redington india ltd Management discussions


ECONOMIC OVERVIEW

Global

The global economy stands on the precipice of a broad-based deterioration as growth projections decline from 3.4% in 2022 to 2.9% in 2023, only to see a gradual recovery to 3.1% in 2024. However, inflationary concerns persist and are expected to remain higherthan pre-pandemic levels. In the face of a growing cost-of-living crisis, our top priority is to achieve sustained disinflation while safeguarding financial and debt stability. This necessitates the use of macroprudential tools and strengthening debt structuring frameworks, anticipating tighter monetary conditions. Accelerating vaccination efforts in China becomes imperative to protect neighbouring countries. Targeted fiscal support must focus on those most impacted by elevated food and energy prices as we gradually phase out broad-based relief measures. In the fight against climate change, global cooperation, emission limitations, and increased green investment are vital. Together, we can navigate these challenges and build a more resilient future.

India

The fiscal year 2022-2023 showcased the countrys singular belief in its economic resilience, despite grappling with external imbalances stemming from the Russia-Ukraine crisis and the withdrawal of foreign portfolio investors. Notably, the capital markets emerged unscathed and delivered positive returns throughout CY 22. The private sector has diligently embarked on balancing its books, unveiling promising indicators of a new capital formation cycle. Concurrently, the government has significantly ramped up capital expenditure, breathing new life into the Capex cycle. The implementation of structural reforms, including the Goods and Services Tax and the Insolvency and Bankruptcy Code, has remarkably bolstered the economys efficiency and transparency. However, global economic prospects face substantial challenges, including high inflation, central bank tightening, strains in supply chains, geopolitical conflicts, and mounting uncertainty, resulting in a projected slowdown in growth and trade for2023. The Economic Survey of India forecasts a baseline GDP growth rate of 6.5% in real terms for the fiscal year 2024.

Source: Economic Survey of India 2022-2023.

INFORMATION AND COMMUNICATION TECHNOLOGY (ICT)

Industry Overview Global

Gartners latest forecast reveals a promising outlook for worldwide IT spending in 2023, with a projected increase of 5.5% to reach a total of $4.6 trillion. Despite ongoing economic turbulence, all regions are expected to witness positive growth in IT spending. The pursuit of digital transformation remains a key priority for companies, even in nations grappling with near-flat GDP growth and high inflation. The software segment is poised for significant expansion as enterprises prioritise initiatives cantered around productivity enhancement, automation, and software-driven advancements. However, the devices segment is anticipated to decline by nearly 5% due to reduced purchasing power and a lack of consumer incentives. CIOs must navigate spending priorities, harnessing the potential of digital technology to revolutionise their organisations value proposition, revenue streams, and client interactions.

Worldwide IT Spending Forecast (Millions of U.S. Dollars)

Spending 2022 Growth % 2022 : Spending 2023 1 Growth % 2023 1 Spending 2024 Growth % 2024

Data Centre Systems

216,095 13.7% 224123 3.7% 237790 6.1%

Devices

717,048 -10.7% 684342 -4.6% 759331 11.0%

Software

793839 8.8% 891386 12.3% 1007769 13.1%

IT Services

1250224 3.5% 1364106 9.1% 1502,759 10.2%

Communication

Services

1424603 -1.8% 1479671 3.9% 1536,156 3.8%

Overall IT

4401809 0.5% 4643628 5.5% 5043,805 8.6%

Source: Gartner fhttDs://www.aartner.com/en/newsroom/Dress-releases/2023-04-06-aartner-forecasts-worldwide-it-SDendina-to-arow-5-Dercent-in-2023l

In the face of economic uncertainty, enterprises are embracing a transformative path by prioritising cloud options, particularly infrastructure-as-a-service (laaS), with an anticipated growth rate of over 30% this year. While maintaining existing on-premises facilities through data centre investments, organisations are redirecting their expenditures towards the boundless potential of cloud services. Notably, the price factor has emerged as a pivotal catalyst driving increased investment in the cloud services segment, transcending traditional usage-based considerations. The recent disruptions in the banking sector have reverberated throughout the tech industry, potentially impacting budding startups. Tech CEOs is called upon to adopt a prudent approach, conserving working capital, securing vital credit access, and nurturing a talent-centric culture. Despite industry-wide layoffs, a critical scarcity of skilled IT professionals persists as the demand for tech talent continues to surpass available supply. Enterprises are thus poised to invest more resources in retaining a leaner workforce, supplemented by the expertise of IT services firms, to bridge the talent gap.

EMEA

Emerging Trends in the Global IT industry

Gartner Inc.s latest forecast unveils a dynamic landscape for IT spending in the EMEA region, brimming with opportunities for innovation and growth. In 2023, the projected IT spending is set to soar to $1.3 trillion, reflecting an impressive 3.7% increase from 2022. Among the EMEA countries, the U.K. stands tall with the highest growth rate, with a 5.2% year-over-year increase. The focus on cloud software spending will be on driving efficiency and transformation, with EMEA CIOs prioritising a cloud-first approach for new initiatives while nurturing existing on-premises environments. Public cloud services are set to experience staggering 18.2% year-over-year growth, reaching $131 billion in 2023, constituting a significant portion of the total enterprise software spending in the region. However, consumer IT spending is anticipated to face challenges, with a projected decline of 2.6% in 2023, largely impacted by inflation rates affecting consumers across income levels. Despite the complex economic dynamics, the U.K. is poised to achieve IT spending growth of around $218.7 billion in 2023. Though overall IT spending in the U.S. is expected to decline by 2.5%, it is important to consider the context of the weak British pound compared to the U.S. dollar These figures reflect the evolving landscape of IT investments in EMEA.

Source: Gartner

Spending 2021 Growth (%) 2021 Spending

2022

Growth (%) 2022 Spending 2023 1 Growth % 2023

Data Centre Systems

44,393 4.1 45,212 1.8 45,665 1.0

Software

194,999 15.1 194,738 -0.1 211,572 8.6

Devices

219,289 15.0 190,577 -13.1 185,620 -2.6

IT Services

359,927 15.3 356,833 -0.9 380,472 6.6

Communications

Services

484,902 4.3 467,267 -3.6 477,865 2.3

Overall IT

1,303,509 10.5 1,254,626 -3.8 1,301,194 3.7

INDIA

The recent forecast by Gartner sheds light on the evolving landscape of Indias information technology spending, showcasing resilience and opportunities amid global economic challenges. Despite concerns about inflation and currency fluctuations, India is poised to witness a 2.6% increase in IT spending in 2023. While there may be a slight dip in demand for devices and data centre systems, businesses are actively investing in other pivotal technology domains. Notably, public cloud services are projected to witness a substantial growth of 27% in 2023. As Indian organisations forge ahead with their digital strategies, cybersecurity emerges as a critical focal point, demanding robust measures and investments. Furthermore, the shortage of digital talent and technology/ management skills poses a significant challenge for CIOs, necessitating innovative approaches to talent acquisition and resource utilisation. With adaptability and strategic vision, Indian businesses can navigate these complexities and leverage technology as a catalyst for growth and competitive advantage.

Industry Overview - Global Perspectives Consumer IT

In 2022, the global PC industry encountered notable hurdles, with shipments plummeting to 286.2 million units, signifying a significant decline of 16.2% compared to the previous yean The combined impact of inflation, recession, and interest rate hikes has had a profound effect on consumption patterns. Consumer demand for PCs hit a multi-year low, with many individuals who had recently purchased devices during the pandemic now unable to afford upgrades. The enterprise PC market has also been impacted, with a sluggish economy since Q3 2022 causing buyers to delay purchases and extend the lifespan of existing PCs. Consequently, it is unlikely that the business market will see growth until 2024.

Furthermore, an accumulation of PC inventory in the first half of 2022 created bottlenecks within the industry, exacerbating the situation. Despite these global challenges, Redington has demonstrated commendable performance.

Enterprise and Cloud

According to Gartners research on "cloud shift," the trajectory of enterprise IT spending is set to undergo a significant transformation by 2025. Within market segments that can transition to the cloud, spending on public cloud computing is expected to surpass spending on traditional IT. This accelerated shift has been primarily driven by the COVID-19 pandemic, prompting organisations to adapt to new business and social dynamics.

By 2025, a remarkable 51% of IT spending in application software, infrastructure software, business process services, and system infrastructure markets will be allocated to cloud technologies. While traditional offerings will still dominate the market in 2022, their growth potential will be substantially lower compared to the cloud.

For technology product managers, it is crucial to recognise this shift as a clear indicator of market opportunity. The increasing demand for integration capabilities, agile work processes, and composable architecture will continue to fuel momentum towards cloud solutions. Failing to adapt to this rapid cloud shift could result in technology and service providers becoming obsolete or restricted to low-growth markets. Embracing the cloud revolution is imperative for organisations to stay relevant and thrive in the evolving digital landscape.

Source: Gartner fhttDs://www.aartner.com/en/newsroom/Dress-releases/2021-08-02-aartner-savs-four-trends-are-shaDina-the-future-of-DubUc-doud1

Mobility

A recent forecast by Gartner reveals a projected 4% decline in global smartphone shipments for 2023, with approximately 1.23 billion units shipped, compared to 1.28 billion units in 2022. This shift can be attributed to consumers opting to hold onto their phones for longer periods, typically ranging from six to nine months. Moreover, there has been a notable transition from fixed contracts to flexible contracts, driven by a lack of significant technological advancements. Additionally, vendors are grappling with inflationary component costs, leading to price increases that further suppress demand for smartphones. Consequently, end-users are anticipated to reduce their spending on mobile phones by 3.8% in 2023. These market dynamics present challenges but also opportunities for stakeholders to innovate and deliver compelling offerings that meet evolving consumer expectations.

Source: Gartner fhttps://www.aartner.com/en/newsroom/Dress-releases/2023-01-31-aartner-forecasts-worldwide-device-shiDments-to-dedine-four-Dercent- in-20231

Company

Shipment Volumes* 2022 Market Share* 2022 Shipment Volumes 2021 Market Share

2021 :

Year-Over-Year

Change*

Samsung

260.9 21.6% 272.1 20.0% -4.1%

Apple

226.4 18.8% 235.8 17.3% -4.0%

Xiaomi

153.1 12.7% 191.0 14.0% -19.8%

OPPO

103.3 8.6% 133.6 9.8% -22.7%

Vivo

99.0 8.2% 128.3 9.4% -22.8%

Others

362.7 30.1% 399.1 29.3% -9.1%

Total

1205.5 100.0% 1359.8 100.0% -11.3%

Industry Overview - Indian Perspectives Consumer IT

In 2022, the traditional PC market in India, encompassing desktops, notebooks, and workstations, showcased resilience with a modest year-on-year growth of 0.3%, resulting in a total of 14.9 million units. Notably, the government and education sectors experienced remarkable growth rates of 117.6% and 28.3%, respectively, underscoring their increasing reliance on PC technologies. Flowever, the enterprise segment experienced a decline of 5.9%. The desktop and workstation categories exhibited robust growth rates of 32.3% and 24.7%, respectively, while the notebook category faced a decline of 8.4% due to weakened demand across all sectors. Within the commercial segment, there was a 7.9% YoY reduction in premium notebooks priced above US$1,000. Conversely, on the consumer front, premium notebooks and MacBooks experienced a substantial growth of 14.6%, reflecting the popularity of these high-end devices. These trends present opportunities for innovation and targeted strategies to meet diverse market demands.

The year 2022 was a dynamic one for the traditional PC market in India, offering both successes and challenges. While the market experienced a slight YoY growth of 0.3% reaching a total of 14.9 million units, there were significant variations across different sectors and categories. Amidst this backdrop, it is evident that the power of technology is transforming various sectors and driving progress. The remarkable growth witnessed in the government and education sectors, with impressive increases of 117.6% and 28.3% respectively, showcases the nations commitment to digital transformation.

While the enterprise segment faced a decline of 5.9%, it is essential to recognise the resilience of businesses during these challenging times. The impact of the ongoing pandemic has necessitated strategic recalibration, as organisations navigate uncertainties and embrace innovative approaches.

Notably, the rise of desktop and workstation categories with growth rates of 32.3% and 24.7% respectively highlights their enduring value and versatility. Meanwhile, the decline in the notebook category by 8.4% underscores the evolving preferences of consumers, who are exploring alternative devices that align with their diverse needs.

In the realm of premium notebooks priced at more than US$1,000, the commercial segment experienced a YoY decline of 7.9%. However, on the consumer side, the growth of 14.6% showcases the evolving mindset of individuals who seek high-performance computing devices that seamlessly blend functionality with style.

As we navigate the ever-changing landscape of technology, these trends provide valuable insights and opportunities for further innovation.

Mobility

Indias smartphone market faced significant challenges in 2022, marked by a notable decline in shipments. With a YoY decrease of 10.2%, the total shipments amounted to 144 million units. The fourth quarter of the year witnessed an even more significant decline of 27% YoY, as shipments plummeted to 30 million units, primarily due to excessive inventory levels post-Diwali.

Despite efforts to stimulate demand through price discounts and channel schemes, the market struggled due to weakened consumer demand, influenced by high inflation rates. However, there was some relief in terms of supply, as the situation improved.

An interesting development was the record-high average selling price (ASP) of smartphones, reaching US$224, representing an 18% YoY increase. Additionally, the entry-level segment (sub-US$150) experienced a contraction, shrinking from 54% to 46% of the market compared to the previous yean This decline in the entry-level segment posed a challenge for the overall markets growth, as it created a barrier for new smartphone users, compounded by fewer launches in this crucial mass market segment.

Despite these challenges, the smartphone market in India remains dynamic and resilient.

India Smartphone Market (Shipment in Millions)

Company

Shipment Volumes 2022 Market Share 2022 Shipment Volumes 2021 Market Share

2021 :

Year-Over-Year

Change

1. Xiaomi

30.3 21.0% 40.4 25.1% -25.0%

2. Samsung

26.1 18.1% 27.9 17.4% -6.6%

3. Vivo

22.9 15.9% 25.1 15.6% -8.7%

4. Realme

20.9 14.5% 24.2 15.0% -13.5%

5. OPPO

17.1 11.9% 17.8 11.1% -4.0%

Others

27.0 18.6% 25.3 15.8% 6.7%

Total

144.3 100.0% 160.7 100.0% -10.2%

Cloud

The Indian public cloud services market, encompassing laaS, PaaS, and SaaS, showcased remarkable growth and resilience, according to IDC. In the first half of 2022 alone, it generated substantial revenue of $2.8 billion, setting the stage for a promising future. Projections indicate that this market will maintain an impressive compound annual growth rate (CAGR) of 23.1% from 2021 to 2026, ultimately reaching a remarkable milestone of $13.0 billion.

This growth is propelled by the increasing demand for digital services, as organisations recognise the power of cloud technology in driving their digital transformation endeavours. With a focus on enhancing customer experiences and optimising business efficiency, companies are actively investing in cutting-edge technologies like AI/ML, edge computing, blockchain, and loT. Consequently, there has been a surge in the consumption of platform-as-a-service tools as organisations modernise their legacy applications, making them more scalable and adaptable to future needs.

Indias cloud service landscape is experiencing a transformative wave as cloud providers expand their footprint and introduce new data centres and cloud regions to enhance service delivery capabilities. While the BFSI and manufacturing sectors have been at the forefront of public cloud adoption, other industries like the public sector, media, and gaming are also witnessing a surge in demand. Collaboration applications, compute, storage, CRM, ERM, and security are among the popular cloud services sought by businesses. Moreover, the embrace of cloud-based Al platforms and cloud-native application development is on the rise.

Enterprises, driven by the imperative to bolster their digital prowess and embrace smart technologies, are fueling the momentum of public cloud adoption. Upgrading legacy systems, delivering omnichannel customer experiences, harnessing realtime data analytics, establishing connected platforms, and developing innovative applications are key drivers behind this trend. With the advent of 5G services, new opportunities for digitally transforming enterprises will arise, further accelerating the proliferation of cloud solutions. Overall, the increasing demand for public cloud services is empowering organisations to streamline operations, optimise costs, fuel innovation, and gain unparalleled flexibility and reliability.

Digital and 3D printing

The commercial printing industry in India has witnessed remarkable growth, with a market size of $33.2 Billion in 2022. Looking ahead, this sector is poised for further expansion, with a projected Compound Annual Growth Rate (CAGR) of 3.4% from 2023 to 2028, reaching a market value of US$41.6 Billion. This growth is primarily fueled by the introduction of cutting-edge printing technologies that prioritise eco-friendliness, enhanced energy efficiency, and chemical resistance. Businesses are opting for commercial printing solutions due to their affordability and superior printing quality compared to smaller printers. Additionally, the adoption of digital technology has played a pivotal role in propelling the market forward. As organisations embrace digital technologies, they are unlocking opportunities to streamline operations, optimise costs, drive innovation, and gain unparalleled flexibility and reliability. Source: I MARC

Solar Market

During the projected period of 2023-2028, the Indian solar energy market is anticipated to experience a Compound Annual Growth Rate (CAGR) of over 8%. The market growth is primarily attributed to the reducing costs of solar power technology, the adaptable nature of solar energy systems, and the environmentally friendly approach to generating power Nevertheless, the solar energy sector faces certain challenges, such as Transmission and Distribution (T&D) losses and inconsistent power supply, which limit its growth potential.

The Indian solar energy market is poised for impressive growth, with a projected Compound Annual Growth Rate (CAGR) of over 8% from 2023 to 2028. This growth is driven by several factors, including the declining costs of solar power technology, the adaptability of solar energy systems, and an environmentally friendly approach to power generation. While the sector faces challenges such as Transmission and Distribution (T&D) losses and inconsistent power supply, there are abundant opportunities to harness solar energy in India.

Opportunities

The countrys abundant solar irradiance provides a steady influx of solar energy throughout the year, particularly in regions like Rajasthan, Gujarat, and Andhra Pradesh. With foreign investments and substantial research and development projects focused on advancing solar power technology, the Indian solar energy market is ripe with opportunities for expansion and innovation.

Segmentation in the Solar Industry

Segmenting the solar energy market into grid-connected and off-grid applications reveals the dominance of the grid-connected segment. However; the status of off-grid and decentralised solar PV installations is currently lower Recognising the challenge of unreliable grid power supply, the Ministry of New and Renewable Energy (MNRE) has taken proactive measures. The launch of the Off-Grid Solar PV Applications Programme is a commendable initiative aimed at providing solar PV-based solutions in areas where access to a reliable grid is limited. By focusing on off-grid applications, this programme seeks to bridge the gap and bring the benefits of solar energy to communities that are currently underserved.

Policy Insights

Solar energy generation is playing a vital role in Indias National Action Plan on Climate Change, reflecting the nations commitment to sustainable development. The widespread adoption of crystalline silicon-based solar photovoltaic (PV) panels, with their impressive 22% power efficiency enhancement, showcases the countrys dedication to harnessing the full potential of solar energy. The National Solar Mission stands as a significant initiative, fostering the expansion and generation of solar power across the nation. Equally important are the supportive government policies, spearheaded by the Ministry of New and Renewable Energy (MNRE), that actively encourage renewable-based power generation. Together, these driving forces are propelling the growth of Indias solar energy market, paving the way towards a greener and more sustainable future for generations to come.

Outlook

During the projected period, the solar PV segment is anticipated to maintain its dominance over other solar technologies in the Indian solar energy market. This is due to the lower costs associated with PV technology as compared to other solar technologies as well as the simplified installation process for PVs.

STANDALONE FINANCIAL PERFORMANCE

The financial year 2022-23 has been a year of growth as we returned to normalcy from 2021-22 which was a comeback year from Covid. The growth has been robust in both revenue and profitability due to favourable market conditions in enterprise segment, faster ramp up post covid, availability of capital, robust collections, and strong relationships with the partners.

Revenue

Revenue grew by 31% during the financial year 2022-23 with a CAGR of 18.9% for 5 years.

The growth was largely driven by enterprise, mobility and cloud segment at 32%, 60% and 56% respectively due to favourable market conditions. Consumer segment grew moderately at 11% in spite of reduced demand post covid and solar segment de- grew by 13% due to new government regulations.

Other income

Other income grew by 6.8% including dividend declared by the subsidiary companies. Sans dividend income, other income de-grew by 18.4%, due to drop in income from short term investments, bank deposits and one-time interest income received from income tax refund during FY22. During FY23, high revenue growth resulted in investment in working capital, reducing excess cash available for deposits.

Gross Margin

Gross margin dropped from 5.9% to 5.6% during the financial year 2022-23, including dividend declared by subsidiary companies. Sans dividend income, gross margin remained consistent at 4.2%.

Business gross margin is consistent at 4.2% due to:

• Increased revenue contributions from enterprise and consumer segment which has higher gross margins.

• Increased inventory provision due to reducing demand for consumer products.

• Reduction in the rebates by vendors of certain product categories.

• Reduced margins in solar segment due to new regulations.

Expenses

Employee benefit expenses

Employee cost increased by 34.9% and was at 0.7% (0.6% in previous year) of revenue during the financial year 2022-23.

Company continues to exercise caution on increases in employee cost and headcount and the increase is primarily on account of

• Capacity building in enterprise, cloud and solar segment.

• Transition to New Center of Excellence wherein duplication of manpower was required for 2 quarters.

• Formation up of global team for standardising the operations and strategy for the group.

Other expenses

Other expenses increased by 34.5% during the financial year 2022-23. The increase is on account of:

• Variable expenses like supply chain, freight & insurance expenses at 33% over previous year in line with increase in revenue (31%). This contributes to 11.7% of above increase.

• Travel cost at 372% over previous year due to increase in travel post-covid. This contributes to 4.5% of above increase.

• New Center of Excellence (CoE) at 899% over previous year being set up to support business operations and accounting operations. This contributes to 10.8% of above increase.

• Investment initiatives at 45% over previous year towards automation and digitisation, appearing in repair and maintenance, subscriptions and professional services. This contributes to 8.3% of above increase.

Company continues to perform periodic reviews and follow effective cost control measures including hybrid work policy to minimise the cost. Other expenses maintained at a consistent percentage of revenue at 1.1%.

Increase in non-variable costs are mainly driven towards building effective capabilities in budgeting, forecasting, demand planning, inventory management, capacity building in human resources and widespread employee engagement.

EBITDA

EBITDA grew by 20.9% during the financial year 2022-23 including dividend income from subsidiaries. Sans dividend income from subsidiaries, the EBITDA grew by 28.9% as against revenue growth of 31%. Less than proportionate EBITDA growth is attributed to investment in digital and automation initiatives and capacity building in terms of human resources in certain segments of business.

The EBITDA CAGR sans dividend income over a 5 year period is healthy at 19.7% as against revenue CAGR of 18.9%.

Finance costs

Finance costs increased by Rs 70.5 Crores on account of increase in interest rates and working capital. Interest rates increased from 3.8% in FY 22 to 6.8% in FY23 due to increase in repo rates by the Reserve Bank of India, contributing to 46% of finance cost. Working capital increased due to:

• Increase in revenue by 31%.

• Normalisation of market situation post-covid wherein supplies started chasing demand and consequently working capital days increased to 37 days in FY23 from 10 days in FY22.

• Stocking of inventory as per agreed terms and normalisation of credit terms to partners.

• Change in sales mix due to higher revenue from enterprise business where higher credit period is the norm.

Interest cover ratio normalised to 11.1 times during the financial year 2022-23 as against 91.5 times during the previous financial year, where the market condition was unduly favourable on account of covid situation.

Profit before tax (PBT)

PBT grew by 15.6% during the financial year including dividend declared by subsidiary companies. Excluding dividend income, PBT grew by 20.3% as against 31% in revenue, 31.2 % in gross margin and 28.9% in EBITDA. Less than proportionate growth in PBT is due to :

• Increase in interest cost.

• Investment initiatives towards automation and digitisation.

• Capacity building in enterprise, cloud and solar segment.

Profit after tax (PAT)

PAT grew by 14.5% during the financial year including dividend declared by subsidiary companies. Excluding dividend income in FY23, the Company registered a growth of 19.9% in PAT in line with growth of 20.3% in PBT.

Cash flow statement

The Company had a negative free cash flow of Rs 2245.8 Crores during the financial year 2022-23 due to increase in working capital requirements.

Operating activity

Cash deployed in operating activity during the financial year 2022-23 was Rs 2086.8 Crores primarily on account of increase in working capital due to:

• Increase in revenue by 31%.

• Normalisation of market situation post-covid wherein supplies started chasing demand and consequently working capital days increased to 37 days in FY23 from 10 days in FY22.

• Stocking of inventory as per agreed terms and normalisation of credit terms to partners.

• Change in sales mix due to higher revenue from enterprise business where higher credit period is the norm.

Investing activity

Further Investments in Redserv Global Solution Limited, a wholly owned subsidiary of the company, to the tune of Rs 2.5 Crores and in Proconnect supply chain solutions limited, a wholly owned subsidiary of the company, to the tune of Rs 80.0 Crores which contributed to out flow of Rs 82.5 Crores.

Financing activity

The Company had to borrow for deployment of capital in operating activities which resulted in in-flows of Rs 1048.46 Crores under financing activity for the year.

Shareholders Funds

Shareholder funds increased from Rs 2,548.8 Crores to Rs 3,106.4 Crores as at March 31, 2023, on account of profit after tax of Rs 1071.8 Crores earned during the year.

Gross debt equity is at 0.70, net debt equity ratio is at 0.62 due to increased borrowings.

Dividend

The Board of Directors at its meeting held on May 16, 2023 has recommended a dividend of Rs 7.2 per equity share of Rs 2/- each (i.e. 360 % of face value) subject to the approval of shareholders in the ensuing Annual General Meeting. The Company has been consistent in declaring dividend over the years.

Book value and earnings per share

The book value per share increased to Rs 39.8 from Rs 32.6, due to growth in profits.

The earnings per share (EPS) grew by 14.5% for the year ended March 31, 2023. EPS increased to Rs 13.72 from ^11.98 due to growth in profits.

Excluding dividend income, EPS grew by 19.9% for the year ended March 31, 2023. EPS increased to Rs 7.4 from Rs 6.1 due to growth in profits.

Key Financial info*:

Particulars

FY 2022-23 FY 2021-22

Return on average capital employed (Net of cash) (%)

35.8 61.9

Return on average capital employed (Gross) (%)

29.3 39.8

Return on average equity (%)

21.8 29.6

Basic EPS (Rs)

7.4 6.2

Debtors turnover ratio (no. of times)

7.5 8.1

Inventory turnover ratio (no. of times)

15.5 17.8

Current ratio (no. of times)

1.3 1.3

Debt equity ratio (no. of times)

0.6 (0.5)

Operating profit margin (%)

2.4 2.4

Net profit margin (%)

1.6 1.8

•All figures have been computed after eliminating dividend income from subsidiaries.

CONSOLIDATED FINANCIAL PERFORMANCE

The consolidated financial statements of the Group have been prepared in accordance with the Indian Accounting Standards (Ind AS) prescribed under section 133 of the Companies Act, 2013 ("the Act") read with the Companies (Indian Accounting Standards) Rules, as amended from time to time.

The consolidated financial statements are presented in Indian Rupees (Rs) which is the functional or presentation currency. Financial information has been rounded off to the nearest Crore unless otherwise indicated.

Segment wise Performance

During the Year ended March 31,2023, the Company had revised the reporting segments as "SISA" (Singapore, India & South Asia) and "ROW" (Rest of the World) (previously reported as "India" and "Overseas"), in line with the revised internal reporting. The reported operating segments:

• Engage in business activities from which the Group earns revenues and incurs expenses.

• Have their operating results regularly reviewed by the entitys chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.

• Have discrete financial information available.

Analysis on the Consolidated Financial Performance

In the financial year 2022-23, the Group registered robust growth in both revenue and profits, due to favourable market conditions, faster ramp up post covid, availability of capital, robust collections and strong relationships with the partners.

Revenue

Consolidated revenue grew by 26.8% during the financial year 2022-23 with a CAGR of 13.8% for 5 years. Revenue growth at constant exchange rate (not attributable to depreciation in Indian Rupee) was at 21.5%.

The Group registered strong double-digit growth in this financial year due to strong growth of 34% and 52% in enterprise and cloud business respectively, suggestive of market potential in these segments. Consumer segment grew by 15% in spite of reduced demand post-covid period, due to increased presence and product portfolio, in certain markets. Services business registered moderate growth of 4%.

During the year, revenue in both the geographies of SISA and ROW registered a robust growth of 26.17% and 27.18% respectively. ROW revenue growth at constant exchange rate is 18%.

Brightstar revenue for FY23 registered a growth of 313.4% (283% at constant exchange rate).

Gross Margin

Gross margin grew by 26% (6.1% of revenue) during the financial year 2022-23 over financial year 2021-22 (6.2% of revenue). The small drop in gross margin % is due to lower gross margin growth as compared to revenue growth. Gross margin at constant exchange rate grew by 20.36% (6.1% of revenue). Gross margin growth has been in line with revenue growth.

SISA segment gross margin showed a slight drop at 5.5% over previous financial year 2021-22 (5.7%) due to higher inventory provisioning in consumer segment. ROW gross margin increased to 6.7% over previous financial year 2021-22 (6.6%) mainly due to enterprise business.

Overheads

The consolidated overheads increased by 30% in the financial year 2022-23 vis a vis revenue growth of 26.8%. Overheads increase at constant exchange rate is 24%.

Employee Costs

Employee cost increased by 31.9% (24.8% at constant exchange rate) during the financial year 2022-23. The increase at the group level is due to:

• Capacity building in enterprise, cloud and solar segment.

• Formation of global team for standardising the operations and strategy for the group.

The Group continues to exercise caution on increases in employee cost and headcount across geographies.

Other Expenses

Other expenses increased by 31% in the financial year 2022-23 (25.6% at constant exchange rate) with a CAGR of 9.3%, vis a vis revenue growth of 26.8% (21.5% at constant exchange rate). Increase is on account of:

• Factoring charges at 1672% over previous year due to nonrecourse factoring in various geographies to fund working capital requirement and to mitigate risk. This contributes to 12.4% of above increase.

• Higher travel post-covid at 181% over previous year. This contributes to 4% of above increase.

• Exchange lossof 171.7%overpreviousyearduetodepreciation of local currencies in geographies of Nigeria & Egypt. This contributes to 3% of above increase.

• Supply chain, freight & insurance expenses at 12% over previous year. This contributes to 4% of above increase.

• Investment initiatives towards automation and digitisation, appearing in repair and maintenance, subscriptions and professional consultancy services at 18.6% over previous year. This contributes to 2% of above increase.

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EBITDA

EBITDA grew by 20.3% (15.1% at constant exchange rate) during the financial year 2022-23 with a CAGR of 21.5% over the past 5 years compared to revenue growth of 26.8% (21.5% at constant exchange rate). Less than proportionate EBITDA growth is attributed to factoring cost, investment in digital and automation initiatives and capacity building in terms of human resources in certain business segments.

Finance Costs

Finance costs increased by ^156.3 Crores on account of increase in interest rates and working capital. Interest rates globally have been witnessing an increasing trend post-covid. Working capital requirement increased due to:

• Increas in revenue by 26.8%.

• Normalisation of market situation post-covid wherein supplies started chasing demand and consequently working capital days increased to 36 days in FY23 from U days in FY22.

• Stocking of inventory as per agreed terms and normalisation of credit terms to partners.

• Change in sales mix due to higher revenue from enterprise business where higher credit period is the norm.

Finance costs increased by 135.2% (123.2% at constant exchange rate) during the financial year 2022-23 due to increased borrowings across geographies.

Profit before tax (PBT)

PBT grew by 13% during the financial year (8.5% at constant exchange rate)2022-23 with a CAGR of 23.8% over the past 5 years. PBT growth was comparatively lesser than revenue growth of 26.8% on account of

• Increase in interest cost.

• Increase in factoring cost.

• Investment initiatives towards automation and digitisation.

• Capacity building in enterprise, cloud and solar segment.

PAT

PAT grew by 8.8% during the financial year 2022-23 in line with PBT growth with a CAGR of 23.7% over the past 5 years.

Cash flow

Free cash flow was negative at Rs 4, 116.21 Crores.

Operating activity

Cash deployed in operating activity during the financial year 2022-23 was at Rs 3,233.5 Crores due to increased working capital requirement to fund the revenue growth. Comparative working capital days is given below:

Investing activity

Cash from investment activities was positive at Rs 175.6 Crores during the financial year 2022-23 primarily on account of maturity of deposits amounting to Rs 290.34 Cr in ROW.

Financing activity

Cash flow from financing activity was positive at ^1,528.6 Crores due to incremental borrowings to fund working capital requirements.

Key Financial Information:

Particulars

FY 2022-23 1 FY 2021-22

ROCE (Net of cash) (%) *

36.9 66.0

ROCE (Gross) (%) *

24.7 28.0

Return on Average Equity

(%) **

22.2 24.1

Book Value/ Share (in Rs)

87.5 73.2

EPS (in Rs)

17.82 16.4

Interest Cover (Times)

7.7 15.0

Gross Debt: Equity (Times)

***

0.4 0.10

Net Debt: Equity (Times) ***

0.2 (0.50)

* ROCE represents return on average capital employed. Goodwill has been excluded and Capital reserve has been included for computation of ROCE.

**ROE represents return on average equity. Goodwill has been excluded and

Capital reserve has been included for computation of ROE.

*** Equity for computation of Debt: Equity represents equity attributable to the shareholders of the Company. Goodwill has been excluded and Capital reserve has been included for computation of Debt: Equity.

ROCE (Return on Capital Employed)

ROCE normalised during the financial year, due to increased deployment in working capital, due to normalised trend in supply vs demand

Book Value per share (BVPS)

Book value per share increased by ? 1-4.30 due to higher EPS (Earnings per share) of Rs 17.8

EPS

EPS increased in financial year 2022-23 due to profit growth at consolidated level with a CAGR of 24.3%.