vuppalamritha magnetic components ltd share price Management discussions
VUPPALAMRITHA MAGNETIC COMPONENTS LIMITED
ANNUAL REPORT 2008-2009
MANAGEMENT DISCUSSION AND ANALYSIS
The Management of Vuppalamritha Magnetic Components Limited presents the
analysis of performance of the Company for the year 2008-09 and its outlook
for the future.
PE Investment:
The fiscal year 2008-09 is an important milestone in the Companys history
as the private equity investors have reposed trust and confidence in the
management and companys key project deliverables by providing a growth
capital of Rs. 110 crores in aggregate This has given the platform for
further growth by pursuing new opportunities while imposing a big
responsibility on the management. The Board of Directors would like to
reaffirm its collective commitment to keep the Company on a high growth
path and to continue to maintain world class corporate governance.
ANNEXURES TO THE DIRECTORS REPORT:
We now focus on our financial performance.
(A) COMPANY PERFORMANCE - ANALYSIS:
Table 1: Financial Figures of the Company for the last five years on stand
alone basis
Rs. In million
Particulars 2008-09 2007-08 2006-07 2005-06 2004-05
Gross Income 7,084 4,242 675 242 23
EBIDTA 900 504 74 25 1
PBT 749 439 57 20 0
PAT 540 302 49 17 0
EPS 28.57 52.95 9.59 42.50 0.58
Net Worth 3,848 1,218 153 129 15
Net block 209 141 126 30 6
Table 2: Key Ratios:
Particulars 2008-09 2007-08 2006-07 2005-06 2004-05
Total income / Net block 33.90 30.10 5.35 7.99 3.73
Long term debt / equity 0.71 1.33 1.09 0.88 0.11
EBIDTA / Total income 13.29% 12.34% 10.95% 10.30% 3.38%
PBT / Total income 11.05% 10.74% 8.39% 8.43% 1.58%
PAT / Total income 7.97% 7.38% 7.26% 7.02% 1.01%
Results at glance:
* The total income grew by 67% from Rs.4, 242 million in the year 2007-08
to Rs.7, 084 million in 2008-09.
* Profit before tax (PBT) increased by 71% over the year 2007-08 (Rs. 439
Million) to Rs. 749 Million in 2008-09.
* The profit after tax (PAT) grew by 79%, from Rs.302 million in the year
2007-08 to Rs.540 million in 2008-09.
* Net worth increased by Rs.2629 million, from Rs. 1218 million in 2007-08
to Rs.3848 million in 2008-09.
Financial Review:
Revenues:
The total revenue from sale of telecom and power products for the year
2008-09 is Rs. 7,084 million. This represents 67% growth over the companys
revenues for the year 2007-08.
Manufacturing and other costs:
For the year 2008-09, the cost of production and other administrative
expenditure is Rs.5, 822 million that is 82% as compared to manufacturing
revenue. Personnel expenses are Rs.90 million, which is 1.28% of the total
revenue and is Rs.50 million higher than the previous year expenditure of
Rs.40 million. This is due to expansion of operations and capacity at all
levels to meet increasing demand. The company incurred Rs. 172 million
towards financial charges for the year 2008-09 compared to Rs.79 million
for the year 2007-08. The increase is due to a large increase in working
capital facilities and the infusion of Private Equity to the tune of Rs.
110 cores.
Profitability:
The operating profit for the year is Rs.540 million for the year 2008-09 as
compared to Rs.302 million for the previous year. The company made a
provision of Rs.198 million towards income tax and Rs.10 million towards
deferred tax as against Rs.136 million and Rs.0.3 million respectively in
the previous year.
Networth:
There is an increase of Rs.1,235 million in the equity of the company
during the year 2008-09. The networth of the company as on June 30, 2009 is
Rs.3,848 million as compared to Rs.1218 million as on June 30, 2008.
Debt Structure:
The net working capital borrowing as on June 30, 2009 is Rs.1582 million.
The company continued to pursue its efforts in optimizing the cost of
borrowing during the year. Improvements in credit management and cash
management arrangements contributed to increased working capital
efficiencies during the year.
Fixed Assets:
The gross fixed assets as at June 30, 2009 were at Rs. 402 million as
against Rs.263 million in the previous year. The Capital expenditure on
expansion of facilities is Rs.122 million during the year.
(B) INDUSTRY OVERVIEW, DEVELOPMENTS AND OPPORTUNITIES:
Industry Outlook:
Indian telecom sector has been remarkable in terms of growth during the
last few years, largely driven by the unprecedented growth of mobile
telephony. Further this rapid growth is possible due to various proactive
and positive policy guidelines and contributions of public and private
sectors, easy access for telecom equipment and a fair regulatory framework.
This year, India has not only become the second largest wireless network in
the world after China but also witnessed massive growth in tele-density.
The sector is witnessing growth at a rate of 46-50% during the recent
years. It is one of the prime support factors for rapid growth and
modernization of various sectors of the economy. The telecom sector is a
major contributor to Indias GDP growth which is presently over 7% and thus
pays a crucial role in Indias economy at both macro and micro levels. The
year under review has been phenomenal for the sector in terms of growth and
technological advancement. Despite the financial and economic slowdown
concerns, the industry continued its high growth rate.
During the year 2009, government had raised the FDI limit in telecom sector
from 49 per cent to 74 per, which has contributed to robust growth of FDI.
The telecom sector registered a growth of 103 per cent during fiscal 2008-
09 as compared to previous fiscal. The sector attracted USD 2558 million
FDI in FY 09 as compared to the USD 1261 million in FY 08, contributing
9.37 per cent share in total FDI inflow.
The Government initiatives like announcement of 3G Policy, WiMax roll out
as well as addition of new telecom operators are bold steps in serving mass
communications needs along with growth of basic telecom services. With 3G
and WiMax services, a major data revolution is in the offing driven
primarily by a rise in communications demand from semi urban and rural
India. Mobile entertainment and mobile banking are touted to be the biggest
drivers for data services.
The telecom industry is growing at a great pace and the growth rate is
expected to double with every passing year. There are many new developments
in the telecom sector, including the ingress of 3G technology that the
Indian market is witnessing at present. India will continue its robust
telecom story with the sectors revenue to be more than $30 billion by
2013, according to a global information technology research and advisory
firm, the US-based Gartner Inc.
There is still huge potential for growth in rural areas. The tele-density
in rural areas is much lower than urban areas. Therefore, telecommunication
access in rural India is going to be the most important development in the
future. The need of the hour for telcos is to search for new cost effective
ways to roll out telecom services in rural areas.
The new projects, setting up of new service bases, expansion of coverage
areas, network installations, maintenance, etc are providing more and more
business opportunities in the telecom sector.
Your Company, being forerunner in this industry is well placed to benefit
from this growth. Your Company is also backed by good reputation, expertise
and many years of experience in the Industry. The Company has adopted a
focused approach to protect and grow its core business.
(C) OUR STRATEGIES FOR GROWTH:
i. Financial Strategy:
The growth capital is funded by internal accruals, Promoters contribution
and private equity and operational capital is funded by Banks.
ii. HR Strategy:
The Company has put it in place a human resource strategy to attract and
retain experienced manpower. The augmentation of human resources has been
particularly focused to incorporate professionalism at all levels of
management in the organisation. Compensation packages have been drawn to
match the best in the industry.
iii. IT Strategy:
The Company recognizes the need to strengthen its IT and related
infrastructure. One of such pro-active measures is implementation of E.R.P.
package in the company which is in consultative process with various
service providers.
(D) Risk Management Framework:
Risks can be expressed as uncertainties about events, which can have a
significant material impact on organizational performance. Risk governance
at Vupppalamritha covers risk identification and mitigation as a pre-
emptive strategy, leading to a stable and sustainable business model. In
order to regularly assess, evaluate and prioritize risks and to take
corrective action wherever required we are in the process to put in place a
Risk Management Framework.
(E) Internal Control Systems and their adequacy:
The company has a well set Internal Control System in place. The Audit
Committee of the Board reviews the adequacy of the internal control
function and also holds discussions with the auditors regarding their
significant findings. The CEO/CFO certification annexed to this report
discusses the adequacy of the internal control systems.
The Internal Control System is being set up with an objective of setting
and exercising controls at various stages and is established in order to
provide reasonable assurances for:
* Safeguarding Assets and their usage.
* Maintenance of proper accounting records and
* Adequacy and reliability of the information used for carrying on Business
operations.
The key elements of the system are as follows:
* Existence of Authority Manuals and periodical updating of the same for
all functions.
* Existence of clearly defined Organizational Structure and Authority.
* Existence of Corporate Policies for financial reporting and accounting.
* Existence of Management Information System updated from time to time as
may be required.
* Existence of Annual Budgets and Long Term business plans.
* Periodical Review of opportunities and risk factors depending on the
Domestic scenario and to undertake measures as may be necessary Caution
statement:
The statement in this section describes the Companys Objectives,
projections, estimates, expectations and predictions, which may be forward
looking statements within the meaning of the applicable laws and
regulations. Actual results could differ materially from those expressed or
implied. Important factors that could make difference to the Companys
Operations include economic conditions affecting demand/supply and price
conditions in the domestic and overseas markets, changes in the Government
regulations, tax laws and other incidental laws.
For VUPPALAMRITHA MAGNETIC COMPONENTS LIMITED
Dated : 26.08.2009 B. HIMA BINDU
Place : Secunderabad Managing Director