optiemus infracom ltd Management discussions


In order to understand the performance of the Company during the Financial Year 2022-23 better, it is important to compare it with respect to the developments in Global and Domestic economic conditions.

GLOBAL ECONOMY

The global economy is showing signs of resilience in 2023 after a turbulent year. The global economy was impacted by various factors in 2022, which included monetary policy tightening to tame high inflation, slowing growth, and the ongoing Russia-Ukraine conflict. China continued with its stringent Zero-COVID policy, which weighed on growth. However, the earlier-than-expected reopening of the Chinese economy in the third quarter paved the way for a faster-than-expected recovery. Despite these headwinds, several economies including the US, Europe, and major emerging markets and developing economies witnessed growth momentum in the third quarter of 2022. Global economic output clocked growth of 3.4% in 2022, with advanced economies growing at 2.7%. Emerging market economies outpaced global growth with 4.0%.

It is evident that monetary policy tightening has started to cool off demand and inflation, though its full impact will be realised in the quarters to come. Global headline inflation peaked in the third quarter of 2022, and easing since then, reflected in the decline in energy and food prices. Prices of fuel and non-fuel commodities have moderated, lowering headline inflation notably in the US, Europe and Latin America. Core inflation is expected to moderate gradually in 2023. Further, with the central banks efforts to tame inflation by substantial tightening in monetary policy, headline inflation has started to fall. Global inflation is projected to decline from 8.7% in 2022 to 7% in 2023 and 4.9% in 2024.

According to the April 2023 World Economic Outlook, the baseline forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 percent in 2023 with advanced economy growth falling below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly. Inflations return to target is unlikely before 2025 in most cases.

INDIAN ECONOMY

India has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.

Despite the three shocks of COVID-19, Russian-Ukraine conflict and the Central Banks across economies led by Federal Reserve responding with synchronised policy rate hikes to curb inflation, leading to appreciation of US Dollar and the widening of the Current Account Deficits (CAD) in net importing economies, agencies worldwide continue to project India as the fastest-growing major economy at 6.5-7.0 per cent in FY23.

Strong economic growth in the first quarter of FY 2022-23 helped India move ahead of the UK to become the fifth-largest economy after it recovered from hits due to repeated COVID-19 pandemic shocks. Real GDP in the first quarter of 2022–23 was currently about 4% higher than its corresponding figures in 2019-20, indicating a strong recovery from the pandemic. Rising employment and substantially increasing private consumption, supported by rising consumer sentiment, will support GDP growth in the coming months.

According to economic survey, India to witness GDP growth of 6.0-6.8 per cent in 2023-24, depending on the trajectory of economic and political developments globally. The year ahead is poised to experience a surge in private sector investment with the financial system in a good position to provide support to the revival of economy.

The Indian economy is estimated to grow by 7% year-on-year in the current fiscal, despite the global economy operating under an extremely challenging macroeconomic environment.

According to the IMF, the Indian economy is expected to advance steadily at 5.9% in FY 2023-24 before rising to 6.3% in FY 2024-25. The economic growth is primarily driven by robust domestic consumption, abating of inflation, technology-enabled development, export growth, and revival in credit growth among others. Additionally, increased capital expenditure on infrastructure and the growth-enhancing policies such as the PLI schemes, ‘Make in India and ‘Atmanirbhar Bharat will strengthen the manufacturing base, lead to higher productivity, promote Indian products in the global markets and build a strong foundation for economic growth. With its strong fundamentals, massive demographic strengths and multiple growth levers in place, Indian economy is expected to sustain the growth momentum in the long term and reach US$ 5 trillion by FY 2026-27.

Business Segment-Telecommunication and Allied Products

The telecom industry is playing a significant role in making India a trillion-dollar digital economy, backed by its continuous investments in expanding networks and improving coverage. Operators are also expanding network coverage across rural India and bridging the economic/ digital divide.

India is the worlds second-largest telecommunication market with a subscriber base of 1,170.75 million in January 2023 and has registered strong growth in the last decade. The Indian mobile economy is growing rapidly and will contribute substantially to Indias Gross Domestic Product (GDP) according to a report prepared by GSM Association (GSMA) in collaboration with Boston Consulting Group (BCG). Tele-density was pegged at 84.51% as on March 31, 2023; urban tele-density stood at 133.81%, whereas the rural tele-density stood at 57.71%.

The liberal and reformist policies of the Government of India have been instrumental along with strong consumer demand in the rapid growth of the Indian telecom sector. The Government has enabled easy market access to telecom equipment, a fair and proactive regulatory framework, that has ensured the availability of telecom services to consumers at affordable prices. The de-regulation of Foreign Direct Investment (FDI) norms have made the sector one of the fastest-growing and the top five employment opportunity generator in the country.

The Union Cabinet approved Rs. 12,195 crore (US$ 1.65 billion) Production Linked Incentive (PLI) Scheme for telecom & networking products under the Department of Telecommunications. On December 2022, 42 companies have committed an investment US$ 502.95 million (Rs. 4,115 crore) comprising 28 MSMEs and 14 Non-MSMEs (eight domestic and seven global companies) have been approved under the PLI Scheme. To drive the development of 6G technology, the Department of Telecommunications (DoT) has developed a sixth-generation (6G) innovation group.

Further, after COVID-19, Indian citizens felt an urge to monitor their heart and oxygen rate which resulted in high demand of fitness products i.e. smart watches and other digital products. Smartwatches, formerly seen as a fashion item for the upwardly mobile, are now essential add-on gadgets. According to a fortune business analysis, the market is expected to increase from USD 22.02 billion in 2021 to USD 58.21 billion by 2028.

The India wearable market exited 2022 with a strong 46.9% YoY (year-over-year) growth, as shipments reached 100 million units according to the recent data from the International Data Corporations (IDC) India Monthly Wearable Device Tracker.

The Hearable market was valued at USD 22270 million in 2019 and it is expected to reach USD 88780 million by the end of 2026, growing at a CAGR of 21.6%.

OPPORTUNITIES

The Indian smartphone industry and other electronics products 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 manufacturer of electronics products and continues to be proactive in providing room for growth for manufacturing companies. 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.

Since India is a huge market for smartphones, manufacturers are aware that the wants and desires of Indian customers will have a significant impact on sales. India is also the second-largest telecommunication market in the world with over 1.17 billion subscribers. The mobile phone market in India has grown exponentially in the past decade, and with the emergence of smartphones, the growth has increased substantially.

Indias electronic manufacturing industry is on the roll and is perhaps the most successful example of the governments Make in India initiative. Huge domestic consumption of mobile phones and policy reforms are expected to drive domestic value addition too, which remains a concern. This can also create a demand for electronics manufacturing services specifically for the Indian mobile manufacturing industry. According to the India Brand Equity Foundation (IBEF) knowledge centre, India is today the second largest mobile phone manufacturing hub after China. At the current pace, India is expected to surpass China in the next few years as the countrys mobile handset market is expected to grow nearly five times faster than the worlds largest smartphone market, China, where growth has decelerated.

During the last three financial years, the Government launched various Production Linked Incentive Scheme ("PLI Scheme") to boost domestic manufacturing and attract large investments in mobile phones manufacturing and specified electronic components. The PLI Scheme offers a production linked incentive to the manufacturer upon fulfilling of the target specified under the PLI Scheme. The Scheme would tremendously boost the electronics manufacturing landscape and establish India at the global level in electronics sector. The mobile, hearable and wearable manufacturing industry is very positive about the move and this scheme will help to meet the targets under NPE 2019 (National Policy on Electronics 2019). This will certainly lead to companies moving their supply chains to India. This will not only spur manufacturing but will also make India an export-led global manufacturing hub for mobile phones. The potential for mobile device and hearable and wearable manufacturing in the country is expected to grow by 2025. By that year, it is anticipated to become an export-oriented industry, creating 4.7 million jobs in India.

THREATS

The mobile phone and allied products 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:

• Cost: Customers wants better services and products at a lower cost.

• New technology improvement: For example high quality front and back camera phones, better display.

• A temporary slowdown in the housing market due to a variety of challenges.

• The threat of new entrants, the threat of substitute products or services, and the bargaining power of suppliers.

• Disruptions caused by pandemics, such as COVID-19.

• Many devices have no basic security - Wearables often provide no PIN or password protection, no biometric security and no user authentication to access data on a device. You get the picture — if a device falls into the wrong hands, sensitive data could be accessed very easily.

Wearables — smart electronic devices and accessories worn on the body — are prominent players in the Internet of Things. Wearables enable objects to exchange data through the Internet with a manufacturer, operator and/or other connected devices, without requiring human intervention. But, as with everything computer-related, these devices pose security threats.

With economic activities on downturn due to COVID-19, we do see challenges in short term in Enterprise business, which would grapple with fewer orders as the market have shrunk. The Company would see an impact on the mobile phone and allied products business. However, we can see continue growth in Mobile phone and allied products manufacturing and trading business due to launch of various promotional schemes launched by Government of India to promote manufacturing of electronic products in India.

SEGMENT PERFORMANCE

Telecommunication and allied Products

As far as the mobile category is concerned, the mobile phone 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 Company is continuously involved in analysing the market trends and searching for business opportunities in the market.

According to a report by International Data Corporation (IDC) India, India will become one of the largest markets for wearables in 2023. India will account for 130-135 million units out of 504.1 million units that will be shipped by the end of 2023. It will account for 26% of the total units shipped around the world. Currently, Indian market is the 3rd largest market globally & one of the fastest growing markets in Wearables. To boost the countrys manufacturing and attract large investments, the Government of India has introduced various Production Linked Incentive ("PLI") Schemes and other schemes like PMP (Phased Manufacturing Programme) for Hearable and Wearable category. The PLI and PMP Schemes are expected to drive Indias transformation into a global manufacturing hub by resulting in rapid expansion of manufacturing scale by various industries and making it competitive through a robust component ecosystem which was previously lacking. Concessions in customs duty will be given by the Government to certain consumer electronic devices to promote manufacturing across wearables, hearables and specific mobile phone components.

Also, the wholly owned subsidiaries of the Company viz. Optiemus Electronics Limited ("OEL") and GDN Enterprises Private Limited ("GDN") have been selected under the Production Linked Incentive Schemes launched by the Ministry of Electronics and Information Technology and Department of Telecommunication, respectively. OEL has been selected for manufacturing of mobile phones and IT Products and GDN has been selected for manufacturing of Telecom and Networking Products, which will also be advantageous for the Company.

OEL has achieved a milestone of production of 1 Million Hearable/Wearable devices in a single month i.e. September 2022 under the Make in India programme of our Honble Prime Minister Shri Narendra Modi Ji and with introduction of the Phased Manufacturing Programme (PMP) in Hearable/Wearable announced in Budget 2022 effective from April 01, 2022. OEL reached on this achievement within a short span of time i.e. within 6 months of implementation of Phased Manufacturing Programme (PMP).

BUSINESS OUTLOOK

The Indian electronics 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 hotest 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 smartphone, there are 6.64 billion-plus users. There were 216.43 million smartwatch users in 2022, and the approximate revenue generated was $43.39 billion. For smartwatch, the user number is estimated to amount to 229.51 million users in 2027. India has emerged as an attractive investment destination due to structural reforms, such as the Goods and Services Tax (GST), the Insolvency and Bankruptcy Code (IBC), labour laws, the Corporate Tax rate, and the Real Estate Regulatory Authority (RERA), among other measures. As the strain caused by the pandemic subsides, infrastructure expenditures are anticipated to increase, resulting in a virtuous investment cycle.

The manufacturing industry is experiencing robust growth due to growing capacity utilization, the PLI scheme, and the "Make in India" initiative. Global trends of supply chain diversification and de-risking, coupled with geopolitical tensions and fluctuating tariffs, are creating new business opportunities. The total cumulative shipments of smartphones in the country are expected to reach 1.7 billion over 2022-2026, creating a market of about USD 250 billion, of which, nearly 840 million 5G devices are expected to be sold in a span of five years. There is 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 MITIGATION FRAMEWORK Risk:

1. Heightened competition:

Increased price competition or entry of potential disruptive players where the Company operates can be detrimental.

2. Technology Risks

The Companys business is affected with rapid change in technology. The Company has to be up-to-date with the rapidly changing technologies.

3. Political Instability and Government Relations

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.

4. Economic Uncertainties

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.

Business operations in our countries of operations may be affected by economic instability, which can be attributed to factors such as inflation, capital controls, and currency fluctuations.

5. Regulatory framework

Change in regulatory policies adversely impacting operations. Any political instability and economic uncertainties resulting in unfavourable decisions impacting business.

6. Client Concentration Risk

Depending on limited number of clients for a majority share of the revenue poses a risk to the Company. This risk is in terms of the fact that Company may lose any of its key customers or a problem in the customers business may affect the company as well.

Risk Mitigation Framework

For the purpose of risk identification and risk reduction, the Company has a defined self-governed risk policy and risk management & mitigation framework for all units, functional departments. Additionally, it established the Risk Management Committee, monitors and reviews the strategic risk management plans of your Company as a whole and provides necessary directions on the same, which evaluates the Companys performance on a regular basis in relation to the important risks arising from a dynamic business environment and identified by the management based on their vast experience and subject-matter expertise. The business also makes an effort to spot new risks that could hurt its profitability and position in the market, and it comes up with plans to deal with these risks as soon as possible.

Further, Standardised IT Policies, standards and procedures are in place to manage technology risk and safeguard information systems.

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 Company has an effective and reliable internal control system and 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 Whole-time Director 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 on quarterly basis.

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 from operations is given as below: i. Revenue and operating expenses

In FY 2023, the Company earned total revenue of Rs. 64,377.48 Lacs. The total expenditure stood at Rs. 60,112.42 Lacs. The net profit recorded by the Company was Rs. 3,480.25 Lacs.

ii. Operating profit before finance charges, depreciation and amortization and exceptional items (EBITDA)

The Companys loss from continuing operations before finance charges, depreciation and amortization and exceptional items during the financial year 2022-23 was Rs. 4,366.25 Lacs. iii. Depreciation and amortisation

The Depreciation and amortisation charges in continuing operations during the financial year 2022-23 was Rs. 3.32 Lacs. iv. Profit before/ after tax

The net profit before tax from operations was Rs. 4,265.06 Lacs and net profit after tax and adjustments was Rs. 3,480.25 Lacs during the financial year 2022-23. Total Comprehensive income was Rs. 3,479.50 Lacs.

Detail of Key Financial Ratios

Particulars 2022-23 2021-22 % Change Reason for change of 25% or more
Debtors Turnover Ratio (times) 2.51 2.56 (1.95)% NA
Inventory Turnover Ratio (times) 251.39 84.67 196.91% Change can be attributed to significant increase in cost of goods sold during the current financial year and reduction in average inventory by the company.
Interest Coverage Ratio (times) 44.58 8.36 433.25% Change can be attributed to significant increase in cost of goods sold during the current financial year and reduction in interest cost by the company.
Current Ratio (times) 2.41 2.41 Nil NA
Debt Equity Ratio (times) 0.00 0.05 (100)% Reduction in borrowings (non -current and current) which represent companys total debt, as a result of repayment.
Operating Profit Margin (%) 6.46% 0.00% 6.46% NA
Net Profit Margin (%) 6.63% 5.45% 21.65% NA
Return on Net Worth (%) 8.48% 4.95% 71.31% Increase in net profit after tax for the current financial year majorly on account of recognition of refund of excess differential countervailing duty and fair value gain on financial instruments.

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 2022-23 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 Company finds it imperative to follow policies and procedures in order to facilitate an unbiased and safe working environment. The Company has put in place Grievance Redressal Procedures and adopted a Policy on Sexual Harassment as per the provisions of the Prevention of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 ("POSH") and the Rules framed thereunder. The Company has undertaken a people scope online/offline training program geared towards employee awareness on POSH. The Company has Internal Compliant Committee to ensure that adequate preventive measures are taken and grievances in this regard, if any, are effectively addressed. During the year under review, no complaint relating to sexual harassment was received.

ENVIRONMENT, HEALTH AND SAFETY (EHS)

As a responsible organization in the trading sector, Environment, Health and Safety (EHS) remains a focus area in the business for Optiemus. The EHS benchmarks and rules are strictly followed across all the Company processes. Health and safety concerns of the employees are addressed with comprehensive measures and the initiatives expand beyond the Company facilities to cover the communities around the locations. For maintaining an efficient workspace and to continue sustainable growth, the Company is implementing the suggested measures.

CAUTIONARY STATEMENT

The statement in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates and expectations are forward looking statements within the meaning of applicable laws and regulations and which the management believes are true to the best of its knowledge at the time of preparation. Actual results may differ substantially or materially from such expectations whether expressed or implied and hence, the Company and the management shall not be held liable for any loss, which may arise as a result of any action taken based on the information contained herein. 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.