Compuage Infocom Ltd Management Discussions

Compuage Infocom Limited-Industry structure

Compuage Infocom Limited (hereinafter referred to as "Company / Compuage"), had developed as one of Indias major IT and Mobility products distribution intermediaries over the course of more than three decades. The Company has established a robust network of resellers to extend the wave of digital connectivity throughout the nation and beyond. Companys product line consists of PCs, components, and peripherals, cloud computing, mobility devices, enterprise solutions, and physical safety and security. The Company is based in Mumbai and has 46 offices, partnerships with 28 global brands, 25 warehouses and 69 service centres in 600+ cities across the country with a network of over 12,000 resellers assures the smooth delivery of the products. The Company has its global footprints over 7 countries across SAARC nations. The Company handles the entire supply chain, including procurement, warehousing, bulk breaking, technical assistance, material transfer and credit distribution.

The business has been divided into four distinct product segments: IT Consumer, IT Enterprise Solutions, Cloud Computing, and Hardware Services. IT Consumer majorly deals in PCs, audio / video products, peripherals, mobiles and accessories, etc., and brands associated here are Asus, HP, SanDisk, Samsung and various other brands. IT Enterprise segment deals in products related to security, software, power and network infrastructure, etc., and some of the major brands here are Cisco, Microsoft, etc.

These 2 divisions have been in existence for a long while, while cloud computing and hardware services divisions are of recent past. Cloud computing products include business applications, cloud management services, etc., of Microsoft, SAP and many others, while under hardware services, the Company provides warranty services which include basic and chip level repairs for brands like HP, Asus, Vertiv and few others. Compuage with its PAN India network and efficient supply chain provides immense value to its vendors taking care of their distribution angle and providing a wider reach to their products while they can focus on their core competency.

Financial Year 2022-23-Development

FY22-23 was a challenging year for the industry. It began with the deadly second wave of Covid-19 which brought back the lockdown restrictions to prevent the spread of the virus. As the year progressed, the lockdown restrictions were eased before the country was again hit by the third wave of Covid-19 which didnt prove to be a deadlier one and lasted for a short period of time. Another major disruption faced during the year was on account of shortage of semi-conductors. The production timelines for the manufacturers who were dependent on semi-conductors were impacted and hence the supply of the end finished product.

In FY22-23, the demand was led by restarting of offices while some of the demand continued to come from work from home segments. We believe the future of work will be a mix of work from office and home. This will require new additional investments by the corporates in the areas of remote working and cloud services. The demand for mobiles and laptops has also increased for personal use for efficient communication, education and entertainment purposes. All these factors collectively will lead to sustainable demand.

IT products in the long term have to grow on sustainable basis given the need for the digitalization especially in our country. The world is moving in a rapid space towards complete digitalization, and this is not possible without an extensive use of IT products and its services.

The business of the Company has been severely disrupted on account of extremely tight liquidity situation and inadequate support from major vendors and lenders, who have recalled the credit facilities. This situation has been further aggravated by high level of manpower attrition resulting in serious gaps in maintenance of IT systems and records. The Company has defaulted in respect of instalments and payment of interest on term loans and dues on account of cash credits from Banks., The Company had submitted a restructuring plan to the lenders , however, it was not accepted by them

Outlook

Companies all over the world are increasingly putting an emphasis on specialisation, while at the same time, they are continuing to outsource the services that are not important to their business. This has two advantages over other options. First, it enables the organisation to concentrate on its core business, so that both the management teams available bandwidth and the companys resources may be redirected toward the areas that truly count. Second, it enables them to reduce expenses by outsourcing their non-core operations and delegating them to businesses that are specialised in those areas and are able to do the same functions at a reduced cost. In other words, it enables them to cut costs by reducing their overhead.

The industry of distribution is likewise going through this shift at the moment. Compuage, as a top distribution player, delivers great value to Companys vendor partners by taking care of its vendor partners distribution angle and offering a larger reach to their products. This helps free up Companys vendor partners to focus on their primary expertise, which is producing innovative products.

Going forward, the Companys focus will continue to keep on adding new brands to its portfolio, penetrate newer regions to increase the scale of the business, improve the product mix and optimize the cost structure to drive the profitability and thus create value for all its stakeholders.

Opportunities and Risks

A growing number of foreign brands wish to enter the Indian market in order to capitalise on its potential. Such brands often desire a sophisticated distribution system covering the countrys geographical borders and reaching customers across India, which would accelerate their brands growth.

Current and emerging product lines are witnessing expansion, resulting in the emergence of numerous new product concepts. This affords the opportunity to not only expand existing product lines, but also enter new product categories to meet the wants of consumers. In view of the ongoing Corporate Insolvency Resolution Process the Company has not been able to encash many opportunities during the period under review. The Company is hopeful to perform better in the next year. Any downward movement of product prices of the investee Companies could affect their margins, which could be a threat to the Companys fortunes.

Internal control systems and their adequacy

The Company has, in all material respects, an adequate framework for internal financial controls commensurate with the size, scale and complexity of the Companys operations.

Disclaimer

Certain statements made in the Management Discussion and Analysis Report relating to the Company constitute as ‘forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations whether expressed or implied. Several factors could make significant difference to the Companys operations. These include climatic and economic conditions affecting demand and supply, government regulations and taxation, natural calamities over which the Company does not have any direct control.

For and on behalf of the Board (suspended during CIRP)

Compuage Infocom Limited,