ADC India Communications Ltd Management Discussions

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Jul 25, 2024|03:45:00 PM

ADC India Communications Ltd Share Price Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS Telecommunication

In the dynamic landscape of the telecom industry, several key trends are shaping the future and presenting new opportunities and challenges for companies. From the rapid advancements in technology to evolving consumer demands and regulatory changes, telecom companies are navigating these trends to stay competitive and meet the ever-changing needs of their customers to ensure they stay ahead of the curve.

Currently, India is the worlds second-largest telecommunications market and has registered strong growth from year on year, in the past decade. As per the latest report, India continued to be one of the largest countries in terms of internet subscribers, which holds the worlds highest data usage per smartphone, with the availability of affordable smart phones and lower rates of data is expected to drive the growth.

Indian Mobile Industry is expected to create a higher economic value with increase in growth drivers such as Production Linked Incentive schemes for manufacturing of telecom and networking products, growing demand with increasing internet users, make in India policy for Phased Manufacturing Program (PMP) to promote domestic production of mobile handsets and the basic foundation where Optical fiber cables laid over gram panchayats.

Consumers continue to display appetite for mobile data with data-heavy applications in their daily lives and your Company expects this trend to continue. With 5G round the corner where India is expected to be the second largest market for 5G Services in next 5 years assures greater opportunities in this new world, where the future of Telecom industry in India is said to have several opportunities towards creating new revenue streams in the next decade by offering several benefits to consumers.

As mobile network operators spread the reach and look forward to introducing new and faster technologies with extensive deployment of optical fiber in the existing network as well as for residences in coming years to support new broadband services to meet the upcoming bandwidth requirements.

In these times, the strength and reliability of telecom networks are critically important in keeping

people connected while they are physically apart. Connectivity is a lifeline for our first responders and healthcare professionals, our educators, and our Governments, being at the epicenter of growth & innovation. Under the Digital India initiative, the Government is aiming to supply internet access throughout the country, connecting rural citizens to bridge the digital gap between cities and villages through fiber optics network, which plays an important and critical role in realizing the dream of Digital India program under which all the sectors such as healthcare, retail, etc will be connected through internet. Mobile devices continue to be embedded with structural interventions to leverage in the fabric of society today and are key in driving the momentum such as video streaming, Internet of Things (IoT), Artificial Intelligence (AI), Data Science, Generative AI and Mobile Payments. From analyzing speech and intent detection to smart resolution of incidents, AI tools drive these capabilities, where AI-based self-healing tools and services to improve service resilience.

To drive its long-term sustainability vision, service providers are looking at opportunities to incorporate sustainability at the core. Such efforts will only accelerate macro level progress towards achieving net-zero targets and contribute to the wider climate action efforts, where India has been at the forefront of mobilizing activity on the green transition agenda, and mitigating climate change. A holistic green growth model can catalyze new industries, create new jobs and drive trillions of dollars of economic value. Achieving this transformative agenda requires strong collaborations between the government and private sector.

Enterprise

With Post Pandemic changes, we did see last financial year has started with hopes of moderation. With Global economic condition remains uncertain, volatility & business reliance will co-exist in this sector as many others, which would result in delayed decision making.

For Enterprise, digital transformation remains the core strategic priority, cost takeout & optimization requirement are also in demand given the macro environment. Cybersecurity, cloud, AI and analytics continue to be the main focus with more integrated use cases & higher value realization. Hyper automation & virtual experiences are new themes, driving optimization & new business growth. Overall, the Enterprise IT Industry continues to be a net hirer, strengthening its position as Digital Talent Nation.

As the traditional office space connectivity being reduced with number of cabling ports per desk and in turn increased number of ports with Digital Ceiling concept of connecting every IP device across the building where wireless and Building IoT devices are adding more connections like never before, with more and more connectivity requirements everywhere in building, campus, venues and Homes.

Whereas in Data Centre portion, your Company has seen major changes as expected in the last decade where traditional Enterprise Data Centre moving to Multi-Tenant Data Centres or colocation DC which provides space and networking equipment to connect an organization to service providers at a minimal cost by offering high scalability, flexibility, modularity with stringent service level agreements which is need of the hour.

With Economic activities on upward with growth coming from many sectors across the industry, where Government Sector fared better with Infrastructure projects investment & the Office Network especially from IT Consultancy & software industry got affected more and whereas on the other hand Data Centre segment performed better. Your Company do see continues growth in Fiber Business over copper due to multifold increase in Bandwidth requirements, with denser wireless & deeper fiber deployments across infrastructure projects including Data Centre expansions where the Data Centre market has been having growth faster than expected & stood as a bright spot.

Added to this, your Company do see inflationary pressure accelerating with steep increase in prices across commodities and raw materials like copper, stainless steel, plastics and many more items; towards which your company has been adjusting prices consistently across certain products and/or product lines.

With massive investments committed both

by Government & Private Players towards infrastructure growth would improve the overall business sentiment and investments in next few Quarters. Market is expected to improve driven by investments in Infrastructure projects, Data Centers, Pharma, Healthcare, Education, Banking & Finance, Defense sector, E-commerce, Manufacturing, Digital India initiatives where your Company will be able to favorably participate in the areas of its strength within each opportunity in the market.

REVIEW OF OPERATING PERFORMANCE

The financial statements have been prepared in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) specified under section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards), Rules, 2015, as amended. The management of the Company accepts responsibility for the integrity and objectivity of these financial statements and the basis for the various estimates and judgments used in preparing the financial statements. Some of the key performance indicators are given below:

(Amount in INR Lakhs)

Particulars

Year ended March 31, 2024 Year ended March 31, 2023

Revenue from operations

17,874.04 14,291.25

Operating Costs

15,268.82 13,266.62

Profit before Interest, Depreciation and Tax (EBIDT)

2,605.22 1,024.63

Depreciation

21.30 20.99

Profit before Interest and Tax (EBIT)

2,583.92 1,003.64

Other Income (net of finance cost)

190.74 101.27

Profit before Tax (PBT)

2,774.66 1,104.91

Tax Expense

706.13 287.42

Profit for the year

2,068.53 817.49

Other Comprehensive Income

3.20 0.34

Total Comprehensive Income for the year

2,071.73 817.83

Total Assets

10,370.57 7,846.05

Earnings per share (Basic EPS in Rupees)

44.97 17.77

Your Company had another year of strong operational and financial performance. The overall revenue grew by 25% over that of the previous year. During the year, the Telecommunication business grew by 647% and IT-Networking (Enterprise network) business grew by 9.6% over that of the previous year. For the full year, the Companys profit before tax stood at INR 2,774.66 lakhs compared to INR 1,104.91 lakhs for the previous year. Profit after tax for the financial year was INR 2,068.53 lakhs as compared to INR 817.49 lakhs for the previous year. The growth in revenue in the Telecommunication business is on account of exports and growth in revenue in IT-Networking business is on account of volume and product mix.

KEY FINANCIAL RATIOS & RETURN ON NET WORTH

As per the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the key financial ratios are given below

Ratios

Year ended March 31, 2024 Year ended March 31, 2023 Variance

(%)

Debtors Turnover Ratio

7.46 7.15 4%

Inventory Turnover Ratio

5.99 6.56 9%

Current Ratio

2.98 2.68 11%

Operating Profit Margin

0.15 0.08 99%

Net Profit Margin

0.12 0.06 102%

Return on Net Worth

0.39 0.21 83%

Explanation for significant change (i.e. 25% or more over previous year) in Key Financial Ratios

Operating Profit Margin / Net Profit Margin / Return on Networth

Increase in Profit in current year on account of higher margins from manufacturing operations commenced in the current year. Additional profit on account of claim of duty drawback and RODTEP due to significant increase in export turnover.

OPPORTUNITIES

Telecommunication

For any nation, a robust telecommunications infrastructure with higher speeds is a need of the hour for a countrys economic progress. Hence, establishing a strong wireless technology ecosystem will become the basic need and enabler to governments vision of Digital India. Transforming India into a knowledge economy requires new infrastructure development to enable pan-India connectivity connecting rural citizens to bridge the digital gap between cities and villages

through fiber optics network, which plays a critical role in realizing the dream of Digital India.

Indian Mobile Industry is expected to create a higher economic value with increase in growth drivers such as Production Linked Incentive schemes for manufacturing of telecom and networking products, growing demand with increasing internet users, make in India policy for Phased Manufacturing Program (PMP) to promote domestic production of mobile handsets and the basic foundation where Optical fiber cables laid over gram panchayats.

Rise in mobile-phone penetration is expected to create opportunities for new businesses; especially where Internet of everything, Artificial Intelligence (AI), Data Science, Generative AI will play a vital role. With Consumers continue to display appetite for mobile data with data-heavy applications in their daily lives and your Company expect this trend to continue. With 5G India is expected to be the second largest market for 5G Services in next 5 years assures greater opportunities in this new world where the future of Telecom industry in India is said to have several opportunities towards creating new revenue streams in the next decade by offering several benefits to consumers. Carriers will continue to focus on providing data and voice services that are high quality, reliable, and affordable to drive the industry pace and growth, which will create more and more localized /Edge based Content delivery networks to support faster response, reduce on latency, quick access to data due with localized cache.

Enterprise

Growth in Data Centre business & broadband connectivity requirements with massive investments committed both by Government & Private Players towards Infrastructure growth would improve the overall business sentiment and investments in the coming Years. Market is expected to improve driven by investments in Infrastructure projects, Pharma, Healthcare, Education, Banking & Finance, Defense sector, E-commerce, Manufacturing and Digital India initiatives where your Company will be able to favorably participate in the areas of its strength within each opportunity as the market activities picks up.

With Cloud Computing Aiding Businesses (Large and SMBs) either creating on private cloud infrastructure by way of consolidation and migration of existing computer storage, and networks. In addition, businesses are parallelly looking to subscribe for public or private hosting services. With this, the Multi-Tenant Data Centre or Colo players in India are offering enterprises choice of better and on demand infrastructure, reliability in terms of power and availability of network and faster time to market. The Data Centre market has been having growth faster than expected & stood as a bright spot.

RISKS AND CONCERNS

Prominent risks in business are associated with impact of global economic scenarios with supply chain disruptions, rising interest rates accompanied with increase in costs of commodities & volatility is a real confrontation with complexity & challenges in front of your Company.

Although the Company has been primarily serving most of its customers through two-tier Distribution network to reach wider base and monitor business risks with appropriate risk management framework and conservative financial profile backed by prudent business practices. The Company is well positioned to manage the risks given its track record

The markets your Company serve continue to undergo disruptions where the Company must adapt to new market realities thoughtfully, to ensure our continued growth and success; such as post-pandemic economy which presented us with new circumstances that demand adaptability and resilience as we respond to stay ahead of the market condition as we could see an impact on the Enterprise Network copper business with an increase in work from home adoption growing with office space expansion requirements coming down / going slow in the short term, despite growth in other sectors, which kept us well balanced as an Organization.

With these new normal and challenges, your company is constantly determining what the mid to long term implications of each of the challenges are and how your company should respond strategically. Regardless of all the challenges, your company works on to be better every single day than yesterday by realigning cost structure and sharpening overall productivity by being a more valuable partner to our clients than ever before. Your company Board and Risk Management Committee has always looked at worst case scenarios of times like these & built a portion of the strong financials by making right decisions which are sustainable and consistent over years.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

Ethics / Governance Policies

The Company strives to conduct business and strengthen relationships in a manner that is dignified, distinctive and responsible. The Company adheres to ethical standards to ensure integrity, transparency, independence and accountability in dealing with all stakeholders. Therefore, the Company has adopted various policies to carry out its duties in an ethical manner.

Management initiatives for Internal Controls

The Company has adequate internal control systems including internal financial controls with reference to financial statements, commensurate with its nature of

business which meets the following objectives:

• providing assurance regarding the effectiveness and efficiency of operations.

• efficient use and safeguarding of resources.

• compliance with policies, procedures and applicable laws and regulations; and

• transactions being accurately recorded and promptly reported.

Periodical internal audits by M/s Gnanoba & Bhat, Chartered Accountants are being conducted for all functions and activities to ensure that systems and processes are followed across all areas. The Audit Committee of the Board of Directors of the Company regularly reviews the adequacy of internal control systems through such audits. The Company also has a budgetary control system to monitor expenditure against approved budgets on an ongoing basis. These provide the foundations that enable optimal use and protection of assets, facilitate the accurate and timely compilation of financial statements and management reports.

With high importance of Data Security in todays digital economy as businesses advance to grow, your Company moved the Data storage to Cloud Based with redundant link established from both primary & secondary Data Centre of the service provider to avoid any risk. With this the IT infrastructure was also strengthened against ransomware and loss of data.

MANUFACTURING OPERATIONS

The Company continued to look at ways of cost reduction and be cost competitive in this highly volatile & dynamic market, which has yielded better results as expected and would continue the same in the years to follow with focused approach, which will help the Company to favorably participate in the market activities.

The company is committed to provide a work environment which ensures that every employee is treated with dignity, respect and afforded equal treatment. Keeping in mind the welfare of the employees safety first at work, various Safety measures including an Emergency Response Plan have been implemented in the factory.

During the year, major focus has been on development of new design of Fiber Cable, armored Fiber Cords, Wire Mesh Basket System for Data Centre requirements and successful transfer of copper lines for Telecommunication - Voice Modules, from Czech Republic, which has added a great value to our Export business.

HUMAN RESOURCES

As on March 31, 2024, the company had 22 permanent employees on the rolls of the company.

As part of Learning and Development, training with respect to Ethics & Compliance, High Density Module testing, ISO internal audit, E waste & Hazardous waste management, Prevention of Electric Short Circuit, Safe operation of Material handling equipment and Fire Fighting were conducted during the financial year. The Employee Engagement Committee comprising representatives from the Workmen and the Management conducted several employee related programmes during the year. The Company continued to adopt various health related processes and Policies to ensure welfare of the employees of the Company. The industrial relation throughout the year was harmonious and cordial.

Cautionary Statement:

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may constitute “forward looking statements” within the meaning of applicable laws and regulations and which the management believes are true to the best of its knowledge at the time of preparation. Actual results might differ materially from those either expressed or implied and hence the Company and the management shall not be held liable for any loss which may arise because of any action taken based on the information contained herein.

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