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The Management Discussion and Analysis Report has been included in adherence to the spirit enunciated in the code of Corporate Governance, pursuant to requirement of Regulation 34 of SEBI (LODR) Regulations, 2015. The Management Discussion and Analysis presented in this Annual Report focuses on reviewing the performance of the Company.
CONSUMER ELECTRONICS INDUSTRY OVERVIEW
Your Company competes, and continues to do so, primarily in the consumer electronics sector. The consumer electronics consists of televisions, computers, mobile phones and various audio and video systems. Your Company has its focus on these segments, serving with a wide array of products catering to all types of consumer tastes and needs.
This sector has witnessed renewed emphasis along two fronts. The focus on rural prosperity contained in the 2017 budget promises to raise rural incomes and drive up demand for discretionary purchase of consumer electronic items. To complement this demand with supply, the Government has announced via the budget some significant provisions relating to investment promotion, technology up gradation and tax reforms that may benefit to the manufacturers, such as your Company. However, this could be offset by overall economic downturns.
Research efforts worldwide, meanwhile, continue to expand the technology frontier. This leads the consumers to expect ever increasing sensory pleasures and conveniences from adoption of new lifestyles, made possible by new and improved products. Your
Company continues to bring to the Indian consumer the benefits of the cutting edge technology, by presenting to them what are arguably some of the most advanced devices.
Such a focus on innovations, combined with a commitment to quality and service excellence, keeps your Company poised to perform beyond expectations in the hyper-competitive consumer durables sector. After sale service network, spread across the length and breadth of the country, further strengthens your Companys status as a dominant competitor in the sector.
The Company is a large conglomerate with diversified business interests. The culture of excellence leads to strong performance in all the spheres of its activity. The Company involves itself in the manufacturing and assembly of LED TVs, CRT TVs, TV Components, Home Theaters, Mobile Phone, Mobile Batteries & Chargers and also distribution of large variety of IT and Telecom Products.
The growth of the Company is also intimately tied to the growth of the disposable incomes and the aspirational levels of the Indian consumer. With hectic lifestyles and better monetary rewards in return for their efforts, the Indian consumers now demand more sophisticated devices that facilitate more convenience and entertainment at home. The Company has constantly risen to this challenge by providing consumer-centric innovations contained in consumer electronics and easy to use devices that provide the advantage of reliability and ease of use and maintenance. To this end, the Company also engages in the sales and after sales service of TVs and Mobile Phones.
COMPANYS PRODUCTS Televisions:
Explosion of a wide variety of entertainment, news and media content in the first three decades of television broadcasting in the country has led to the current situation where a TV is considered a need rather than a comfort or luxury. High levels of penetration have been achieved, meaning that further demand comes from replacement and up gradation purchases. The increase in prosperity due to the sustained GDP growth has led to frequent up gradation of TVs. Earlier it was in terms of technology up gradation (from CRT to LCD and then LED), then in terms of screen sizes and increasingly in terms of quality of display, i.e., towards higher definitions and eventually 3D.
Keeping in line with emerging trends your company is also putting greater emphasis on development of LED TV business. The company has introduced new mobile and also expanded its product range which has been received well by the market. The company now produces LED TV from 19 inch to 48 inches. To ensure company remains competitive it has decided to backward.
In view of the booming Audio market company will launch a range of Audio products comprising if Home theatre systems, tower speakers, sound bass and Bluetooth speakers this will be helpful in getting better visibility also for the companys brand. Growth of Audio Business will also lead to increase the business for speaker unit.
Mobile phones represent a new and exciting category for your Company. Your Company aims to disrupt the market through innovative and feature packed products at an attractive price point. Your Company will leverage its immense experience and capabilities in design and manufacturing to be at the forefront of the mobile led digital revolution that will bring the value added services to the largest number of consumers. Your company has expanded its product range as well as expanded its geographic coverage. The company will soon launch 4G Smart Phone. Further in order to ensure the good quality the company has started to assemble some of the critical components like battery and charges.
Fly back transformers and Deflection Yoke demand is rapidly declining. Your company is planning to aggressively to enhance its speaker production. Upgraded production facilities are being planned along with new products like P.A speakers, Car Speakers etc.
Wind power generation has the lowest impact on the environment as compared to the other methods of power generation and this is in tandem with our philosophy of being in tune with nature hence we ventured in power generation with Wind Energy. The Company has five (5) wind turbines 1.25 MW Capacity (6.25 MW total) at Dhule
Maharashtra operated and maintained by Suzlon Energy Ltd.
OPPORTUNITIES AND THREATS
The increasing discretionary incomes and improving tastes of the consumers provides many opportunities and possesses some threats.
Opportunities: Consumer Electronics Sector
Expanding market: This high growth is on account of two main factors. Firstly, economic growth will boost the consumption, especially in the rural areas. Secondly, the average selling price of each category will also improve due to consumers trading up towards more premium offerings. This will give the OEMs a more favourable model mix.
Lifestyle changes: Lifestyle changes will lead to increased purchases of LED TVs. Change in the societys priorities away from family to work and education also increases the aspirational purchases, due to the awareness of products through discussions at workplace and societies.
Rise of E-Commerce: E-Commerce companies will play a significant role in expanding the market. By offering big discounts, they are able to bring more price sensitive consumers to the market. They enable easier price discovery across sellers and platforms for the internet savvy consumers. By targeted advertisement based on product search and view history, they are able to sell with a greater persistence but with less outward aggression. Increasing trust through greater familiarity leads to more confident consumer behaviour. Risk averse consumers are also benefitted through the returns policy adopted by many such e-tailers, leading to purchase of higher value items than they would buy otherwise.
Availability of affordable credit: Credit growth in the consumer electronics category has been increasing. Many banks and NBFCs offer attractive loans to purchase goods and televisions. Consumers also use their credit cards to afford purchases of items that they would otherwise hold off on for a while. This has facilitated greater sales of consumer electronic products and this trend is expected to continue.
Development of infrastructure: Electrification of rural areas is expected to provide a big thrust to the sector, since the availability of electricity is a pre-condition for purchase of consumer electronics items. Improving road infrastructure will make it possible to service geographically dispersed demand more efficiently with re-routing of inventory to where demand arises. This reduces the capital tied up in inventory and enhances the supply potential of the OEMs, enabling them to tap a greater portion of the demand.
Threats: Consumer Electronics Sector
Rapidly changing consumer tastes: Consumers are always on the lookout for new and novel experiences. Reliability and quality of products in the conventional sense have become hygiene factors, whose absence creates losers but whose presence does not differentiate winners. Consumers are looking for a high confluence of frills and features that surprise them with the ease of use and convenience. Staying one step ahead of the consumers expectations and bringing something new to the table every year will be essential in retaining the excitement in the consumers mind about a brand and its offerings.
Decreasing risk aversion among consumers: Due to the plethora of distributor brands and domestic brands that specializes in import and rebranding, the consumers have a large number of brands to choose from at the low cost end of the price spectrum. Price sensitivity may lead many consumers to overcome their risk aversion. This threat will have to be countered with appropriate marketing communication about the difference in quality of the Companys products vis--vis such competitors and through highlighting the service reputation of the Company.
Preference for foreign brands: Due to the high marketing spends of Multinational Companies (MNCs) the Company faces the threat of a preference developing among consumers for foreign brands. This will have to be countered via appropriate corporate marketing communication stressing the high pedigree of the Company and its commitment to innovation and quality.
Threat of concentration of sales: The rise of modern trade retail chains of various hues leads to the risk of concentration of the Companys sales to a few large customers. This is a threat to the margins of the Company. It can be countered by enhancing the pull factors that drive sales through brand building measures at the corporate level.
RISK & CONCERNS
Risk relating to Consumer Electronics Business
Risk of economic downturns: If the forecast of the economic growth proves to be overly optimistic, then the discretionary consumption of the consumers will reduce. This will decrease the demand for the Companys products. Hence, the Company is vulnerable to risks from an economic downturn.
Disruption of supply or distribution: If acts of God or political unrest disrupt the supply or distribution capabilities of the Company, then sales could suffer and the goodwill of the Company among consumers may be affected. Forex risks: The raw material imports of the Company will become costlier if the rupee weakens against the dollar. This may affect the profitability of the Company.
Adverse regulation: If the regulatory regime becomes unfavourable and regulations are passed that hamper the existing modes of the Companys conduct of business, the profitability of the Company may be affected.
Tax changes: Changes to the tax code that may increase the incidence of tax or lead to retrogressive taxation may affect the profitability of the Company.
Technological disruptions: If new technologies protected by intellectual property laws revolutionize the industry, making existing products obsolete, then the Company may be affected adversely if such innovations do not come from within the Company.
Talent management: If high quality talent is not recruited and retained, then the competitiveness of the Company in its managerial effectiveness may be threatened.
Labour unrests: Incidence of labour unrests may disrupt the production of the Companys products and hence poses a risk to the business of the Company.
Change in consumer tastes and priorities: If consumers unexpectedly change their preferences and tastes to disfavour the brand positioning and product offerings of the Company, then the Company may be required to drastically reposition itself, failing which it may lose out on sales.
INTERNAL CONTROL SYSTEM AND ACCURACY
The Company has in place proper and adequate statutory and internal audit and control system in accordance with the nature of business and size and complexity of business. Internal control system comprises of policies and procedures which are designed to ensure compliance with achievement of business goals, compliance with inland laws. All assets and resources are used efficiently and adequately. All financial transactions are recorded as per governing inland laws. The Companys Statutory Auditors and Internal Auditors carried out periodical audit at all business places based on audit plan that test the internal policy and procedure designed by Company. Significant observations are reviewed by management and audit committee. The Company has a proper and adequate system of internal control with tools of monitoring through use of a strong customized oracle based ERP system "Salora Integrated Management System (SIMS)". Your Company has a vigilant Audit Committee headed by a non-executive independent director, inter-alia, to oversee your Companys financial reporting process, disclosure of financial information, reviewing the performance of statutory and internal auditors with management, adequacy of internal audit function and internal control systems, related party transactions, investigations relating to suspected fraud or failure of internal audit control, systems etc.
The Company has adopted the code of ethics & business conduct which lays down the principles / standards that should govern the action of the Company and its employees. The Company is committed to adhere to the highest standards of ethical and moral conduct of the business.
The Company has an internal control system which provides for:-
Accurate recording and custody of assets;
Compliance with applicable statutes, policies, procedures,
SEBI (LODR) requirements, management guidelines and circulars;
Transaction being accurately recorded; cross verified and promptly reported;
Efficient use and safeguarding of resources;
Adherence to applicable accounting standards and policies; and
Information technology system which include controls for facilitating the above. The scope of internal audit extends to all functions and locations of the Company.
The Company has adopted the best and the most sophisticated technology to suit Indian needs. The Company has successfully forayed into market either directly or indirectly. The aim of the Company is to serve consumers by creating technologically path breaking products through constant innovation. The Company as a part of reducing manufacturing cost of products that has explored the possibility of manufacturing of various components at the in-house facility.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
A detailed statement of financial performance for the fiscal period 2016-17 is scribed in the Directors Report. During the year under review, the performance of the company was satisfactory in spite of the various stiff challenges and uncertainties across the industry in various segments such as demonetization, financial crisis, volatile prices, currency fluctuation and liquidity crisis. During the Financial Year 2016-17, the net turnover of the Company stood at Rs.320.71 crore as against Rs.309.48 crore in the previous financial year. The Company generated cash profit but due to increase in finance cost, company incurred loss of Rs.1.39 crore in the books.
MATERIAL DEVELOPMENTS ON HUMAN RESOURCE
The Human Resource function of your Company plays a critical role in realizing business objectives by leading organizational change and effectively mobilizing talent to sustain the organizations competitive age. The Company believes in building performance driven organization characterized by performance, pride and happiness. The Company conducts employee engagement to identify the areas to improve upon for building a motivated and productive workforce.
Industrial relations remained cordial during the year under review.
Statements in this report describe the Companys objectives, projections, estimates, expectations and predictions, may be forward looking statements within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent development, information or events or otherwise. These statements dont guarantee future performance and are subject to known and unknown risks, uncertainties and other factors such as change in the government regulations, tax laws, economic conditions and other incidental factors.