Calcom Vision Management Discussions


Global Economic Overview

After witnessing significant contraction owing to the COVID-19 pandemic in 2020, the global economy recovered to a certain extent in 2021. However, the momentum was suddenly halted in Q1 by a deadlier variant of the virus, the impact of which again led to uncertainty and an economic slowdown. The subsequent recovery was supported by vaccination drives conducted by governments worldwide, despite repeated attacks of virus mutants in several countries of the world.

Towards the end of Q4 FY 2021-22, geopolitical tensions arising from a prolonged Russia-Ukraine conflict further increased downside risks to global growth by disrupting supply chains.

Prices of crude, crude derivatives and other commodity prices have since surged significantly, thereby worsening the already high inflation dynamics of both advanced as well as emerging/developing economies.

Inflation has touched multi-decadal highs in the US and many other advanced countries, accelerating policy tightening measures by Central Banks. Economies are now focusing on stabilising the inflation trajectory, without hurting growth prospects.3

Indian economy

Against the backdrop of pandemic-induced headwinds and geopolitical conflicts in Europe, India remained relatively resilient.

The economic recovery was supported by fiscal and monetary measures of the Government of India and the Reserve Bank (RBI), respectively. The economy grew by 8.7% in FY 2021-22.

However, imports growth too remained strong at 55% during the year. The countrys formidable consumption engine came back to life as the economy gradually gained momentum and mobility restrictions were lifted. However, two factors have slowed the overall economy in the latter half of FY 2021-22: firstly, inflationary pressures have affected demand and sentiment;

Secondly, the rural economy and consumption trends have been slow compared to FY 2020-21 when the rural economy was relatively strong and less impacted vs. the urban economy.

The governments renewed focus on creating new infrastructure and upgrading legacy assets will also act as a positive tailwind for the economy, going forward. With over 35% y-o-y increase in capital expenditure and a proposed infrastructure spend of over 10 lakhs crore in the Union Budget 2022-23, the government has reinforced its commitment to using infrastructure as a force multiplier for sustained economic growth.4

Indian Lighting Industry

The post pandemic world continued to see challenges. Long lasting supply chain disruptions and volatility in raw material prices coupled with geo-political uncertainties led to a revision in the growth figures of the Lighting Industry. From 18%, it was brought down to 11% YOY for India.

The growth of the lighting industry globally was also reduced owing to the impediments in the chip manufacturing industry, logistical delays, freight concerns and the looming manufacturing roadblocks in China.

These roadblocks have allowed India to offer an alternative to China. The world is now looking at India as the next Global Manufacturing Hub.

Lighting manufacturers who had set up their units in China are now moving their operations to India. And customers from Europe and America are reducing their dependency on China, as they start to look towards India to fulfill their demand.

As per ELCOMA - By the year 2024, India plans to export upto 40% of its total annual production.

To achieve the above and make India a leading Global Manufacturer, the following will be imperative.5

• To Collaborate with component manufacturers globally for setting up manufacturing units in India

• Export promotion

• Support design of standards for products

• Application and testing which are green and compliant to national and International Electrotechnical Commission (IEC) compliant,

• Support set-up of testing, R&D and educational centres,

• Conduct annual conferences to educate industry and the consumer about upcoming LED trends.

PLI schemes, digitisation, ease of business and transparency have made the Indian Manufacturing industry an attractive one.

The government and lighting associations are taking every measure to streamline this industry and support its growth in becoming the world leader in manufacturing.

Government Policies and Initiatives

Business growth backed by strong governance is vital for the overall development of the community and the Economy as a whole. By partnering with the government and utilizing its Schemes and Policies, businesses play a pivotal role in the overall advancement of the country.

Some notable Government initiatives that are promising to change the landscape of the Indian manufacturing industry are:

• The Make in India initiative backed by the Robust PLI Scheme and EMC2.0 (Electronics Manufacturing Clusters) are a stepping stone to not only creating a complete manufacturing Ecosystem in India but also to make India a Global Manufacturing hub in the years to come. Serving to achieve economic development goals of the country, Calcom is at the forefront of the Make in India initiative.

• The introduction of the Dedicated Freight Corridor (DFC) will not only connect the entire country but will also enable India to save time and resources to ultimately become a big force in global manufacturing

• UJALA scheme - The Unnat Jyoti by Affordable LEDs for All (UJALA) was launched in 2015 with a target to replace

77 cr incandescent lamps with LED bulbs.

The future shines bright for India. We are optimistic about these Policies and their impact on the Manufacturing Industry of India

Internal Management Controls

The Company is focusing to increase efficiency and perform effectively in the dynamic business environment. We are undertaking Annual Review Workshop Programs with the extended management team to review past years performance, do regular SWOT analysis and finalize the Key Focus Areas for the future. Regular trainings across departments in key managerial functions such as Problem Solving, Decision making etc are conducted to aid managers in their day-to-day work.

Some of the Key Decisions taken in the workshops are:

• Formal "Monthly Performance Review (MPRs)" with Core Management - Review of past month performance and next month plan.

• Defining Key Result Areas (KRAs) and measurable Key Performance Indicators (KPIs) for each function - Sales & Marketing, Purchase/Procurement, Production, Finance & Accounts, Quality, R&D and HR.

• Holding Daily Cross Functional Review meetings for monitoring of sales, production and purchasing. progress, to review and expedite resolution of operational issues.

• Revamping of Production Floor Layout to achieve Increased Capacity, Improved process flow and optimized space usage.

• Extending existing production lines to enhance capacity, and achieve seamless process flow and elimination of non-value add efforts & time.

• Continuing with 5S and Kaizen Improvement Framework.

• Continuing with the Governance model involving daily and monthly audits to track the progress & improvements made.

• Identifying and taking Cross Functional Projects.

Opportunities and threats

Opportunities

• Change in consumer tastes and preferences:

The pandemic triggered the consumers to upgrade their homes to offer a higher degree of convenience and quality of life. This has created a surge in demand for loT based Smart products.

• Energy-efficient appliances:

People are increasingly becoming concerned about the environment as well as reducing their power bills. This will lead to increased demand for energy efficient lighting solutions and appliances.

• Urbanisation:

In an emerging economy like India, urbanisation and housing development is growing at a rapid pace. This provides a significant opportunity for the lighting industry to also grow.

• Exports:

The world market is evaluating Indian companies as an alternative to China. Calcom has the infrastructure to cater to the needs of the export market.

Threats

• Commodity price inflation:

Raw material prices have been on the rise due to various supply chain bottlenecks caused by factors like lockdown and geopolitical instability. This is leading to pressure on margins and poses a significant challenge to the business.

• Demand uncertainty:

Economic volatility and the increasing frequency and magnitude of disruptive events have affected the discretionary incomes and demand sentiment. This volatility is also affecting the predictability of demand and the ability to forecast and plan efficiently.

• Pandemic:

Deterioration in supply chain and demand due to pandemic such as COVID-19 have emerged as a significant business risk.

• Internal control systems and their adequacy

The Company has an effective and reliable internal control system commensurate with the size of its operations. At the same time, it adheres to local statutory requirements for orderly and efficient conduct of business, safeguarding of assets, the detection and prevention of frauds and errors, adequacy and completeness of accounting records and timely preparation of reliable financial information. The efficacy of the internal checks and control systems is validated by self-audits and internal as well as statutory auditors.

• Human capital

Human resources form the most significant element responsible for an uninterrupted growth for the Company.The Company makes all efforts in attracting, retaining, and developing the best talent required for the business to grow. The employee skills are regularly updated with training and development programmes. The Company enjoys high Employee satisfaction and motivation levels leading to higher retention and low attrition rates.

The Companys human resource and industrial relation policies focuses on working together with the employees for their personal and professional development and at the same time aligning their goals with that of the Company to create a win-win situation.

Company had also given an opportunity to employees to create value for themselves through Stock Options. Stock Options have been recognised as an effective instrument to attract talent and align the interest of employees with that of the Company, thereby providing an opportunity to the employees to share in the growth of the Company and to create long-term wealth in the hands of employees, thereby acting as a retention tool.

RISKS AND MITIGATION

The Company has adopted a robust risk management policy, approved by the Board of Directors, to identify, evaluate and mitigate business risks and protect stakeholder interests. The Companys Risk Management framework focuses on timely identification of risks and initiates mitigation strategies to steadily tide through crises. The key business risks identified by the Company and its mitigation plans are as under:

1. Covid-19 Pandemic:

• The 2nd wave of COVID-19 pandemic rapidly spread in the month of April. Due to the lockdown restrictions imposed across the country, There was once again a workforce shortage as many workers left for their home-towns fearing extended lockdowns. The company took proactive action to combat this problem by hiring fresh recruits on an on-going basis and provided them with training to continue production activities.

• Lockdown/restrictions impacted the Company operationally leading to Raw Material shortages and increased prices, Supply Chain constraints and Overall Slowdown in consumer demand due to country wide lockdowns. The company is monitoring the situation closely and maintaining stock of critical items.

2. Business Performance:

• Due to lockdown restrictions, the factory was virtually closed for 2 months. In Spite of this unprecedented situation, the company achieved its annual targets. The company put all efforts to make up for the lost sales and managed to achieve its highest turnover of INR 10006 Lacs in the last decade. Your company has also added new clients and this will reflect in the current year performance.

3. Working Capital Requirements:

• The pandemic and resultant lockdown restrictions across the country led to a cash-flow crunch. To address this challenge, your company has taken several measures.

• Promoters have sold part of their equity via an OFS (to comply with SEBI guidelines of minimum public shareholding).

• Your company raised an initial seed capital from marquee investors that allowed Working Capital stability.

• We also sought additional loans from our existing lenders Debt at a lower interest rate reducing the overall Interest cost for the company. With better liquidity position, the Company shall be able to plan its working capital at optimum level and shall maintain minimum stocks of volatile materials

4. Occupational Health & Safety Risks:

• The company is making all efforts to ensure a Safe working environment for its employees. Social Distancing, Mandatory masks, and regular sanitization of the premises is happening on a daily basis. In addition, your company is also ensuring that all eligible employees get vaccinated . Your company also undertakes regular training and safety audits to ensure an injury free environment for all the employees.