Letter to Shareholders
Dear Shareholders,
As we all know, the world around us, is going through changes of
unprecedented complexity, scale and speed. While the Covid 19 pandemic continues to impact
the economies, the intensity of supply chain challenges has increased. The geo-political
tensions due to the Ukraine war and increasing inflation have further added to the
troubles of the business world over. While all this turmoil has ramifications on our
company, we are committed to address the customer requirements, demonstrate resilience,
and respond positively to the future. At Centum, we continue to build capabilities,
broaden our relationship with our customers and offer innovative solutions.
During the year 21-22, our consolidated Total Income was Rs 7,880 M
& EBITDA was Rs 742 M (EBITDA margin 9.52%) Total income declined from Rs 8,232 M in
20-21 to Rs 7,880 M in 21-22 and Profit Before Tax (before exceptional item) decreased
from Rs 205 M to Rs 127 M, mainly due to the pandemic and supply chain challenges.
However, on the Balance sheet, we continued our focus on working capital management and
maintained a tight control over the inventories and obtained customer advances wherever we
had to secure the materials under the current challenging supply chain situation. We
closely monitored and reduced the receivables. We also, reduced our debt at consolidated
level from Rs 3,184 M in 2020-21 to Rs 2,726 M (reduction of Rs 458 M) in 2021-22.
Your company had an exceptional expenditure of Rs 604 M mainly due to
diminution of the investment value in the associate company (the business that was
discontinued and divested in the previous year).
The global Electronics System Design and Manufacturing (ESDM) sector
continues to be impacted by the abovementioned factors. This is reflected in the
significant increase in lead times in deliveries from simple electronic products to
expensive automobiles. During the year, Centum was also affected adversely. Major sectors
like Airlines, Defence, Space, and Transportation continued to witness significant
slowdown not necessarily because of demand alone but due to supply chain issues also. The
changing realities of business environment have led your company to play a balancing act
between staying profitable and keeping the balance sheet healthy while devising strategies
for emerging opportunities.
The global supply chain in the electronics industry continues to be
under enormous pressure. With the continuing components shortages, manufacturers are
scrambling to meet the growing customer demand. Demand for electronic products continues
to outweigh supply, putting pressure on manufacturers. The market reports predict that the
component shortage will continue into 2023. At Centum, we are mitigating this risk to a
large extent by focusing on careful planning, close customer and supplier interactions and
transform the supply chain to be more resilient, flexible, and efficient to reduce the
adverse business impact due to the Supply chain challenges.
While the immediate challenges need to be attended in a focused manner,
the outlook for the future remains very bright. Connectivity (IoT), Sustainability/Clean
tech, Electrification and Security are the key themes that are driving demand for
electronics and Software engineering design services across verticals. Furthermore demand
for manufacturing in India is also increasing as labour costs rise in China and the
geopolitical trade and security environment, has compelling many global companies to look
at alternative manufacturing destinations and diversifying their supply chains. We at
Centum are seeing the benefits of this trend in the form of new opportunities from
existing and new customers.
The growth potential and strategic importance of electronics industry
has been well acknowledged by Government of India in the National Policy for Electronics
(NPE). Moreover, ESDM industry has been recognized as one of the 25 priority sectors in
the Make in India initiative to contribute to economic growth.
To facilitate indigenization, Government of India released three
"positive indigenization lists, stressing the need for self-reliance under Aatma
Nirbhar Bharath. In the Defence sector, GOI has brought in significant focus on
indigenization and procurement of Defence & Aerospace products from India and due to
this policy, contracts which hitherto would have been Buy Global have been converted to
Make in India, opening up significant opportunities for India Companies. With this major
change, Centum has invested in sales and marketing in addressing the Tri-services directly
and also exploring collaborations with Global OEMs for technology transfer to meet the new
demand that has been made accessible by the "Positive indigenization lists".
Also, the Government of India has unleashed Reforms in Space sector to promote private
sector and enable the Indian Space program to remain competitive within the global space
market.
I am excited with all these initiatives will bring significant
opportunities to your company and Centum with its long history of Technology Development,
New Product introductions and the credibility it has with its strong Customer base is very
well positioned to see significant growth in the coming years.
I am very grateful to all our Customers for the business and unstinted
support they give us and I would like to express my sincere appreciation to the employees
for the commitment and grit they have shown especially during the difficult times of Covid
and supply chain disruptions. I sincerely thank all the stakeholders for their continued
trust and support and we will continue to grow our business by offering innovative
products and solutions and exploring new avenues for future growth.
Yours sincerely
Warm regards,
Apparao V Mallavarapu