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FORWARD LOOKING STATEMENTS
Statements in the Management Discussion and Analysis, which describe the Companys objectives, projections, estimates, expectations, may be forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the Companys operations include economic developments within the country, demand and supply conditions in the industry, input prices, changes in government regulations, tax laws and other factors such as litigation.
Gaurav Mercantiles Limited, historically, was engaged in ship breaking, trading and investment. However, with the liberalization of imports, the trading activities were marginalized as a result of which the investment portfolio of the Company was also being diluted. During the year under review, the Company had earned a total interest income of Rs. 48,30,508 and net profit of Rs. 11,23,823 against the total income during the previous year of Rs. 1,53,22,553 and net profit of Rs 23,53,237. Mr. Raghav Bahl and Ms. Ritu Kapur had entered into a SPA on November 27, 2018 to acquire 66.42% ownership and control of the Company. On January 08, 2019, Mr. Raghav Bahl and Ms. Ritu Kaur acquired a controlling stake in the Company pursuant to applicable provisions of the SEBI SAST Regulations. Post the above acquisition, the Company revamped its Board with Mr. Raghav Bahl and Ms. Ritu Kapur joining in as Directors. Subsequently, Mr. Mohan Lal Jain (Person Acting in Concert with Mr. Raghav Bahl and Ms. Ritu Kapur under the SEBI SAST Regulations) joined in as the Chairman of the Board and Mr. Parshotam Dass Agarwal and Mr. Sanjeev Krishana Sharma as Independent Directors to enrich the Company with a combined experience of over a century.
Under the able guidance of the new directors, the Board considered the future of the Company and the possibility to venture into new business opportunities in the Media and Entertainment space in line with the stated intention under Object Of The Offer stated in the Draft Letter of Offer dated December 11, 2018. To fluctuate the proposed venture into the Media and Entertainment space, the Company on May 12, 2019 passed a shareholders resolution to approve alterations to the Objects Clause of the Memorandum of Association of the Company, enabling it to pursue digital content and media activity. The Company on May 25, 2019 successfully completed the preferential allotment to raise over Rs. 70 Crores to fund the new venture into digital media and content business. The Board, on July 17, 2017, has also announced that it is considering a preliminary proposal to acquire the digital content business operated under the name and style of The Quint. The business is presently housed in Quintillion Media Private Limited, a company owned and controlled by Mr. Raghav Bahl and Ms. Ritu Kapur. The Quint consists of www.thequint.com, www.hindi.thequint.com, and www.fit.thequint.com and operates as a digital only platform available on desktop computers and hand-held devices. In this regard, the Board has appointed advisors to undertake a detailed evaluation of the proposal and submit their report to the Audit Committee and Board of the Company.
Accordingly, the foregoing Management Discussion and Analysis while being undertaken for the past also considers possible implications arising from a diversification of the business into digital media and content business.
INDUSTRY STRUCTURE AND DEVELOPMENTS
India continued to be the worlds fastest growing major economy. After touching a high of 8% in the first quarter of FY 2018-19, GDP growth fell steadily in the second and third quarters to 7% and 6.6%, respectively. The declining rates were triggered by a slowdown in both private and public expenditure, manufacturing and agriculture. Although household spending, government consumption and inventories fell, there was a marginal pick-up in capital formation and some improvement on the external trade front.
In its World Economic Outlook - April 20192 , the IMF suggested that Indias growth is expected to pick up to 7.3% in 2019 and 7.5% in 2020 on the back of a sustained recovery in investment and strong consumption, triggered by a more expansionary monetary policy stance and some impetus expected in the fiscal space as well.
MEDIA AND ENTERTAINMENT IN INDIA
India remained the growth leader in the year 2018. Media and Entertainment was also benefitted by the upsurge in economic performance. As per FICCI-EY "A billion screens of opportunity report", Media and Entertainment industry in India grew at 13.4% from Rs. 1,476 billion in CY 2017 to Rs. 1,674 billion in CY 2018. All segments of the Media and Entertainment industry posted growth, with digital media in the lead (only surpassed by the nascent, niche sub-segment of online gaming). While television retained its position as the largest segment, digital media grew sharply by 41.9%, while print, once again, grew the slowest at a negligible 0.7%. In terms of size, however, television and print continued to top the list, followed by _lmed entertainment and digital media.
OPPORTUNITIES AND THREATS
DIVERSIFICATION INTO MEDIA DOMAIN
As highlighted above, the Company is planning to diversify its business into the Media and Entertainment industry and more specifically into digital media and content business, and in this connection, the Board will evaluate the preliminary proposal to acquire the digital content undertaking viz. The Quint from Quintillion Media Private Limited. The proposed acquisition, if successful and approved in accordance with the applicable regulatory framework, would lead the Company into an entirely new business dimension.
GROWTH OF DIGITAL CONTENT
According to a report by KPMG #IndiaTrends2018: Trends Shaping Digital India, the predominant medium of digital content consumption will continue to be the mobile phone, especially for the media and gaming entertainment segments. This medium will generate significant avenues for consumer outreach and engagement. The report revealed that as around 95% of Indian homes have a single TV, consumers are driven towards mobile consumption. This trend will drive the OTT market to potentially reach 100 million monthly OTT users by 20203. The increasing demand for content by OTT platforms is already apparent, as is the trend towards localisation strategies to engage audiences further. Consequently, in 2018, the demand for original digital content increased by around 1,200 hours, leading to a rise in the cost of content creation.
FOREIGN DIRECT INVESTMENT IN DIGITAL MEDIA
Digital content industry is still in a nascent stage with the Government slowly formalizing regulations applicable to the industry. No specific regulations have been specified under the FDI Regulations regarding approval requirements to raise funding for companies engaged in digital media. However, as part of the finance budget in 2019, the Indian Government stated its intention of prescribing necessary regulations for governing foreign equity participation in the digital media space.
PRODUCT INFORMATION AND BUSINESS OUTLOOK
The Company is in the course of revamping its business strategy and diversification of business into media domain which may result in a significant variation in the business profile of the Company during the subsequent periods. During the current financial year ended March 31, 2019, the Company has earned income through passive sources.
RISKS AND CONCERNS
The risks and the uncertainties described below are key factors that the management considers may have implications on the functioning of the Company and are not the only risks that the Company currently faces. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, financial condition, result of operations, cash flow etc.
a. A decline in economic growth in India and global economy could adversely affect its business. b. Political instability or changes in the Government in India or in the Governments of the states could cause significant adverse effects on the Companys business and the trading price of its Equity Shares.
c. Disruptions and other impairment of the information technologies and systems could adversely affect the business and results of operations of the Company.
d. Changing laws, rules and regulations and legal uncertainties may adversely affect our business and financial performance.
e. Natural disasters could have an adverse effect on the Indian economy, the Companys business and the trading price of its equity shares. f. If terrorist attacks or social unrest in India increase, the Companys business could be adversely affected and the trading price of its equity shares could decrease.
a) The Company intends to undertake a new line of activity in the Media and Entertainment industry and more specifically in the digital media and content business. Hence, the business shall be subject to risks and uncertainties associated with entering into a new line of business including but limited to identification of opportunities, implementing of strategies etc.
b) The Company has not paid dividends in the last five (5) years.
c) The success of the Company will depend on its ability to attract and retain its key managerial personnel and any loss of key team members may adversely affect and disrupt the business operations. d) Disruptions and other impairment of the information technologies and systems could adversely affect the business and results of operations of the Company.
e) The equity shares (ISIN: INE641R01017) of the Company are currently listed at BSE Limited, (Scrip Code: 539515) under "XT" group and are infrequently traded on BSE Limited. Hence, the trading price of the equity shares of the Company may be subject to volatility.
f) The Company is in the midst of an offer period on account of the Public Announcement made on November 27, 2018 by Pantomath Capital Advisors Private Limited, registered Merchant Banker, in terms of Regulation 14(1) of the SEBI SAST Regulations. The Draft Letter of Offer dated December 11, 2018 has been filed with SEBI in accordance with Regulation 18(1) of the SEBI SAST Regulations to acquire up-to 26% of the outstanding equity share capital from the public shareholders of the Company. The Draft Letter of Offer is pending the issue of the final observation letter from SEBI. As per the disclosure available on the SEBI website, the open offer is presently kept under abeyance, pending detailed examination/investigation by SEBI.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has in place adequate internal controls, including internal financial controls, and no reportable material weakness was observed in the system during the year. Further, the Company has in place adequate internal controls commensurate with the size and nature of its operations. The internal controls of the Company are periodically reviewed by the Audit Committee to ensure adequacy and educacy.
The Companys financial performance (standalone) for the year under review along with the previous years figures is given hereunder:
|(Rs. in 000)|
|Particulars||March 31, 2019||March 31,2018|
|Revenue from operations||9,542.61|
|Cost of trading goods sold||-||9,408.31|
|Employee benefit expenses||1,135.37||1,365.59|
|Depreciation and amortization expense||7.06||25.48|
|PROFIT BEFORE TAX||1,343.31||3,230.66|
|(a) Current tax||346.73||820.11|
|(b) Deferred tax||(157.61)||17.83|
|(c) Tax of earlier year||30.37||39.47|
|Profit for the period||1,123.82||2,353.24|
|Other Comprehensive Income (OCI)||-||-|
|Items that will not be reclassified to profit or loss||-||-|
|Items that will be reclassified to profit or loss||-||-|
|Total other comprehensive income for the year, net of taxes||-||-|
|Total comprehensive income for the year, net of taxes||1,123.82||2,353.24|
|Basic and diluted earnings per share (in Rs.)||0.43||1.18|
Further, as mentioned earlier, in order to fund the foray of the Company into the digital media and content business, the Company has duly completed the recapitalization process by undertaking a preferential issue of Rs. 70 Crores to the promoters and other identified investors.
HUMAN RESOURCE DEVELOPMENT
The Company has a continual focus on attracting, retaining and developing quality talent, and aligning them to the Companys vision and mission. Presently, given the change in ownership and business profile of the Company, no substantial hiring was undertaken during the year under review. As of March 31, 2019, there were 2 employees on the rolls of the Company. The Company enjoyed an excellent relationship with workers and staff during the year under review.
KEY FINANCIAL RATIOS
The details of changes in the key financial ratios as compared to previous year are stated below:
|Ref||Unit||Financial Year 2018-19||Financial Year 2017-18||Change (%)|
|Interest Coverage Ratio||4||Times||Nil||Nil||Nil|
|Net Profit Margin||6||Percentage||23.27%||15.36%||51.40%|
|Return on Net worth||7||Percentage||1.99%||4.29%||(53.72%)|
(1) Inventory Turnover: The Company does not maintain any inventory and accordingly, there is no inventory turnover ratio.
(2) Debtors Turnover Ratio: Nil as there are no trade receivables in as at the beginning or end of either financial year.
(3) Current ratio: The current ratio has substantially decreased in the current year because of low levels of current liability of the Company in the previous year. The Company has employed efficient working capital management measures, which may result in further improvement of the current ratio.
(4) Interest Coverage Ratio: The Company has not been liable to pay interests in either financial year, accordingly, does not have an Interest Coverage Ratio
(5) Debt Equity Ratio: The capital structure of the Company did not have any debt outstanding as of the end of either financial years, accordingly, Debt Equity Ratio is Nil
(6) Earnings before Interest Tax Depreciation and Amortization (EBITDA) Margin and Net Profit Margin: As the Company had minimal operations during the current financial year, accordingly, no significant expenditure has been in word by the company in the current year which has caused to invuase in both EBITA and Net Profit Margins.
(7) Return on net worth: Decrease is attributable to suspension of operating activities during the current financial year.