Shilchar Technologies Ltd - Annual Report 2023-24 Analysis

Overview #

Detailed Analysis #

This analysis dissects Shilchar Technologies Limited’s annual report for the fiscal year 2023-24, covering financial performance, business segments, risks, and ESG initiatives.

I. Financial Performance:

FY24 was a record year for Shilchar, showcasing significant growth across key metrics:

• Revenue: ₹396.88 Crores (42% YoY growth), exceeding ₹280.24 Crores in FY23. This strong growth is attributed to 100% utilization of existing capacity and a conducive pricing environment.
• EBITDA (excluding Other Income): ₹113.30 Crores (113% YoY growth), up from ₹53.08 Crores in FY23. This reflects improved operating use from higher capacity utilization and a favorable product mix. The EBITDA margin expanded impressively from 19% to 29%.
• Profit After Tax (PAT): ₹91.89 Crores (113% YoY growth), a substantial increase from ₹43.12 Crores in FY23.
• Dividend: The board recommended a final dividend of ₹12.5 per share (125%), subject to shareholder approval, significantly higher than the previous year’s ₹10.

Key Financial Ratios Analysis:

The report provides many key financial ratios, indicating strong profitability and liquidity but some concerns about capital efficiency:

• High Profitability: ROE (55.52%), Net Profit Ratio (23.15%), and ROCE (58.24%) all demonstrate strong profitability.
• Strong Liquidity: Current Ratio (3.07) signifies good short-term liquidity. The debt-free status and substantial cash reserves further reinforce this. However, Debt Service Coverage Ratio is not available for FY24, needing clarification.
• Capital Efficiency Concerns: Inventory Turnover decreased slightly (-6.39%), and Net Capital Turnover Ratio showed a considerable decline (-28.83%). This suggests that working capital management could be improved to better align with the rapid sales growth. Trade Receivables and Payables turnover ratios increased, potentially indicating slower collections or longer payment terms.

II. Business Segments:

Shilchar’s core business is the manufacturing of transformers, primarily focusing on:

• Distribution & Power Transformers: This is the primary segment, driving the majority of revenue. The company caters to renewable energy (solar, wind, hydel), industrial sectors (sugar, steel, hydrocarbons), EPC contractors, corporate clients, and power plant developers. The focus on custom-designed transformers, rather than a stock-and-sell model, is a key differentiator.
• Electronics & Telecom Transformers: This segment is less prominent, but its historical significance and potential future contribution warrant monitoring.

Geographical Reach: The company operates domestically (22 states) and internationally (22 countries), with exports contributing about 50% of total turnover. This diversification mitigates reliance on a single market.

Capacity Expansion: Shilchar is undertaking a capacity expansion at its Gavasad facility, increasing capacity from 4,000 MVA to 7,500 MVA. Phase 1 is expected to be completed in Q2 FY25, with Phase 2 to follow. This expansion strategy directly addresses the robust industry demand and aims to capitalize on growth opportunities.

III. Risks:

The annual report highlights many key risks:

• Industry Risks: Dependence on the power sector and its investment cycles. Fluctuations in raw material prices (steel, copper) impact profitability. Global supply chain disruptions could affect production.
• Management and Operational Risks: Reliance on a limited number of key personnel. Any operational disruptions (e.g., supply chain issues, manufacturing failures) could impact production and revenues.
• Market Risk: Fluctuations in foreign exchange rates significantly impact export revenues (USD and EURO exposure). Increased competition in the transformer market.
• Government Policy Risk: Changes in government policies, regulations, and subsidies related to the power and renewable energy sectors could significantly impact demand and profitability.
• Liquidity Risk: While currently strong, rapid growth necessitates effective working capital management to avoid potential liquidity issues.

IV. ESG Initiatives (Environmental, Social, and Governance):

The Business Responsibility and Sustainability Report (BRSR) highlights many ESG initiatives:

• Environmental: Focus on energy conservation (solar and wind energy use), water conservation, waste management (though detailed data is limited), and reducing GHG emissions (Scope 1 and 2 emissions are disclosed, with a target of reducing intensity). They mention being a ‘Zero Discharging Pollution Unit,’ requiring further detailed explanation.
• Social: Emphasis on employee well-being (training programs, health insurance, safety measures), community development through CSR activities (details on specific projects and impact assessment are needed), and maintaining strong industrial relations. Some data points related to women’s representation on the board and in management are provided. However, the report lacks robust, quantifiable data for many social initiatives.
• Governance: A detailed Corporate Governance Report is included, highlighting the composition and functioning of the Board, Audit Committee, Nomination & Remuneration Committee, and Stakeholders Relationship Committee. The company has a Code of Conduct, Whistleblower Policy, and policies addressing related party transactions and conflicts of interest.

Areas Requiring Further Clarification:

• Capacity utilization post-expansion: The report mentions the capacity expansion but lacks detailed projections on utilization rates after the new capacity comes online.
• Impact assessment of CSR initiatives: While CSR spending is reported, a detailed impact assessment of the projects is missing.
• Waste management data: The BRSR mentions waste management but lacks specific data on waste generated, recycled, and disposed of.
• Scope 3 emissions: The report doesn’t provide data for Scope 3 emissions, representing a significant gap in environmental reporting.
• Detailed risk mitigation plans: The report outlines many risks but requires more granular details on the specific mitigation strategies implemented.
• Human rights due diligence: The report lacks detailed details on this vital aspect of social responsibility.

Overall Assessment:

Shilchar Technologies Limited demonstrates strong financial performance in FY24, driven by robust demand in the transformer industry and effective capacity utilization. The company’s strategic focus on custom-designed transformers for specific applications, especially in the renewable energy sector, positions it well for future growth. However, the report needs improvement in providing detailed data and analysis related to risk mitigation, working capital management, and detailed ESG reporting. A more rigorous and quantifiable reporting approach will improve transparency and investor confidence. The expansion plan holds significant promise, but its success hinges on effectively managing potential risks and optimizing operational efficiency.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

Based on the provided Shilchar Technologies Limited financial statements:

• Total Assets: ₹2,924.84 Crores (as at 31st March 2024)
• Current Assets: ₹243.96 Crores (as at 31st March 2024) Note: This is calculated by summing up all current assets reported in the Balance Sheet.
• Cash and Cash Equivalents: ₹334.55 Crores (as at 31st March 2024)
• Accounts Receivable (Trade Receivables): ₹93.62 Crores (as at 31st March 2024)
• Inventory: ₹595.60 Crores (as at 31st March 2024)

Important Note: All figures are in Indian Rupees (₹) and are rounded to the nearest Lakh (100,000). There might be minor discrepancies due to rounding differences in the original report.

Liability Analysis #

Based on the provided Shilchar Technologies Limited financial statements:

• Total Liabilities: ₹828.95 Crores (as at 31st March 2024)
• Current Liabilities: ₹795.66 Crores (as at 31st March 2024) Note: This is calculated by summing up all current liabilities reported in the Balance Sheet.
• Long-Term Debt: ₹7.50 Crores (as at 31st March 2024). This represents “Other financial liabilities” in the non-current section and appears to be a small amount and is likely a secured obligation. There is no mention of other long-term debt.
• Accounts Payable (Trade Payables): ₹549.15 Crores (as at 31st March 2024)

Important Note: All figures are in Indian Rupees (₹) and are rounded to the nearest Lakh (100,000). There might be minor discrepancies due to rounding differences in the original report. The classification of debt as long-term or short-term needs further scrutiny from the full financial statement notes.

Equity Analysis #

Based on the provided Shilchar Technologies Limited financial statements:

• Shareholders’ Equity: ₹2,095.83 Crores (as at 31st March 2024)
• Retained Earnings: ₹1,999.42 Crores (as at 31st March 2024)
• Share Capital: ₹762.68 Crores (as at 31st March 2024)

Important Note: All figures are in Indian Rupees (₹) and are rounded to the nearest Lakh (100,000). There might be minor discrepancies due to rounding differences in the original report.

Income Statement #

Operating Performance #

Based on the Shilchar Technologies Limited Statement of Profit and Loss:

• Revenue: ₹3,968.78 Crores (for the year ended 31st March 2024)
• Cost of Revenue: ₹2,863.80 Crores (for the year ended 31st March 2024). Note: This is a calculation derived from the Statement of Profit & Loss, summing up cost of materials consumed, changes in inventories, and employee benefit expenses.
• Gross Profit: ₹1,104.98 Crores (for the year ended 31st March 2024). Note: This is calculated as Revenue less Cost of Revenue.
• Operating Expenses: ₹1,856.00 Crores (for the year ended 31st March 2024). Note: This excludes finance costs and taxes.
• Operating Income: ₹1,132.47 Crores (for the year ended 31st March 2024). Note: This is calculated as Gross Profit less Operating Expenses.

Important Note: All figures are in Indian Rupees (₹) and are rounded to the nearest Lakh (100,000). There might be minor discrepancies due to rounding differences in the original report. The precise calculation of Cost of Revenue may vary slightly depending on how certain line items are interpreted from the statement.

Bottom Line Metrics #

Based on the Shilchar Technologies Limited Statement of Profit and Loss:

• Net Income: ₹918.88 Crores (for the year ended 31st March 2024)
• EBITDA: ₹1,235.34 Crores (for the year ended 31st March 2024) Note: This is calculated by adding back depreciation and interest expense to the Profit Before Tax.
• Basic EPS: ₹120.48 (for the year ended 31st March 2024)
• Diluted EPS: ₹120.48 (for the year ended 31st March 2024)

Important Note: All monetary figures are in Indian Rupees (₹). There might be minor discrepancies due to rounding differences in the original report. The EBITDA calculation is based on the information provided; a more precise calculation might involve adjustments for other non-cash items if fully detailed in the notes.

Cash Flow #

Cash Flow Components #

Based on Shilchar Technologies Limited’s Statement of Cash Flows for the year ended March 31, 2024:

• Cash flow from operating activities: ₹764.80 Crores
• Cash flow from investing activities: ₹(226.28) Crores (negative indicates net cash outflow)
• Cash flow from financing activities: ₹(289.94) Crores (negative indicates net cash outflow)

Important Note: All figures are in Indian Rupees (₹) and are rounded to the nearest Lakh (100,000). There might be minor discrepancies due to rounding differences in the original report.

Cash Flow Metrics #

To calculate Free Cash Flow (FCF), we need to make some assumptions and deductions based on the provided information, as the annual report doesn’t directly state FCF. A common calculation is:

FCF = Operating Cash Flow - Capital Expenditure - Dividends Paid

Based on Shilchar Technologies Limited’s Statement of Cash Flows and other information from the report:

• Operating Cash Flow: ₹764.80 Crores
• Capital Expenditure (CAPEX): ₹101.99 Crores + ₹1,346.82 Crores = ₹1,448.81 Crores (this includes capital expenditure on property, plant, and equipment and net purchases of investments)
• Dividends Paid: ₹38.14 Crores ( this is based on the dividend mentioned in the report, which was to be paid but is not reflected as paid in the cash flow statement. )

Therefore, a rough estimate of Free Cash Flow would be:

FCF ≈ ₹764.80 Crores - ₹1,448.81 Crores - ₹38.14 Crores = ₹(722.15) Crores

Important Note: This is an approximation. A more precise FCF calculation might require additional information from the complete financial statement notes, such as adjustments for changes in working capital, and other potential cash inflows/outflows not explicitly detailed in the provided summary. Also, the calculation assumes that the mentioned dividend was paid in the year. The cash flow statement provided does not reflect this, warranting further investigation. The negative FCF suggests the company reinvested heavily in the business during the year.

Profitability Ratios #

To calculate these profitability ratios for Shilchar Technologies Limited, we’ll use the figures derived from our previous analysis of the financial statements. Remember, these are approximations due to rounding in the original report. All figures are expressed as percentages.

• Gross Margin: (Gross Profit / Revenue) * 100 = (₹1104.98 Crores / ₹3968.78 Crores) * 100 ≈ 27.8%

• Operating Margin: (Operating Income / Revenue) * 100 = (₹1132.47 Crores / ₹3968.78 Crores) * 100 ≈ 28.5%

• Net Profit Margin: (Net Income / Revenue) * 100 = (₹918.88 Crores / ₹3968.78 Crores) * 100 ≈ 23.2%

• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100 = (₹918.88 Crores / ₹1655.15 Crores) * 100 ≈ 55.5% (Average Shareholders’ Equity is calculated as (Beginning Equity + Ending Equity)/2)

• Return on Assets (ROA): (Net Income / Average Total Assets) * 100 = (₹918.88 Crores / ₹2065.79 Crores) * 100 ≈ 44.5% (Average Total Assets is calculated as (Beginning Total Assets + Ending Total Assets)/2)

Important Note: These are approximate calculations based on the summarized financial data. Slight variations might occur depending on the precise figures used from the full financial statements and how certain items are classified. The average equity and asset values used in the ROE and ROA calculations are also approximations.

Liquidity Ratios #

To calculate these liquidity ratios for Shilchar Technologies Limited, we will use the figures previously derived from the financial statements. Remember, these are approximations due to rounding in the original report. All ratios are expressed in times (x).

First, we need to calculate some intermediate values:

• Current Assets: ₹2,439.15 Crores
• Current Liabilities: ₹795.66 Crores
• Quick Assets: Current Assets - Inventories = ₹2,439.15 Crores - ₹595.60 Crores = ₹1,843.55 Crores

Now, we can calculate the liquidity ratios:

• Current Ratio: Current Assets / Current Liabilities = ₹2,439.15 Crores / ₹795.66 Crores ≈ 3.1 times

• Quick Ratio: Quick Assets / Current Liabilities = ₹1,843.55 Crores / ₹795.66 Crores ≈ 2.3 times

• Cash Ratio: (Cash and Cash Equivalents) / Current Liabilities = ₹334.55 Crores / ₹795.66 Crores ≈ 0.4 times

Important Note: These are approximate calculations based on the summarized financial data. Slight variations might occur depending on the precise figures used from the full financial statements and how certain items are classified. The Current Assets figure includes inventories which some analysts might not include when performing these calculations.

Efficiency Ratios #

Calculating efficiency ratios for Shilchar Technologies Limited requires using figures derived from our previous analyses, keeping in mind that these are approximations due to rounding in the original report. All turnover ratios are expressed in times (x), while Days Sales Outstanding (DSO) is in days.

• Asset Turnover: Revenue / Average Total Assets. We need the beginning-of-year total assets to calculate the average, which is not explicitly provided in the summary. Therefore, this ratio cannot be accurately computed with the available data.

• Inventory Turnover: Cost of Goods Sold / Average Inventory.

  • Cost of Goods Sold (COGS) is estimated at ₹2,863.80 Crores (from the previous analysis).

  • Average Inventory = (Beginning Inventory + Ending Inventory) / 2. We need the beginning inventory which is not explicitly stated, so this calculation is also approximate. Let’s assume a beginning inventory of ₹231.22 Crores (from the prior year’s data).

  • Average Inventory ≈ (₹595.60 Crores + ₹231.22 Crores) / 2 ≈ ₹413.41 Crores

  • Inventory Turnover ≈ ₹2,863.80 Crores / ₹413.41 Crores ≈ 6.9 times

• Receivables Turnover: Revenue / Average Accounts Receivable. Again, this requires the beginning-of-year receivables which aren’t available. Therefore, a precise calculation is not possible with the summary data. However, the report provided a Receivables Turnover Ratio (Days) of 4.27 which implies a turnover of approximately 85 times for FY24

Important Note: These are approximate calculations based on the summarized financial data. Significant variations might occur depending on the precise figures used from the complete financial statements and how certain items are classified. The reliance on estimates for beginning-of-year values for inventory and receivables introduces uncertainty into these calculations. The days sales outstanding given in the report is more accurate as the full calculations aren’t provided in the summary.

Leverage Ratios #

Calculating use ratios for Shilchar Technologies Limited presents some challenges due to the limited information provided in the report summary. Specifically, the report’s summary does not detail the full breakdown of debt (short-term and long-term). We will use the information available, understanding that the results are approximations and potentially less precise than if we had the complete financial statement notes.

• Debt to Equity Ratio: Total Debt / Shareholders’ Equity. The report states that the company is debt-free; thus, Total Debt is assumed to be 0.

  • Debt to Equity Ratio = 0 / ₹2,095.83 Crores = 0

• Debt to Assets Ratio: Total Debt / Total Assets. Again, assuming Total Debt = 0:

  • Debt to Assets Ratio = 0 / ₹2,924.84 Crores = 0

• Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense.

  • EBIT ≈ ₹1,235.34 Crores (from previous analysis)

  • Interest Expense ≈ ₹0.21 Crores (this is the interest expense reported in the Statement of Profit and Loss)

  • Interest Coverage Ratio ≈ ₹1,235.34 Crores / ₹0.21 Crores ≈ 5,882.6 times

Important Note: These calculations assume a debt-free status for the company (based on report summary). This may not be completely accurate; further investigation into the detailed notes accompanying the financial statements is necessary to confirm this assumption. The interest expense might also be slightly different depending on the precision of the information provided in the Statement of Profit & Loss

Market Analysis #

Market Metrics #

Several of these market-based ratios require information not provided in the annual report itself, such as the current market price per share and the total number of outstanding shares. Therefore, I cannot calculate the Market Cap, P/E Ratio, P/B Ratio, and Dividend Yield. These require real-time market data.

However, we can approximate the Dividend Payout Ratio:

• Dividend Payout Ratio: (Total Dividends Paid / Net Income) * 100. The annual report states a recommended dividend of ₹12.5 per share, subject to shareholder approval. Assuming this dividend was approved and paid (which is not reflected in the cash flow summary, so this is a potential area for error in this calculation), and using the number of outstanding shares as 7,626,800 (from the notes):

  • Total Dividends Paid (estimate) = ₹12.5/share * 7,626,800 shares = ₹953.35 Lakhs = ₹9.53 Crores

  • Net Income = ₹918.88 Crores

  • Dividend Payout Ratio (estimate) ≈ (₹9.53 Crores / ₹918.88 Crores) * 100 ≈ 1.04%

Important Note: This dividend payout ratio is a rough estimate based on the assumption that the proposed dividend was actually paid out. The cash flow statement does not explicitly show this. To get accurate values for Market Cap, P/E, P/B, and Dividend Yield, you would need to obtain the current market price per share and use the reported net income and book value per share from the report.

Business Analysis #

Segment Analysis #

The annual report doesn’t provide a detailed breakdown of business segments beyond stating that the core business is manufacturing transformers, primarily distribution and power transformers. Information on market share is also absent. Therefore, a precise response to your question is not fully possible based on this report.

Here’s what we can gather from the report:

Business Segment: Transformer Manufacturing

• Segment Names: While not explicitly named as separate segments, the report highlights two key areas within transformer manufacturing:

  • Distribution & Power Transformers: This segment appears to be the dominant one, based on the focus in the report and its contribution to overall revenue.
  • Electronics & Telecom Transformers: This is mentioned as part of the company’s history but appears to be a smaller segment compared to the distribution & power transformers.

• Revenues: The annual report only provides total revenue (₹396.88 Crores) and a breakdown between domestic and export sales (₹198.24 Crores and ₹198.64 Crores respectively) for the primary segment which is power and distribution transformers. There is no revenue breakdown between the two types of transformers described above.

• Growth Rates: The overall revenue growth rate is 42% year-over-year. Individual segment growth rates are not provided.

• Operating Margins: The report provides an overall EBITDA margin of 29%, but segment-specific operating margins are not disclosed.

• Market Shares: No data is given on market share for any segment.

• Key Products: The primary products are custom-designed distribution and power transformers. Specific models or product lines are not detailed.

• Geographic Presence: The company serves customers in 22 Indian states and exports to 22 countries globally. No further details on regional sales breakdowns are given.

In summary: While the annual report presents strong overall financial performance, it lacks the detailed segment reporting necessary to provide a complete answer to your request. To obtain a more granular view, one would need to access more detailed financial data beyond the summary provided in this annual report.

Risk Management #

Risk Assessment #

The annual report identifies many key risk factors, but doesn’t provide a structured assessment of impact severity, likelihood, and detailed mitigation strategies in a consistent format. We’ll categorize the risks based on the information provided and infer the potential impact and likelihood.

I. Category: Industry Risks

• Description: Dependence on the power sector’s investment cycles and fluctuations in raw material prices (steel, copper), as well as global supply chain disruptions. Competition in the transformer market.
• Impact Severity: High (significant impact on revenue and profitability)
• Likelihood: Moderate to High (depending on global economic conditions and commodity price volatility)
• Mitigation Strategies: (Inferred from report): Diversification of customer base across sectors, strategic sourcing of raw materials, and exploration of alternative supply chains. The capacity expansion aims to address market demand and supply issues.
• Trends: Increasing demand for transformers driven by India’s infrastructure development and renewable energy expansion. However, global supply chain uncertainties and potential raw material price volatility remain significant concerns.

II. Category: Operational Risks

• Description: Reliance on a limited number of key personnel, potential for operational disruptions (supply chain issues, manufacturing failures).
• Impact Severity: Moderate to High (depending on the nature and duration of disruptions)
• Likelihood: Moderate (inherent risk in manufacturing)
• Mitigation Strategies: (Inferred from report): Robust internal control systems, employee training and development to build redundancy, and having in-house design and engineering teams.
• Trends: The risk could be mitigated by the capacity expansion which allows more flexibility and resilience in operations.

III. Category: Market Risks

• Description: Fluctuations in foreign exchange rates (USD and EURO exposure), increased competition.
• Impact Severity: High (significant impact on export revenues and profitability)
• Likelihood: Moderate to High (depending on global currency markets and competitive intensity).
• Mitigation Strategies: (Inferred from report): Hedging strategies (though details are not specified) for foreign exchange risks, and enhancing the value proposition (e.g., custom design, quality, timely delivery) to maintain competitiveness.
• Trends: Growing global demand for transformers, especially in renewable energy sectors, could offset some risks. However, increasing competition and fluctuating exchange rates are constant concerns.

IV. Category: Government Policy Risks

• Description: Changes in government policies, regulations, and subsidies related to the power and renewable energy sectors.
• Impact Severity: High (potential significant impact on demand and profitability).
• Likelihood: Moderate (Indian government policies can be subject to change).
• Mitigation Strategies: (Inferred): Maintaining close communication with government agencies, proactive adaptation to policy changes, and diversified product offerings across sectors.
• Trends: The increasing focus on renewable energy in India presents both opportunities and risks. Policy stability and clarity are essential for the long-term success of the company.

V. Category: Financial Risks

• Description: Liquidity risk, even though they’re currently debt-free, maintaining adequate working capital during rapid growth to avoid potential liquidity shortfalls.
• Impact Severity: Moderate to High (depending on the severity and duration of liquidity constraints).
• Likelihood: Moderate (risks related to efficient management of working capital during rapid expansion).
• Mitigation Strategies: (Inferred): Efficient working capital management, strong relationships with financial institutions (although they’re currently debt free).
• Trends: The need for strong working capital management will increase as the company scales up its operations and production capacity.

Important Note: The annual report lacks a structured, quantitative assessment of risk (likelihood and impact). The above analysis is based on an interpretation of the qualitative risk descriptions provided in the report. A more robust risk assessment would include detailed probability estimates, potential financial impacts, and detailed mitigation plans.

Strategic Overview #

Management Assessment #

Based on Shilchar Technologies Limited’s annual report, here’s a summary of the key strategies, competitive advantages, market conditions, challenges, and opportunities identified by management:

I. Key Strategies:

• Focus on Niche Markets: Concentrating on custom-designed distribution transformers for specific applications, especially within the renewable energy sector. This strategy allows them to command premium pricing and cater to specialized needs.
• Capacity Expansion: Substantial investment in expanding manufacturing capacity to meet the growing demand in the transformer industry, driven largely by renewable energy projects and grid upgrades.
• International Expansion: Targeting international markets (North America, South America, Middle East, etc.) to diversify revenue streams and reduce dependence on the domestic market.
• Operational Efficiency: Consolidating operations at a single, state-of-the-art facility to improve production efficiency and reduce costs.
• Strong Design Capabilities: Investing in an in-house design and engineering team to enable the creation of custom-designed transformers tailored to customer specifications. This is a essential element of their business model.

II. Competitive Advantages:

• Custom Design Capabilities: Ability to design and manufacture transformers to precise customer specifications, setting them apart from competitors offering standard, off-the-shelf products.
• High-Quality Products: Commitment to manufacturing high-quality transformers, resulting in a strong reputation within the industry and client loyalty.
• Strong Relationships: Established relationships with key customers in various sectors.
• International Presence: Successful expansion into international markets gives them access to a wider customer base and mitigates domestic market risks.
• Debt-Free and Cash Rich: Strong financial position provides flexibility for future growth and investments without relying on external financing.

III. Market Conditions:

• Robust Growth: The Indian transformer industry is experiencing significant growth due to large investments in the power sector (generation, transmission, distribution) and the expansion of renewable energy sources. The report highlights significant government investment in grid infrastructure upgrades.
• Global Supply Constraints: Transformer supply shortages in developed countries (US and Europe) create opportunities for Indian manufacturers like Shilchar to export their products.
• Renewable Energy Boom: The rapid increase in solar and wind energy projects is a major driver of demand for specialized transformers.

IV. Challenges:

• Raw Material Price Volatility: Fluctuations in the prices of steel and copper, key raw materials for transformer manufacturing, impact profitability margins.
• Global Supply Chain Disruptions: International supply chain issues affect the availability and timely delivery of components.
• Competition: The transformer industry is competitive, requiring continuous efforts to improve product quality, efficiency, and customer service.
• Government Policy Changes: Changes in government regulations and policies related to the power and renewable energy sectors could impact demand and profitability.
• Working Capital Management: Managing working capital efficiently, especially during rapid growth, remains essential to avoid liquidity issues.

V. Opportunities:

• Renewable Energy Sector Growth: Continued expansion of the renewable energy sector presents significant growth opportunities for Shilchar, given their focus on custom-designed transformers for solar and wind projects.
• Grid Modernization Initiatives: Government investments in grid modernization and upgradation projects create substantial demand for transformers.
• Export Market Expansion: Global supply chain constraints and increasing demand create significant opportunities for exporting transformers to international markets.
• Technological Advancements: Adoption of innovative technologies in transformer design and manufacturing could improve efficiency, product quality, and competitiveness.

In summary, Shilchar Technologies uses its design capabilities and strong reputation to capitalize on the favorable market conditions within the transformer industry. While acknowledging inherent challenges related to raw materials, global supply chains, and government policies, the company is proactively pursuing growth through capacity expansion and international expansion strategies. The focus on renewable energy is a key element of their strategy for long-term success.

ESG Ratings #

The provided annual report does not include ESG ratings from any external rating agencies. While the report details various Environmental, Social, and Governance initiatives undertaken by Shilchar Technologies Limited, it does not include scores or ratings from organizations such as MSCI, Sustainalytics, Refinitiv, or others that provide such assessments.

ESG Initiatives #

Shilchar Technologies Limited’s annual report details many ESG initiatives, but the level of detail and quantification varies across different areas.

I. Environmental Initiatives:

• Energy Efficiency: The company highlights efforts to reduce electricity consumption and water usage. They mention installing solar and windmills to reduce their carbon footprint and claim to be a “Zero Discharging Pollution Unit,” but lack specifics on implementation and impact.
• Waste Management: The report mentions waste management practices but provides minimal quantifiable data. Specifics on waste generated, recycled, and disposed of are missing.

II. Carbon Footprint:

The report discloses Scope 1 and 2 greenhouse gas emissions (in metric tons of CO2 equivalent) for FY24 (12.79 MT and 445.74 MT respectively) and FY23 (9.27 MT and 742.72 MT respectively), indicating an overall reduction. Scope 3 emissions are not reported. The report highlights initiatives to reduce emissions, such as installing solar and windmills but lacks details on targets and progress measurements.

III. Social Initiatives:

• Employee Well-being: The company emphasizes employee training programs, health insurance, accident insurance (for employees), and a safe working environment. They mention a grievance redressal mechanism but lack specific details.
• Community Development: The report mentions support for community development through various CSR activities, including projects related to education, healthcare, and rural development. However, specific details on the projects, their impact, and beneficiaries are limited.
• Women’s Representation: The report provides some data on women’s representation in the board of directors and key management personnel.

IV. Governance Practices:

• Board Composition: The report details the composition and responsibilities of the Board of Directors, including the number of Independent Directors and their backgrounds.
• Committees: It outlines the roles and functions of the Audit Committee, Nomination & Remuneration Committee, and Stakeholders Relationship Committee.
• Policies: The company highlights policies relating to Code of Conduct, Whistleblower Mechanism, related party transactions, conflict of interest, and corporate social responsibility.
• Compliance: The report states compliance with various regulations and standards related to corporate governance.

V. Sustainability Goals:

The report doesn’t explicitly state specific, quantifiable sustainability goals with timelines. While it mentions various initiatives towards environmental and social responsibility, it lacks a formal, articulated sustainability strategy with clear targets and measurable objectives. The commitment to reducing carbon footprint through renewable energy sources is a significant element of their environmental strategy but lacks specific targets, progress metrics, or timelines. A more holistic sustainability strategy with defined targets, regular progress reviews, and robust reporting would be needed for a clear picture.

Overall: Shilchar’s annual report shows a commitment to ESG principles but needs improvement in providing more detailed, measurable data across its initiatives. The lack of specific sustainability goals with timelines limits the assessment of their overall sustainability performance. Greater transparency and quantification of data are essential for enhanced reporting and stakeholder understanding of their ESG performance.

Additional Information #

Operational Metrics #

Based on the provided annual report:

• R&D Expenditure: ₹7.17 Crores (for the fiscal year 2023-24)

• Employee Count: The report states a total of 134 permanent employees as of March 31, 2024, and also mentions 320 indirect employees. Therefore the total workforce (including indirect) would exceed 450. The report further provides a breakdown of employees and workers into permanent, non-permanent, male, female etc. The precise meaning of ‘indirect employees’ requires clarification from the detailed notes within the financial statements.

Important Note: All figures are in Indian Rupees (₹). The employee count includes a variety of classifications, and a precise understanding of the workforce composition requires a closer look at the detailed employee count data provided in the report.

Key Events #

Based on the Shilchar Technologies Limited annual report, here are some significant events that occurred during the fiscal year 2023-24:

• Record Financial Performance: The company achieved its best-ever financial results, with significant year-over-year growth in revenue, EBITDA, and PAT. This was driven by high capacity utilization and favorable market conditions.
• Capacity Expansion: The company initiated a major expansion project at its Gavasad facility, increasing its transformer manufacturing capacity. This is a key strategic initiative to meet growing market demand.
• Registered Office Relocation: The company shifted its registered office from Bil Road, Bil to Near Muval Sub Station, Padra Jambusar Highway, Gavasad, Vadodara. This is likely related to the capacity expansion project.
• Board and Management Changes: Ms. Niki Tiwari resigned as Company Secretary & Compliance Officer, and Ms. Mauli Rushil Mehta was appointed to the position. Mr. Rakesh Dhanraj Bansal was appointed as an additional Non-Executive Independent Director. Mr. Mukesh Dahyabhai Patel’s continuation as Non-Executive Independent Director was approved by shareholders.
• Bonus Share Issue: The company issued bonus equity shares (1:1 ratio) to existing shareholders. This decision likely reflects the company’s confidence in its future growth and aims to reward investors.
• Increased Authorised Share Capital: The authorized share capital of the company was increased from ₹5 Crores to ₹10 Crores.
• BIS Approvals: The company obtained many Bureau of Indian Standards (BIS) approvals for various transformer ratings. This strengthens their product offerings and compliance.

These events highlight a year of significant growth, strategic investments, and operational changes at Shilchar Technologies Limited. The focus on expansion, both in terms of capacity and market reach, underscores the company’s ambitious growth strategy.

Audit Information #

Auditor’s Opinion:

The independent auditor, CNK & Associates LLP, issued an unqualified opinion on Shilchar Technologies Limited’s financial statements. This means the auditors found the financial statements to be presented fairly, in all material respects, in accordance with Indian Accounting Standards (Ind AS) and other generally accepted accounting principles in India. The auditors did not identify any key audit matters to report.

Key Accounting Policies: The annual report details many key accounting policies. Here’s a summary:

• Property, Plant, and Equipment: Freehold land is carried at cost and not depreciated. Other assets are measured at cost less accumulated depreciation and impairment losses. Depreciation is calculated using the straight-line method.
• Investment Property: Measured initially at cost, subsequently at cost less accumulated depreciation and impairment. The fair value is disclosed in the notes.
• Intangible Assets: Stated at cost less accumulated amortization and impairment. Amortization is done over the estimated useful life using a straight-line basis.
• Impairment: The company assesses for impairment of non-financial assets annually. Recoverable amount is the higher of fair value less costs of disposal and value in use.
• Leases: The company follows Ind AS 17 for lease accounting, distinguishing between finance and operating leases.
• Inventories: Measured at the lower of cost (FIFO method) and net realizable value.
• Investments: Classified into categories based on business model and contractual terms: amortized cost, fair value through other detailed income (FVOCI), and fair value through profit or loss.
• Cash and Cash Equivalents: Includes cash on hand and highly liquid short-term investments.
• Financial Liabilities: Recognized initially at fair value, net of transaction costs for loans and borrowings.
• Foreign Currency Translation: Transactions are recorded at the exchange rate at the transaction date; monetary items are translated at the closing rate.
• Revenue Recognition: Follows Ind AS 115, recognizing revenue when control of goods or services is transferred to the customer.
• Employee Benefits: Short-term benefits are recognized at the amounts expected to be paid. Gratuity and compensated absences are accounted for as defined benefit plans with actuarial valuations.
• Borrowing Costs: Directly attributable borrowing costs are capitalized; others are expensed.
• Taxation: Income tax expense is calculated based on applicable tax rates, considering current and deferred tax liabilities/assets.
• Provisions and Contingencies: Provisions are recognized when there’s a present obligation, probability of outflow, and reliable estimate. Contingent liabilities are disclosed.
• Earnings per Share: Calculated using basic and diluted methods.
• Segment Reporting: The company presents its business as one single segment (transformers and parts).

This is a summary; the detailed accounting policies are provided in the notes to the financial statements within the annual report. It’s essential to refer to those notes for a detailed understanding of the policies and their application.