vuppalamritha magnetic components ltd Management discussions

VUPPALAMRITHA MAGNETIC COMPONENTS LIMITED ANNUAL REPORT 2008-2009 MANAGEMENT DISCUSSION AND ANALYSIS The Management of Vuppalamritha Magnetic Components Limited presents the analysis of performance of the Company for the year 2008-09 and its outlook for the future. PE Investment: The fiscal year 2008-09 is an important milestone in the Companys history as the private equity investors have reposed trust and confidence in the management and companys key project deliverables by providing a growth capital of Rs. 110 crores in aggregate This has given the platform for further growth by pursuing new opportunities while imposing a big responsibility on the management. The Board of Directors would like to reaffirm its collective commitment to keep the Company on a high growth path and to continue to maintain world class corporate governance. ANNEXURES TO THE DIRECTORS REPORT: We now focus on our financial performance. (A) COMPANY PERFORMANCE - ANALYSIS: Table 1: Financial Figures of the Company for the last five years on stand alone basis Rs. In million Particulars 2008-09 2007-08 2006-07 2005-06 2004-05 Gross Income 7,084 4,242 675 242 23 EBIDTA 900 504 74 25 1 PBT 749 439 57 20 0 PAT 540 302 49 17 0 EPS 28.57 52.95 9.59 42.50 0.58 Net Worth 3,848 1,218 153 129 15 Net block 209 141 126 30 6 Table 2: Key Ratios: Particulars 2008-09 2007-08 2006-07 2005-06 2004-05 Total income / Net block 33.90 30.10 5.35 7.99 3.73 Long term debt / equity 0.71 1.33 1.09 0.88 0.11 EBIDTA / Total income 13.29% 12.34% 10.95% 10.30% 3.38% PBT / Total income 11.05% 10.74% 8.39% 8.43% 1.58% PAT / Total income 7.97% 7.38% 7.26% 7.02% 1.01% Results at glance: * The total income grew by 67% from Rs.4, 242 million in the year 2007-08 to Rs.7, 084 million in 2008-09. * Profit before tax (PBT) increased by 71% over the year 2007-08 (Rs. 439 Million) to Rs. 749 Million in 2008-09. * The profit after tax (PAT) grew by 79%, from Rs.302 million in the year 2007-08 to Rs.540 million in 2008-09. * Net worth increased by Rs.2629 million, from Rs. 1218 million in 2007-08 to Rs.3848 million in 2008-09. Financial Review: Revenues: The total revenue from sale of telecom and power products for the year 2008-09 is Rs. 7,084 million. This represents 67% growth over the companys revenues for the year 2007-08. Manufacturing and other costs: For the year 2008-09, the cost of production and other administrative expenditure is Rs.5, 822 million that is 82% as compared to manufacturing revenue. Personnel expenses are Rs.90 million, which is 1.28% of the total revenue and is Rs.50 million higher than the previous year expenditure of Rs.40 million. This is due to expansion of operations and capacity at all levels to meet increasing demand. The company incurred Rs. 172 million towards financial charges for the year 2008-09 compared to Rs.79 million for the year 2007-08. The increase is due to a large increase in working capital facilities and the infusion of Private Equity to the tune of Rs. 110 cores. Profitability: The operating profit for the year is Rs.540 million for the year 2008-09 as compared to Rs.302 million for the previous year. The company made a provision of Rs.198 million towards income tax and Rs.10 million towards deferred tax as against Rs.136 million and Rs.0.3 million respectively in the previous year. Networth: There is an increase of Rs.1,235 million in the equity of the company during the year 2008-09. The networth of the company as on June 30, 2009 is Rs.3,848 million as compared to Rs.1218 million as on June 30, 2008. Debt Structure: The net working capital borrowing as on June 30, 2009 is Rs.1582 million. The company continued to pursue its efforts in optimizing the cost of borrowing during the year. Improvements in credit management and cash management arrangements contributed to increased working capital efficiencies during the year. Fixed Assets: The gross fixed assets as at June 30, 2009 were at Rs. 402 million as against Rs.263 million in the previous year. The Capital expenditure on expansion of facilities is Rs.122 million during the year. (B) INDUSTRY OVERVIEW, DEVELOPMENTS AND OPPORTUNITIES: Industry Outlook: Indian telecom sector has been remarkable in terms of growth during the last few years, largely driven by the unprecedented growth of mobile telephony. Further this rapid growth is possible due to various proactive and positive policy guidelines and contributions of public and private sectors, easy access for telecom equipment and a fair regulatory framework. This year, India has not only become the second largest wireless network in the world after China but also witnessed massive growth in tele-density. The sector is witnessing growth at a rate of 46-50% during the recent years. It is one of the prime support factors for rapid growth and modernization of various sectors of the economy. The telecom sector is a major contributor to Indias GDP growth which is presently over 7% and thus pays a crucial role in Indias economy at both macro and micro levels. The year under review has been phenomenal for the sector in terms of growth and technological advancement. Despite the financial and economic slowdown concerns, the industry continued its high growth rate. During the year 2009, government had raised the FDI limit in telecom sector from 49 per cent to 74 per, which has contributed to robust growth of FDI. The telecom sector registered a growth of 103 per cent during fiscal 2008- 09 as compared to previous fiscal. The sector attracted USD 2558 million FDI in FY 09 as compared to the USD 1261 million in FY 08, contributing 9.37 per cent share in total FDI inflow. The Government initiatives like announcement of 3G Policy, WiMax roll out as well as addition of new telecom operators are bold steps in serving mass communications needs along with growth of basic telecom services. With 3G and WiMax services, a major data revolution is in the offing driven primarily by a rise in communications demand from semi urban and rural India. Mobile entertainment and mobile banking are touted to be the biggest drivers for data services. The telecom industry is growing at a great pace and the growth rate is expected to double with every passing year. There are many new developments in the telecom sector, including the ingress of 3G technology that the Indian market is witnessing at present. India will continue its robust telecom story with the sectors revenue to be more than $30 billion by 2013, according to a global information technology research and advisory firm, the US-based Gartner Inc. There is still huge potential for growth in rural areas. The tele-density in rural areas is much lower than urban areas. Therefore, telecommunication access in rural India is going to be the most important development in the future. The need of the hour for telcos is to search for new cost effective ways to roll out telecom services in rural areas. The new projects, setting up of new service bases, expansion of coverage areas, network installations, maintenance, etc are providing more and more business opportunities in the telecom sector. Your Company, being forerunner in this industry is well placed to benefit from this growth. Your Company is also backed by good reputation, expertise and many years of experience in the Industry. The Company has adopted a focused approach to protect and grow its core business. (C) OUR STRATEGIES FOR GROWTH: i. Financial Strategy: The growth capital is funded by internal accruals, Promoters contribution and private equity and operational capital is funded by Banks. ii. HR Strategy: The Company has put it in place a human resource strategy to attract and retain experienced manpower. The augmentation of human resources has been particularly focused to incorporate professionalism at all levels of management in the organisation. Compensation packages have been drawn to match the best in the industry. iii. IT Strategy: The Company recognizes the need to strengthen its IT and related infrastructure. One of such pro-active measures is implementation of E.R.P. package in the company which is in consultative process with various service providers. (D) Risk Management Framework: Risks can be expressed as uncertainties about events, which can have a significant material impact on organizational performance. Risk governance at Vupppalamritha covers risk identification and mitigation as a pre- emptive strategy, leading to a stable and sustainable business model. In order to regularly assess, evaluate and prioritize risks and to take corrective action wherever required we are in the process to put in place a Risk Management Framework. (E) Internal Control Systems and their adequacy: The company has a well set Internal Control System in place. The Audit Committee of the Board reviews the adequacy of the internal control function and also holds discussions with the auditors regarding their significant findings. The CEO/CFO certification annexed to this report discusses the adequacy of the internal control systems. The Internal Control System is being set up with an objective of setting and exercising controls at various stages and is established in order to provide reasonable assurances for: * Safeguarding Assets and their usage. * Maintenance of proper accounting records and * Adequacy and reliability of the information used for carrying on Business operations. The key elements of the system are as follows: * Existence of Authority Manuals and periodical updating of the same for all functions. * Existence of clearly defined Organizational Structure and Authority. * Existence of Corporate Policies for financial reporting and accounting. * Existence of Management Information System updated from time to time as may be required. * Existence of Annual Budgets and Long Term business plans. * Periodical Review of opportunities and risk factors depending on the Domestic scenario and to undertake measures as may be necessary Caution statement: The statement in this section describes the Companys Objectives, projections, estimates, expectations and predictions, which may be forward looking statements within the meaning of the applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make difference to the Companys Operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets, changes in the Government regulations, tax laws and other incidental laws. For VUPPALAMRITHA MAGNETIC COMPONENTS LIMITED Dated : 26.08.2009 B. HIMA BINDU Place : Secunderabad Managing Director