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In order to understand the performance of your Company during Financial Year 2018-19 better, it is important to compare it with respect to the developments in Global and Domestic economic conditions.
India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnership. Indias GDP growth is expected to accelerate moderately to 7.5% in Fiscal Year 2019-20, driven by continued investment strengthening, particularly private-improved export performance and resilient consumption.
Foreign companies are investing in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. The Indian governments favourable policy regime and robust business environment have ensured that foreign capital keeps flowing into the country.
India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group (BCG) report; and is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by the year 2040. India has retained its position as the third largest start-up base in the world with over 4,750 technology start-ups.The Governments focus on supporting the farmers, economically less-privileged workers in the un-organized sector and salaried employees, while continuing the push towards better physical and social infrastructure, would pave the way for higher sustainable growth and development in India.
Business Segment-Telecommunication Products
India is currently the worlds second-largest telecommunications market with a subscriber base of 1.20 billion and has registered strong growth in the past decade and half. The Indian mobile economy is growing rapidly and will contribute substantially to Indias Gross Domestic Product (GDP), according to report prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group (BCG).
The liberal and reformist policies of the Government of India have been instrumental along with strong consumer demand in the rapid growth in the Indian telecom sector. The government has enabled easy market access to telecom equipment and a fair and proactive regulatory framework that has ensured availability of telecom services to consumer at affordable prices. The deregulation of Foreign Direct Investment (FDI) norms has made the sector one of the fastest growing and a top five employment opportunity generator in the country. Telecom equipment market is expected to reach US$ 30 billion by 2020.
The Indian smartphone industry looks fertile with new brands entering the market and making space with the existing ones. With budget phones a big hit with the educated middle class, more and more brands are jostling for space in the segment. At the same time, more expensive models are also gaining popularity. Market researchers predict that it isnt too difficult for India to become the leading handset market in the years to come. The government has fast-tracked reforms in the telecom sector and continues to be proactive in providing room for growth for telecom companies.
Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling Indias overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development.
India is witnessing significant interest from international investors in infrastructure space. Government of India is taking every possible initiative to boost this sector.
The strong and rapid growth of the smartphone market has been made possible by several liberal policies of the Indian government, along with huge consumer demand. The telecom industry today is among the top five employment opportunity generators in India, creating over four million direct and indirect jobs over the next few years, according to data released by Randstad India. Increase in smartphone sales and internet usage along with the governments efforts to increase the penetration of technology in rural regions have made this possible.
With more than another half a billion to be added by 2020, the sheer scale of the market is attracting domestic and foreign players like and in the recent past the industry has witnessed huge inclination of mobile handsets manufacturers to manufacture phones in India. Low cost production due to cheap resource, proximity to markets and the huge market potential are the drivers to this inclination.
Total wireless subscribers increased from 1,161.86 million at the end of May-2019 to 1,165.46 million at the end of June-2019, thereby registering a monthly growth rate of 0.31%.
Infrastructure sector is a key driver for the Indian economy because infrastructure is directly proportional to the development and growth of the country. The Government of India is expected to invest highly in the infrastructure sector, mainly highways, renewable energy and urban transport. Some of the steps taken are:
The Government of India has given a massive push to the infrastructure sector by allocating INR 4.56 lacs crore (US$ 63.20 billion) for the sector.
Number of airports has increased to 102 in 2018.
The Indian Railways received allocation under Union Budget 2019-20 at INR 66.77 billion (US$ 9.25 billion) India and Japan have joined hands for infrastructure development in Indias north-eastern states and are also setting up an India-Japan Coordination Forum for Development of North East to undertake strategic infrastructure projects in the northeast.
The mobile phone industry has become increasingly larger from last few years as a result of more affordable cellular phones as well as lower service costs. Companies are competing in an advance technology and communication sector in which success attracts customers to buy their products and services. The market is very competitive because they offer the same products and services, but has different physical attributes to the phones and different costs, which buyers have choices to choose from. Companies want to provide the best products and services to attract buyers by lowering cost and improving products, which makes the mobile phone industry very competitive. Following are the main factors of competitive rivalry:
Mobile Phone Cost: Customers wants better services and products at a lower cost.
Bundle functions into just one Mobile Phone: For example E-mail, text messaging, internet etc.
New technology improvement: For example camera phones.
The other challenges that influence the business performance are:
i. Excessive competition
A look back at the last few years shows home-grown smartphone brands losing their dominance to a gradual Chinese on-slaught. Evidently, the competition in the industry is expected to intensify further with the entry of new players, both domestic as well as foreign players. About 56% market share is taken by Chinese vendors Xiaomi, Oppo and Vivo, Realme which are expanding presence both online as well as offline.
ii. Technology and Innovations
Technology and innovation are advanced every year making the industry even more competitive. Mobile phone companies that design and make evolutionary upgrades are emerging into the market to be more competitive. A company cannot manufacture or sell the same product for decades, they need to bring constant changes for the newness of their product and also make it better and cheaper.
With the accelerating growth of e-commerce in India, the business of distribution business is facing a lot of turbulence, which is a big challenge for the industry to be combated.
iv. Market Risks
We are subject to market risks from changes in interest and foreign currency exchange rates. In managing exposure to these fluctuations, we may engage in various hedging transactions that have been authorized according to documented internal policies and procedures.
Infrastructure (Construction and Renting)
Infrastructure projects are associated with various types of risks:
i. Land Acquisition
Land acquisition has been the single largest roadblock for the development of infrastructure, several projects have been stalled or delayed due to land acquisition issues.
ii. Delay in Regulatory and Environmental Clearances
There are various categories of approvals required across the project cycle at every stage from multiple layers of government at central, state, local level. In most cases, there is a lack of coordination between the different agencies which seriously affects the execution of projects.
SEGMENT WISE PERFORMANCE
As far as the mobile category is concerned, the mobile market has managed to stay away from the slowdown that the rest of the market has been experiencing which is primarily because of the technology innovation. The organized retail of Mobile Handsets is growing rapidly in line with the increase in market share of smart phones as customers prefer to buy smart phones from organized retail stores which offer better buying experience and understanding the functions of a smart phone. Also, the Company is moving forward with its prime focus on widening its distribution services by bringing different world class organisation under its distribution network & also trade in mobile accessories as well. Companys revenue in Telecom Products contributed INR 36,029 lacs towards the total revenue of the Company.
Optiemus has recently joined hands with Canada based Mobile brand "Blackberry". Having signed an Exclusive licensing agreement with Blackberry, Optiemus has qualified itself to design, sell, promote and provide customer support service for blackberry mobile devices in India, Sri Lanka, Nepal & Bangladesh. Blackberry Limited will provide its unparalleled software and security solution, which will give Optiemus a new platform to keep the innovation alive in the worlds fastest growing smartphone market and create an affluence for its shareholders. During 2018-19, Optiemus launched Android Mobile Phone BlackBerry Evolve, BlackBerry EvolveX and Kult Inspire. Also, the Company entered into business venture with Troosol Enterprises Private Limited, a company engaged into the business of e-trade through its bid based software under the brand name "MagicSpree", to acquire its IP rights and to do online business of sale/purchase of mobile phones and other tele communications by using their e-platform.
Infrastructure (Construction and Renting)
The Companys performance has been consistent in this segment, where its total revenue for the F.Y. 2018-19 was INR 3,583 Lacs.Thus, we can see this segment growing keeping in pace with the Indian Governments move to develop the Infrastructure and involving the private participation for the same.
The Indian mobile industry is the fastest growing in the world and India continues to add more mobile connections every month than any other country in the world. The telecom boom in the country provides great opportunity to handset manufacturers and the hottest segment for these manufacturers is the entry level segment. Mobile has become increasingly pervasive and indispensable, with consumers the world over enthusiastically embracing its potential. For mobile we have 800 million-plus users, unlike many other markets, mobile is becoming the dominant device for voice, for value-added services, and increasingly for mobile Internet also.
By 2022, the smartphone data consumption will increase by five time in India - which proves the dominance of smartphones as the communications hub for social media, video consumption, communications, and business applications, as well as traditional voice.India is already a base for worldwide quality manufacturing of mobile phones. The sale of mobile handset has increased enormously, the inflow of FDI provided in roads for many companies which started their production in India.
RISK AND CONCERNS
1. Technology Risks
Comment: The modern business world marches to the beat of technologys drum and has done so for many years. As the internet and e-mail matured in the 1990s, companies began to adapt and take up the technology.
Given the importance of technology and its impact on corporates, it is vital that organisations place technology risk management at the top of corporate agenda.
Mitigation: The Company has in place sound and robust technology risk management framework. The board of Directors and senior management is directly responsible to ensure effective internal controls and risk management systems to achieve security and reliability. Standardised IT Policies, standards and procedures are in place to manage technology risk and safeguard information systems.
2. Political Instability and Government Relations
Comment: The Company operates in India. Sometimes Industrial situations are affected by political instability, civil unrest and other social tensions resulting in regime uncertainties; hence, the risk of not enjoying Government support. Such conditions tend to affect the overall business climate, especially the telecom sector, which requires stable socio-economic conditions and policy stability.
Mitigation: As a responsible corporate citizen, the Company engages proactively with key stakeholders in the societies in which it operates, and continuously assesses the impact of the changing political scenario. The Company works hand in- hand with other telecom operators in jointly representing the case for policy stability. It does its best to contribute to the socio-economic growth of the countries in which it operates through high quality services to its customers, improved connectivity, providing direct and indirect employment, and contributions to the exchequer.
3. Economic Uncertainties
Comment: The Companys strategy is to focus on the growth opportunities in the emerging and developing markets related to distribution and online retailing. These markets are characterised by low to medium mobile penetration, low internet penetration and relatively lower per capita incomes, thus offering more growth potential. Since the Company has borrowing, and many loans are carrying floating interest terms, it is exposed to market risks, which impact its earnings, cash flow and balance sheet.
Mitigation: As a big player in telecom sector, the Company has diversified its risks and opportunities across markets including online trading. Through a variety of services it has also spread its portfolio. The Company follows a prudent risk management policy, including hedging mechanisms to protect its cash flow. A prudent cash management policy ensures that surplus cash is up-streamed regularly to minimise the risks of blockages at times of capital controls. Finally, the Company adopts a pricing strategy that is based on twin principles of profitability and affordability, which ensures that it protects margins at times of inflation, and market shares at times of market contraction.
4. Weaknesses in Infrastructure
Comment: Several regions, particularly rural and the hinterland, are handicapped by poor quality infrastructure, such as lack of proper roads, transport, power supply, housing, labour availability, banking and security, among others. These could result in gaps, such as energy unavailability, fuel shortages, fuel theft, asset misappropriation and cash theft, among others, thereby impacting quality of its services.
Mitigation: The Companys philosophy is to share infrastructure with other operators, and enter into SLA-based outsourcing arrangements.
5. Adverse Regulatory or Taxation Developments Including Risks Related to Tax Positions
Comment: Despite huge improvements, the regulatory environment in India continues to be challenging. Regulatory developments will have significant implications on the future of telephony as well as Indias global competitiveness. Any adverse regulatory changes, changes intaxation and policies may affect the profitability outlook of the Company. Indias telecom sector is also a highly taxed sector with high revenue share-based license fees and spectrum charges, service taxes and corporate tax.
Mitigation: The Company has always stood for a fair, transparent and non-discriminatory Government policy on telecom regulation with regard to its business activities involving distribution and online trading. It has represented to the Government that sustainable regulatory regimes will lead to healthy growth of the telecom sector, leading to higher investments and modernisation, which in turn unleashes a growth cycle once again for all the players involved in the telecom sector.
Risk Management Framework
Company has a defined self-governed risk policy and risk management frame work for all units, functional departments and project sites. This helps in identifying, assessing and mitigating the risk that could impact the
Companys performance and achievement of its business objectives. The risks are reviewed on-going basis by various process owners across the organization. The risk assessment is carried out by the Management Audit and Risk Assessment Department and a risk note is prepared and presented to the Audit Committee and a risk assessment procedure is presented to the Board of Directors annually.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
Optiemus has well established risk management policies and procedures to identify and assess risks across its business units and operations. The Board reviews the adequacy and effectiveness of the internal control from time to time. The Board, in consultation with the Internal Auditors and Audit Committee monitors and controls the major financial risk exposures. The Companys philosophy towards internal controls is based on the principle of healthy growth with a proactive approach to risk management.
The Audit Committee reviews the effectiveness of the internal control system, and also invites functional Directors and senior management personnel to provide updates on operating effectiveness and controls, from time to time. A CEO and CFO Certificate, forming part of the Corporate Governance Report, confirm the existence and effectiveness of internal controls and reiterate their responsibilities to report deficiencies to the Audit Committee and rectify the same. The Companys code of conduct requires compliance with law and Company policy, and also covers matters, such as financial integrity, avoiding conflicts of interest, work place behaviour, dealings with external parties and responsibilities to the community.
The Company, on a regular basis, stores and maintains all the relevant data and information as a back up to avoid any possible risk of losing important business data. A qualified and Independent Audit Committee of the Board comprising of all Independent Directors of the Company reviews the internal audit reports, adequacy of internal controls and risk management framework.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013, guidelines issued by the Securities and Exchange Board of India (SEBI). Our management accepts responsibility for the integrity and objectivity of these financial statements, as well as for the various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner of the form and substance of transactions, and reasonably present our state of affairs, profits and cash flows for the year.
The Companys financial performance is given as below:
i. Revenues and operating expenses
In FY 2019, the Company earned total revenues of INR 45,422 Lacs. The net profit after tax recorded by the Company was INR 222 Lacs. Our total expenditure stood at INR 45,235 Lacs.
ii. Operating profit before finance charges, depreciation and amortization and exceptional items (EBITDA).
The Company earned EBITDA of INR 4,211 Lacs
iii. Depreciation and amortisation
The Depreciation and amortisation charges were INR 1,076 Lacs.
iv. Profit before/ after tax
The profit before tax was INR 187 Lacs. The net profit after tax was INR 222 Lacs.
Detail of Key Financial Ratios
|Debtors Turnover Ratio||2.16||3.27|
|Inventory Turnover Ratio||13.20||22.05|
|Interest Coverage Ratio||1.06||2.19|
|Debt Equity Ratio||0.72||0.75|
|Operating Profit Margin (%)||-9.46||3.26|
|Net Profit Margin (%)||0.41||5.87|
|Return on Net Worth||0.66||7.46|
Due to entrance of new market players in telecom industry, the sale of the company decreased to an unpredicted level. About 56% market share is taken by Chinese vendors Xiaomi, Oppo and Vivo, Realme which shook up the Indias Telecom market at large.
During the financial year, Operating Profit Margin was decreased from 3.26% to (9.46%) due to upheaval position of Telecom Industry.
As the Operating Margin decreased during the financial year, hence, Net Profit Margin and Return on Net worth also decreased.
HUMAN RESOURCES/ INDUSTRIAL RELATIONS
Humankind is the Greatest Resource
At Optiemus, people are at the core of its business strategy. The Companys endeavour has always been to build an organisation where its people are always engaged and empowered to do their best. The Companys culture is focused on customer-centricity collaborative team work, result orientation, entrepreneurial mindset and developing people. The Companys HR strategy also aims to create a future ready pool of talent across all levels.
FY 2018-19 saw a host of initiatives around talent management and development to identify and accelerate the Companys high-potential employees, as well as building the right set of capabilities for all businesses. Efforts towards developing functional capabilities across the organization continued, with the review of the Companys current skill levels and development of functional academies to build next-generation functional and domain capabilities.
Owing to the competitiveness and diversity of Indian markets, the Company strives to ensure adequate succession planning of its leadership talent pool. It is increasingly grooming and hiring talent locally and across the country. This has helped the Companys businesses keep their ears close to the ground and progressively increase their business performance. In line with the Companys focus on employee empowerment, it also designed new Ways of Working to deliver high operational excellence and governance.
The Company recognizes and appreciates the contribution of all its employees in its growth path. Our Company strives to retain talent by facilitating career growth through job enrichment and empowerment, as it believes that the pool of the human resource is the biggest asset of the organization. Your Company maintains a cordial relationship with its employees through a constructive work environment in support of productive gains.
The statement in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations are forwardlooking statements within the meaning of applicable securities laws and regulations. Actual results may differ substantially or materially from such expectations whether expressed or implied. Several factors could make significant difference to the Companys operations. These include climatic and economic conditions affecting demand and supply, government regulations and taxation, natural calamities over which the Company does not have any direct control.