Palred Technologies Ltd

BSE: 532521 | NSE: PALRED | ISIN: INE218G01017 
Market Cap: [Rs.Cr.] 88.23 | Face Value: [Rs.] 5
Industry: Computers - Software - Medium / Small

Management Discussions
MANAGEMENT DISCUSSION AND ANALYSIS REPORT

FOR THE YEAR 2013-14

Global Industry Outlook

Your Company is into Online E-commerce business after the slump sale of IT business. Inthe today’s global markets, Online E-commerce is likely to become more personalized,with retailers customizing their services and integrating online sales channels such aswebsites and social networks.

As current trends continue, Asia-Pacific is expected to overtake North America as theregion with the highest B2C E-Commerce sales in 2013 and to account for over a third ofglobal B2C E-commerce revenues. By 2016, the Asia-Pacific region’s share is likely toincrease further, while the North-America and Western Europe shares of world total B2CE-commerce are expected to steadily erode. One of the major trends there is expected to begrowth of M-commerce, reflected in triple digit growth rates of mobile payments in theyears to 2016. The online sales of luxury goods such as health and beauty products,apparel and watches has led the recent surge in B2C E-commerce in China. New deliverysystems and payment methods are being implemented helping to tap into the great potentialfor online e-commerce.

The major trends in the e-commerce industry can be attributed to lifestyletransformation of consumers, spreading out of online niche and accessibility of moderntechnology. The ease and convenience that online shopping offers is probably to top reasonbehind the flourishing e-commerce industry. Apart from that, more and more ecommerce sitesare offering better prices on various products and services.

According to eMarketer’s latest survey, worldwide business-to-consumer e-Commercesales will increase by 20.1% this year to reach $1.500 trillion. Growth comes primarilyfrom the rapidly expanding online and mobile user bases in emerging markets, increases inm-Commerce sales, advancing, shipping and payment options, and the push into newinternational markets by major brands.

In 2014, for the first time, consumers in Asia-Pacific will spend more on E-commercepurchases than those in North-America, making it the largest regional E-commerce market inthe world. This year alone, B2C e-Commerce sales are expected to reach $525.2 billion inthe region compared with $ 482.6 Billion in North America.

China will take in more than six of every 10 dollars spent on E-commerce inAsia-Pacific this year and nearly three quarters of regional spending by 2017. TheCountry’s E-commerce market is second only to the US, but this is not expected tolast much longer. Beginning in 2016 China will overtake the US in spending. Massive gainsin China, as well as in India and Indonesia, will push Asia-Pacific’s growth ahead.

The strength of sales in emerging markets is largely due to their large populationscoming online and buying there for the first time. Asia-Pacific will claim more than 46%of digital buyers worldwide in 2014, though these users will only account for 16.9% of theregion’s population. Penetration will also be low in Central and Eastern Europe,Latin America, and Middle East and Africa. For now, North America and Western Europe arethe only regions where a majority of residents will make purchases via digital channels.

Indian Industry overview

India’s E-commerce market grew at a staggering 88% in 2013 to $16 billion, ridingon blooming online retail trends and defying slower economic growth and spiralinginflation, according to survey by industry body Assocham.

The increasing internet penetration and availability of more payment options boostedthe e-commerce industry in 2013. Besides electronic goods, apparel and jewelry, home andkitchen appliances, life style accessories like watches, books, beauty products andperfumes, baby products witnessed significant upward movement in last one year.

It is estimated the country’s e-commerce market to reach $ 56 billion by 2023,driven by raising online retail.

The products that are sold most are in the tech and fashion category including mobilephones, i-pads, accessories, MP3 players, digital cameras and jewelry, among others, itfound.

Indian E-commerce has grown at a compounded annual growth rate of 30% since FY 09 andis expected to be $ 18 billion opportunity by FY 2015.The growth of online retail waspartly driven by changing urban consumer lifestyle and the need for convenience ofshopping at home.

B2C ecommerce vendor analysis

India’s E-commerce business jumped by more than 80% in 2013 and the momentum islikely to continue for at least the next five years. The size of India’s E-commercemarket in 2013 was around $16 billion. The online travel segment contributed over 70% ofthe total consumer e-commerce transactions last year. The E-commerce business in India isexpected to reach around $50-70 billion by 2020 on the back of a fast growinginternet-connected population and improvement in related infrastructure like payment anddelivery systems.

According to Boston Consultancy Group (BCG) study on digital influence 2013-14, onlineshopping is expected to rise 14% by 2016 from 6% in 2013. Digital influence is rapidlyexpanding to small urban towns and rural areas, as the number of internet and mobile usershas been increased.

India has internet base of around 150 million as of August 2013. Having close to 10% ofinternet penetration in India throws a very big opportunity for online retailers to growand expand as future of internet seems very bright.

To capitalize on the benefits offered by the unique Indian consumer base, e-commercecompanies have been innovating with policies traditionally not available in a brick andmortar store. Companies have introduced return policies ranging from 7-30 days, free homedelivery and the most recent cash on delivery, which led to a lot of momentum in internetsales and changed people’s perception towards online shopping as shoppers can nowpurchase without disclosing their credit/ debit card details.

Indian E-commerce market was worth about $2.5 Billion in 2009, went up to $6.3 Billionin 2011 and $16 Billion in 2013. It is expected to touch $56 Billion by 2023 which will be6.5% of the total retail market. Factors like spiraling inflation and slower economicgrowth failed to dampen the online shopping trends of Indian consumers and have witnesseda significant change in 2013, recording 85% rise in online trends over the regularshopping than last year. The trend of online e-commerce is set to see greater heights inthe coming years, not only because of India’s rising internet population, but alsodue to changes in the supportive eco-system.

The B2C market in India generates the bulk of revenues across the consumer facing modesof e-commerce. Though online travel has typically held major share of the B2C market,online retail is also growing rapidly and is expected to significantly increase its share.

Outlook on opportunities, threats, risks and concerns.

Ecommerce offers many competitive advantages, such as improved productivity, reducedcosts, streamlined business processes, improved customer service and entry to the globalbusiness arena. And online shopping is still growing, although credit card security andonline fraud remain the biggest concerns of online retailers, as it has adversely affectedtheir bottom line.

Operating an online business involves risks and challenges, but if merchants are awareof risks and observe best business practices to address these risks, they will be betterable to reap the benefits from e-commerce. Some of the common issues and concerns formerchants with regard to operating online businesses include the need to differentiatelegitimate customers from fraudulent users in real time, to establish an adequate securitysystem to detect and minimize online payment fraud, and to prevent unauthorized access tothe company’s network and data. Anywhere along the B2C transaction flow – fromthe customer entering his billing and shipping address, to him confirming the purchaseorder, making payment online to merchant, and the final fulfilment of goods and services– valuable information can be tampered with or stolen, creating opportunities fordispute and fraud.

There are three potential risks that can be faced: security, payment and fulfilmentrisks.

1.Security risk

Security risk arises from virus and hacker attacks. The severity of the damage causedvaries with the type of attack (e.g. data loss, stolen information, denial of service).Viruses and hacker attacks disrupt your business operations and can lead to loss incustomer confidence and sales revenue.

2.Payment risk

Payment risk exists when transactions are done over the Internet and when thecustomer’s identity cannot be identified or established. This gives rise to paymentdisputes from genuine customers. Such situations are more commonly associated with creditcard payments over the Internet. Other reasons for payment disputes can arise from orderedgoods not reaching the customer, disagreement over the currency conversion rate, and goodsreceived not meeting the customer’s expectations or specifications.

3.Fulfilment risk

Fulfilment refers to the delivery of goods, which could be physical products or digitalgoods. Fulfilment risks associated with physical goods refer to problems such as defectivegoods, goods not matching the given description, and delays in delivery. Digital goodsfulfilment is performed via electronic means and is vulnerable to risks such as hijackingand illegitimate manipulation of information content or mass duplication of copyrightedcontent.

To minimize these risks, it is recommended that we should adopt a disciplined approachin risk management and bear in mind that risk management is not a one- time effort. It isa continuous process that requires organization- wide commitment and well documentedprocedures, processes and practices to manage security, payment and fulfilment risks.

Challenges

1. Lack of touch and feel

Most Indian Customers prefer to sample a product before making a purchase. This appliesacross categories such as clothing, shoes, perfumes and accessories. Lack oftouch-and-feel in online shopping could lead to issues such as wrong product sizes. Thiscreates a mental barrier for consumers to shop online.

2. Increased competition with the entry of global players.

The growth potential of the online retail segment in India is attracting leadinginternational players. The entry of international players would increase competition inthe segment. The advanced technology capabilities of global players in areas such ascustomer analytics and recommendation engines would pose a challenge for local companies.

International players have larger financial resources than their Indian counterparts.This enables them to bear losses and restrict supplies to their competitors by buying outsupplies from vendors. This could drive out smaller domestic players from the market.

3. Low margins prompting e-commerce players to look at new business models.

The majority of the e-commerce companies are price players due to the stiff competitionthey face and the race to acquire maximum number of customers. This results in very lowmargins.

Human Resources

To remain competitive in the IT and e-commerce industry and achieve its businessobjectives, your Company understands the need of constantly attracting, grooming andretaining the best talent in the industry for its strategic success.

The Company has focused on transformation through qualitative recruitments across alllevels and functions (project Managers, Technical Managers, QA Lead, to name a few). Wehave focused on premier institutes (IIT Hyderabad, IIM, BITS Hyderabad and NIT to name afew) to hire bright candidates into the organization who have the potential to become thefuture leaders with their high drive to excel. A concentrated effort in recruitment wastaken to make the staff more culturally diverse and further improve workplace demographicsby recruiting people from different cities and IT hubs in India.

Talent development and continuous learning have been the focus area during the year.Constant improvements in behavioural skills and updations with advanced technologies havebeen the core areas for learning opportunities.

To have better control, improved process efficiency and quality, payroll administrationand statutory compliances and filings were bought in-house. This has also resulted in amuch lower operational cost than what was spent annually for outsourcing it. All theseactivities are managed and maintained by Company personnel.

Your Company follows performance with engagement methodology where each resource isentitled for having fun at work. Engagement activities with an objective of enhancedcommunication, cohesiveness and collaboration within the teams have been conducted atregular intervals. These activities have also acted as mode of de-stressing the resourceswho are sometimes hard pressed due to important project deliverables.

With various new initiatives planned in the year ahead, your company aspires to retainor improve its image as an employer of choice and keep attracting and retaining the besttalent in the industry for sustained high performance and growth.

Intellectual Property Infringement

As product development/ website development depends on the intellectual propertycreated by its employees, we need to ensure that the same do not infringe any otherproprietary technology rights. We have intellectual property rights to take care of tradesecrets, copyright and trademark laws and confidentiality agreements for our employees,third parties offering only limited protection. The steps taken by us as well as laws ofmost advanced countries do not offer effective protection of intellectual property rights.Third parties could claim infringement of property rights against the Company or alsoassert the same against our customers, which would require protracted defense and costlylitigations on behalf of our customers.

Risks and risk management and their implementation

Security breaches, fraud and customer disputes represent just some of the risksassociated with e-Commerce when we accept credit card payments. A single incidentinvolving a breach of sensitive data could result in fines, negative publicity and loss oftrust, credibility of the organization.

Some of the risk management measures include:

Educating the team on risks- Everyone operating in the organization are having anunderstanding of the fraud and security risks involved in an e-commerce transaction.

The more informed the organization is, the easier it will be to combat online threatsand to carry out risk mitigating measures.

Communicating organizational policies to customers- In order to avoid customerdissatisfaction and disputes, privacy policies will be made available to the public byplacing in the website. A page that educates customers about our security practices andcontrols will be created.

Regular software updates with the newest versions of security software are implementedto avoid vulnerability to attack.

Financial Performance

Prudent Financial Planning, effective resource allocation and tight financial controlhave ensured that the cash flows of the Company remain healthy. The ability of the Companyto raise credit remains unimpaired.

Strategy

The Company’s strategy has always been to strengthen our leadership position inthis domain irrespective of market dynamics and this will enable us to have a leaderpositioning and thus increasing our scope of offerings to existing and potential clients.We continue to have recurring business from existing customers along with maintaining along term relationship.

We continue to invest in employees, technology tools for R&D, recruitment andhoning employee skills, increased domain expertise and promote brand visibility throughtradeshows, sponsorships and investor relations. We also continue to develop allianceswith leading technology providers to take advantage of emerging technology for mutualbenefit and cost competitiveness.

Internal control systems and adequacy

The Company has adopted strong and automated internal business controls and a processframework that is not only adequate for its current size of operations but can effectivelysupport increases in growth and complexity across our business operations. Awell-established and empowered system of internal financial audits and automated controlprocedures ensures prudent financial control, flexibility in terms of process changes toenable course correction. Internal auditors submits reports and updates to the auditcommittee of the Board, which conducts frequent reviews and provides direction andoperational guidance on new processes to be implemented to further enhance efficiencieswithin the Company.

The Company is in the process of implementing Enterprise Resource Planning along withvarious business controls which would have automatic internal control systems to identifyerrors and also provide better MIS.

Human Resources

Capability building, Talent Management and Employee Engagement remain the key focus ofyour company’s Human Resource Strategy. Your Company has continued to build on itscapabilities in getting the right talent to support the different technology areas. Theyare backed by robust management training schemes, hiring of key management personnel, andsales training.

Human Resources are the most valuable asset for the Company and Palred Technologiescontinues to seek, retain and enrich the best available talent. The Human Resource playsan important role in the growth and success of the Organization. Your Company hasmaintained cordial and harmonious relations with all the employees.

The Company provides an environment which encourages initiative, innovative thinkingand rewards performance. The Company ensures training and development of its personnelthrough succession planning, job rotation, on-the-job training and various trainings andworkshops.

Culture, Values and Leadership

Your Company has started operations in e-commerce as its new line of business. YourCompany has a written code of conduct and ethics to make employees aware of ethicalrequirements and Whistle Blower Policy for reporting violations, if any.

Your Company has internal structured succession planning to take care of loss of anymember of senior management or other key management personnel. Since inception yourCompany is committed to developing next generation leaders and conduct personalitydevelopment and development work of skills acquired by them over the years. Your Companyencourages an "Equal Employment Opportunity Policy" which discouragesdiscrimination for employment on account of sex, race, color, religion, physical challengeand so on.

As the Company operates in a niche industry that requires high techno functionalexpertise. The employees constantly need to enhance their technical and functionalknowledge and so regular training sessions on specific technical skills and domainknowledge were conducted.

Cautionary Statement:

Statements in the "Management Discussion and Analysis" describing thecompany’s objectives, estimates, expectations or projections may be "forwardlooking statements" within the meaning of applicable laws and regulations. Actualresults could differ materially from those expressed or implied. Important factors thatcould make a difference to the Company’s operations; include Government regulations,patent laws, tax regimes, economic developments within India and countries in which theCompany conducts business, litigation and other allied factors.

   
Futures & Options Quote
Future Data Not present
Key Information

Key Executives:

Palem Srikanth Reddy , Chairman & Managing Director

T R Sivaramakrishnan , Director

Srinivas Prasad , Director

Mohan Krishna Reddy , Director


Company Head Office / Quarters:

Plot No 2 8-2-703/2/B,
Road No 12 Banjara Hills,
Hyderabad,
Andhra Pradesh-500034
Phone : Andhra Pradesh-91-40-66384915/66384916 / Andhra Pradesh-
Fax : Andhra Pradesh- / Andhra Pradesh-
E-mail : haritha.varanasi@palred.com/Company@palred.com
Web :

Registrars:

Karvy Computershare Pvt Ltd
Plot No 17-24 ,Vittal Rao Nagar ,Madhapur ,Hyderabad-500081

 
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