REPORT MANAGEMENT DISCUSSION AND ANALYSIS 1. INDUSTRY STRUCTURE AND DEVELOPMENTS Indian Economy The Economy of India has come out as one of the epic economies with a promising economic outlook on the back of controlled inflation, rise in domestic demand, increase in investment, decline in oil pricing, and reforms among others. The macroeconomics situation in India has improved significantly during the year. Also acceleration in services and manufacturing growth in the face of subdued global demand conditions point to the strengthening the domestic demand. In the light of the government's commitment to reforms, the outlook for domestic macro economics parameters is generally optimistic and a growth of around 8.5% is in the realm of possibility in 2015-16. In January 2015, government updated the base year from 2004-05 to 2011-12 following which the GDP growth rate has gone up to 6.9%.The overall economic situation in the country is looking better and the basic parameters of the Indian economy are moving in the right direction. With declining inflation, rise in domestic demand, increase in investments, decline in oil prices, acceleration in services and manufacturing growth, reduction in interest rates by RBI and reforms among others shows positive signs of recovery of Indian Economy. The operating context for the year was challenging, given the backdrop of a market slowdown, a volatile input cost environment and heightened competitive intensity. Your Company's performance for the year 2014-15 has to be viewed in the context of aforesaid economic and market environment. Business Segment-Telecommunication products In India, the landline telephones are now 27.00 million and wireless telephone has grown to 944.01 million at the end of December 2014. As a result, the share of wireless telephones increased to 97.22 per cent of total services. The everlasting demand for wireless services has propelled the telecom sector to create sustainable resources to meet such requirements jointly with land line high speed services. There is tremendous scope for further expansion in telecommunications, especially with the introduction of 3G services. Telecommunications, and the associated increase in Internet connectivity is clearly a productivity enhancing development, and India is well placed to benefit from this. Business Segment-Infrastructure India's economy is big and getting bigger, therefore it is imperative that infrastructure development in all sectors - power, roads, railways, ports, airways, highways occurs in a sustainable manner. The Indian Government has also recognised existing infrastructure gaps and capacity constraints in transportation system and as a consequence plans large scale investments in infrastructure sector through opening up of the sector through Public Private Partnerships (PPPs). Also, owing to rapid increase in motorization and urbanization, the Indian Government is leaving no stone unturned to enhance the Infrastructure and in this view is also encouraging private participation in infrastructure development. 2. OPPORTUNITIES Telecom products The telecom sector is one of the leading contributors to India's flourishing economy. The growth witnessed by the telecom market in India has increased the number of opportunities for the industry and this has been fueled by the growing mobile sector. Given this dynamism, it is no surprise that the mobile industry makes a substantial economic contribution. The telecommunications industry as a whole offers a number of attractive opportunities. Telecommunications is a necessary utility The need for telecom in both rural and urban areas, and its role in the infrastructure of both developed and developing markets, continues to grow. The opportunities in the Indian telecom sector is increasing at a massive pace with the introduction of newer and innovative schemes in various sectors and at brsent the telecom sector in India is claimed to be one of the major contributors in India's flourishing economy. Infrastructure Expansion is brrequisite to further economic growth The fast growth of the Indian economy in recent years has placed increasing stress on physical infrastructure. Indian economy is still expanding significantly and substantial investment in infrastructure continues to be required. The country's capacity to absorb and benefit from new technology and industries depends on the availability, quality and efficiency of more basic forms of infrastructure including energy, water and land transportation. In some areas, roads, rail lines, ports and airports are already operating at capacity, so expansion is a necessary brrequisite to further economic growth. Infrastructure investment requires huge capital outlay which was considered to be big hurdle in the past due to prohibition or lesser private participation. Consequently, the Government is encouraging more private sector participation through Public Private Partnership (PPPs) concept, which is fast evolving in all the aspects of infrastructure development. Such private investments not only help in meeting the funding requirement of projects but it has also other advantage. The policies of the Indian Government seek to encourage investments in domestic infrastructure from both local and foreign private capital. 3. THREATS Telecom products Regulatory and Economic Environment The telecommunications marketplace is changing rapidly and telecom operators must remain responsive in order to keep up. With that in mind, here's a look at some of the key challenges facing our industry today as well as some strategies for how to deal with them. Challenges Our well planned capital investments, backed by a world class network, put us in a competitive position to meet the challenges in the telecom space. The other challenges that influence the business performance are: i. Innovation has been the cornerstone of success in the mobile ecosystem, and companies should keep pushing on the accelerator as many more opportunities exist. ii. Another major concern that has come to the forefront in the recent past has been heightened competitive intensity in the industry that has correspondingly fuelled the price war between industry players. The Indian wireless market is one of the world's most competitive markets. iii. We are subject to market risks from changes in interest and foreign currency exchange rates. In managing exposure to these fluctuations, we may engage in various hedging transactions that have been authorized according to documented internal policies and procedures. Infrastructure (Construction and Renting) Infrastructure projects are associated with various types of risks: i. Longer development period than planned due to delay in statutory clearances, delayed supply of equipment or non-availability of land, non-availability of skilled manpower, etc. ii. Execution delay and performance risk iii. Cost over-run iv. Internal Political stability causing damage to project or brventing its operation. v. Project risk includes various risks such as completion risks, performance risks, operation & maintenance risks, financing risks, revenue risks. 4. SEGMENT WISE PERFORMANCE Telecom products Communication has grown as essential infrastructure for socio-economic development in an increasingly knowledge intensive world. The reach of telecom services to all parts of the country has become integral part to innovative and technologically driven society. Studies have shown a positive correlation between Internet and Mobile Services on growth of GDP of a country. As a result of sustainable measures taken by the Government over the years ,the Indian Telecom Sector has grown exponentially and has become the second largest network in the world, next only to China brsent Status of the Telecommunication Sector The number of telephones increased from 933.02 million in the beginning of the financial year to 971.01 million at the end of December 2014. • Indian telecom network is the second largest in the world after China. • The country has 971.01 million telephone connections, including 944.01 million wireless telephone connections. • Overall tele-density in the country is 77.59%. • Urban tele-density is 147.75%, whereas rural tele-density is 46.14%. • The share of wireless telephones in total telephones is 97.22%. • The share of private sector in total telephones is 89.15%. • Number of Broadband connections is 85.74 million. Optiemus deals in Samsung devices and is having a strong distribution network across the country. The organized Retail of Mobile Handsets is growing rapidly in line with the increase in market share of smart phones as customers brfer to buy smart phones from organized retail stores which offer better buying experience and understanding the functions of a smart phone. Also, the Company is moving forward with its prime focus on widening its distribution services by bringing different world class organisation under its distribution network &also trade in mobile accessories as well. Optiemus impacting as key player in the industry and has been investing in distribution network heavily over the past 6 years and having an excellent track record of cash profits. Infrastructure (Construction And Renting) The Company's performance has improved drastically in this segment, where its total revenue for the f.y. 2014-15 was Rs. 37.56 crores. Further, the Company is also generating revenue from its owned commercial property which been leased for a period of nine years to M/s Samsung India Electronics Private Limited. Thus, we can see this segment growing keeping in pace with the Indian Government's move to develop the Infrastructure and involving the private participation for the same. 5. BUSINESS OUTLOOK India's telecom industry is poised for higher growth with the country's economic engine revving up. Unlike most developed countries, India leapfrogged to mobile/smartphone generation by skipping through the desktop era. With only 15 Million fixed-line broadband connections, mobiles will continue to be the primary means to access the internet. More so, favourable demographics and content would drive further engagement. Around 72% of the world's internet users are aged between 15 and 44 years, and India has 580 Mn people in this age group. Overall, voice secularity will facilitate a stable growth story, but within this, data growth will be exponential, thanks to enhanced penetration, mobile commerce and mobile banking opportunities. With strong linkages across all sectors, telecom has a key role to play in India's socio economic development. Data brsents a key opportunity for the Company, going forward and increasing data network rollouts and investments by operators, including us, will drive not only connectivity, but also higher end application usage. Optiemus continues to make significant investments in key assets to be able to drive this growth, such as distribution and retelling. 6. RISK AND CONCERNS Broadly risk categories involved can be discussed as follows: 1. political Instability and Government Relations Comment: The Company operates in India. Sometimes Industrial situations are affected by political instability, civil unrest and other social tensions resulting in regime uncertainties; hence, the risk of not enjoying Government support. Such conditions tend to affect the overall business climate, especially the telecom sector, which requires stable socio-economic conditions and policy stability. Mitigation: As a responsible corporate citizen, the Company engages proactively with key stakeholders in the societies in which it operates, and continuously assesses the impact of the changing political scenario. The Company works handin- hand with other telecom operators in jointly rebrsenting the case for policy stability. It does its best to contribute to the socio-economic growth of the countries in which it operates through high quality services to its customers, improved connectivity, providing direct and indirect employment, and contributions to the exchequer. Through the Company's CSR activities, it contributes to the country's social and economic development, especially in the field of education. 2. Economic Uncertainties Comment: The Company's strategy is to focus on the growth opportunities in the emerging and developing markets related to distribution and online retailing. These markets are characterised by low to medium mobile penetration, low internet penetration and relatively lower per capita incomes, thus offering more growth potential. Since the Company has borrowing, and many loans are carrying floating interest terms, it is exposed to market risks, which impact its earnings, cash flow and balance sheet. Mitigation: As a big player in telecom sector, the Company has diversified its risks and opportunities across markets including online trading. Through a variety of servicesit has also sbrad its portfolio. The Company follows a prudent risk management policy, including hedging mechanisms to protect its cash flow. A prudent cash management policy ensures that surplus cash is up-streamed regularly to minimise the risks of blockages at times of capital controls. Finally, the Company adopts a pricing strategy that is based on twin principles of profitability and affordability, which ensures that it protects margins at times of inflation, and market shares at times of market contraction. 3. Weaknesses in Infrastructure Comment: Several regions, particularly rural and the hinterland, are handicapped by poor quality infrastructure, such as lack of proper roads, transport, power supply, housing, labour availability, banking and security, among others. These could result in gaps, such as energy unavailability, fuel shortages, fuel theft, asset misappropriation and cash theft, among others, thereby impacting quality of its services. Mitigation: The Company's philosophy is to share infrastructure with other operators, and enter into SLA-based outsourcing arrangements. 4. Adverse Regulatory or Taxation Developments Including Risks Related to Tax positions Comment: Several regulatory developments in India, have posed several challenges to the telecom sector. India's telecom sector is also a highly taxed sector with high revenue share-based license fees and spectrum charges, service taxes and corporate tax. Mitigation: The Company has always stood for a fair, transparent and non-discriminatory Government policy on telecom regulation with regard to its business activities involving distribution and online trading. It has rebrsented to the Government that sustainable regulatory regimes will lead to healthy growth of the telecom sector, leading to higher investments and modernisation, which in turn unleashes a growth cycle once again for all the players involved in the telecom sector. 5. Inadequate Quality of Customer Lifecycle Management in the Wake of Intense Competition Comment: Customer mindsets and habits are changing rapidly, reflected in their ever-rising expectations in terms of quality, variety, features and pricing. The competitive landscape is also changing dramatically, day by day, as operators view with one another to capture customer and revenue market shares. Failure to keep pace with customer expectations would result in customer churn, leading to erosion of revenues, profits and cash flows, and market share losses. Mitigation: The Company constantly refreshes its ways of working, especially in customer service, innovation ,marketing and distribution. These are now captured in the Company's integrated Customer Lifecycle Management approach, which ensures that every customer's behavior is studied, classified and segmented, followed by segmented service and price offerings. Organisational effectiveness is enhanced through appropriate design and creation of leaner and multi-functional teams. Technologies and tools, such as Business Intelligence, among others are deployed in managing the customer lifecycle. Risk Management Framework Company has a defined self governed risk policy and risk management frame work for all units, functional departments and project sites. This helps in identifying, assessing and mitigating the risk that could impact the Company's performance and achievement of its business objectives. The risks are reviewed on-going basis by various process owners across the organization. The risk assessment is carried out by the Management Audit and Risk Assessment Department and a risk note is brpared and brsented to the Audit Committee and a risk assessment procedure is brsented to the Board of Directors annually. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The Board reviews the adequacy and effectiveness of the internal control from time to time. The Board, in consultation with the internal Auditors and risk management committee monitors and controls the major financial risk exposures. The Company's philosophy towards internal controls is based on the principle of healthy growth with a proactive approach to risk management. The Audit & Risk Management Committee reviews the effectiveness of the internal control system, and also invites functional Directors and senior management personnel to provide updates on operating effectiveness and controls, from time to time. A CEO and CFO Certificate, forming part of the Corporate Governance Report, confirms the existence and effectiveness of internal controls and reiterates their responsibilities to report deficiencies to the Audit & Risk Management Committee and rectify the same. The Company's code of conduct requires compliance with law and Company policy, and also covers matters, such as financial integrity, avoiding conflicts of interest, work place behaviour, dealings with external parties and responsibilities to the community. The Company, on a regular basis, stores and maintains all the relevant data and information as a back up to avoid any possible risk of losing important business data. A qualified and independent audit committee of the Board comprising of all independent directors of the Company reviews the internal audit reports, adequacy of internal controls and risk management framework. 8. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE The financial statements have been brpared in compliance with the requirements of the Companies Act, 2013, guidelines issued by the Securities and Exchange Board of India (SEBI). Our management accepts responsibility for the integrity and objectivity of these financial statements, as well as for the various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably brsent our state of affairs, profits and cash flows for the year. The Company's financial performance is given as below: i. Revenues and operating expenses On a consolidated basis, the Company earned total revenues of Rs. 256,767 Lacs. The net profit after tax recorded by the Company was Rs. 2,746 Lacs. Our total operating expenditure stood at Rs. 249,406 Lacs. ii. Operating profit before finance charges, debrciation and amortization and exceptional items (EBITDA). The Company earned EBITDA of Rs. 11781 Lacs iii. Debrciation and amortisation The Debrciation and amortisation charges were Rs. 3,285 Lacs. iv. Profit before/ after tax The profit before tax was Rs. 4,300 Lacs. The net profit after tax was Rs. 2,746 Lacs. 9. HUMAN RESOURCES/ INDUSTRIAL RELATIONS At Optiemus, people are at the core of its business strategy. The Company's endeavour has always been to build an organisation where its people are always engaged and empowered to do their best. The Company's culture is focused on customer-centricity collaborative team work, result orientation, entrebrneurial mindset and developing people. The Company's HR strategy also aims to create a future ready pool of talent across all levels. The year 2014-15 saw a host of initiatives around talent management and development to identify and accelerate the Company's high-potential employees, as well as building the right set of capabilities for all businesses. Efforts towards developing functionalcapabilities across the organization continued, with the review of the Company's current skill levels and development of functional academies to build next-generation functional and domain capabilities. Owing to the competitiveness and diversity of Indian markets, the Company strives to ensure adequate succession planning of its leadership talent pool. It is increasingly grooming and hiring talent locally and across the country. This has helped the Company's businesses keep their ears close to the ground and progressively increase their business performance. In line with the Company's focus on employee empowerment, it also designed new 'Ways of Working' to deliver high operational excellence and governance. The Company recognizes and apbrciates the contribution of all its employees in its growth path. Our Company strives to retain talent by facilitating career growth through job enrichment and empowerment, as it believes that the pool of the human resource is the biggest asset of the organization. Your Company maintains a cordial relationship with its employees through a constructive work environment in support of productive gains. 10. CAUTIONARY STATEMENT Certain statements made in the management discussion and analysis report relating to the Company's objectives, projections, outlook, expectations, estimates and others may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from such expectations whether exbrssed or implied. Several factors could make significant difference to the Company's operations. These include climatic and economic conditions affecting demand and supply, government regulations and taxation, natural calamities over which the Company does not have any direct control. |