arraycom india ltd Management discussions

ARRAYCOM (INDIA) LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL RESULTS: (Rs. in lacs) 2010-11 2009-10 Revenues (Net) 1137.25 2363.09 Gross Profit/(Loss) before Depreciation (251.79) 148.54 Less: Depreciation 43.90 38.13 Profit/(Loss) before Tax (295.69) 110.41 Less: Provision for Taxation - - Profit/(Loss) after Tax (295.69) 138.45 Add : Excess/(Short) provisions of earlier years, prior period items (242.27) (380.72) and amount brought forward from last years account Loss carried to Balance Sheet (537.96) (242.27) OPERATIONS: During the year under review, the business operations of System Integration Division (SI) were badly affected due to complete indecisiveness on the part of Companys main government customers which resulted into non release of many orders inspite of the opening of price bids long back. This has resulted into very few orders materializing during the year, which ultimately led to substantial reduction in the sales revenue of SI Division. Electronic Material Division (TFM), however, fared quite well by registering 120% growth in sales revenue over previous year. Your Company has achieved revenues of Rs. 11.37 crores as against Rs. 23.63 crores during last financial year. The Company further diversified its activities in the field of e-learning where huge opportunities have emerged due to initiatives taken by Government and private entities for improvement of educational standards. Your Company is in the process of developing different modules/products based on Gujarat State syllabus by deploying latest animation, graphics and software techniques. OUTLOOK: The Current Year witnessed rising inflationary trend coupled with high level of interest rates and commodity prices. The slow down in the developed economies of USA and many countries of Europe have crippling effect on the business atmosphere. These adversities will cast a shadow on the overall economic activities in our country. System Integration business is mainly dependent on imports and thus, recent surge in the currency values particularly US Dollar will substantially enhance the import cost of inputs. However, in the Current Year, the growth in the sales revenue is expected to be much higher on account of continuous inflow of orders from the customers in SI and TFM divisions. The overall margins are expected to be under pressure on account of cost push inflation. Your Company has further diversified its activities with modest investment in the field of manufacture of Power Semiconductor Devices (PSD) which find varied applications in manufacture of control panels, UPS, power stabilizers, amplifiers, welding equipments, switching circuits etc. The overall demand for PSD products is on the rise and will entail reasonably good returns over long run. The Electronic Material Division viz. TFM, has so far fared well with enhanced order inflows from the customers inspite of the substantially high ruling prices of silver which is a main input for manufacture of various kinds of pastes. CONVERSION OF LEASE HOLD LAND INTO FREE HOLD: During the year under review, your Company took initiative for conversion of its factory land admeasuring 12035 sq. mtrs. situated at Gandhinagar (Gujarat) from lease hold rights to free hold rights pursuant to the recent policy of Government of Gujarat by paying one time premium to Gujarat Industrial Development torporation (GIDC). Consequently, the factory land is now out of the GIDC purview and regulation. GIDC has executed sale deed in favour of the Company. The market value of factory land has substantially increased on account of conversion of land into freehold rights and all round surge in the prices of land in general. Recently, Government of Gujarat has also increased the jantri rates (Government rates) of land substantially. FINANCIAL RESTRUCTURING: Your Company has implemented comprehensive financial restructuring as embodied in the Scheme of Arrangement approved by the members at the court- convened Extra Ordinary General Meeting with a view to reflect fair value of various assets viz. land, plant & machineries, software etc. in the books of the Company and to bring the Paid up Capital in line with the existing asset base of the Company by effecting capital reduction for the year ended 31st March 2011. The Company has obtained permission for implementing the Scheme from all the secured creditors of the Company. Necessary confirmation of Honourable High Court of Gujarat has been received vide order dated 29.9.2011 pursuant to the provisions of the Companies Act, 1956. Subsequent to the unfortunate incident of fire in the year 2002, the Company was carrying inoperative and obsolete machineries pertaining to Component Division in its books. Similarly, certain assets of GPS Division were lying idle and inoperative consequent upon the closure of the said Division. All these redundant assets are required to be written off with a view to reflect the true and fair state of affairs of the Company. Consequent upon conversion of leasehold rights in respect of factory land situated at Gandhinagar (Gujarat) into freehold rights, the value of land has substantially increased. Thus it was considered appropriate to show the present day fair value of freehold land based on the Government Approved Valuers Report in the books of accounts. The Scheme of Arrangement implemented by the Company did not involve any cash outflow on the part of the Company. The reduction in capital is by way of canceling the Paid up Capital which has been lost and/or is not represented by available assets. In terms of the Scheme, share premium account balance has been transferred to Business Development Reserve Account which has been further credited with the difference by recording freehold land at present day fair value. The Board of Directors in terms of authority given to them has utilized the Business Development Reserve Account to set off the expenses defined under the Scheme. The implementation of the Scheme will strengthen the financial position and will enable your Company to pursue newer growth opportunities by raising fresh funds. The financial effects on implementation of the Scheme have been enumerated in note (B) 1 of Schedule S attached to and forming part of the accounts.