Future Market Networks Ltd Management Discussions.

Economic review Indian economy

The economic impact of the 2019-20 coronavirus pandemic in India has been largely disruptive. Supply chains have been put under stress with the lockdown restrictions in place and people restrained themselves from traveling, shopping and other outdoor activities. The pandemic will cause devastative impacts on Indian economy which can in turn influence consumption pattern in the Country. The Government of India announced a series of measures to counter the impacts which may ease negative impacts considerably.

Real Estate Industry

The real estate sector is one of the most globally recognized sectors. Real estate sector comprises four sub sectors - housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth of the corporate environment. It is estimated that by 2040, real estate market to grow to 65,000 crore (US$ 9.30 billion) from 12,000 crore (US$ 1.72 billion) in 2019. Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017 and contribute 13 per cent of the countrys GDP by 2025. Infrastructure for Warehousing industry is one of the sectors wherein considerable investments are made as of now and hence this sector is having lot of opportunities.

Warehousing Industry Overview

Overall Scenario:

Warehousing primarily refers to the storage of goods to be transported, whether inbound or outbound. The Warehousing and Storage industry includes establishments operating warehousing and storage facilities for general merchandize, refrigerated goods and other warehouse products.

Warehousing constitutes only 15%-35% of the total logistics costs but its importance is significant with respect to the role it plays in the smooth functioning of supply chain networks. Warehouses have become one of the major segments of the rapidly growing Indian logistics industry.

Sensing the tremendous growth potential of the warehouse sector, the private players (including both domestic & international) have ventured in the space with a view to bridge the gap between cost and efficiency of operations.

Nearly 60% of the modern warehousing capacity in India is concentrated in the top six cities, namely, Ahmedabad, Bangalore, Chennai, Mumbai, NCR and Pune, with Hyderabad and Kolkata being the other major markets. This is driven by concentration of industrial activity and presence of sizeable urban population around these clusters. Going forward, due to factors such as quality of infrastructure and availability of labour, these advantages are likely to remain with these cities. In all the segments of warehousing industry barring the agricultural segment, the majority of the capacity is controlled by the private sector. In the agricultural segment, approximately 3/4th is controlled by different Government entities.

Arrangement for Logistic Park

Company in alliance with ESR engaged in constructing, developing and selling integrated large-scale warehouses at Jhajjar (Haryana) and Nagpur (Maharashtra) aggregating to 1.3 million square feet. Accordingly, your Company has, along with Gati Realtors Private Limited (SPV-1) and Future Retail Destination Limited (SPV-2 entered into a strategic arrangement with ESR NAGPUR 1 PTE LTD and ESR DELHI 3 PTE LTD (investor SPVs) respectively. The construction activities are at an advanced stage.

Retail infrastructure

The Indian retail industry is one of the fastest growing in the world. Retail industry in India is expected to grow to US$ 1,200 billion by 2021 from US$ 672 billion in 2017.

India is the fifth largest preferred retail destination globally. The country is among the highest in the world in terms of per capita retail store availability. Indias retail sector is experiencing exponential growth, with retail development taking place not just in major cities and metros, but also in Tier-II and Tier-III cities. Healthy economic growth, changing demographic profile, increasing disposable incomes, urbanization, changing consumer tastes and preferences are the other factors driving growth in the organized retail market in India.

During the period under review, Star Shopping Centres Private Limited merged with the Company. This merger was aimed with a view to strengthen the financials of the Company and also improve operational efficiency.

Risk

Business Risk

The business of construction and development is heavily dependent on the performance of the real estate market in India and could be adversely affected if market conditions deteriorate. The real estate market is significantly affected by changes in government policies,

economic conditions, demographic trends, employment and income levels and interest rates, among other factors. The development of real estate projects involves various risks including regulatory risks, financing risks and the risks that these projects may ultimately prove to be unprofitable.

Rental realizations

The rental realizations on the space leased depends upon the project location, design, tenant mix (this is relevant in the case of shopping malls), prevailing economic conditions and competition. Your Company has set up its retail property in prime location and maintains a fresh ambience resulting in-crowd pull and attracting first time kind of retailers.

Economy Risk

Economic and market conditions can adversely affect the performance of the Company. In particular, the decline in the performance of the global and Indian economies as a result of the economic downturn can reduce demand and occupancy levels in property markets. An increase in interest rates or an increase in the margin on which finance can be obtained may increase the Company and the Subsidiarys financing costs and such increase in interest rates may increase the cost of borrowing, which could have an adverse impact on the Company and the Subsidiarys business, financial condition and results of operations.

Financing costs

The acquisition of land and development rights needs substantial capital outflow. Inadequate funding resources and high interest costs may impact regular business and operations.

Your Company has always tried to build sufficient reserves resulting out of operating cash flows to take advantage of any land acquisition or development opportunity.

Outlook

The Company is optimistically envisages its business plan on the robust Indian economy particularly the warehousing sector. The Company is confident that the strategic alliance with ESR will provide an edge to the Company in establishing world class warehouses.

Since the consumption pattern is intact, the company anticipates a vibrant business outlook in relation to retail shopping centres managed by the Company.

Financial Performance

Revenues

The income from Operations for the Company has decreased by 3.86% to 121.55 Crores in 2019-20 from 126.45 Crores in 2018-19.

Other Income

Other Income increased to 49.03 Crores for 2019-20 from 18.60 Crores for 2018-19.

Operating Margin

EBIDTA (including other income) (Adjusted effect of Ind AS -116) for 2019-20 was 47.22 Crores as compared to 57.46 Crores for 2018-19.

Costs & Expenses

• Employee Costs

Manpower cost for 2019-20 was 5.92 Crores, which decreased from 6.18 Crores in 2018-19. In terms of percentage of Turnover, there was thin change (as compare to 4.87% for 2019-20 with 4.88% for 2018-19).

• Other Expenses

Other Expenses as a percentage of turnover has increased to 21.88 % in 2019-20 as compared to 10.84 % in 2018-19.

• Interest Expenses

I nterest expenses for the year 2019-20 increased to 29.47 Crores from 19.68 Crores in 2018-19 due to interest expenses of 24.52 Crores for impact on adoption of "Ind As -116". In terms of percentage of Turnover it has decreased to 24.25 % for 2019-20 from 15.56% for 2018-19.

• Depreciation

Depreciation cost as a percentage of turnover has increased to to 42.07% in 2019-20 as compared to 19.86% in 2018-19. This is because of depreciation of 29.02 Crores on right to use asset under Ind AS-116

• Taxes on Income and Deferred Tax Provision

The Companys Deferred Tax Asset (net) has increased from 62.69 Crores in 2018-19 to 71.47 Crores in 2019-20. The Company has made current Tax provision of Nil and deferred Tax provision of 9.11 Crores and Earlier Years Provision Written back (0.04). Hence total Tax expenses works out to 9.07 Crores.

• Profit before Tax

As a result of the foregoing factors, profit before tax increased 58.91 % from 12.67 Crores in 2018-19 to 20.14 Crores in 2019-20.

• Net Worth

The net worth of the Company has decreased from 136.81 Crores as on March 31, 2019 to 114.54 Crores as on March 31,2020. The decrease in amount of net worth is on account of Ind AS-116 adjustment on transition date 01.04.2019 i.e. lease liability.

• Income Tax Expense

Income tax expense was 9.07 Crores for 2019-20 and 2.58 Crores 2018-19.

• Profit for the Year

As a result of the foregoing factors, profit after tax increased 9.72 % from 10.08 Crores in 2018-19 to 11.07 Crores in 201920.

• Earnings Per Share (EPS)

Basic and Diluted EPS was 1.79 for 2018-19 and 1.94 for 2019-20.

• Borrowings

The total standalone borrowing has decreased from 113.58 Crores as on March 31,2019 to Nil as on March 31,2020.

• Cash and Bank Balance.

Cash and Bank balance decreased from 5.25 Crores as of March 2019 to 4.44 Crores as of March 2019.

• Investments

Total Investment of the Company decreased from 95.66 Crores as of March 2019 to 94.02 Crores as of March 2020

• Current Assets & Liabilities

The Companys current assets primarily consist of debtors, investment in liquid fund, inventories, cash and bank balances, loans and advances and other current Assets. Total current assets as on March 31, 2020 were 145.64 Crores as against 98.08 Crores as on March 31,2019.

The Companys current liabilities primarily consist of short term borrowings, trade payables, short term provisions and other current liabilities. Total current liabilities as on March 31,2020 was 310.65 Crores as against 375.00 Crores as on March 31, 2019.

• Net Profit Margin

Net Profit Margin increased to 9.72 % in 2019-20 as compared to 2018-19, mainly due to increase in other income.

• Return on Net Worth

Return on Net Worth increased from 7.37% in 2018-19 to 9.66% % in 2019-20, mainly due to increase in other income.

• Interest Coverage Ratio

The Interest Coverage Ratio increased from 1.64 times in 2018-19 to 5.06 times in 2019-20. During the year, interest costs add (except interest of Ind AS 116) decreased from 19.67 Crores in 2018-19 to 4.95 Crores in 2019-20.

• Debt Equity Ratio

During the year, your Company has become debt free and accordingly, debt equity ratio has decreased from 0.22 in 2018-19 to NIL in 2019-20.

• Debtors turnover Ratio

The debtor turnover ratio was 0.21 in 2018-19 and 0.30 in 2019-20

• Current Ratio

The current ratio was 0.26 in 2018-19 to 0.46 and 2019-20.

Internal Control System and Adequacy

Your Company has a proper and adequate system of Internal Controls, to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposal and that transactions are authorized, recorded and reported correctly.

The internal control system is supplemented by extensive internal audits, regular reviews by management and well-documented policies and guidelines to ensure reliability of financial and all other records to prepare financial statements and other data. Moreover, the Company continuously upgrades these systems in line with best accounting practices. The Company has independent audit systems to monitor the entire operations and the Audit Committee of the Board review the findings and recommendations of the internal auditors.

Human Resources

The Company regards its human resources as amongst its most valuable assets and proactively reviews policies and processes by creating a work environment that encourages initiative, provides challenges and opportunities and recognizes the performance and potentials of its employees. The industrial relations across different locations of the Company were cordial during the year. The Company has, over the last few months, built the team necessary to be able to build and execute the vision that has been articulated in the preceding paragraphs. The total number of employees of the Company as on March 31,2020 stood at 60.

Cautionary Statement

Statements in Management Discussion and Analysis describing the Companys objectives, expectations or predictions may be forwardlooking within the meaning of applicable securities law and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include stiff competition leading to price-cuts, high volatility in prices of major inputs such as steel, cement, building materials, petroleum products, change in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.