The Management Discussion and Analysis presented in this Annual Report focuses on reviewing the performance of the Company for the financial year (FY) 2018-19, financial statements of which have been prepared in compliance with requirements of the provisions of the Companies Act, 2013 ("Act") read with applicable rules, guidelines issued by the Securities and Exchange Board of India and the Indian Accounting Standards. Our management accepts responsibility for the integrity and objectivity of these financial statements, as well as for the various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably present our state-of-affairs, profits and cash flows for the year.
Eon Electric Limited (hereinafter "the Company") is engaged in the business of manufacturing and marketing of energy efficient lighting & other electrical and electronic products such as LED Lights, Lighting products, Energy Efficient Fans, Water Heaters, Wires & Cables, Lithium ion batteries, Mobile Phone accessories and other allied products.
The Company continues to be committed towards making the best of quality products at affordable prices through technological innovation and upgradation, modernisation, adoption of best practices, global benchmarking, value proposition, and deep commitment to customer satisfaction besides ensuring human as well as environmental safety, thus enhancing the value addition for stakeholders.
The Company witnessed a decline in its operations during Financial year 2018-19 on account of liquidity crunch experienced by it due to delay in the realisation of its receivables from its customers which resulted in a decline in its sales and increase in loss during 2018-19.
2018-19 was a year of recovery with economic environment gradually improving post the transitional impact caused during Goods and Services Tax (GST) implementation. Recent Government measures like rationalisation of GST rates, focus on availability of quality electricity and investment in infrastructure is expected to drive long term sustainable growth. Rural housing is expected to play an important role in coming years, over 1 crore rural households have been built in last 4 years, the momentum of which is likely to trigger the latent demand. Medium to long term outlook remains promising for the industry.
Indias Gross Domestic Product (GDP) grew by 6.8% in 2018-19, as per the data released by the Central Statistics Office (CSO). The growth is at a 5-year low after 2013-14 when the economy grew by 6.4%. However, India still continues to be the worlds fastest growing major economy. The World Bank projects Indias GDP to grow by an average of 7.5% in 2019-20 and 2020-21, with investment picking up and consumption remaining strong.
We believe the governments prudent policies will pave the path for a successful future of Indian power sector and thereby will change our economy radically.
The Indian Electrical market has grown at a single digit over the last few years. Slowdown in construction activity has been one of the major factors for a sluggish growth. The Central Governments ‘Housing for All by 2022 (20 million houses for urban poor and 30 million houses for the rural poor) and Smart Cities (development of 100 cities) missions promise to trigger fast-paced rollout of new homes. This should usher in multi-year growth for electrical products and appliances.
Besides, increasing consumer focus on aesthetics and energy efficiency, has also resulted in notable shift towards branded products. The ability to offer competitive pricing, superior product range & quality, upgraded technology and innovations, more safety features, and increased brand awareness, Eon is well placed to offer an enriching consumer experience.
Demand for lighting in India is driven by rural electrification, rapid infrastructure development, increase in manufacturing and urban housing, and consumer trends towards better light. The introduction of smart and intelligent lighting with its application in residential, commercial and industrial domains has also accelerated market growth. The key driving factors for smart lighting are modernisation, development of smart cities, demand for intelligent solutions for street lighting systems, need for energy-efficient lighting systems and increased adoption of leds.
LED lamps and luminaries continue to show promising growth reflective of the change in consumer preference towards energy-efficient and smart lighting. Consequently, the traditional lighting products have been on decline and LED now constitutes a substantial part of the Lighting business. GST rate rationalisation has also helped the organised players.
In consumer lighting, focus will be to get primary and secondary reach while in professional lighting, focus will be on product innovation and use latest technology for customer delight. B2B & B2G customers will be the growth driver for professional lighting.
The government is laying strong thrust on new energy efficiency measures to meet the unprecedented demand for electricity and to ensure energy security for sustainable economic growth. The World Bank has pegged Indias energy efficiency market at Rs. 1.6 trillion by considering end- use energy efficiency opportunities, against the backdrop of the success of the Governments UJALA scheme and street light national programme. The governments push promoting investments in energy efficient lighting technologies have expanded the applications of LED lights across various industrial, commercial and residential sectors. Due to their numerous advantages over conventional lighting technology, they have swiftly gained prominence in the Indian lighting market. A rapidly growing automotive industry, increasing infrastructural investments, rapid growth of street lighting systems, decline in average prices of leds and various government and upcoming smart building projects are expected to drive the demand of LED lights in India.
Government schemes like Integrated Power Development Scheme (IPDS) and Deen Dayal Upadhyaya Gram Jyoti Yojna (DDUGJY) schemes, are anticipated to positively influence the Lighting Industry.
Cables and wire industry
The demand for wires and cables is directly reliant on the expansion of the industrial sector and infrastructure development in the power generation and transmission, telecommunication, and residential and commercial sectors.
Rapid urbanization and rising global population have increased the demand in these areas, thereby offering multiple opportunities to the global wire and cable market.
The wires and cables business has been impacted by the rising commodity prices and the high GST rate during significant part of the year. After the GST rate rationalisation we feel that the implementation of GST and RERA will give impetus to the organised sector. Infrastructure spend by the Government and focus on digitisation to push demand for specialised communication cable.
The industry which has been growing at the rate of around 15% currently will start growing at the CAGR of over 20% over the next five years. The wires and cables industry in India has come a long way, growing from being a small industry to a very large one, over the past decade. The increasing demand for power, light and communication has kept demand high for wire and cable. This trend will continue as demand for reliable, efficient energy and data communication will strengthen the wires and cables industry in the future as well.
The emphasis of Government on non-conventional source of energy like solar is also a positive step for wire and cable industry. The target set by the Jawaharlal Nehru National Solar Mission to generate more than 1,00,000 MW of solar power by the end of year 2022, will boost the demand for electrical wires and cables.
Electrical consumer durables industry
Demand for Electrical Consumer Durables (ecds) is likely to remain strong with rising disposable incomes and higher market penetration. Increasing electrification of rural areas is driving demand for ecds in India. However, the sector is also witnessing increased competitive intensity with the entry of new players and portfolio expansion by existing players. With rising incomes and aspirations, premiumisation is the buzzword in consumer durables, with premium category products growing faster than overall industry growth rate. Consumers are increasingly seeking better designed and technologically superior products for both comfort and convenience.
The domestic fan market is estimated at 50 million fans per year with volumes growing around 6-7%. Fan is a high market penetration category. Rising rural penetration with increased electrification, higher disposable incomes, faster shift to the organised sector, and the urban replacement cycle getting shorter due to premiumisation are the key growth drivers for the market. Demand for premium fans with better aesthetics has been on the rise.
Financial performance of the Company for the financial year 2018-19 as compared to the previous financial year 2017-18 is furnished in detail in the Directors Report.
SEGMENT- WISE PERFORMANCE
The Lighting Segment achieved a turnover of Rs. 40.73 Crores for the financial year ended 31st March 2019 as against Rs. 105.84 Crores for the financial year ended 31st March, 2018. The operations of the Company were affected on account of the liquidity crunch experienced by it due to the delay in realisation of its receivables from its customers. The Company is working on new innovative strategic plans and pursuing new creative opportunities in the areas of advance LED based energy efficient and eco-friendly lighting systems which will further augment the growth of this segment during the coming years.
Cables & Wires
Our Cables & Wires segment recorded a turnover of Rs.32.69 Crores for the financial year ended 31st March, 2019 as against Rs.30.55 Crores for the financial year ended 31st March, 2018. The operations of the cables and wires segment remained under pressure during the financial year 2018-19 due to volatility in the commodity prices and weaker sentiment prevalent in the construction industry for quite sometime.
Electrical Consumer Durables
The Electrical Consumer Durables achieved a turnover of Rs.3.25 Crores for the financial year ended 31st March, 2019 as against Rs.18.33 Crores for the financial year ended 31st March, 2018. Significant reduction in the turnover of consumer durables was due to the liquidity crunch experienced by the Company on account of delay in realisation of its receivables from its customers.
Other products i.e. Mobile Phone accessories contributed a turnover of Rs.0.63 Crores for the financial year ended 31st March, 2019 as against Rs.3.95 Crores for the financial year ended 31st March, 2018. The lower volume of sales in this segment has been mainly as account of the fall in the replacement demand for mobile phone batteries as most of the mobile phones are now coming with in-built non-replaceable batteries.
1. Favourable Macro Economic Levers: With focus of Government on electrification and commitment to improve infrastructure and housing and implementation of GST, electrical space is self-assured of growth in time to come.
2. Demography: Emerging middle-class people aspiring for better and improved standard of living, Company expects an impressive growth in future.
3. Distribution: Having pan-India dealer network, Eon is in an advantageous position for better growth. On such a wider base of distribution, Company can leverage it to introduce more new products and enter new geographies.
4. Product portfolio: Having wide product portfolio, Eon has access to both Consumer and Professional customer category giving superior opportunity to succeed.
5. Boost for infrastructure development: The Government is expected to invest highly in the infrastructure sector, mainly highways, renewable energy and urban transport. Governments focus on smart city development and replacement of conventional systems with more energy savings options offers tremendous opportunities for the Company.
6. Push for industrial growth: Under its Make in India initiative, the government has been encouraging investment by both foreign and domestic manufacturers to set up bases in India. Recovery in capex cycle will create substantial demand for Lighting solutions. These factors will propel growth for the Companys Lighting Division basis its strong business relationship with some Indias leading business houses.
1. Slowdown in Construction Activities: Given that the Companys Wires and Cables segment are dependent on industrial and infrastructure capital expenditure, any delay would affect segment revenue growth.
2. Increase in Competition: In view of the growth potential in the electrical industry, and low entry barriers the space has seen increased number of players entering the segment. Increased completion could put pressure on existing players.
3. Non-availability of Regular and Quality Power: Non-availability of regular and quality electricity supply is an issue as it may impact overall demand for electrical products.
RISKS & concern
Slower than expected economic recovery: Companys performance is significantly linked to the overall performance of Indian economy. Any unforeseen slack may affect growth prospects of the Company negatively. The Company endeavours to mitigate this risk by creating higher brand recall and making constant improvements in the product offerings.
Change in the governments policy stance: Any unanticipated change in the government policy-making can severely affect the prospects of centrally funded schemes. The Company has adequately diversified its business to shield itself from such uncertainties. The Company is improving its presence in the B2C business which is relatively immune to the policy risks.
Volatility in Commodity Prices: Fluctuations of unanticipated magnitude in the raw material prices can negatively affect the profit margin. The Company enjoys a leadership position in some of the key business areas and thus has a better price bargaining power with its customers. This helps negate the adverse impact of commodity price fluctuations.
Imports: Indias LED lighting market was dominated by global manufacturers due to lack of domestic capacities until recently. However, with the increasing focus of the present government on promoting energy-efficient lighting solutions, the domestic players have begun to catch up fast. Companys thrust on R&D enables it to offer benefits of high-end technologies at a reasonable price. Backward integration is likely to help the Company successfully tackle the competition even in future.
In ternal controls framework
The Company has put into effect sound and robust internal control systems to ascertain that all its assets are protected. To achieve this objective, the Company follows Standardised Operating Procedures, policies and guidelines, including regular monitoring procedures and carries out self-assessment exercises.
The Company has instituted the Code of Conduct that establishes the fundamental standards which its employees need to follow in their regular working. The Company observes highest standards of the ethical code and encourages its employees to actively report activities which they believe are unethical and conflict with any business interest of the Company. The Company has also established a robust process of self-monitoring mechanism. It has laid down adequate systems and procedures to ensure that Companys operations remain efficient, effective and free of fraudulent activities.
Internal Auditors and Corporate Audit Department of the Company make sure that Companys internal control systems are followed meticulously and also ensure the competitiveness and accuracy of accounting methods. Internal Control function helps the Company abide itself by laws and statutory requirements. It also ensures all compliance-related requirements are fulfilled in due course.
We consider our employees as our most important assets. The competency development of our employees is a key focus area for us. This ensures to garner leadership competencies like business acumen, strategic thinking, and customer connect and flawless execution. The Company encourages its employees to upgrade their skills and achieve a higher level of efficiencies. For making this happen, it regularly arranges training programmes for them. The Company has a culture based on integrity, transparency and empathy. It encourages its people to strike a good work-life balance. It also insists them to participate in recreation activities as well.
Research and development
Your Company continues its efforts to integrate the R&D activities with the business needs of the company to offer safe, energy efficient, value added products and services to its customers. The Company has employed a trained team of qualified engineers to drive the innovation and lay the foundation for future growth.
RISK management and mitigation
The key objective of your Companys risk identification and assessment process is to evaluate the combination of likelihood and the level of negative impact of an event. The three key components of its risk assessment are business risk, operational risk and external risk. It manages its risks in line with current risk management best practices.
The statements in this report, particularly which relate to Management Discussion and Analysis Report describing the Companys objectives, plans, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied in the statement depending on the circumstances.
|For and on behalf of the Board of Directors|
|Ved Prakash Mahendru|
|Place: New Delhi||Chairman & Managing Director|
|Date: August 13, 2019||DIN: 00005338|
Gold/NCD/NBFC/Insurance and NPS
Gold/NCD/NBFC/Insurance and NPS