Management Discussion and Analysis

INDUSTRY STRUCTURE AND DEVELOPMENTS

The Company is engaged in the business of manufacturing and sales of primarily Télécommunication cables consisting of both copper and optical fibre and other types of specialty wires and cables.

As it is becoming more evident that the entire communication sector is hungry for very high data usage and high bandwidth applications, optical fibre cables have become the important backbone of the entire network. Government of India's ambitious "Digital India" project is mainly being built on National Optical Fibre Network (NOFN) which was rechristened as "Bhart-Net" coupled with the initiatives of various states to build Optical Fibre based communication network. The government's aim of bridging the digital divide between rural and urban communities is becoming a reality by way of faster adoption of optical fibre cable network on a pan-India basis. Therefore, optical fibre is increasingly becoming as the only medium which can fulfill the high speed and large bandwidth requirements in the fast evolving communication technology.

Although, all the cable manufacturers are facing the brunt of foreign currency fluctuations coupled with volatility in the movement of raw material price levels, the industry is well poised to cater to the needs of optical fibre cables by adopting various innovative measures.

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

OVERALL REVIEW

Business Review and Outlook

The recent drive by Government of India to develop across the country, 100 nos of "Smart Cities" which invariably includes the faster mode of communication technologies, the telecom cable market is definitely slated to grow in a rapid pace. As part of the built-up of ambitious nation-wide optical fibre cable network being undertaken by the Government, it is planned to connect 250,000 villages with high speed data connectivity enabling all public and private telecom service providers to offer various e-governance services to all masses.

As per the latest Industry research and market survey estimates, India is going to have highest number of smartphone users and the telecom cable segment is going to touch the level of US $ 400 Million by the year 2020. With Government's policy impetus and thrust on providing rural broadband services by way of reaching the far flung areas of the country, the optical fibre cable industry is well brpared to raise to the challenges of providing the cables with on-time deliveries.

The worldwide optical fibre cable demand in the entire calendar year of 2015 already touched 364 million fibre Kms showing a clear increase of 17.1 % over that of 2014. This robust growth trend is going to continue in 2016 and 2017 as well. As far as the market in India is concerned, the optical fibre installed in 2015 was around 16 million fibre Kms, which is 4.4 % of the worldwide demand. This is slated to grow slightly above 20 million fibre Kms in FY 2016-17. All these are happening mainly due to the increased proliferation of data hungry applications coupled with high smartphone penetration among the masses driving on high speed 3G and 4G technologies. As the Telecom sector is in the cusp of technology revolution, it is definitely poised to drive up the demand for optical fibre cables and fulfill Government's plans of creating more sustainable employment generation opportunities.

As part of debottlenecking the telecom operations of the service providers, now the Government is planning for one of the largest spectrum auctions which is slated to take place during early second half 2016, which will enable the telecom operators to grab the valuable spectrum to expand the services. After the spectrum is in place, the network building process will start; this will definitely give more opportunities for the optical fibre cable players to cater to the large demand.

On a mission to give combrhensive broadband experience to the users for enhancing the quality of high speed internet offerings on a large scale basis, the operators are planning to roll-out Fibre-to-the-Home (FTTH) services, which is a natural flow after the built-up of backbone fibre networks. This will pave the way for a mass introduction of specialty FTTH type of optical fibre cables in the access network and will immensely benefit the telecom cable manufacturing sector.

Telecommunication Cables

(A) Optical Fibre Cables (OFC)

Despite a decrease in revenue from OFC business at Rs.22634.38 lacs as compared to Rs. 24645.70 lacs in the brvious year is mainly due to less off-take from certain private sector customers and government customers. Due to the offerings of good quality cable products and prompt services by the company, export market is always on a growth path. These efforts are well received by the overseas customers enabling the Company to achieve an export sales of Rs.5531.37 lacs in the financial year 2015-16.

Despite peaks and valleys in demand of OFC during the year under review, the price brssures always remain as the domestic competition is very high, and the chances of increase in prices of OFC in the domestic market are not bright, even though the fibre demand is surging all over the world and also the global market is witnessing increase in fibre price levels which is the basic raw material for OFC.

Data consumption in the urban and rural areas of the country has been steadily increasing owing to the continuing penetration of mobile service providers backed up by fibre network. This paves the way for an increased use of optical fibre cables across the complete telecommunication network, starting from long distance backhaul, intra-city, metro access and final last mile connectivity.

The second phase of National Optic Fibre Network from Bharat Broadband Network Limited (BBNL) is coming up which will see a further requirement of 250,000 Kms of OFC. BBNL is a special purpose vehicle promoted by public sector companies like BSNL, PGCIL, and RailTel under USO funding mechanism. This ambitious project plans to bring rural India into the high-speed broadband network by way of connecting 250,000 villages using optical fibre cables. As one of the private telecom operator is in the verge of launching superior 4G-LTE high speed communication services, most of the other telecom operators are upgrading their network in both 3G and 4G technologies to provide the subscribers with superior services.

The Government is giving a definite push to this Telecom sector by way of framing the required policy guidelines and it is definitely going to augur very well for the industry.

(B) Jelly Filled Telephone Cables (JFTC)

The Company's domestic sales turnover on account of JFTC decreased from Rs.717.16 lacs in the brvious year to Rs.399.36 lacs during the year under review, mainly due to reduced demand from telecom operators. Also, decent sales of switchboard cables, coaxial cables and other specialty cables like structured cabling products under the copper cable business has kept the momentum to a reasonable increase in sales. The structured cable product sales achieving a level of Rs.3160.33 lacs during the year under review and the company is poised to become an important player in the industry.

As Jelly Filled Telephone Cables requirement is seeing continuous decline as these are getting replaced with Optical Fibre Cables, the Company is focusing more on structured copper cables segment which is having good traction, as this type of cables are brdominantly used for broadband applications by Internet Service Providers.

Other Wires & Cables

The Company's sale of Automobile Wires has increased from Rs.37.95 lacs to Rs.45.21 lacs which is due to a marginal increase in off-take from existing automotive customers.

Financial Review

(a) The revenue from operations (gross) decreased by 5.53 % to Rs.28914.00 lacs as compared to Rs. 27314.58 lacs in brvious year primarily due to reduction in sales of OFC both in value and volume terms.

(b) The raw material consumption was slightly lower as compared to brvious year.

(c) During the year under review, the borrowing cost has significantly decreased from Rs.184.10 lacs in brvious year to Rs 104.53 lacs. Also, the interest cost has slightly decreased to Rs.547.55 lacs (brvious year Rs. 646.14 lacs).

(d) The profit after tax for the year under review was at Rs.848.00 lacs significantly lower from Rs.1249.60 lacs in the year 2015-16. The steep decline in profit is mainly because of lower turnover due to less than expected orders from main customers, increase in debrciation and amortization expenses and one time settlement amount paid to an overseas supplier.

(e) There was no change in the capital structure during the year. However, the increase in Reserves & Surplus of Rs.848.00 lacs is because of plough back of net profit in the current year.

(f) The total gross fixed asset for the financial year 2015-16 stood at Rs.14095.77 lacs up from Rs.11903.96 lacs in the brvious year. The net increase in gross block of Rs. 2191.81 lacs during the year comprises of Secondary Coating Line, Sheathing Line, etc. towards technological up-gradation and scaling up Optical Fibre Cables manufacturing capacity.

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

OPPORTUNITIES AND THREATS

As the bandwidth requirements is witnessing a phénoménal growth coupled with the need for high speed download and upload needs which necessitated the high speed network technologies using 3G and 4G LTE standards. Also in the final access configurations, FTTH is going to play a major role for providing high speed, high bandwidth data services to both residential and enterprise segments. As data hungry usages like online gaming, interactive TV, advent of smart homes and offices and e-commerce applications, the telecom service providers are finding it bit difficult to give customer with highest levels of satisfaction. Further, due to poor cell sites planning in terms of spacing, call drops have become the order of the day.

As per the latest market studies, the expected Data traffic in the country is going to touch 20 Exa Bytes* by 2020 which is a huge leap from just 1.8 Exa Bytes* in 2012 (1 EB=1 billion GB). As per the current estimates, backhaul needs immediate fiberization of towers which is brsently hovering at around 15 % and needs to go up to 50 % in order to cater to the ever increasing data needs and make the networks future-ready.

This gives the optical fibre cable industry, huge business opportunities as the industry is finally looking up with almost all the plants are gearing up to cater to the varied needs of all telecom operators.

Social Media, e-commerce applications are driving major data consumption among the smartphone users. This type of high data traffic can be managed in a best way, only by adoption of optical fibres across all types of telecommunication networks starting from backhaul, metro, local and final access networks.

The upcoming spectrum auction by the Government coupled with earlier offerings of spectrum to all telecom operators have placed them in a driver's seat to go ahead to expand the network which will cater to the varied needs of the subscribers. Further, Government driven projects like NOFN as backbone for Digital India, Smart Cities, etc will definitely shore up the requirements of optical fibre cables.

Although the domestic requirement for optical fibre cables is on the surge mode, price brssures continue to strain the margin levels. Despite the timely supply of cables to the telecom operators, operators are not able to lay the cables due to RoW (Right of Way) issues which stretches the network deployment time considerably. Your Company with the excellent brand image is set to capitalize the surging growth opportunities in exports segments as well to a great extent.

Telecom Sector is impacted substantially by government policies and investment. While no reversal in the planned investment is envisaged, prices and demand are definitely subject to changes in policies on tendering and indenting. However, as explained above the Government's ambitious targets for telecommunication expansion and broadband penetration seamlessly upto village levels should see favourable regulatory environment in India on a long term basis.

RISKS AND CONCERNS

Risks are always there in doing the business in India despite strong fundamentals of our country's economy in terms volatile foreign currency fluctuations, easy availability of funds at a competitive interest rates, high cost of transporting the materials, general taxation issues, retention of talent and non-availability of skilled work force. The Government's "Skill India" project is expected to eliminate the concerns about unskilled work force. Although these are pulling down the growth rates, your company is well placed to face these challenges by way of innovative and robust system implementation to fend off these risks and concerns.

Technological

(a) The consumption of JFTC is expected to remain low due to increasing telephone density and large scale deployment of wireless technology coupled with optical fibre backhaul acorss all the network topologies.

(b) The Competition within the OFC business is becoming fierce due to emerging new technologies and frequent new product introductions in optical fibre arena by certain integrated overseas players that command competitive prices and brference in the market place.

(c) Sub-standard quality cables flooding the market with below raw material cost price levels from low rung players is also affecting quality players in the industry.

Financial

Financial risks would include, interalia, low capacity utilization, un-remunerative prices, highly concentrated customers base, shorter delivery schedule and liquidated damages, foreign exchange exposure and related exchange rates variation, commodity price including adverse movements in prices of raw-materials, warranty and security, current or future litigations, working capital management and interest rate, contingent liabilities, etc. In addition, the credit risks could increase, if the financial condition of Company's customers décline. The Company regularly identifies and monitors the financial risks as well as potential business threats and develops appropriate risk mitigation plans. The Company's crisis management capability is also reasonably honed to protect its reputation with its stakeholders.

INTERNAL CONTROL SYSTEMS

The Company's system of financial, operational and compliance control and risk management is embedded in the business process by which the Company pursues its objectives. The established system also provides a reasonable assurance on the efficiencies of operations, safety of assets besides orderly and legitimate conduct of Company's business in the circumstances which may reasonably be foreseen. The Company has a defined organization structure; authority levels delegated powers, internal procedures, rules and guidelines for conducting business transactions.

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 Auditors regularly brief the Management and the Audit Committee on their findings and also on the steps to be taken with regard to deviations, if any.

ENVIRONMENT & SAFETY

The Company successfully continued with the implementation of industrial safety and environmental protection measures and these are ongoing processes at the Company's plant and facilities. As a recognition of these objectives, the entire range of activities of the Company continue to remain certified to the requirement of international standard IS/ISO 14001:2004 by the DNVGL Business Assurance India Pvt. Ltd.

The Company has taken initiative for RoHS (Restriction of Hazardous Substances Directive) compliance in its products and manufacturing processes in accordance with existing and anticipated environmental legislations and relevant market requirements.

INDUSTRIAL RELATIONS & HUMAN RESOURCE DEVELOPMENT AND CORPORATE SOCIAL RESPONSIBILITIES

The Company sees its relationship with its employees as critical to the future and believes that every employee needs to possess apart from competence, capacity and capabilities, sustainable values, current and contemporary which would make them useful, relevant and competitive in managing the change constructively for overall growth of the organisation. To this end, the Company's approach and efforts are directed towards creating a congenial work atmosphere for individual growth, creativity and greater dedicated participation in organisational development. In-house and external training and instructions are also provided to employees at all levels, which help in attaining professional and productive culture by a blend of technology and highly skilled manpower.

The Company is committed to maintain good industrial relations through active participation of workers, regular meetings and discussions on all legitimate and legally tenable issues. The Company employed 291 number of permanent employees on its Roll as on March 31, 2016.

CAUTIONARY STATEMENT

Statements in the Management's Discussion & Analysis Report which seek to describe the Company's objectives, projections, estimates, expectations and brdictions may be considered to be "forward-looking statements" as of the date of this report and are stated as required by applicable laws and regulations. Actual performance and results could differ materially from those exbrssed or implied and the Company owes no obligation to publicly update these forward looking statements to reflect subsequent events or circumstances. Market data and product analysis contained in this Report has been obtained from internal Company reports and industry publications, but their accuracy and completeness are not guaranteed and their reliability cannot be assured.