Birla Cable Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS

The Companys main business activities are manufacturing and sales of all types of Optical Fibre Cables, Copper Telecommunication Cables, Structured Copper LAN Cables, Specialty cables and allied accessories.

The Financial Year under review 2023 – 24 started albeit with lower order book for Optical Fibre Cables, but in the Structured Copper LAN Cables and its allied product segment have done very well with robust order inflows, thereby compensating the low business volumes in Optical Fibre Cables. This ultimately paved the way for reasonable performance of the Company in terms of revenue and earnings.

The entire industry has faced severe glut in the off-take of Optical Fibre Cables in both Domestic and Export market segments. The Company due to its derisking strategies weathered the downward cycle in terms of very low requirements of Optical Fibre Cable in the industry successfully with very good capacity utilization levels in the Structured Copper LAN Cables segment and thereby enabled the Company with decent operational performance. This long-term strategy put in place by the Company, augments the resilient business risk mitigation system being followed and face the challenges in one of the product segments usage in the industry in a stupendous manner.

In general, there is no material change in the industry structure.

OVERALL REVIEW

Business Review and Outlook

The introduction of 5G in India in terms of the emerging communication technology has revolutionized the digital landscape, catalysing a substantial surge in the data consumption. This advancement heralds a transformative era of connectivity, promising faster speeds and enhanced network capabilities for users across the nation. The launch of 5G has emerged as a significant catalyst for growth in data usage, accounting for 15 per cent of all data traffic in 2023. Users consumed 17.4 exabytes (EB) of data per month in 2023, at a compound annual growth rate (CAGR) of 26 per cent over the past five years. There was a year-on-year (YoY) growth of 20.8 per cent as on December 2023. It is pertinent to note that 5G users have been consuming approximately 3.6 times more mobile data than 4G users since the launch of 5G communication technology in India. This highlights the success of 5G in India with the off-take reaching phenomenal levels thereby giving huge impetus to the overall telecom ecosystem. Further, the expected subscriber base of 5G is projected to be 575 million by 2026 and moving ahead, 5G data usage is expected to reach 310 EB per annum by 2026. All these were made possible by the phenomenal proliferation of optical fibre cable network actually laid in the ground in backbone, access, metro and also due to the fiberization of cell towers, which is going to pickup once again after a lull in the off-take of optical fibre cables during the year 2023.

The paradigm shift in the Indian mobile data landscape, driven by the growing adoption of 5G technology, has shown substantial growth across all telecom circles of India, with metro circles leading the charge by reaching a 20 per cent share in the overall mobile data traffic, followed by Category A circle at 17 per cent, Category C circle by 14 per cent and Category B at 12 per cent. The pan-India contribution of 5G in overall data traffic is 15 per cent. Enhanced 5G availability and performance, coupled with the availability of a wide range of affordable mobile devices which is an important consideration for mobile broadband applications and the introduction of new data-intensive apps and services, will accelerate future 5G growth. The rise of 5G fixed wireless access (FWA) has also served as a key enabler of new services in homes as well as businesses, with FWA users consuming 2.5 times more data on average than 5G users. As per the latest reports, there are about 412,000 5G base station transceivers in India by December 2023, representing the worlds fastest roll-out of site deployments in a year after the launch of 5G services in India by the telecom operators.

Further, 5G mobile data consumption is expected to grow, with the average monthly data per user estimated to increase by over 24 per cent by the end of 2024. 5G fixed wireless access (FWA) is expected to emerge as a perfect complement to communications service providers mobile offerings, bringing more revenue and enabling new services for homes and businesses. 5G-advanced technology with standalone network, will bring a new level of enhanced capabilities beyond connectivity, and enable wider set of advanced use cases for various business verticals. The commercial deployment of advanced technology which is expected to happen in 2025, whereas the years leading up to 2030 will produce major shifts in technology, creating business opportunities of up to US $ 5 trillion with the metaverse. All these developments must be powered up with the massive deployment of optical fibre cable network which is poised to cris cross through out the geographies and should augur well for the cable manufacturing industry.

When the internet emerged long ago, no one could have anticipated its evolution from a platform for sharing data among the institutions to the immersive and interconnected digital world we experience today. The prevalence of connectivity and communication has become so widespread that numerous broadband developments are often overlooked. It is important to recognise the fact that all our wireless activities on mobile devices ultimately depend on the wireline network. A robust wireline network which consists of both optical fibre cables and structured copper LAN cables in turn enhances the wireless experience, with broadband serving as its core. While, the telecom segment has made significant progress, the trajectory of broadband promises to usher in transformative changes.

Fixed broadband has been the cornerstone of the telecom industry for decades, providing dependable and high-speed internet connectivity to both households and businesses. Fixed line broadband will retain the significance for applications requiring low latency and high bandwidth, including online gaming, home entertainment, smart home devices, online education, remote work, videoconferencing, and virtual reality. These applications demand a stable and reliable connection, an advantage of fixed line broadband over wireless networks. Moreover, fixed line broadband does much more than just support applications. As per World Bank estimates, a 10 per cent increase in broadband penetration can lead to a 1.2 per cent in real per capita GDP (Gross Domestic Product) growth in developed economies and 1.38 per cent in developing ones. The fulcrum of these fixed broadband networks is optical fibre cables in the back bone, access networks and final delivery with Structured Copper LAN Cable in a hybrid fashion. Both the types of cables are to be deployed in a cohesive manner to ensure the final delivery of broadband services to the end users in an effective way.

The long awaited Government of India driven BharatNet project Phase III is ultimately scheduled to come by mid of 2024 on a complete turnkey basis. This project will connect all the villages on a pan-India basis. This will give tremendous boost to the domestic optical fibre cable industry to cater to the needs of this large-scale mega telecommunication infrastructure project and the entire cable industrys capacity will come to good use.

Due to huge growth in the data consumption in India, lot of new projects are getting announced for setting up hyper-scale data centres by leading players in the industry including the overseas companies. At the same time, India is becoming an attractive market for establishing large scale data centres as the availability of skilled manpower coupled with renewable energy push assisting the major players to set up the projects to tap the huge potential in this segment.

Telecommunication Cables

(A) Optical Fibre Cables (OFC)

The OFC business could achieve a level of 23893.14 lakhs during the financial year 2023-24 as compared to 39470.60 lakhs in the previous year due to huge reduction in the requirement of optical fibre cables in both domestic and export segments. Out of this, exports contributed to a level of 12957.58 lakhs during the financial year 2023-24 due to sluggish market conditions.

(B) Copper Telecommunication/Structured Cables

The Company has ramped up the sales of Structured Copper LAN Cables and has clocked a robust increase in the turnover in this Copper cable segment during the financial year 2023-24. The sales of this type of cable increased to 42218.57 lakhs during the financial year under review as compared to 37663.99 lakhs in the previous year. The Companys robust customer service and meeting prompt delivery requirements have been well appreciated with the leading customers in this business segment and the Company is well poised to serve the long term customers to fulfil their needs by setting up one of the industrys best benchmark standards in all their requirements.

FINANCIAL REVIEW

(a) The revenue from operations decreased by 13.47 % to 68549.80 lakhs during the financial year 2023-24 as compared to 79219.75 lakhs during the previous year, primarily due to slow down in the optical fibre cable business.

(b) The raw material consumption was higher by 0.71 % as compared to previous year.

(c) During the year under review, the Finance cost has increased to 1486.52 lakhs in current year as compared to 1291.23 lakhs in previous year.

(d) The profit after tax for the year under review stood at 2248.75 lakhs as compared to 3348.66 lakhs in the year 2022-23.

(e) The Other Equity of the Company stood at 22191.10 lakhs for the year under review.

(f) The additions to the Fixed Assets of 4532.35 lakhs during the year is mainly on expansion of existing manufacturing capacity of the Company.

(g) For detailed information on the financial performance with respect to operational performance, a reference may please be made to the financial statements.

(h) Details of significant changes in key financial ratios:

Ratios	2023-24	2022-23	Variation	Reasons for Change
Debtors Turnover Ratio (in Days)	118.16	87.10	35.66%	Mainly due to decrease in turnover as compared to previous year.
Interest Coverage Ratio (in Times)	3.17	5.08	-37.70%	Due to increase in borrowings and decrease in profit as compared to previous year.
Operating Profit Margin Ratio (in %)	4.23	6.43	-34.16%	Due to decrease in turnover as compared to previous year.
Return on Net Worth (in %)	10.42	17.28	-39.73%	Due to Decrease in profit as compared to previous year.

OPPORTUNITIES AND THREATS

Indias telecom industry has made significant progress in recent years, with the growth in parameters such as 4G data consumption, then the subsequent introduction of 5G services in a fastest manner and mobile data subscribers surpassing expectations. All these were made possible by the backbone optical fibre cable network which criss crossed the country to enable the 4G and 5G mobile services. A big continuous opportunity comes in the form of expected exponential growth in optical fibre cable network build up, coupled with fiberisation of cell sites of all the operators. India is witnessing a significant increase in 5G adoption, with its deployment spanning 28 states, 8 union territories and 700 districts with 115,000 base transceiver stations (BTS) and more than 200,000 sites. Mobile data consumption in India has surged almost 100x, increasing from 300 MB per user per month in 2015 to 20 GB per user per month in recent times and is expected to reach 50 GB by 2027. Mobile data subscribers have also grown from 100 million to 900 million during this period. Additionally, it is projected that 5G subscribers will reach 500 million, with a penetration rate of 40 per cent, by 2027. Given these trends, the growth of 5G and escalating data consumption will serve as crucial drivers for the next wave of fiberisation. To further, buttress the upcoming opportunity, India at present has a low tower fiberisation rate of 35 per cent only. For an effective 4G and 5G communication to happen, it is required to fiberize at least 85 – 90 per cent of the cell towers.

The Government of India has undertaken various initiatives to accelerate the growth of OFC networks. The recent amendment to the Indian Telegraph RoW Rules, 2016, provides a single window for all RoW clearances, and specifies a nominal charge for utilising street furniture for OFC deployment. Other key measures taken by the government include launch of Gati Shakti Sanchar Portal, introduction of a common duct policy, release of fee guidelines and improvement in infrastructure security. As far as the major upcoming government driven Optical Fibre Cable network connectivity is concerned, the ambitious Phase III of the BharatNet project is coming up during the later half of 2024. The initial two phases of the project connected over 197,000 villages through OFC. The upcoming Phase III of the BharatNet project looks to connect all the 640,000 villages and 250,000 Gram Panchayats (GP) in the next 36 months time period.

All the upcoming projects from the government driven initiatives coupled with 5G related network roll-out will definitely give a boost to the Companys growth path in terms of increased off-take of optical fibre cables. The happening growth happening in the Broadband segment, will also propel the growth in the Companys revenue for Structured Copper LAN Cables in a big way thereby contributing to the Nations telecom infrastructure growth on a long-term basis.

However, there are threats in terms of Complex regulatory hurdles in Right of Way (RoW) permissions, despite proactive government initiatives to ward of these challenges. These types of bottlenecks normally result in delay in the execution of the projects and the subsequent cost increase in the overall budget. At the same time together with all the industry stakeholders, the government is working hard to eliminate these challenges in an effective manner.

The Governments policy decisions always shape up the telecom industry in general and any new changes in the rules and guidelines will have a bearing in the industry. However, with the robust system in place, the industry is able forge ahead with the drive to sustain the growth trajectory.

RISKS AND CONCERNS

As in the case of any other industry segments, risks are always there and telecom industry is also prone to various roadblocks from time to time, in terms of non-availability of cheaper finances, logistics issues, policy concerns, taxation perils, availability of skilled workforce, foreign exchange fluctuations and high turn-over of workforce. The concern about logistics related to bringing in the raw materials into the manufacturing locations and reaching out to the customers with the finished products still remain as a major bottleneck due to geopolitical disturbances in recent times coupled with increased cost of logistics. However, your Company has systems and robust policies in place which should fend-off these risks and concerns.

Technological

(a) No more traditional copper telecommunication cable requirements in the network are required, as all the telecom operators are going for optical fibre cables.

(b) Cut-throat competition is the norm which is always prevailing in the cable industry as some of the players offering highly advantageous price levels to the customers, thereby bringing the margins under huge pressure.

(c) Players offering products with inferior technology, ultimately affecting the network to standards which are not at par with international ones.

Financial

Financial risks would include, interalia, low-capacity utilization, un-remunerative prices, highly concentrated customers base, shorter delivery schedule and liquidated damages, foreign exchange exposure and related exchange rates fluctuation, commodity price including adverse movements in prices of raw-materials, warranty, and security, current or future litigations, working capital management and interest rate, contingent liabilities, etc. In addition, the credit risks could increase, if the financial condition of Companys customers declines. The Company regularly identifies and monitors the financial risks as well as potential business threats and develops appropriate risk mitigation plans. The Companys crisis management capability is also reasonably honed to protect its reputation with its stakeholders.

INTERNAL CONTROL SYSTEMS

The Companys system of financial, operational and compliance control and risk management is embedded in the business process by which the Company pursues its objectives. The established system also provides a reasonable assurance on the efficiencies of operations, safety of assets besides orderly and legitimate conduct of Companys business in the circumstances which may reasonably be foreseen. The Company has a defined organization structure; authority levels, delegated powers, internal procedures, rules and guidelines for conducting business transactions.

The Company has already engaged a firm of Chartered Accountants for internal auditing, who besides conducting periodic audits, independently reviews and strengthens the control measures. The Internal Auditors regularly brief the Management and the Audit Committee on their findings and also on the steps to be taken with regard to deviations, if any.

ENVIRONMENT & SAFETY

The Company successfully continued with the implementation of occupational health and safety, quality and environmental protection measures and these are ongoing processes at the Companys plant and facilities. Various proactive measures have also been adopted and implemented which, interalia, include adoption of cleaner technologies wherever feasible, conservation of resources through waste reduction and training of employees with a focus on sustainable development by improving standards on occupational health & safety and environment protection. As a recognition of these objectives, the entire range of products of the Company continue to remain certified to the requirement of international standard ISO 14001:2015 (Environmental Management System) and ISO 45001:2018 (Occupational Health and Safety Management System) by the DNV Business Assurance India Pvt Ltd.

INDUSTRIAL RELATIONS & HUMAN RESOURCE DEVELOPMENT AND CORPORATE SOCIAL RESPONSIBILITIES

The Company sees its relationship with its employees as critical to the future and believes that every employee needs to possess apart from competence, capacity and capabilities, sustainable values, current and contemporary which would make them useful, relevant and competitive in managing the change constructively for overall growth of the organization. To this end, the Companys approach and efforts are directed towards creating a congenial work atmosphere for individual growth, creativity and greater dedicated participation in organizational development. In-house and external training and instructions are also provided to employees at all levels, which help in attaining professional and productive culture by a blend of technology and highly skilled manpower. The Company is committed to maintain good industrial relations through active participation of workers, regular meetings and discussions on all legitimate and legally tenable issues. The Company employed 313 number of permanent employees on its Roll as on March 31, 2024.

CAUTIONARY STATEMENT

Statements in the Managements Discussion & Analysis Report which seek to describe the Companys objectives, projections, estimates, expectations and predictions may be considered to be "forward-looking statements" as of the date of this report and are stated as required by applicable laws and regulations. Actual performance and results could differ materially from those expressed or implied and the Company owes no obligation to publicly update these forward looking statements to reflect subsequent events or circumstances. Market data and product analysis contained in this Report has been obtained from internal Company reports and industry publications, but their accuracy and completeness are not guaranteed and their reliability cannot be assured.