Management Discussion And Analysis
Industry Overview and Competition
The Company is a leading manufacturer of racks, enclosures and rack accessories and adistributor for a wide range of value-added solutions from world-class technologycompanies.
The Company has a well-established business-to-business model, supported by marketingand sales distribution channels, and is focused on the Telecom, IT/ITES and GeneralElectronics industry sectors. The current strategy is to increase thrust on sales throughchannels, and to continue servicing major projects in the enterprise high-end data centermarket with innovative solutions. For share-holders, the strategy is to create value byincreasing profits from operations through business growth, value addition and costmanagement.
The Company is intensifying its initiatives in several segments, such as high-end datacenters and IT infrastructure, telecom, contract manufacturing, small and medium business(SMB) segments, as well as entertainment / healthcare and government sectors.Additionally, the company plans to lay emphasis on technical services and solutions.
Development of datacenters is accompanied by increased need for servers and datastorage products and consequently for racks that house such equipment. Althoughinvestments in IT and telecom infrastructure have been deferred, the upgradation ofinfrastructure in datacenters with new technologies is expected to increase revenues forthe server rack segment.
The India Data Center market is expected to grow at a 23% CAGR over the next threeyears to touch Rs. 11,800 crore. Third Party Data Center Services are slated to grow at34% to touch INR 2,800 crore during the same period. (Source: India Data Center ServicesMarket Review 2011).
While 80% of data center services business was still driven by captive data centers in2010, it is the growth story for third-party data center services, which would showgreater promise going forward.
The current penetration of data centers amongst the India enterprise segment is 63%,with nearly 85% of large enterprises having set up a data center by end of 2010. The BFSIsector leads the way with maximum penetration of data centers. Going forward, penetrationlevels amongst large enterprises are expected to reach almost 100%. As a naturalprogression, vendors would be well advised to develop their offerings for SMB enterprises.(Source:http://www.cmrindia.com/press_releases/21april2011.asp)
Opportunities and Threats
On January 7, 2011, the promoter shareholders of the Company signed an agreement withSchneider Electric, the global specialist in energy management to sell their shares in APWPresident Systems Ltd.
Schneider Electric proposes to acquire shares representing a maximum of 75% of theshare capital of the Company by acquiring a minimum of 55% of the share capital from thepromoter shareholders of APW President and up to 20% of the share capital of the Companypursuant to a mandatory open offer to be made to the other shareholders. Depending on theresponse to the open offer, additional shares will be acquired from the promotershareholders, provided that the total number of shares acquired from the promotershareholders, together with the shares acquired under the open offer do not exceed 75% ofthe share capital of the Company.
With the support of Schneider Electric, the Company expects to maintain its leadershipposition in the Indian enclosure and infrastructure management industry segments goingforward. The Company has expanded its capacity last year and is further investing to meetthe demands of significant growth in business. The demonstrated global competitiveness andinternational level of quality of products, provide the Company with new opportunities indomestic as well as international markets. The Company will keep examining and pursuingthese new opportunities for growth.
The Company faces fierce competition from Indian as well as international players.Sound business strategies and competitive costs have enabled the Company to retain itsleading market position. The Company endeavors to enhance its competitive advantagethrough a process of continuous improvements in products and processes, cost reduction,enhancing product utility value and by implementing appropriate coherent businessstrategies. The disciplined financial framework provides stability and a platform for thegrowth of the Company.
Segment wise Performance
In April 2010 the Company was reorganized into 4 divisions, ie. Enterprise SolutionsDivision (ESD), Retail Products Division (RPD), Contract Services Division (CSD) and NewBusiness Division (NBD).
In August 2010, the Company saw an opportunity for developing the telecom business withsharper focus and started the Telecom Solutions Division (TSD). The Company believes thatthis divisional restructuring is well aligned to address all segments of the market.
Enterprise Solutions Division (ESD) & Technology Products Division (TPD)
Technology Products Division showed good performance and all regions contributed to thebusiness. Sales (Product + Services) increased by 20%, with the BFSI segment contributingabout Rs.1 crore on product sales.
Telecom Solutions Division (TSD)
The Telecom Solutions Division won the biggest ever order last year of Rs. 2.25 crores.A totally new product, an Outdoor Enclosure with Heat Exchanger was designed, developedand deployed as part of this project.
Contract Services Division (CSD)
Over the year, the Contract Services Division developed products for many new customerswho are in various stages of evaluation. These initiatives should start generatingsubstantial revenues in 2011-12.
The Company was approved by M/s Bosch for Zinc Nickel Alloy plating. The pre-productiontrials have been successfully completed, and commercial production would commence fromJune 2011. This new business line of Zinc Nickel plating is expected to bring in goodrevenue in years to come.
Retail Products Division (RPD)
To expand its geographic reach, the Company added two new Regional Distributors forMumbai and Karnataka region, and one more for West Bengal, Bihar, Jharkhand, Orissa &North East region. One existing distributor was given go ahead to expand his operations toAndhra Pradesh and Gujarat. The Company has increased the Channel Partner base to 240partners. The market has responded well to the initiative to explore the channel route,and it is proposed to widen the engagement levels with these partners further during2011-12.
New Business Division (NBD)
A turnkey high density cooling solution was deployed at a prime data center site duringthe year. The system has been performing satisfactorily for almost a year and has savedthe customer upto 62% on energy costs. Impressed with the performance and energy savings,the customer has invited our Company to conduct the feasibility study for similarsolutions at one of their biggest data centre. This project is expected to be implementedin the current year.
As per Industry estimates, Global Data Center IT Rack market will reach $1,8 billion in2013. One of the key factors contributing to this market growth is the increasing demandfrom organizations to deploy more data centers. However, the rapid evolution of technologyis forcing end users to delay the purchase of racks, and this could pose a challenge tothe growth of this market.
Convergence of high speed 3G and WiMax data services, financial sector regulations, andgovernment data center projects to open up new market opportunities: With the gradual rollout of 3G and WiMax services by telecom service providers through 2011, and launch of dataintensive services such as video calls, Live TV, video-conferencing, high speed onlinegaming and so on, the need to store and launch various application-based services isexpected to fuel greater spending on building storage infrastructure. At the same timethese factors would contribute to a direct increase in the overall size of the opportunityin the India Data Center services market.
Another factor, which would lead to an increase in the demand for enterprise storagesolutions, and as a corollary, the demand for data center services in the country is theexpected revival in the fortunes of the BFSI sector. Although the India BFSI sector waslargely unscathed by the global recessionary trends, demand for financial services wastepid during 2009 but has started showing a healthy revival in the last year. Banking, inparticular, is expected to show a healthy growth trend in 2011 as the housing andcommercial real estate sectors show greater confidence across most key urban centres.
Specific projects such as the State Data Centers (SDCs) are expected to present veryattractive opportunities for data center services players in providing consulting andsystem integration (SI) services over the next few years.
Quality Management Systems
The Companys customized Quality Management System is now highly stable andeffective. It covers all aspects of the manufacturing cycle from incoming inspection,in-process inspection, to final quality assurance checks prior to dispatch. Besides, itcovers the calibration of all equipment used for manufacturing and inspection, as well asmonitoring all customer complaints, transportation damage instances and corrective andpreventive action. In the event of a complaint from a customer, or a failure report fromthe field, our QMS provides traceability through various stages of the manufacturingcycle. During this year new techniques have been introduced for achieving, maintaining andmonitoring quality standards in terms of defects per million. Besides these newtechniques, the implementation of the Theory of Constraints based production managementsystems has enabled the company to reach a delivery conformance level of 99% for standardproducts at both its plants Bangalore and Pune.
The Company designs and develops new products and accessories on a continuous basis.The design styling, look and feel of our products is always current and in step withpractices worldwide. The Company has computer-aided design facilities in-house and employsexperienced design personnel as well.
During the year the company completed a major project for the design and development ofa new "Next Generation" cabinet family - IMPress. The Company launched thisproduct in June 2010 both for the domestic and international markets. The IMPressincorporates features and facilities which are truly state-of-the-art and not availablewith any other major product family currently. The design approach for this important newproduct has been customer centric and every effort has been made to ensure that the taskof the actual user / integrator in installing equipment, managing the cabling andcommissioning the project is made as quick and simple as possible. The Company expects theIMPress product family to become a major revenue earner over the next decade.
As an ISO 9001:2008 manufacturing facilities certified organization, the Company takesthe ratification of all its designs seriously. All new products and accessories areextensively tested in order to ensure that they exceed their rated specification by acomfortable safety margin.
Risk and Concerns
Competition: The risk of competition due to cloning of our product range by smallercompanies in the unorganized sector remains.
Mitigants: The Company has built a large and established distribution network thatshould be difficult to replicate by potential competitors. The Company has also changedits approach from Product orientation to Service Orientation in order to get an edge overthe competitors. Besides, with the introduction of the IMPress, the company expects tocarve out a special niche in the market which will be difficult for copycats to enter asreplicating the IMPress will require significant investment in special tooling which willraise the entry barrier significantly. Further, the Company has applied for theregistration of the IMPress design name and logo, besides applying for patents for four ofits new features.
Supply Profile: The ongoing fluctuation in the prices for Steel and other key inputs isan area of constant concern to the Company.
Mitigants: The Company continues to develop and maintain a wide supplier network. Italso makes continuous efforts to develop alternative sources for major components andstrives to develop substitutes wherever possible for reducing the material cost content ofthe product. Besides, the company does alter the pricing for its standard products fromtime to time whenever the input costs have varied by more than 5% or so.
Internal Control System and their Adequacy
The Company has a proper and adequate system of internal controls commensurate with itsnature and size of its business to ensure that its assets are safeguarded and protectedagainst loss from unauthorized use or disposition, and that the transactions areauthorized, recorded and reported correctly. During the year the Company took action toaddress the several issues that were raised consequent to the independent IT Audit of itssystems and security measures that had been conducted earlier. All the major issues withthe exception of one have been satisfactorily closed. The one issue which the Companyexpects to resolve shortly is the setting up of a disaster management and recoveryprocedure for which it is setting up a near DR facility. Various other measures are beingimplemented to further improve the quality and effectiveness of the companysinternal checks and controls.
These internal control systems are supplemented by an extensive program of internalaudits, review by management and established policies, guidelines and procedures. Thesystems are designed to generate accurate financial statements and other data and formaintaining accountability of assets.
During the year under review the Company has also implemented a major new initiativeconcerning Risk Management. Under this initiative a programme was launched to identify,assess, evaluate and implement measures to mitigate the major risks at the twomanufacturing plants. The Company now plans to extend this risk management programme tocover other business risks as well.
Discussion on Financial Performance with respect to Operational Performance
The Net Sales (net of duties and taxes) during the year were Rs.9609 Lacs as againstRs. 13720 Lacs in the previous year. Drop in Sales Turnover by 30% was mainly on accountof Telecom Sector, one of the main customer segments, which is under turmoil due tovarious reasons. EBIDTA earnings have reduced to Rs.430 Lacs as against Rs. 1387 Lacs inthe previous year. Under utilization of manufacturing capacity at Bangalore due to lowersales resulted in lower EBIDTA and as a consequent loss for the Company. The employeecosts have gone up to Rs. 1711 Lacs as against Rs. 1657 Lacs in the previous year, anincrease of 3%. After provision for Deferred Tax liability, Loss for the year was Rs.114Lacs as against profit of Rs. 540 Lacs for the previous year.
Material development in Human Resource / Industrial Relations Front
At the factory locations, several initiatives were undertaken by the PersonnelDepartment for industrial safety and production related aspects. The industrial relationsat both units during the year under review were cordial.
There were significant changes in the senior management team during the year.
The Company had 364 employees on its roll as on 31st March 2011 at its productionfacilities and offices across the country.
The Management Discussion and Analysis Statements made above are on the basis ofavailable data as well as certain assumptions as to Government policies, economic andpolitical developments. The Company cannot guarantee the accuracy of the assumptions andexpectation of future events. The Companys actual results, performance orachievements could thus differ materially from projected performance in future.
| ||FOR AND ON BEHALF OF THE BOARD |
| ||E. A. ELIAS |
|MUMBAI, May 16, 2011 ||MANAGING DIRECTOR |