The independent auditor, P G Bhagwat LLP, issued an unqualified (clean) opinion on Kingfa Science & Technology (India) Limited’s financial statements for the year ended March 31, 2024. This means the auditors found the financial statements to be fairly presented in accordance with Indian Generally Accepted Accounting Principles (GAAP), and free from material misstatement. The report does, however, highlight “Key Audit Matters” related to the valuation of trade receivables and inventory, indicating areas requiring significant management judgment.

Key Accounting Policies:

The company’s key accounting policies, as detailed in Note 1B.4 of the annual report, include:

• Revenue Recognition: Revenue from sales of goods is recognized when control of the products transfers to the customer, upon delivery, and when there are no unfulfilled obligations impacting acceptance. Interest income is recognized on an accrual basis.

• Property, Plant, and Equipment (PP&E): PP&E is initially recorded at cost, including borrowing costs for long-term projects. Depreciation is applied using the straight-line method (for some assets) and the written-down value method (for others). Impairment testing is performed when indicators suggest potential impairment losses.

• Impairment of Assets: The company assesses assets for impairment annually, and impairment losses (if any) are recognized in the statement of profit and loss. The impairment provisions for financial assets are based on assumptions about risk of default and expected loss rates.

• Financial Instruments: Financial assets and liabilities are classified and measured according to Ind AS 109, using models based on fair value through profit or loss (FVTPL), fair value through other detailed income (FVOCI), or amortized cost, depending on the instrument’s nature and the company’s business model. The expected credit loss (ECL) model is applied to certain assets.

• Foreign Currency Transactions: Transactions are recorded using the exchange rate at the transaction date. Exchange differences are recognized in profit or loss.

• Leases: The company applies Ind AS 116, recognizing right-of-use assets and lease liabilities for most leases, and using recognition exemptions for short-term and low-value leases.

• Inventories: Raw materials are valued at cost or net realizable value (whichever is lower), using the weighted average cost method. Work-in-progress and finished goods are also valued at cost or net realizable value, whichever is lower.

• Taxes: Current and deferred tax liabilities and assets are recognized using the liability method, based on enacted or substantially enacted tax rates.

• Government Grants: Government grants are recognized when there is reasonable assurance of compliance with conditions and the grant’s benefits are earned.

• Employee Benefits: Short-term employee benefits are recognized when employees render related services, while post-employment benefits (defined contribution and defined benefit plans) are recognized using appropriate actuarial methods and assumptions.

These key accounting policies are essential for understanding how Kingfa India accounts for its transactions and presents its financial information. The application of these policies involves judgments and estimates, as noted by the auditors, especially in the areas of trade receivables and inventory valuation.