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Transpact Enterprises Ltd Management Discussions

305.1
(-10.00%)
Jul 18, 2024|12:00:00 AM

Transpact Enterprises Ltd Share Price Management Discussions

? GLOBAL ECONOMY OVERVIEW

Global growth is projected to fall from an estimated 3.5 percent in 2022 to 3.0 percent in both 2023 and 2024. While the forecast for 2023 is modestly higher than predicted in the April 2023 World Economic Outlook (WEO), it remains weak by historical standards. The rise in central bank policy rates to fight inflation continues to weigh on economic activity. Global headline inflation is expected to fall from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in 2024. Underlying (core) inflation is projected to decline more gradually, and forecasts for inflation in 2024 have been revised upward.

The recent resolution of the US debt ceiling standoff and, earlier this year, strong action by authorities to contain turbulence in US and Swiss banking reduced the immediate risks of financial sector turmoil. This moderated adverse risks to the outlook. However, the balance of risks to global growth remains tilted to the downside. Inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy. Financial sector turbulence could resume as markets adjust to further policy tightening by central banks. Chinas recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers. Sovereign debt distress could spread to a wider group of economies. On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient.

In most economies, the priority remains achieving sustained disinflation while ensuring financial stability. Therefore, central banks should remain focused on restoring price stability and strengthen financial supervision and risk monitoring. Should market strains materialize, countries should provide liquidity promptly while mitigating the possibility of moral hazard. They should also build fiscal buffers, with the composition of fiscal adjustment ensuring targeted support for the most vulnerable. Improvements to the supply side of the economy would facilitate fiscal consolidation and a smoother decline of inflation toward target levels

(Source: hups: www.imf.ore euPublications IVEO Issues 2023 0710 \\orld-ecouoinic-outlook-update-iulv-2023)

? INDIAN ECONOMY OVERVIEW

The year 2022 marked the return of high inflation, especially in advanced economies, after nearly four decades. Inflation did not spare emerging economies either. These developments led to an unprecedented, synchronous, and sharp cycle of monetary tightening across countries. Major central banks have implemented sharp increases in policy rates, with the Federal Reserve’s rate hikes being the steepest since the 1970s. While the Federal Reserve has raised policy rates by 425 basis points (bps), the European Central Bank (ECB) and the Bank of England (BoE) have implemented 300 bps and 250 bps rate increases, respectively. The RBI initiated its monetary tightening cycle in April 2022 and has since implemented a policy repo rate hike of 225 bps. Consequently, domestic financial conditions began to tighten, which was reflected in the lower growth of monetary aggregates.

The change in RBI’s policy stance in FY23 led to a moderation of surplus liquidity conditions that prevailed during the pandemic years. Monetary policy transmission is well underway as lending and deposit rates increased following the hike in policy rates. In the government securities (G-sec) market, bond yields were on an upward trajectory until June 2022 on concerns of high inflation and policy rate hikes. These yields moderated in November and December 2022, aided by lower crude oil prices, a slower pace of rate hikes, and general moderation in global sovereign bond yields.

While the global tightening cycle has contributed to a dampened global outlook, the domestic appetite for credit has been on an upswing. Non-food credit offtake by scheduled Commercial Banks (SCBs) has been growing in double digits since April 2022, with the increase being broad-based. Credit disbursed by Non-Banking Financial Companies (NBFCs) has also been on the rise. The balance sheet clean-up exercise has been vital in enhancing the lending ability of financial institutions. The Gross Non-Performing Assets (GNPA) ratio of SCBs has fallen to a seven-year low of 5.0, while the Capital-to-Risk Weighted Assets Ratio (CRAR) remains healthy at 16.0 and well above the regulatory requirement of 11.5. The health of NBFCs has continued to improve as well. The recovery rate for the SCBs through Insolvency and Bankruptcy Code (IBC) was highest in FY22 compared to other channels.

Political and economic developments in 2022 - the breakout of a conflict in Europe, high inflation and raising interest rates - meant that capital markets around the world were characterised by increased volatility. However, domestic capital markets displayed some encouraging trends. The primary equity markets witnessed participation from all segments, especially with increased Small and Medium Enterprises (SMEs) contributions while primary private debt markets saw a growth in placements and resource mobilisation. While secondary capital market indices of the Nifty 50 and the S&P BSE Sensex were not immune to the volatility in Foreign Portfolio Investment (FPI) flows, they performed better than their peers between April and December 2022. Furthermore, net FPI flows turned positive in the quarter ending December 2022. The indices have displayed a decreasing trend in volatility as measured by the India Volatility Index (VIX) over this period. Both developments underscore India’s strong macroeconomic fundamentals and relatively buoyant demand outlook.

(Source: httvsJ/www.indiabudset.gov.in economicsarvevi

? BUSINESS OVERVIEW

Our Company is the first start-up to get listed on the BSE Startup Platform. It is a SINE, IIT Bombay incubated MedTech startup with an aim to provide innovative, cost-effective and comprehensive solutions, products with strategic partnerships and collaborative relationships to help specially abled people to transcend their barriers. We are a design, development, manufacturing, and distribution firm for therapeutic devices and rehabilitation services with analytics and management software system.

Our Company is an ISO 13485:2016 & ISO 9001:2015 certified company. Our products include "Vestibulator which is a compact mechanized, innovative therapeutic healthcare device which is ergonomically designed to provide stimulations for vestibular, neuro- developmental and sensory integration therapy. Another product is "Rehabsoft" which is a cloud-based therapy and rehabilitation software solution developed specifically to streamline and manage the therapy, rehab clinical documentation, nutrition schedule, administrative processes, and training and individual education plan. One more product includes "Vestibulator Chair" which is an ergonomically-designed compact vestibular therapy device for at home therapy of children suffering from vestibular dysfunction and developmental disorders. The chair is designed to make the in-house therapy program more purposeful by adding more therapeutic benefit by making at-home therapy repetitive, accurate and specific. Also, enabling the caretakers to give the prescribed therapy dose with a lot of ease.

Our aim at Transpact Enterprises is to produce significantly needed medico-products which are the necessity for betterment of Human Society, ultimately allowing people to transcend their barriers and thus, create a positive impact on their lives.

? INDUSTRY OVERVIEW

The healthcare and medical device sectors in India have grown significantly in the last decade. A wide range of medical devices, from consumables to implantable medical devices, are produced in India. The majority of medical devices manufactured in India are disposables like catheters, perfusion sets, extension lines, cannulas, feeding tubes, needles, and syringes, as well as implants like cardiac stents, drug-eluting stents, intraocular lenses, and orthopaedic implants. The medical devices sector is highly capital intensive, and also requires continuous training of the healthcare system providers to adapt to new technologies.

However, there is still a huge gap in the current demand and supply of medical devices in India, as India has an overall 70-80% import dependency on medical devices. At present, many medical device manufacturers (domestic and international) are chasing this massive under penetration of medical devices in India as a significant growth opportunity.

The government has come up with multiple initiatives and policies to promote India’s medical device sector. It was recognised as a focus sector in 2014 by the government during the Make in India campaign.

? MARKET SIZE

The medical devices sector in India comprises large multinationals, small and midsized companies. The size of the

Indian medical devices market is estimated at Rs. 90,000 Crore (US$ 11 billion) in 2022 and is expected to grow to US$ 50 billion by 2030 with a CAGR of 16.4 %. The Indian medical device market share in the global market is estimated to be 1.65%.

India is the 4th largest Asian medical devices market after Japan, China, and South Korea, and among the top 20 medical devices markets globally.

Between 2020-30, the diagnostic imaging market is likely to expand at a CAGR of 16.4%.

Export of medical devices from India stood at Rs. 19, 803 crore (US$ 2.40 billion) in FY22. The exports of medical devices during April-December. 2022 stood at Rs. 20.511 crore (US$ 2.49 billion), and are expected to rise to US$ 10 billion by 2025.

To increase export of medical devices in the country, the Ministry of Health and Family Welfare (MOHFW) and Central Drugs Standard Control Organisation (CDSCO) implemented the following initiatives:

• Re-examination and implementation of Schedule Mill (a draft guidance on good manufacturing practices and facility requirements)

• System for export labelling

• Clinical evaluation and adverse reporting clarification

• State licencing authority to extend free sales certificate validity from 2 years to 5 years to allow exports

• Create a list of manufacturers with export licencing for easy access to regulatory authorities worldwide.

? KOAD AHEAD

Policy makers in India will need to set out an action plan to reduce the countrys dependency on medical devices technology imports. At present, NITI Aayog is reportedly drawing up a strategic road map for medical devices. Over the next few years, India might grow into a US$ 50 billion market for medical devices.

In BioAsia 2021, key stakeholders in the panel discussion on medical technologies predicted that India would become self-sufficient in domestic medical devices manufacturing by 2025-26. The panel observed that the government is taking supportive measures such as promoting indigenous manufacturing of high-tech medical devices, production-linked incentive schemes (PLIs) on medical devices, boosting new medical devices parks, etc. to boost the overall growth of the domestic medical devices market in India.

Medical device companies should develop India as a manufacturing hub for domestic and international markets, undertake India-based innovation in combination with indigenous manufacturing, collaborate across the Make in India and Innovate in India schemes, and produce low to medium technology products to cater to the underpenetrated domestic markets.

1. Quality Concerns

It goes without saying that medical device industry is a high-stakes industry. End-users rely on safe and effective medical devices, and the cost of poor quality (COPQ) can be severe. Across the industry, quality concerns often arise in design, software, and in non-conforming materials and components. Problems can also occur if a medical device is manufactured and later needs to be recalled.

If things like this do go wrong, entire operations can temporarily be shut down until quality issues are identified and resolved. As you might expect, this leads to costly delays. What’s more, product recalls run the risk of end-user grievances, and potentially even injury or death. Not only is this dangerous to the customer, but it also spells trouble for companies. Poor quality and product recalls cost the medical device industry billions each year, while lawsuits also damage company reputation - a risk you may struggle to recover from.

2. Medical Device Resulatorv Challenses

There are a number of different regulations that medical device companies need to consider. The fact that many of these differ around the world can be a challenge.

It is important that all staff understand the different regulatory requirements that are applicable to your company, so that they can be properly implemented at each stage. It is also important to evidence your compliance, such as with compliance reports. However, these can be time-consuming to produce and add to the pressures faced by medical device companies.

3. R&D Struggles

Even more than in other industries, the creation of medical devices depends on rigorous research and development. It can take a while and it will be expensive to conduct the required clinical trials. This will slow down the time to market and reduce profitability.

? FINANCIAL AND OPERATIONAL PERFORMANCE REVIEW

The major items of the financial statement are shown below:

(Rs. in lakhs)

Particulars 2022-23 2021-22
Net Sales & Other Income 38.25 17.55
Profit before Interest & Depreciation 41.25 35.78
Interest 0.01 0.00
Depreciation 3.72 3.72
Profit/(Loss) before exceptional item and tax (6-73) (21.95)
Less : Exceptional Item - -
Less: Tax Expenses
Current Tax - -
Deferred Tax 0.14 (0.14)
Profit After Tax (6.59) (22.09)

? KEY RATIOS

PARTICULARS 2022-23 2021-22 CHANGE IN RATIOS IN %
Current Ratio 0.19 0.24 (19%)
Debt-Equity Ratio 0.52 0.49 7%
Debt Service Coverage Ratio NA NA -
Return on Equity Ratio (In %) (12.36%) (36.86%) 66%
Inventory turnover ratio 15.13 2.84 432%
Trade Receivables turnover ratio (In times) NA NA -
Trade payables turnover ratio (In times) 3.01 1.06 185%
Net capital turnover ratio (In times) 4.06 1.32 207%
Net profit ratio (In %) (0.17) (1.47) 88%
Return on Capital employed (In %) (11.76%) (35.18%) 67%
Return on investment (In %) (6.27%) (19.89%) 68%
? REASONS FOR MORE THAN 25% VARIANCE
RATIOS WITH VARIANCE MORE THAN 25% REASONS FOR VARIANCE
Return on Equity Ratio (In %) Variance is due to reduction in loss in the Current year
Inventory turnover ratio Variance is due to no changes in inventory in the Current year
Trade payables turnover ratio (In times) Variance is due to increase in purchases during the year
Net capital turnover ratio (In times) Variance is mainly due to increase in revenue in the current year
Net profit ratio (In %) Variance is mainly due to reduction in losses in the current year
Return on Capital employed (In %)
Return on investment (In %)

? CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR

There has been 66.48% change in return on net worth of the company.

? HUMAN RESOURCES

Your Company recognizes that its committed and talented workforce is the key factor in driving sustainable performance and growth. As one of the most critical assets of the Company, its people are responsible for its competitive advantage. Your Company is committed to recruiting and retaining the most relevant and best industry talent. Employees are thereafter nurtured, developed, motivated, and empowered to boost their skills and performance capabilities.

Your Company continuously seeks to inculcate within its employees a strong sense of business ethics and social responsibility. Relations with the employees at all levels remained cordial during the year. Your Company had 8 permanent employees as on March 31, 2023.

? INTERNAL CONTROL MECHANISM:

Your Company has adequate internal control procedures commensurate with its size and nature of business. Your Company has clearly laid down policies, guidelines, and procedures that form a part of the internal control systems. The adequacy of the internal control systems encompasses the Companys business processes and financial reporting systems and is examined by the management as well as by its internal auditors at regular intervals.

The internal auditors conduct audits at regular intervals to identify the weaknesses and suggest improvements for better functioning. The observations and recommendations of the internal auditors are discussed by the Audit Committee to ensure timely and corrective action.

? DISCLAIMER CLAUSE:

Statements in the Management Discussion and Analysis Report describing the Company’s objectives, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company’s operations include economic conditions affecting demand/ supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.

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