Management Discussion And Analysis Selling and marketing department salaries and benefits have increased during 2014-15 due to increase in compensation for sales performance on account of targets achieved. Business promotion and other selling expenses have increased due to increase in market spend and travel by the Business Development team for various meets. During FY 2014-15, Tanla has deployed products in the domestic and overseas segments which have yielded satisfactory results during the current financial year and are poised for further growth Staff Salaries & Benefits Saving in General & Administrative salaries is on account of reallocation of resources on need basis and consequent reduction of related staff cost. Key resources have been allotted additional charge of business-related activities to meet business needs leading to a better utilization and saving in cost. Provision for bad debts Business teams are allocated collection targets in addition to promoting sales and are suitably rewarded for recovery of sticky and non-moving accounts. Necessary escalations are encouraged to deal with these accounts at appropriate higher levels to ensure recovery. Provision is made for doubtful debts in respect of disputed receivables on account of reconciliation issues with clients, however no effort is spared in following-up on the receivables provided for. Earnings before, debrciation & amortization and taxes (EBITDA) EBITDA for FY 2014-15 stood at Rs. 8114.43 lakhs as compared to Rs. 5769.84 lakhs in FY 2013-14 on account of increase in revenue by more than 81.8% and realization of better margins on the increased revenue. Debrciation & amortization Rs. 7567.98 lakhs has been charged as debrciation for FY 2014-15 against debrciation of Rs. 8404.54 lakhs for FY 2013-14. Debrciation is lower as the fully debrciated assets have been deleted from gross block during FY 2013-14. Additionally, utilisation of assets has improved in FY 2014-15 resulting in lower charge for debrciation Provision for taxation Provision for current tax for FY 2014-15 stood at Rs. 143.81 lakhs against Rs. Nil during FY 2013-14 on account of net profit generated during the current year. Deferred tax for the year stood at Rs. 189.22 lakhs against Rs. (652.08) lakhs during the brvious financial on account of reversal of timing differences on debrciation. Income Tax assessments of earlier years completed during FY 2014-15 have resulted in a charge of Rs. 71.85 lakhs. Financial Condition Share capital The authorized share capital of Tanla is Rs. 1200.00 lakhs, comprising of 120,000,000 equity shares of Rs. 1/-each. As at March 31, 2015, the issued and paid up share capital of Tanla is Rs. 101,749,593 comprising of 101,749,593 equity shares of Rs.1/-each. The company has not issued any shares during FY 2014-15. Reserves & Surplus Currency translation reserve rebrsents the gain on account of foreign exchange fluctuations on assets in various geographies. Currency gain on account of revenue items is included under other income in profit and loss account. The balance retained in profit & loss account as of 31st March'2015 is Rs. 2418.64 Lakhs post tax. The total net worth of the company as on 31st March'2015 is Rs. 61,814.14 lakhs with book value of each share being Rs. 60.91 as against the corresponding numbers for the 31st March'2014 of Rs. 59,869.51 lakhs and Rs. 59.00 respectively. The difference in net worth is on account of profit in FY 2014-15. Tanla is a debt-free company since inception Sundry Debtors (net of provision for doubtful debts) amount to Rs. 14,456.59 lakhs as on 31st March 2015 compared to Rs. 3,525.62 lakhs as on 31st March 2014. Credit period allowed to clients ranges between 3 to 6 months from the month of traffic. A higher business volume has resulted in higher absolute figure of debtors, however the debt recovery mechanism put in place ensures realization of debts on time. Debtors include unbilled transactions at the end of the year which are reconciled with the clients in the following quarter before raising the final invoice. Cash & Bank balances Cash and bank balances as on 31st March 2015 was Rs. 2,990.29 lakhs as against a balance of Rs. 1,917.40 lakhs as on 31st March 2014. Vendors provide a credit period of 45 to 60 days to the company and Tanla clears payments within the credit period. The company manages its treasury activity judiciously to avail full terms of credit while ensuring collections in time to meet its requirements. The company has provided Bank Guarantees to operators as a security against messaging traffic utilised. These BGs are secured by fixed deposits with the respective bank and are disclosed under Deposits in cash and bank balances Short Term Loans and Advances To meet business needs in VAS services Tanla is required to provide advances and rent deposits for brmises. These advances are recoverable in cash or kind at the time of termination of contract or adjusted against payable to vendors. Direct taxes namely TDS and advance income tax were paid to the Income Tax department on Tanla’s behalf by clients who deduct the same from Tanla’s receivables. These amounts are retained under the head TDS Receivable and are refunded / adjusted at the time of assessment based on Tanla’s liability to Income Tax for the respective assessment year. To minimise lock-up of funds in unproductive assets, the company has obtained lower TDS deduction certificate which reduces the amount deducted by clients from Tanla’s receivables.The loans and advances outstanding as on 31st March 2015 is Rs. 1802.37 lakhs as compared to Rs. 1,551.89 lakhs as on 31st March 2014 Current Liabilities and Provisions comprise of outstanding expenses due to operators in respect of services received for which bill has not yet been raised, other current liabilities and provision for income tax of earlier years. The figure as on 31st March 2015 stood at Rs. 6,131.96 lakhs as compared to Rs. 2,051.94 lakhs as on 31st March 2014. Increase is on account of current liabilities payable in the subsequent quarter and due to higher volume of costs. Capital work in progress Costs incurred for the development of new products are disclosed in the balance sheet under the heads Intangible Assets under Development and Capital Work in Progress aggregating Rs. 36,466.05 lakhs as on March 31, 2015. Assets under capital work in progress are capitalized on the launch of the respective products to which these assets relate. Current Liabilities and Provisions comprise of outstanding expenses due to operators in respect of services received for which bill has not yet been raised, other current liabilities and provision for income tax of earlier years. The figure as on 31st March 2015 stood at Rs. 6,131.96 lakhs as compared to Rs. 2,051.94 lakhs as on 31st March 2014. Increase is on account of current liabilities payable in the subsequent quarter and due to higher volume of costs. Risk Management 1.Industry structure: • m- payments: Mobile communications markets have moved forward in phenomenal leaps and bounds over the last two decades, everything is moving towards the mobile platform. The world has 6.85 billion mobile subscriptions versus 1.16 billion fi xed telephone lines. It can be seen that in a world where fi xed-line technology is becoming, not obsolete yet, but certainly less popular, everything is shifting to mobile. Mobile messaging – is the biggest non-voice sector in the mobile industry. Mobile messaging is a USD 251 Billion dollar annual business. After voice, messaging is the biggest revenue-generating mobile service on earth. Mobile messaging will generate USD 1.279 TRILLION dollars in revenues over the 2014-2018. The global A2P SMS market is driven by greater mobile marketing activities and growth in mobile banking and mobile payments. A type of SMS that is generally sent from a web application to a mobile subscriber is known as Application-to-Person SMS. This market is segmented on the basis of applications and geography. The various application segments in the global A2P SMS market include promotional campaigns, pushed content services, customer relationship management services, interactive services, and other inquiry based services. A2P SMS are mostly used in industries like marketing, media, healthcare, insurance, entertainment, banking, tourism, fi nancial services, and retail. The convenience of A2P messaging can be attributed to the launching of platforms that are integrated with messaging gateways and APIs. Geographically, Asia Pacifi c was the largest market and accounted for 42.2% share in 2013. India, China, Japan, South Korea, Singapore and Malaysia are the key countries in the region. The growth across these countries is primarily driven by increasing e-commerce industry and campaigns for promoting brands through marketing activities. According to a Report by Transparency Market Research, the global A2P SMS market will reach US$70.32 billion in 2020 from US$53.07 billion in 2013, growing at 4.2% CAGR from 2014 to 2020; two major trends brsently defi ne the A2P market for carriers. Firstly, international operators are seeking to consolidate A2P services at a group level. Secondly, they are handling an increasing amount of the A2P traffic that brviously used to bypass them into national operator networks or be handled by aggregators. • m- messaging Mobile Payments refer to payment services operated under financial regulation and performed from or via a mobile device. Instead of using cash, cheque, or credit cards, a consumer for a financial transaction, can use a mobile phone to pay for a wide range of services and digital or hard goods or to transfer money. Africa currently holds the top place for mobile payment usage worldwide, encompassing more than 50 percent of all global mobile money services. Mobile is dominantly used as a retail shopping channel in the Asia Pacific region with a higher adoption than North America or Western Europe, the Asian market accounted for about 40% in M-Payments in 2013. 2.Opportunities & threats : Businesses need to be concerned about the cost of developing unique payment solutions for each mobile device. Developing smart phone apps for each mobile-operating system is prohibitively expensive for most companies. At the customer end, it is considered a tedious process, either due to unfamiliarity with mobile technologies or because of the already existing attractive alternatives. Mobile payments also face competition from simple PC/laptop payments which are more attractive for some compared to the small screens of mobile phones. Not all vendors have this technology accessible to them mostly due to the initial expensive investment factor thus again proving as an inconvenient method of payment for some. As a result of the increased penetration of smartphones and OS application ecosystems in developed markets, “over-the-top” (OTT) mobile messaging applications now constitute a signifi cant threat to telecommunications carriers’ SMS-messaging revenues. Some markets, such as South Korea and the Netherlands, have already “tipped” – that is, OTT messaging has reached such a high level that it is causing a material threat to SMS volumes and revenues. Ever dynamic regulatory changes globally and domestically throw up challenges to platform providers. 3.Segment wise & Product wise performance Messaging: Tanla has during the year entered into A2P messaging agreement with Vodafone as announced in the brss release dated December 04th 2014 . Full commercial launch of the messaging platform in Vodafone in December 2014, witnessed good traction with several new clients coming on board. The domestic hub that is integrated with Aircel & Vodafone has processed 3.75 bn messages in March’2015. Tanla’s domestic messaging hub is the largest A2P messaging platform in India processing 27 Bn messages in FY15 up from 6.8 Bn in FY14. Payments: The impact of regulatory changes on domestic mobile payment business stabilized in the last quarter of FY1314, where in 257 Mn Mobile payments transactions were processed during FY15 compared to 222 million in FY14. In the international mobile payment business Tanla has signed up with a large payment service provider in the US 4.Other segment: Total revenue of INR16.43 Crores was realized in FY2015 from sale of property, the other business segment of Tanla. 5.Outlook : According to a recent report by Growth Praxis, the market for mobile enabled payments in India has grown more than 15 times to reach its current size of US$ 1.4 billion by the end of FY'15 from US$ 90 million at the end of FY'12. Regulatory changes introduced in December 2014 for termination of international messages into India necessitate termination of messages only through an international long distance operator in India. Tanla has deployed its fully compliant hub in Singapore that can be connected to by all telecom network operators intending to terminate international messages into India. 6.Risks 1.Business Risks: (a) Regulatory Risks: Frequent amendments and introduction of new regulations governing the A2P messaging business which also carry huge penalties for non-adherence provides reason for the Telcos to stay away from moving to new options, thereby resulting in reduced opportunities to the platform providers (the technical partners of the Telcos) (b) Operating Risks: High cost involved in upgrading the systems to meet the regulatory and customer requirements results in high cost of operation and reduced margins to the company. Company constantly monitors the regulatory changes and pro-actively initiates action to ensure that all of its products are compliant. The 16th amendment to the TCCP Regulations announced on December 10th 2014, for termination of international messages into India only through an ILDO has resulted in deployment of an international A2P messaging hubbing centre in Singapore, thereby making the platform regulation compliant for delivery of international messages. (c) Business Model Redundancy Risk: Fast changing technologies and introduction of new regulations necessitate the business model to be fast adapting thereby necessitating constant investment into technology and re-visiting the new models. 2. Financial Risk: International transactions expose the Company to financials risks due to fluctuation in exchange rates, this is mitigated by maintaining adequate balances in EEFC accounts and making overseas payments through these accounts. 7. Disclosure of the senior management as per clause 49 of the Listing Agreement Senior management has made a disclosure to the board that there are no material financial and commercial transactions, where they have personal interest that may have a potential conflict with the interest of the company at large (for e.g. dealing in company shares, commercial dealings with bodies, which have shareholding of management and their relatives etc.) Internal Control Systems And Their Adequacy The Company has in place adequate internal control systems and procedures commensurate with the size and nature of its business. The effectiveness of the internal controls is continuously monitored by the audit division of the Company. Audit's main objective is to provide to the Audit Committee and the Board of Directors, an independent, objective and reasonable assurance of the adequacy and effectiveness of the organization's risk management, control and governance processes. Audit also assesses opportunities for improvement in business processes, systems & controls and may provide recommendations, designed to add-value to the organization. It also follows up on the implementation of corrective actions and improvements in business processes after review by the Audit Committee and Senior Management. The Company has clearly defined roles and responsibilities for all managerial positions and all operating parameters are monitored and controlled. The above mentioned risk control mechanisms have been introduced for addressing the inherent business and financial risks. Human Resource Development The Company believes that the quality of its employees is the key to its success in the long run and is committed to provide necessary human resource development and training opportunities to equip them with skill, enabling them to adapt to contemporary technological advancements. Industrial relations during the year continued to be cordial and the Company is committed to maintain good industrial relations through effective communication, meetings and negotiation. The Company believes in keeping the workforce connected to the senior leadership to achieve organizational goals. Rewarding the befitting has always been the senior management's principle. Prevention of Sexual Harassment at Workplace Policy: The Company has in place a Prevention of Sexual Harassment Policy in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act 2013 (Act). A committee has been set up to redress complaints received regarding sexual harassment. All employees are covered under this Policy. |