Vindhya Telelinks Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENTS

The Company is primarily engaged in the business of manufacturing and sale of all types of Telecommunication Cables, other types of Wires & Cables, Solar PV Cables,FRP Rods/ Glass Rovings, Connectorized Cable Products, etc. and Engineering, Procurement & Construction (EPC) business.

Despite the economy going through a rough patch since the beginning of the financial year under review coupled with the Covid-19 pandemic set in during end of 2019 from China and wreaked havoc throughout the world since early 2020, the telecom industry has shown its resilience and it is now the lifeline of communications for the entire masses all across the world. The resultant impact of pandemic in longer term will be an acceleration of trend favouring the ‘digital economy Rs and consequently increased demand for optical fibre based networks. There will be an increased focus on fixed line networks/wired broadband services over the coming years and a renewed push for full fibre connectivity in almost all major markets. This will begin to meaningfully impact fibre demand from next fiscal year from telecom operators in India including state owned, however, with financial year 2020-21 most likely to suffer from reduced capex, more reliance on shared infrastructure and optimal utilization of the existing networks for growth in revenue through expansion in enterprise and institutional customer base.

Domestic Market for telecom cables in India is generally dominated by large scale Government driven telecom infrastructure projects like BharatNet which is backbone for ambitious ‘Digital India Rs Program. The BharatNet project was going on as per revised targets till the beginning of the Year 2019 but started to experience some of the policy hiccups leading to slow down including state level implementation. In addition to this, since mid 2019-20, optical fibre cable deployments in India contracted sharply as major telecom operators faced increasing stress due to AGR related dues overhangs. The optical fibre cable demand in India, therefore, witnessed weakness for most part of the financial year regardless of Covid-19, as carriers continued to face mounting financial pressures and delays to existing connectivity programmes. The networks expansion has come under extreme pressure lately as strict lockdown effectively brought the market to a halt from end of March, 2020 and onwards as deployment remained heavily restricted. However, on the upside, mammoth growth in Data consumption during the lockdown and to cater to a ‘New Normal Rs way of doing the business necessitates the huge penetration of wired high speed broadband connections which is possible only through optical fibre based networks. As the present network is not sufficient to carry huge data and video traffic, there is an inherent need of expanding the optical fibre based network to meet the insatiable demand for higher bandwidth. Led by price hikes, rationing of data allowance, reduced validity and additional services, seamless connectivity and more reliance on work from home solutions like video conferencing and remote screen/document sharing, the telecom spend is likely to increase by the users which will improve the ARPU of telecom operators gradually. The fate of the entire telecom industry under the New Normal depends on New business model, efficient capital deployment and mining of existing customer relationships. Telecom operators would, therefore, focus on building much needed and monetisable infrastructure like capacity augmentation in high potential markets, fixed line broadband, fiberisation and enterprise offerings which shall require many fold expansion of optical fibre cable networks across the breadth and length of the country to have widest possible coverage.

India right now is at the inflection point wherein an urgent need of deep fiberization in the network at massive scale is needed to bridge the rural urban divide and to give the subscribers a digital experience. The onset of Covid-19 pandemic has reinforced the resolve to move into a real digital economy which encompasses the wide range of user oriented applications. Also, the low latency requirement in the usage warrants the need of edge data centres to be installed in large numbers to take care of the large data centric applications. All these latest applications are possible through optical fibre network which offers tremendous bandwidth capabilities.Over the past 30+ years, the mobile community has built a phenomenal global social and economic success story. The commercial drive of the mobile ecosystem and information and communications technology (ICT) connectivity can now be considered a vital utility service. The deployment of 5G mobile technology will further extend this utility as Internet protocol-based mobile communications become the bedrock of mobile standards and the release of new spectrum satisfies the growing service demands of both business and consumers. 5G is expected to deliver significantly enhanced performance compared to 4G LTE. This includes infinite connectivity, higher bandwidth, lower latency, increased reliability and faster mobility. 5G provides lightening internet speed and massive-connected world. The growth in data and expected strong adoption for 5G inevitably need substantial investment to keep pace with the demand. Although given the critical situation of the telecom industry, the Governments ambition to launch 5G in India in near future looks challenging primarily due to the fact that the reserve price suggested by TRAI for bands that could be used for deployment of 5G technology did not find much support from the industry due to its extremely high price levels. However, the planned 5g capex would bring along stellar B2B opportunities alongwith rationality in deployment by all telecom operators under the emergence of new monetization models at scale. The telecom operators will be able to quickly monetise new 5G services in areas such as consumer based media and entertainment, healthcare and automated factories.

The requirement of clean energy sources for the country, already populated large number Solar Energy Parks in the energy mix which is gradually taking a lead in the overall scheme of things which is slated to pave the way for large scale use of green energy in the country. The Companys state-of-the-art Solar PV Cable manufacturing facility with Electron Beam irradiation technology is fully geared to cater to best-in-class Solar PV and other related cables in a prudent manner with competitive price levels.

As the Governments drive for expansion of nationwide Railway Network goes on in full steam, the Company is also reaping the benefits of this Railway Network Infrastructure creation by way of augmenting and debottlenecking its production capacity for manufacturing of Quad, Signaling and Copper Telecommunication Cables and catering to Railways expansion program in good volumes.

The Companys EPC (Engineering, Procurement & Construction) business has witnessed sustained performance by way of offering its best-in-class quality services to various process verticals like complete Telecom turn-key services including system integration, Broadband and FTTH network projects, Rural Electrification, Sewerage Pipeline, Electric Sub-station, Lift Irrigation and all other allied project segments. The Company also has its own IP-1 Category License under the aegis of which it creates its own optical fibre cable network and allows indefeasible rights of usage to telecom operators and other Internet Service providers. The Company has emerged as a leading player in this segment offering good quality services to all stake holders including maintenance of the networks already built encompassing several states and union territories across India.

There is no material change in the industry structure as was reported last year.

BUSINESS REVIEW AND OUTLOOK

The data centric applications always require good bandwidth with high speed capabilities and scalable networks. The current telecom infrastructure in India will require a rapid expansion to support the launch of 5G. The implementation of mobile infrastructure policy in the federal governance structure, and the countrys fiberisation level are some of the key challenges in making 5G a reality. To meet high throughput and low latency expectations from 5G technology, a strong backhaul network supported by large-scale site fiberisation is a key enabler. India has less than 30% of the telecom sites connected through fibre. Complex, cumbersome and costly Right of Way (RoW) has been a big bottleneck for telecom operators in rolling out fibre nationally. Your Company fully endorses the 5G Ecosystem report of the CII which reiterates thattelecom service providers would continue their preparations, such as strengthening their 4G infrastructure, expedite fiberisation and network densification and ensuring nationwide coverage, for the impending arrival of 5G. Telecom operators will need to make significant investments in various areas, including 5G spectrum, fiberisation and microwave backhaul, network densification (small cells, HetNet) and network transformation (cloud RAN, SDN/NFV and automation). The early adoption of 5G offers a rare opportunity to India to contribute to developing an inclusive and indigenous technology. The country can contribute by building R&D capabilities, developing home grown intellectual property and design-led manufacturing.

The expected introduction of 5G Technology in the Mobile Communications sector to offer ultra-high speed broadband services, requires almost 5 times increase in the amount of optical fiber network in the field as compared to the present levels and dense installation of cell sites with small cell connectivity through deep fiberization at least to a level of 80% from the current levels of less than 30% should positively propel the consumption of Optical Fibre.

Further, the much awaited National Broadband Mission launched by the Government of India in December, 2019 to fulfill the aspirations of people and enable fast track growth of digital communication infrastructure augers well for both the business segments of the Company. The basic objectives of the National Broadband Mission, interalia, includes Broadband access to all villages by 2022, facilitate universal and equitable access to broadband services for across the country and especially in rural and remote areas, laying of incremental 30 lakhs route KMs of Optical Fibre Cables and increase in tower density from 0.42 to 1.00 tower per thousand of population by 2024, creation of a digital fibre map of the Digital Communication Network and Infrastructure including Optical Fibre Cables and Towers across the country and develop innovative implementation model for Right of Way (RoW) to formulate consistent policies pertaining to expansion of digital infrastructure including for RoW approval required for laying of Optical Fibre Cables. In addition to the above, Rs.102 Trillion National Infrastructure Pipeline (NIP) announced by the Government of India has given a roadmap for Digital infrastructure Sector Vision 2025 aiming India to emerge as data centre hub fueling growth of Fintech, e-commerce and OTT sectors besides thrust on early launch of 5G technology to fuel industry growth and innovation, harnessing the power of emerging digital technology which shall provide plenty of opportunities for cables and EPC business segments of the Company. The Company is gearing up to produce variety of cables conforming to the specifications of data centre applications including high fibre count specialty optical fibre cables in order to meet the emerging demand from the data centre parks across the country. Further, the Government needs to actively facilitate shared infrastructure with policies and legislation which will further improve the business prospects optical fibre cable infrastructure built by the Company across several states and union territories under IP-1 license.

The revival of Government driven BharatNet project in the coming years after the announcement of revival package in 2019 for the Government run telecom operators along with the recent stimulus package to bring relief to the industry to tide over the effects of COVID-19 Pandemic, will additionally open good business opportunities for the Company in terms of orders for optical fibre cables and related infrastructure projects.

Benefiting under the Governments various initiatives for creation of robust Infrastructure in all business sectors, the EPC division of the Company is creating quality infrastructure in Telecom, Power, Sewerage, Irrigation and allied fields and has earned great deal of goodwill in the relevant business verticles.

SEGMENT-WISE PERFORMANCE

Sale of Products (Cables, etc.)

The Companys Revenue from Operations on account of sale of products comprising of Telecommunication cables, other wires and cables, FRP Rod/Glass Rovings and traded goods, etc. declined from Rs 70245.08 lakhs in the previous year to Rs 45116.60 lakhs, during the year under review, due to inordinate delays in award of Purchase Orders against turnkey tenders for optical fibre cables floated by BSNL for BharatNet Project. Despite the Company having complied with all tender conditions including submission of performance bank guarantees timely, the formal Purchase Orders against the Advance Purchase Orders are still awaited. In addition, the prices of optical fibre cables in global market witnessed downturn due to heightened competition and there was no reprieve of the weak pricing environment in export markets as post lockdown period in China, the leading optical fibre and optical fibre cable manufacturers entered the global market strongly to re-capture lost market share. In the backdrop of lower than anticipated volumes of optical fibre cables,the increased volume of supplies of Railway Signaling Quad and Solar PV cables could only partially offset the

shortfall in revenue from operations during the year vis-a-vis corresponding previous year.

The impact of nationwide lockdown since 25th March, 2020 as a result of Covid-19 pandemic is likely to be quite profound during the fiscal year 2020-21 as both the business segments of the Company viz. Cable and EPC have strong reliance on domestic market. The Company has initiated all measures to cut costs, become more flexible and agile to overcome the ongoing crisis situation by focusing for the time being on short term goals to remain fully operational while ensuring safety and security of its manpower and mitigate the immediate impact to the extent feasible.

The Company is always presenting its esteemed customers with various product innovations with continuous improvement in terms of offering technologically advanced products and solutions, thereby creating a value across the supply chain.

Sale of Services (EPC Contracting/Turnkey Services)

The Companys Revenue from EPC Contracting/Turnkey Services in the EPC business segment managed to maintain around the same Turnover as compared to Previous year ( Rs 154472.69 lakhs as against Rs 154883.76 lakhs in the previous year). The EPC business segment is always striving its best to come up with top class quality project implementation to all its customers and thereby creating a long term Trust in the industry, true to the values of the Company.

The IP-1 business model, which involves the creation of large scale Optical Fibre Cable Network across the country, has been able to fulfill the good fibre bandwidth requirements from various telecom operators, giving quality service levels to all the Companys customers.

OVERALL REVIEW

During the year under review, the Company has reported sustained financial performance.The Company has been able to maintain its market share in domestic cables business and also able to maintain the momentum gained by the Company in EPC business segmentby way of clocking similar levels as compared to the previous year.

FINANCIAL REVIEW

• The revenue from operations decreased by 10.13% to Rs 188319.31 lakhs during the year 2019-20 as compared to Rs 209536.95 lakhs in the previous year.

• The aggregate other income during the year 2019-20 increased to Rs 1896.19 lakhs as against Rs 1332.34 lakhs in the previous year, mainly due to increase in dividend income on investments.

• The Company achieved profit before interest, depreciation/amortisation and tax of Rs 27004.07 lakhs during the year 2019-20 as compared to Rs 33753.78 lakhs in previous year. Profit before depreciation and tax during the year 2019-20 stood at Rs 18205.48 lakhs as against Rs 27679.59 lakhs in the previous year.

• The finance costs has increased to Rs 9701.54 lakhs (previous year Rs 7624.25 lakhs) due to increase in Term Loans from Banks, Inter Corporate Loans and Working Capital limits.

• There was no change in the capital structure during the year. The other Equity of the Company stood at Rs 76640.43 lakhs during the year under review as compared to Rs 71865.33 lakhs in the previous year.

• The additions to the fixed assets of Rs 1441.22 lakhs during the year mainly consist of capacity expansion of OFC Unit facility and other supporting infrastructure at the Companys existing manufacturing location at Rewa (M.P.).

• The inventories increased to Rs 97402.77 lakhs as on March 31,2020 from Rs 80314.74 lakhs as at the end of the previous year, mainly due to increase in inventory of Passive Optical Fibre Network under IP-1.

• The decrease in trade receivables level at Rs 114328.01 lakhs as on March 31, 2020 as compared to Rs 122833.12 lakhs as on March 31,2019 was due to progressive payment schedule.

• Key Financial Information (Standalone & Consolidated):

Particulars

Standalone

Consolidated

F.Y 2019-20 F.Y 2018-19 F.Y 2019-20 F.Y 2018-19
Revenue from Operations 188319.31 209536.95 188319.31 209536.95
Profit before Finance Costs Depreciation/Amortisation and Tax 27907.02 35303.84 48198.18 46325.08
Net Profit after Tax 12689.52 16865.52 23740.27 27560.74
Fixed Assets 12579.32 12829.51 12579.32 12829.51
Investments 15059.82 22132.02 218103.19 180577.87

• For detailed information on the financial performance with respect to operational performance, a reference may please be made to the financial statements.

• Details of significant changes in Key Financial Ratios:

Ratio 2019-20 2018-19 Variation Reasons for Change
Inventory Turnover Ratio (in days) 190 141 34.83% This is mainly due to increase in inventory of Passive Optical Fibre Network under IP-1.
Interest Coverage Ratio (in Times) 2.83 5.23 (45.81%) Due to the lower profitability and increase in borrowings as compared to previous year.
Return on Net Worth (in %) 16.43 25.52 (35.63%) Due to decrease in profitability.

OPPORTUNITIES, THREATS & BUSINESS OUTLOOK

• India presents itself with a huge business opportunity in the Telecom Sector, as the country is not in the same league as other developed countries are at present. As the country is on the verge of inflection point to go for large scale Optical Fibre network roll-out, it presents great opportunities for the Company in terms of supply of its Cable Products and Solutions along with huge Project implementation opportunities for the Companys EPC business vertical.

• As the demand picks up its steam for Home Broadband wired connections, there are tremendous opportunities exist for fibre network, especially in FTTH network segment.

• The expansion of existing 4G networks and the upcoming 5G network roll-outs will give a boost to creation of huge optical fibre network.

• Constant product innovation coupled with world class and competitive solutions, keeping the Company in the run for various upcoming business opportunities.

• Sluggish economy inhibits the robust growth of telecom network as the investments shrink during downturn which remains as a threat to the industry, but it remains in the short term only and development in telecom network is bound to happen with latest technology introduction.

• Governments Policy initiatives always play a major role in shaping up the Telecom industry in terms of its ups and downs.

• Right of Way (RoW) permissions and its guidelines from various Government Authorities traditionally played a role in the telecom network creation and hopefully, the various policy impetus is resolving the perils of the industry.

• Pandemic situations like the one (COVID-19),we are experiencing all across the world always derails the economy and its business activities; the Company is not a stranger to this scenario and it is on course to take this bull by its horns in a smartest way possible, by taking enormous precautions and creating new SOPs to deal with the Rs New Normal Rs situations.

• Rising Human Resource challenges like workforce planning, retention, succession planning and skill gaps and increasing wage/ social security benefits trend will play crucial role for the sustained viability and continuing success of the Companys businesses and can be categorized as Human Capital Risk to be dealt with as an important matter for future growth of both Cables and EPC business segments.

RISKS AND CONCERNS

The risks that may affect the functioning of the Company include, but are not limited to:

• Financial and liquidity conditionsin the economy in general and of the key customers of the Company in particular and Companys

ability to retain these customers amid stiff competition;

• Dependence on concentrated customer base in cable business segment;

• Increasing cost of raw materials and logistics;

• Volatility in forex market and exposure of the Company to foreign currency movements;

• Technology challenges/information technology risks;

• Competitive market conditions;

• Inverted duty structure;

• Compliance and regulatory pressures including changes in tax laws;

• Delay in execution of turnkey projects leading to financial penalties and cost overrun;

• Retention of skilled manpower in the relevant areas of Cable and EPC businesssegments;

• Environment and safety risks;

• Digital transformation of manufacturing facilities to remain competitive and attain world-class status under Industry 4.0 concept;

• Structural risks represented by globalization, trade wars and macroeconomic interventions by the Government(s);

• Business disruptions during national disasters, pandemics, epidemics and other catastrophic events, supply chain disruptions and suppliers Rs risk due to regulatory and policy changes by the Government(s); and

• Geopolitical events as well as other events outside the Companys control that could cause a disruption to the manufacturing and service operations.

Risk management is an increasingly important business driver and is embedded in the activities of the company through an enterprisewide approach. Your Company has a defined risk management strategy with senior management identifying potential risk, evolving mitigation responses and monitoring the occurrence of risk.The Company is also in the process of implementing a forward looking and predictive risk identification and management program that will help businesses limit risk exposure, save costs and enhance value for stakeholders. The definition of risk management is also being enlarged to incorporate an array of operational, legal and financial objectives besides ensuring safety and well being of employees in the times of natural disasters and pandemic. The risks are identified on a regular basis, across functions and business segments and the Company strives to link each risk with mitigation step to ensure business continuity. Deliberate efforts are being made to improve risk management programs so that both business and regulatory demands can be met, greater business value can be created and corporate reputation can be protected. Risk mapping updates are made available to Audit Committee and senior management team.

INTERNAL CONTROL FRAMEWORK

The Companys system of financial, operational and compliance control and risk management is embedded in the business process by which the Company pursues its objectives. The Company is also required to comply with the provisions of the Companies Act, 2013 as regards to maintaining adequate internal financial controls over financial reporting. The management is committed to ensuring an effective internal control environment, commensurate with the size and complexity of the business, which provides assurance on the efficiency of the Companys operations and safety/security of its assets besides orderly and legitimate conduct of Companys business in the circumstances, which may reasonably be foreseen. The Company has a defined organization structure; authority levels, delegated powers, internal procedures/SOPs, rules and guidelines, code of conduct, etc. for conducting business transactions, ensuring reliability of financial controls and compliance with applicable laws and regulations.To manage the risks profile of the Company, proper organization structures, EHS/other compliances, whistle blower mechanism, compliance management, performance reviews are conducted at regular intervals.

Further, to augment the internal controls, the Company has engaged a firm of Chartered Accountants for internal auditing, who besides conducting periodic audits, independently reviews and strengthens the control measures. The Internal Audit programs cover the entire operations of both the business segments of the Company. The Internal Auditors regularly brief the Management and the Audit Committee on their significant audit observations/findings, steps to be taken with regard to deviations, if any, and the remedial measures as required are implemented by changing processes and/or setting up additional internal controls.The Audit Committee also reviews the adequacy and effectiveness of the Companys internal control environment and monitors the implementation of audit recommendations, if any.

ENVIRONMENT & SAFETY

The Company successfully continued with the implementation of occupational health and safety, quality and environmental protection measures and these are ongoing processes at the Companys plant and facilities. Various proactive measures have also been adopted and implemented which, interalia, include adoption of cleaner technologies wherever feasible, conservation of resources through waste reduction and training of employees with a focus on sustainable development by improving standards on occupational health & safety and environment protection. As a recognition of these objectives, the entire range of products of the Company continue to remain certified to the requirement of international standard ISO 14001:2015 and OHSAS 18001:2007 by the DNV GL Business Assurance India Pvt. Ltd.

INDUSTRIAL RELATIONS AND HUMAN RESOURCE DEVELOPMENT

The Company sees its relationship with its employees as critical to the future and its employee relations agenda focuses on ensuring that employees feel valued, on managing change constructively, and on creating an environment and culture within which every employee can maximize his contribution. The Company follows the core values of “be thorough on safety first and compliance” and takes great pride in being compliant to all laws and regulations governing labourand employees and continues to exercise strong governance over all established procedures and practices.

Your Company believes that the competence and commitment of the people are the principle drivers of competitive advantage which enhances competitive strength by differentiating it from competitors. The focus is therefore increasingly going to be retaining talent and try to develop human resources capable of opening up the next generation by identification of key people, knowing their aspirations, designing their growth paths and realigning responsibilities, etc. The industrial relation climate of your Company continues to remain harmonious with focus on improving productivity, quality and safety. Efforts are being made to strengthen organisational culture in order to attract and retain the best talent in the industry by redefining HR policies and processes in line with contemporary market practices. Training needs are identified in systematic manner and regular training programs are organised both inhouse and external. The Board records its appreciation of the commitment and support of the employees. The Company employed 587 numbers of permanent employees on its Roll as on March 31,2020.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Report may contain certain statements that might be considered “forward looking statements”. These statements are subject to certain risks and uncertainties. Actual results may differ materially from those expressed or implied in the Statement as important factors could influence the Companys operations such as demand supply conditions, Government policies, local, political and economic development, industrial relations, risks inherent to the Companys growth and such other factors. The Company does not undertake any obligation to publicly update, inform or revise such statements, whether as a result of developments, events or actual materialization. Market data and product analysis contained in this report has been taken from internal company reports, industry & research publications, but their accuracy and completeness are not guaranteed and their reliability cannot be assured.