Apex Buildsys Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENT

PEB INDUSTRY

India has the second fastest growing economy in the world and a lot of it, is attributed to its construction industry which figures just next to agriculture in its economic contribution to the nation. In its steadfast development, the construction industry has discovered, invented and developed a number of technologies, systems and products; one of them being the concept of Pre-engineered Buildings (PEBs). As opposed to being on-site fabricated, PEBs are delivered as a complete finished product to the site from a single supplier with a basic structural steel framework with attached factory finished cladding and roofing components. The structure is erected on the site by bolting the various building components together as per specifications. PEBs are developed using potential design software. The onset of technological advancement enabling 3d modelling and detailing of the proposed structure and coordination has revolutionised conventional building construction.

PEBs have hit the construction market in a major way owing to the many benefits they possess. They exemplify the rising global construction, technology and while they oppose the practice of conventional building construction they simultaneously have taken it to a higher level too. Worldwide, they are a much used concept with studies revealing that 60% of the nonresidential low-rise building in USA are pre-engineered; for India the concept has been gaining momentum and the scope of growth is guaranteed looking at Indias huge infrastructural requirements. Studies already validate that India has the fastest growing market in the PEB construction segment. The scope of using PEBs ranges from showrooms, low height commercial complexes, industrial building and workshops, stadiums, schools, bridges, fuel stations to aircraft hangers, exhibition centres, railway stations and metro applications. While we are still to see PEBs being used in residences in India, one can see their optimal use in warehouses, industrial sheds, sports facilities etc. The Delhi Airport and the metro projects of Delhi, Bengaluru and Mumbai are also examples of PEB applications.

OPPURTUNITIES IN PEB SECTOR

In India, PEB industry is still in the growth phase. It is a highly fragmented industry as many players are competing for the same share of pie in different parts of the country. The barriers to entry for pre-fabrication which is major aspect of preengineered buildings are minimal. Profits margins have eroded as a result. However, companies can create switching costs and competitive advantages for themselves by focusing on engineering and supply chain aspects.

ENTERTAINMENT INDUSTRY

India has the largest democracy in the world. A huge and fast growing middle class. It makes more movies than any other country, 1,500 to 2,000 annually. And its people are famously fanatical about those movies and their movie stars. By almost any measure, India should be the worlds highest grossing territory in theatrical revenue.

The Entertainment industry is a sunrise sector for the economy and is making high growth strides. Proving its resilience to the world, the Entertainment industry is on the cusp of a strong phase of growth, backed by rising consumer demand and improving advertising revenues.

The industry has been largely driven by increasing digitization and higher internet usage over the last decade. Internet has almost become a mainstream media for entertainment for most of the people.

OPPURTUNITIES IN ENTERTAINMENT SECTOR

The Indian media & entertainment sector is expected to grow at a Compound Annual Growth Rate (CAGR) of 13.9 per cent year-on-year to reach Rs 196,400 crore (US$ 29.11 billion)by 2019.

Indias Digital Advertising market has grown at a fast pace of 33 per cent annually between 2010 and 2015, while the spend as a percentageof total advertising increased to 13 per cent or nearly US$ 1 billion in 2015.

In 2015, the overall Media and Entertainment industry grew 11.7 per cent over 2014@. The largest segment, Indias television industry, is expected to maintain its strong growth momentum led by subscription revenues, representing a year-on-year growth of about 13.2 per cent to reach Rs 60,000 crore (US$ 8.89 billion) in 2015.

Significantly, with the increased penetration of smartphones and expansion of 3G/4G network in India, the country is likely to see around nine billion mobile application (apps) downloads during 2015, which is five times more than 1.56 billion in 2012.

This uptick in app-downloads is also expected to increase the revenue from paid apps to an estimated over US$ 241.16 million as against US$ 144.7 million in 2014.

Industry estimates reveal that video games industry grew at a record 22.4 per cent in 2014 over 2013, wherein its net worth rose to US$ 392 million. The Indian animation industry was valued at US$ 748 million in 2014 and is forecasted to grow at 1520 per cent per annum.

The Foreign Direct Investment (FDI) inflows in the Information and Broadcasting (I&B) sector (including Print Media) in the period April 2000 - March 2016 stood at US$ 4.98 billion, as per data released by Department of Industrial Policy and Promotion (DIPP).

GOVERNMENT INITIATIVE

The Government of India has supported Media and Entertainment industrys growth by taking various initiatives such as digitising the cable distribution sector to attract greater institutional funding, increasing FDI limit from 74 per cent to 100 per cent in cable and DTH satellite platforms, and granting industry status to the film industry for easy access to institutional finance.

The Union Cabinet has approved the model Shops and Establishment Act, aimed at generating employment prospects by allowing cinema halls, restaurants, shops, banks and other such workplaces to remain open round the clock.

The Ministry of Information and Broadcasting (I&B) is working towards promoting ease of doing business, which will ensure less regulation and facilitate India to become the hub of media and entertainment industry.

The Government is planning to set up aNational CentreofExcellencefor media, which will provide training to the industry professionals, and has also decided to fundmovies, including Bollywood and regional filmsfor participating in foreign film festivals.

The Union Budget 2016-17 has proposed basic custom duty exemption on newsprint. The customs duty on wood in chips or particles for manufacture of paper, paperboard and newsprint has been reduced to 0 percent from 5 per cent.

Recently, the Indian and Canadian governments have signed an audio-visual co-production deal that would help producers from both countries to explore their technical, creative, artistic, financial and marketing resources for co-productions and, subsequently, lead to exchange of culture and art amongst them.

The Union Cabinet chaired by the Prime Minister, Mr.NarendraModi, has given its approval for entering into an Audio-Visual Co-Production Agreement between India and the Republic of Korea (ROK) and to complete internal ratification procedure, to enable the agreement to come into force. Cooperation between the film industries of the two countries will not only promote export of Indian films but would also act as a catalyst towards creating awareness about India and its culture.

FUTURE OUTLOOK

PEB industry has bright future in the coming years as there would be huge demand for PEBs in various segments such as industrial, logistics, defense, metro rail projects, retail stores etc. Pre-Engineered buildings are economical, faster in construction, aesthetically appealing, less foundation cost, re-locatable etc. PEBs are not confined to industrial buildings and warehouses but have gained diverse applications such as power generation buildings, aviation hangers, boiler support structures, bridges, cold storage facilities, multi-storied commercial complexes, stadiums etc.

PEB concept has been very successful and well established in North America, Australia and is currently expanding to U.K and other European countries. PEB construction is 30 to 40% faster than masonry construction. PEB buildings provide good insulation effect and would be highly suitable for a tropical country like India. It is ideal for construction in remote & hilly areas. These systems have not gained popularity despite their manifold advantages over conventional system as people have not yet adapted to the new system and prefer sticking to conventional RCC structures. Now the demand is of 2 million tones whereas supply is of only 0.4 million tones, which is not good enough to meet the demand.

Looking into the time frame of tight project schedule, PEB structures can be used for tenders to deliver quality, esthetic, structural flexibility & ultimately promote usages of steel over concrete. The other advantage of the PEB structure is that steel can reduce carbon dioxide emission which will minimize pollution. At Apex, we are catering to the requirement of clients in Power sector, heavy structural steel for boiler support structure also and for infrastructure projects. PEB industry is in fragmented condition - so the company will take well crafted long- term strategies in order to attempt a consolidation of the same.

The Indian Media and Entertainment industry is on an impressive growth path. The revenue from advertising is expected to grow at a CAGR of 13 per cent and will exceed 81,600 crore (US$ 12.09 billion) in 2019 from 41,400 crore (US$ 6.14 billion) in 2014. Internet access has surpassed the print segment as the second-largest segment contributing to the overall pie of M&E industry revenues.

Television and print are expected to remain the largest contributors to the advertising pie in 2018 as well. Internet advertising will emerge as the third-largest segment, with a share of about 16 per cent in the total M&E advertising pie. The film segment which contributed Rs 12,640 crore (US$ 1.87 billion) in 2014 is projected to grow steadily at a CAGR of 10 per cent on the back of higher domestic and overseas box-office collections as well as cable and satellite rights.

Digital advertising is expected to lead the CAGR with 30.2 per cent, followed by radio with 18.1 per cent. Animation and VFX, and television are expected to register a CAGR of 16.3 per cent and 15.5 per cent respectively, followed by growth rates of gaming (14.3 per cent), music (14.0 per cent), films (10 per cent) and OOH with 9.8 per cent expected CAGR. Within TV, subscription revenues are expected to be three times more than advertising revenues, by 2018. Growth in the regional reach of print and radio shall provide opportunities to further improve the advertisement revenue.

Media and Entertainment can be further categorized into television and digitalization, radio, newspaper, and internet and mobile entertainment.

OPERATIONAL PERFORMANCE

For the financial year ended on 31st March, 2016, the total operational income (Gross) of the Company stood at 9,081.68 lacs and an income for the financial year ended on 31st March, 2015 were 18,554.38 lacs.

SEGMENT - WISE PERFORMANCE

Based on the guiding principles giving in the accounting standard (AS-17) on segment reporting issued by the Institute of Chartered Accountants of India, the primary segment of the company are Metal Products & Allied Services, Real Estate business, Entertainment Business & others for the period ended 31st March, 2016:

REVENUE FROM OPERATIONS

( in Lacs)
31st March, 2016 31st March, 2015
Revenue from Metal Products 6,014.72 8,673.20
Revenue from Allied Services 2,670.39 8,708.60
Revenue from Entertainment Business 396.57 1,172.58
Revenue from operations (gross) 9081.68 18,554.38
Less: Excise Duty 318.29 218.64
Revenue from operations (net) 8763.39 18,335.74

THREATS / CONCERNS / RISKS IN ENTERTAINMENT SECTOR

The entertainment industry in general, and the motion picture industry in particular, are continuing to undergo significant changes, primarily due to technological developments. Although these developments have resulted in the availability of alternative and competing forms of leisure time entertainment, such technological developments have also resulted in the creation of additional revenue sources through licensing of rights to such new media, and potentially could lead to future reductions in the costs of producing and distributing motion pictures. In addition, the theatrical success of a motion picture remains a crucial factor in generating revenues in other media such as videocassettes and television. Due to the rapid growth of technology, shifting consumer tastes, and the popularity and availability of other forms of entertainment, it is impossible to predict the overall effect these factors will have on the potential revenue from and profitability of feature-length motion pictures.

THREATS / CONCERNS / RISKS IN PEB SECTOR

India is a fast turning out to be a fertile ground for PEBs as the country is witnessing a boom in the construction sector. But there are still quite a few issue pertaining to the sector which are holding it back from exploiting its full potential. The lack of availability of international quality fittings, institutions material, wall claddings etc. is hampering growth because it makes the designers hesitant about opting for PEB structures.

ADEQUACY OF INTERNAL CONTROL SYSTEM AND RISK MANAGEMENT

Apex Buildsys Limited is a system driven organization dedicated to its customers in a seamless and transparent manner. The Company has an adequate system of internal controls commensurate with its size and nature of operations to provide reasonable assurance that all assets are safeguarded, transactions are authorized, recorded and reported properly and applicable statues, codes of conducts and corporate policies are duly complied with.

HUMAN RESOURCES

The Companys most valuable asset and strength, is the human resource built up over the period of time. The Company is continuously facilitating their assessment procedure to progress rapidly as an organization. The Companys employee relations have always been harmonious during the period under review. The employee relations were cordial throughout the year. At present there are 160 employees on the rolls of the Company.

There have been no labour/worker strikes, during the financial year under review.

CAUTIONARY STATEMENT

Statements in the Management Discussions and Analysis describing the Companys objectives, projections, estimates, expectations are" forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations includes economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Rules regulations.