electronics mart india ltd share price Management discussions

ECONOMIC OVERVIEW

Global Economy

The year 2022 began with cautious optimism as the lingering effects of the Covid-19 pandemic continued to subside. However, the global economy still had to struggle with several headwinds in the form of increasing inflation, geopolitical tensions, Russia-Ukraine conflict and a tightening monetary policy. To control the inflationary pressure, central banks of various countries increased the interest rate, which impacted the bond market. Major international banks faced the heat from the tightened monetary policy, as it placed them on a shaky ground, further deteriorating their performance, including the collapse of Silicon Valley Bank. Moreover, the anticipated growth rate has also contracted from 3.4% in 2022 to 2.8% in 2023 because of these events.

Central banks of a host of countries have launched a robust fight against rising inflation. The fight is starting to pay off, but central banks must continue their efforts. As a result of a weaker global demand and the implementation of tighter monetary policies, global inflation is anticipated to decrease from an average of 8.7% in 2022 to 7.0% in 2023. Despite efforts to control inflation, core inflation rates persistently remain high in most regions. The combination of supply chain bottlenecks, generous Government spending, tight labour markets and a commodity shock - triggered by the Russian invasion of Ukraine - have together contributed to this trend. The persistent volatility around high inflation, rising recession risks and monetary policy uncertainty has led to significant fluctuations in financial markets. However, both inflation and core inflation are showing signs of improvement as a result of concerted efforts.

Outlook

Despite challenges faced, the world economy is projected to grow at 3.0% in 2024. Advanced economies is anticipated to grow from 1.3% in 2023 to 1.4% in 2024. Conversely, emerging market and developing economies are projected to have more promising economic prospects, with an average growth rate predicted at 3.9% in 2023 and an anticipated increase to 4.2% in 2024. In order to balance the goals of boosting economic output and controlling inflation, macroeconomic policies to be thoughtfully calibrated. Effective coordination between monetary and fiscal policies is projected to mitigate the potential of an extended and severe economic downturn. It is in the best interest of all the countries to engage in stronger international collaboration to mobilise resources and avoid further disruptions.

Indian Economy

The year 2022-23 witnessed India maintaining a steady trajectory of economic recovery, continued from 2021-22.

The resilience of Indian economy owes it to a host of factors, including the widespread administration of the Covid-19 pandemic vaccinations. Moreover, an optimistic business environment and robust industrial output have provided strong momentum for the growth of Indias economy. The manufacturing Purchasing Managers Index (PMI), compiled by S&P Global rose to 57.8 in December 2022 from 55.7 in November 2022. The PMI average for the third quarter of the fiscal stood at 56.3. The fourth quarter PMI averaged to 58.7 rising to a 31 month high. Several indicators including total GST collections, digital transaction volume, electricity demand, rail & air passenger and freight traffic, petroleum product consumption, and coal production have pointed towards a positive recovery trajectory. Private consumption has rebounded, and overtaken export stimuli as the primary growth driver. This increase in private consumption has further augmented production activity, resulting in higher capacity utilisation across various sectors.

These combined factors have resulted in growth in GDP to 7.2% in FY 2022-23, positioning India as one of the fastest growing economies globally. The country is well-placed to weather global spillovers compared to other emerging markets.

Indias economy is well-positioned to weather global spillovers compared to other emerging markets. This is partly due to the countrys sizeable domestic market and a steady increase in the capital expenditure of the Government. This has also contributed to an increase in employment. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has been instrumental in generating employment opportunities directly in rural areas, while also creating avenues for rural households to diversify their income streams. Despite food scarcity across the globe, initiatives such as PM-Kisan and PM Garib Kalyan Yojana have played a crucial role in ensuring food security in the country and helping the Indian economy to remain immune to these challenges.

Outlook

The outlook for India continues to remain bright, with an investment boom sparking sharp increases in factory output, bank lending and consumer purchases. Moreover, this economic expansion is anticipated to boost business confidence and serve as a catalyst for increased private- sector investment. The resultant optimism and enthusiasm among investors are further set to fuel the growth of the Indian economy.

INDIAN CONSUMER DURABLE INDUSTRY

In India, there is a rising demand for various consumer durable goods due to increasing disposable income and technological advancements. As a result, there is intense competition among the numerous consumer durable brands, present in the country. Multinational organisations recognise the immense potential for growth and development in India and therefore view it as a critical market to prioritise.

As per a report by CRISIL Research, the consumer durables industry was valued at f 2.4 Trillion in 2021. Out of this, mobile phones & PCs accounted for the largest share, to the tune of f 1.5 Trillion, whereas large household appliances

and other small appliances comprising the rest of the share. This indicates that India is a promising destination for short-term to medium-term expansion of consumer electronics expenditure worldwide. Consumer electronics market in India has attracted several significant investments in the form of FDI inflows and merger & acquisition by major players in the international market.

The approval of the Electronic Development Fund Policy under the Make in India initiative aims to streamline a convoluted duty structure. Alongside this, the Modified Special Incentive Package Scheme (M-SIPS) has been implemented to offer a subsidy of approximately 15% to 20% for CAPEX. This will encourage increased investment by consumer electronics manufacturers in production, distribution and research & development activities in the coming years. Furthermore, Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS 2022), initiated by the Government of India, aims to strengthen the manufacturing ecosystem for electronic components and semiconductors in the country.

Market Segmentation of Consumer Durable Appliances in India (fiscal 2021)

Major Growth Drivers

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With the growing middle-class and rising disposable incomes, consumers are willing to spend more on electronic goods, including smartphones, laptops and home appliances.

The increasing penetration of the internet in India has led to a surge in online shopping, making it easier for consumers to purchase electronic goods from the comfort of their homes.

The Indian Government has implemented various policies to promote electronics manufacturing and increase foreign investment in the sector, which has led to a surge in demand for electronic goods in the country.

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Rapid advancements in technology have led to the launch of new and innovative electronic products, such as smart home devices, wearables and virtual reality headsets, which have contributed to the growth of the electronics retail industry.

The increasing urbanisation of India has led to a rise in demand for electronic goods as consumers in urban areas tend to have higher disposable incomes and a greater willingness to adopt new technologies.

With the growing middle-class and rising disposable incomes, consumers are willing to spend more on electronic goods, including smartphones, laptops and home appliances.

The growth of the e-commerce industry in India has led to a surge in demand for electronic goods as consumers can purchase them easily through online platforms.

COMPANY OVERVIEW

Electronics Mart India Limited (referred to as EMIL or the Company) is the fourth-largest retailer of consumer durables and electronics in India with a rich history. The origin of the Company dates back to 1980 when it was established as a sole proprietorship under the name M/s Bajaj Electronics in Hyderabad. In 2011, the Company underwent a transformation and became a partnership firm, still operating under the same name as per the partnership deed dated 25th March 2011. In 2018, Bajaj Electronics became a public limited Company under the name Electronics Mart India Limited.

EMIL established its inaugural consumer durable and electronics retail store in Hyderabad. In 2020-21, EMIL emerged as the leading revenue-generating player in South India, with a particular stronghold in Telangana and Andhra Pradesh. As of 31st March 2023, it operates 127 retail stores in total, spanning 15 cities in Andhra Pradesh, 21 cities in Telangana and 3 cities in the Delhi NCR region. The Company has been consistently expanding its retail business area, with an increase from 0.76 Million square

feet in 2019-20 to 1.23 Million square feet as of 31st March 2023. The Company conducts its business operations through three channels including, retail, wholesale and e-commerce. Retail contributes 98% to the revenues, while wholesale and e-commerce channels each contribute ~1% to the total revenue.

The Company focusses on providing best-in-class technology for every household in the country and delivering wide range of durable products at affordable prices. It offers an extensive selection of products, comprising over 6,000 Stock-Keeping Units (SKUs) from more than 70 well-known consumer durable and electronic brands. EMILs products cover a wide range of categories, including large appliances, small appliances, mobiles, and IT, among others. As of 31st March 2023, the Company had a retail presence in 40 cities or urban agglomerates, operating 127 stores with a total retail business area of 1.23 Million square feet. Of these stores, 114 were MultiBrand Outlets (MBOs), and the remaining 13 were Exclusive Brand Outlets (EBOs).

Key Strategies

• Expanding and Deepening Reach in Existing and : Select Geographies I

EMILs expansion strategy centres on strengthening its store network in established clusters, while selectively venturing into new markets to achieve long-term growth. The Company aims to add 42 stores over the next two years, with a focus on Tier-I and Tier-II cities. Of these, 13 stores will be established in the Delhi NCR region, while 29 will be set up in the southern region of the country, specifically 21 in Andhra Pradesh and 8 in Telangana. By pursuing this approach, EMIL seeks to bolster its presence in key regions and capitalise on the available and emerging growth opportunities.

• Leveraging Consumer Finance and Enhancing Purchasing Ability of Customers

EMIL recognises the benefits of consumer financing, as it allows it to increase the average selling price without significantly impacting volumes. To streamline the financing process, EMIL has invested in integrating its systems with financing companies to reduce payment realisation time. The Company offers consumer financing options through credit and debit card EMIs as well as through select fintech companies. By providing these options, the Company aims to make its products more accessible and affordable to a broader range of customers.

I Enhancing Sales Volume by Offering Diversified : Product Portfolio I

EMIL aims to broaden its product portfolio to enhance the shopping experience for its customers and establish itself as a comprehensive one-stop-shop for consumer durables. By offering a wider range of products, EMIL strives to enrich its customers with increased shopping options. The Company has many long-standing relationships with reputable brands. It plans to leverage these relationships to introduce new products launched by these brands.

I Investing in Technology, Optimising Working Capital, Reducing Operational Costs

EMIL prioritises maintaining optimal operational efficiency. To achieve the same, the Company steadfastly focusses on planning, sourcing, vendor management, logistics, quality control, pilferage control, replacement, and replenishment. Moreover, the Company aims to enhance its operational efficiency and supply chain management. To this effect, it seeks to invest substantially in upgrading and acquiring technological systems to improve productivity. EMIL plans to expand and upgrade its warehouses to improve the efficiency of inventory and supply chain management. These measures are set to enable the Company to streamline its operations, optimise costs and ensure timely delivery of products to its customers.

Geographical Expansion

The Company has a strategic vision to adopt a peripheral and concentric expansion approach, which entails targeting adjacent states to unlock new opportunities. By expanding its footprint in existing cities through the establishment of more stores, the Company aims to tap into new catchment areas within these cities and optimise its infrastructure. In line with its customer-centric approach, the Company continues to prioritise the modernisation of its stores. Further, it looks to enhance its infrastructure to provide a comprehensive display of products that caters to a diverse range of brands and price points.

Sponsored Events and Sales Promotion

The Company offers promotional opportunities to enhance brand recognition and generate media coverage at a reasonable cost. This enables the Company to reach out to its target customers more effectively. As part of its marketing strategy, EMIL organises a special contest called Indias Biggest Festive Offer during the festive season, such as Dussehra or Diwali. This contest is aimed at offering its customers the chance to win cash prizes of up to ? 10 Million as well as small passenger cars.

Expansion into E-Commerce

EMIL has diversified its business operations by entering the rapidly growing e-commerce industry.

This expansion was made possible through its official website, which serves as a comprehensive online catalogue of the wide range of products that the Company retails in its physical stores. Moreover, the Company has entered into collaborations with leading domestic and international e-commerce players to expand its reach and tap into new business opportunities. This strategic move has enabled EMIL to expand its business beyond traditional brick-and-mortar retail stores and into the fast-growing digital retail market.

Technological Changes

The electronics industry is constantly evolving, and EMIL must keep up with the latest technologies and trends to stay relevant. Failure to do so can result in a loss of market share to more innovative companies. The advent of new products and constant innovation can help the Company to stay competitive and drive its growth.

CompetitionF

Over the past few years, the Indian electronics retail industry has experienced a surge in competitiveness. This surge is expected to cause a reduction in the catchment area of EMILs stores. Moreover, the growing number of options available to customers has increased their bargaining power. Hence, store operators are adopting aggressive discounting practices that may have a negative impact on gross margins.

FINANCIAL PERFORMANCE

Profit and Loss Statement (in Rs Million)

PARTICULARS ON STANDALONE BASIS	2022-23	2021-22
Revenue from Operations	54,457.10	43,493.16
Growth (%)	25.21	35.65
Cost of Goods Sold	47,050.24	37,553.87
Gross Margins (%)	13.60	13.66
Employee Expenses	940.45	788.03
% to Revenue from Operations	1.73	1.81
Other Expenses	3,105.58	2,231.73
% to Revenue from Operations	5.70	5.13
Total Operating Expenditure	51,096.27	40,573.63
EBITDA	3,360.83	2,919.53
EBITDA Margin (%)	6.17	6.71
Finance Cost	985.41	846.14
Depreciation	853.79	713.21
Other Income	110.42	37.51
PBT	1,632.05	1,397.69
Total Tax	403.92	358.67
PROFIT AFTER TAX	1,228.13	1,039.02

YEAR ENDING MARCH	2022-23	2021-22	% CHANGE
Per Share Data (Rs)
Basic EPS	3.63	3.46	4.91
Face Value	10	10	-
Cash Per Share	5.22	1.15	359.91
PROFITABILITY
RATIOS (%)
EBITDA Margins	6.17	6.71	(8.05)
PBT Margins	2.98	3.00	(7.17)
PAT Margins	2.25	2.39	(5.86)
TURNOVER (Days)
Inventory Days	60	60	-
Debtor Days	9	9	-
Creditor Days	0	2	-
Return Ratios (%)
ROE	13.79	19.09	(27.76)
ROCE	14.86	18.87	(21.26)

YEAR ENDING MARCH	2022-23	2021-22	% CHANGE
Valuation Ratios (X)
P/E	18.25	N.A.	N.A
EV/EBITDA	9.17	N.A	N.A
EV/Revenue from	0.57	N.A	N.A
Operations
Market Cap/Revenues	0.47	N.A.	N.A
Price to Book Value	6.63	N.A.	N.A.
SOLVENCY RATIOS
Debt/Equity	0.61	1.00	(38.33)
Debt/EBITDA	2.16	2.03	6.40
Current Ratio	1.90	1.46	30.38
Quick Ratio	0.86	0.52	65.38

HUMAN RESOURCES

EMILs approach to talent planning and management is guided by a comprehensive strategy that considers both its long-term and short-term goals. As part of the talent strategy, decisions regarding whether to build or acquire talent for leadership and critical roles are made. Key talent is matched with strategic roles, and internal talent movement and development plans are determined accordingly. Additionally, organisational training needs are identified, with the Company conducting technical, functional and culture-building programmes to address them. In order to establish a strong frontline workforce, the Companys HR department recruits fresh talent through various sources. The Company focusses on developing a competent and enthusiastic workforce through its human resource policies. EMIL places a strong emphasis on identifying talent and potential in its employees and motivates them to take on more responsibility. The Company evaluates employees performance, and offers in-house promotions as a reward for their hard work instead of hiring externally. EMIL showroom employees and senior executives also receive performance-based incentives, in addition to their regular salaries. As of 31st March 2023, the number of employees on the payroll of the Company stood at 2,271 (excluding three Executive Directors).

RISKS AND CONCERNS

EMIL has implemented a risk management policy with several key objectives. The idea is to ensure that all current and future material risk exposures are identified, assessed, quantified, mitigated, minimised, and managed. This is done to protect the brand value of the Company through strategic control and operational policies. In addition, the

Company steadfastly seeks to comply with appropriate regulations wherever applicable by adopting best-inclass practices. To achieve these objectives, the policy establishes a structured and disciplined approach to risk management. This approach helps in arriving at correct solutions for various risk-related issues.

RISK	IMPACT	MITIGATION
Insurance Risk
	EMIL faces potential risks associated with the storage and handling of its products. These risks include fires, earthquakes, floods and other unpredictable events. Moreover, occurrences like acts of terrorism and explosions may result in loss of life and extensive property and inventory damage.	To mitigate such risks, the Company has adopted industry-standard insurance policies, including burglary insurance as well as standard fire and special perils coverage for its warehouses and stores.
Competition Risk
	EMIL faces competition from a diverse range of players, including those operating in the retail, wholesale and e-commerce sectors. The Company competes against a range of national and local large format stores, independent retail stores as well as e-commerce businesses that offer similar merchandise.	To mitigate this risk, the Company focusses on putting in efforts to build relations with reputed brands and propositions that will provide access to high-value products and create a connect between its customers and its brand identity.
Reputational Risk
	The continued maintenance and improvement of EMILs brand recognition and reputation are crucial to its future success. Failure to do so may impede the ability to maintain and expand its consumer base, leading to negative impacts on business operations, financial condition, cash flows, and results of operations.	To mitigate this risk, the Company leverages its strong corporate culture and is involved in continuous monitoring and improving the processes in vogue.
^^Supply Chain Risk^^—
	In the event of a delay or failure on the part of EMILs suppliers to deliver products in a timely manner or any decline in the quality of products supplied, its business, profitability, and reputation may be materially and adversely affected.	To mitigate this risk, the Company focusses on implementing systems and processes to provide stability into supply chain, including inventory levels, lead times, and delivery schedules. It also avoids relying on a single supplier or region and diversifies its supplier base to minimise the impact of supply chain disruptions.

INTERNAL CONTROL SYSTEM

EMIL has established a comprehensive Internal Financial Control (IFC) framework as required under Section 134(5) of the Companies Act, 2013. This framework is commensurate with the Companys nature and complexity of business operations. The framework is well- documented, covering all financial and operating functions, and is designed in accordance with the Companies Act, 2013 and the Guidance Note issued by The Institute of Chartered Accountants of India. Its primary objective is to ensure the proper maintenance of accounting records, reliable financial reporting, and compliance with applicable laws and regulations.

The Company has a robust system for internal audit, risk assessment, and mitigation. An independent Internal Audit function, handled by an independent firm of Chartered Accountants, having more than three decades of experience. This function reports to the Board Audit Committee, providing an external perspective, industry best practices and benchmarks. The Internal Audit function carries out an annual internal plan, approved by the Board Audit Committee. The scope and coverage of audits include reviewing and reporting on key process risks, adherence

to operating guidelines and statutory compliances. It also includes recommending improvements for monitoring and enhancing the efficiency of operations. Periodically, significant internal audit findings and agreed-upon action plans are presented to the Audit Committee/Board. The Committee monitors the progress of implementation of these actions, along with the adequacy and reliability of financial reporting, internal control and risk management frameworks.

During the year, the operating effectiveness of internal controls was tested as part of the Managements control testing programme. Based on the testing carried out and evaluation of the results, the Board, with the concurrence of the Audit Committee, concluded that the Companys Internal Financial Controls were adequate and operating effectively as of 31st March 2023.

CAUTIONARY STATEMENT

This report contains statements that may include forwardlooking remarks within the meaning of applicable Securities Law and Regulations. It is important to note that numerous factors could cause the actual results, performances or achievements of the Company to be materially different from any future results, performances or achievements. Significant factors that could impact the Companys operations include changes in domestic and international economic conditions, alterations in Government regulations, changes to the tax regime and modifications to other statutes.