MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Business Overview We are a growing passive telecommunication infrastructure provider in India, engaged primarily in the business of installing and commissioning of Poles, Towers and Optical Fibre Cable ("OFC") Systems in India. We are registered as Infrastructure Provider Category-I (IP-I) with DoT (Department of Telecommunications). "Passive infrastructure" refers to the telecommunication towers for wireless telecommunication services and "OFC" is used for the purpose of hosting and assisting in the operation of the active infrastructure used for transmitting telecommunications signals or transporting voice and data traffic. Our business is to build, own and operate telecommunication Poles, Towers (particularly Roof-top towers), OFC systems and related assets and to provide these passive infrastructure assets on a shared basis to wireless and other communications service providers. These customers use the space on our telecommunication towers to install active communication-related equipment to operate their wireless communications networks. We also offer services to Telecom Operators in installing Telecom Infrastructure on job work basis. We have completed installation of more than 200 Poles for various TSPs and about 10,000 Roof-Top Towers for BSNL on job work basis. As on March 31, 2015, our fully completed owned portfolio of passive infrastructure consists of 866 tenancies in Mumbai, Maharashtra and Uttarakhand. In addition, we have our own optical fiber cable network of about 175 km in and around Mumbai. Products and Services offered by us Our company specializes in innovative solutions which are different from the existing tower sharing concept. We play host to telecom service providers by acquiring and deploying greener pole sites or the traditional RTT sites. Thus our company provides services in terms of infrastructure provisioning for Poles, Towers and Optical Fibre to Telecom Operators in niche areas. 1. Tower Business We are in the business of installing Roof Top Towers and providing the same to telecom service providers on a sharing basis. We have a tenancy ratio of 1.8 per tower. These telecommunication towers are being used for all technologies like CDMA, 2G, 3G, and 4G. Our Roof Top Towers are normally 15 meters in height and are considered structurally stable assuming a wind speed of 180 km per hour. 2. Poles Business Since it is not possible to erect regular network towers etc atop flyovers/bridges we have spearheaded the concept of Poles for telecom infrastructure. We have provided a number of Poles and Infrastructure on lease over several MSRDC Flyovers, Bandra-Worli Sea Link Project, MMRDA Flyovers as well as Skywalks in and around Mumbai and have also installed BTS equipments on poles for the telecom service providers. Further, we have also worked on the concept of installing BTS on Poles in local areas where there is severe traffic and congestion in collaboration with the local Police Authorities, whereby we shall install poles in places such as Check Naka's, Cinema Halls and shall also install CCTV Cameras for the Police Department in such Poles in order to help them with their surveillance mechanisms. As on March 31, 2015, we had a portfolio of 866 tenancies. Clients using our poles infrastructure include BSNL, Airtel, Idea Cellular, Vodafone, Tata Teleservices, Reliance Jio, Room, Telewing and Aircel. 3. Optical Fibre Network Business We have set up our own optical fiber cable network of about 150 km from Thane Ghodbunder Road to Kalamboli. In addition, our OFC network fibre has been laid in ducts intended to provide added protection and to allow us to lay more fibre as demand increases. We have provisioned extra ducts throughout our OFC network, with the majority of our OFC network having been laid with eight ducts. The average age of our ducts is thirty years, and the expected life span of such ducts is approximately ten years. Our OFC network is laid about one meter below the ground for protection against natural elements and human intervention. 4. Trading Business In addition to our Core Telecom Infrastructure businesses, we have also begun on a test basis to undertake supply contracts to supply other telecom products such as Rectifier Module and propose to also include other products like Telecommunication Cables, Telecommunication Panels, Diesel Generators, Earth Strips, Batteries, Electric Power Cable, Fibre Cable and Galvanized Poles etc by procuring the same in the Domestic Market and exporting to overseas buyers. The trading sales of our company for the FY 2014-15 were Rs. 11.72 Crores. SWOT Analysis of Tower Sharing Strengths • Falling revenues, growing capital expenditure and the high operating expenses incurred by each telecom operator on a site ownership basis individually, is driving operators to consider the sharing of infrastructure; • Infrastructure sharing can be used to build more cost effective coverage in rural areas; • Once a tower asset is rented out, it usually generates a stable and brdictable cash flow in the form of tower rentals from occupants; • India has the problem of spectrum scarcity, which increases the requirement of towers to maintain a reasonable level of service quality. Weaknesses • High initial capital investments: On an average, Capex for a roof-top tower is * 1.5 to " 2 million; Capex for a ground-based tower of' 2.4 to * 2.8 million; • No uniform policy guidelines by Civic Authorities for installation of cell sites across the country. Various Civic Authorities across India have varied policies/ guidelines for installation of cell sites. Opportunities • 4G rollout has provided with tremendous opportunities. 3G grew threefold & clocked a 146% growth while 2G grew by 59%. Airtel has implemented 4G data in more than 159 cities in India, Idea Cellular has reported a 39% y-o-y (as of Q3 FY15) growth in 3G cell sites, both clear indications of intent of telecom operators to spend on developing their data networks. • With mobile number portability implemented, telecom operators are investing in network upgradation to improve the quality of service as a brrequisite to retain their customers. • The need for faster network rollouts by new operators entering the Indian Telecom market to be able to compete with the incumbents; • The launch of RJio in 4G segment in coming few months will further increase the demand of sharing of passive infrastructure. Threats • A 25% - 30% success in active infrastructure sharing has the potential to reduce tenancies by 12% - 15%. This would have a negative impact on the business case of passive infrastructure providers and the future valuations. Risks & Concerns The following section discusses the various aspects of enterprise-wide risk management Readers are cautioned that the risk related information outlined here is not exhaustive and is for information purpose only. Suyog Telematics Ltd believes that risk management and internal control are fundamental to effective corporate governance and the development of a sustainable business. Suyog has a robust process to identify key risks across its operations and prioritize relevant action plans that can mitigate these risks. Key risks that may impact the Company's business include: 1. Changes in regulatory environment The regulatory environment in India continues to be challenging. Recent regulatory developments will have significant implications on the future of telephony as well as India's global competitiveness. The entire industry looks to the Government for a fair, transparent and sustainable telecom regime. Amidst this uncertain regulatory environment, the positive feature is that larger players continue to enjoy majority of market share. Considering we derive a substantial portion of our revenues from the three largest telecom players in India, the risk is mitigated to a large extent. 2. Natural disasters damaging telecom networks The Company's telecom networks are subject to risks of natural disasters or other external factors. The Company maintains insurance for its assets, equal to the replacement value of its existing telecommunications network, which provides cover for damage caused by fire, special perils and terrorist attacks. Such failures and natural disasters even when covered by insurance may cause disruption, though temporary, to the Company's operations. The Company has been investing significantly in business continuity plans and disaster recovery initiatives which will enable it to continue with normal operations and offer seamless service to our customers under most circumstances. Internal Control Systems The Chief Executive Officer and Chief Financial Officer are accountable for financial controls, measured by objective metrics on accounting hygiene and audit scores. The Company deploys a robust system of internal controls that facilitates the accurate and timely compilation of financial statements and management reports, ensures regulatory and statutory compliance, and safeguards investor interest by ensuring the highest level of governance and periodic communication with investors. The Audit Committee reviews the effectiveness of the internal control system in the Company and also invites the senior management/functional directors to provide an update on their functions from time to time. A Certificate forming part of the Corporate Governance Report confirms the existence of effective internal control systems and procedures in the Company. The Company's Internal Assurance Group also conducts periodic assurance reviews to assess the adequacy of internal control systems and reports to the Audit Committee of the Board. The Company has taken several steps to enhance the internal control systems across all its circle operations such as: significantly improving the quality and frequency of various reconciliations, enhancing the scope and coverage of revenue assurance checks, segregation of duties, rolling out self-validation checks, regular physical verification, systems audits, desktop reviews as well as continuous training and education. In summary, the healthy balance between empowerment and accountability at every operating level fosters a culture of responsible growth and well-judged risk taking. Outlook As one of the leading providers of tower infrastructure services, the Company is well poised to benefit from the demand for towers as India is at a critical inflection point of data growth and the incremental voice growth. The operator landscape is also rationalizing as some of the evils of hyper-competition are going away and operators focus with a renewed rigor on rollouts, seamless coverage and new technologies in order to effectively compete in the marketplace and recover economic returns on the enormous investments made on spectrum and license. The Company is focused on capitalizing on the rollout of new technologies and data services. Its outlook is in line with future growth potential of the sector. With a global scale of operations, pan India geographic sbrad, significant deployment expertise and healthy relationships with the customers who are India's leading telecom operators, the Company is poised to benefit from all growth opportunities in the Indian market. Also our continued unwavering focus on cost and synergies across the organization will keep us in a healthy financial position and this very business model augurs well for its expansion and success in new geographies. Focus on delivering Shareholders' Value With multifold growth in revenue, we are focused on delivering return to its shareholders on long term basis. We are focused on identifying opportunities for inorganic growth that are value accretive and feasible. Aim is to balance growth capital needs and distribution to shareholders. Future Plans upto March 2016 The number of tenancies has risen from 866 as on March 31, 2015 to 1042 as on 31st August, 2015. The plan is to accelerate the count to 2000 at the end of the financial year with an expected increase in the number of tenancies by 300 from National Highways project, 100 from CCTV sites, 500 from slum sites and another 100 from the existing sites. The focus is on tapping the opportunities and capitalizing the same for the purpose of building value to the shareholders. |