wep peripherals ltd Management discussions

WEP PERIPHERALS LIMITED ANNUAL REPORT 2007-2008 MANAGEMENT DISCUSSION AND ANALYSIS As a matter of better Corporate Governance and transparency, a detailed Managements Discussions and Analysis Report for the year under review as stipulated under Clause 49 of the Listing Agreement, is presented below: a) Operating and Financial Review and Prospectus: During the year under review, EBITDA of the Company increased from Rs.55.67 mn in the previous year to Rs.80.54 mn for the relevant business. While the revenue degrew by 24%, the profit before tax increased from (0.2%) to 1.44% primarily due to improved margins. b) Financial Overview: The financial statements have been prepared in compliance with the norms prescribed by the Accounting Standards of ICAI and the Generally Accepted Accounting Principles (GAAP) practiced in India. i) Share Capital: The Authorised Share Capital of the company is Rs.300 mn. divided into 27,000,000 Equity shares of Rs.10/- each and 3,000,000 Preference shares of Rs.10/- each. The paid-up share capital of the Company as on the balance sheet date is Rs.19.57 mn. The reduction in the Equity share capital is due to the split of shares consequent to the demerger. ii) Reserves and Surplus: During the year under review, Capital Reserve of Rs.11.94 mn was adjusted against the General Reserve due to the Demerger of the Solutions business. The addition to Securities Premium of Rs.0.72 mn comprises of premium received on allotment of equity shares on exercise under ESOP Schemes. iii) Secured Loan: To meet the Companys working capital requirement, the company has utilized Rs.23.70 mn from its sanctioned working capital limits. The company is well placed to meet any short-term exigencies for cash. The Company had also utilized Rs.86.20 mn of long-term loan for the expansion of its manufacturing facilities at Baddi and Mysore. iv) Addition to Fixed Assets: During the year under review, the Company invested Rs.122.33 mn on fixed assets. v) Inventories: Inventories mainly comprises of finished goods, stock in process and raw materials. For the year ended March 31, 2008 the total inventory value was Rs.286.76 mn. vi) Debtors: Sundry Debtors (net of provision) for the year was Rs.191.55 mn. vii) Sales and Expenditure: Net Sales for the financial year 2007-08 was Rs.1,754.11 mn. The ratio of Earning before Interest, Tax and Depreciation to sales is at 4.60% and the Earning per share is Rs.10.62. viii) In the Finance Act, 2005, the Government of India imposed an additional income tax on companies called as Fringe Benefit Tax (FBT). As per this Act, Companies are deemed to have provided fringe benefits to the employees if certain expenses are incurred. During the year under review, your Company had provided Rs.3.2mn for FBT. ix) Profit and Appropriation of Profit: The Profit of Rs.20.66 mn for the year ended March 31, 2008 is appropriated as follows: Interim Dividend : Rs.1.96 mn. Dividend Distribution Tax : Rs.0.33 mn. c) Risks and their Mitigants: Foreign Exchange Risks: The Company imports a number of peripheral products and parts for manufacturing and trading. Huge fluctuation in the currency exchange rate could adversely affect the price competitiveness of its products. Mitigants: The Company has a defined policy for managing its foreign exchange exposure. The Company tracks the foreign exchange markets closely and takes appropriate hedging decisions from time to time. Acquisition risks: The Company is actively evaluating acquisitions. In the event of Company going in for an acquisition the Company would be faced with integration issues, managing the morale of the new work force, reducing overlaps and other related issues. Mitigants: The Company has a comprehensive due diligence review process covering aspects of marketing, financial, legal, human and cultural issues before deciding on acquisitions. In the two acquisitions made so far, the Company has acquired substantial working knowledge and experience in managing all aspects of take-over and acquisitions. Receivable Risk: With the slow down the possibility of large distributors and IT majors delaying payments become more real. Some of these could be our customers. Mitigants: The Company is carefully monitoring and controlling the financial exposure to those customers whom it considers a credit risk. Inventory obsolescence risk: The Company deals with the products, which have raw materials and parts with long lead times for supply. Change in the technology could render some of these raw materials and parts obsolete. Mitigants: The Company is conscious of these risks and tracks and monitors its inventory at regular intervals to minimize obsolescence. The Company has laid down norms for adequately providing for these inventories in its financial accounts.