apara enterprise solutions pvt ltd Management discussions

APARA ENTERPRISE SOLUTIONS PRIVATE LIMITED ANNUAL REPORT 2005-2006 MANAGEMENT DISCUSSION AND ANALYSIS MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956, and the Generally Accepted Accounting Principles (GAAP) in India. The management of Apara accept responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. In addition to the historical information contained herein, the following discussion includes forward looking statements which involve risks and uncertainties, including, but not limited to, risks inherent in the Companys growth strategy, dependence on certain clients, dependence on availability of qualified technical and other factors discussed in this report. Commentary on the financial statements 1.1 Share Capital 1.1.1 The Company has at present, only two classes of shares namely Equity Shares of Rs. 10 each and preferences shares of Rs. 100 lakhs. 1.1.2 There are no calls in arrears. 1.1.3 During the year, the entire Redeemable Optionally Convertible Cumulative Preference Share Capital of the Company issued to a party recorded in the register maintained under section 301 of the Companies Act, 1956, were converted into equity shares at a premium. 1.1.4 The paid-up capital of the Company as on 31-03-06 is as follows; Particulars Rs. lakhs 26,76,094 Equity Shares of Rs. 10/- each fully paid 267.60 (Prev. Year 21,13,000 Equity Shares of Rs. 10/- each fully paid. Of the above 17,30,000 equity shares of Rs. 10/- were allotted as fully paid bonus shares) During the year 593,515 7.5% ROCCPS were converted to 562,794 equity Shares of Rs. 10 each at a premium of Rs. 95.46 per share. Total 267.60 1.2 Reserves & Surplus 1.2.1. Share Premium The Company has received share premium of Rs. 992.21 lakhs being the premium received at the rate Rs. 216.35 per share on 2,10,300 Equity Shares of Rs. 10 each fully paid-up, issued during FY 2002-03 and premium received @ 95.46 per shares on 562,794 equity shares issued on conversion of 7.5% ROCCPS. 1.2.2 Profit and Loss Given below are details of the appropriations out of Profit and Loss Account. Particulars Rs. Lakhs Rs. Lakhs Opening Balance 95.03 Add Capital redemption reserve 131.34 Less : Loss during the year 2005-06 98.71 32.63 Balance carried forward 127.66 1.3 Secured Loans 1.3.1. Working Capital Facilities Name of the bank Facility Amount State Bank of India Cash Credit Rs. 700 lacs LC Rs. 500 lacs BG Rs. 650 lacs (LC and BG are Interchangeable) UTI Bank Limited Cash Credit Rs. 320 lacs LC Rs. 180 lacs Term Loan Rs. 500 lacs (Cash Credit and LC are Interchangeable) Standard Chartered Bank LC Rs. 700 lacs The facilities are secured by charge on block of assets and current assets of the Company. 1.3.3 The facilities referred to above are further secured by the personal guarantee and immovable properties of two directors. 1.4 Fixed Assets 1.4.1. During the year, the Company added Rs. 145.93 lakhs to its gross block. 1.4.2. The Capital expenditure for 2006-07 is estimated at Rs. 500 lakhs. The Company proposed to meet this expenditure through a combination of internal accruals, borrowings and capital induction as may be appropriate at the time of incurring this capital expenditure. 1.5 Investments The Company has invested in a subsidiary Company viz., Apara BVBA, Belgium. 1.6 Inventories 1.6.1. Loose Tools and Consumables: All Components and consumables purchased during the year are charged to consumption on purchase. 1.6.2. Closing Stock and Finished Goods: Closing stock is as per the inventories prepared, valued and certified by the Managing Director and are valued at cost of realisable value whichever is lower, after providing for obsolescence and other anticipated losses. Hitherto, the Company had adopted the policy of charging off all stock of service spares to revenue in the year of purchase. From the current year, the Company has valued the stock of such spares held at 75% of the original cost and included the same in the inventories. 1.7. Sundry Debtors 1.7.1 The Companys customer base is spread over various verticals such as Financial, Banking Communications, Internet, Entertainment Infotech etc., 1.7.2 All the debtors are generally considered good and realizable and necessary provision has been made for debts considered to be bad and doubtful. The level of sundry debtors is normal and is in tune with business trends. 1.7.3 Sundry Debtors as a percentage of total revenue is 75.38% as against 59.77% in the previous year. 1.7.4 The age profile is as given below; Period in days March 31, 2005 March 31, 2006 Value % Value % Less than 30 days 881.59 30.66 1714.30 37.34 30 to 90 days 452.86 15.75 305.60 6.65 90 - 180 days 57.52 2.00 192.07 4.18 More than 180 days 1483.18 51.59 2378.68 51.82 Total 2875.05 100.00 4590.65 100.00 1.7.5 The management believes that the overall composition and condition of sundry debtors is satisfactory. 1.8 Cash and Bank Balances 1.8.1. The bank balances includes both rupee accounts and foreign currency accoutns. Fixed deposits of Rs. 256.63 (Prev. Year 279.90 lakhs) are given as security towards the issue of bank guarantee and letters of credit and Rs. 10 lakhs towards cash collateral security. 1.9 Loans and Advances 1.9.1 Advances recoverable in cash, kind or value to be received, are primarily towards prepayments for value to be received. Advance income tax represents payments made towards tax liability pending assessment and refunds due. 1.9.2 Dues from a Subsidiary Company Amsal Infotech Pvt. Ltd. Rs. 33,17,644/- has been written off during the year. 1.9.3 Deposits represent Earnest Money Deposits, electricity deposit, telephone deposits and advances of like nature. The Company has taken on lease several buildings for operations and facilities in various cities and also for housing its staff. 1.10 Current Liabilities Sundry Creditors for capital goods represent amount payable to vendors for supply of capital assets and to financiers for supply of capital assets on Hire purchase basis. Sundry creditors for supplies represent amount payable to vendors for supply of goods. Sundry creditors for expenditure include creditors for operational expenses, accrued salaries and benefits and advances received from clients for delivery of future sales. 1.11 Provisions Provisions represent Income Tax and leave encashment payable by the Company. The provision would be set off upon receipt of assessment order by the from the Income Tax Department and payment of the leave encashment amount to the employees. 1.12 Preliminary Expenses There are no preliminary Expenses to be written off as on 31-03-2006. 2. Financial Instruments 2.1 Letters of Credit 2.1.1 The Company has various letters of Credit outstanding, issued to different vendors, amounting to - Rs. 1431.28 lakhs and Rs. 454.68 lakhs for the year ended 2006 and 2005 respectively. 2.2 Guarantees 2.2.1. The Company has issued counter guarantees to its bankers for guarantees issued by them for various statutory purposes Rs. 664.52 lacs (Prev. year Rs. 600.79) 3. Profit and Loss Account 3.1 Income 3.1.1 The Company provides consultancy, implementation and integration of storage solutions and content products to various customers spread over industry verticals such as Financial, Banking, healthcare, Communications, Internet, Entertainment Infotech etc., Post implementation the Company provides, maintenance and up-gradation services for the equipment supplied. The Company has contracts with various principals such as Network Appliances, Hitachi Data Systems, Veritas, Juiper, Peribit, ISS Internet Security, RSA Security, NetScreen, etc for providing services and supply of equipment. The segment wise break up of income is given below; Rs. in lakhs Particulars 2005-06 2004-05 Value % Value % Sale and integration of Equipment and solutions 4337.02 71.22 3290.50 68.41 Annual maintenance contract and hire charges 335.81 5.51 484.70 10.08 Commission 678.25 11.13 668.10 13.89 Service, Installation Training Charges 715.75 11.75 340.22 7.07 Other Income 22.84 0.37 26.45 0.55 Total Income 6089.67 100.00 4809.97 100.00 3.1.2 Geographically, the Company provides services predominantly to customers based in India only. However during the year the Company has ventured into other newer markets in Asia. 3.2 Non Operating Income 3.2.1 Non-operating income consists of income derived by the Company from exchange fluctuation, dividend income, interest on deposit with Bank, Bad Debts written back and sundry Balances written off and written back. 3.3 Expenditure The cost of goods and services sold increased to 64.95% of the total income of the year from 61.45% in the previous year. 3.4 Interest & Bank Charges The Company incurred an expenditure of Rs. 269.22 lakhs as against Rs. 261.16 lakhs during the previous year. 3.5 Depreciation The provision for depreciation for the year increased to Rs. 73.07 lakhs as compared to Rs. 63.87 lakhs, on account of additions of Rs. 145.93 lakhs to its gross block during the financial year. 3.6 Provision of Tax The Company has provided Rs. 32,00,000 for its Income tax liability for the current year. 3.7 Net Profit The net loss of the Company amounted to Rs. 23.62 lakhs as against profit of Rs. 107.85 lakhs during the previous year (Profit after tax and before write off of investments) 3.8 Foreign exchange difference An amount of Rs. 12.95 lakhs has been considered as expenses during the current year, on account of foreign exchange differences arising due to timing differences between accrual of income / expense and receipt / payment of the same. 4. Leases 4.1 The Company has operating leases for office buildings and housing for staff. Rental expenses for operating leases for the year ended 2006 and 2005 are Rs. 58.16 lakhs and Rs. 41.69 lakhs. These are cancelable leases. 4.2 The Company has taken assets on operating lease. Future minimum lease payments (Rs. in lakhs) Future minimum lease payments - Not later than one year 6.24 - Later than one year and not later than 5 years 12.64 - Later that five years 0.00 5. Key Financials and Ratio Analysis Rs. in lakhs except the key indicators Financial Highlights 2006 2005 2004 2003 2002 2001 / Year ending 31st March Total Income 5411.41 4145.84 7264.45 3836.99 2555.95 3105.62 Export sales 678.25 664.14 254.16 418.11 493.04 16.34 Operating Profits (EBDIT) 401.35 400.00 197.40 248.37 395.40 428.26 Depreciation & Amortisation 90.74 63.88 62.55 53.52 49.36 24.05 Financial Costs 269.23 261.16 315.55 68.36 27.08 23.08 Profit before tax 41.38 75.36 -180.70 126.48 318.96 381.15 Profit after tax -23.62 110.63 -180.99 73.17 220.96 255.15 Equity Dividend % - - - - - Share Capital 267.61 804.85 673.51 211.33 190.30 17.30 Reserves & Surplus 1119.87 684.12 628.51 843.28 410.00 362.08 Net Worth 1387.48 1488.97 1302.01 1054.61 600.33 379.38 Gross Fixed Assets 861.44 762.58 698.89 669.07 587.67 522.91 Net Fixed Assets 522.06 479.29 476.10 506.48 477.25 460.19 Total Assets 3096.41 2943.98 3701.76 1640.57 745.75 1318.05 Key Indicators Earning per share -ve 5.23 -ve 3.46 11.61 14.74 Cash Earning per share 2.37 8.26 -ve 5.99 14.20 16.14 Book value per share 51.85 70.46 61.61 49.90 31.55 21.93 Debt (incl. working capital) Equity ratio 1.20 0.95 1.78 0.48 0.24 0.05 EBDIT / Sales - % 6.59 8.32 2.74 6.47 15.47 13.79 Net Profit Margin - % -ve 2.3 -ve 1.91 8.64 8.22 Return on year end Net Worth % -ve 7.43 -ve 6.93 36.80 67.25 M S SIDHU SHIVARAM MALAVALLI P. PHANEENDRA Managing Director Director Company Secretary PLACE : BANGALORE DATE : 04.07.2006