ADC India Communications Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Telecommunication

India is currently the worlds second-largest telecommunications market and has registered strong growth in the past decade and half. As per the latest report, India is the second largest country in terms of internet subscribers, which holds the worlds highest data usage per smartphone, averaging 9.8 GB per month, which is expected to double to 18 GB by 2024, with the availability of affordable smart phones and lower rates of data expected to drive the growth.

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 round the corner where India is expected to be the second largest market for 5G Services in next 10 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. 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. Mobile devices continue to be embeded in the fabric of society today and are key in driving the momentum such as video streaming, Internet of Things (IoT), and mobile payments.

In these unprecedented 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.

Indias Telecom sector revival is likely to be-prolonged with the pressure on cash flows and competition remain intense as the larger operators are contesting to acquire subscribers of the exiting Telcos. However, on a longer term, recovery expected in the sector on the back of a consolidated structure, better pricing power and data usage.

Enterprise

Traditionally, 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, we do see change in landscape of 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 downturn due to Covid-19, we do see challenges in short term in Enterprise business, which would grapple with fewer orders as the market have shrunk. Your company would see an impact in the copper business as we continue to see work from home adoption growing with office expansion going slow or on hold.

However, 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.

With this "new normal", Enterprise sector revival, we do expect the market to take longer time to bounce back, even though we could see some surge in business immediately after the lockdown is lifted. However, on a mid & longer term, recovery expected in the sector, with Growth to come from Investments in Infrastructure projects, Defense sector, BFSI, Pharma, Healthcare, E-commerce, Manufacturing, Digital India and Smart city 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.

REVIEW OF OPERATING PERFORMANCE

The financial statements have been prepared in compliance with the requirement of the Companies Act, 2013 and Generally Accepted Accounting Principles (GAAP) in India. 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: (Rs. in Lakhs)

Particulars Year ended Year ended
31st March 2020 31st March 2019
Revenue from operations 7812.99 8562.21
Operating Costs 7327.58 7967.57
Profit before Depreciation and Tax (EBIDT) 485.41 594.64
Depreciation 97.33 32.58
Profit before Interest and Tax (EBIT) 388.08 562.06
Other Income (net of finance cost) 133.34 305.76
Profit before Tax (PBT) 521.42 867.82
T ax Expense 141.69 281.49
Profit for the year 379.73 586.33
Other Comprehensive Income (7.28) 3.24
Total Comprehensive Income for the year 372.45 589.57
Total Assets 5495.12 5679.79
Earnings per share (Basic EPS in Rupees) 8.26 12.75

With the announcement of countrywide Lockdown by Government from March 24, 2020 to contain the spread of Covid-19 the office & factory remained closed from March 24, 2020 until March 31, 2020.

Consequently, the revenue and profits of the fourth quarter of the financial year 2019-20 was impacted. In the financial year 2019-20 the overall revenue from operations declined by 8.75% over that of previous year. Revenue from the Telecommunication business declined by 34% and the revenue from IT-Networking (Enterprise network) business declined by 5% over that of previous year. Profit before tax for the year declined by 40% over that of previous year.

OPPORTUNITIES Telecommunication

Industry firmly believes that a robust telecommunications infrastructure with higher speeds is need of the hour for 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. 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.

Mobility is already seeing upswing with large scale 4G LTE adoption and with 5G round the corner assures greater opportunities. This 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

Investments in Banking & Finance sector, Manufacturing, Infrastructure projects, Defense sector, healthcare & Pharma projects is expected to drive growth. With Mobility and IoT driving more and more connectivity requirements everywhere within the building, Campus, Venues and Homes future business potential looks positive. Cloud Computing is another key trend, that is aiding Businesses (Large and SMBs) either creating on private cloud infrastructure by way of consolidation and migration of existing compute, storage and networks. In addition, businesses are parallel 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.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

Ratios Year ended 31st March 2020 Year ended 31st March 2019 Change Percentage Change (%)
Debtors Turnover (Days) 5.57 6.29 (0.72) (11.51)
Inventory Turnover (Days) 9.59 10.04 (0.45) (4.53)
Current Ratio (Times) 3.22 2.75 0.47 17.18
Debt Equity Ratio 0.37 0.47 (0.10) (21.32)
Operating Profit Margin (%) 4.97 6.56 (1.60) (24.33)
Net Profit Margin (%) 4.86 6.85 (1.99) (29.03)
Return on Net worth (%) 9.44 13.90 (4.46) (32.07)

The Operating Profit Margin, Net Profit Margin and Return on Net Worth for the financial year 2019-20 varies around or more than 25% as compared to previous financial year 2018-19 due to reduction in profits mainly on account of decreased turnover and reduction in interest and rental income.

RISKS AND CONCERNS

With Economic activities on downturn, we do see challenge in short term in both Enterprise and Telecom market growth, which would continue to grapple with fewer orders as the markets have shrunk due to Covid-19 which in-turn put pressure on margins in the market place for every Opportunity. With this new normal, we do expect the market to take longer time to bounce back, even though we could see some surge in business immediately after the lockdown is lifted.

During these unprecedented times, your company will continue its focus on sustaining revenues and profitability by realigning cost structure by looking at ways of cost reduction to be competitive in the market place.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has adequate internal control systems for various business processes, financial reporting and compliance with applicable laws and regulations. The Internal Auditors M/s Gnanoba & Bhat,

Chartered Accountants review the effectiveness of various processes and other operational activities. The summary of the Internal Audit observations is presented to the Audit Committee and the suggestions and guidance of the audit committee are implemented to ensure effective operation of all departments in the company.

MANUFACTURING OPERATIONS

Apart from trading goods and outsourcing a major portion of manufacturing operations, the Company continued to look at ways of cost reduction and be cost competitive in the market; which has yielded better results as expected and expect to continue the same in the years to follow, which will help the Company to favorably participate as the market activities picks up.

HUMAN RESOURCES

As on March 31, 2020 the company had 23 permanent employees on the rolls of the company.

During the financial year trainings were held for the employees of the Company on Time Management, Know Your Strength, First Aid and Emergency Mock Drill, 5S+1, Basics of Fiber, QMS, Teamwork, Interpersonal Relations and Operational Excellence. 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 as a result of any action taken based on the information contained herein.