"When the going gets tough the tough get going!"
This was a line in a popular advertisement of Mahindra & Mahindra for theiroff-roaders in the 70s. I spent sixteen exciting years of my life with that Group and thatline has stayed with me. And I was frequently reminded of it during the tough times of theyear gone by. Especially the way the home-bound Team Prime responded to the uncertainbusiness environment was nothing short of the Tough getting going'! I am happy todayto present the 38th Annual Report that is an outcome of the sustained and disciplinedeffort of Team Prime.
Much has been said on the state of the economy and business; one thing that wasoverarching was the uncertainty. The already-slowing economy was made worse by theunknowable play of the Corona virus. The economy stalled in Q1FY21 due to the lock-downthat was imposed and as later reported the GDP growth was minus 24%. Many economistsincluding some international ones made dire predictions of GDP decline of 15% for thewhole year. However the playout was uncertain and unpredictable; the Indian economydeclined by half of the projected rate of decline.
The policy responses of the Government were not a replica of what most advancedeconomies implemented. And that together with the fall in the labour participation ratewith 60% of our economy being consumption dependent the forecasts for the current yearwere of falling a structural growth rate. The forecasts have now recovered' to a GDPgrowth of 8%-10% for FY'22. Contrary to expectations even the NPAs of the banking sectorwere about 7.5% for March'21 about half the earlier dire predictions. Slippage onincremental loans is now estimated at a creditable 2.5% only. These swings in forecastsand outcomes continue to be a recipe for confusion. When there is turbulence such as thisthe only dependable advantage is a superior capacity for reinventing the businesscontinually before circumstances force you to' as Prof. Gary Hamel advised in an HBRarticle nearly twenty years ago.
Team Prime has responded to the uncertainty by continuing to reinvent its offerings andsectors it served. Its revenue mix by sectors is a good indicator of its response to theprevailing uncertainty. In FY 2019-20 the revenue from the Services sector was nearly80%; in the year under review that has moderated to about 63% of the total. TheManufacturing sector that experienced a weak investment sentiment due to lower capacityutilisation in FY 2020-21 accounted for only 5% of the annual revenue of the Companyabout 1/3rd in percentage terms of the year earlier. Team Prime targeted theInfrastructure and Housing segments which accounted for 31% of the revenue compared toonly 8% in the previous year. Difficult business conditions however took their toll onrevenue; the revenue on a consolidated basis was RS 4528 lakh; down about 39% from theprevious year. However
Team Prime was able to contain the costs well and improve productivity tremendously;the fall in PBT was less than 1% compared to the last year H ( 1065 lakh from RS 1074lakh). The PAT in fact improved by 4% to RS 821 lakh from RS 789 lakh in FY 2019-20. Thenet margin on a percentage basis improved from 10.97% in FY 2019-20 to 17.29% in FY2020-21.
Rewarding the shareholder
The highlight of this year is that the Management despite the administrative hurdlescreated by the lockdowns have succeeded in putting a closure to the Scheme ofArrangement' that was spelt out in the last annual report. That together with this FY2020-21 performance has enabled the Board to consider payment of dividend to our patientshareholders. The board has decided to recommend RS 4.50 per share that has an element formaking up for the past by way of a special dividend of RS 2.75 per share and a normaldividend of RS 1.75 per share. Team Prime's hard work has made this possible and I hope itwill go at least some distance in alleviating the drought of nearly 15 years.
As you are aware your company is one of the rare few in India that doesn't have apromoter' as defined in the SEBI regulations. And that puts additional burden ofresponsibility on the Board. In fact your Board with four Independent Directors has to beconstantly proactive to define what is in stakeholders' interest and lead by way ofenabling policies that empower the management to work for the collective good. It is thisdeep sense of responsibility towards collective good that has enabled the Board to reducethe inevitable dissonance along the way and help the Management achieve as they have beendoing in the last few years. I must acknowledge the sterling role played by theIndependent Directors on the board as enshrined in various regulations. In a recentdiscussion on a TV channel a veteran of a leading proxy advisory firm speaking on therecent SEBI guidelines said that Independence cannot be legislated; independence isin the character'; perhaps not his exact words but this is what he meant. How true! Mycolleagues are a good testimony to that assertion. As you may have read that the SEBI hasrecently issued stricter guidelines on the working of the Independent Directors thatinclude their enhanced representation on various committees. I must say that your Boardincluding the Management led by Mr. N. Jayakumar has been ahead of the curve in thismatter; your Board has been meeting the tough new criteria specified from as early as year2016! No less. In the future too I assure you that the Board will continue to strengthenthe governance through policy measures as regulations evolve or if and when situationsemerge that require a response.
As I have reported every year your Management has been very empathetic to the socialcauses whether CSR regulations mandated or otherwise. During the year under review yourCompany continued to support the institutions namely Azad Foundation (training women forfinancial independence) Autism Research Centre (behavioural training for autisticchildren) Cankids (support for cancer-stricken kids) and Vidya Foundation (literacyinitiative for poor children). Your Management deserves kudos for their unswervingcommitment to social causes.
With vaccination going on at pace and the second wave having abated as we speak thereis scope for optimism. There is a talk of the third wave but SUTRA an inter IIT analystgroup has boldly predicted that the third wave if and when it comes would be milder and inthe worst scenario in their model it would be no worse than the first that we saw lastyear. Let us hope that is the case. In any case the public health infrastructure isvastly better prepared and I hope life returns to near normal in the coming quarters.Meantime your Management is exploring ways to improve business development client andinvestor coverage. Most promisingly it has started focusing on opportunities to serve thestart-up ecosystem and that has already started yielding results. Getting in at the groundfloor with a start-up ensures that the Company is able to lock-in the relationship forsubsequent rounds of fund raising. This makes for efficiency in client relationshipservice continuity and enhancement at low incremental costs. Not to forget the excitementquotient of dealing with youthful technocracy and entrepreneurship. I assure you there areexciting times ahead.
With best wishes