Avantel Ltd Management Discussions.

[Pursuant to Regulation 34 (2) (e) of Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015]

(A) Industry and Business Overview:

Review of Operations:

Your company has recorded turnover of Rs. 51.92 Crores in the financial year FY 2019-20. Your company has received order for supply of Products for Wind Profiler Radar Systems from SDSC, SHAR-ISRO, Supply of Mobiles satellite service terminals to MO Kochi, Indian Navy and Supply of Airborne satellite systems for fitment on Helicopters of Indian Navy. Avantel has also successfully flight tested the MSS Airborne version on Helicopters and this is likely to pave way for fitment of this system in various aircraft of Indian Navy including new inductions.

The company has recorded a Profit (before tax) of Rs.13.01 Crores as against Rs. 12.50 Crores in the previous year with an increase in profit by 4% compared to last fiscal.

Outlook for the next year

The Union Budget presented by the Honble Finance Minister had no specific announcements with regard to the defence sector. The total allocation for defence has been increased from INR 4,31,011 crore [Budget Estimate (BE) FY 19-20)]to INR 4,71,378 crore (BE FY 20-21) an increase of 9.37%. An increase of 5.03% is discernable when compared to Revised Estimate (RE) FY 19-20 which stood at INR 4,48,820.

The Capital Outlay (INR 1,13,734 crore) has witnessed an increase of 3.0% when compared with the RE FY 19-20 which stood at INR 1,17,810 crore. However, the Capital Outlay has been increased by 10.0% when compared to the BE FY 19-20 figure of INR 1,03,394 crore.The allocation for Revenue expenditure (INR 2,09,319 crore) has been increased by 1.7% as opposed to RE FY 19-20 figure of INR 2,05,902 crore. The Revenue expenditure has only witnessed an increase of 3.7% when compared with the BE FY 19-20 figure of INR 2,01,902 crore (Source:https://assets.kpmg/content/dam/kpmg/in/pdf/2020/02/Unionbudget-2020-POV-Defence.pdf).

Your companys business mainly emanates from the strategic sector and as such the capital/revenue allocations in the defence business segment have direct bearing on Avantels business operations. Post Budget announcements, Avantel is expected to maintain a healthy order book from strategic sector and replicate similar growth trajectory as observed over previous years.

Risks And Concerns: Risks:

The primary risk facing the company in the coming year would be due to effects of COVID 19 Pandemic.

The outbreak of the Pandemic during March 2020 has resulted in unprecedented crisis across the world and the world economy is expected to take a big hit. Large-scale quarantines, travel restrictions, and social-distancing measures is driving a sharp fall in consumer and business spending producing a recession situation across various world economies. The global economic impact is severe, approaching the global financial crisis of 2008-09. GDP contracts significantly in most major economies in 2020, and recovery begins only in Q2 2021. (Source: https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business).

India will be also no exception and the country wide lockdown for 40 days beginning 24th March to 3rd May 2020 at National level will severely impact Indian Businesses with reduced demand or loss of business. Avantel is no exception and its business operations are also expected to see delayed order placements, long manufacturing cycles due to raw material delays, deferment of planned procurements by existing customers.

Apart from the COVID affects, the uncertainties in procurement cycles of the Aerospace &Defence sector also have impact on revenue flows.

Risk Mitigtion:

Being in the defense domain, Avantel has a healthy order book for the coming years and your company shall make all out efforts to minimize the impact of the pandemic by proactively reorienting itself with suitable interventions. The top management is seized of the emerging situation and has instituted appropriate measures in this direction.

To mitigate the uncertainties of the Aerospace &Defence domain, the company has launched new product lines viz. HF Systems and Radar Sub Systems. These products have very good business potential and are likely to fetch good business from various customers on the coming years. Apart from new product launches, the company is constantly assessing various opportunities for diversification in tune with Avantels core competencies and is likely to expand its operations in this direction as well.

(B) Opportunities And Threats: Opportunities:

The companys new product lines in HF domain and Radar sub systems have great business potential in the Strategic, Civil Aviation and Para Military segments and shall open newer opportunities in terms of new customers, high value contracts and expansion into new Business verticals. Further new products developed for enabling satellite communication on Aircraft is also likely to open new opportunities for growth. A new DPP 2020 draft has been released by MoD India for all stake holder comments. Unveiling the new DPP, Defence Minister Rajnath Singh said, The DPP-2020 is aligned with the vision of the government to empower the private industry through the Make in India initiative, with the ultimate aim of turning India into a global manufacturing hub. The draft Defence Procurement Procedure 2020 (DPP 2020) proposes higher levels of local content, new multipliers in defence offsets, a procurement category for leasing, and new options for equipment sustainment activity. Your company operating in the Defence sector is likely to benefit from the slew of measures proposed by the new DPP.

Threats:

The company is presently limited to operations in the strategic sector which has flattened its growth curve. Though sustenance of the current levels of Business operations is not an issue, for posting a healthy growth year on year, there is a requirement to look for newer opportunities. Your company has initiated various proactive steps i.e. planning newer offerings in the existing portfolio and diversification of its product offerings.

(C) Internal Control Systems:

Your company has well defined internal control systems. The company has the following certifications:

(i) Quality Management System as per AS 9100 :2016 (Rev D) and ISO 9001:2015

(ii) Information Security Management Systems as per ISO 27001:2013

(iii) Testing facilities certified by NABL as per ISO /IEC 17025:2017

The company has a robust Internal & external audit mechanisms which are regularly monitored through the ERP system Funwork. Regular Management reviews are undertaken to take corrective actions where necessary. You will be happy to note that all the external agencies including the customers like Boeing have favorably commented on the processes followed by the company. There is nil non compliance during the year and all the OFIs recommended by these agencies have been implemented successfully.

(D) Industrial Relations And Human Resources Management:

Your Companys industrial relations continued to be harmonious during the year under review. Your company maintains very cordial relations with its customers and suppliers. All out efforts are made to quickly resolve all outstanding issues beforehand so that they do not escalate into major disagreements. Your company has earned a good standing over the years and there are zero contentious issues pending as on date. The organization maintains harmonious relations at all levels within the company and employees are well motivated round the year to meet the goals set for them.

(E) Development of new products:

Your Company has developed the following new systems during the current FY:

(i) Satellite Communication Products for ships, Submarine, Aircraft and helicopters

(ii) Radar Sub Systems for wind profile radar

(iii) Broad band High Power amplifiers

(F) Cautionary Statement:

Statements in the management discussion analysis describing the Companys objectives, projections, estimates, expectations are forward looking within the meaning of applicable security-laws and regulations. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. Actual results may differ materially from these expressed in the statement. Important factors that could make difference to Companys operations include economic conditions, changes in the Government priorities/policies/ regulations, tax laws and other statutes and other incidental factors affecting the business environment. The Company assumes no responsibility to publicly amend, modify or revise forward-looking statements on the basis of any subsequent developments, information or events.

For and on behalf of the Board of Directors
Avantel Limited
Sd/-
Place: Hyderabad Abburi Vidyasagar
Date: 9th May, 2020 Chairman & Managing Director
DIN: 00026524