MANAGEMENT DISCUSSION AND ANALYSIS REPORTPunjab Communications Limited (Puncom), a premier Telecom and IT company wasincorporated in the year 1981 by the Punjab Govt. for giving fillip to the Electronics andTelecommunication industry in the region. The company passed through a very good phasefrom 1981 to 1993, and came up with a public issue in October, 1994. Besides high premium,the issue was highly oversubscribed. The company achieved a record Turnover of Rs. 157.32Cr during the year 2001-2002, when its net worth was Rs.181.77 Cr. Thereafter the turnoverof the company was adversely affected due to industry wide shift from landline basednarrowband communication to wireless and broadband technologies promoted by major MNCs.Realising this, the company made attempts to broaden its customer and product base throughtie-ups with foreign companies including Huawei Technologies of China for supply of DWDMequipment to BSNL/MTNL and achieved a healthy turnover of Rs. 129.70 Cr. and Rs.110.86 Cr.for the years 2008-2009 and 2009-10 respectively. For improving the bottom line, thecompany went about developing its core markets of railways and power sector with ownproducts. Simultaneously the company is on look out for additional partners for newproducts and services for new markets.
INDUSTRIAL OUTLOOK
The Indian Telecom industry has been on its growth trajectory with Telecom networkgrowth rate exceeding 25-30% for past several years now. The subscriber population hasalready reached 900 million and is still growing at a healthy rate. With urbantele-densities already reaching 100%, rural and semi-urban along with broadband are newgrowth segments.
Progressive reforms such as the removal of restrictions on foreign investments allowing74% FDI in Telecom sectors and industrial de-licensing are the driving force behind thegrowth registered by the industry. Liberalising the EXIM policy to promote exports andaligning the import duties to meet WTO commitments is further expected to contribute tothe overall development. The opening up of Indian Economy has also enabled the MNC's toshift their manufacturing and operational bases to India.
The Indian telecommunication is today the second largest in the world and is among thefastest growing markets. Presently, the Indian Telecom Industry is slated to an estimatedcontribution of more than 5% to India's GDP. India today is the fastest growing market inthe world and represents unique opportunity for companies' worldwide in an otherwisestagnant global scenario.
BSNL, MTNL, Railways, PGCIL, Defence, SEBs are the major customers of Puncom. The shiftin demand from voice to data and from wireline to wireless, has revolutionized the verynature of telecom networks and have prompted most telecom companies to evolve into fullyintegrated multiservice-operators.
The future of the industry lies in the broadband and cellular segments and constanttechnological innovations such as 3G, Wimax, IPTV & NGN based services are changingthe market place. Broadband base has reached Fourteen Million and is also expected to growexponentially. Cut throat competition in telecom market is however requiring indigenousmanufacturers of telecom equipment to have a re-look at the niche segments of powersector, defence, railways etc for growth. Service sectors including IT is another growthsegment relevant to the company.
Major national projects under development and whose demand is expected to grow include:
• Nationwide Transmission and tactical communication networks for defence.
• 3G and Video Capable Mobile Networks.
• Renewable and clean energy technologies.
• Triple play Broad Band services and IPTV.
• Wireless Broadband- Wi Fi, Wimax.
• E-Commerce and e-governance.
• Network and Information Security.
BUSINESS OUTLOOK
Puncom has a diversified customer base. Though historically BSNL accounted for a majorportion of our Sales, however Railways and power sector contribute significantly towardsrevenues and bottom line. Considering the severe competition and dominance of MNCs intelecom, the Company is continuously looking for diversification of its customers base aswell as products. The same is being done by exploring emerging business segments or byintroducing new products or by acquiring new technologies. Simultaneously, company isstrengthening its project execution strengths and generating significant revenue from thesame.
The company is exploring thrust areas like defence, green energies etc and makingefforts to generate higher revenue from these segments. Your company has been able tocurtail cash loss due to change in product mix and taking further necessary steps inadministrative and financial policies. Your company has discontinued non- profitableproducts and has slowed down on low/negligible value addition products therebyconcentrating on high value addition products.
QUALITATIVE REVIEW
a) Technology
Puncom being a telecom equipment manufacturing company has to stay updated ontechnology front as the rate of obsolescence in this field is quite high. To keep pacewith this requirement, Puncom has adopted two-pronged approach i.e., firstly throughtie-ups and secondly through stepped up product engineering efforts. This helps ininfusion of newer versions of products/ new technology in the existing range of company'sproducts. Puncom provides very large spectrum of telecom solutions covering Transmission,Radio, Switching, Multiplexing, Software etc. under one roof. The product base is widewhich provides the company with the requisite strengths to handle composite projectseffectively.
b) ISO- 9001:2008 Certification
Making quality equipment & services available to its customers is the motto ofPuncom. In pursuit of providing quality equipment & services, Puncom's processes andprocedures conform to the requirements of the ISO 9001:2008 standard. Further, the qualitystandards in Puncom are tuned to TEC/QA/CACT wings of BSNL and RDSO of Railways. Puncomhas invested heavily in creating various testing facilities, which include EnvironmentalChambers, Vibration Test Facilities, Thermal Shock Chambers, Bump Test machines etc.
c) Transparency
To bring about transparency in the working of the company at all levels, to attainsmooth operations and effective co-ordination amongst various departments, your companyhas successfully established Enterprise Resource Planning (ERP) System. The ERP system,which is in place in the company, facilitates proper co-ordination of all activities inthe divisions to give improved results. Due to this, the company is able to maintainabsolute control over all the activities resulting in the optimum utilisation of itsfinancial resources. Puncom being a Govt. company is subject to various audits, whichreinforce 100% transparency in the working of the company including the AccountingSystems.
The Company has implemented code on Insider Trading under SEBI Regulations. Throughthis code, Company is able to keep check on the transactions pertaining to sales andpurchases of Puncom's shares by the Designated employees/connected person. This Codeensures that no insider either on his behalf or on behalf of other person, deal insecurities of a company listed on any Stock exchange on the basis of unpublished pricesensitive information, which is not generally known or published by Company for generalinformation. The Company has formulated a Memorandum of Right to Information under theRight to Information Act and anybody can access the non-confidential information under theAct. This further adds to the transparency of company affairs.
The company has also adopted a Code of Conduct for Board and Senior Management ofCompany as desired under Clause 49 of the Listing Agreement which ensures the high ethicalstandards of the company and transparency of important decision at higher level.
d) Adequacy of Internal Controls
Puncom has a proper and adequate system of internal controls to ensure that all assetsare safeguarded and protected against loss from unauthorised use or disposition and thosetransactions are authorised, recorded and reported correctly.
The company has an extensive system of internal controls which ensures optimalutilisation and protection of resources, IT security, accurate reporting of financialtransaction and compliance with applicable laws and regulations as also internal policiesand procedures.
The internal control system is supplemented by extensive internal audits, regularreviews by management, and well-documented policies and guidelines to ensure reliabilityof financial and all other records to prepare financial statements and other data.
FINANCIAL REVIEW
a) Operating Results - Sales
During the financial year 2011-12, the sales have increased from Rs. 18.17 Cr to Rs.23.13 Cr. The Break up of the Sales on the basis of Product & Customer is as follows:
b) Expenditure Analysis
i) Materials consumed
Raw Material cost during the year under review was Rs. 11.91 Cr as against Rs. 7.90 Crin the previous year. Raw material consumption consists of consumption of traded goodsalso.
ii) Manufacturing, Administrative & Selling Expenses
Manufacturing expenses comprises of stores and spares, power and fuel, freight andinstallation expenses etc., increased from Rs. 1.82 Cr to Rs. 2.47 Cr in the current year.As a percentage of sales, these increased from 10.02% in the previous year to 10.68% inthe current year.
Administrative expenses mainly comprising of travelling and conveyance, repair andmaintenance, office electricity & water, rent and auditors' expenses increased fromRs. 2.16 Cr to Rs. 2.19 Cr. However, as a percentage of sales, these decreased from 11.89%in the previous year to 9.47% in the current year.
Selling & distribution expenses comprising of advertisement and publicity, salespromotion expenses, packing & forwarding expenses and customers claims and recoverieshave increased from Rs. 0.43 Cr to Rs. 0.61Cr in the current year. As a percentage ofsales these increased from 2.37% in the previous year to 2.64% in the current year.
iii) Amount written off/Provisioning
During the current financial year following amounts have been provided for/written offto present the accounts at a fair value.
(Rs. in lacs)
| Provision for Excise Demand | 9.81 |
| Know-how fee amortised | 0.82 |
| Amount written off | 8.17 |
| Provision for Doubtful Debts and Advances | 23.05 |
Thus, the overall amount written off/provided for in the accounts during the financialyear 2011-12 is to the tune of Rs. 41.85 lacs.
iv) Personnel cost
The personnel cost increased from Rs. 13.38 Cr to Rs. 14.22 Cr which is in line withthe cost inflation index.
v) Interest & Depreciation
The Financial Charges increased from Rs. 5.62 lacs in the previous year to Rs. 17.70lacs in the current year. Increase in interest cost is due to restructuring of FDR andloan to take benefit of arbitrage in interest rates.
Depreciation decreased from Rs. 75.98 lacs to Rs. 69.93 lacs during 2011-12. Thereduction in depreciation is on account of WDV method followed by the company. Further,addition in the capital expenditure was booked to the extent of Rs.15.48 lacs during thecurrent year.
vi) Net Profit
During the current financial year, the Company has earned a Net profit before tax ofRs. 1.02 Cr as against Net Profit before tax of Rs. 0.19 Cr during the last year.
vii) Dividend
Owing to inadequate profit, during the previous year, the Directors of your Company donot recommend any dividend for the financial year 2011-12.
c) Segment reporting
Puncom is engaged in the business of manufacturing of telecom products and theseactivities are covered by same sets of risks and returns. Sales have been grouped assingle segment in the accounts as per AS-17 issued by ICAI. However, interest income hasbeen considered as a separate segment. Out of total revenue of Rs. 3322.65 lacs, Rs.2265.76 lacs pertains to Sales Service Income and Rs. 910.30 lacs pertains to interestsegment and Rs. 146.59 lacs pertains to Rental Segment.
FINANCIAL POSITION
a) Reserves & Surplus
The Reserves of the Company stands at Rs. 9723.99 lacs as on March 31, 2012.
b) Secured/Unsecured Loans
The working capital limits for meeting the working capital requirements of the companyare availed intermittently to the extent of Rs. 1.89 lacs from its Bankers. Further loanshave been taken for restructuring FDRs for taking benefit of arbitrage.
c) Fixed Assets
The gross block of the company increased marginally from Rs. 54.00 Cr to Rs. 54.15 Crin the current year. Technical know how has been considered as Intangible asset andreclassified accordingly with retrospective effect.
d) Investments
The fixed deposits of the company have increased to Rs. 102.26 Cr against Rs. 100.06 Crin the previous year.
e) Inventories
Total inventory has increased from Rs. 3.76 Cr as at 31.3.2011 to Rs. 4.74 Cr as at31.3.2012 due to increase in turnover of own products.
f) Receivables
Receivables were Rs. 15.69 Cr as at 31.3.2012 as compared to Rs. 21.00 Cr as at31.3.2011. These debtors are considered to be good but there being some doubtful debts,provision to the tune of Rs. 23.05 lacs have been made this year.
g) Loans and Advances
These consists of both long term and short term loans and advances and have decreasedfrom Rs. 4.91Cr as at 31.3.2011 to Rs. 3.01Cr as at 31.3.2012.
h) Current Liabilities & Provisions
Total current liabilities have been increased from Rs. 123.65 Cr as at 31.3.2011 to Rs.124.18 Cr as at 31.3.2012.
| FOREIGN EXCHANGE EARNINGS AND OUTGO | | |
| | Amount (Rs. in lacs) |
| a) EARNINGS | | |
| F.O.B. value of export | : | NIL |
| b) OUTGO | | |
| CIF value of import of raw material | : | 198.46 |
| Components & Spares, Capital good | : | 9.12 |
| Foreign travel & others | : | NIL |
BUSINESS REVIEW
a) Opportunities
• Continuing exponential growth rate in mobile and broadband networks and itsdeeper penetration into rural and other tertiary areas continues to provide businessopportunities in telecom segment.
• Even though, most of telecom growth in India has been based on imported MNCequipment, the policy makers and industry itself is maturing and a greater proportion oflocally manufactured equipment is expected.
• Growth of telecom and IT is prompting related growth in niche markets of power,railways, defence, government etc for telecom and IT equipments.
• Newer areas of security, renewable energy, green and clean technologies providenew business opportunities to penetrate/invest into new segments.
• India, with its vast and vibrant economy and deeper integration with globalmarkets, is moving up the value chain and is in the process throwing up large requirementsof cost optimised high tech products in telecom and IT domains. This is providing newopportunities and markets for domestic industry.
• M&A continues to be the norm in the growing Indian economy providingnecessary impetus to the change management.
b) Threats
• Continuously evolving market place increases product churn and reducestimelines. This increases business risks and puts pressure on companies to continuouslyinnovate and explore investments into new markets and products.
• Policy framework and a perceived purchaser bias in India results in skewedplaying field in favour of MNCs which Indian telecom manufacturers find difficult tomatch.
• Puncom operates in a highly competitive high-tech segment. However, being a PSU,it is not able to employ the level of flexibility in business operations as enjoyed by itscompetitors from private sector.
HUMAN RESOURCE DEVELOPMENT
The employees of Puncom are the backbone and this resource is very efficientlyutilised. The company nurtures its employees through greater knowledge, opportunity,responsibility, accountability, innovation and discipline. Puncom is dextrous inmotivating its employees to stretch out the hand of effort and hard work towardsattainment of its objectives. All the policies concerning the employees are made keepingin view the fact that manpower is the most precious resource for the company. Puncom isrelatively renowned company with young employees having an average age of 41 years.
| a) Break- up of work force | | As on 31.03.12 |
| i) Professionals (MBA, CA, ICWA, CS, LLB) | : | 05 |
| ii) Engineers (B.E/ B.Tech/M.Tech/AMIE/MSC/MCA) | : | 33 |
| iii) Diploma Holders | : | 42 |
| iv) ITIs | : | 91 |
| v) Non-Technical | : | 71 |
| vi) Contractual | : | 36 |
| Total | : | 278 |
Puncom is equipped with qualified and professional staff. The employees are groomedthrough effective system of assessment, performance appraisal, training, including sharingof lectures/ knowledge base through the local area network, training files and on linetesting structured manner.
In addition to above, Puncom offers numerous facilities to its human resources in theform of in-house Library, Air-conditioned environment, Canteen facilities, Leasedaccommodation, Bill paying facility, ATM, Leave/Home travel concessions, Internet facilityetc. Further, other benefits like medical allowance, conveyance loan etc. are alsoavailable to employees.
Puncom frames its HR policies keeping in mind that human resource is core strength ofthe company. Good HR policies not only lead to contentment of employees by providing themwith equal opportunities to grow but also help in achieving the laid down objectiveseffectively. Puncom encourages its employees to go beyond the scope of their work,undertake voluntary projects that enable them to learn and contribute innovative ideas inmeeting goals of company.
b) Industrial Relations
Puncom firmly believes in the power of esprit de corpse and thus, provides itsemployees with congenial atmosphere to work as a cohesive team. The efforts of all theemployees are synchronized and coordinated towards achieving common objectives. Furtherall employees are encouraged to participate in the decision making process. During theyear 2011-12 the employee management relations remained cordial and positive.
c) Safety
Safety and security of the personnel, assets, and the environmental protection are ontop of the agenda at Puncom. The safety procedure of Puncom includes electrical safety,inherent process safety, control of substances hazardous to health, vehicle integritycheck and loading and unloading operations. Puncom is consistently reviewing its safetymeasures and taking steps to improve them.
d) Environment
Puncom is conscious of its responsibility towards creating, maintaining and ensuring asafe and clean environment. Strict adherence to all regulatory requirements and guidelinesis maintained at all times. The company has adopted approach to create pollution freeenvironment by adopting required measures. The company has taken tasks of planting treesand maintaining lawns to make the factory dust free. Being an electronic industry, thoughit does not emits any air, water or noise pollutants yet the company is committed to makethe environment healthy and pollution free.