Smartlink Holdings Ltd Management Discussions

ECONOMIC OVERVIEW

The world economy is expected to grow by 3.2% in 2024 and 2025, similar to 2023 according to the baseline projection of World Economic Outlook. Advanced economies will slightly speed up, with growth rising from 1.6% to 1.7% in 2024 and 1.8% in 2025. Meanwhile, emerging markets and developing economies will see a small slowdown from 4.3% to 4.2% in both 2024 and 2025. Global growth is projected to be at its lowest in decades, around 3.1% five years from now. Inflation will decrease from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies reaching their inflation targets sooner than emerging markets. Core inflation will decline more gradually. Despite significant central bank interest rate hikes to restore price stability, the global economy has remained surprisingly resilient.

THE INDIAN ECONOMY

Strong economic growth in the first quarter of FY23 helped India overcome the UK to become the fifth-largest economy after it recovered from the COVID-19 pandemic shock. Nominal GDP or GDP at Current Prices in the year 2023-24 is estimated at INR 293.90 lakh crores (US$ 3.52 trillion), against the First Revised Estimates (FRE) of GDP for the year 2022-23 of INR 269.50 lakh crores (US$ 3.23 trillion). The growth in nominal GDP during 2023-24 is estimated at 9.1% as compared to 14.2% in 2022-23.

Strong domestic demand for consumption and investment, along with the Governments continued emphasis on capital expenditure are seen as among the key drivers of the GDP in the first half of FY24.

During the period January-March 2024, Indias exports stood at US$ 119.10 billion, with Engineering Goods (25.01%), Petroleum Products (17.88%) and Organic and Inorganic Chemicals (7.65%) being the top three exported commodities. Rising employment and increasing private consumption, supported by rising consumer sentiment, will support GDP growth in the coming months.

INDUSTRY OUTLOOK IN INDIA

FICCIs latest Economic Outlook Survey puts forth an annual median GDP growth forecast for 2023-24 at 6.3 percent. The median growth forecast for agriculture and allied activities has been put at 2.7 percent for 2023-24, while industry and services sector are anticipated to grow by 5.6 percent and 7.3 percent respectively. CPI based inflation has a median forecast of 5.5 percent for 2023-24, with a minimum and maximum range of 5.3 percent and 5.7 percent respectively. Based on the responses of the participating economists, the median forecast for exports has been put at USD 425.3 billion and for imports at USD 682.3 billion in 2023-24. RBIs policy repo rate is projected to be maintained at 6.5 percent until the end of the fiscal year 2023-24. (Source: FICCI)

Reference: G00NPH5xg4pITZpiJS7cVFZbWlxcGjd79eRoU6yD.pdf (ficci.in)

The Indian Networking Industry

According to International Data Corporations (IDC) Worldwide Semiannual Services Tracker, the Indian IT & Business Services market was valued at US$7.14 billion in 1st half 2023 and recorded a 6.3% year-over-year (YoY) growth as compared to 7.4% in 1st half 2022. The slowing in growth rate is due to the restraint in IT spending among Indian enterprises brought by macroeconomic headwinds.

Indian enterprises invested in critical IT projects to gain quicker time to value in their key focus areas like enhancing customer experience, cybersecurity, and optimization of IT infrastructure and operations. Despite being cautious with IT services investments in the near term due to macroeconomic headwinds, Indian enterprises investments in the upcoming years will be fueled by cloud, cybersecurity, and emerging technologies like Generative AI and 5G.

Within the IT & Business Services market, IT Services contributed 78.9% and grew by 6.7% in the 1st half of 2023 compared to the 8.1% growth in the 1st half of 2022. The IT & Business Services market is projected to grow at a CAGR of 7.2% between 20222027 and reach US$ 19.59 billion by the end of 2027.

IDC classifies the IT & Business Services market into three primary markets - Project-Oriented, Managed Services, and Support Services. In the first half of 2023, project-oriented services registered the highest growth rate at 6.9%, followed by managed services at 6.0%, and support services at 5.3% respectively.

Indias networking market, which includes Ethernet Switch, Routers, and WLAN segments, have very strong growth potential because of product availability and the demand for cloud technologies, cybersecurity, and emerging technologies like Generative AI and 5G. (Source: IDC)

BUSINESS OVERVIEW SMARTLINK HOLDINGS LIMITED

Smartlink Holdings Ltd. has been in the Networking Products

THE INDIAN NETWORKING MARKET IN 2023

business for more than three decades and involved in sourcing, manufacturing, sales, marketing, and support. The Company has two independent subsidiaries, namely, Digisol Systems Limited and Synegra EMS Limited along with newly incorporated R&D facilities to enhance the businesses in a focused manner using its expertise of over three decades. Smartlink Holdings Ltd. is now an NBFC with assets and cash investments which includes investment in the two subsidiary companies.

DIGISOL SYSTEMS LIMITED

Digisol Systems Ltd. is the First Indian Brand in IT Networking that is taking India forward with its top-notch Product offerings in various verticals like Smart Cities, Manufacturing, Real Estate, Healthcare, Telecom, Hospitality, Education, Retail, Surveillance, Data Centers, IT and Retail.

Digisol Systems is a brand product company with Sales, Marketing and all India Service Support.

Digisol offers an extensive range of IT networking products, including Structured Cabling systems (copper and fiber), FTTH, Switching, and Wireless solutions.

The FTTH products range includes - XPON, GEPON, GPON, ONU, OLTs, Splitters, Fiber Distribution Box, and Fiber cables.

Switching solutions range includes a wide range of Managed, Unmanaged, fully managed, Lite/Smart managed, Chassis Switch, Industrial Switch, Transceiver, Media converters, Multigig Switches.

Wireless solutions range includes Wifi-6 Indoor / Outdoor / Enterprise Access Points, Controllers and Range Extender.

The Structured Cabling product range includes Solid Cable, Keystones, Patch Panels, Copper Patch Cord, Faceplates, RJ45 Connectors, Fiber Patch Cords, Pigtail, Fiber LIUs, Splitters etc.

The IT networking industry grows by leaps and bounds every year; however, the one thing that stays comparatively constant is the brand. Due to the technology industrys accelerated evolution, brands take on increased importance by providing an effective counterbalance to what buyers perceive as constant change, clutter, and confusion. While we strive to push the boundaries with our marketing activities, we accord great importance to brand building, which will ensure our long-term success. DIGISOL has established its brand positioning as a ‘1st Indian Brand in IT Networking Solutions that offers products of global standards, credibility and delivers a fantastic user experience. DIGISOL has carried out various initiatives like DIGISOL Cash Karo loyalty program to enhance the relationship with existing electricians, technicians and partners by giving them a chance to earn more loyalty points on their purchase of DIGISOL products, DITT (DIGISOL Institute of Technical Training) where we aim to train/educate network engineers, channel partners and ISPs by consistently delivering quality training programs which are always in sync with the market demand and DIGISOL Premium Partners Program to build relationships with the partners by rolling out various Sales Scheme for both Active and Passive range of products.

SYNEGRA EMS LIMITED

Synegra EMS Limited is a wholly owned manufacturing subsidiary of Smartlink Holdings Limited. Synegra has large, certified manufacturing & R&D facilities in Goa which include 2 SMT lines. It manufactures all kinds of products from PCB assemblies to the latest FTTH and Wi-Fi products, Telecom products, Chargers for electric vehicles and Defense applications products. SYNEGRA sources detail parts from local suppliers as well as from well-known companies worldwide. Synegra EMS Ltd is an Electronics Manufacturing Services (EMS) Company with a highly skilled team for electronics manufacturing including components sourcing for over three decades. It also provides contract manufacturing services to DIGISOL SYSTEMS LTD. as well as other electronics brands and companies. Synegra has widened its activities by venturing into the manufacturing of Chargers for Electric Vehicles. It anticipates steady growth with its manufacturing capacity suited for both export as well as domestic markets under the Make in India initiative of the Government of India.

FINANCIAL PERFORMANCE i) Standalone Financials

In the financial year 2023-24, the Company achieved a Revenue from operations of I NR 1,253.72 lakhs as compared to INR 954.49 lakhs in the previous year. The Companys Profit after Tax for the year ending March 31, 2024 was INR 320.44 lakhs as compared to profit after tax of INR 1,774.08 lakhs in the previous year.

Key Financials Ratio:

ii) Consolidated Financials

In the financial year 2023-24, the group achieved a Revenue from operations of INR 20,918.02 lakhs as compared to INR 16,305.26 lakhs in the previous year. The consolidated profit after tax for the year ending March 31,2024 was INR 705.95 lakhs as compared to profit after tax of INR 1,923.94 lakhs in the previous year.

For the FY 2022-23, Standalone & Consolidated profits included an exceptional gain to the tune of INR 2,091.57 lakhs on account of sale of land by the company.

HUMAN RESOURCES

Smartlink and its subsidiaries are striving to build and maintain a positive employee experience with high satisfaction and quality of life, so that employees can contribute their best efforts to their work. We are as a progressive organization are conscious of our societal, organizational, and human goals and our human values form the backbone of our organization.

Our Values:

• Ethical and Integrity based approach in everything we do

• Value and develop employees for Talent, Initiative and Leadership

• Employee motivation through ownership and empowerment

• Performance and collaboration

• Customer Orientation and delight

Our vision has been to create a committed workforce through Shaping talent management around skills, knowledge sharing practices based upon our value system. The key element of our Human Resource strategy is to Drive HR innovations, to create people culture, and productivity accelerators through a hybrid work culture embedded with employee experience and wellness. As on March 31,2024, the Smartlink Group has 200+ employees. Smartlink s future success evolves around our ability to attract top talent, retain, and motivate highly qualified technical and management personnel, to approach the VUCA world.

RISK FACTORS

Smartlink invests its surplus in various financial instruments like mutual fund, bonds, non-convertible debentures and other securities and thus Smartlink is exposed to credit risk, market risk and interest rate risk.

The risk of technological obsolescence is very high in the segments where the companys subsidiaries operate. Moreover, the technological advancements are dictated by the large OEM players. On the other hand, we need to continuously invest to keep launching new products to enhance reach and reputation amongst customers and channel partners.

The companys subsidiaries are exposed to fluctuations in foreign exchange rate, in particular the movement of US dollar vis-a-vis the Indian Rupee as the subsidiaries import more than 60% of the components where the payment is in US Dollars. The fluctuation in interest rates and foreign exchange rates pose a risk to the competitiveness and pricing ability of the company. In todays constantly changing markets, companies may opt to maintain and grow sales by selling at competitive prices. Products have become commoditized over time as alternative products become available or the number of suppliers offering the same product increases.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACIES

Smartlink has aligned its current systems of internal financial control with the requirement of Companies Act, 2013. The Internal Control framework is intended to increase transparency and accountability in an organisations process of designing and implementing a system of internal control. The framework requires the Company to identify and analyse risks and manage appropriate responses. The Company has successfully laid down the framework and ensured its effectiveness. Smartlinks internal controls are commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use, executing transactions with proper authorization and ensuring compliance of corporate policies.

THE AUDIT COMMITTEE PERIODICALLY REVIEWS THE FUNCTIONS OF INTERNAL AUDIT

Our management assessed the effectiveness of the Companys internal control over financial reporting (as defined in Regulation 17 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) as of March 31,2024. Based on its evaluation (as defined in section 177 of Companies Act, 2013 and Regulation 18 of LODR Regulations, our audit committee has concluded that, as of March 31,2024, our internal financial controls were adequate and operating effectively.

DISCLAIMER

Certain statements made in this report relating to the Companys objectives, projections, outlook, estimates, etc. may constitute ‘forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from such estimates or projections etc., whether expressed or implied. Several factors including but not limited to economic conditions affecting demand and supply, government regulations and taxation, input prices, exchange rate fluctuation, etc. over which the Company does not have any direct control, can make a significant difference to the Companys operations. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned not to place undue reliance on any forward-looking statements. The MD&A should be read in conjunction with the Companys financial statements included herein and the notes thereto.