Creative Newtech Ltd Management Discussions.

Forward looking statement

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities 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 realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally.

The financial statements are prepared under historical cost convention, on accrual basis of accounting, and in accordance with the provisions of the Companies Act, 2013 (the Act) and comply with the Indian Accounting Standards as pronounced by the Institute of Chartered Accountants of India (ICAI) from time to time. The Management of Creative Peripherals and Distribution Limited has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements, reflect in a true and fair manner, the state of affairs and profit for the year.

The following discussions on our financial condition and result of operations should be read together with our audited financial statements and the notes to these statements included in the annual report. Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", "Creative" are to "Creative Peripherals and Distribution Limited".

ECONOMIC OVERVIEW Global & India Scenario

The global economic scenario has taken a major setback following the outbreak of the COVID-19 pandemic. Lockdowns in several parts of the world brought trade, commerce and all operations to a temporary standstill, impacting almost all industries worldwide.

As per a June 2020 report of the International Monetary Fund (IMF), global growth is now projected at 4.9% in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The pandemic has had a greater adverse impact than anticipated in the first half of the year, and recovery is projected to be more gradual than previously forecast.

In 2021, global growth is projected at 5.4%. Overall, this would leave the 2021 GDP about 6.5 percentage points lower than in the pre-COVID-19 projections of January 2020.

Moreover, the recent and ongoing trade tensions between the US and China would also play a significant role in global economic dynamics.

As per the June 2020 WEO updates (in the aforementioned report by the IMF), Indias economic growth projections have been revised to a contraction (de-growth) of 4.5% in 2020, after a 4.2% growth in 2019. Economic growth is projected to recover in 2021 at 6%.

While industries are reopening and regaining momentum, the market is dynamic with several variables at play, such as employment, discretionary spending patterns etc. The entire impact of the pandemic on business and industry is likely to continue to reflect in the near future.

Source: https://www.imf.ors/en/Publications/WEO/Issues/2020/06/24/WEOUpdateJune2020

Indian Licensing Industry

The licensed manufacturing model in India has seen steady growth over the past several years. Being a high-potential emerging market with rising disposable incomes, the country is an attractive destination for global brands to enter and penetrate.

While the licensing business is still at a nascent stage, the industry is evolving, supported by better implementation of laws, government regulations and development of pro-innovation ecosystem. Relatively lower labour costs, rising per capita income, and significant market around IP rights, make it a more attractive prospect for lot of companies.

Licensing represents a way for a manufacturer to take advantage of all the brand building and image building that has gone on before.

Indias diverse and evolving retail scenario would also play a crucial role in this industry. The penetration of online commerce has played a significant role in the increased opportunity for international brands in India, and when combined with the smartphone revolution, consumers have retailers just a click away.

As an increasingly tech-savvy nation, the India is a high growth potential market for international brands. As per industry estimates, the Indian consumer electronics market size is forecast to grow through 2025. The COVID-19 pandemic impacted the industry significantly in 2020, and its impact is still being felt, especially in brick and mortar stores. However, the fast-growing eCommerce industry is offsetting that impact and adding to the immense potential for players. As licensing grows and becomes more organized, the demand for service providers to offer holistic licensing and branding solutions would also increase.

The demographic diversity and rapidly changing trends (consumer preferences) in this market present a challenge to various international brands, thereby increasing competition to tap into this markets potential. Moreover, the urban and rural divide in the India market increases the challenge for an international brand to establish an effective distribution channel.

Consequently, several brands are adopting newer strategies to penetrate and grow in the market. For instance, various brands are tying up with online portals to offer products directly to the consumers, thereby avoiding infrastructure, warehousing and other similar costs.

Advancements in technology, expanding market places, and growing brand awareness have boosted the licensing industry in India. As per recent market estimates, retail licensing in India was estimated at over $1.26 billion. Moreover, more than 90% of licensing and merchandising activity in India are for foreign brands. This represents the demand and scope for international brands to tap the potential present in the Indian market. India is expected, in the next 4 to 6 years, to be at the level where China currently is, in terms of retail sales of licensed merchandise and generating royalties.

A key factor for the success of licensing in the market, is organized retail. Organized retail remains less than 10% of the market in India, reflecting a significant gap in the supply and demand of authentic licensed products. However, with the Goods and Services Tax roll-out, organized retail and e-commerce are going to be the major enablers for the brand licensing industry. According to industry estimates, organized retail is forecast to grow exponentially to about $220 billion by 2023.

Furthermore, quality control is also a critical factor impacting the success of a licensing agreement. This includes inspection of manufacturing premises, personnel training, managerial controls, approval of marketing and advertising campaigns undertaken by the licensee, after sales services, and other factors. On this front as well, Indian companies are making progress, with increasing number of players being approved by international brands for contract manufacturing.

Sources:

https://www.entrepreneur.com/article/332386

https://www.grandviewresearch.com/industrv-analvsis/india-consumer-electronics-market

Global Licensing Industry Survey 2019, LIMA - https://publishingperspectives.com/2019/06/survey-sees-worldwide- licensing-grow-by-3-2-percent-2018/

Statista - https://www.statista.com/statistics/308667/it-hardware-spending-forecast-india/

World Trademark Review - https://www.worldtrademarkreview.com/brand-management/rise-licensing-india https://www.entrepreneur.com/article/332724

About Creative Peripherals and Distribution Limited

Established in 1992, Creative Peripherals and Distribution Limited is a well-established company in Indias Information and Communication Technology distribution market.

Through a robust network of partners and distribution channels, the Company has made a strong foothold in the IT distribution market in the country. The Company has an omni-channel network across all three channels of online, offline and retail trade.

Creative Peripherals specializes in market entry and penetration for global brands. The Company offers demographic intelligence, and enables the formulation and execution of marketing strategies for its clients. In addition to such services, Creative continues to focus on timely delivery, diversification of its product portfolio, sustained long-term relationships with its channel partners, and extending value-added services over and above distribution. These efforts have enabled the Company to win long running contracts as well as garner accolades in the Industry as amongst the best distributors in India by leading brands.

In August 2019, the Company successfully migrated NSE-Emerge board to the NSE Main board. After two years on the NSE-Emerge board, the Company aims to take full advantage of bigger platform, in terms of increased visibility, as well as the opportunities that this platform has to offer. Consequently, we are already witnessing increased visibility for our Company.

Creative Peripherals is associated with over 20 renowned brands globally which are categorized in three broad divisions IT, imaging and lifestyle and security product. These brands encompass a wide range of applications and help the Company to cater to a broad array of customers, both in the consumer and industrial businesses. Moreover, the Company is well-positioned to leverage the changing trends in the technology industry and be a part of the paradigm shift towards digitization in India.

Creative Peripherals has a unique value-added business model. They provide end-to-end solutions, from market research and competition analysis for brands, to import, distribution, sales and servicing for the brand. Additionally, the Company suggests and executes marketing strategies and recommends viability in specific regions across India for their clients. This is enabled by specialized skill sets, local insights and experience, along with relevant market intelligence. Creative Peripherals also prepares strategic plans for market entry for foreign brands and their target category.

Furthermore, the Company conducts pre-sales and marketing activities for the success of the brand as well as to enable the channel partners to leverage their expertise and bottom line. Creative Peripherals works closely with partners across channels including Large Format Retail (LFR), e-commerce and specialized retailers. The company is one of the few large distributors who conduct specialized training modules, events and promotional activities at the ground level with channel partners along with workshops and demos for resellers. This is possible due to the dedication and experience of the corporate and sales teams which constantly track latest market developments to build a closer market connect. The Companys wide reach and superior logistics capabilities helps it provide end-to-end services including warranty and postwarranty, high-level repair services, and response centres, among others.

Such expertise and superior quality of service has led to increased confidence of brands, many of which have chosen Creative Peripherals as exclusive partners and have been with the company since over five years. The Company focuses on higher operational efficiencies and adding higher-margin and value-added products to its existing product portfolio and such brand associations are a concrete step in that direction.

In order to enhance the Companys visibility and scalability, it launched an online digital B2B eCommerce platform named Ckart for network of clients. The new platform enables all our customers to showcase their inventory and trade amongst each other, facilitating in higher volumes and expanding the product portfolio being offered through Creative Peripherals. This platform will fortify our presence as a one stop shop for customers. Drop-shipment facility provided by this platform allows a customer to place an order with the Company, and have it delivered at their respective customers address. Ckart was developed in-house by our highly skilled team.

The Company is associated with several major brands across the world providing them unique solutions and distribution channels. Details of vendors and products distributed by the Company are given in the following table:

Vendor Product Category
AOC Monitors & TV
ASROCK Motherboards
BABYLISS Personal Grooming products
COOLER MASTER PC Casing and Cooling products
DAEWOO TV & monitors
GITZO Backpack
GOPRO Cameras
HONEYWELL Cables, Accessories, Car Chargers, master switch, etc.
INVUE Retail security protecting mobile electronics devices
MANFROTTO Tripods, Mini Tripods, Monopod, Backpack
MEPL TVs
NET PROTECTOR Software
NZXT Cabinets
OLYMPUS Cameras, Lenses, Binoculars
PANASONIC Audio Products
PHILIPS SIGNAGE SIGNAGE Monitors
PNY Graphics Cards and SSDs
PRINTRONIX Printers
RAPOO Keyboards, Mouse, Headphones, Power bank
SAMSUNG Monitors
SENNHEISER Headphones
SHARP TVs
THERMALTAKE Computer cooling and gaming accessories
TRANSCEND Memory, Storage
VIEWSONIC Projectors, 3D Glass

FINANCIAL OVERVIEW

The financial performance of the Company for the financial year ended March 31, 2020, is as follows:

Total revenue from operations stood at Rs. 459.06 crore for the year ended March 31, 2020, as against Rs. 370.72 crore for the corresponding previous period, an increase of 23.83%, mainly on account of strong performance in IT, Imaging and gaming products.

The cost of raw materials rendered for the financial year ended March 31, 2020 was Rs 407.03 crore as against Rs 335.66 crore for the corresponding previous period, an increase of 21%.

The staff expenses for the financial year ended March 31, 2020 were Rs 8.99 crore as against Rs. 6.96 crore for the corresponding previous period, an increase of 29%.

The other expenses for the financial year ended March 31, 2020 were Rs. 26.22 crore as against Rs 14.77 crore for the corresponding previous period, an increase of 77%. This has been mainly on account of increase in promotional and marketing expenses incurred towards promotion of new products.

The EBIDTA (earnings before interest, depreciation and tax, excluding other income) was Rs. 16.82 crore for the year ended March 31, 2020, as against Rs. 13.32 crore for the corresponding previous period, an increase of 26.28%.

The depreciation for the financial year ended March 31, 2020 was Rs. 0.86 crore, as against Rs. 0.53 crore for the corresponding previous period, an increase of 63%.

The interest for the financial year ended March 31, 2020 was Rs. 4.8 crore as against Rs. 4.52 crore for the corresponding previous period, an increase of 6%.

The PAT (profit after tax) was Rs. 7.78 crore for the year ended March 31, 2020, as against Rs. 5.85 crore for the corresponding previous period, an increase of 32.97%.

The Board of Directors have recommended a Final Dividend at the rate of 5% i.e. Rs 0.5 on face value of Rs 10 per share equity share. This is subject to the approval of shareholders.

RESOURCES AND LIQUIDITY

As on March 31, 2020, the consolidated net worth stood at Rs. 41.24 crore and the consolidated debt was at Rs. 31.88 crore.

The cash, cash equivalents and bank balances at the end of March 31, 2020 were Rs. 3.89 crore.

The net debt to equity ratio of the Company stood at 0.76 as on March 31, 2020.

Business Category wise Performance

Creative Peripherals operates in three broad product categories: distribution of IT products; Imaging; and Lifestyle and Security products.

The Company is performing well in all the categories and expects the momentum to continue in next financial year.

1. IT Products

Creative Peripherals offers a range of IT hardware products like printers, supplies (cartridges), PC components (monitors, hard disks, CD writers, CD ROMs), and storage devices offered by multiple vendors. The companys wide spectrum of products offered from multiple vendors helped it achieve economies of scale and provide customers a single sourcing point. The Company has many exclusive distribution agreements and innovative distribution channels. One of the key brands under the IT category is Honeywell, A Fortune 100 company with whom the Company has deep integration in terms of contract manufacturing, distribution and marketing across India and Middle East. Other high-growth brands under this segment include Cooler Master and PNY. IT contributed to 42% of its revenue from distribution of IT products in FY20.

2. Imaging

This category encompasses a range of cameras, tripods and other imaging products and accessories. This category is growing aggressively as trends in photography change rapidly. One of the key drivers in the segment is GoPro which has significant growth in user adoption across the urban market in India. The Company is setting up innovative distribution channels, training employees, helping clients develop content to giving a whole package of experience to the end consumer. Creative Peripherals believes that trends in this category are shifting from just product innovation to offering customer-centric experiences. This category contributed 43% to revenue in FY20. These are higher margin products and are planned to grow at a much faster rate.

3. Lifestyle and security

This segment includes products such as TVs, headphones, projectors and other lifestyle products and IT accessories. The Company has expanded its portfolio in the high growth segment. Some of the Companys brand associations include InVue, a premier retail security solution, and BaByliss, a niche personal grooming brand with global presence. These associations not only diversify and expand portfolio, but also enhance and testify of the companys recognition among global brands. In security it strives to cater to the growing needs and demand for retail security product and are expanding in this direction rapidly. Creative is a major player in this segment with exclusive agreement with global giants in this sector such as Inview. This category contributed 15% to revenue in FY20.

ACHIEVEMENTS IN BUSINESSES DURING THE YEAR:

1. Expanded Honeywell Product Portfolio - contract manufacturing and exclusive distribution of various structured cabling solutions. Introduced entire range of Copper & Fiber Solutions under Structured Cabling - Contract manufacturing with the first Honeywell certified facility in India

2. Signed distribution agreement for Panasonic - among leading consumer electronics brands globally - Agreement to Distribute Panasonics wide range of premium Audio products

3. Signed distribution agreement with BaByliss - a niche international personal grooming brand Exclusive Authorized Distributor for BaByliss across India - distributing wide range of hair care products

4. Signed new distribution agreement with PNY Technologies Europe - a Worldwide supplier of storage and graphics- card solutions Authorized Distributor for PNY products across India - distributing wide range of graphics cards and SSDs

5. Signed distribution agreement for Cooler Master - a niche international computer cooling and accessories brand Authorized Distributor for Cooler Master across India - distributing wide range of casing and cooling solutions

6. Successfully migrated from NSE Emerge to NSE Main Board after satisfying all required criteria

RISKS AND CONCERNS

Like every business, the Company faces risks, both internal and external, in the undertaking of its day-to-day operations and in pursuit of its longer-term objectives. A detailed policy drawn up and dedicated risk workshops are conducted for each business vertical and key support functions wherein risks are identified, assessed, analyzed and accepted / mitigated to an acceptable level within the risk appetite of the organization. The risk registers are also reviewed from time to time.

The Company faces the following Risks and Concerns:

Rapid Obsolescence of Technology & Change in Consumer Preferences

A technology business is always exposed to sudden and unanticipated changes in technology and consumer trends and preferences. This exposes the company to the risk of becoming uncompetitive in terms of product/services offering to the customers. There is a need to constantly upgrade the product and service portfolio (e.g. Cloud, IoT, Mobility Analytics, etc.), and stay on top of changing consumer preferences.

Credit Risk

To manage its credit exposure, Creative Peripherals has determined a credit policy with credit limit requests and approval procedures. Company does its own research of clients financial health and project prospects before entering into an agreement with them. Timely and rigorous process is followed up with clients for payments as per schedule. The company has suitably streamlined the process to develop a focused and aggressive receivables management system to ensure timely collections.

Interest Rate Risk

The Company has judiciously managed the debt-equity ratio. It has been using a mix of loans and internal cash accruals. The Company has well managed the working capital to reduce the overall interest cost.

Competition Risk

Like in most other industries, strong scope of opportunities come with intense competition. We face different levels of competition in each of our operating categories, from domestic as well as multinational companies. Creative Peripherals has created strong differentiators in project execution, portfolio, level on involvement in marketing and delivery, which make it resilient to competition. Furthermore, the Company continues to invest in technology and people to remain ahead of the curve. A strong and stable client base, comprising large and mid-sized corporations, further helps mitigate this risk. We counter this risk with the quality of our infrastructure, our customer-centric approach, value-added services and our ability to innovate customer specific solutions, focusing on pricing and aggressive marketing strategy, disciplined project executions, along with prudent financial and human resources management and better control over costs. Thus, we expect to be significantly insulated from this risk.

OPPORTUNITIES

Changing consumer preferences and growing urbanization:

• With evolving consumer needs and preferences, there is a strong growth in demand for good quality products, services and a unique customer experience.

• With rising disposable incomes and urbanization, consumers demand better experiences and after sales service, which paves the way for new innovations.

Technological Tie-ups:

• With many technological tie-ups and extensive R&D theres huge scope for new and innovative products to enter the market.

• Increasing role of technologically trained and skilled staff at points of sale.

Distribution agreements with renowned brands: An increasing number of international brands want to come to India to tap into the market potential. Such brands typically want ready and modern distribution system covering the geographical territories of the country and serving customers on a PAN India basis which will grow their brand quicker.

Growth in the existing and new product lines: Consumer electronics are evolving rapidly, giving rise to many new product concepts. This gives scope to not only grow the existing products but also venture into new product lines to fulfill the needs of the consumers.

THREATS

• Competition from local and multinational players.

• Regulatory changes including unfavorable tax changes or import regulations.

• Attraction and retention of talented human resources.

• Frequent and rapid technological advancements leading to early obsolescence of products in inventory

• Over-dependence on few brands which account for majority revenue.

• The spread of COVID-19 virus across the globe could have a continued impact on business in FY21.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Company has an internal audit function designed to review the adequacy of internal control checks in the system which covers all significant areas of Companys operations such as accounting and finance, procurement, business operations, statutory compliances, IT processes, safeguarding the assets and their protection against unauthorized use, among others. The Internal Audit function performs the internal audit of Companys activities based on an internal audit plan, which is reviewed each year and is approved by the Board of Audit Committee. The Audit Committee reviews the report submitted by the internal auditors. Suggestions for improvement are considered and the audit committee follows up on corrective action. Disciplinary action is taken, wherever required, for non-compliance to corporate policies and controls.

The Company has also implemented effective systems for achieving highest level of efficiency in operations, to achieve optimum and effective utilization of resources, monitoring thereof and the compliance with provisions all laws including the Companies Act, 2013, Listing Agreement, directions issued by the Securities and Exchange Board of India, labour laws, tax laws etc. It also aims at improvement in financial management, and investment policy. The System ensures appropriate information flow to facilitate effective monitoring.

HUMAN RESOURCES

We believe that our employees are key contributors to our business success. We focus on attracting and retaining the best possible talent. Our Company looks for specific skill-sets, interests and background that would be an asset for our business.

As on March 31, 2020, the Company had 150 employees on payroll. The manpower is a prudent mix of experienced and young professionals which gives us the dual advantage of stability and growth. The work progress and skilled/ semi-skilled/ unskilled resources, together with the Companys strong management team, have enabled it to successfully implement our growth plans.

The Company also imparts behavioral, technical and on the job training to our employees. Technical trainings are mandated by the vendor whenever the employees have to deal with pre-technical or post technical issues. Training calendars are set by the vendors and nominated employees from our Company attend the program and obtain a feedback on the completion of the program.

OUTLOOK

Creative Peripherals strategizes to collaborate with brands on an exclusive distribution rights arrangement. This enables a closer association with the brand and the ability to implement uniquely devised marketing strategies for specific products under that brand. The Company aims to utilize its market analysis and intelligence to execute marketing and sales plans at individual stores for the brand. In this direction, Creative Peripherals invests in training and engaging staff at various points of sale, representing the brand and driving sales. Moreover, preferring an exclusive agreement also helps the Company is gaining market share as exclusive distributors for key brands and products, mitigating risk from competition.

Such insights and on-ground marketing help Creative Peripherals garner a pull effect among global brands, which recognize and approach the Company for its specialization in local strategy and a pan India presence. Creative Peripherals has partnered with several renowned brands for distribution in India, with fruitful agreements with GoPro, Honeywell, InVue, etc. The Company has a broad-based distribution model which is based on multiple products and multiple brand strategies. The focus is to capture a considerable market share in each of the product categories. This helps the Company to make product offering complete to the channel partners.

A skilled and experienced team, with a good rapport with clients (owing to timely and quality delivery of goods & services), further benefits the Company in creating and expanding its work platform. To retain existing customers and ensure repeat order flows, the team regularly interacts with clients and focuses on gaining an insight into the additional needs of customers. Creative Peripherals intends to expand its customer base by reaching out to other geographical areas. The Company operates with a dealer network of over 5,000 dealers and intends to strengthen this network to boost organic growth.

The year 2020 was adversely impacted by the COVID-19 outbreak, which caused significant slowdown in overall growth trajectories across industries. However, we took the opportunity to enhance skill sets and internal efficiencies during this time. With the markets reopening, we are in a position to fully capitalize on the demand and deliver at better scale.

Furthermore, in order to enhance the Companys geographical reach and client presence across the target markets, we launched Ckart, an online digital B2B eCommerce platform for our products as well as the clients products. The digital platform facilitates viewing, sharing and transacting of clients inventories amongst each other. One of the advantages would be the availability of full inventory for customers on the platform. Drop shipment will enable delivery directly to the clients customer. With this, the Company delivers a one stop shop for all the needs of its clients.

Going forward, we see this platform play a pivotal role in the paradigm shift of distribution from a brick and mortar, to an online-based service.

For and on behalf of the Board of Directors

Creative Peripherals and Distribution Limited

Mr. Ketan Patel

Chairman & Managing Director

DIN: 00127633

Date: 25th June, 2020

Place: Mumbai.