Investors are cautioned that this discussion contains statements that involve risks and
uncertainties. Statements in this report on Management discussion and analysis relating to
the Companys objectives, projections, estimates, expectations or predictions may be
forward looking statements within the meaning of applicable security laws or regulations.
These statements are based upon certain assumptions and expectations of future events.
Actual results could however differ materially from those expressed or implied. Important
factors that could make a difference to the Companys operations include global and
domestic demand supply conditions, selling prices, raw material costs and availability,
changes in government regulations and tax structure, general economic developments in
India and abroad, factors such as litigation, industrial relations and other unforeseen
events. The Company assumes no responsibility in respect of forward-looking statements
made herein which may undergo changes in future on the basis of subsequent developments,
information or events.
1. Overview & Outlook Global Scenario
Financial Year 2022-23 (FY23) was a see-saw year. While on one side the threat of
COVID-19 pandemic receded, on the other side the global inflation woes started the threat
of slowdown across geographies. With central banks raising interest rates, prices have
started to cool down, resulting in stabilization of Inflation. This gives hope of marginal
improvement in sentiments in the near short term.
The geo-political instability immediately after the pandemic has hurt the global
recovery. The global economy is expected to grow at 2.8% in 2023, a fall from 3.4% growth
in 2022. The slowdown is more pronounced in the advanced economies as they battle with
high inflation and a increased threat of their economy entering into recession. The only
bright spots are the emerging markets and developing economies. While there is a hope of
slow-recovery in the later half of the year, the situation is quite fragile.
Indian Economy
Indian economy on the contrary has been on a upswing. The Q4 GDP data was surprising
but not unexpected. The GDP growth in FY 2022-23 was at 7.2% in a year marred by high
inflation and when almost all the advanced economies were facing a threat of recession.
Economists and analysts have been bullish about the Indian economy. Though the growth
forecasts of FY 2023-24 are lower than that of FY 2022-23, the resilience shown by the
economy in the current scenario is highly positive. India is expected to grow between 6%
to 6.3% in the FY 2023-24. If the global uncertainties recede, this is estimated to even
surpass 7%. The overall growth in the Indian economy is expected to be broad based with
all sectors doing reasonably well. In fact, the manufacturing sector, whose growth has
been modest in recent times, is showing very positive signs of expanding significantly.
Flowever, worry regarding inflation persists. Core prices have not moderated yet. The
risk of El Nino and a below-normal monsoon can bring back the pressure on food prices.
Inflation is expected to remain in the upper range of the RBIs inflation target band. The
next few quarters will be very crucial for Indian economy as they will define the long
term trajectory of Indias growth story.
2. Business & Industry Overview
WeP is an Enterprise Services provider coupled with strong manufacturing capability of
retail products and solutions. It has a strong Enterprise customer base, ranging from the
MSME sector to the very large enterprise groups in the country. It also has a strong
channel network for its products and services. As part of its Enterprise Services it
provides Digital Services and Managed Printing Services to its customers. It also has a
portfolio of Ricoh products and solutions for enterprise customers.
Enterprise Business Solutions
WeP has a strong portfolio of Enterprise business solutions. These solutions are
designed to improve workplace productivity of the enterprises. WePs managed printing
solutions and digital services portfolio aim at enhancing efficiency and productivity with
measurable savings. WeP MPS helps enterprises to optimize their print infrastructure and
with the latest technological tools also help them to reduce wastage thereby reducing
printing. It provides them with solutions which help organizations to print securely and
facilitate monitoring of costs. WeP digital is focused on providing enterprise customers
with a whole set of services which can provide efficiency in every aspect of their
operations. It is working with customers to digitize there every internal and external
process. The space provides enough scope for an Digital Services provider right from the
digitization of records, record management, Process workflow automation, integration of
processes, payment solutions, compliance management solution, tax filing etc.
Partners business
One of the backbone of WePs business is the strength of its Partner network across
India. The Retail billing Solutions and the Ricoh products and Solutions are sold across
India through this network of dedicated partners. WeP has been working hard for bringing a
digital transformation in traditional retail business i.e. the local kirana and general
store, small restaurants, bakery etc. This "unorganized" retail network is the
bloodline of the Indian Retail. WePs endeavor has been to become a partner of these
unorganized players by digitizing their supply chain, billing, payments through its retail
products and services. In addition to the retail products, WeP is also a distributor for
Ricoh Products and Solutions in India. Ricoh is a global enterprise with USD 18 Billion in
revenues and has a strong customer base in India.
3. Financial Performance Revenue
Your company has two revenue streams; Enterprise Business and the Partners business.
The Enterprise business revenue improved to Rs.443Mn in FY 23 as against Rs. 402Mn in
FY 22, a growth of 10.2%. This primarily comprises of the managed printing services and
the digital services. The company improved its revenues on the back of acquiring new
customers and growth of its existing customers.
Revenue in the Partners business dipped from Rs.706mn in FY 22 to Rs.479Mn in FY 23.
The Partners business has Retail Billing Solutions and Ricoh Products. During the year,
the company continued supplies to a major dealer of Ricoh products in India on bulk basis
with very low margin. Flowever, the sales to this dealer reduced from Rs.525Mn to
Rs.277Mn. This resulted in a drop in overall revenues. Sales to this dealer has stopped
from April 2023. The revenue from the other products and customers improved from Rs.181Mn
to Rs.202Mn which is a positive sign.
Operating Profit
The company continued its trend of consistent profitability during the year. The
Earnings before Interest, Depreciation and Tax (EBITDA) of the company improved to
Rs.149Mn in FY 23 as against Rs.138Mn in FY 22. The EBIT also significantly improved from
Rs.47.2Mn to Rs. 55.2Mn for the financial year ended March 2023. Improvement in the
margins for Enterprise business coupled with significant cost control measures helped the
company improve its profitability. The overall improvement in operational efficiency
helped the company to significantly improve its profitability during the year.
Net Working Capital
The operations of the company, particularly in the enterprise services business are
working capital intensive as it has to maintain supplies of spare parts and consumables
across India for meeting customer service commitments. Further, since the customers are
usually large corporates, public sector banks etc, there are receivables for the products
supplied and services rendered. The company has also expanded its sale of Ricoh products
in FY 23. The overall working capital cycle increased to 111 days in FY 22 from 58 days in
FY 22. The receivables days increased from 44 days to 63 days and the creditors days
improved from 50 days in FY 22 to 43 days in FY 23. The inventory days also increased from
65 days to 90 days during the year. One of the main reasons for the increase in the cycle
is due to increase in the inventory of Ricoh products where the working capital deployment
is comparatively higher. The companys Operating cash flow decreased marginally from
Rs.116Mn in FY 22 to Rs. 10OMn in FY 23.
|
FY 2022-23 |
FY 2021 -22 |
Debtors Turnover Ratio |
6.30 |
8.42 |
Inventory Turnover Ratio (on Cost of goods sold) |
4.10 |
5.49 |
Interest Coverage Ratio |
7.30 |
5.21 |
Current Ratio |
2.07 |
1.97 |
Debt Equity Ratio |
0.06 |
0.10 |
Operating Margin Ratio |
6.0% |
4.3% |
Net Profit Margin Ratio |
6.3% |
2.3% |
Return on Net Worth |
10.1% |
4.9% |
Notes
a) Interest Coverage ratio has improved during the year due to reduced interest outgo
coupled with better profit.
b) The profitability ratios have improved significantly due to better profits during
the year.
c) The Current Ratio improved on account of higher inventory lower payables and
continued positive operating cash flows for the year.
4. Internal Control Systems and their adequacy.
The Company has in place adequate internal control systems commensurate with its size
and nature of its operations. The IFC framework devised by the company have been designed
to provide reasonable assurance with regard to recording and providing reliable financial
and operational information, safeguarding Companys assets, promoting operational
efficiencies and ensuring compliance with various statutory provisions.
During the year the company has appointed M/s JAA Associates, Chartered Accountants to
oversee and carry out the internal audit of its activities. The Audit Committee reviews
the adequacy of internal control systems, audit findings and suggestions. The Companys
statutory auditors regularly interact with the Audit Committee to share their findings and
the status of further improvement actions under implementation.
5. Human resource development / Industrial relations
WePs people centric focus providing an open work environment and fostering continuous
learning, improvement and development helped its employees to facilitate delivery of
excellence for its customers. WeP believes that success of any company lies in making the
customers happy and satisfied. The human resources strategy enabled the company to
attract, integrate, develop and retain the best talent required for driving the business
growth. The company has created a Performance driven environment with all employees having
identified goals and objectives directly aligned with the business results. Talent
Transformation and Leadership development have been the key focus areas over the last few
years. Company believes in nurturing internal talent to leadership positions and provides
an environment of adequate training, cross functional team assignments to aid them.
SWOT ANALYSIS
We appreciate the market realities, stiff competition faced by your company mostly from
the unorganized and local service providers. And your Board acknowledges the following
major SWOT analysis more specific to your company.
Strengths:
1. Large base on Enterprise Customers using the Managed Printing Solutions and Digital
services.
2. Direct relationship with major OEM like Ricoh, a global enterprise, that can add to
its MPS and Digital services and solutions offerings.
3. Comprehensive Digital Services Provider with variety of Digital Solutions like GST
Services, Document Management Solutions etc
4. Ability to develop customized printing and billing solutions for various
applications both on device and non-device based platforms.
5. Scalable infrastructure with pan India presence, wide geographical reach and strong
operational expertise.
6. Long standing relationships with Customers and Technology partners.
Weaknesses:
1. Dependency on products manufactured by other OEMs for providing solutions in
enterprise business.
2. Dependency on product owners in case of few digital solutions provided by the
company.
3. Inability to retain key resources and attract talent due to lack of substantial
revenue growth.
Opportunities
1. Established customers and market for Ricoh products and solutions in India.
2. Uniquely positioned to provide one stop source of Digital Services.
3. Changes in regulatory and economic environment fuelling the need for printing and
document management solutions.
4. Increasing number of customers looking for expert partners to manage their non-core
needs vis a vis their core business.
5. Leveraging the expertise/relationships in MPS business to expand into managed IT
infrastructure.
Threats
1. Inability to attract talent in across functions due to ever increasing costs of high
quality resources.
2. Significant revenues of the company are from the Banking, Financial Service and
Insurance(BFSI) Segments. Any direct or indirect impact on the BFSI industry can impact
the revenues of the company.
3. As the company is largely dependent on imports for its supply of printers,
consumables and spares, rupee depreciation impacts the margin of the company
significantly.
Risk Management Process
The company has an established sound risk management process which is overseen by the
Audit Committee of the Board through a structured framework. Strategic, Operational and
Business risks are identified and appropriate mitigating action plans are put in place by
the company. They are reviewed periodically.
The following risks are identified as key risks by the company. The mitigating steps
taken to counter them are also outlined below.
Revenue Concentration
The company has concentration of revenue coming in from industry segments like Banking,
Financial services and Insurance. Further, a few customers also contribute to a fair share
of the revenue for the company. Such concentration exposes the company to a risk inherent
in that segment or for a particular customer.
Mitigants
We have adopted prudent norms based on which we monitor and prevent undesirable
concentration in geography, industry or customer. The quest for diversified activities
within the existing realm of overall management after due consideration of the advantages
and disadvantages of each activity in consistent with company policy of increasing
business volumes with minimum exposure to undue risks. Concentration of revenue from any
particular segment of the industry is sought to be minimized over the long term by careful
extension into other activities, particularly in areas the company has some basic
advantage such as availability of land, technical or manpower resources.
Inventory Obsolescence Risk
The company needs to maintain printers for a period of more than 48 months. These
models are constantly upgraded by the principal suppliers. However the company needs to
maintain adequate stocks of spares and toners at all its customer locations in order to
meet the customer requirements. These spares may or may not be used. This leads to a risk
of us maintaining obsolete stocks. At times we are required to maintain inventory for demo
equipments, replacement for repairs and normal distribution stocks. Your company faces the
risk of obsolescence in the event of not being able to sell or deploy the above stocks.
Mitigants:
Your company is conscious of these risks and tracks and monitors its inventory at
regular intervals to minimize obsolescence. Your company continuously monitors the stock
levels of such items and ensures they are within the reasonable limits. Further, the
company has an established policy framework to identify slow and non-moving stocks at an
early stage.
Industry Risk
Your company is facing stiff competition from other players who are both organized
large brand owners and unorganized local players. This competition forces the company to
cut down its margins and reduce price for its products and services for both the existing
customers and new potential customers.
Mitigants:
Your company has put in a focused approach towards monitoring all such competitive
activities. Your company reviews its customer relationship strategy periodically and keeps
providing innovative and new solutions. Your company is also focusing on moving up the
value chain at the customer by providing Digital Solutions and Managed IT infrastructure
services. Your company believes in providing value to the customers and has put in a
dedicated team to manage the existing and new customers.
Foreign Exchange Risks:
A good amount of import of stock is done in order to meet the consumables, spares and
printer requirement. The time involved from the date of order, receipt of the stock from
the vendor, supply to the customer has remained in the range of 30 to 45 days. Further,
the credit period from the vendor is an average period of 45 to 60 days. This time lag is
potential enough to affect the profitability of company due to fluctuation in the currency
exchange rate particularly in the current scenario of high global inflation trends.
Mitigants:
Company has a defined policy for managing its foreign exchange exposure. The management
reviews the hedging policy on a quarterly basis and takes appropriate decision from time
to time in order to minimize the impact of such volatility.
System Risks
These risks relate broadly to System capability, System reliability, Data integrity
risks, coordinating and interfacing risks.
Mitigants:
IT department maintains repairs and upgrades the systems on a continuous basis with
personnel who are trained in software and hardware. Password protection is provided at
different levels to ensure data integrity. Licensed software is being used in the systems.
The Company ensures "Data Security", by having access control /
restrictions.
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