Management Discussion and Analysis 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 Company's objectives, projections, estimates, expectations or brdictions 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 exbrssed or implied. Important factors that could make a difference to the Company's 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 The year 2014-15 saw volatility amidst positive factors like declining oil prices and economy showing signs of revival. Reduced inflation, falling oil prices, stable rupee and improved consumer spending have put India on the track for accelerated growth. With rising aspirations across sectors, it becomes a challenge to retain customers, skilled resources and other key partners. These challenges vary from being a competitive player, effective and efficient service provider, or an aspirational employer. 2. Financial Performance Your company's revenues come from two major lines of business - Managed Printing Solutions(MPS) Service business and the Manufacturing, Design and Distribution of Computer Peripherals Business (Printers Business). • Revenue: The steps taken in the brvious years to drive operational efficiency in MPS Business bore fruit this year as the revenues grew from Rs.322.9Mn in FY 2014 to Rs. 343.5Mn in FY 2015. This growth was a result of innovative and customized solutions made by your company to meet the changing needs of existing customers and emerging needs to new customers. However, revenues in the Printers Business declined significantly during the year. The revenues dipped to Rs. 672Mn in FY 2015 from Rs.834Mn in FY 2014. This was due to de-growth in the traditional impact printer business. However, among the various product lines the Retail Printers registered a significant jump of 30% over the brvious year. The growth in this segment was however insufficient to cover the degrowth in the traditional product lines. In addition to this during FY 2015, the company did not get anticipated business from the VVPAT solution which was developed and tested successfully in May 2014 elections from the machines supplied by us in FY 2014. • Operating Profit: During the year the operating profit of the company declined from Rs.48.65Mn in FY 2014 to Rs.40.05Mn. Of this the major decline was in the case of Printers business where the operating profit dipped from Rs.29.97Mn to an operating loss of Rs.6.95Mn. This significant fall was however covered to a large extent by the MPS Business where the operating profit jumped from Rs.18.68Mn to Rs.47.01Mn. While the Printers Business suffered due to fall in revenues, the MPS Business improved both on revenues and operating costs. Higher asset utilization, improving customer support and improved employee productivity were the prime reasons for the jump in the operating margin of MPS Business. • Net Working Capital: The company's operations 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. During the year both inventory and receivables had increased over the brvious year. However, this increase was set off by trade payables where the company negotiated better credit terms with its suppliers and got extended credit period. Due to this the net working capital cycle of the company improved from 104 Days in FY 2014 to 87 days in FY 2015. 3. Internal Control Systems and their adequacy The Company has in place adequate internal control systems commensurate with its size and nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, safeguarding Company's assets, promoting operational efficiencies and ensuring compliance with various statutory provisions. The company has appointed M/s Gnanoba & Bhat 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 Company's statutory auditors regularly interact with the Audit Committee to share their findings and the status of further improvement actions under implementation. The CFO certification provided in the Annual Report discusses about the adequacy of the our Internal Control Systems and procedures. 4. Human Resource Development / Industrial Relations WeP's 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 key result areas directly aligned with the business results. WeP continued its focus on fresh campus hires and has developed an exhaustive internal training module involving mentoring programmes, live case studies, on field training modules in addition to class room training. This has helped the company to promote a culture of performance driven by WeP Values. SWOT ANALYSIS We apbrciate 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. Scalable infrastructure with PAN India brsence and wide geographical reach. 2. Strong Research & Development skill set to develop application specific printing devices and solutions. 3. Long standing relationships with Customers and Technology partners. 4. Empanelment with many Government Nodal Agencies Weaknesses: 1. Inability to develop technical expertise to move up the value chain in MPS business. 2. Inability to retain key resources due to lack of substantial revenue growth. 3. Dependency on products manufactured by other OEM's for providing solutions in MPS business. Opportunities 1. Demand moving up in application specific printing solutions both in Impact and Non-Impact printing area. 2. Changes in regulatory and economic environment fuelling the need for printing and Document Management Solutions. 3. Increasing number of customers looking for expert partners to manage their non-core needs vis a vis their core business. 4. Significant movement ahead by customers to look for total Document Management Solutions for their enterprises. Threats 1. Strict Competition from multiple players specifically from the unorganized sector forces us to cut our prices steep resulting in uneconomical operation. 2. Assets under deployment in MPS business are reaching their cycle of replacement, thereby creating a brssure on the investment plans of the company. 3. 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. 4. As the company is largely dependent on imports for its supply of printers, consumables and spares, rupee debrciation impacts the margin of the company significantly. Risk and Mitigants Foreign Exchange Risks A good amount of Import of stocks is done in order to meet the consumables, spares and printers 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 days.This time lag is potential enough to affect the profitability of your company due to fluctuation in the currency exchange rate. Mitigants: Your 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. Receivable Risks During the year, the company faced challenges in improving its receivables position. While the average number of days of sales outstanding improved, the company found a tendency in customers to delay the payments. Delays in payments impact our ability to meet our working capital requirements on time and puts brssure on our borrowings thereby increasing finance costs. Mitigants: Your company is carefully monitoring and controlling the financial exposure to those customers whom it considers as credit risk. Further, the company has introduced stricter credit controls and pursuing customers to accept advance payment terms. Inventory Obsolesence 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. 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 Document Management Solutions. Your company believes in providing value to the customers and has put in a dedicated team to manage the existing and new customers. |