Naman In-Store (India) Ltd Management Discussions

ANNEXURE I

Industry Structure and Development

Indias retail sector is experiencing robust growth driven by several factors. The country is experiencing a steady increase in national wages, rapid urbanization, and the emergence of the digital economy. Lower-tier cities no longer have to rely solely on physical stores, as an expanding network of last-mile logistics suppliers enables access to preferred brands through online platforms. The retail landscape in India offers a wide array of choices, including global e-commerce platforms, single-brand shopping websites, multi-retail apps, and social media sellers. Furthermore, discretionary spending power is on the rise, with the average per capita income in India surpassing US$ 2000 and projected to exceed US$ 12,000 by 2047. The substantial middle class and underserved consumer base in non-metropolitan cities have attracted the interest of several international retail giants seeking expansion into new markets. Branded products, such as apparel, cosmetics, jewelry, footwear, watches, food, and beverages (F&B), and furnishings are gaining popularity and becoming essential lifestyle items for both business and leisure purposes. India ranks among the best countries to invest in Retail space. Factors that make India so attractive include the second largest population in the world, a middle-income class of 158 million households, increasing urbanization, rising household incomes, connected rural consumers, and increasing consumer spending. FMCG, apparel & footwear, and consumer electronics are the largest retail segments, constituting 65%, 10%, and 9% respectively of the retail market.

As per Kearney Research, Indias retail industry is projected to grow at 9% over 2019-2030, from US$ 779 billion in 2019 to US$ 1,407 billion by 2026 and more than US$ 1.8 trillion by 2030. Revenue of Indias offline retailers, also known as brick- and-mortar (B&M) retailers, is expected to increase by Rs. 10,000-12,000 crore (US$ 1.39- 2.77 billion) in FY20. Indias direct selling industry is expected to be valued at US$ 2.14 billion by the end of 2021. E-retail has been a boon during the pandemic and according to a report by Bain & Company in association with Flipkart ‘How India Shops Online 2021 the e-retail market is expected to grow to US$ 120-140 billion by FY26, increasing at approximately 25-30% p.a. over the next 5 years. Despite unprecedented challenges, the India consumption story is still robust. Driven by affluence, accessibility, awareness, and attitude, household consumption stood at Rs. 130-140 trillion (US$ 1.63-1.75 trillion) in 2021.

The sizeable middle class and nearly unexplored retail market in India are the main enticing factors for international retail behemoths seeking to move into newer markets, which will help the Indian retail business grow more quickly. The urban Indian consumers purchasing power is increasing, and branded goods in categories like apparel, cosmetics, footwear, watches, beverages food, and even jewellery are gradually evolving into business and leisure that are well-liked by the urban Indian consumer. The retail sector in India is expected to reach a whopping US$ 2 trillion in value by 2032, according to a recent analysis by the Boston Consulting Group (BCG). India is the worlds fifth-largest global destination in the retail space. In the FDI Confidence Index, India ranked17 (after the US, Canada, Germany, United Kingdom, China, Japan, France, Australia, Switzerland, and Italy).

Segment Wise Performance

The Company provides comprehensive solutions with a diverse selection of high-quality modern modular office furniture, including partition systems, office chairs, cabinets, wardrobes, storage racks, executive chairs, and office workstations. Additionally, it designs and develops various retail outlets such as beauty shops, paint shops, and fashion apparel outlets. Retail leasing in India is growing by 21% since 2022, driven by fashion retailers, hyper- markets, & restaurants, according to CBREs ‘India Market Monitor 2022 report. The retail leasing market is expected to gain momentum in tier-2, tier-3, and tier-4 cities in India as business activities in these areas accelerate and the purchasing power of these regions continues to grow. Several states in India are incentivizing businesses to establish their presence in non-metropolitan areas.

The Company is also engaged in manufacturing and supplying a wide range of metal industrial Products. These are developed by a team of creative professionals as per the norms and guidelines laid down by the industry. Moreover, to meet the specific needs of individuals, it also provides customized version of these products as per the specifications detailed by the clients. Clients can avail products such as Electrical Control Panels, Petrol Pump Kiosks, HVAC Outer Housing, Battery Rack, UPS cabinets, Server Racks etc.

Opportunities and Threats

Indias rapid economic growth and urbanization create a significant demand for commercial spaces like offices, retail outlets, hotels, and restaurants, driving the need for quality furniture fixtures, while the burgeoning startup ecosystem and small and medium enterprises (SMEs) increase the need for modern, ergonomic, and affordable office furniture. Smart furniture equipped with integrated technology solutions is becoming popular in commercial settings, providing an innovative market segment, the industry currently lacks the technological advancements, sticking to a traditional procurement is advantageous for cost effective production.

While there are lot of opportunities in the industry, it comes with an equal share of threats, the current scenario being highly competitive with numerous domestic and international players, leading to price wars and reduced profit margins. Economic uncertainties or slowdowns can reduce investment in commercial infrastructure, directly impacting the demand for furniture fixtures. The dependence on global supply chains for raw materials and components can lead to disruptions due to geopolitical issues, pandemics, or trade restrictions. Rapid technological advancements can render existing products obsolete, necessitating continuous investment in research and development.

Opportunities in Industrial Segment have opened up in the field of Data Centres, Server Power Consumption, Server Racks and HVAC centres. India accounts for roughly 14 to 15% of global internet users, whereas data centre is only 6% leaving a huge gap there. Only IT Equipment like networking equipment make up 50-60% proportion of server power consumption. The surge in global data, from streaming to cloud services, demands powerful servers. However, increasing volume leads to higher power requirements, sometimes outweighing efficiency gains from new equipment. The advent of the cloud has resulted in a massive expansion of reliance on server technology. More Companies than ever before are transitioning to digital platforms, necessitating a surge in the number of servers. Data centres rely heavily on HVAC systems, which often consume more power than the IT equipment they could.

Operational and Financial Performance

Key Performance Indicators (KPIs) for financial year 2023-24:

• Current Ratio: 1.55

o This ratio indicates that the company has 1.55 times more current assets than current liabilities, suggesting good short-term financial health.

• Debt-Equity Ratio: 0.97

o The company has a balanced mix of debt and equity in its capital structure, with slightly more equity than debt.

• Inventory Turnover: 3.06

o The inventory turnover ratio of 3.06 implies that the company sells and replaces its inventory roughly 3.06 times a year i.e., every 119 days in year.

• Net Profit Margin: 6.41%

o The net profit margin indicates that the company retains 6.41% of its revenue as profit after all expenses have been deducted.

> Financial Highlights:

• Revenue from Operations: Rs. 14,474.40 Lakhs

o The companys revenue from operations highlights a strong market position in the commercial furniture and fixtures sector. This figure underscores the companys ability to generate substantial income from its core activities. Significant Changes.

Significant Changes

1. Public Listing and Fundraising:

o On April 2, 2024, the Company listed its shares on the Emerge Platform of the National Stock Exchange Limited of India.

o Raised Rs. 25,34,72,000/- (Rupees Twenty Five Crore Thirty Four Lakhs Seventy Two Thousand only) through an initial public offer providing a significant boost to the companys financial resources.

o This move not only provided significant capital inflow but also increased the companys visibility and credibility in the market.

> Analysis:

The Companys financial performance in 2024 shows a solid foundation with healthy liquidity and a balanced capital structure. The inventory turnover rate indicates efficient inventory management, while the net profit margin shows the companys profitability.

The significant change such as the public listing are poised to drive future growth.

> Future Outlook:

The Company is well-positioned to leverage the growing opportunities in the Indian Retail Store furniture and fixtures market. By focusing on innovation, sustainable practices, and expanding its market presence, the Company can enhance its market share and profitability. Continued investment in technology, talent, and customer-centric strategies will be key to sustaining long-term growth and competitive advantage.

Internal control systems and their adequacy

A company with adequate internal control systems demonstrates a robust framework designed to ensure operational efficiency, reliability of financial reporting, and compliance with applicable laws and regulations. This includes clearly defined roles and responsibilities, regular and thorough audits, secure information systems, and effective communication channels. Management actively monitors and updates these controls to address new risks and improve processes, thereby fostering a culture of accountability and transparency throughout the organization.

The Company has an adequate Internal Control System, commensurate with the size, scale and complexity of its operations. The internal control system is in place with respect to its financial statement which provides reasonable assurance regarding reliability of financial reporting and the preparation of financial statements. Procedures and controls are reviewed periodically.

Material developments in Human Resources / Industrial Relations front, including number of people employed Details of Significant Changes:

Details of any change in Return on Net Worth compared to the immediately previous financial year along with a detailed explanation.

The Company made an Initial Public Offer ("IPO") during the financial year 2023-24. The IPO was successfully subscribed, and the shares of the Company were listed on NSE Emerge. The Company received listing and trading approval on 1st April 2024. The offer size under IPO was INR 25,34,72,000 (Rupees Twenty-Five Crore Thirty Four Lakhs Seventy Two Thousand only), that is 28,48,000 number of shares of Rs. 10/- (Rupees Ten only) each at a premium of 79/- (Rupees Seventy-Nine only) per Equity Share. Due to raising funds, from the IPO the Equity Capital of the Company increased hence dividing the returns to a larger margin, which resulted in decrease of return on net worth of the Company from 105.90% for FY 2022-23 to 41.62% for FY 2023-24, causing change of 60.69% as compared to previous financial year.

Cautionary Statements

Statements made in the Management Discussion & Analysis describing the Companys objectives, projections, estimates, expectations may be "Forward-looking statements" within the meaning of applicable laws & regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand supply and price conditions in the domestic & overseas markets in which the Company operates, changes in the government regulations, tax laws & other statutes and other incidental factors.