Wonder Electricals Ltd:Annual Report 2023-24 Analysis

Wonder Fibromats Ltd.: A Comprehensive Overview #

About the Company #

Wonder Fibromats Ltd. specializes in the manufacturing and supply of geotextiles and technical textiles.

Key Milestones in Their Growth Journey

• Focused on expanding its product range and market reach within the technical textiles sector.

Stock Exchange Listing Details and Market Capitalization

• Listed on the BSE SME platform with the code 543789.

Management Team and Leadership Structure

• The company is led by a Board of Directors with individuals holding key positions such as Managing Director and Chief Financial Officer.

Their Products #

Complete Product Portfolio with Categories

• Geotextiles: Woven and Non-Woven Geotextiles for various applications.
• Technical Textiles: Specialized textiles for different industrial and agricultural uses.

Any Unique Selling Propositions or Technological Advantages

• Focuses on providing customized solutions to meet specific client requirements in terms of product specifications and applications.

Primary Customers #

Target Industries and Sectors

• Infrastructure development (roads, railways, etc.)
• Agriculture and horticulture
• Environmental engineering

Geographic Markets (domestic vs. international)

• Operates primarily in the domestic Indian market.

Distribution Network and Sales Channels

• Utilizes a network of distributors and direct sales to reach customers.

Future Outlook #

Expansion Plans or Growth Strategy

• The company is focused on expanding its market share by strengthening its sales and marketing efforts.
• Investing in research and development to introduce new and innovative products.

Sustainability Initiatives or ESG Commitments

• The company is committed to environment-friendly practices in manufacturing.

Wonder Electricals Limited: Financial Performance Analysis (FY 2023-24) #

3-Year Trend Analysis of Key Financial Metrics #

The following table compares the financial performance of Wonder Electricals Limited for FY 2023-24, FY 2022-23, and FY 2021-22. All figures are in INR Lakhs unless otherwise specified.

General Observations #

• Wonder Electricals has demonstrated strong financial performance, especially in revenue and profit growth.
• Increased finance costs and depreciation need to be monitored in the context of expansion.
• The acquisition of a new plant through a slump sale is a major factor influencing the financial figures.

Business Segment Performance #

• The company operates primarily in a single business segment: manufacturing and supplying ceiling, exhaust, pedestal, TPW, and BLDC fans. Within this segment, there is a focus on expanding the BLDC fan category and strengthening the premium fans portfolio.

Major Strategic Initiatives and Their Progress #

• Backward Integration: Developing in-house capabilities for critical manufacturing processes (blade fabrication, cover & rotor machining, copper winding, etc.) to improve cost efficiency, reduce supplier dependency, and enhance quality control.
• Plant Acquisition: Acquisition of a new manufacturing plant in Sidcul, Haridwar, through a slump sale to expand production capacity.
• Product Innovation: Launching new fan models with advanced technology and design improvements, emphasizing energy efficiency and sustainability.
• Market Penetration: Efforts to expand into new regions and market segments and strengthen the company’s presence in the market.

Risk Landscape Changes #

• Increased Competition: Intense competition from both domestic and international manufacturers, potentially leading to price pressures.
• Raw Material Price Volatility: Fluctuating costs of raw materials (metals, plastics) are a threat to production costs and pricing.
• Supply Chain Disruptions: The potential for disruptions due to geopolitical tensions or other factors.
• Economic Slowdown: The impact of economic slowdown is also considered.

ESG Initiatives and Metrics #

• Energy Conservation: Efforts to conserve energy through innovative measures and investment in energy conservation equipment.
• CSR Activities: Spending on education, skill development, women empowerment, and healthcare for underprivileged communities. The company spent INR 34.04 Lakhs on CSR, exceeding the statutory requirement of 2% of the average net profit of the last three years (16.44 Lakhs).
• Anti-Sexual Harassment Policy: The company has an anti-sexual harassment policy, and the ICC did not receive any complaints during the year.

Management Outlook #

• Management expresses optimism about the future, citing India’s growth potential, rising disposable incomes, and increasing electrification.
• The company intends to expand its range of BLDC fans and strengthen its portfolio in the premium fans category, anticipating increased demand for energy-efficient and aesthetically appealing products.
• The company plans to continue investing in R&D to produce innovative and value-added products.
• Exploring new markets and channels is a strategic priority.
• Enhancing customer service and support is highlighted as a focus area.

Comparative Analysis with Industry Averages #

Wonder Electricals’ revenue and profit growth likely outpaces the average growth of the overall fan industry. The strategic focus on BLDC and premium fans aligns with broader industry trends towards energy efficiency and higher-value products. The emphasis on backward integration is likely a differentiator, potentially providing a cost and quality advantage. The debt equity ratio is well within the accepted norms, indicating financial strength.

Overall Assessment #

Wonder Electricals Limited demonstrates a strong financial performance, a clear strategic direction, and a proactive approach to addressing industry challenges. The company’s focus on innovation, expansion, and efficiency positions it well for continued growth.

Detailed Analysis #

Wonder Electricals Limited: Financial Position Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity #

(Amount: INR Lakhs)

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

• Intangible Assets (Goodwill): A significant increase from 0 to INR 1,518.68 Lakhs due to the acquisition of a manufacturing business via slump sale.
• Inventories: Increased by 76.65% (from INR 3,746.74 Lakhs to INR 6,618.61 Lakhs), likely due to increased production and/or anticipated sales growth, and possibly related to the business acquisition.
• Trade Receivables: Increased by 46.71% (from INR 15,039.74 Lakhs to INR 22,065.09 Lakhs), indicating a substantial increase in credit sales or potentially slower collection times.
• Other Current Assets: Significantly decreased by 82.51%, from INR 4732.38 lakhs in FY23 to 829.60 lakhs in FY24. This can be attributed to the company spending its excess CSR amount and other prepayments.
• Preference Share Capital: Decreased from INR 2342.67 lakhs to 1992.67 lakhs, because Wonder Electricals has redeemed preference shares.
• Other Equity: Increased by 139.55% from 2278.82 to 5454.25 lakhs, mainly due to the year’s profits and a capital redemption reserve increase.
• Short-Term Borrowings: Increased significantly by 267.78% (from INR 1,431.13 Lakhs to INR 5,263.46 Lakhs), suggesting increased reliance on short-term financing. This could be for working capital or to fund the acquisition.
• Other Current Liabilities: Decreased significantly, because of less advances from customers.

Working Capital Trends #

• Calculation: Working Capital = Current Assets - Current Liabilities
• Trend:
  • 2024: INR 29,632.83 Lakhs - INR 24,367.17 Lakhs = INR 5,265.66 Lakhs
  • 2023: INR 23,623.03 Lakhs - INR 19,705.85 Lakhs = INR 3,917.18 Lakhs
  • 2022: INR 22,395.62 Lakhs - INR 20,674.38 Lakhs = INR 1,721.24 Lakhs
• Analysis: Working capital has shown an increasing trend over the three years, the sharp increase in FY24 likely linked to a significant jump in trade receivables and inventories.

Asset Quality Metrics #

• Debtors Turnover Ratio (Receivables Turnover):
  • 2024: Calculated as 2.55 using the given figures.
  • 2023: Given as 2.20.
• Analysis: The increase in receivable turnover shows increased sales but also signals an increase in accounts receivable.

Debt Structure and Maturity Profile #

• Long-Term Borrowings:
  • 2024: INR 1,194.67 Lakhs (Secured Term Loans + Car Loans + Unsecured Loans)
  • 2023: INR 1,071.53 Lakhs
  • 2022: INR 966.02 Lakhs
• Short-Term Borrowings:
  • 2024: INR 5,263.46 Lakhs (Working Capital Limit + Current maturities of Long-Term Debt + Reverse Factoring + Unsecured Loans)
  • 2023: INR 1,431.13 Lakhs
  • 2022: INR 1,424.00 Lakhs
• Debt-to-Equity Ratio:
  • 2024: .76
  • 2023: .42
• Analysis: The company’s reliance on short-term borrowings has increased substantially. Long-term borrowing has increased, but at a slower pace. The debt-to-equity ratio, although increasing, is still moderate at 0.76 in 2024. The nature of the increased short-term debt (working capital vs. other) suggests it’s primarily used to fund operational growth.

Off-Balance Sheet Items #

• Guarantees: The report mentions “guarantees” implying there could be off-balance sheet guarantees. The Director’s Report mentions the provision of guarantees, but does not detail their amounts.
• Contingent Liabilities: The notes state there are no contingent liabilities at year-end.

Industry Benchmark Comparisons (Limited) #

Without specific industry classification and peer company data within the provided document, direct benchmarking is difficult. However, some general observations can be made:

• Inventory and Receivable Turnover: The increase in receivables turnover is notable and, if not carefully managed, could indicate potential collection issues.
• Debt-to-Equity: A ratio of 0.76 is generally considered reasonable.
• Current Ratio: A declining current ratio (even though still above 1) could be a warning sign if it continues to fall.

Overall Summary and Key Concerns #

• Growth and Acquisition: Wonder Electricals has clearly undergone significant growth, partially fueled by the acquisition of a manufacturing business. This is reflected in the increased assets, revenues, and borrowings.
• Working Capital Management: The sharp increases in inventory and receivables require close monitoring. While potentially indicative of growth, they also raise concerns about potential obsolescence (inventory) and collection risk (receivables).
• Debt Reliance: The shift towards greater reliance on short-term debt needs careful evaluation. While it might be appropriate for short-term needs, a long-term reliance on short-term debt can increase financial risk, especially if interest rates rise or credit conditions tighten.
• Goodwill: There is a presence of goodwill on the balance sheet, which arose in the current financial year. This needs to be assessed annually for impairment.

Operating Performance Analysis of Wonder Electricals Limited (FY 2023-24) #

Revenue Breakdown and Growth #

• Segment: Wonder Electricals identifies manufacturing/dealing/trading of ceiling, exhaust, pedestal & BLDC fans as its primary business segment. No further segment-wise breakdown is provided.
• Geography: The company does not have separate reportable geographical segments.
• Revenue Growth:
  • Total Revenue: Increased by 41.6% from ₹402.51 crores in FY 2022-23 to ₹569.99 crores in FY 2023-24.
  • Domestic Sales are the main driver of the increase.

Cost Structure Analysis #

The major cost components are:

• Cost of Materials Consumed: 88.77% of total revenue in FY 2023-24. Increased by 40.58% in FY 23-24.
• Employee Benefits Expenses: 3.75% of total revenue. Increased by 28.88% in FY24.
• Manufacturing Expenditure: 2.26% of revenue in FY24. Increased by 10.13%.
• Administrative & Selling Expenditure: 2.86% of revenue. Increased by 58.44%.
• Finance Costs: 0.76% of revenue. Increased by 51.92%.
• Depreciation & Amortization Expenses: 1.14% of total Revenue. Increased by 62.89%.

Margin Analysis and Trends #

• Operating Profit Margin: (EBITDA / Total Revenue) * 100%.
• Net Profit Margin: (Profit After Tax / Total Revenue) * 100%.

Operating Leverage Inference #

The significant increase in revenue (41.6%) led to a larger percentage increase in Profit Before Tax (63.33%), suggesting a degree of operating leverage. This means a portion of the company’s costs are fixed, so as sales increase, profits increase at a faster rate.

Significant Non-Recurring Items #

• The company’s acquisition of a manufacturing business through a slump sale, issuing unlisted preference shares as consideration. Goodwill has been booked in the process.
• Redeemed some of the preference shares.

EPS Analysis (Basic/Diluted) #

• Both Basic and Diluted EPS have shown significant growth, reflecting the increase in net profit.

Financial Analysis of Wonder Electricals Limited #

Cash Flow Analysis #

OCF, ICF, and FCF Components (Amounts in INR Lakhs) #

| Net increase/(decrease) in cash and cash equivalents | 943.28 | (34.15) | +977.43 | | ——|——|——–|

Key observations:

• OCF: OCF has significantly decreased from the previous year. This due to a big increase in the change in trade receivables, inventory, which is impacting the working capital. It is partially offset by better profits and increase in trade payables.
• ICF: Significant investment in fixed assets, more than doubling the outflow from the previous year.
• FCF: The massive increase in FCF is primarily driven by a very large increase in short-term borrowings, which have more then compensated for the net cash outflows from Operating and Investing activities.

Working Capital Management Efficiency #

• Trade Receivables Turnover Ratio:
  • FY 2023-24: 3
  • FY 2022-23: 2.61

The increase in trade receivables turnover indicates that they are taking more days to collect money, worsening the working capital.

• Inventory Turnover Ratio:
  • FY 2023-24: 10.13
  • FY 2022-23: 9.99

Slight increase in inventory turnover, which might need to be improved.

• Trade Payables Turnover Ratio:
  • FY 2023-24: 3.25
  • FY 2022-23: 4.45
  • %age change from previous year 27.03%

The increased ratio means the company is taking less time to pay suppliers, meaning the working capital is negatively impacted.

• Overall: The high dependence on short-term borrowings, along with the slower trade receivables collection, indicates a potential strain on working capital management. The company is funding its operations increasingly through credit, which could be a risk if sales don’t keep pace.

Dividend and Share Buyback Trends #

• Dividends:
  • Interim Dividend: INR 1 per equity share (FY 2023-24)
  • Proposed Final Dividend: INR 1 per equity share (FY 2023-24, subject to approval)
  • Total Dividend Payout for equity shareholders: 134.01 Lakhs, up 100% from previous year (67.00Lakhs).
  • There is also a dividend payout for preference shares for 48.80 Lakhs.
• Share Buybacks: No share buybacks occurred during the reported periods.

Debt Service Coverage Ratio #

• FY 2023-24: 1.95
• FY 2022-23: 2.07

The debt service coverage ratio has slightly decreased. This indicates a slightly reduced capacity to meet its debt obligations from its operating income. The number is still within acceptable ranges.

Liquidity Position and Cash Conversion Cycle #

• Current Ratio:
  • FY 2023-24: 1.16
  • FY 2022-23: 1.17

The Current Ratio has slightly decreased from the last period.

• Cash Conversion Cycle (CCC):
  • Days Inventory Outstanding (DIO): Has likely decreased slightly (based on the slight increase in Inventory Turnover).
  • Days Sales Outstanding (DSO): Has likely increased (based on the lower Trade Receivables Turnover).
  • Days Payable Outstanding (DPO): Has likely decreased (based on lower Trade Payables Turnover).
  • Overall, the CCC has likely increased, indicating that the company is taking longer to convert its investments in inventory and other resources into cash flow.

Overall Summary and Recommendations #

• Growth: The company is experiencing significant revenue growth, but this growth is heavily reliant on increased short-term borrowings.

• Profitability: Profit margins have improved, but the increased reliance on debt is impacting key financial ratios.

• Working Capital: Working capital management appears to be under strain, with receivables collection slowing down and inventory levels increasing.

• Liquidity: The current ratio is adequate, but the increasing CCC and dependence on short-term debt raise concerns.

• Capex: The Company made great acquisitions by introducing the new plant.

• Debt: Debt Equity ratio is not good due to acquiring of new plant.

• Recommendations:

  • The company must provide segment wise breakdown of capex and revenue for a more thorough analysis.
  • Improve Working Capital Management: Focus on improving the collection of receivables and optimizing inventory levels. This is crucial to reduce reliance on short-term debt.
  • Monitor Debt Levels: Carefully manage the increasing debt levels, particularly short-term borrowings. Develop a plan for long-term financing to support growth.
  • Cash Conversion: Reduce the CCC cycle by taking steps for efficient inventory management.

Financial Analysis of Wonder Electricals Limited #

Profitability Ratios (3-Year Trends) #

Calculation Notes:

• ROE: Net Income / Average Shareholder’s Equity
• ROA: Net Income / Average Total Assets
• ROIC: Net Operating Profit after tax/ Invested Capital.
• Gross Profit Margin: (Revenue from Operations - Cost of Materials Consumed -Changes in Inventories- Manufacturing Expenditure) / Revenue from Operations
• Operating Profit Margin: (Profit Before Tax + Finance Cost + Depreciation) / Revenue from Operations

Analysis:

• Positive Trends: Most profitability ratios show a slight, but general, upward trend over the three years, indicating improved efficiency and profitability.
• Below Industry Average: Profit margins (Gross, Operating, and Net) are significantly below the hypothetical industry averages. This suggests that Wonder Electricals may have lower pricing power, higher operating costs, or a combination of both, compared to its competitors. Also, ROE is low.
• ROIC shows a downtrend.

Liquidity Metrics #

Calculation Notes:

• Current Ratio: Current Assets / Current Liabilities
• Quick Ratio: (Current Assets - Inventories) / Current Liabilities
• Cash Ratio: Cash and Cash Equivalents / Current Liabilities

Analysis:

• Concerning Liquidity: All liquidity ratios are significantly below the hypothetical industry averages. The current ratio is barely above 1, suggesting the company might struggle to meet its short-term obligations.
• Low Cash Ratio: The extremely low cash ratio indicates that Wonder Electricals has very little readily available cash to cover immediate liabilities. This is a major red flag.

Efficiency Ratios #

Calculation Notes:

• Total Asset Turnover Ratio: Revenue from Operations/Average Total Assets
• Inventory Turnover Ratio: Cost of Materials Consumed / Average Inventory
• Receivables Turnover Ratio: Credit Sales / Average Trade Receivables

Analysis:

• High Inventory Turnover: The inventory turnover ratio is higher than the hypothetical industry average, which may be good.
• Low Receivables Turnover: The receivables turnover ratio is very low and concerning. This means Wonder Electricals takes a very long time to collect payments from its customers. This ties up cash and increases the risk of bad debts.

Leverage Metrics #

Calculation Notes:

• Debt/Equity Ratio: Total Debt (Long term + short term)/ Shareholder’s equity.

Analysis:

• Increasing Debt: The debt-to-equity ratio has increased significantly from FY22-23 to FY23-24. This indicates that the company is taking on more debt to finance its operations, which increases financial risk.
• Interest Coverage Ratio: Slightly declined compared to FY21-22.

Working Capital Ratios #

Calculation:

• Net Working Capital = Current Assets - Current Liabilities.
• Working Capital/Sales: (Net working capital/Sales)

Analysis:

• The Net Working Capital Turnover increased and the proportion of working capital in sales is decreasing, but it can be improved further.

Overall Summary and Key Findings: #

• Profitability: While improving, Wonder Electricals’ profitability lags behind industry benchmarks.
• Liquidity: The company’s liquidity position is a major concern, with very low cash and quick ratios.
• Efficiency: Inventory management appears relatively efficient, but receivables collection is extremely slow.
• Leverage: The company’s reliance on debt is increasing, raising financial risk.
• Company acquired a running business through slump sale in FY 23-24.
• Company changed its name from Wonder Fibromats to Wonder Electricals.

Recommendations (Based on Limited Information): #

• Improve Profit Margins: Investigate ways to increase pricing power (e.g., through product differentiation, branding) and/or reduce operating costs (e.g., through process optimization, supplier negotiation).
• Address Liquidity Issues: The company needs to urgently improve its cash flow. This could involve:
  • Aggressively collecting receivables: Implement stricter credit policies, offer early payment discounts, and pursue overdue accounts more actively.
  • Negotiating better payment terms with suppliers.
  • Raising additional capital (equity or debt, though debt is already high).
• Reduce Debt: Develop a plan to reduce debt levels over time, potentially through retained earnings or equity financing.
• Monitor Working Capital: Continue to manage inventory efficiently, but focus heavily on reducing the receivables collection period.

Important Disclaimer: #

This analysis is based solely on the limited financial information provided in the document. A complete and thorough financial analysis would require access to more detailed financial statements, industry data, and management insights. This response is for informational purposes only and should not be considered financial advice.

Financial Analysis of Wonder Electricals Limited (FY 2023-24) #

Revenue and Profitability Growth #

• Revenue Growth: Total revenue increased by 41.6%, from Rs. 402.51 crore in FY 2022-23 to Rs. 569.99 crore in FY 2023-24.
• EBITDA Growth: 42.83%.
• PAT increase: 61.44%.
• Profitability:
  • Profit Before Tax (PBT) increased by 63.3%, from Rs. 8.89 crore to Rs. 14.52 crore.
  • Profit After Tax (PAT) increased from Rs. 6.29 crore to Rs. 10.16 crore.
  • Net Profit Margin improved from 1.55% to 1.78% (a 14.84% increase).
  • Operating Profit Margin increased from 2.91% to 3.30%.
  • Return on Net Worth (RoNW) improved from 10.55% to 14.95%.
  • Earnings Per Share: Basic and diluted EPS have improved.

Market Share and Competitive Position #

• Wonder Electricals is a significant player in the fan manufacturing industry, supplying to companies that sell under their own brands in India.
• Backward integration (in-house capabilities for key manufacturing processes) is a competitive advantage, improving cost efficiency and reducing reliance on third-party suppliers.
• The company has a position in BLDC fan and premium fan category.

Key Products/Services Performance #

• Main products are ceiling, exhaust, pedestal, TPW (Table, Pedestal, Wall), and BLDC fans.
• Focus on product innovation, with new fan models launched incorporating advanced technology and design improvements.
• Future product with BLDC motors.
• Deploying new technologies and platforms, such as Energy-efficient technologies.

Geographic Distribution and Market Penetration #

• Three manufacturing plants: two in Uttarakhand (Roorkee and Haridwar) and one in Telangana (Hyderabad).
• Expansion into new regions and segments.
• Expanded manufacturing footprint.
• Strengthening presence in the market.

Operational Efficiency Metrics #

• Inventory Turnover: Slightly decreased (from 5.78 to 5.73, cost of goods sold method).
• Debtors Turnover: Increased (From 3.12 to 3.61), indicating potentially faster collection of receivables.
• Trade Payables turnover ratio: increased to 3.68.
• Improved supply chain efficiencies.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Driving Innovation: Investing in R&D to lead in fan technology.
  • Enhancing Customer Experience: Improving customer service and support systems.
  • Expanding Market Reach: Continuing to explore new markets and channels.
• Acquisition: Added one manufacturing unit at Sidcul Haridwar, Uttrakhand.
• Challenges:
  • Inflationary pressures.
  • Fluctuating commodity prices.
  • BEE star rating transition in fans.
  • Erratic weather condition.
  • Global uncertainties (geopolitical tensions, supply chain disruptions).
  • Intense Competition.
  • Power disruptions.
• Key Risks: Business risk, operational risk, and external risk.

Risk Assessment of Wonder Electricals Limited (2023-24) #

This analysis outlines the key risks facing Wonder Electricals Limited, based on its 2023-24 Annual Report. The assessment categorizes risks by type and includes evaluations of severity, likelihood, trend, mitigation strategies, control effectiveness, and potential financial impact. Quantitative metrics are estimated where possible, with assumptions clearly stated.

Overall Approach:

• Severity: High, Medium, or Low (impact on strategic objectives, financial performance, and reputation).
• Likelihood: High, Medium, or Low (probability of occurrence within 12-24 months).
• Trend: Increasing, Decreasing, or Stable (direction of the risk over time).
• Mitigation Strategies: Actions taken or recommended to reduce risk.
• Control Effectiveness: Strong, Moderate, or Weak (effectiveness of mitigation strategies).
• Potential Financial Impact: Qualitative (High, Medium, Low) and quantitative estimations based on report figures.
• Quantitative Risk Metrics: Estimated financial figures, scores, and metrics where feasible.

Strategic Risks #

Intense Competition (Price Wars & Substitute Products) #

• Severity: High
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies:
  • Product Innovation (BLDC fans, premium designs)
  • Market Penetration (new regions and segments)
  • Brand Building
• Control Effectiveness: Moderate
• Potential Financial Impact: High (A 5% decrease in average selling price due to competition could reduce revenue by approximately ₹28.5 crores)
• Quantitative Risk Metrics:
  • Market share loss (estimated 1-3% per year if mitigation is unsuccessful).
  • Price erosion (measured as a percentage decrease in average selling price).

Economic Downturns Impacting Consumer Spending #

• Severity: High
• Likelihood: Medium
• Trend: Stable, cyclical
• Mitigation Strategies:
  • Diversification of product portfolio
  • Focus on value-for-money offerings
  • Geographic diversification
• Control Effectiveness: Moderate
• Potential Financial Impact: High (A 10% decrease in sales volume could reduce revenue by ₹57 crores)
• Quantitative Risk Metrics:
  • Correlation between GDP growth and sales volume.

Operational Risks #

Supply Chain Disruptions #

• Severity: Medium to High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Backward Integration
  • Supplier Diversification
  • Inventory Management
• Control Effectiveness: Moderate to Strong
• Potential Financial Impact: Medium to High (A one-month production halt could reduce revenue by approximately ₹47.5 crores)
• Quantitative Risk Metrics:
  • Supplier concentration index.
  • Inventory turnover ratio.

Raw Material Cost Volatility #

• Severity: Medium
• Likelihood: High
• Trend: Stable
• Mitigation Strategies:
  • Long-term contracts with suppliers
  • Hedging strategies
  • Passing on cost increases to customers
• Control Effectiveness: Weak to Moderate
• Potential Financial Impact: Medium (A 10% increase in raw material costs could reduce profit before tax)
• Quantitative Risk Metrics:
  • Correlation between raw material prices and gross profit margin.

Power Disruptions #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Control Effectiveness: Moderate
• Potential Financial Impact: Medium
• Quantitative Risk Metrics:
  • Correlation between power disruptions and sales numbers.

Financial Risks #

Interest Rate Risk (on Borrowings) #

• Severity: Medium
• Likelihood: Medium
• Trend: Potentially Increasing
• Mitigation Strategies:
  • Interest rate hedging
  • Debt reduction
• Control Effectiveness: Weak
• Potential Financial Impact: Medium (A 1% increase in interest rates could increase finance costs by approximately ₹0.65 crores)
• Quantitative Risk Metrics:
  • Debt-to-equity ratio
  • Interest coverage ratio

Credit Risk (on Trade Receivables) #

• Severity: Low to Medium
• Likelihood: Low to Medium
• Trend: Stable
• Mitigation Strategies:
  • Credit checks on new customers
  • Credit limits
  • Prompt follow-up on overdue accounts
• Control Effectiveness: Moderate
• Potential Financial Impact: Low to Medium
• Quantitative Risk Metrics:
  • Days Sales Outstanding (DSO).
  • Aging of receivables.
  • Bad debt write-off ratio.

Liquidity Risk #

• Severity: Medium
• Likelihood: Low
• Trend: Stable
• Mitigation Strategy: Maintain Cash and cash equivalent and other assets.
• Control Effectiveness: Moderate
• Potential Financial Impact: Medium
• Quantitative Risk Metrics:
  • Cash reserve, current ratio.

Compliance/Regulatory Risks #

Non-compliance with Environmental Regulations #

• Severity: High
• Likelihood: Low to Medium
• Trend: Increasing
• Mitigation Strategies:
  • Adherence to environmental laws and regulations
  • Regular internal audits
  • Investments in pollution control equipment
• Control Effectiveness: Moderate
• Potential Financial Impact: High
• Quantitative Risk Metrics:
  • Number of environmental violations.
  • Amount of fines/penalties paid.

Non-compliance with Labor Laws #

• Severity: High
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies:
  • Internal Complaints Committees (ICC).
  • Anti-Sexual Harassment Policy.
  • Training and awareness programs.
• Control Effectiveness: Strong
• Potential Financial Impact: High
• Quantitative Risk Metrics:
  • Number of complaints filed.
  • Resolution time for complaints.

Non-compliance with Tax Laws #

• Severity: High
• Likelihood: Low
• Trend: Stable
• Mitigation Strategy: proper accounting and tax planning.
• Control Effectiveness: Strong
• Potential Financial Impact: High
• Quantitative Risk Metrics:
  • Number of complaints filed.
  • Tax disputes

Emerging Risks #

Technological Disruption (Smart Home Integration) #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Investment in R&D for smart fan technology
  • Partnerships with smart home technology providers
• Control Effectiveness: Weak
• Potential Financial Impact: Medium
• Quantitative Risk Metrics:
  • Percentage of revenue from smart products.

Climate Change #

• Severity: Medium
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies:
  • energy efficiency in production and use of fans.
• Control Effectiveness: Weak
• Potential Financial Impact: Medium
• Quantitative Risk Metrics:
  • energy consumption.

Year-over-Year Changes in Risk Profile #

• Debt-to-Equity Ratio: Increased significantly, indicating a higher level of financial risk.
• Interest Coverage Ratio: Decreased, suggesting a reduced ability to service debt.
• Inventory Turnover Ratio: Slight decrease, supply chain performance has declined
• Trade Receivables Turnover Ratio: Increased, showing collection period has reduced.
• Trade Payable Turnover Ratio: Increased, meaning payment period has increased.

Summary #

Wonder Electricals faces significant strategic risks from competition and economic downturns. Operationally, supply chain disruptions and raw material cost volatility are key concerns. Financially, the increased debt levels and associated interest rate risk are notable. Compliance risks appear to be relatively well-managed, but emerging risks related to technological disruption require attention. The company’s mitigation strategies are partially effective, but further strengthening is needed in areas like hedging, supplier diversification, and smart product development. The increased debt-to-equity ratio and decreased interest coverage ratio warrant close monitoring.

Wonder Electricals Limited - Strategic Analysis (2023-24) #

Long-Term Strategic Goals and Progress #

• Goal: To be a leading player in the fan industry, focusing on reimagining the future and enhancing consumer experiences.
• Strategies:
  • Manufacturing Expansion: Expanding manufacturing footprint to meet escalating demand.
  • Product Innovation: Robust New Product Development (NPD) process to respond to market needs.
  • Market Penetration: Expanding into new regions and market segments, strengthening market presence.
  • Operational Excellence: Optimizing manufacturing, supply chain, and implementing technology to increase productivity and reduce costs.
  • BLDC fans expansion.
• Progress: Revenue growth of 41.6% (from ₹402.51 Cr to ₹569.99 Cr) and PAT growth of 61.44% indicate progress. The acquisition of a new plant in Sidcul Haridwar demonstrates commitment to capacity expansion.

Competitive Advantages and Market Positioning #

• Competitive Advantages:
  • Integrated Operations: Fully integrated end-to-end product and solution suite, from sourcing to packaging.
  • Backward Integration: In-house capabilities for critical manufacturing processes (blade fabrication, stator winding, painting, etc.), reducing reliance on third-party suppliers and improving cost efficiency and quality control.
  • Product Portfolio: Offers a wide range of fans (ceiling, exhaust, pedestal, TPW, BLDC) with various designs and patterns.
  • Customer Relationship: The ability to customize and the company works closely with customers that retail under their own brand names.
• Market Positioning: Wonder electricals position itself as a trusted manufacturer by supplying well-known companies. Expanding portfolio and category of fans.

Innovation Initiatives and R&D Effectiveness #

• Focus: Investment in R&D to lead in fan technology and address emerging consumer needs, setting new benchmarks for performance and design.
• Initiatives:
  • New fan models with advanced technology and design improvements.
  • Commitment to energy efficiency and sustainability in product design.
  • Development of BLDC motors.
  • Adaptation to energy efficiency standards (BEE star rating transition).
• Effectiveness: The launch of new products and the focus on energy efficiency suggest active and effective innovation efforts, driven by an NPD process.

M&A Strategy and Execution #

• Strategy: The acquisition of the manufacturing unit in Sidcul Haridwar through a slump sale indicates an inorganic growth strategy, enhancing manufacturing capacity.
• Execution: The successful acquisition and integration of the new plant demonstrate effective execution of the M&A strategy.

Management’s Track Record in Execution #

• Positive Indicators:
  • Significant revenue and profit growth in FY2023-24.
  • Successful expansion of manufacturing capacity.
  • Adaptation to market changes (e.g., BEE star ratings).
  • Consistent dividend payments (interim and proposed final dividend).

Capital Allocation Strategy #

• Key Areas:
  • Capital Expenditure: Investment in a new manufacturing plant (slump sale acquisition).
  • Dividend Payments: Interim dividend paid and final dividend proposed, indicating a balanced approach to returning value to shareholders.
  • Capital Redemption Reserve of Rs.3,50,00,000 on redemption of preference shares.
• Inferred Strategy: Prioritizing growth through strategic investments in manufacturing capacity while also maintaining a dividend payout.

Organizational Changes and Their Impact #

• Key Changes:
  • Change of Company Name: From Wonder Fibromats Limited to Wonder Electricals Limited (effective December 14, 2022), signaling a clear focus on the electricals business.
  • Appointment of Yogesh Sahni as Managing Director.
  • Resignations: Yogesh Anand (Executive Director), Gaurav Munjal (Non-Executive Independent Director), and Harsh Kumar Anand (Chairman & Managing Director).
• Impact: The name change reflects the strategic direction. The MD appointment is important. The resignations, particularly of an independent director, should be noted.

ESG Analysis of Wonder Electricals Limited (2023-2024) #

Environmental Metrics and Targets #

• Conservation Efforts: The report mentions energy conservation through “innovative measures” and the adoption of eco-friendly and cheaper fuels. Capital investments in energy conservation equipment were made.
• Technology Absorption: The company highlights its use of new technologies to improve productivity and product quality, including BLDC motors, with a commitment to adopt the latest technology.
• Limited Disclosure: The annual report provided very limited details, metrics, and targets.

Social Responsibility Programs #

• CSR Focus: CSR activities are primarily focused on education and skill development, women empowerment, and improving healthcare facilities for underprivileged sections of society.
• CSR Spending: The company spent ₹34.04 Lakhs on CSR, exceeding the required 2% of average net profit.
• Specific Initiatives: The report highlights skill development and enhancing employment vocational skills at the company’s plant sites.
• Anti-Sexual Harassment Policy: The company has an Anti-Sexual Harassment Policy and an Internal Complaints Committee, with no complaints reported during the year.

Governance Structure and Effectiveness #

• Board Composition: The Board comprises 10 directors (5 Executive, 5 Non-Executive, including 5 Independent Directors). The composition meets regulatory requirements, including a Woman Director.
• Board Committees: Key committees include Audit, Stakeholders Relationship, Nomination and Remuneration, Corporate Social Responsibility (CSR), and Banking Finance and Operational Committee.
• Independent Director Declarations: The company received declarations from independent directors confirming their independence.
• Board Evaluation: Annual performance evaluations of the Board, individual directors, and committees are conducted.
• Remuneration Policy: A Nomination and Remuneration Policy is in place, outlining the remuneration of directors, KMPs, and senior management.
• Vigil Mechanism/Whistleblower Policy: The company has a Whistleblower Policy for reporting concerns, with direct access to the Audit Committee Chairman.
• Code of Conduct: A Code of Conduct for the Board and senior management is in place, with compliance affirmed.
• Insider Trading Policy: A policy is in place for the prevention of insider trading.
• Compliance: The report emphasizes compliance with the Companies Act, 2013, SEBI (LODR) Regulations, 2015, and Secretarial Standards.
• No Penalties: During last three years, there were no penalties or strictures imposed on the Company by regulatory bodies.

ESG Ratings and Peer Comparison #

• Credit Rating: CRISIL Limited reaffirmed its rating on the long-term bank facilities as CRISIL BBB/Stable.
• No ESG Ratings: The report does not provide any specific ESG ratings or comparisons with industry peers on ESG performance.

Regulatory Compliance and Future Preparations #

• Current Compliance: The company states its compliance with the Companies Act, 2013, SEBI (LODR) Regulations, 2015, and Secretarial Standards.
• Insider Trading Regulations: Compliance with SEBI (Prohibition of Insider Trading) Regulations, 2015, is mentioned, with a Code of Conduct in place.
• Sexual Harassment Act: Compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
• Cost Records: Maintenance of cost accounting records as per Section 148(1) of the Companies Act, 2013.
• Limited Future Outlook: There is no specific discussion of preparations for future environmental or social regulations.

Forward Outlook: Analysis of Wonder Electricals’ Annual Report #

Management Guidance and Assumptions #

• Positive Outlook: Optimistic about the company and the Indian economy, citing resilience, domestic demand, and government initiatives.
• Growth Focus: Aims to grow revenue and profitability through manufacturing expansion, product innovation (BLDC fans), and operational efficiency.
• Market Penetration: Plans to increase market share in existing and new regions, focusing on the premium fan segment.
• Energy Efficiency: Expects increasing awareness of energy efficiency to drive demand for BLDC fans.
• Manufacturing Prowess: Believes its integrated capabilities provide a competitive advantage.

Market Growth Forecasts #

• Indirect References: Report refers to industry trends (IBEF) indicating significant growth in the Indian consumer durables sector.
• Drivers of Growth:
  • Increasing electrification, especially in rural areas.
  • Rising disposable incomes and urbanization.
  • Government initiatives (Make in India, PLI Scheme, housing development).
  • Consumer preference shift towards energy-efficient and aesthetically pleasing products.
  • Expansion of e-commerce platforms for fan sales.

Planned Strategic Initiatives #

• Driving Innovation: Invest in R&D for new fan technologies and designs, focusing on energy efficiency.
• Expanding Market Reach: Explore new markets and distribution channels, strengthening presence in existing markets.
• Enhancing Customer Experience: Improve customer service and support.
• Operational Excellence: Optimize manufacturing, improve supply chain, and use technology for productivity and cost reduction.
• BLDC and Premium Focus: Strengthening the company portfolio in the BLDC and Premium fans category.
• Appliances: Focus on better product mix, channel optimization, agile planning and cost competence.

Capital Expenditure Plans #

• Recent Expansion: Acquisition of a new manufacturing plant at Sidcul Haridwar, Uttarakhand.
• Future Investments: Continued investment in R&D and manufacturing capabilities is implied.
• Energy Conservation Equipment: Investment in energy conservation equipment.

Potential Challenges and Opportunities #

• Challenges:
  • Intense competition from domestic and international manufacturers.
  • Economic downturns affecting consumer spending.
  • Volatility in raw material costs.
  • Regulatory challenges and environmental standards.
  • Supply chain disruptions.
  • Power Disruptions.
• Opportunities:
  • Technological advancements in smart fans and energy-efficient models.
  • Expanding markets in emerging economies and growing urbanization.
  • Customization options for niche markets.
  • Electrification initiatives by the government.

Scenario Analysis and Sensitivity to Key Assumptions #

• Scenario 1: Strong Economic Growth and Favorable Market Conditions:

  • Assumptions: Strong GDP growth in India, stable raw material prices, successful new product launches, effective market penetration.
  • Outcome: Likely achievement or exceeding of revenue and profit growth targets.

• Scenario 2: Economic Slowdown or Increased Competition:

  • Assumptions: Economic downturn in India, increased competition, significant raw material price increases.
  • Outcome: Impact on revenue and profit growth, squeezed margins.

• Scenario 3: Successful Innovation and Market Leadership:

  • Assumptions: Successful development and launch of market-leading BLDC or smart fan technologies, gaining significant market share.
  • Outcome: Above-industry growth and improved profitability.

• Key Assumption Sensitivities:

  • Economic Growth: Highly sensitive to the health of the Indian economy.
  • Raw Material Prices: Fluctuations impact profitability.
  • Competition: Ability to maintain or grow market share is crucial.
  • Successful Execution of Strategic Initiatives.

Audit & Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Opinion: The auditors, AYK & Associates, have issued an unqualified opinion on the standalone financial statements. This means they believe the financial statements present a true and fair view of the Company’s financial position, performance, and cash flows in conformity with generally accepted accounting principles in India (Ind AS).
• Qualifications: The audit report explicitly states there are no qualifications, reservations, or adverse remarks in the Statutory Audit Report, Secretarial Audit Report, or Secretarial Compliance Report.

Key Accounting Policies and Changes #

• Key Policies: The document outlines several key accounting policies:
  • Basis of Preparation: Historical cost convention, accrual basis, Ind AS compliant.
  • Revenue Recognition: Recognized upon transfer of control of goods or services, measured at fair value of consideration. Specific criteria are outlined.
  • Property, Plant & Equipment: Stated at cost less accumulated depreciation and impairment. Depreciation is calculated using the Written Down Value (WDV) method, with useful lives as per Schedule II of the Companies Act, 2013.
  • Inventories: Valued at the lower of cost (using FIFO) and net realizable value.
  • Leases: Ind AS 116 is applied using the modified retrospective approach. Right-of-use assets and lease liabilities are recognized.
  • Borrowing Costs: Costs attributable to qualifying assets are capitalized.
  • Impairment: Assets are assessed for impairment indicators at each reporting period.
  • Employee Benefits: Defined contribution and defined benefit plans are accounted for.
  • Taxation: Current and deferred taxes are recognized.
  • Financial Instruments: Initial recognition at fair value; subsequent measurement depends on classification (amortized cost, FVTOCI, FVTPL).
  • GoodWill: Company booked good will on slump sale acquisition.
• Changes in Accounting Policies: The document mentions that accounting policies have been consistently applied except where a newly issued standard or revision requires a change. Changes from previous periods include the adoption of new accounting standards, mainly from IND AS adoption.

Internal Control Effectiveness #

• Auditor’s Report: The auditors, in Annexure B, provide an unqualified opinion on the internal financial controls over financial reporting. They state that the Company has, in all material respects, an adequate internal financial controls system, and it was operating effectively as of March 31, 2024.
• Management’s Responsibility: The report acknowledges management’s responsibility for establishing and maintaining internal controls.
• Company Systems: The report mentions the Company has internal control systems commensurate with its size and operations, integrated with policies and Standard Operating Procedures (SOPs). Internal audits are conducted, and the Audit Committee reviews their adequacy and effectiveness.

Regulatory Compliance Status #

• Companies Act, 2013: The auditors confirm compliance with relevant provisions. The Director’s Responsibility Statement confirms adherence to applicable accounting standards and laws.
• SEBI (LODR) Regulations, 2015: The Corporate Governance Report states compliance with all mandatory provisions. The Secretarial Audit Report confirms compliance.
• Secretarial Standards: Compliance with SS-1 and SS-2 is confirmed.
• Other Laws: Compliance with other applicable laws (GST, Factories Act, environmental regulations, etc.) is stated.
• No Penalties: The report explicitly states that no penalties or strictures were imposed by SEBI, BSE/NSE, or any other statutory authority during the last three years.

Legal Proceedings and Their Potential Impact #

• The report states, “The Company does not have any pending litigation which would impact its financial position in its financial statements.”

Related Party Transactions #

• Arm’s Length Basis: All related party transactions were conducted on an arm’s length basis and in the ordinary course of business.
• No Material Conflicts: No materially significant related party transactions were entered into that could potentially conflict with the Company’s interests.
• Disclosure: Details of related party transactions are provided in the notes to the financial statements.
• Policy: The Company has a Related Party Transactions Policy in place.
• Key related parties and transactions included Promoters, Directors, Uttaranchal Industries, Quality Components, Akas Technoplast Pvt. Ltd., Stamping & More LLP, Guru Technologies Pvt. Ltd.

Subsequent Events #

• The document notes that no material change and commitment affecting the financial position of the company have occurred between the end of the Financial Year(31st March 2024) and date of the Board Report(12 August 2024). *The board of directors has recommended a final dividend of Re. 1/- per equity share of Re. 1/- each of the Company.

Analysis of Accounting Quality #

• Positive Indicators:
  • Unqualified audit opinions (both financial and internal controls).
  • Consistent application of accounting policies.
  • Compliance with Ind AS.
  • Detailed disclosures in the notes to the financial statements.
  • Presence of an internal audit function and Audit Committee oversight.
  • Use of accounting software with an audit trail feature.
• Areas for Further Scrutiny (based on available information):
  • The substantial increase of goodwill value recorded and any potential impairment risks.

Regulatory Risk Assessment #

• Low Overall Risk: The report presents a picture of strong regulatory compliance. The lack of penalties, strictures, or qualifications in the audit reports suggests a low risk of regulatory non-compliance.
• Areas to Monitor:
  • Continued adherence to evolving SEBI regulations and Companies Act provisions.