MANAGEMENT DISCUSSION AND ANALYSIS REPORT
INDUSTRY STRUCTURE AND DEVELOPMENT
Industry segment, in which the Company operated in, at the beginning of the financial
year 2011, can be classified into four segments:
A. Global Calling Cards and Mobile SIM Cards
B. IT-ITes and BPO Industry
C. Fleet Tracking System
D. Trading Activities
A. Global Calling Cards & Mobile SIM Cards
Global calling cards allows a user to make long distance and international calls at
cheaper rate. It is a card with a balance amount specified and the balance amount and
available talk time keeps on reducing on the basis of usage. The cards can be used with
phone of any service provider and in most cases the customer would not incur any local
call charges. Prepaid cards means that the end-customer purchases the cards by paying for
them in full and the minutes on the cards are decremented upon usage.
A Subscriber Identity Module (SIM) on a removable SIM card securely stores the
service-subscriber key (IMSI) used to identify a subscriber on mobile telephony devices
(such as computers and mobile phones). The SIM card allows users to change phones by
simply removing the SIM card from one mobile phone and inserting it into another mobile
phone or broadband telephony device.
SIM card contains its unique serial number, international unique number of the mobile
user (IMSI), security authentication and ciphering information, temporary information
related to the local network (also temporary local id that has been issued to the user),
list of the services the user has access to and two passwords (regular PIN and unblocking
PUK).
Internet Protocol (IP) phones
It is a class of products that allows users to speak over an IP network, such as the
internet or an intranet. Its benefit is that it is very cost effective and all calls are
free; all the user pays for is the IP phone software. Internet phone, web phone, and
televox are examples. IP telephony (Internet Protocol telephony) is a general term for the
technologies that use the IPs packet-switched connections to exchange voice, fax, and
other forms of information that have traditionally been carried over the dedicated
circuit-switched connections of the public switched telephone network (PSTN). Using the
Internet, calls travel as packets of data on shared lines, avoiding the tolls of the PSTN.
The challenge in IP telephony is to deliver the voice, fax, or video packets in a
dependable flow to the user. Much of IP telephony focuses on that challenge. IP telephony
is an important part of the convergence of computers, telephones, and television into a
single integrated information environment.
While internationally capable cell phones make calling home from abroad convenient,
they are not always the most economical choice. For travelers looking for inexpensive
alternatives, there are several options: new internet-based voice services, callback
services and one of the most low-tech and low-cost options: prepaid calling cards.
B. IT - ITeS and BPO Industry
Business Process Outsourcing (BPO) is the delegation of one or more IT-intensive
business processes to an external provider that in turn owns, administers and, manages the
selected process based on defined and measurable performance criteria. BPO is one of the
fastest growing segments of the Information Technology Enabled Services (ITES) industry.
The concept of outsourcing of business processes work to third-party providers has been
a fast growing industry both in terms of volume and value. Companies seek BPO services to
enhance their margins and consequently their revenues by managing growth at reduced risk
levels. BPO provides the means to service an enterprises critical yet non-core functions
at lower operating costs than would be incurred by performing the functions in-house.
It is the transfer of an organizations entire non-core but critical business
process/function to an external vendor who uses an IT-based service delivery. By doing so,
BPO helps an organization concentrate on its core competencies, improve efficiency, reduce
cost and improve shareholders value. Though IT outsourcing has been happening for so many
years, an increased momentum has been witnessed since the late 1990s due to the rise of
Internet and Communication technologies. Several global giants from various industries
have begun to realize the importance of BPO and have started outsourcing their non-core
business functions. This has given rise to many specialized BPO vendors across the globe,
with India being a major hub owing to its large computer-literate English-speaking
population, low billing rates, strategically favourable time zone and high quality.
The BPO industry consists of businesses that depend entirely on repeat business for
growth. The key factors that identify the capability of the Indians are that they have
developed quality and adopted standards that permeate all business aspects.
Business Process Outsourcing - Industry Functional Processes
• Logistics
• Finance & Accounting
• Procurement
• Customer Care
• Training
• Sales and Marketing
• Product Engineering
• Human Resources
Growing competitive markets and the increasing demands for cost savings have made U.S.
and other businesses in the developed world more amenable to consider BPO solutions that
utilize strategic offshore resources. Although BPO firms still must convince their clients
that the service provided from offshore will meet the quality level expectation without
exposing the client to unnecessary risks; an increasing percentage of BPO work is being
done from offshore locations that are able to meet the quality requirements, at measurably
lower costs.
BPO industry giants have already established offshore service centers to manage some of
their work. However, many companies lack the wherewithal to establish an offshore presence
with the required assurance of continued quality. Many of these companies have recognized
the need to establish alliances with BPO providers and have reached a decision to explore
the potential of using reliable offshore service providers.
C. Telematics: FleeTrac
On account of increasing losses in this business, the Company has decided to review its
business model, marketing structure and pricing strategies vis-a-vis the market and its
competitors.
D. Trading Activities
On account of non-viability and continued losses in this business segment, the Company
suspended its operations with effect from the beginning of the third quarter of 2011. The
Company is however exploring opportunities to indulge in trading activities having
scalability and also with healthy net margins.
OPPORTUNITIES AND THREATS
While there is ample scope for opportunities in this industry, there are also factors
that could impact growth.
Opportunities
The Companys business opportunities are substantially high in various parts of the
world wherever there is a perceptible presence of Indian diaspora. In spite of lacklustre
performance during the year under review, the Company intends to leverage this opportunity
in the following areas.
Telecards: V-Tel Global Calling Card
There was earlier a dramatic growth in Indians travelling abroad. The large diaspora of
Indians who live and work abroad is another important market for the Company. Dhanus has
been targeting these markets and expects to reverse the negative growth in this sector.
However, there was a perceptible decline in the volume of travel during the last two
years.
The USP of Dhanus product lies in the fact that Dhanus global calling cards are
straight cards. What the customer pays for, he gets. The value for money concept,
which a customer gets, would be a major determinant to increase the Companys penetration
of these markets.
Teleservices/ITES/BPO Operations
It is pertinent to mention here that there prevails a strong anti-outsourcing sentiment
in the US which has created an adverse impact in the volume of business that reaches
India. Moreover, over the last couple of years, it has been seen that India has been
losing perceptible business ground to emerging companies in the South-East Asia, more
particularly Philippines which is shaping into a price-competitive market vis-a-vis India.
Threats
The IT and Telematics services industry faces several challenges that are not unique to
Dhanus.
Global Competition
Major global players are establishing their own captive IT Service centers in India,
thus shrinking market share for Indian service providers.
Margin Pressure
The cost of delivery is continuously rising due to labour and infrastructure
components.
Availability of Talent
India is facing stiff competition from the likes of China, Eastern Europe and several
Asia-Pacific countries. Despite not being high on maturation scale, these regions have the
technology talent and are gaining on cost advantage over India.
India is facing severe shortage of mid to high-end talent requiring grass root
investments in education and training. The U.S. immigration reforms and restrictions on
skilled visa are hurting the industry.
SEGMENT WISE AND PRODUCT WISE PERFORMANCE
As the members are aware, the Company had four main lines of business. The sales
contribution of these activities for the financial year ended 31st December,
2011 is as follows:
Sales/ Services of Dhanus Technologies Limited:
| Business Segment |
Sales |
% of Total |
| Telecom |
8,52,12,227 |
15.92 |
| Fleetrac |
3,15,08,090 |
5.89 |
| BPO |
5,72,94,072 |
10.70 |
| Trading Activities |
36,12,18,217 |
67.49 |
| Total |
53,52,32,606 |
100.00 |
Business Strategy
The goal of the Company is to be a company of substance in the Telecom & ITeS space
and, build a brand that will enable the Company to deliver the most compelling value
proposition to its customers and stakeholders over a reasonable period. A significant
portion of the Companys growth stems from the expansion of existing client relationships.
These relationships and the resulting opportunities did not continue to grow. The Company
believes that tremendous growth opportunities exist within its business lines and the
domain expertise it has obtained will enable the Company to compete effectively for this
business. However, the financial year under review has had a not so impressive performance
on account of loss of clients, inability to rope in new clients, employee attrition,
ineffective marketing reach and inappropriate pricing strategies. To successfully execute
its strategy and achieve its goals, the management believes in continuing to be proactive
by concentrating on the following factors:
• Business process improvements.
• Strengthening its financial position.
• Maintain domain focus and expertise management.
• Have an inorganic growth path as well by pursuing acquisitions.
RISKS AND CONCERNS
The following risks are incurred:
• Exposures that fundamentally impact the competitive position of the industry in
general or a company in particular.
• Exposures that primarily and directly impact the profitability.
• Exposures that primarily impact customer satisfaction and operational
efficiency.
• Exposures that initially attract penalties and, subsequently, restrict
flexibility of operations.
• Exposures that affect the credibility of the organization with stakeholders.
INTERNAL CONTROL SYSTEMS
The Company has adequate internal control procedures and systems commensurate with the
nature and size of its business. The Companys internal control systems primarily cover
aspects such as:
i. Operating parameters and various aspects relating to sales, services and customer
support.
ii. Efficient use and protection of product and business rights.
iii. Accuracy and promptness of financial reporting.
iv. Compliance of laws and regulations.
The Company has well laid-out policy guidelines, structured authority levels and
exhaustive budgetary control systems to ensure adequate internal control levels.
The Company has an internal Audit Department, commensurate with its size and nature of
business, which periodically audits the office and stock points. This ensures that the
system of recording and reporting, internal controls and checks, safeguarding and
protection of assets, and remitting statutory dues in time are adequate and proper. The
Internal Auditor reports to the Audit Committee.
The management and the Audit Committee of the Board review the findings and
recommendations of the internal audit team and review periodically the adequacy of the
internal control, internal audit and the management control systems, so as to be in line
with changing requirements.
DISCUSSION OF FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
Paid-up Share Capital
The Company had a paid-up capital share capital of Rs. 1794.26 lakhs comprising
1,79,42,630 equity shares of Rs. 10/-each as of December 31, 2010. The Company issued
15,00,00,000 convertible equity warrants to twenty select investors on February 21, 2011
after seeking the approval of the members in its Extra Ordinary General Meeting held on
December 18, 2010. On receiving full consideration, the Company allotted 8,32,68,333
equity shares on March 31, 2011 and the balance 6,67,31,667 equity shares on July 9, 2011
by converting the warrants.
The Company decided to capitalize its reserves by issuing Bonus Shares in the ratio of
12:5 (i.e., twelve Bonus Shares for every five shares held by the existing shareholders as
on the Record Date fixed). Subsequent to the allotment of 40,30,62,312 Bonus Shares, the
paid-up capital of the Company stood at Rs. 57100.49 lakhs.
Reserves and Surplus
After capitalization of reserves for issue of Bonus Shares and adjustment of the loss
of Rs. 1139.97 lakhs during the financial year ended December 31, 2011, the balance in
reserves and surplus account has decreased to Rs. 528.41 lakhs as at December 31, 2011
from Rs. 26974.62 lakhs as at December 31, 2010.
Secured Loans
The Secured loans at the end of the current fiscal was Rs. 1145.08 lakhs as against Rs.
1291.92 lakhs as at the end of the previous fiscal.
Fixed Assets
There was no addition to the gross block during the financial ended December 31, 2011.
Depreciation
The Company provided a sum of Rs. 1771.48 lakhs as depreciation for the fiscal 2011 as
against Rs. 3701.00 lakhs for the previous fiscal ended December 31, 2010 representing
33.10% and 31.02% of total revenues.
Investments
During the year, the Company has invested a sum of Rs. 13353.11 lakhs in various
companies out of the funds received as consideration towards issue of equity warrants to
the allottees of convertible equity warrants.
Inventories
The stock of V-Tel Cards and FleeTrac devices has increased to Rs. 6757.29 lakhs as on
December 31, 2011 from Rs. 6591.71 lakhs as on December 31, 2010.
Trade Receivables
Trade Receivables amounted to Rs. 15746.30 lakhs for the year ended December 31, 2011
as compared to Rs. 13740.86 lakhs for the year ended December 31, 2010. These are
considered good and realizable.
Cash and Bank Balances
Cash and Bank balances have decreased to Rs. 8.59 lakhs as on December 31, 2011 from
Rs. 64.98 lakhs as on December 31, 2010.
Long-Term Loans and advances
| As at |
December 31, 2011 |
December 31, 2010 |
| Advances |
3501.31 |
4100.31 |
| Deposits |
215.04 |
215.04 |
Advances are made for payments for Pins and communications for Telecards.
Trade Payables, Current Liabilities & Provisions
| As at |
December 31, 2011 |
December 31, 2010 |
| Trade Payables |
8756.10 |
7666.64 |
| Other Current Liabilities |
2028.74 |
91.28 |
| Taxation |
1042.25 |
1031.53 |
| Total |
11827.09 |
8789.45 |
Trade payables represent trade creditors for the services rendered and goods supplied.
Total Revenue
The total revenue of the company has decreased substantially by 55.13% from Rs.
11929.77 lakhs in financial 2009-10 to Rs. 5352.33 lakhs during the financial year 2011.
Total Expenses
Total expenditure has decreased by 45.37% from Rs. 12077.69 lakhs in financial year
2009-10 to Rs. 6598.03 lakhs during the year 2011.
Operating Profit (EBIDTA)
The Operating Profit of the company has decreased by 81.77% (i.e., from Rs. 3983.75
lakhs in FY 2009-10 to Rs. 726.35
lakhs in FY 2011).
Profit / (Loss) before tax (PBT):
The Company reported a Loss before tax of Rs. 1232.96 lakhs in the financial year 2011
as compared to Loss before Tax of Rs. 147.84 lakhs in the previous year 2009-10.
Profit after Tax (PAT)
The Company reported a Loss after tax of Rs. 1139.97 lakhs in the financial year 2011
as compared to Rs. 100.89 lakhs in the previous financial year 2009-10.
Earnings per Share (EPS)
The Company has reported negative earnings per share of Rs. 0.46 in the financial year
2011 as compared to negative earnings per share of Rs. 0.37 in financial year 2009-10.
Related Party Transactions
The related party transactions are discussed in detail in the notes on accounts of the
financial statements.
Strengths, Strategy & Competition
In light of the increasing competitive business environment, companies have become
dependent on technology not only on day-to-day operations, but also as a strategic tool to
enable them to re-engineer business processes, restructuring, regulatory and speed with
the change emerging in technology areas. As systems continually become more complex and
cost efficient, companies increasingly turn into external IT service providers to develop
and implement new technologies and integrate them with existing applications in which a
company may have made considerable investments.
Our strengths
The Company believes that the following are its principal competitive strengths, which
differentiates it from other IT Solutions and BPO service providers:
i. Develop healthy Customer base and relationship:
The Company has the capability to develop a healthy customer base, which include
companies that have demand for services in the telecommunications, health care, financial
services, insurance sectors, mutual funds, medical transcriptions sector etc. The Company
has had a long history of retaining clients, but also leverage on its existing
relationships to source business from new clients. The Company has had a good track record
earlier of retaining its client base.
In the BPO industry, the customers place great value on experience and existing
relationships with providers when awarding business to BPO providers. The Company builds
business clientele with whom the Company can enter into long-term business relationships,
although the financial year 2011 showed decreased business levels.
The Company lays strong emphasis on customer service and satisfaction and has repeat
customer business and referrals. The Company makes constant efforts to provide efficient
service, fast turn-around-times, timely response, quality and integrity.
ii. Experienced Management Team:
The Companys management and employees are well qualified and bring substantial
experience in the Companys business domain.
iii. Healthy Employee profile:
The Company has a typical flat organization structure, a multi-cultural setting right
technological skill-sets, client-focused business approach and good work environment. The
Company constantly strives to keep up the morale and work satisfaction levels of its
employees.
iv. The Company has a multi-vendor service provider and enjoys good and long
term relationships with its principals.
The Company has had strong relationship with most of its vendors and technology
partners. The Company will attempt to leverage these relationships to provide its
customers an optimal and cost efficient solution. Given its relationship with these
technology partners, the Company is not dependent on a particular technology solution,
thus improving its efficiency as a service provider.
Our Strategy
We seek to review our current years performance which failed to attain our corporate
goals and objectives, review the areas of weakness in order to consolidate and re-attain
our position as a leading global technology solutions company by successfully
differentiating our service offerings and increasing the scale of our operations.
Our goal is to build enduring relationships with both existing and new clients. With
existing clients, we aim to expand the nature and scope of our engagements by increasing
the size and number of projects and extending the breadth of our service offerings. For
new clients, we seek to provide value-added solutions by leveraging our in-depth industry
expertise and expanding the breadth of services offered to them beyond those in the
initial engagement. We manage first-time engagements by educating clients about the
offshore model, taking on smaller projects to minimize client risk and demonstrating our
superior execution capabilities. We plan to increase our recurring business with clients
by providing software re-engineering, maintenance, and business process management
services, which are long-term in nature and require frequent client contact.
Geographical expansion
We seek to selectively expand our national presence to enhance our ability to service
clients. We plan to accomplish this by establishing new sales and marketing offices,
representative offices across various states during the year to expand our geographical
reach these regions to eventually support clients in the local market as well as our
global clients.
Competition
The IT services market is highly competitive. Competitors include large global
consulting firms, sub-division of large multinational technology firms. IT outsourcing
firms, Indian IT services firms, software firms and in-house IT departments of large
corporations. The increasing attractiveness of the Global Delivery Model is forcing the
overseas-based competitors to expand their base in India. In the future we expect
competition from firms establishing and building their offshore presence and firms in
countries with lower personnel costs than those prevailing in India. However, we recognize
that price alone cannot constitute sustainable competitive advantage. The competitors have
also indulged in aggressive poaching of talent, especially for experienced IT
professionals.
We believe that the principal competitive factors in our business include the ability
to: Effectively integrate onsite execution capabilities to deliver seamless, scalable,
cost-effective services; Increase scale and breadth of service offerings to provide
one-stop solutions; Provide domain / industry expertise to clients business solutions;
Attract and retain high quality technology professionals; and maintain financial strength
to make strategic investments in human resources and physical infrastructure through
business cycles. We believe we compete favorably with respect to these factors.
Material Developments in the Human Resources
One of the key focus areas for your Company is developing human capital. The Company
could not continue to attract and retain talent of highest quality. The company is making
effort to provide a challenging and exciting work environment by nurturing and mobilizing
individual potential.
Cautionary Statement
Certain statements in this analysis concerning the Companys objectives, expectations,
estimates, projections and future growth prospects are forward-looking statements which
involve a number of presumption risks and uncertainties that could cause actual results to
differ materially. The risks and uncertainties relating to these statements include, but
are not limited to, fluctuations in earnings, intense competition in Information
Technologies and information processing businesses including those factors which may
affect our cost advantage and services in our key focus areas, disruptions in
telecommunication networks, liability for damages on our service contracts, withdrawal of
governmental fiscal incentives, political instability, legal restrictions on acquiring
companies or having offices outside India, general economic conditions affecting our
businesses over which the Company does not have any control.
|
For and on behalf of the Board of Directors |
| Place : Chennai |
Capt. D.S. Srinivasan |
A.D. Sudhindra |
| Dated: August 18, 2012 |
Managing Director |
Director |
+91-9892691696
