GI Engineering Solutions Ltd Management Discussions.

Industry Overview:

Over the last decade, the Engineering Service Industry has witnessed significant traction in India. Global industrial and constructions rms are looking toward India for engineering requirements that are non-core in nature. Therefore, from the perspective of Indian economy, engineering services is the newer area of outsourcing following the prior success of ITO and BPO. The focus of the Indian engineering service sector is the large, rapidly growing export segment that caters to the offshore work from developed markets. On the other hand, Indias domestic engineering expenditure is much smaller. Furthermore, the fraction of engineering work that is outsourced by Indian industrial and construction rms is much less compared to developed countries. The need for more dynamic engineering solutions and the increased complexity, stronger global economic growth and construction activity are forecast to help increase industry revenue. As per IBEF (India Brand Equity Foundation), services sector growth is governed by domestic and global factors. By end of 2023, Indias IT and business services sector is expected to reach US$14.3 billion with 8 per cent growth.

Opportunities and Threats:

Engineering Services outsourcing presents a tremendous opportunity for India. It is not only a significant revenue generator, but also places India on the global innovation map. Indian companies have developed necessary capabilities and skills by investing in technology platforms to leverage the opportunities. Attaining training and retaining talent will be a critical next step for India to maintain its current advantage.

While the nature of services offers huge opportunities, competition and present situation poses enormous challenge. The presence of consulting rms, national and multinational technology giants make it very intense. The industry is expecting rapid changes that are affecting the competitive landscape, including divestitures and acquisitions that have resulted in consolidation within the industry. We operate in a highly competitive and rapidly changing market. The domestic IT market too is coming into its own and witnessing a high degree of merger and acquisitions activity, involving some of the key players in the market. Opportunities lie in increasing IT usage and adoption within the country in enhancing competitiveness of the Indian economy and the user community.

Risks and Concerns:

Risks and Concerns being faced by the Company are same as what others in the industry are facing and those are:

1. Technology obsolescence

2. High cost of resources.

3. Attracting and retention of talents

4. Foreign Exchange Fluctuation

5. Government policies

6. Political stability

7. Competition and customer acquisition.

Internal Control System and its adequacy:

The company has in place system and procedures to effectively control and monitor its business operations on an ongoing basis which ensures that all assets are safeguarded and protected against loss against unauthorized use or disposition. The system encompasses all areas of the operations with procedures and processes laid down to control for day to day activities. These are reviewed on ongoing basis by the top management and changes, whenever needed, are incorporated. Having regard to the size and nature of business, the existing internal control systems are considered adequate and reliable.

Discussion on Financial Performance

Ratios FY 2019-20 FY 2018-19
Debtors Turnover Ratio 1.46 1.01
Current Ratio 4.00 6.05
Operating Margin Ratio (31.52%) (152%)
Net Pro t Margin (30.58%) (149%)
Return on Net Worth (RONW) (0.52%) (1.14%)
(Rs in lakhs)
Particulars FY 2019-20 FY 2018-19
Average Debtors* 7.83 5.24
Turnover 11.45 5.25
Total Revenue 11.74 5.28
Current Assets (A) 916.18 827.75
Current Liabilities (B) 228.80 136.78
Net Current Assets (A) (B) 687.38 690.97
Operating Pro t/(Loss) (3.61) (7.97)
Net Pro t/(Loss) (3.59) (7.89)
Net worth 687.38 690.97

*Average Debtors = (Opening Debtors + Closing debtors)

2

Debtors turnover ratio has increased, due to increase in turnover compared to previous year.

Current ratio has decreased at the end of current year due to decrease in Net Current Asset compare to previous year.

Due to increase in revenue, Operating Margin Ratio has gone up.

Net profit margin has gone up due to increase in the revenue and there is reduction in interest cost.

ASSETS AND LIABILITIES Assets: Property Plant & Equipment

There was no addition in the gross block during FY 2019-20 and FY 2018-19 and Gross block as on March 31, 2020 was Rs 440.94 lakhs (Previous year Rs 440.94 lakhs). Net Block was Nil (Previous year Nil).

Current Assets

Trade receivables

Trade receivables (net of provisions) as on March 31, 2020, was at Rs 9.52 lakhs as against Rs 6.14 lakhs at the end of previous year.

Cash and cash equivalents

Cash and cash equivalents as on March 31, 2020, was at Rs 1.94 lakhs as against Rs 3.61 lakhs in the earlier year. The Company maintains such balances in current, EEFC accounts with nationalized and other scheduled banks.

Loans

Loans represent cash outlay against which benefits are being received or expected to be received by the Company in future and include Other Deposits and Loan to Other body corporates.

As on March 31, 2020 stood at Rs 875.11 lakhs as against previous year amount of Rs 788.61 lakhs.

Current Tax Assets

Current Tax Assets comprises of Tax deducted at source, Self Assessment Tax, Net of provisions as at March 31, 2020 Rs 16.24 lakhs as against previous year amount of Rs 15.29 lakhs.

Other Current Assets

Other Current Assets consists of Other Advances as at March 31 2020 Rs 13.37 lakhs as against previous year amount of Rs 14.10 lakhs.

Liabilities:

Equity

During the year ended March 31 2020 there was no changes in the Equity Share capital.

Authorized Capital as on March 31, 2020, was: 84,900 lakhs Equity Shares of Rs 10 each: Total of Rs 849,000 lakhs of which the Issued, Subscribed and Paid-up Share Capital of the Company, consist of: 8,611,878 Equity Shares of Rs 10 each: Total of Rs 861.19 lakhs.

Other Equity

Other Equity has a debit balance as on 31st March 2020 of Rs 173.80 lakhs as compared to debit balance of Rs 170.21 lakhs at the end of previous year. Other Equity consists of balance in the General Reserve, Security Premium Account, Capital redemption reserve, debit balance in the Pro t and Loss account.

The balances as on 31st March 2020 in General Reserve Account was Rs 2,360.79 lakhs which was same as the balance at the end of the previous year. In case of balance in share premium account also there was no movement during the year with year end balance of Rs 88 lakhs. Capital redemption reserve was Rs 700.00 lakhs which was same as balance at the end of previous year. As on 31st March 2020 debit balance of Pro t & Loss Account stood at Rs 3,322.59 lakhs compared to previous years balance of Rs 3,319.00 lakhs.

Current Liabilities

Current liabilities represent, Short term borrowings, Trade payable, Other Current Financial Liabilities, Other Current Liabilities and Current Tax Liabilities

Borrowings

Short term borrowing as on March 31, 2020, was at

Rs 99.50 lakhs as against Rs 5.00 lakhs at the end of previous year.

Trade payables

Trade payables as on March 31, 2020, was at Rs 21.81 lakhs as against Rs 21.91 lakhs at the end of previous year.

Other Current Financial Liabilities:

Other Current Financial Liabilities represents Other payables as on March 31, 2020, was at Rs 90.04 lakhs as against Rs 92.42lakhs at the end of previous year.

Current Tax Liabilities

Current tax liabilities as on March 31, 2020 was Rs 17.37 lakhs, same as against balance as on March 31, 2019.

INCOME & EXPENDITURE

Income

During the year 2019-20, the Company recorded a total income of Rs 11.74 lakhs as against Rs 5.28 lakhs in the previous year 2018-19. The Company for the year has recorded a loss of Rs 3.59 lakhs against previous year loss of Rs 7.89 Lakhs.

Expenditure

The Company in current year incurred total operating cost of Rs 15.33 lakhs, including depreciation, compared to previous year of Rs 13.17 lakhs.

CAUTIONARY STATEMENT

Certain statements made in the Management Discussion and Analysis Report may constitute ‘forward-looking-statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections, etc., whether express or implied. Several factors could make a significant difference to the Companys operations. These include climate and economic conditions affecting demand and supply, government regulations and taxation, natural calamities, etc. over which the Company does not have any direct control.