ITI Ltd Management Discussions

I. Telecom and Electronic Industry Structure

India is the worlds second-largest telecommunications market with a subscriber base of 1.18 billion and has registered strong growth in the last decade. India is also one of the biggest consumer of data worldwide. As per TRAI, average wireless data usage per wireless data subscriber was 11 GB per month in FY20. It is expected to reach to 18 GB by 2025. India ranks as the worlds second largest market in terms of total internet users. The total number of internet subscribers increased to 846.57 million in March 2023. The total wireless or mobile telephone subscriber base in the country is 1143.93 Million as on March 2023. According to a report by GSM Association (GSMA), in collaboration with Boston Consulting Group (BCG), Indian mobile economy is growing rapidly and will contribute substantially to Indias Gross Domestic Product (GDP). The Government has enabled easy market access to telecom equipment and a fair and proactive regulatory framework that has ensured availability of telecom services to consumer at affordable prices.

Indian Economy has done well as far as fiscal deficit front of the government, which was 6.7 per cent of GDP during FY22 and is further budgeted to reach 6.4 per cent of GDP in FY23. Under the budget 2023, the government has allocated Rs 97579 Cr for the Department of Telecommunications. Indian Telecom service industries are expected to grow at a rate of 12-14% between Fiscal 2019-2024.

ITI is actively working for manufacturing of 4G LTE RAN to be deployed for BSNL network. ITI Limited has decided to contribute in the proliferation of indigenously manufactured 4G Mobile equipment and services in the Indian Telecom Space through participation in implementation of BSNLs 4G Network under Atma Nirbhar Bharat Mission.

The Government has set a target of 280 GW of installed solar capacity power generation by 2030. In a bid to push Indias energy transition toward renewable sources, the union cabinet has allocated ?19,500 crore for domestic manufacture of solar photovoltaic (PV) modules. ITI is planning for expansion of Solar Module manufacturing capacity from 18 MWP to 500 MWP. ITI Naini unit is working with focussed approach to target the requirements of the Solar Business and to expand market

reach and building up the local supply-chain eco-system in India thus generating more jobs and revenue.

The government has allocated Rs 21.58 billion for optical fibre cable- based network for defence services and Rs 7.16 billion for telecom projects in the northeastern states. Seeing the huge demand for OFC cable from Railways, BharatNet and Defense project, and for 5G projects ITI is planning for expansion of Optical Fiber Cable Manufacturing capacity to stay competitive in OFC market.

In spite of best efforts, ITI faced difficulties in delivering some of the products an d systems, as per timelines, due to non-receipt of components, modules, assemblies etc, involving Semiconductor ICs both from Indian and foreign sources, as per the committed delivery timelines. Manufacturing of ONT, OLT 4G RAN were affected by the global semiconductor shortage. Meetings at Govt level were held and letters were sent to these chip manufacturers to shorten these logistic delays.

However, ITI is taking necessary actions like alternate sourcing/redesign co-ordination with Technology partner like C-DOT and proactive sourcing to shorten the procurement cycle time to manage the semiconductor shortage/delays.

II. Opportunities and Threats

Opportunities:

With the existing sectors like Telecommunications, Defence Electronics Industrial, IT&BA and Automobile, the advent of disruptive technologies like Electric Vehicles, 5G, Drones, Medical Technology, Agriculture Technology, IoT, Satellite Broadband, Defence, Space and power electronics among others are the market segments for faster innovation. India is evolving as an innovation-driven R&D destination for global companies.

The AatmaNirbharBharat Abhiyan of Govt. promotes local production and aims to implement a Phased Manufacturing Program for designated product segments in Digital Communication Technologies. The growth in EMS market, presents an opportunity for Design-led manufacturing, which is given thrust by way of incentivization under schemes like PLI.

Department for Promotion of Industry and Internal Trade (DPIIT) in its 2018 notification, had issued guidelines to adhere to Public Procurement by providing Preference to Make in India products and preference to the local suppliers in the procurement of Electronic and Communications related products and services. This policy and guideline will unfold many opportunity areas and boost local manufacturing in the telecom product and service sectors.

In the fields of 4G LTE communications, defence electronics, solar power plants, and medical electronics, there are several business opportunities. To produce diverse electronics and communications devices, ITI has collaborated with a number of start-ups and reputed technical partners.

5G Global Market is Growing and will be of the Order of 2.6 Trillion USD by 2026. With maturing of the Solar Films and Batteries Technologies, Solar Plants will take over Thermal power plants in the future. Small capacity Power Plants usage in Telecom Specifically for RAN will keep on Increasing. Home grown Power Supplies and Invertor market are promising business for ITI. E and V Band Radio will be used in High Capacity Backhauls and also be a substitute Optical Fiber cable where it cannot be laid. The approach of executing proof of concept (POC) first and further to go ahead with TOT will result in successful product acquisition for ITI.

The enormous disparity between local demand and local supply in India, which is a result of the countrys excessive reliance on imports, is considered as a potential to boost the manufacturing index in the electronics hardware and software divisions.

Current opportunities for ITI are the following :

1. Governments emphasis on Make-In-India and Atmanirbhar Bharat for manufacture of Telecom and Electronic equipment.

2. Government plan to set up 100 labs to develop applications using the newly-launched 5G services to cover, applications such as smart classrooms, precision farming, intelligent transport systems, and healthcare.

3. Growing Telecom, Defence and security needs in the country.

4. BSNL 4G Network

5. ASCON Phase-IV project

6. Shifting of manufacturing focus of leading design houses across world towards India and select Asian countries as their manufacturing base. 7 8 9 10 11

7. Govt policy towards promotion of alternate energy sources like Solar, Electric Vehicles.

8. Opening up of Space electronics market for Indian industries.

9. Modernisation of BSNL Railways, Defence networks .

10. Growing market for areas such as, Smart City, Energy Storage

Products, Data Centre , Network & Cyber Security, Solar based power plants, Defense market etc.

11. Govt. PLI scheme and promotion of indigenization.

Threats:

Currently, the Indian electronics industry is characterised by highly competitive industry wherein rapid technological change renders the huge investment done by OEMs and TSP out of date within short time span.

The Company has identified the following threats in the changing business environment:

1. Telecommunications industry is highly competitive.

2. High financing cost for working capital.

3. Difficulty in sourcing of few critical and denied technologies.

4. Flexibility of Private Sectors to manoeuvre with Govt. polices

5. Manifold increase in competition from Indian private industry and foreign OEMs including their JVs in the Telecom Sector.

IN. Strengths and Weakness :

Strengths:

1. State of the art infrastructure for manufacturing for complete range of telecom/ electronic products.

2. Decade of experience in Electronic equipment manufacturing and providing telecom turnkey solutions for creation of national network.

3. Excellent domain knowledge and core competencies in Telecom electronics.

4. Experience of deploying and maintenance of strategic telecom network infrastructure for Defence establishment on turnkey basis.

5. Capacity to execute end to end execution of Mega projects like BharatNet.

6. Cybersecurity infrastructure to provide various IT security services from ITI Tier-3 Data Centre.

7. In house R&D capability for development of Encryption products for defence.

8. Telecom testing labs for telecom equipment testing under the Department of Telecommunications Mandatory Testing and Certification of Telecom Equipment (MTCTE) rules.

9. Pan-India presence (6 Manufacturing Plants at Bengaluru, Palakkad, Rae Bareli, Mankapur, Naini and Srinagar) as well strong marketing presence through countrywide 8 MSP offices at Bengaluru, Chennai, Hyderabad, Delhi, Mumbai, Kolkata, Lucknow and Bhubaneswar and many associated Area offices.

10. Capacity augmentation for indigenous manufacturing of 4G RAN.

11. Leveraging partnerships ecosystem for growth

Weakness:

1. Dependence on low Telecom order volume

2. Non-availability of skilled resource.

3. Long cycle time of component procurement

4. Time to Market Products- High

5. Fewer absorption of niche telecom technology/products.

6. Dependence on C-DOT for technology in certain segments.

7. Dependence on Technology Partners for key Technologies.

8. Lack of technology and development of Intellectual Property (IP), acts as a barrier to the growth.

IV. Future Outlook

The order book of ITI is about Rs 11,460.14 Crore on 30.06.2023. The Company has planned for a turnover of Rs 2648 Crore for FY 2023-24. ITI is focusing on manufacturing in a big way and plans to take up turnkey projects as System Integrator (SI) to increase the value addition. ITI is executing a defence order for Phase IV of the Army Static Switched Communication network (ASCON) project. The project includes civil works for the infrastructure and optical fibre network, installation, commissioning and maintenance of equipment such as IP MPLS routers, Microwave Radio, Satellite terminals, NMS and testing tools. To be part of nation building ITI has received Purchase Order from BSNL for Planning, Engineering, Supply, Installation & Commissioning and AMC of 4G Mobile Network for 23,633 Sites in West Zone of BSNL Network. Other than being the SI to implement this project, ITI is planning to manufacture the 4G RAN equipment as well as requirements of other operators, for both 4G & 5G. This shows The Governments emphasis on Make in India and Atmanirbharta towards self-reliance in manufacturing and this provides great opportunity for import substitution and promoting innovative indigenous solutions for Telecom market. We will closely work with C-DOT, research and premier academic institutions and progressive technology partners for developing new products and systems in emerging technologies.

The continued support from the Government is helping ITI to manufacture products in different market domains in a big way. We will focus ourselves in building on our existing capabilities. Company is now manufacturing many new telecom products like High speed Wi-Fi Access Points, G-PON, OFC and Solar panel products. Company is working for development of new products like Electronic Voting machine (EVM) & Voter Verifiable Paper Audit Trail (VVPAT), Digital Mobile Radio (DMR), Compact TESD (Terminal End Secrecy Device) And Software Defined Radios. ITI has won contracts of BharatNet projects like TANFINET, Andaman and Nicobar OFC and IAF 4G LTE. In addition major focus has been given by the company for manufacturing of encrypted telecommunication equipment required for Defence sector.

ITI is continuously pursuing opportunities to expand business by capturing new customers in the existing and new geographies. We will pursue and focus business models like OPEX, Service model, and Government-owned Company Operated (GOCO) to increase our revenue margins. Currently our presence in international geographies are less but we will focus our strategy to create marketing offices to increase business opportunities in South East Asia, Middle East, and Africa by collaborating with other Indian companies and local partners.

While opportunities are many, we also anticipate challenges due to competition, geopolitical situations, changing policies and regulatory landscapes, emerging new technologies and evolving customer expectations. We will remain focused for increasing our business and with accepting new challenging assignments in future.

V. Risk Management:

The Enterprise Risk Management (ERM) framework implemented as part of Governance, Risk Management and Compliance (GRC) in the Company is based on global best practices in Risk Management as covered by ISO 31000:2018 and IEC 31010:2019 and has enabled the Company to fully integrate the Risk Management into its normal business operations.

The Companys ERM policy framework is a structured process that involves:

• Identifying all external and internal risk-factors.

• Assessing the impact of these risks on the organizations business and financial targets.

• Prioritizing the identified risk-factors.

• Exploring various alternatives for treating these risks.

• Implementing controls and monitoring mechanisms for managing the risks.

ERM is an ongoing and dynamic process that requires iteration and adaptation to changing circumstances. The Companys ERM Manual is a well-structured framework having four layers of governance teams i.e.

• Level-1: URMC (Unit Level Risk Management Committee)

• Level-2: ERMSC (ERM Steering Committee)

• Level-3: ERMGC (Enterprise Risk Management Governing Committee) or RMC (Risk Management Committee)

• Level-4: Risk Management Committee at Board Level.

These Committees are responsible to monitor the policy implementation across all the Units by flowing approved ERM Process, ERM Governance Structure, Roles and Responsibilities of the relevant stakeholders, formation of Risk Registers, provide their continuous contribution to operation of ERM in all the units of Company.

The establishment and maintenance of the ERM framework is facilitating effective decision making process at different levels of the Company. The Risk Register maintained by the Company includes standalone risks identified for the Corporate as well as any significant risks from the Units that merit attention of the Corporate, which will be regularly be presented and reviewed by the Task Force Committee.

All the Units submit and update ERM Risk Register to the ERM Steering Committee (ERMSC). As part of the policy operation ERMSC have conducted monthly risk management review meetings on 23rd September 2022, 21st October 2022, 24th November 2022 and 31stJanuary 2023 with all the Units (URMSC). In the Risk Management Committee Meeting and the Board Meeting held on 10thFebruary 2023 and 13th February 2023, the high priority risks and mitigation plans proposed were reviewed.

As framed in the ERM Manual, Risk Management activities will be carried out on an ongoing basis as part of the routine business operations.

VI. Human Resources

As on 31stMarch 2023, your Company had a total employee strength of 2118 as compared to 2442 at the end of the previous year. The detailed information on material developments in Human Resources/ Industrial front is given in Directors Report.

VII. Internal Control Measures

The Companys internal control systems are commensurate with the nature of its business, the size, and complexity of its operations.

Internal control systems operate at different levels of effectiveness. The Directors and department heads have responsibility for internal controls within their units. Managers and supervisory personnel are responsible for executing control policies and procedures at the detail level within their specific unit. Each individual within a unit is to be cognizant of proper internal control procedures associated with their specific job responsibilities.

Internal Audit Department of the Company at Corporate Office and Units, reviews compliance with the Companys procedures & policies. The department coordinates with the Unit/Divisions of the Company for ensuring coverage of all major areas of operations and such internal financial controls with reference to Financial Statements are adequate.

VIII. Financial Performance

Your Company has achieved a sales turnover of Rs 1589 crore for the year ended 31st March 2023, as compared to Rs 2077 crore in the previous year. The detailed information on financial performance with respect to operational performance is given in Directors Report.

IX. Details of Significant changes in Key Financial Ratios

S. No. Particulars	FY 2022-23	FY 2021-22	Reasons for variations
1. Debtors Turnover	0.50	0.63	Decrease primarily on account of decrease in turnover.
2. Inventory Turnover	6.89	9.07	Due to increase in avearge inventory and also due to decrease in Cost of Goods sold
3. Interest Coverage Ratio	-0.98	1.72	Decrease was primarily due to negative EBIt during the current year, even though there was increase in finance cost
4. Current Ratio	0.97	1.01	Though increase in Inventory but escalation in the current liability mainly in borrowings has resulted in slightly reduction in Current Ratio.
5. Debt Equity Ratio	0.81	0.64	Due to increase in the borrowings and slight reduction in the equity has resulted increase.
6. Operating Profit Margin (%)	-9.10%	6.40%	Reduction in the total income and due to operating loss also.
7. Net Profit Margin (%)	-25.81%	6.45%	Reduction in the total income and due to loss also.

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof.

There is significant change in the return on Net Worth compared to the immediately preceding financial year, the ratio has become negative due to loss during the FY 2022-23.

X. Environmental Protection and Conservation:

The Companys Units are spread across the Country at different locations viz. Bengaluru, Mankapur, Rae Bareli, Naini, Palakkad and Srinagar. Environment Protection & Management of the Units is governed by various Acts & Rules like The Environment (Protection) Act, 1986, The Air (Prevention and Control of Pollution) Act, 1981, The Water (Prevention and Control of Pollution) Act, 1974, Hazardous Waste (Management, Handling and Transboundary Movement) Rules, 2016, The Solid Wastes Management Rules, 2016, etc. All the Units ensured to comply with the applicable Acts and Rules.

XI. Technological conservation, Renewable energy developments, Foreign Exchange conservation:

Relevant information in this regard is disclosed in the Directors Report.

XII. Cautionary Statement

Statements made in the Management Discussion and Analysis about your Companys objectives, estimates and expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys performance include economic conditions affecting demand/supply and price conditions in the domestic market in which your Company operates, changes in Government regulations, tax laws, statutes and other incidental/ related matters.

	For and on behalf of Board
	Rajesh Rai
Place: Bengaluru	Chairman and Managing Director
Date : 11thAugust 2023	DIN:10052045