precision electronics ltd Management discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS

Draft Defence Production Policy (2018) unveiled by the Ministry of Defence (MoD) is representative of Government of Indias Make in India push. Its vision is to put India "among the top five countries of the World in aerospace and defence industries." The key objectives of the policy include development of a strong indigenous defence industry leading to higher self-reliance. The Government is keen to develop this sector by making more space for FDI and through Government reforms. The company will continue to leverage its presence, expertise and partnerships with global majors to increase its revenues in the sector.

The market outlook and companys opportunities in sectors other than defence are as follows:

i. Telecom: The CAGR in this sector is recorded at 5.2% between 2014-17 and with the renewed policy initiative of the Government to promote and provide preferential market access to "Indigenous Design Developed and Manufactured" products, the sector is poised for a higher growth in the coming years. Governments plan to provide telecom/data connectivity at the Gram Panchayat Level provides unique opportunity to the company. The company is developing products that are required for "Digital India" and USOF programs.

ii. Smart City: The smart cities market in India is expected to grow at a CAGR of 18.5% from 2017-2023. India is one of the fastest and largest growing markets for smart cities due to the initiatives and the use of technology. The Tier 2 metro cities will have the highest growth rate due to the declaration of government initiatives and private investments. Moreover, the Government of India has already planned and mentioned the first 20 smart cities with 80 more in subsequent phases. Your Company is developing core technologies such as smart poles and power supplies for use in Smart Cities.

iii. Healthcare: With the launch of "Modi Health Insurance Scheme 2018" by the Government, the market for healthcare industry is set to expand many folds. Your Company is a part of the strategic supply chain of GE Healthcare and has been recognised with a "Quality Award" for supply of power distribution unit for their Super Value CT scan machine. We are continuously developing products that will expand our product offering in this segment.

iv. Oil & Gas: India is net exporter of petro-products. Its gas production is expected to touch 90 BCM in 2040 from 35 BCM in 2013 with ONGC dominating exploration and production with 70% market share. PEL is actively engaged with ONGC in the exploration sector in which ONGC has 90%+ market share. This provides your company with good opportunities to further expand its business in the sector.

Opportunities, Threats, Risk & Concerns

Opportunities

Sizable business opportunities exist in all the sectors wherein your company has a market presence. Government is proactively promoting and supporting the indigenous industry with focus on the MSME sector and its policies and procedures are geared to create a robust hi-tech industry in India. Further, with all the legal issues that the Company was embroiled in for the last six years been settled; the management is now free to direct its energies and experience towards growth of the company.

Threats, Risk & Concerns

Policy implementation by the Government has always been a major concern for the industry. This has been and continues to remain a major threat and risk as significant portion of the Companys revenues is from Government and or its Undertakings. The business model is tender-oriented, takes a long time to fructification and "L-1 takes all". Further, as we are in Technology intensive sector, funds are required to keep pace with the technology developments and to retain highly trained manpower. Availability of liquidity for a unit like ours is a challenge.

PRODUCT WISE PERFORMANCE

The Company has a well-balanced product portfolio of in-house designed and engineered products that are qualified by both defence and the civil sector customers. In the Electronics & Telecommunication Division, key PEL products include:

I. Wire-line

a. Digital multiplexer with capabilities to provide turnkey voice and data communications for last mile network

b. Line modems (G.SHDSL)

c. Protocol and Media Converters

II. Wireless

a. Unlicensed band (5.8GHz) IP radio: PEL is proposing this radio in several tenders of Telecom customers and hopes to achieve success.

b. High Capacity Radio Relay Systems: PEL is offering its in-house designed and engineered sub-systems against this requirement of Indian Army.

III. Power Systems

a. Power Supplies for Industrial applications

b. Power Distribution Systems for Healthcare

IV. Data Logger for Indian Railways

V. Telescopic Masts: PEL designed and manufactured electromechanical and pneumatic masts are the preferred choice of the customers in both the defence as well as civil segments.

In the Services segment, PELs revenue bucket include:

a. EPC contracts: PEL has undertaken Civil, Electrical and Networking responsibilities as a subcontractor to Large Prime Contractors for major MoD programs.

b. Hi-Tech Installation & Commissioning: PEL teams are stationed at several naval shipyards across the country to provide technical assistance to the customer on behalf of the designer CDoT to ensure trouble free commissioning of the core ATM based network switch and network termination units on all the new build ships of the Indian Navy.

c. Maintenance Repair and Overhaul (MRO) Services: PEL has undertaken contracts for Israeli majors to support UAV (Unmanned Aerial Vehicle) ground equipment at military bases across India. Further PEL has supported the maintenance of Integrated Electronic Warfare systems and Precision Guided Munitions supplied by Israeli companies to the Indian Forces.

OUTLOOK

Your company has a bullish outlook as Governments policy to support and promote MSME sector and indigenous development has started to be implemented on ground. Its market access and human resources are capable to take full advantage of these policy initiatives. Further, with legal issues being settled, the Management is now free to devote its full energy towards advancement of business. Due to temporary business fluctuation and market uncertainties the Company has incurred losses and therefore the Company proposes to monetize its underutilized assets at Noida and Roorkee to generate funds. This would add to the product offerings to its customers. Programs wherein PEL has significant stake and were put on hold by the customer are moving forward and expected to generate additional revenues for the company in the current FY 2018-19.

INTERNAL FINANCIAL CONTROL

The Company has in place adequate internal financial controls with reference to financial statements. During the year no reportable material weakness in the system was observed. The Company has adopted IND-AS for the financial year 2017-18.

HUMAN RESOURCE DEVELOPMENT

The total number of employees of the Company as on 31st March 2018 stood at 177.

Your Company believes that employees are the most valuable assets of an organization and the optimum utilization of the skill, knowledge and attitude they possess are instrumental to the growth of the organization. Your Company has lived and encouraged meritocracy, entrepreneurship, teamwork and performance driven culture. The focus has been on creating reserves through cross functional and interdisciplinary exposure at all levels to ensure redundancy and robustness in the organization.

FINANCIAL FACILITIES

The Company in order to enhance its fund limits has now empanelled South Indian Bank, Noida branch with increased financing facilities (fund based and non-fund based).