kapston facilities management ltd share price Management discussions

MANAGEMENT DISCUSSION ANALYSIS

Global Economy:

The global economy saw a slight rebound during the FY 2021-22 with a growth of 5.5 percent, which was heartening, given the deep impact it had suffered during fiscal 2020-21, due to the Pandemic forced lockdowns, Work-From-Home and new domestic challenges. According to the UN report, the robust recovery in 2021 - driven by strong consumer spend and some uptake in investment, with trade in goods surpassing pre-pandemic levels - marked the highest growth rate in more than four decades.

However, the fresh variants of Omicron and COVID-19 infections, market challenges and labour issues threaten to slowdown the global economic recovery. Consequently, the global output is projected to grow by only 4 percent in 2022, as per the UN World Economic Situation and Prospects (WESP), 2022.

Indian Economy:

The Indian economy made a smart recovery with a Gross Domestic Product (GDP) growth of 8.7% during fiscal 2021-22 though it fell short of the projected 9.2%. However, the performance was encouraging compared to the pandemic year.

Key sectors that propelled the economy were manufacturing, construction, and the revival of IT services. Sectors like hospitality, trade and transportation too grew double-digit to shore up the overall GDP levels. However, the supply chain hurdles, labour-related issues and Work-From-Home in the IT sector continued to cause constraints.

Industry structure and developments Staffing Services:

Staffing in India has shown much activity with the growth of business and e-commerce. Contract staffing has shown remarkable growth over the last few years. Demand for new employees increased in the IT staffing industry, with an increase of 30.7% in FY22 as compared with 14.1% growth in FY21.

Staffing industry has witnessed a sea change in its functioning. This growth and transformation have been rapid over the past decade, eventually emerging into a 6-billion-dollar industry. The transformation has changed top players from being manpower service providers to manpower solutions providers, addressing end-to-end HR requirements. Also, digitalization has brought shift in staffing process. Several digital platforms like Upwork, Shiftgig etc. have appeared on the horizon, has helped the job seekers and the end-users. This shift will challenge the traditional staffing companies, if they dont adapt to the new ways. Added to it the pandemic has mechanised the ways of working. Again technology has come to the rescue, enabling employees to work from anywhere.

Facility Management Services:

The Indian facilities management services (FMS) market reached a size of about $5.2 billion in 2021. It is expected to grow at a CAGR of 17% during 2022-27 period. It accounts for around 3% of the GDP and is mostly fragmented with very few organised players.

Security Services:

The global private security industry is above 200 Billion dollars in absolute size, it is growing at 5 to 7 percent per annum. In India, the private security industry is more than 15 billion US dollars in size and unlike the rest of the world, private security in India is growing at 15 to 20 percent per annum in the last 20 years.

In fact, Private Security in India is the 2nd largest sector, after agriculture, in terms of employment, with close to 10 million employees. Traditionally, it has been an unorganised sector with around 40% of the market share being with the organised players. However, the industry is progressing towards being organised as the consumer demand for security is gradually evolving from a mere guard to a professional and skilled guard, trained for movement of men and material, fire incidents, medical exigencies, etc. Further technology is progressively playing an ever-increasing role in the value-added services being offered by the industry that include artificial intelligence, surveillance systems, biometric technologies, remote sensors, cyber security, etc.

Segment-wise or product-wise performance.

Staffing Services:

The staffing industry in the country has witnessed a significant growth since the decline of the pandemic. It is registering a steady, average growth of 15% over the years. Despite the pandemic, the organised segment had a significant growth over the previous year. The top sectors that grew were IT & ITES, e-Commerce, Pharma, logistics, manufacturing and edutech. The Indian staffing industry added 0.22 million workforce in 2021-22, which is 21.9% higher than the formal workforce addition in the preceding year and sharply exceeds the workforce demand in the pre-pandemic years.

IT companies want manpower that comes at a low cost with a higher efficiency. Hiring contract workers is the solution to this conundrum. In simple words, the staffing industry is all poised to make a giant leap in the coming years.

In the staffing and recruitment industry, "Time is Money", as this is a Human Capital business, Staffing agencies have shifted gear towards data-driven recruitment to match the expectations from clients post Pandemic. Return- to-work plans by many organisations & implementation of Hybrid model, we can expect huge growth on a steady incline in 2022, offering more opportunities for both long-term and gig work.

Facility Management Services:

The major areas covered by the services are, Property Management, Housekeeping, Technical Services, Pest Control and a range of support services. The FMS sector growth is driven by three major factors—urbanisation, modernisation and population growth & their increasing purchasing power. The demand for FMS is essentially arising from the rapidly growing Services sector-IT, BPO, Manufacturing, BFSI and Multinational companies. The boom in the real estate, residential complexes and industrial growth is pushing up the needs with FM needs. In most of these sectors outsourcing has become the norm.

Security Services:

With immense funds pumped into real estate business, residential and commercial spaces, Security services is given the much needed attention and credibility. Urbanisation and IT corridors are another reason for the rising requirement for skilled and professional security services. Our association with NSDC has given us a platform to upskill, train and place them at various companies. On an upscale with the increased demand from the hybrid form of work implemented in the IT companies, the numbers are likely to increase.

Opportunities and Threats Staffing Services:

Over the past five years, the industry has grown at a rate of 20-25% per year. There are more than 7,000 staffing Companies in India, which means the career prospects in this field are lucrative.

In the near future, the demand for skilled manpower to operate mega projects and facilities in diversified areas will grow. With the current rate of growth, the Indian staffing market will emerge as the sixth largest in the world. In 2020, it stood as the fourth largest in the Asia-Oceania region behind Japan, China and Australia.

"Remote Hiring and GIG Work" are here to stay. The priorities are shifting for both prospective candidates and hiring organisations, in many cases it reduces time and money for both the parties.

With the rise of start-up culture and amidst the growing demand for contractual workforce among MNCs, we are seeing a rise in gig platforms. Outcome-based work delivery platforms are becoming more popular in eCommerce, Field Sales, Marketing, Telecom, Human Resources, Hospitality, Tourism, Supply Chain/Logistics, and even in IT for roles such as Developers, Programmers, Designers, etc. HR leaders are realizing that gig workers are attracted by career experiences and to attract the best talent available, organizations are offering enriching experiences and growth opportunities by investing in training for them.

Facility Management Services:

The Indian Governments Atmanirbhar Bharat programme with focus on Make in India opens up many opportunities to domestic companies like us to contribute more and also grow quickly. The Gati Shakti master plan to create a holistic infrastructure development in the country with an investment of a hundred lakh crores will create huge projects. The new IT Parks, airports, metro rail projects, seaports and other investment-intensive projects will shore up the demand.

In the residential and realty space, the popularity of gated communities and gated towers which provide all the required services for the residents has been a boon to the FMS. Their expansion across metros, state capitals and even tier two cities will boost the demand for integrated facility management services. However, several challenges confront the FMS. The most important one is the shortage of manpower of both professionally trained and unskilled. With mega infrastructure projects being implemented across the country, the need for professionals, especially in areas like technical services becomes imperative.

Security Services:

At Kapston, our people are our primary asset, and we invest judiciously to upskill them as per the latest industry developments. Training and Development continue to remain a critical business support function for the Team Kapston. We recruit and train newcomers from some of the most remote parts of the country, imparting skills, generating employment, and developing competence for higher achievements.

At Kapston, our flexibility is our biggest differentiator. We are quick to adapt, learn and implement our new learnings to deliver the best to our clients. We are meticulous in our process and do not entertain any compromise or deviation that might affect the quality of the delivery. Our people are skilled, professional and totally dedicated toward the work. Our professionalism, passion for quality and dedication to push boundaries and achieve the best score with our clients. With this trust, we leave no stone unturned to Protect client interest at all times.

Risks and concerns Staffing Services:

An emerging trend that has come forward with the increase in identifying "Soft Skills" is also upskilling the employees. According to a LinkedIn Global Talent Trends Study, 80% says soft skills are increasingly important to company success. Industry continue to see highly-competitive talent pools quickly come and go, and as more and more technology is used to identify hard skills, organisations should focus more on improving Soft Skills of existing candidates as retention mantra.

The question for India is, after proving itself successfully in onshore and offshore hiring for big IT firms across the world, can it meet the growing demands of emerging technologies? Can it educate and prepare the younger generations and current working individuals to meet the growing staffing demands in niche IT fields? This is yet to be seen, but the steps taken by the Indian think tank and Indian IT industry are showing that India is headed in the right direction.

Facility Management Services:

The Pandemic seems to be ebbing in the Country and work from offices is reviving or the hybrid model is growing. Similarly, new norms are emerging, technology, automation and security are getting updated in industrial, commercial and also in modern residential complexes. All these call for a quick adaptation by the FMS. Another challenge is the market perception and acceptance of unorganised players. Today, there are thousands of unorganised players that enter the market with a focus on only a couple of services such as housekeeping or pest control. The majority of the market is still willing to accept a less professional and unorganized service for a lower cost.

Security Services:

The private security sector has emerged as a major industry by virtue of employment of large manpower, both skilled and unskilled, to meet the burgeoning demand of the corporate sector. With the anticipated growth of the industry, the employment opportunities are tremendous. Since, majority of the workforce employed is in the unorganized sector, the potential for skilling is evident. Current time requires private security personnel to multitask and use technology to perform security, safety and facilitation functions. Skill development, especially Recognition of Prior learning (RPL), reskilling and upskilling are key issues before the private security sector. Therefore, investment in human capital is vital in preparing this industry to take on greater responsibilities.

Outlook

Staffing Services:

HR leaders are realising the advantage of hiring a contract workforce as this gives them the flexibility to scale their workforce as per project requirements. Thus, shedding the conventional form of hiring practices and relying on Staffing Companies to meet their manpower demands.

Now, the IT workforce is changing, especially considering the pandemic. A contingent work force is the solution to todays workplace problems. The IT staffing industry is constantly evolving and changing to meet todays work requirements and standards.

Facility Management Services:

The COVID-19 has exposed most of the employees of the sector to the risks of infection as they work in difficult environments. Workplaces like hospitals, commercial spaces with steady flow of customers have been difficult for staff. Ensuring that they follow protocols and safety measures and vaccination has been a key necessity to infuse confidence in the employees. To provide assurance to the clients, Kapston has been investing in the safety and well-being. In tune with the increasing and geographically distributed growth, Kapston has been expanding its operations by opening new branches and investing in capacity building and trained staff.

IFM services are an integral part of the industries, issues like Pandemic has opened eyes of industries to look for more mechanised/skilled manpower. We feel Uncertainty, Safety of Workforce and Business Continuity (BCP) are the biggest challenge during this period. As the pandemic resets major work trends, more than 30% of organizations are now replacing full-time employees with contract to hire workers as a cost-saving measure thus Outsourcing.

The Internet of Things (IoT), an upcoming trend in the FM industry, is set to transform the world as we know it. The Internet of Things is a concept that allows for a hands-free approach when exchanging data from inter-connected devices. Sent via the Internet, the process eliminates any human-to-human or human-to-computer interaction, making information not only more accessible but also facilitating speed and efficiency.

Security Services:

Our well established training centres helps us maintain a pool of trained Security staff, providing our growth engine with the much needed fuel of competent resources. Our Learning interventions are distributed into every level of our employees life cycle, providing developmental and transformational paths to build a robust learning-driven organization and make availability of bench strength as & when required.

Internal control systems and their adequacy

The Management has laid down internal financial controls to be followed by the Company. The Company has adopted policies and procedures for ensuring orderly and efficient conduct of the business, including adherence to the Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial disclosures. The internal control system is commensurate with the nature of business, size and complexity of operations and has been designed to provide reasonable assurance on the achievement of objectives, effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations.

As part of the Corporate Governance Report, CFO certification is provided, for assurance on the existence of effective internal control systems and procedures in the Company. The Audit Committee of the Board oversees the internal audit function. The Audit Committee is regularly apprised by the internal auditors through various presentations. The internal audit function provides assurance to the Board that a system of internal control is designed and deployed to manage key business risks and is operating effectively.

Key Strengths:

In the last decade, Kapston has emerged as a leading manpower services company constantly upgrading to meet the industry demands. It has built strong and diverse expertise in hiring, training, evaluation and employee retention. The company has a committed management team that is focussed on ensuring efficient services and sensitive towards its employees in order to create a more conducive environment. With a motto of service excellence Kapston regularly emphasises on training of staff, keeping in mind the specific needs of the clients. This customised, trained and efficient workforce that we provide distinguishes us in the market.

Team Kapston believes that change is a continuous process and we must make adequate changes to our business model to ensure leadership position in the Manpower Industry. We sincerely believe that the organizations adoption of technology is bound to swift our growth to the next level, enabling us to capitalize on emerging opportunities. Adoption of Technology, process driven approach is our forte, which helps us to cope up with the Market demand. The introduction of new labour codes will bring about a certain set of uniformity in the wage levels across the country and also enforce higher compliance from the market.

At Kapton, we committed to provide "Great Hiring Experience" as the candidate experience can make or break your business. Ensuring candidates have a smooth and positive work experience needs to be the priority for sourcing managers and recruiters.

Material developments in Human Resources / Industrial Relations front, including number of people employed.

i. The total number of personnel including Trainees and Apprentices were 13,615 as on March 2022 as compared to 12,416 as on March 2021.

ii. The back office or Non Billable staff strength has increased from 324 to 355. We have added staff to strengthen our senior & middle management teams.

iii. In continuing our partnership with NSDC in FY 22, we trained as many as 11,879 students as against a target of 12,420.

Discussion on financial performance with respect to operational performance.

A. Revenue: Revenue grew by 28% to INR 27,224.96 Lakhs as compared to the previous financial year.

Our company has registered significant growth in the revenue over the previous year. As per the Companys business plans to expand its operations to cover all major cities in the country.

B. EBITDA: Correspondingly, EBITDA levels have declined by 22.56% from INR 1691.40 in FY 2021 to INR 1309.82 in FY 22.

C. Finance Costs: Finance costs increased to INR 665.38 Lakhs from INR 519.66 Lakhs on account of higher working capital utilization due to growth in business.

D. Depreciation: Depreciation costs increased by approximately INR 188.66 Lakhs primarily due to Purchase of Fixed assets in new branch office premises and also due to increase in depreciation on Right of use assets.

E. Taxation during the year, the Company continued to avail the benefit of Section 80JJAA of the Income Tax Act, 1961 as well as a Deferred Tax Asset on account of time line differences on Depreciation between IT Act & Companies Act, pursuant to which the Tax income is INR 148.57 Lakhs in FY 2022 as against tax expense of INR 172.93 Lakhs in FY 2021.

Ratio Analysis

The Key Financial ratios are disclosed in the Notes to the Financial Statements which forms the integral part of the Annual report.