Bhatia Communications & Retail (India) Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS:

Bhatia Communications and Retail (India) Limited

This section shall include discussion on the following matters within the limits set by the listed entitys competitive position:

(a) Industry structure and developments.

(b) Opportunities and Threats.

(c) Segment wise or product-wise performance.

(d) Outlook

(e) Risks and Concerns.

(f) Internal control systems and their adequacy.

(g) Discussion on financial performance with respect to operational performance.

(h) Material developments in Human Resources / Industrial Relations front, including number of people employed.

(i) details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor, including:

(i) Debtors Turnover

(ii) Inventory Turnover

(iii) Interest Coverage Ratio

(iv) Current Ratio

(v) Debt Equity Ratio

(vi) Operating Profit Margin (%)

(vii) Net Profit Margin (%) or sector-specific equivalent ratios, as applicable.

(j) details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof.

This Report contains forward-looking statements that involve risks and uncertainties. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Actual results, performances or achievements could differ materially from those expressed or implied in such forward-looking statements. This report should be read in conjunction with the included financial statements and the notes.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Global Economic Scenario

Rising tariffs and months of shifting between the escalation and de-escalation of global trade tensions have fueled policy uncertainty, significantly curtailed investment, and pushed global growth rate down to 2.4 per cent in 2019 its lowest level in a decade. However, the countries which are not integrated with global trading networks have remained relatively unaffected by trade disputes.

Nonetheless, the outbreak of COVID-19 may contract the Global Economy by further 4.9%, according to IMF (June 2020 Report), only to push it in the next Year and expand by about 4.5%.

Indian Economic Scenario

The Indian economy grew by 4.2% in FY 2019-20 still remaining one of the fastest growing major economies in the world. Industrial activity remained healthy in the beginning of the year, but saw some weakness later. However, Consumer Durables like Mobile Phones, Tablets and other Electronic Appliances, have witnessed robust growth in the past, and are expected to bounce back in the 2nd half of FY2021. The Company strongly believes that Electronic Appliances are becoming a necessity than a luxury, thereby reducing the impact of Economic Cycle on the Total output.

Industry Outlook and Trends

Indian appliance and consumer electronics (ACE) market reached Rs 76,400 crore (US$ 10.93 billion) in 2019. Appliances and consumer electronics industry is expected to double to reach Rs 1.48 lakh crore (US$ 21.18 billion) by 2025.

Demand for electronics hardware in India is expected to reach US$ 400 billion by FY24. The National Policy (DNP) targets production of one billion mobile handsets by 2025.

There is a lot of scope for growth from the Tier-II and Tier-III regions with consumption expected to grow in these areas as penetration of brands increases. Demand for durables like refrigerators and consumer electronic goods are likely to witness an increased demand in the coming years, especially in the mentioned areas as the Government plans to invest significantly in electrification.

Growing awareness, easier access, and changing lifestyle have been the key growth drivers for the consumer market. The Government of Indias policies and regulatory frameworks, such as relaxation of license rules and approval of 51 per cent Foreign Direct Investment (FDI) in multi-brand and 100 per cent in single-brand retail, are some of the major growth drivers for the consumer market.

Smartphone Market

India is Worlds second largest smartphone market, after China. Demand for new smart phones in surging in India helped by cheap data plans and affordable smart handsets. For the Year 2019, India had a total of 502.2 million smartphone users, while China had 851.2 million. However, smartphone penetration in relative terms is still under-penetrated in India at 36.69% (Smartphone Users/ Total Population).

The penetration is expected to rise at a faster pace, and reach 859 million by 2022, according to a study conducted by PwC. With the work-from home culture becoming a norm, people are expected to spend more hours on their devices more than ever. Henceforth, COVID-19 may turn out to be a blessing in disguise for the Industry, and ramp up the penetration much earlier than expected.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

The Companys product diversification into other electronic Items over the last two years is helping it to grow its topline with better profitability margins.

The Company now has 11 multi-product outlets, with its conversion rate clocking at 96%. The product portfolio now includes electronic appliances such as Television, Refrigerator, Air Conditioners, Air Coolers, Washing Machines, and Microwaves, with its prime business still being retail and wholesale distribution of mobile handsets, tablets, data cards and mobile accessories.

The Companys total revenue stood at 1870 million, with 85.6% coming from Owned Retail Outlets, and 14.4% coming from Franchised Stores. The Companys recent expansion includes opening of Stores, in cities near Surat, with three recent stores opened in Dahod, Halol and Kaalol. This has helped the company to build a stronger presence across South Gujarat.

Segment/ Product Number of Stores
Total Stores 100
Owned Retail Outlets 83
Franchised Stores 17
Only Mobile Stores (included in Owned Retail Stores) 1
Multi Product Outlets (included in Owned Retail Stores) 11

 

**The Sales made from Franchised Outlets include Inter-Company Sales from Owned to Franchised Outlets as well. The Sale is initially recorded by Owned Retail Outlet, followed by Franchised Stores.

OUTLOOK

The company is engaged in the business of trading Mobile Phones & Accessories, Tablets, LED and Smart TVs and other Electronic equipments. The Company operates 100 Stores, owning 83 of them, while the rest 17 are Franchised. The company aims to increase its retail presence, by opening new stores strategically and improving the same stores Sales Growth. The Company has achieved a Conversion rate of 96% and Revenue per square feet of 19,200 for FY20.

IMPACT OF COVID-19 ON BUSINESSES

The business operations of the company was disturbed since the declaration of lockdown, i.e. 25th March, 2020. The corporate office and other branch outlets were shut down during the lockdown phase and were resumed in the unlocking phase. The company may face short-term liquidity crunch due to disturbed Operating Cycle but the company is confident to manage the working capital in FY2021.

There is however certain disruption to supply chain in respect of mobilizing the workforce, availability of materials, and dispatch of orders.

However, the company expects improvement in supply chain as further relaxations are being announced by the Government. The company foresees the demand for its products improving as the lockdowns are lifted. Moreover, the company has enough resources for expansion and meet all its obligations.

RISK AND CONCERNS

• Impact of pandemic on shipment of mobile phones to India. Due to global production cut and the pandemic hitting countries in various manner, the supply chain might get disrupted at the global level, impacting the entire supply distribution network.

• The company is involved in the retail trading of mobile phones, accessories, and other electronic items. Hence, the business is working capital intensive, so any incorrect understanding of the market trends can result in decreased Sales. Also, the company needs to remain updated with the latest technology trends in all the electronic appliances it caters to.

• Entry of established players in the Industry might increase competition and reduce margins.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has in place an adequate system of internal control commensurate with its size and nature of its business. These have been designed to provide reasonable assurance that all assets are safeguarded and protected against loss from unauthorized use or disposition and that all transactions are authorized, recorded and reported correctly and the business operations are conducted as per the described policies and procedures of the Company. The Audit Committee and the Management have reviewed the adequacy of the internal control systems and suitable steps are taken to improve the same.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

In FY2020, revenue from operations grew to 1870 million, a growth of 3.5% from FY2019. EBITDA came in at around 99 million, marking an YoY growth of 16.3%. PAT was 54 million, an YoY improvement of 7.6%. The company managed to grow its profitability significantly this year based on the seeds the company had sown in the past couple of years. The company with better inventory management, diversified product portfolio, improving conversion rate and new multi-product outlets, realised economies of scale i.e., the company was able to increase its Sales without much increase in input costs.

The company expects added contribution coming from the sale of Mobile Phones and Tablets in the first half of FY2021, as work from home is becoming a norm, and Electronic gadgets, are an essential for the same.

SWOT Analysis

a) Strength

• Diversified Product Portfolio: It includes wide range of products from Mobile Phones to Home Appliances.

• Trained Work force with 1000+ Advisors and 100+ Employees, with management having an experience of more than 20 years.

• Inventory Management System established by the Company.

b) Weakness

• Lack of Brand Awareness in adjoining cities.

• Resource Availability and Distribution Network compared to Big and Established Players.

• No online presence of the company as of now.

c) Opportunities

• Work from Home becoming a norm.

• Smartphones and Tablets becoming an essential rather than a luxury commodity.

• Under penetration of smart phone, smart TV, Air-Conditioner markets.

d) Threats

• Competition from local players and big established players may shrink margins.

• Mobile Phones are imported in the country, any disruption in production cycle might affect entire supply chain.

• Low Entry barriers for new entrants.

• Online platform bringing in competition.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES

The company firmly believes that its human resources are the main source of wealth generation for all stakeholders by being the key enablers for growth, therefore acting as an important asset. Hence, we believe in investing in our human resource, especially in our Expert Advisors, some of which get in direct touch with the customers, thus being the key reason for improving Customer experience.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

NET PROFIT MARGIN

The Companys Net Profit

Margin improved by 6 basis points compared to last year.

OPERATING PROFIT MARGIN

The Companys Operating

Profit Margin improved by ~50 basis points compared to last year.

LONG-TERM DEBT TO EQUITY

The Company is funded by

Shareholders Capital and its reliance on Borrowed Money is minimal.

CURRENT RATIO

The Company over the past three years has been able to maintain a healthy Current Ratio, because of Better Inventory Management System.

DEBTORS TURNOVER RATIO

The Company has been able to maintain above Industry average

Debtors Turnover Ratio, meaning its Sales are easily getting converted to Cash every year.

INVENTORY TURNOVER RATIO

The Company witnessed a fall in Inventory Turnover Ratio by 2.63 times in FY2020.

INTEREST COVERAGE RATIO

The Company witnessed a reduction of 9.5 times in Interest Coverage Ratio, still maintaining a healthy ratio of 5.9x. However, the debt cost burden for the company in absolute terms is insignificant.

The Company has been able to generate earnings on the strength of its shareholders Equity due to:

1) Improving Profitability

2) Sales Turnover

Since, the company is in growth phase, continuous addition in Assets is expected to generate Sales in the times to come.

Place: Surat For the Board of Director
Date:20.08.2020 Bhatia Communications & Retail (India) Limited
Sd/- Sd/-
Sanjeev Harbanslal Bhatia Nikhil Harbanslal Bhatia
Managing Director Whole Time Director
DIN: 02063671 DIN:02063706