crayon advertising ltd share price Management discussions

Global uncertainties including inflationary pressures and supply chain constraints are expected to impact profit margins of the organisations across various sectors. International Monetary Fund projections forecast sluggish growth for most of the major economies in 2023 with a gradual recovery in 2024.

As per IMF, the baseline forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see a pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023.

Inflations return to target is unlikely before 2025 in most cases. Public debt as a ratio to GDP soared across the world during COVID-19 and is expected to remain elevated. However, emerging and developing economies are expected to farewell compared to advanced economies

Digital Economy

Digital adoption continues to evolve at a tremendous speed. Increasing digitalization of the economy and society is changing the ways people act and interact. One of the distinguishing features of digital transformation has been the exponential growth in machine-readable information over the Internet, powering at scale a data-driven digitally intelligent ecosystem.

In Indian Context

India is one of the select markets in the world where digital advertising spends continue to grow at a rapid pace. Digital advertising industry in India grew by 35.3% in 2022 on a y-o-y basis. Digital media has been leading the growth rally for the Indian advertising industry, growing at almost twice the rate of the overall industry. A segment that is fuelling growth for digital segment is mobile advertising. It is driven by factors such as 4G penetration, cost-effective data packages, proliferation of the mobile apps, social media and rapid growth in smartphone penetration giving boost to M-commerce.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial statements have been prepared in accordance with the requirement of the Companies Act, 2013 and applicable Accounting Standards issued by the Institute of Chartered Accountant of India.

(Rs. in Lakhs)

Particulars	FY 2022-23	FY 2021-22	Change %
Revenue from contracts with customers	27,568.45	19,252.59	43.19
Inventory and data costs	23,017.56	16,992.79	35.45
Employee benefits expenses	1,149.46	751.00	53.06
Other expenses	1,506.88	1,225.11	23.00
EBITDA	1,894.55	283.69	567.82
% EBITDA Margin	6.87	1.47	366.38
Depreciation and amortisation expenses	110.49	92.89	18.95
Finance costs	79.06	107.86	-26.70
Other income (Excl. Liabilities written back, if any)	546.46	152.38	258.62
Profit Before Tax and Share of loss of an associate	2,251.46	235.32	856.77
Share of loss of an associate	-	-	0.00
Profit Before Tax (PBT)	2,251.46	235.32	856.77
(Less): Total tax	592.19	73.98	700.47
(Less): Non-controlling interest	-	-	0.00
Profit After Tax (PAT) net of non-controlling interest	1,659.27	161.34	928.43
% Profit Margin	6.02	0.84	618.21
Normalized PAT (net of non-controlling interest)	1,659.27	161.34	928.43
% Normalized PAT Margin	6.02	0.84	618.21

Internal control systems and their adequacy

Crayons has well-established Internal Control Systems, commensurate with the size, scale and nature of its operations. Stringent controls and processes are in place to monitor and control our operations across the markets we operate in. These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls for ensuring reliability of financial reporting, monitoring of operations, protecting assets from unauthorised use or losses, and compliances with applicable regulations. During the FY 2023 the company was a Private Limited company where there is no Requirement of Internal Auditor, However company has nominated In-House Professionals to conduct the internal audit to ensure adequacy of internal control system, compliance of rules and regulations applicable to the Company and adherence to the management policies. For FY 2024, the Board has also appointed Ms. Ruchi Tayal, Chartered Accountant as Internal Auditors to maintain its independence, the Internal Auditor reports to the Audit Committee chaired by an Independent Director of the Board. Internal Audit team conducts half yearly audits, which include review of operating effectiveness of internal controls. Based on the report of Internal Auditor, reviewed quarterly by the Audit Committee, process owners undertake corrective action in their respective areas and thereby strengthen the controls.

The Risk Management Committee oversees the overall process of risk management throughout the organisation. Business Heads and Support Function Heads are also responsible for establishing effective internal controls within their respective functions. The Companys business units and corporate functions address risks through an institutionalized approach aligned to the Companys objectives.

Human Resources Review

Crayons is committed to nurturing an environment that promotes inclusive growth and drives thought leadership. With this objective in place, we have drawn a comprehensive human resource strategy which addresses all key aspects of human resource development including (i) adoption of fair business practices;

(ii) promoting workforce diversity, evolution of performance-based compensation packages to attract and retain the talent; (iii) rewards & recognition and several best-in-class employee initiatives; and (iv) delivery of training programs to improve technical, functional and managerial competence.

As at March 31, 2023, our total employee count on a consolidated basis was 176, of the total, 73.8% were men and 26.2% were women employees.

Crayons strives to provides a workplace environment that is safe, hygienic, humane and upholds the dignity of the employees. The Company imparted training to all the employees on Prevention of Sexual Harassment at workplace. Psychological trainings were conducted to help employees develop mental fitness through Mind Fitness and Stress Management, particularly during the pandemic times.

COMPLIANCE

Crayons observes compliance practices of the highest standard. The Compliance team closely monitors all the compliances with special attention to those relevant to the Company. The Company follows all prudential norms laid down and submits all mandatory returns and statements in time. The Company has put in place a robust framework of internal controls that include precise delegation of authority and Standard Operating Processes which are available in all business segments and functions. The Company follows a practice of monitoring various internal control functions in-house as well as through external auditors whenever required or mandated. The Company also reviews risk management processes on a regular basis and documents the results.

Threats, Risks & Concerns

Crayons may be exposed to a range of external as well as internal risks that can have an impact on its performance. In order to efficiently manage these, we have built a strong risk management framework which includes identification of the identified risks, its impact and our mitigation strategy. You should carefully consider these risks and all other information in the Annual Report. Any of these risks could adversely affect our business, operating results, financial condition, and prospects.

Key Risks and Mitigation Strategy

Risk	Defining the Risk	Mitigation Strategy
Macroeconomic Risk / Economic Uncertainties	Customers can reduce their marketing spends due to economic uncertainties in key markets	We consistently track the markets we operate in, followed by close coordination between the business teams and finance teams to discuss any business concerns with respect to broader economic scenario, business related developments or regarding the customers we serve in specific.
		Further, our business is well diversified across industry verticals and across geographies; with no major negative impact expected.
Business Continuity Risk	Potential natural or man-made hazards may impact business operations and even pose a risk to employee safety	We have the necessary Standard Operating Procedures (SOPs) and Business Continuity Plan (BCP) that addresses disruptions which could be faced by our teams or the employees, across our India and International offices.
		We have Work from Home policy in place, event specific succession planning, medical insurance for the employees, dedicated quick response team and the related contingency plans
Technological / Data related Changes	If our ability to profile connected devices is restricted by certain disruptive changes in technology, it could have an adverse impact on business model / operations	we have developed competencies across various technologies and operating environments; and our R&D teams continually strive to be future ready for any such risks.
Systems, Data and Digital Infrastructure Security Failures	Failures in systems and the digital infrastructure supporting our systems could significantly disrupt our operations	We have a comprehensive disaster recovery and business recovery plan for our Consumer Platform tech infrastructure. Our risk mitigation strategy aims for distributed architecture of services and speed of restoration of services. Our active architecture distributes the servers across multiple cloud allowing us to dynamically scale for loadbursts or adapt for sudden failures. We maintain a multicloud risk managed strategy to scale across different clouds as and when required. We ensure that all critical information is securely stored across different layers of attached/cloud/remote distributed storage to mitigate risks while allowing for quick restoration of back ups. Our cloud assets are secured using a combination of passwords, certificates, multi-layered IAM policies, VPNs, Firewalls, anomaly detection systems, etc.
Liquidity Risk	Any threat to the liquidity could be a risk factor	Our Interest Coverage Ratio (EBIT/Finance cost) stood at 29.48x, representing Companys ability to service its interest obligations out of its operating income was 29.48 times during FY 2022-23. Also, we have been maintaining positive cash flows from operations
Credit Risk	Default or inability of the customers to pay on time may impact the balance sheet position and/or the profitability	We have an effective receivable management framework in place to maintain the receivable days. Our finance team deploys strong check and balances to mitigate any credit risks or any possibility of increase in bad debts
Compliance Risk	Adherence to laws and regulations pertaining to a public-listed company is mandatory	We have a dedicated in-house secretarial and compliance team that manages all the compliances effectively. We also have all the necessary Corporate Policies in place to ensure the regulatory compliances are well met with
Reputation Risk	Negative media coverage or certain actions by activist shareholders may divert the time and attention of our board and management and adversely affect the share price	To mitigate this, Crayons has adopted the following approach:
		1. Regular screening of media coverage by our PR team and pre-emptive response by the senior management, if required.
		2. Regular interactions with the shareholders & analysts and providing the information in a transparent and timely manner.
Environmental Sustainability	While the Company being in mobile advertising business is less resource intensive with low direct environmental impact. However, there could be broad-based external environmental risks that could potentially impact the health and safety of our employees	The company will strive to not only proactively assess and minimize the impact of environmental risks, but also enable effective resource allocation aligned to our ESG sustainability principles

Cautionary Statement

Certain statements in this Management Discussion and Analysis Report concerning the future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, ability to manage growth, intense competition in our industry including those factors which may affect companys cost advantage, seasonality of business, wage increases, companys ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, client concentration, companys ability to manage its international operations, companys ability to successfully complete and integrate potential acquisitions, liability for damages on companys contracts, the success of the companies in which Affle has made strategic investments, political instability, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of our intellectual property and general economic conditions affecting our industry or the global economy.

For and on behalf of the Board of Directors

Crayons Advertising Limited

Sd/-

(Kunal Lalani)

Managing Director and Chairman

DIN:00002756

Place: New Delhi

Date: September 05, 2023