starlite components ltd share price Management discussions


INDUSTRY STRUCTURE AND DEVELOPMENTS

The past year has been a good year for Starlite Components Limited and the company is growing and strengthening its position in the lighting and electronics industry.The company has come long way since its incorporation in the year 1991. During this period the industry, technology and market has evolved and Starlite has been evolving with it. The last 3 years have laid a strong foundation and now the company is looking at expanding its product range, increasing penetration in the market and strengthening the bottom line of the company.

The lighting industry has shown a very quick shift from fluorescent lighting to LED (Solid State) lighting. As Starlite was waiting for this opportunity, it plans to make the most of it and capture a significant share of the market. The Indian lighting industry continues to show strong signs of growth. It has been growing at a CAGR of 59%, growing from Rs. 8,500 Cr in 2010 to Rs. 13,500 Cr in 2013.lt is expected to cross Rs. 21,600 Cr. in the year 2020. The government initiatives are increasing and the opportunities are opening for the industry faster than most projections had anticipated. However, the percentage usage of lighting continues to be a high 18% of the total power consumption in our country (much higher than the developed countries, which account for 12-15%) so with the current Government the demand for LED products is expected to continue and Starlite is gearing up to make the most of this opportunity.

The Government has also ramped up its initiatives ofchanging all streetlights and lights in public spaces to LED lights. Starlite is successfully executing orders in Public Private Partnership (PPP) basis for one city &further orders are expected, which will give the Company cons istent revenue & also strength its project business.

Starlite has also added new customers to its portfolio &now has a strong and diverse customer base, which is a very positive sign for the Company from stability & growth point of view. The addition of new products and increase in volumes is the reason behind the strong top line growth in the current year.

SWOT ANALYSIS Strengths:-

• Steady growth in demand for all types of lighting products, especially LED, driven by Consumer market and Government.

• E-commerce is on the rise & Starlite is slowly developing this vertical.

• Availability of local manpower (skilled/unskilled).

• Strong manufacturing capability and capacity for electronic drivers & LED Products.

• Diversified customer baseand a growing portfolio of products.

Weakness:-

• The support offered by banks and government for the industry is not stable and very slow in decision-making, which causes delays in achievement of plans and projections of the company.

• High cost of capital due to high interest rates and high requirement of collateral security.

Opportunity:-

• With the rising demand of LED Products, strong push by the Government and the world looking at India as an alternative to China. There is going to be tremendous increase in opportunity both at a domestic level and international level.

• With the government putting more emphasis on standards and regulation, on the long run this should have a positive impact in curbing sales in the unorganized sector.

• Scope for more environment friendly products and their disposal methodologies.

• The size of the market is big enough to driver steady growth for the next few years, regardless ofthe world scenario.

• LED demand generation supported by various Government initiatives like with JNN Solar Mission, DeitY Electronic Policy, Rural Electrification.

Threats:-

• Low quality, unreliable imports flooding the market and competing with locally manufactured product.

• Oversupply of LED manufacturing capacity in future years, leading to risk of dumping of products in India, threatening the local industry.

• Disruptive technological changes which could take time and money for adoption by local manufacturing plants.

• Adoption of Global Protectionist Policy by many countries, closing out the option of exporting locally manufactured products.

• Forex volatility, leading to volatility in cost of raw materials for LEDs, most of which are imported today.

• Poor power quality condition, requiring products to have very strong specification and yet the market rejections rates can hit the bottom line significantly.

One of the major concerns with the company is sufficient liquidity, which is needed for the growth that the company is targeting. There are many concrete opportunities and using these as a platform the Company is hopeful of getting some funding support from bankers & private investors and regain its strength and position in the lighting industry.

INDUSTRY OUTLOOK

The Indian Lighting industry is progressing faster than expected in the adoption of energy efficient lighting products to reduce Indias lighting power consumption & bring it closer to that of more developed countries. There is tremendous demand of domestic capacity for LED manufacturing &testing. The government should make the required funding and infrastructure available so that we can capitalize on such an opportunity. This could give a fundamentally strong and positive boost to the countrys economy.

Starlite continues to focus on increasing its manufacturing capacities and product base to meet the increasing demand from various sectors & customers. The Company is targeting some large government projects, which could help the company surpass its targets and improve its top and bottom line.

FUTURE TRENDS EXPECTED

Technology

• LED lighting is becoming increasingly popular due to decreasing price and increasing awareness about benefits.

• The industry is seeing continuous adoption of newer technology and applications for LEDs, which are even more energy efficient (Lumen/Watt increasing) and cost efficient ($/Lumen decreasing) which is a good sign for the industry.

• Lighting automation and remote management is seeing an increase, with >70% of Luminaries likely to have controllers in the future.

Consumer preferences

• Luminaries preferred over basic lighting fixture.

• Smart control software becoming popular (for occupancy, dimming, security and monitoring, etc.) to save power.

Global Competition

• China continues to stay as the major competition and threat as it not only has much larger production capacities but also it has a strong integrated raw material supply chain. India is still directly or indirectly heavily dependent on China.

• Many global countries want to shift manufacturing to India to diversify their manufacturing base (e.g. Japan, Europe) but due to the lack of infrastructure and the inability ofthe industry to grow rapidly due to scarcity of funding, most Indian companies are growing at a faster scale.

Regulation

• Stricter regulations for quantity of mercury in CFL and FTL, as well as for proper end of life disposal for CFLs/ FTLs.

• Mandatory standards for LED, Luminaries and controls.

• Shift to LED for most public lighting applications (e.g. national highways, street lights, parks, etc.).

• Countries across the globe are beginning to ban inefficient incandescent lamps in residential lighting; opportunity for India to do the same, in phased manner.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The adequacy of the internal control systems operating in Starlite is tested and monitored from time to time. These systems are also consistently re-engineered in line with the changing requirements.

DISCUSSION ON FINANCIAL PERFORMANCE W.R.T. OPERATIONAL PERFORMANCE

The Companys financial performance has been in line with the projections and the past year has strengthened the foundation of the company further. This will help the company in the coming years. The customer base of the company is now more diverse and also the company has a strong product line up which will help it in cementing a strong position in the market in the coming years. The Company has been quick to adapt to the changing market. The order book is strong and the market continues to explode. The demand is expected to grow rapidly for the next few years.

The Company has started work towards backward integrating its supply chain to lower cost and to have greater control on quality and quantity. The company is also slowing seeing the benefit of better pricing due to increase in its demand quantity. The order book of Starlite continues to be very healthy. Even though the country saw major steps from the government, which have impacted the market, the company has been able to still achieve its targets which shows that there is a lot more potential which will be beneficial in the coming years.

Arrangement and availability of finances for the exponential expansion continues to be one of the core challenges for the company. With the right financial support the company can record an even higher rate ofgrowth, which will help it in capturing a larger share of the market. Barring unforeseen circumstances, the Directors are confident that financial performance of Starlite will continue to be very strong and rewarding to its investors in the coming years.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES I INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

During the year under review, the industrial relations remained cordial and stable. Starlite has always had special concern for development of human resources. Starlite inculcates the culture of personal growth and organizational excellence, which is based on performance.

As on 31st March, 2017, the number of people directly employed by the Company was 68