MANAGEMENT DISCUSSION AND ANALYSIS REPORT Industry Overview Global Scenario The year 2014 has been increasingly challenging for the global economy as a result of greater volatility and uncertainty, and they brsent a higher risk for the global economy in 2015. The rapid decline in oil prices, quick adjustments in exchange rates (with the US dollar apbrciating and weakening of most other currencies, notably against the euro), and the new quantitative easing program of the ECB are just a few examples of the economic factors at play. In addition, there is increased geopolitical uncertainty related to the Russia-Ukraine and Middle East conflicts, as well as increased concern about the economic and political future of the Euro Area and European Union. The overall global real Gross Domestic Product (GDP) growth for 2015 is projected to be 3.3% and reflects a combination of upsides and downsides. Global IT spending is on pace to total $3.8 trillion in 2015, a 2.4% increase from 2014, according to a forecast by global research and analyst firm Gartner Inc. (Business Line, Jan 15). The forecast is less dramatic than it might at first seem and the rising US dollar is chiefly responsible for the change. Global sourcing of services grew faster in 2014 and India held on to its leadership position with a 55% market share. Gartner Worldwide IT Spending Forecast, a leading indicator of major technology trends across the hardware, software, IT services and telecom markets, brdicts a similar performance by Indian IT companies in 2015. The US dollar spending growth rate on devices (including personal computers, ultramobiles, mobile phones, tablets and printers) for 2015 is projected at 5.1%; for IT services at 2.5%; and telecom services at 0.7%. India continues to be the topmost offshoring destination for IT companies followed by China and Malaysia in second and third position, respectively. Emerging technologies brsent an entire new gamut of opportunities for IT firms in India. Social, Mobility, Analytics and Cloud (SMAC) collectively provide a US$ 1 trillion opportunity. Cloud rebrsents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to around US$ 700 billion by 2020. Social media is the second most lucrative segment for IT firms, offering a US$ 250 billion market opportunity by 2020. India is strongly positioned to garner more market share in the global IT-BPM services sourcing market being the most attractive sourcing destination, driven by optimum costs, highest volume of diverse employable talent, strong network, multi-shore brsence and mature ecosystem. India is well on target to reach its goal of USD 300 billion revenues by 2020. However, challenges around economic volatility, protectionism, competition and customer centricity would need to be addressed. The Indian IT Industry The World Bank projects India's GDP to grow by 7.5% in the current fiscal on account of increased economic activity and greater stability. The dramatic fall in global crude oil prices has had a significant impact on the economy and retail inflation has moderated to around 6% from double digits last year. With political stability and increased investments in new projects, India's GDP is expected to grow significantly higher than the 5.2% achieved in 2014. In fact, market expectations for the economic growth are higher at 6.5% -7% over the next 3-5 years. This growth will augur well for the Indian IT and networking industry. The Indian IT sector continues to play an important role in the new knowledge based socio-economic revolution that is sweeping the world today. The world has witnessed India's emergence as an important source of e-solutions and services for meeting the global demand of computer software services and solutions. Today, Indian IT is offering solutions to manufacturing and service industries, e-governance models and healthcare institutions besides contributing to social development activities, etc. India's internet economy is expected to touch Rs 10 trillion (US$ 161.26 billion) by 2018, accounting for 5 per cent of the country's GDP according to a report by the Boston Consulting Group (BCG) and Internet and Mobile Association of India (IAMAI). In December 2014, India's internet user base reached 300 million, the third largest in the world, while the number of social media users and smartphones grew to 100 million. The e-commerce market in India has grown steadily from $4.4 billion in 2010 to $13.6 billion in 2014 and expected to reach $16 billion by end 2015 fueled by growing Internet penetration and increased online shoppers. Online travel accounts for nearly 61% while e-tailing contributes around 29% of the business. Increasing mobile and internet penetration, coupled with advanced shipping and payment options are the major drivers of this unbrcedented growth. Public cloud services revenue in India is expected to reach US$ 838 million in 2015, growing by 33 per cent (yoy), as per a report by Gartner Inc. In yet another Gartner report, the public cloud market alone in the country was estimated to treble to US$ 1.9 billion by 2018 from US$ 638 million in 2014. The increased internet penetration and rise of ecommerce are the main reasons for continued growth of the data centre colocation and hosting market Outlook of Indian Networking Industry India's IT networking industry has witnessed significant changes in the last few years. With the growing number of internet subscribers, growth in the mid-market segment, enhanced IT infrastructure and expanding market have accelerated the growth of networking market in the country. Enterprise IT spending has grown from USD 28.5 bn in CY10 to USD 39.7 bn at a CAGR of 12%, which has resulted in strong demand for networking products like routers, switches and access points to storage and surveillance products across all verticals. It is estimated that Enterprise IT spending will further grow at a CAGR of 12% and reach USD 50 bn by the end of CY15 and further fuel the growth of the Indian enterprise networking market. Increasing demand for multiple capable devices for supporting VPN, load balance, 3G/4G services have fuelled growth of the Indian enterprise networking segment. Network oriented devices such as laptops, smartphones and tablets have emerged as the key drivers for the growth of the India's commercial router market. The industry players are continuously expanding and innovating their product portfolio to adapt to the technological changes and cater to the growing consumer needs. The Indian market has witnessed an increasing demand for dual band Wi-Fi, sleek design, 3G/4G connectivity and smart routers. Opportunities and Threats Digitization efforts from government and businesses are driving the IT networking and storage markets in India. According to IDC Report, the Networking market (including LAN and WLAN hardware) in India witnessed highest revenue since CY 2008, with over 20% y-o-y growth. The Ethernet Switch market and the WLAN market in India witnessed high growths with Education, Professional Services and Communication & Media verticals leading the way in contributing to the growth of the Indian WLAN market. Small and Medium Business (SMBs) continue to spend on the same lines as their large counterparts on their expansion plans combined with mobility and productivity requirements for their teams and will continue with the same trend in the coming quarters as well. The brsent hardware networking market is becoming more and more solution centric, where in the convergence of better technology, applications, br and post sales services, brand relocation and security is getting well defined as its components, said the IDC Report. D-Link (India) Limited (D-Link) follows a strategy of meeting the needs, both real and potential of key industry verticals, by forging solutions based on new and innovative technologies. For customers, such end-to-end solutions are means to their ends, i.e. enablers of their own missions and objectives, aligned to the brvailing technologies of the day. One such technology is broadband access, whose penetration is rapidly growing, and building its own burgeoning subscriber base. That translates into a customer base for CPE (Customer Premise Equipment), in which the Company already has a strong brsence serving the SOHO/SMB segment, and is therefore excellently placed to seize the growing opportunities. D-Link is a significant player in the Enterprise segment, primarily as an application service provider closely aligned with System Integrators. Simultaneously, the Company also targets other key verticals, including Government, Education, BFSI and Manufacturing, among others. The surveillance segment is rapidly gaining importance and migrating from administrative to an IT function in many organisations. The new generation surveillance systems have to be effectively integrated into the Company's network infrastructure. D-Link enjoys significant competitive advantage with products and capabilities to provide solutions spanning the entire networking infrastructure. Increasing penetration of Internet in India and rapid expansion of broadband spectrum availability is enabling businesses to look at Tier II/Tier III cities for addressing newer markets and IT companies to look at delivery centres in these places. As a result, IT and network Infrastructures services and associated value added services would therefore be a growth area. e- Commerce is on a path of rapid growth with unbrcedented levels of funding and this will bring in opportunities for IT and networking services. The Company operates in the high end networking technology domain which is subject to continuous innovations based on the customer requirement. To mitigate the risk of technological changes, the Company has acquired during the year an embedded software development Company TeamF1 Networks Private Limited to keep pace with technological innovations relevant to the Company's business. Operational Review The roll out of 3G service was another key instigator that fuelled the demand for better connectivity options. Moreover with economy poised to grow at a steady pace, most enterprises are working towards setting-up a strong and reliable network infrastructure. Organizations these days are investing heavily in infrastructure support that can deliver end-to-end, effective and reliable solutions that will eventually transform their business operations. Moving forward, there will be a strong demand for Wireless, Storage, Broadband, Switching, Security, Cabling etc. that forms a part of complete end-to-end networking solution. D-Link's product/solution portfolio consists of end-to-end Networking products, which includes 3G, Broadband, IP Surveillance, Network Security, Network Storage, Switching, Routing, Wireless LAN etc. D-Link is one of the very few companies to offer end-to-end networking solutions in the country. Despite increasing competition in the field, D-Link's cutting edge networking solutions continued to enjoy market brference, and the Company maintained its competitive edge that it derives from being part of a truly global networking Company that delivers innovative products to consumers, businesses and service providers. Products Categories Switches As per a report by IDC, a brmier global provider of market intelligence, advisory services, and events for the information technology, telecommunications and consumer technology markets, D-Link is a clear front-runner in port shipment of Switches. D-Link offers the complete range of switching solutions including Chassis, L3/L2 Managed, Web-Smart and Un-Managed switches. The major drivers were bandwidth intensive applications like streaming video, VoIP and high-end multimedia and increased demand for gigabit switches from large enterprises and service providers. Verticals like government, retail, manufacturing, services, financial, education, healthcare and telecom contributed to the revenues. Wireless D-Link continues to play a pioneering and driving role in the cost-effective convergence of wired and wireless networking. The Company enjoys leadership position in unit terms in WLAN category with a 40% market share. Its product portfolio includes Business Class Access Points, Unified Switching Solutions, and Long Distance Wireless etc. In the consumer space, the boom in smartphone segment enabled us to position our complementing product line like mydlink, Mobile Companion & 3G effectively. IP Surveillance D-Link surveillance solutions were in demand with wide acceptance from various industry verticals. The focus is on all three segments separately - be it Consumer, SMB/SME or Enterprise. D-Link offers a range of IP-based Surveillance Cameras with Wired and Wireless options; these can be integrated with NVR (Network Video Recorder) solutions for archiving. The cameras span the spectrum of possibilities, including Stand-Alone Network Cameras, Pan Tilt Zoom Cameras, Dome Cameras (Day & Night), Box Cameras and Outdoor Cameras. Structured Cabling Over the years, D-Link has witnessed remarkable growth in the Structured Cabling segment, with strong demand from large enterprises, SMEs/SMBs. The emphasis has always been on delivering complete end-to-end solution, and with this agenda we decided to introduce networking enclosures into our product portfolio. Going forward, the Company will continue to deliver technological excellence and complete customer satisfaction. Network Enclosures D-Link introduced an extensive range of Networking enclosures that aims to address the growing demand of enterprises. Designed as per international standards, D-Link enclosures are built to ensure efficient and safe holding of networking equipments. With its compact design, D-Link networking enclosures aim to meet the challenges of enterprises in reducing clutter, and utilizing the storage space effectively. D-Link network enclosures are packed with customer-centric features that will enhance the safety of enclosed networking equipment extending the life-span of network infrastructure. mydlink Cloud Services mydlink is the cloud-based service that adds unmatched value to D-Link's award-winning Cloud Cameras, Cloud Routers, and Cloud Storage devices by making it possible to access them and stream media remotely over the Internet using a smartphone or tablet. mydlink Cloud Services offer real-time monitoring, remote management, mobile access, synchronization and sharing can all be accomplished with ease. As a pioneering leader in the Cloud space, D-Link has begun to capitalize on the vast potential of Cloud solutions. Globally, over one million users have registered for this service. RMA Expansion D-Link in its endeavour to provide excellent service to its customers has in the current year launched its in-house RMA centers sbrad in several cities. We now have coverage 108 Location having 177 Service points. Service Point include 11 D-Link Service centre, 42 Service Partner and 124 Partner Collection points. We have plans to increase last mile service to 150+ Cities and 200+ Service Points. This move will not only result in increased customer satisfaction but also cut down costs. D-Link Direct Service (DDS) D-Link Direct Service is a brmium service provided at customer door step for selected products. This innovative and agile service approach of D-Link Direct Service will change customer's after sales experience. DDS is the new Rapid Response Premium Support Service that replace a faulty D-Link Product with a working one at your doorstep. D-Link Direct Services, enables the customer to enjoy D-Link products and solutions by resolving technical problems quickly and effectively. D-Link's highly-trained technicians ensure that award-winning support is only a phone call away. This year, DDS support has been decentralized and supported from nearest hub to support customer much faster. Further DDS Coverage has been extended to smaller cities. Call Center D-Link - Care is a unique service program designed for D-Link Customers who are running their esteemed businesses with utmost faith in D-Link products and service infrastructure. D-Link-Care assists customer to help build confidence in their networks and for the products deployed. Customer investment in network infrastructures are cared for and protected under the D-Link Care service program and smoothens the day to day activities. This keeps away all networking worries of the customers and helps them focus on their business. Alliance and partnerships D-Link believes in developing true partnerships. Our Company engineers provide meaningful technology solutions to help the customers. In a major development, the Company formed a strategic partnership with Gajshield Infotech Pvt. Ltd. to exclusively focus on Enterprise networking and will offer the finest networking technology and solutions to large business enterprises in India. This business alliance will enable D-Link to offer high-end enterprise solutions and establish a strong brsence in the enterprise domain. The D-Link MOXA strategic alliance is primarily aimed towards providing combrhensive industrial networking solutions, with Switching, IP Surveillance & Wireless products as part of an integrated offering. MOXA is an established and reliable global leader in networking automation brsent in over 70 countries, with a full spectrum of quality products for industrial networking, computing, and automation. The alliance will result in a seamless networking collaboration in the industrial networking domain. The FY2015 Turnover marks the highest in the history of the Company since its inception in India. Profit Before Debrciation and Tax stood at Rs.341.09 million (Rs.220.46 million in FY14), Profit Before Tax stood at Rs.324.07 million (Rs.203.65 million in FY14) while Net Profit increased by 57.03% to Rs.213.29 million (Rs.135.83 million in FY14). During the year under review, the switches and broadband product categories have done extremely well and since these constitute a large part of the Company's market, overall performance has been at a higher level. Human Resource D-Link operates in an industry in which value and differentiation are defined by the Company's most brcious asset - Human Resource (HR). Your Company believes that it is the quality and dynamism of its people that enables it to make a significant contribution in enhancing stakeholder value. In order to sustain its position, your Company works relentlessly towards being customer-focused, competitively-superior, performance-driven and future-ready. HR is integrated within the business framework to provide foundation for building the skill sets required. The Company has several innovative online learning initiatives and certification courses to provide an array of blended learning opportunities for each employee. The Company's HR initiatives supports transformation and growth of business through innovation, people, practices, policies, systems and processes that empower and engage people. D-Link's dedicated and talented workforce of more than 300 people across India has assisted in driving our achievements and success. Outlook Our focused approach helped us to deliver an industry leading performance with a profit growth of 57% in FY2014-15. The Company will continue to focus on delivering superior financial performance, innovation and industry leadership in its chosen verticals and strive to deliver industry-leading and broad-based growth in future as well. Going forward, we see the business environment filled with exciting opportunities and challenges, and increasing competitive intensity. However, the management believes the passion and expertise of D-Link team, along with your support, will help us continue our strong growth trajectory even during these uncertain times. IT/ITES sector is expected to drive growth including the Small and Medium Business (SMB) segment which is looking promising and future business potential looks positive to be driven by the local demand and Govt. projects. However, the Company need to be cautious due to greater competition at the mid & lower end of the market. Risks and Concerns Technological Obsolescence D-Link operates in a dynamic, fast changing and constantly evolving technology business and it has to continuously review and upgrade its products and solutions lest it faces technology obsolescence. It helps that its parent D-Link Taiwan is a market leader in networking products and solutions. D-Link operates in business that is characterized by rapid technological changes and obsolescence constitutes common risk. The Company addresses this by a strong focus on R&D so that it stays ahead of the curve in technology and continuously sets a new benchmark with cutting edge innovation. Competition D-Link faces competition not only from domestic firms but also from multinational IT vendors. New competitors are emerging from adjacent markets and distant geographies. To remain competitive, it has developed competencies in various technologies, platforms and operating environments and offers a wide range of cutting edge technology products to customers based on their needs. D-Link's differentiation strategy incorporating its unique business approach has led to its emerging as a leader in the rapidly dynamic IT industry. However, D-Link has developed competencies in various technologies, platforms and operating environment offering the wide range of product options to customers based on their needs. Exchange Rate Risks D-Link has substantial exposure to foreign exchange related risks on account of imports of finished traded products from its parent group companies. The management brdicts that the global financial position continues to remain volatile. This trend is expected to continue during the year too. Despite this, particularly given the volatility in the foreign exchange market, the Company had made the gains due to proper brcautions to protect its payables and forecast revenues against foreign currency fluctuations. Rising Costs Rising prices of resources make it a challenge for the Company to reduce material costs. Due to its market leadership position in many of its products, it is able to use its economies of scale and purchasing power to limit the brssures of increasing input costs. Internal Control Systems and their Adequacy Management maintains internal control systems designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with management's authorization and properly recorded, and accounting records are adequate for brparation of financial statements and other financial information. The internal audit function also carries out Operations Review to improve the processes and strengthen control of the existing processes. The Audit Committee periodically reviews the functions of internal audit. D-Link's internal control systems and procedures adhere to industry standards in terms of effective resource utilisation, operational efficiency and financial reporting. It will ensure compliance with various relevant laws and regulations. The Company has appointed independent firm of Chartered Accountants to look into the Internal Audit functions of the organisation. They conduct extensive Internal Audit, which are then brsented to the management at regular intervals. The adequacy of the Company's internal controls are tested from time to time and control deficiencies, if any, identified during the assessments are addressed appropriately. Disclaimer Certain statements made in this report relating to the Company's objectives, projections, outlook, estimates, etc. may constitute 'forward looking statements' within the meaning of applicable laws and regulations. Actual results may differ from such estimates or projections etc., whether exbrssed or implied. Several factors including but not limited to economic conditions affecting demand and supply, government regulations and taxation, input prices, exchange rate fluctuation, etc., over which the Company does not have any direct control, could make a significant difference to the Company operations. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned not to place undue reliance on any forward looking statements. The report should be read in conjunction with the Company's financial statements included herein and the notes thereto. Information provided in this report pertain to D-Link (India) Limited unless otherwise stated. For and on behalf of the Board Gary Yang Managing Director Place : Mumbai Dated: May 19, 2015 |