Today's Top Gainer
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TVS Electronics is a part TVS Group, which is among the Top 5 family owned business groups in India.
According to the World Economic Situation and Prospects 2019 report by the World Bank, Global growth is expected to remain at 3% in 2019 and 2020, however, the steady pace of expansion in the global economy masks an increase in downside risks that could potentially aggravate development challenges in many parts of the world. The global economy is facing a convergence of risks, which could severely disrupt economic activity and inflict significant damage on longer-term development prospects. These risks include an accelerating trade disputes, tightening of global financial conditions, and increasing effects climate risks.
The financial conditions tightened for not only vulnerable emerging markets but also advanced economies, which added to the global demand pressures. However, in 2019 the conditions have improved slightly as the US Federal Reserve signalled a more accommodative monetary policy stance and markets became more optimistic about a USChina trade deal.
In many developed countries, growth rates have risen close to their potential, while unemployment rates have dropped to historical lows. Among the developing economies, the East and South Asia regions remain on a relatively strong growth trajectory, amid robust domestic demand conditions. Beneath the strong global headline figures, however, economic progress has been highly uneven across regions. Despite an improvement in growth prospects at the global level, several large developing countries saw a decline in per capita income in 2018. Even among the economies that are experiencing strong per capita income growth, economic activity is often driven by core industrial and urban regions, leaving peripheral and rural areas behind. While economic activity in the commodity-exporting countries, notably fuel exporters, is gradually recovering, growth remains susceptible to volatile commodity prices. For these economies, the sharp drop in global commodity prices in 2014/15 has continued to weigh on fiscal and external balances, while leaving a legacy of higher levels of debt.
For the year 2017-18, the Indian economy grew by 7.2% and is projected to grow around 7% in 2019. As per World Economic Outlook (WEO) 2019 by IMF, the real GDP growth is projected at 7.3% in 2019-20, marking a positive outlook from 2018-19s growth of 7.1%, supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy. Nevertheless, reflecting the recent revision to the national account statistics that indicated somewhat softer underlying momentum, growth forecasts have been revised downward compared with the October 2018 WEO by 0.1 percentage point for 2019 and 0.2 percentage point for 2020, respectively.
The slowdown is attributed to weaker economic momentum and is driven by slow activity growth in the manufacturing sector and, to a lesser extent, agriculture. However, benefitting from lower oil prices and a slower pace of monetary tightening, the IMFs WEO forecast projects that Indias economy is poised to pick up in 2019.
According to WEO, in India, continued implementation of structural and financial sector reforms with efforts to reduce public debt remain essential to secure the economys growth prospects. In the near term, continued fiscal consolidation is needed to bring down Indias elevated public debt. This should be supported by strengthening goods and services tax compliance and further reducing subsidies. Important steps have been taken to strengthen financial sector balance sheets, including through accelerated resolution of nonperforming assets under a simplified bankruptcy framework. These efforts should be reinforced by enhancing governance of public sector banks. Reforms to hiring and dismissal regulations would help incentivise job creation and absorb the countrys large demographic dividend; efforts should also be enhanced on land reform to facilitate and expedite infrastructure development.
IT & ITeS
Being a key part of the Indias economy, the IT industry and its various sub-sectors represented 8% of the nations overall GDP in 2013, making it the fifth largest industry in India. The country is a preferred destination for IT & ITeS in the world as it has a low-cost advantage by being 5-6 times inexpensive than the US, making it a leader in the global sourcing industry with 55% market share of the US$ 185-190 billion global services sourcing business in 2017-18. Being well diversified across verticals such as BFSI, telecom and retail, there is an increased strategic alliance between domestic and international players to deliver solutions across the globe.2
According to the IBEF report, IT industry employs nearly 3.97 million people in India of which 1,05,000 were added in FY18. The industry added around 105,000 jobs in FY18 and is expected to add over 250,000 new jobs in 2019. IT industry is fuelling the growth of start-ups in India, with the presence of around 5,300 tech start-ups in India. The domestic revenue of the IT industry is estimated at US$ 44 billion and export revenue is estimated at US$ 137 billion in FY19. As per Gartner, the spending on Information Technology in India is expected to grow over 9%, to reach US$ 87.1 billion in 2018.
With various government initiatives, the digital drive in the country is leading the IT Products & Solutions business and the retail traders of India have either moved into organised retail fold or are moving towards it. This is one of the key drivers of growth of PoS devices in the market.
The computer peripherals industry is riding high on the back of the ever-widening IT base in India. A sector that thrives on inventions, the peripherals industry has witnessed stable demand as customers crave newer and better products with each anticipated launch. Input, Output and Input/output (I/O) devices make up the computer peripherals market. Input devices include card readers, tape readers, keyboards, digitisers and pointing devices like the mouse, the light pen, etc. Output devices comprise printers (impact and non-impact), plotters and monitors; terminals and auxiliary memory devices such as tape drives, disk drives and floppy drives make up the I/O devices.
The computer peripherals market is estimated to be between Rs 1,500 and Rs 2,000 crore. It is growing at about 20 per cent a year. This growth is driven by initial cost, recurring cost, brand names, warranty as well as innovation in product design. Another important demand driver is the number of functions, which a product may be able to perform. Most of the demand comes from sectors such as banking and finance, insurance, telecom, education, manufacturing and retail. The demand has also increased with the number of international companies opening offices in India, across all sectors. 3
With rapid new innovations, the rate of obsolesce in this industry is high. This has proved to be advantageous as it keeps the demand stable. However, it also affects the demand as customers are always anticipating better products.
In India, the IT & electronics industry is one of the fastest-growing industries, both in terms of production and exports. As per Indian Brand Equity Foundation report, the Indian electronics products demand is expected to grow at a CAGR of 41% during 2017 to 2020 and is expected to reach a valuation of US$ 400 billion by 2020. By 2025, the Consumer Electronics and Appliances Industry in India is expected to become the fifth largest in the world.
The Indian Electronics Industry growth is driven by growth in consumer electronics with a focus on urban India. But as the government plans to invest in rural electrification, there is a lot of scope for growth from rural markets, with increase in consumption due to brand penetration. Demand for durables like refrigerators as well as consumer electronic goods are likely to grow as well with the support of government. Another driving force is internet retailing through which the industry in connecting every city in the country. Leading e-commerce companies offered a range of discounts that attracted price-sensitive costumers. Key drivers were thus growing awareness, easier access, and changing lifestyles.
TVS Electronics is a part TVS Group, which is among the Top 5 family owned business groups in India. With a heritage of over 100 years, we are one of the first companies in Asia to win the prestigious Deming Award for Quality. TVS-Electronics, a subsidiary of TVS Group, was founded in 1986 and is now a leading Transaction Automation IT Product manufacturer & service provider.
Our vision is to take electronics to every part of the country and also extend necessary care in terms of service and maintenance for the same. The vision of extending care is not just for the products manufactured by TVS-E but also for the ones by larger OEMs as well.
We have established ourselves as an end-to-end solutions provider through our extensive product portfolio and wide spectrum of services. We cater to extensive product lines across various brands through various delivery models like exclusive service centres, multi brand service centres, onsite support, repair centres and factories. Moreover, we provide services to IT, Telecom and Consumer Electronics and have a dealer network across more than 300 towns.
Our Business Verticals
IT Product Solutions
With our extensive dealership network, we manufacture and sell Point of Sale (PoS) devices, Printers and Keyboards, and through our wide reach of service infrastructure we are able to cater to the end-to-end needs of our customers. Product development is at the core of our product solutions vertical and meeting customer requirements through innovative products has enabled us to retain the market share.
Our products cater to seven broad sectors, namely, Retail SME, Government, BFSI, Hospitality, Healthcare, E-commerce and Transport, Large Format Retail (LFR) Stores and Quick Service Restaurants (QSR). Out of our total revenues from the product solutions business, PoS peripheral hardware contributes 40% while 60% is being contributed by the Dot Matrix Printer, keyboard and related supplies.
Over the years, our products range has evolved with the evolving needs of our customers. Now our products ecosystem consists of Data Identification products, Data Capturing products, Data Processing products and Data Dissemination products.
During FY2019, the product solutions business vertical refreshed its range of Point of Sale (PoS) products and further strategized to expand its reach into the "Point of Transactions" landscape.
The Companys Thermal Printer range has gained added momentum during the year as its market share improved from 19% to 22%. These printers are used largely to print invoices or receipts in modern Retail Stores, Quick Service Restaurants, E-Commerce Platforms, and the Health Care industry, amongst others. As legacy Dot Matrix Printers become more and more obsolete in certain sectors, they are being replaced by sophisticated Thermal range printers where TVS-E is gaining market traction.
The market for the Label Printers that print barcodes or QR code labels, and their scanners, is growing even faster. For these products, TVS-E holds a market share of 17% and 20% respectively. While this share remained same for Label Printers, it has dropped 6% in case of Scanners due to the increase of many low-end variants in the market.
Overall, during the year, the Products BU witnessed a subdued demand for its categories of products reflecting an economy in the verge of recovering from large government policy actions.
India is increasingly moving towards using digital means for the payment of goods and services, accelerated by demonetisation and lack of cash in the economy, propelling the demand for PoS terminals. The pace of digital transactions across the country has increased significantly, which has led to an increase in the demand for new machines to provide e-payment facilities to buyers.
Retail and E-commerce
Increasing penetration of the organised retail industry and emergence of several e-commerce players offer impetus for the Companys POS billing solutions market growth. Fuelled by the e-commerce food delivery and logistics, the Company plans to increase its reach in the bar code scanner space. Furthermore, with the changing KYC norms and mandate on Aadhar Card, there is a need for high density scanners in the market, opening up another opportunity for TVS Electronics to capture market share.
Transport and Logistics
With the introduction of e-way bill by the finance minister, the Company can now act upon the opportunities offered by the transport and logistics sector through its products in the mobile printing space. The success of the effective implementation of the E-way Bill in India will largely depend on how efficiently and diligently businesses comply with and manage the requirements of this Bill and generate one when needed.
Over the next few years, we plan to consolidate our position as a strong player offering one-stop-shop solutions for all customer post-purchase product needs.
The adoption rate for PoS devices is rising as customers become more and more accustomed to the convenience and payment flexibility that debit and credit cards provide. Todays digital influence challenges banks to deliver products that create a seamless pathway-to-purchase journey. Agility to innovate across inventory, orders, customers, and products is critical. Banks therefore need to keep adding to the variety of their POS systems to cater to a wide range of customer requirements. This is where we, as a Company, can add value with our wide spectrum of products, and potentially profit from the growing opportunity in the BFSI sector.
Going forward, we aim to embark on the mission of building an infrastructure for Merchant Acquisition Business. Having a long relation with our merchants, we plan to deepen that and interact with our customers directly and build an end-to-end solution centric business, with customers at our core.
IT Services Portfolio and their Customers
The IT Services business vertical looks after installations and technical service calls for over 25 brand partners, covering more than 10,000 pin codes across India, with a very wide array of electronic product categories. Moreover, the Company has partnered with leading brands by providing onsite support and walk-in centre services for in-warranty and out-of-warranty fulfilment of their IT products.
Apart from addressing the IT services segment, TVS Electronics has a strong presence in the mobility products, consumer electronics and the banking segment. For the mobility products and consumer electronics segments, we have strong relationships with leading smartphone and white goods manufacturing players for both, in-warranty and out-of-warranty services. The Company also provides the installation and service of PoS terminals, along with complete after-sales lifecycle of products: right from installation and demos, to in-warranty and out-of-warranty services, for leading mobility brands.
Customer centricity is at the forefront of every service that TVS-E provides, and remains at the core of the Companys performance metrics. While our competitors typically serve specific customer segments, without much flexibility or customisation options in their offerings; we have a suite of services that encompasses every stage of the post-purchase product lifecycle. Over the next few years, we plan to consolidate our position as a strong player offering one-stop-shop solutions for all customer post-purchase product needs.
- During FY2019, the Company expanded its service footprint across more than 250 districts in India for onsite services and also increased its retail network for customer walk-in services to 200 centres.
- The Company deployed more than 2,500 professionals across the length and breadth of the country, offering onsite services to OEM brands, E-commerce brands and end customers for IT products, Telecom products and Consumer Electronics.
- Added 4 new clients in the IT, Telecom and Consumer Electronics product segment.
- Increase in brand Net Promoter Score in our B2B2C business.
- Consolidated service offerings by keeping niche skills with our direct engineers and outsourcing commodity skills through Companys ASP network. The variability ratio as on March19 exit was 30:70.
For FY2019, we have taken aggressive growth targets in excess of 40% growth over last year with respect to revenues and contribution margin. The IT Services added Consumer Electronics Services as a new category, in addition to widening the service operations in IT, PoS terminals and infrastructure management services.
The volume of service calls went up from 14.35 lakhs to 17.59 lakhs in FY2018-19. The Service centre footprint grew from 54 own and 119 partner centres by exit FY2018 to 87 own and 148 partner centres by exit FY19. To fuel the growth, the Company is investing in technology, people and infrastructure.
Catering to the needs of consumers using telecom products, IT products, banking and retail automation devices, and consumer electronics, we have developed a strong foothold in India. Moving forward, we aim accelerate our organic growth by expanding our footprints in the remote town across India.
FY 2019-20 will be a year of consolidation for TVS-Es core services by expanding client base and network presence across India. In the next phase, TVS-E will be offering comprehensive after-sales service solutions across product categories from various industries.
We are focusing on achieving long-term growth through value-added services for customers by providing on-site and retail services, keeping the comfort of customers in mind. As customers are an integral part of the Company, we aim to bring in more regional repair centres, which are in close proximity to the customers. This in turn, will help reduce our logistics and transportation costs and will help serve our customers faster.
Unlike competition, who are focusing mainly on capturing market share in Metro cities, the Company plans to have a sharper focus in Tier II and III cities, which will enable better economies of scale and expanded network for us. This will also lower the costs for brands and improve Turnaround Time for the end customers.
Our new business pipeline is very strong this year around our core offerings of Onsite and Walk-in services for IT & Telecom products. We plan to bring in new products for Gadget protection and services in the Health Care space.
Weve embarked on a journey of building a Digital Platform for IT Services Business through an open source stack, which offers customisation and flexibility to our Services Business. This platformisation of service model will be of humongous help in faster scalability and modular approach.
Going forward, as the world evolves digitally, more consumers are inclined towards the use of electronics and technology devices. This creates an immense opportunity for TVS-E. With our retailisation strategy of reaching out to more customers, we are on track to expand our footprints.
Financial and Operational Highlights
During FY2019, the Companys IT Products and Technical Services has earned revenues of ????? 224 Crore, unchanged from the previous year. Some of the large project orders in Products BU are deferred and expected to materialise in FY2019-20; however, the Services BU has grown by 26% YoY from ????? 64 Crore to ????? 81 Crore. The revenues from Distribution has dropped to ????? 2,533 Crore from
????? 3,885 Crore in FY2017-18, which was due to closure of an agreement in July 2018 with a mobile phone manufacturer for online distribution of mobiles, TVs and accessories. Online distribution was a large volume, low margin and volatile business that the Company monitored and managed separately. As the revenue earned from this segment during the year is only for 4 months, its not fully comparable with previous years 12-month operations.
The margins of IT Products and Technical Services is continuously improving as the Earnings Before Interest and Tax (EBIT) for FY 2018-19 has grown 32% to ????? 9.8 Crore from
????? 7.4 Crore in the previous year before addition of an exceptional item. The EBIT margin for previous year after exceptional item was ????? 11.1 Crore. Distribution services added EBIT of
????? 6 Cr during part of the year of its operations vis--vis ????? 13 Cr in FY 2017-18. With good cash flows from business, the Company has relied very less on borrowings, which saved over ????? 1 Crore of finance cost for the year under consideration when compared with previous year.
The margins of IT Products and Technical Services is continuously improving as the Earnings Before Interest and Tax (EBIT) for FY 2018-19 has grown 32% to 9.8 Crore.
|Debt Equity Ratio||-||0.04||NA|
|Net Profit Margin||0.27%||0.39%||-32%|
|Return on Net||8.55%||19.43%||-56%|
The company had repaid its entire borrowings and there were no borrowings as on March 31, 2019.
Previous year had a one-time gain on sale of land;
Current year returns are after considering one-time loss in sale of investment in subsidiary.
Business Risks & Opportunities
The Companys key imperative over the medium term will be sustaining the current revenue streams, even as we build a strategic framework and drive the Technical Services business, leveraging macro trends and business opportunities as described elsewhere.
Key success factors (and therefore risks) are predicated on the timely execution of these plans, building the internal capabilities by attracting and retaining talent and keeping pace with technological and market changes. The Board and management of the Company are confident of proactively managing these risks.
Risk Management process
The Company recognises that risk is inherent in every business activity. Effectively managing these risks is key to achieving our strategic objectives and the long-term sustainable growth of the business. Identification, assessment, mitigation and monitoring of risk is done by the Company through a bottom up approach that often calls for extensive cross-functional involvement. The key risk areas are periodically and systematically reviewed by Senior Management. The companys Risk Management Process is also tested by the internal auditors and overseen by the Audit Committee through a structured framework. The management of the Company has reported to the Board that the Companys risk management and internal compliance and control system is operating effectively.
Enterprise Risks of TVS-E are categorised into (a) Strategic, (b) Operational, (c) Financial and (d) Legal and Compliance risks. Some of the significant risks have been enlisted below along with its mitigation plans:
|Risk Type and Description||Risk overview||Mitigation plan|
|Strategic Risk - Technology risk||Two dimensional printing as a technology and need could fade away impacting demand for TVS-Es Dot Matrix, Thermal, Label & Mobile Printers||IT Products BU is expanding its range beyond Printers into Point of Transaction solutions and added Keyboards, Touch POS, Scanners etc. More such product range expansion will continue.|
|Operational Risk - Information security risk||Both IT Products and Services BUs of TVS-E deal with high volume personal data of device users and the service agents have access to customer data of brand partners carrying vulnerability.||A strong Incident Prevention and Resolution Process along with an Intrusion Prevention System has been put in place to mitigate cyber security threats. TVS-E has also covered the risk under appropriate insurance.|
|Operational Risk - Reputation risk||Service agents of TVS-E visits customer places of brand partners in the normal course of business. These agents are well trained on both technical and behavioural aspects before being assigned with the filed job. Nonetheless, the nature of job is susceptible to behavioural / induced behavioural incidents causing reputational and financial loss to TVS-E.||The Company has published a code of conduct mandating the highest moral and ethical standards for its employees / agents, which is also periodically communicated to other stakeholders. It has a whistle-blower policy to ensure suspected or actual violations to the code are reported, investigated and acted upon.|
|Strategic Risk - Geopolitical risk||TVS-E imports bulk of its supplies / finished products from the People Republic of China. Any impact to the bilateral trade arrangement would have multiple implications to TVS-Es business lines.||These scenarios are being continuously monitored for both risk and opportunities.|
The Company follows the policy of hedging forex risk on its imports by taking full cover.
At present, in the opinion of the Board of Directors, there are no risks, which may threaten the existence of the Company.
Internal Control Systems and adequacy of Internal Financial Controls
The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The Audit committee defines the scope and authority of the Internal Auditor. The Audit Committee comprises of professionally qualified Directors, who interact with the statutory auditors, internal auditors and management in dealing with matters within its terms of reference.
The Company has a proper and adequate system of internal controls. Adequate internal controls ensure transactions are authorised, recorded and reported correctly and assets are safeguarded and protected against loss from unauthorised use or disposition. In addition, there are operational controls and fraud risk controls, covering the entire spectrum of internal financial controls. An extensive program of internal audits and management reviews supplements the process of internal financial control framework. Documented policies, guidelines and procedures are in place for effective management of internal financial controls.
To maintain its objectivity and independence, the internal auditor reports to the Chairman of the Audit Committee of the Board. The internal auditor monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company and its subsidiaries.
Based on the report of internal auditor, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions proposed to fix the observations are presented to the Audit Committee of the Board.
The internal financial control framework design ensures that the financial and other records are reliable for preparing financial and other statements. As far as possible, emphasis is placed on automation of controls within the process to minimise deviations and exceptions. Investment in advanced IT tools on an ongoing basis is one of the keys means to achieve the automation. In addition, the Company has identified and documented the key risks and controls for each process that has a relationship to the financial operations and reporting. At regular intervals, internal teams test identified key controls. The internal auditors also perform an independent check of effectiveness of key controls in identified areas of internal financial control reporting.
Business Planning and Information Technology
The Company has moved its applications and data base to a Cloud-based server since 2015-16. This has resulted in de-risking the storage of critical information in our own hardware. The Company also simultaneously monitors software upgradation, which helps run business operations in an efficient manner. In terms of Companies Act, 2013, the details of maintenance of books of accounts on cloud server is being intimated to the Registrar of Companies at the time of annual filing.
The data analytics capabilities acquired by the Company last year helps capturing relevant information for decision-making across various businesses. The information dashboards so generated helped the management and operating teams to have real-time information on process controls and take pro-active steps to manage operations.
Human Resource Development
As our businesses are people oriented, we continued to constantly look at opportunities for enhancing our Employee polices and framework during the year.
Our Talent Acquisition framework focuses on hiring people with right attitude and skill. The company has been able to attract talent from IIMs, B-Schools and lateral hire to support the organisation growth in areas such as "Operations", "data Analytics", "product design" etc., which will add immense value to our Businesses and customers.
We continued to drive digitisation of HR processes, for speed and ease of work and transparency. Our Performance Management System has been digitised leading to sharper focus on goal setting in alignment to our Annual plan. Our Employees experience Quarterly goal setup and performance feedback, thereby driving a high-performance culture in the organisation.
We recognised best performers with awards at different forums for Individual and team performance as part of our Employee motivation and Communication program.
A structured Talent Management framework has been evolved, wherein the Top talent based on performance and potential (matrix) are identified and for a yearlong learning intervention to prepare them for the next/larger role in the organisation.
Employees Learning and
Development initiatives continued with investment in skill enhancement programs across levels. Our Employees have been given exposure to AI, ML, data analytics, six sigma process and other tools that would help them to upskill and deliver better results.
In our Services Business, we continue to work closely with our Engineers/ Agents for multiskilling, support them with routine soft skills and behavioural training through classroom and e-learning platforms.
The Company has taken up various process improvement and break through projects during the year, which involves Employees working in teams cutting across functions resulting in Business benefits and building our talent for the future.
To support the growth and aspirations of our Employees, structured job rotation/role enhancement opportunities were created to meet the aspirations of Individuals thereby building a strong succession plan for the Organisation and investing in Key Talent to build organisation capability.
Statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates and 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 Companys operations, include, among others, economic conditions affecting demand/supply and price conditions in the domestic and overseas markets, changes in Government regulations, tax laws and other statutes and incidental factors.