d link india ltd Management discussions


MANAGEMENT DISCUSSION AND ANALYSIS REPORT

INDUSTRY OVERVIEW

Global Economic Scenario

The global economic scenario for the fiscal year 2022-2023 is expected to be challenging, with growth slowing from 3.6% in 2022 to 2.8% in 2023. This slowdown is being driven by a number of factors, including the ongoing war in Ukraine, rising inflation, and tighter monetary policy. Inflation in the United States and the Eurozone is at its highest level in decades, and it is expected to remain elevated in 2023. Despite these challenges, there are some positive signs in the global economy. The labour market in the United States is strong, and consumer spending is still growing. Chinas economy is also showing signs of recovery.

Despite the decline in overall growth, worldwide IT spending is still expected to be strong in 2023. This is due to the continued demand for digital transformation initiatives, as well as the need for businesses to invest in new technologies to stay competitive.

According to the latest forecast by Gartner, Inc, worldwide IT spending is projected to total $4.6 trillion in 2023, an increase of 5.5% from 2022. This is down from the previous quarters forecast of 7.3% growth. The decline in growth is due to a number of factors, including the continuing war in Ukraine, rising inflation, and supply chain disruptions.

The largest segment of IT spending in 2023 is expected to be software, followed by IT services and data center systems. The devices segment is expected to see the slowest growth, due to the decline in PC sales.

INDUSTRY OUTLOOK IN INDIA

The Indian economy grew at a rate of 7.0% in 2022-23, according to the Second Advance Estimates of National Income released by Indias National Statistics Office. This is lower than the 9.1% growth rate recorded in the previous fiscal year, but India is still one of the fastest-growing major economies in the world.

The slowdown in growth was due to a number of factors, including the ongoing war in Ukraine, but the economy is still expected to grow at a healthy pace, given the governments policies and the strong fundamentals of the economy.

The International Monetary Fund (IMF) has forecast that Indias economy will grow by 6.4% in 2023 and 6.9% in 2024 and could be the worlds fastest-growing economy.

The Production Linked Incentive (PLI) scheme for IT hardware in India is helping to boost the growth of the IT hardware industry in a number of ways. The PLI scheme provides financial incentives to companies that invest in IT hardware manufacturing in India. This has led to a significant increase in investment in the sector, with many global companies announcing plans to set up manufacturing plants in India. The PLI scheme encourages companies to source components and sub-assemblies locally. This will help to develop the domestic supply chain for IT hardware and reduce Indias reliance on imports.

According to a forecast by research firm Gartner, IT spending in India is projected to grow 2.6% in fiscal year (FY) 2023. This growth is expected to be driven by the continued adoption of cloud computing, artificial intelligence (AI), and other emerging technologies. The forecast also shows that the IT services segment will be the fastest-growing segment in FY 2023, with spending expected to grow by 7.8%. This growth is being driven by the increasing demand for IT consulting and outsourcing services.

The hardware segment is expected to grow at a slower pace in FY 2023, with spending expected to grow by 2.4%. This growth is being driven by the increasing demand for servers, storage devices, and networking equipment. Overall, the IT spending forecast for India in FY 2023 is positive. The continued adoption of emerging technologies and the increasing demand for IT services are expected to drive growth in the IT market.

According to IDC Report, the Ethernet Switch, Router, and WLAN markets are expected to grow in single digits in terms of compound annual growth rate (CAGR) for 2021-2026. Increased adoption of emerging technologies such as cloud, IoT, mobility, etc. would drive incremental revenues. IDC also expects large investments for 5G rollouts in the next couple of years.

The India router market is expected to grow at a healthy pace with a CAGR of 9.20% from 2023 to 2028. The growth of the market is driven by a number of factors, including the increasing demand for high-speed internet, the growing number of connected devices, and the increasing adoption of smart homes and businesses.

In 2022, the Indian router market was valued at USD 13.94 billion. The market is dominated by a few major players, including TP-Link, Tenda, D-Link, and Netgear.

The WLAN market in India is growing rapidly, with a CAGR of 20.2% expected in the next few years and is being driven by the need for secure wireless connectivity and increasing adoption of new technologies such as Wi-Fi 6 and Wi-Fi 6E.

The WLAN market in India is a highly competitive market. The market is also seeing the emergence of new players, such as Indian startups. These startups are offering innovative and cost- effective WLAN solutions that are gaining traction in the market. D-Link is constantly innovating and introducing new products and solutions in order to stay ahead of the competition.

In the enterprise segment, the WLAN market is being driven by the need for reliable and secure wireless connectivity for employees. This is particularly important for businesses that operate in remote locations or that have a large number of mobile workers. The WLAN market is also being driven by the increasing adoption of cloud-based applications and services, which require high-speed and reliable wireless connectivity.

In the consumer segment, the WLAN market is being driven by the increasing popularity of smart home devices and the growing demand for high-speed internet connectivity in homes. Smart home devices such as smart TVs, security cameras, and thermostats require a reliable and secure wireless connection. The WLAN market is also being driven by the increasing popularity of online gaming and streaming services, which require high-speed internet connectivity. The semiconductor shortage is expected to continue in India for some time, but the governments efforts should help to mitigate the impact in the long term. The Ethernet Switch, Router, and WLAN markets are expected to grow in single digits in terms of compound annual growth rate (CAGR) for 2021-2026.

OPPORTUNITIES AND THREATS

The Indian IT hardware industry is poised for significant growth in the coming years, driven by increasing demand, government initiatives, and a favourable business environment.

The Indian IT hardware market is expected to grow at a CAGR of 10.5% from 2022 to 2027, driven by the increasing demand for IT hardware products from both the domestic and export markets. The growth of the Indian economy, the rising disposable incomes of consumers, and the increasing adoption of digital technologies are some of the key factors driving the growth of the Indian IT hardware market.

The Indian government is taking several initiatives to promote the growth of the IT hardware industry in the country. These initiatives include the Production-Linked Incentive (PLI) scheme, the National Manufacturing Policy, and the Startup India initiative. These initiatives are expected to provide a boost to the growth of the Indian IT hardware industry by attracting investments, creating jobs, and boosting exports.

India offers a favourable business environment for the IT hardware industry. The country has a large pool of skilled and low-cost labor, a robust manufacturing sector, and a strategic location. These factors make India an attractive destination for IT hardware manufacturing.

In addition to these key opportunities, the Indian IT hardware industry is also expected to benefit from the growth of new technologies such as artificial intelligence (AI), cloud computing, and the Internet of Things (IoT). These technologies are expected to create new demand for IT hardware products and services.

Overall, the Indian IT hardware industry is well-positioned for growth in the coming years. The industry is expected to benefit from a number of factors, including growing demand, government initiatives, and a favorable business environment. As a result, the Indian IT hardware industry is expected to create new jobs, boost exports, and contribute significantly to the Indian economy.

The IT hardware industry is becoming increasingly competitive, with new entrants from emerging markets such as China and Vietnam posing a threat to Indian companies. These companies often have lower costs and can offer products at more competitive prices. The Indian market is increasingly demanding high-end IT hardware products, such as servers and storage devices. Indian companies are not yet well-positioned to compete in this market, as they lack the necessary technology and expertise.

In addition to the above, other threats that the Indian IT hardware industry is facing like increasing cost of raw materials, shortage of skilled labour and the regulatory environment etc.

Despite these challenges, the Indian IT hardware industry is still growing rapidly. The industry is expected to reach a value of $400 billion by 2025, and it is expected to create millions of jobs in the coming years. With the right strategies and investments, Indian IT hardware companies can position themselves to capture a significant share of this growing market.

D-Link (India) Limited is a principal player in the Small Office Home Office and Small and Medium Business segment, closely aligned with System Integrators. In parallel, the company also targets other key verticals, including Government, Education, BFSI and

Manufacturing, among others. We believe that our understanding of high-performance networking technology, our strategy, and our brand legacy positions us well to capitalize on the industrys growth.

D-Link India is well-positioned to take advantage of the impending boom in networking and internet products, thanks to strong parental support from D-Link Taiwan. D-Link Taiwan provides D-Link India with a pipeline of the latest and most innovative products, which gives the Indian subsidiary a competitive edge in the market. Additionally, the growing IT spending and increasing government initiatives in India are expected to fuel growth in the Indian enterprise networking market over the coming quarters. The industry players are continuously expanding and innovating their product portfolio to adapt to the technological changes and cater to the growing consumer needs.

OPERATIONAL REVIEW

The "Make in India" initiative is a government program that aims to make India a global manufacturing hub. One way to achieve this goal is through outsourced manufacturing.

D-Link (India) Limited is strongly focusing on local products as part of its ‘Make in India initiative. "Make in India," and localization of products are two important initiatives of the Indian government that are closely linked. D-Link (India) has been granted exclusive rights/ license by the parent company to use the D-Link trademark for such locally manufactured products. The Company had made strategic decisions on manufacturing certain products locally through third-party or contract manufacturing with its own brand names, under its own proprietary designs, quality control and supervision. The Company has made noteworthy progress in this direction and has entered into arrangements with local manufacturers.

The future of the structured cabling market in India is bright. The market is expected to continue to grow at a rapid pace in the coming years, driven by the increasing demand for higher bandwidths, the rapid digitization of the economy, and the governments focus on infrastructure development.

D-Link offers a wide range of structured cabling products, components, and services and is one of the major players in the Indian structured cabling market.

The Company maintains a substantial market share in the consumer wireless and switching sectors. Its unmanaged and smart managed switches are among the most popular products among small and medium-sized businesses (SMBs).

D-Link is focused on providing world-class customer services and keeps working towards enhancing its existing countrywide distribution and support infrastructure. It has a strong network of National Distributors, Business Distributors, and over 15000+ resellers reaching out to its customers across the length and breadth of the country and ensuring that its products are available in the remotest parts of the country.

To serve its customers in a holistic way, D-Link India has invested in state-of-the-art support infrastructure for both consumers and enterprises, which includes 10 D-Link-owned Service Centres with 50+ experts in Tier 1 cities, 23+ Partner Service Centres with 40+ experts in Tier 2 / Tier 3 cities, Partner Collection Points in 105+ cities and logistic support in 190+ cities.

D-Link Technical Support Centers (DTSC) is manned by 30+ highly skilled engineers providing L1~L3 support for all our retail and enterprise customers. Further, our customers can also interact with the technical experts present across various centers and have hands-on product experience with live demos. It is a matter of great pride for the organization that its TCE (Total Customer Experience) score has consistently been above 95%.

Product & Solutions:

The Company launches new upgraded, improved, or innovative products. The Company remains a leading global brand in wireless, broadband, SMEs and home network product markets. The main products recently launched include cloud switches, 2.5Gbps smart switches, enhanced enterprise integrated wireless solutions; EAGLE PRO AI Wi-Fi Mesh routers, bridges, and access points; multifunctional wireless broadband 4G/5G routers and developed AIoT applications in various industries; high-resolution two-way IP cameras for real-time voice chat, peripheral devices related to smart homes, and cloud network management platforms.

Network Switching Solutions:

The switch market, which is the backbone of the network, has always been the biggest beneficiary of traffic growth. Nuclias Connect is a cloud management platform that provides centralized control and management for D-Link wireless access points (APs). It can be used to manage APs in a single location or across multiple locations. Nuclias Connect offers a variety of features.

The Company also developed and launched the DSS network surveillance switch series with a 250m distance specially used to connect Power over Ethernet (PoE) devices such as wireless access points (APs), IP cameras, and IP phones to the network. The switches can provide power to IP cameras and other PoE devices over the same network cable that carries data.

The switch market will continue to grow as network traffic continues to rise. D-Link (India) offers a series of relevant 10G/100GbE Ethernet switches to effectively alleviate the server congestion and congestion backbone network. In addition, Data Center switches, PoE switches (surveillance switches) for camera deployment, and enterprise wireless cloud switches are also under continuous development.

There is increased demand for gigabit switches from large enterprises and service providers. For this, D-Link has a comprehensive range of switching solutions including Chassis, L3/L2 Managed, Smart and Un-Managed switches which can be used in the Core, Distribution, and Access levels in the networking infrastructure. Verticals like government, retail, manufacturing, services, financial, education and healthcare contributed to the revenues of this segment. Built on the strength of these D-Link Network Switches, specific network solutions can help small and medium-size businesses, hospitals, schools, universities, and government agencies meet the challenge of growing demands.

D-Link offers a wide variety of data solutions to meet the specific requirements of a smart city communication network, playing a pivotal role in designing the network and providing the essential building blocks.

Industrial Switching Solutions:

Industrial switching solutions are a type of networking technology specifically designed for use in industrial settings. They provide reliable, high-speed data transmission for industrial networks, including 10G industrial switches for faster speeds. D-Link has extended its portfolio by introducing an extensive line-up of Industrial grade Ethernet switches. D-Link has multiple series of Industrial grade switches with options like rail mount and rack mount that shall provide users with best-fit solutions. D-Link Industrial switches are designed to operate in extreme weather, resist shock/vibration, and surge ratings, thereby offering high reliability.

D-Link Industrial switches can withstand harsh environmental conditions and are suited for controlled and challenging needs of Oil & Gas industry, Shipping, Manufacturing etc. With their strong build, the whole family of Industrial switches is certified against vibration, shock and free-fall. The industrial product range was created to withstand extreme heat and below-freezing temperatures.

Wireless Solutions:

D-Link is developing an upgraded AQUILA PRO AI series of EAGLE PRO AI during the year and introducing Matter technology, coupled with a series of IoT devices, to build a smart home solution that provides services in the hope of increasing sustainable revenue and stabilizing profitability.

In the future, the Company will expand its product series and enhance the added value of its customized software and hardware while strengthening its bids for more projects. The pandemic has increased the demand for broadband access, which is expected to grow considerably this year.

In the Business Class of products, the Company introduced Wi-Fi 6 access points to provide unbeatable speeds, greatly increased capacity, and interference-free coverage throughout businesses. A new wall-mounted Wi-Fi access point was introduced for Small to Medium size businesses (SMB) and this works with D-Links free software-based management solution, Nuclias Connect. D-Link continues to play a pioneering and driving role in the cost-effective convergence of wired and wireless networking. The Company enjoys a good market share in unit terms in the WLAN category. Its product portfolio includes Wireless Routers, Business Class Access Points & Unified Switching Solutions.

Structured Cabling Solutions:

Structured Cabling is another key segment for D-Link. D-Links wide product range, combined with premium quality and excellent brand recall has resulted in confidence amongst partners and customers. D-Link has the entire copper and fiber range which can be positioned in high-end applications like data centers. Over the years, D-Link has witnessed remarkable growth in the Structured Cabling product category, with strong demand from large enterprises/SMEs/SMBs. The emphasis has always been on delivering complete end-to-end solutions, and with this agenda, we decided to introduce networking enclosures into our product portfolio. Moving ahead, the Company is confident of continuing to deliver technological excellence and complete customer satisfaction.

Surveillance Solutions:

The mydlink service solution is centered on surveillance, and the existing switches, loT, and software are integrated into one cloud service platform to allow customers to select, purchase, operate, and maintain security control equipment and systems more conveniently and easily, which significantly saves users time and cost. Moreover, products of the same brand can avoid the issue of product incompatibility and provide users with a more stable security surveillance environment D-Link surveillance products are in demand with broad acceptance from various industry verticals. The focus is on all three segments separately - be it Consumer, SMB/SME or Enterprise.

D-Link offers a range of IP-based Surveillance Cameras with Wired and Wireless options; these can be integrated with NVR (Network Video Recorder) solutions for archiving. The cameras span the spectrum of possibilities, including Stand-Alone Network Cameras, Pan Tilt Zoom Cameras, Dome Cameras (Day & Night), Box Cameras and Outdoor Cameras. D-Link Surveillance solution boasts the highest degree of scalability and can easily adapt to the existing IP infrastructure. The advanced features such as high security encryption, superb image quality, digital zoom, and remote accessibility surpass the most cutting-edge technologies available today.

While D-Link continues to be one of the key players in the IP Surveillance domain, it also expanded its product portfolio by venturing into the CCTV segment. D-Link CCTV range includes Analog HD Camera, DVR, DVR Enclosure, and CCTV Cable. D-Link with its CCTV Analog HD is set to address the growing demand from Residential, SOHO, SME, Banking, Hospitality and other commercial establishments. With resolution starting from 1 MP which goes up to 5 MP, D-Link Analog HD cameras are well suited for both indoor and outdoor applications and offer amazing clarity, sturdy looks, superlative quality, and are backed by D-Links excellent support infrastructure.

Financial Performance

The companys financial performance for the year ended March 31,2023, was strong. The Company posted a revenue of Rs.1,17,128.99 lakhs as compared to Rs.90,383.71 lakhs in the previous year. The Profit before Tax and Depreciation for the year under review was Rs.11,887.10 lakhs as against Rs.5,851.66 lakhs in the previous year, while Profit after Tax stood at Rs.8,433.39 lakhs as against Rs.4,046.57 lakhs in the previous year.

Key Financial Ratios

Sr. No. Particulars FY 2023 FY 2022
1 Current Ratio 2.31 2.20
2 Return on Equity Ratio (%) 26.05% 15.00%
3 Net Profit Ratio 7.20 4.48
4 Earning Per Equity Share 23.75 11.4
5 Net Profit to Net Worth Ratio 23.38% 14.1
6 Inventory Turnover Ratio 8.28 8.36
7 Debtors Turnover Ratio 4.40 4.51

Other financial ratios are disclosed in note 41 to the Standalone Financial Statement.

Human Resources

Your company provides a fair working environment and transparent policies to support the personal growth of employees, while also helping them achieve corporate objectives. Your Company will continue to maintain its focus on Human Development, as it considers its people resources central to meeting its business objectives. We are committed to creating a workplace where our employees can reach their full potential and make a significant contribution to our success.

HR is integrated within the business framework to provide a foundation for building the skill sets required. At D-Link, employees are given opportunities to develop their competence in challenging roles by leveraging on the exposure and responsibilities entrusted to them.

D-Links dedicated and talented workforce of more than 258 people across India has played a significant role in the Companys achievements and success.

Business Risks And Concerns

Technology Risk:

The inability to stay up to date with the changing technologies and latest trends is detrimental to business. Digitalization is emerging as a disruptive force for customers, buyers and technology. This disruption coupled with changes in delivery models and consumer spending patterns, could be a threat to the growth in traditional IT spending and technology obsolescence. D-Link operates in an ever-evolving and dynamic technological environment, and it is of utmost importance that the Company continuously reviews and upgrades its technology, resources and processes lest it faces technological obsolescence. The company addresses this with strong support from its parent company on R&D so that it stays ahead of the curve in technology and continuously sets new benchmarks with cutting-edge innovation.

Cybersecurity Risk:

In the hyper-connected world we are in, the risk of cybersecurity incidents that can cause economic losses and/or breach of company and personal information is a reality for any business. In keeping with best practices, the Company has a robust intrusion prevention system in place, which coupled with the strong risk management framework protects the Company against possible cyber security threats. The Company continues to evaluate and assess on ongoing basis the threat landscape and takes measures as appropriate to safeguard against cyber-attacks.

Competition:

The IT services industry is highly competitive, with competition arising from local IT companies and MNC IT hardware companies having a sizable presence in low-cost technologies. The competition can lead to pressure on pricing, vendor consolidation and hence can impact Company growth and profitability. New competitors are emerging from adjacent markets and distant geographies. D-Links differentiation strategy incorporating its unique business approach has led to its emergence as a leader in the dynamic IT industry. D-Link has developed competencies in various technologies, platforms and operating environments offering a wide range of product options to customers based on their needs. The Company has deep domain knowledge, a skilled workforce, delivery capabilities and an efficient sales force to help retain its competitive positioning amongst peers.

Currency risks:

The Companys functional currency is the Indian Rupee and volatility in currency exchange movements results in transaction and translation exposure. D-Link has substantial exposure to foreign exchange related risks on account of imports of finished traded products from its parent group companies. The management predicts that the USD currency position will continue to remain volatile. D-Link has a well-established hedging policy which has been followed consistently over the past years. Hedging is undertaken to protect the Company from unfavourable currency movements and the Company does not undertake any speculative hedging.

Supply Chain Volatility:

Supply chain volatility is a complex and ever-changing challenge. The supply chains of the global semiconductor industry, which was severely affected after the pandemic and faced further disruptions due to the Russia-Ukraine conflict. Any sudden disruption of global and domestic supply chains poses a risk for the Company. The Company has the right strategies for mitigating the risks and protecting the supply chain.

Internal Control Systems and their Adequacy:

The Company has aligned its current systems of Internal Financial Control with the requirement of the Companies Act 2013. Management maintains internal control systems designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with managements authorization and properly recorded, and accounting records are adequate for the preparation of financial statements and other financial information. The internal audit function also carries out Operations Review Audits to improve the processes and strengthen control of the existing processes.

The Audit Committee periodically reviews the functions of internal audit.

D-Links internal control systems and procedures adhere to industry standards in terms of effective resource utilisation, operational efficiency and financial reporting. The Company has appointed reputable firms of Chartered Accountants to oversee and carry out Internal Audits. The Audit is based on an Internal Audit Plan, which is reviewed each year in consultation with the Audit Committee. In line with international practice, the conduct of Internal Audit is oriented toward the review of Internal Controls. The adequacy of the Companys internal controls is tested from time to time and control deficiencies, if any, identified during the assessments are addressed appropriately.

Disclaimer:

Certain statements made in this report relating to the Companys objectives, projections, outlook, estimates, etc. may constitute ‘forward-looking statements within the meaning of applicable laws and regulations. Actual results may differ from such estimates or projections etc., whether expressed or implied. Several factors, including but not limited to economic conditions affecting demand and supply, government regulations and taxation, input prices, exchange rate fluctuation, etc., over which the Company does not have any direct control, could make a significant difference to the Company operations. 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. Readers are cautioned not to place undue reliance on any forward-looking statements. The MD&A should be read in conjunction with the Companys financial statements included herein and the notes thereto. Information provided in this MD&A pertains to D-Link (India) Limited unless otherwise stated.

For and on behalf of the Board
Tushar Sighat Madhu Gadodia
Managing Director & CEO Director
DIN: 06984518 DIN: 07583394
Mumbai, Dated: July 29, 2023