Pressure Sensitive Systems (India) Limited: Annual Report 2023-24 Analysis

Key Performance Highlights #

3-Year Trend Analysis of Key Financial Metrics (Standalone) #

• Revenue from Operations: Decreased slightly from ₹13.52 lakhs in FY2022-23 to ₹13.25 lakhs in FY2023-24.
• Profitability: Shift from a profit before tax of ₹0.12 lakhs in FY2022-23 to a loss of ₹0.49 lakhs in FY2023-24.
• Earnings Per Share (EPS): From 0.00 in FY 2022-23 to (0.00) in FY2023-24.

3-Year Trend Analysis of Key Financial Metrics (Consolidated) #

• Revenue From Operations: Increased Significantly from ₹4108.91 lakhs in FY2022-23 to 34904.62 lakhs in FY 2023-24.
• Profitability: Significant increase in profit from Rs. 3844.05 lakhs to 14148.78 lakhs.
• Earning Per Share: Increased from 2.59 in FY 2022-23 to 9.54 in FY 2023-24.

Business Segment Performance #

• Current primary business: manufacture of self-adhesive tapes.
• Proposed expansion into agro/agri/food products and textiles.

Major Strategic Initiatives and Their Progress #

• Diversification and Expansion: Plans to add new object clauses to its Memorandum of Association to diversify into agriculture and textile businesses.
• Management Changes: Multiple changes amongst directors.

Risk Landscape #

• Identified risks include economical, compliance, cyber, operational, industry, environmental, financial, and regulatory risks.

Management Outlook #

• The company looks forward to growing further in terms of profit earning as well as scaling up its operation.

Detailed Analysis #

Financial Analysis: Pressure Sensitive Systems (India) Limited #

3-Year Comparative Analysis (Standalone) #

(INR Lakhs)

3-Year Comparative Analysis (Consolidated) #

(INR Lakhs)

Significant Changes in Major Line Items (>10% YoY) (Consolidated) #

• Current Assets: Increased by 354.9% (from INR 4,148.27 lakhs to INR 18,870.30 lakhs), primarily due to a massive surge in Cash & Cash Equivalents.
• Other Equity: Increased significantly by 435.4% (From INR 3,440.95 Lakhs to 18,423.99 Lakhs)
• Current Liabilities: Decreased by 97.56% (from INR 250.75 lakhs to INR 6.11 lakhs).
• Non- Current Liabilities: Decreased by 70.16%(from INR 11.63 lakhs to INR 3.47 lakhs)
• Total Liabilities: Decreased by 96.35% (from INR 262.38 lakhs to INR 9.58 lakhs)
• Total Equity: Increased by 304.27% (from INR 4924.21 lakhs to INR 19907.26 Lakhs)

Working Capital Trends (Consolidated) #

• Working capital increased substantially, reflecting the large rise in cash and cash equivalents.
• The current ratio indicates excessive liquidity, significantly above typical industry benchmarks, suggesting potential inefficiencies in asset utilization.

Asset Quality Metrics (Consolidated) #

• Trade Receivables Turnover Ratio: Revenue from Operations (34,904.62) / Average Trade Receivables. With Ending Trade Receivables of 5,532.50, the ratio is approximately 6.31 times.
• Inventory Turnover Ratio: (Cost of good Sold) is not available

Debt Structure #

• Debt-to-Equity Ratio: 0.0005 (based on FY 2023-2024 data)

Financial Analysis of Pressure Sensitive Systems (India) Limited - FY2023-24 #

Revenue Breakdown #

Consolidated revenue from operations increased from ₹4,108.91 lakhs in FY2022-23 to ₹34,904.62 lakhs in FY2023-24, a growth of 749.52%. Standalone revenue decreased slightly. Revenue comes from “Data Management Services Contract.”

Cost Structure Analysis #

• The primary cost component is the “Cost of Data Management Services,” at ₹20,335.12 lakhs for FY2023-24, representing 58.26% of the revenue from operations.
• Employee benefit expenses are ₹13.53 lakhs for FY2023-24.
• Other expenses contribute 417.35 Lakhs.

Margin Analysis (Consolidated) #

• Net Profit Margin: FY2023-24: 40.54% (₹14,148.78 lakhs net profit / ₹34,904.62 lakhs revenue). FY2022-23 was significantly lower.

Non-Recurring Items #

• Balances Written Off: ₹25.25 lakhs (Consolidated) for FY2023-24.

EPS Analysis (Consolidated) #

• Basic EPS: FY2023-24: ₹9.54. FY2022-23: ₹2.59.
• Diluted EPS: FY2023-24: ₹9.54. FY2022-23: ₹2.59.

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, FCF Components (Consolidated) #

OCF (Operating Cash Flow): #

• Profit before tax: ₹14,148.78 lakhs.
• Depreciation/Amortization: ₹3.09 Lakhs
  • Balances writen off: (₹25.25 Lakhs)
  • Foreign Currency Translation : ₹108.46 Lakhs
• Working Capital Changes:
  • Increase in Trade Receivables: (₹1366.21 lakhs).
  • Increase in Other financial assets : (₹160.44 Lakhs)
  • Decrease in Trade Payables: (₹245.96 lakhs).
  • Decrease in Other Non financial assets: (₹0.27 Lakhs).
  • Decrease in other liabilities: (₹4.01 Lakhs).
• Net OCF: ₹12,458.19 lakhs.

ICF (Investing Cash Flow) #

• Purchase/Sale of Fixed Assets: (₹10.99) lakhs
• Increase/(decrease) in long term loan and advances: ₹186.14 Lakhs
• Net ICF: ₹175.15 lakhs.

FCF (Financing Cash Flow): #

• Proceed (Repayment) from long term borrowing : ₹1.00 Lakhs
• Proceed (Repayment) from short term borrowing: (₹1,006.32)
• Change in Provisions: ₹2.57 Lakhs.
• Net Movement in shareholders Current Account: ₹681.66 Lakhs
• Net FCF: ₹685.23 Lakhs

Working Capital Management Efficiency (Consolidated) #

• Trade Receivables Turnover Ratio: 7.24 times.
• Net Capital Turnover Ratio: 1.85 times.

Capex Analysis by Segment #

• Overall consolidated additions to Property, Plant & Equipment are ₹15.62 lakhs, less than the prior year (4.59 Lakhs).

Dividend and Share Buyback Trends #

• No dividends were declared or paid during the financial year 2023-24.

Liquidity Position #

• Current ratio: 3088.43
• Cash and Cash Equivalents: Increased significantly from ₹13.53 lakhs to ₹13,332.10 lakhs.

Financial Analysis: Key Performance Indicators & Trends #

Profitability Ratios (3-Year Trends - Consolidated) #

• ROE (Return on Equity):
  • 2023-24: 71.07%
  • 2022-23: 2.59%
  • 2021-22: Not directly calculable, significant fluctuation observed.
• Net Profit Margin:
  • 2023-24: 40.54%
  • 2022-23: 93.56%

Liquidity Metrics (Consolidated) #

• Current Ratio:
  • 2023-24: 3,088.43
  • 2022-23: 16.54
• Cash Ratio:
  • 2023-24: 2,182.01
  • 2022-23: 0.05

Efficiency Ratios (Consolidated) #

• Receivables Turnover Ratio:
  • 2023-24: 6.31
  • 2022-23: 1.00

Leverage Metrics (Consolidated) #

• Debt-to-Equity Ratio:
  • 2023-24: 0.00005
  • 2022-23: 0.00

Working Capital Ratios #

• Net Working Capital Turnover ratio:
  • 2023-24: 1.85
  • 2022-23: 0.28

Key Observations #

• Extreme Profitability Increase (2023-24): The massive jump in revenue, net profit, ROE, and cash position in 2023-24 requires careful scrutiny.
• Near-Zero Debt: The company appears to operate with almost no debt.
• Liquidity: Company holds very high liquidity.

Segment-Wise Financial Analysis: Pressure Sensitive Systems (India) Limited (FY 2023-24) #

Revenue and Profitability Metrics with Growth Rates #

• Consolidated revenue from operations increased significantly from ₹4108.91 lakhs in FY 2022-23 to ₹34,904.62 lakhs in FY 2023-24.
• Consolidated net profit after tax also saw a growth, increasing from ₹3,844.05 lakhs in FY 2022-23 to ₹14,148.78 lakhs in FY 2023-24.
• Standalone revenue slightly decreased from 13.52 lakhs in FY 2022-23 to Rs. 13.25 lakhs.
• Stand alone company saw a small loss of .49 Lakhs

Key Products/Services Performance #

• The primary revenue source on a consolidated level is “Data Management Services Contract.”
• Primary revenue on stand alone basis is from manufacture of salt adhesive tapes.

Geographic Distribution and Market Penetration #

• The report indicates a subsidiary, “Global Market Insights IT Services L.L.C.,” based in U.A.E, implying international operations.
• Consolidated financials largely driven the UAE subidiary.

Segment-wise CAPEX and ROIC #

• The company added a total of 15.62 Lakhs to its total gross block, which reflects it capex spending.

Operational Efficiency Metrics #

• Trade receivables Turnover is 7.24.
• Net Capital Turnover is 1.85.
• The net profit ratio stands at 40.54%

Growth Initiatives and Challenges #

• The company plans to expand into agro/agri/food products and textiles, as indicated by the proposed addition to the object clause of the Memorandum of Association.
• Challenges were noted by the Secretarial Auditor for the non-compliance of the SEBI Regulations, 2015.

Segment-Wise Financial Analysis #

Strategic Risks #

• Severity: High, due to the potential impact on the company’s long-term goals and market position.
• Likelihood: Moderate, considering the company’s diversification and expansion efforts.
• Trend: Increasing, based on company statements regarding plans to diversify and expand business activities, reflecting a change in the business direction.
• Mitigation Strategies: Diversification into agriculture and textiles to reduce reliance on current business segments.
• Control Effectiveness: Moderate, as effectiveness of the new ventures are yet to be proven.
• Potential Financial Impact: Significant, as new ventures may require substantial investment and may not yield immediate returns. There’s a year-over-year revenue change from operations (Consolidated: Rs. 4108.91 lakhs in FY22-23 to Rs. 34904.62 lakhs in FY23-24).

Operational Risks #

• Severity: Moderate, relating to the company’s current operations in manufacturing adhesive tapes.
• Likelihood: Moderate.
• Trend: Potentially stable, assuming the continuation of current operational practices.
• Mitigation Strategies: Internal financial control system is described as adequate, proper, and well-placed.
• Control Effectiveness: Audit Committee reviews suggest that controls are generally effective, with some flagged areas for improvement.
• Potential Financial Impact: Moderate, primarily related to existing operations. Depreciation and amortization (Consolidated: Rs. 0.15 lakhs in FY22-23 to Rs. 3.09 lakhs in FY23-24) and other expense changes are present.

Financial Risks #

• Severity: Moderate to High.
• Likelihood: Moderate.
• Trend: Stable.
• Mitigation Strategies: Focus on working capital management and receivables monitoring.
• Control Effectiveness: Described as adequate internal financial control systems, but auditors noted issues with trade receivable/payable confirmations, and inventory/fixed asset valuations based on management certifications, showing weakness.
• Potential Financial Impact: Changes in Earnings Per Share (Consolidated: 2.59 in FY22-23 to 9.54 in FY23-24) show significant variation. Profit After Tax (Consolidated: Rs. 3844.05 lakhs in FY22-23 to Rs. 14148.78 lakhs in FY23-24).

Compliance/Regulatory Risks #

• Severity: High, given the listed status of the company and the regulations it must adhere to.
• Likelihood: Moderate.
• Trend: Increasing scrutiny by regulators generally applicable to all listed entities.
• Mitigation Strategies: Systems to ensure compliance with applicable laws.
• Control Effectiveness: Internal control system described as adequate and operating effectively by the directors. However, the Secretarial Audit Report noted some non-compliances with SEBI regulations.
• Potential Financial Impact: Not Quantifiable from available data, but material non-compliance could result in penalities.

Emerging Risks #

Cyber Risk #

• Severity: Moderate to High.
• Likelihood: Moderate
• Trend: Increasing.
• Mitigation Strategies: Not Explicitly Stated.
• Control Effectiveness: Not Described.
• Potential Financial Impact: Not Quantifiable from available data.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• The company’s shift towards Data Management Services Contract represents a strategic pivot, reflected in revenue generation.
• The subsidiary, Global Market Insights IT Service L.L.C., significantly contributes to revenue and profit, indicating successful expansion into this segment.

Competitive Advantages and Market Positioning #

• Revenue on a consolidated basis grew exponentially, and the company seems to be positioned in a niche.

M&A Strategy and Execution #

• The 100% ownership of Global Market Insights IT Service L.L.C. demonstrates an active and potentially successful M&A approach, drastically boosting consolidated financial metrics.

Management’s Track Record in Execution #

• The substantial increase in consolidated revenue and net profit from FY22-23 to FY23-24.
• Management increased Authorised Capital.

Capital Allocation Strategy #

• The company shows investment in equity instruments (unquoted shares), signifying allocation towards long-term assets.
• The company retained earnings, without any issued dividends.
• The company added new object clause to the Memorandum of Association (MoA) of the Company.

Organizational Changes and Their Impact #

• Multiple changes in the Board of Directors and Key Managerial Personnel suggest a period of organizational restructuring.
• The changes in the Board reflect adaptation and responses to evolving business needs.

ESG Framework #

Environmental Metrics and Targets #

• The company’s operations do not consume energy intensively.
• The company is exploring alternate energy sources when necessity arises.

Social Responsibility Programs #

• The company is not required to comply with CSR committee formation and social expenditure as per Section 135 of the Companies Act, 2013, based on its net worth, turnover, and net profit.
• The company has an Anti-Sexual Harassment Policy. No cases were filed under the Sexual Harassment of Women at Workplace Act, 2013, during the review period.

Governance Structure and Effectiveness #

• The Board of Directors comprises Executive, Non-Executive, and Independent Directors, including a Woman Director.
• Board committees include Audit, Nomination and Remuneration, and Stakeholders’ Relationship Committees. The Audit committee, Nomination and Remuneration Committee, and Stakeholders Relationship Committe meet Multiple Times.
• An independent director’s meeting was held on 28/03/2024, to discuss matters per Schedule IV of the Companies Act and SEBI regulations.
• All directors have affirmed compliance with the company’s Code of Conduct.

Regulatory Compliance and Future Preparations #

• The company is listed on the Bombay Stock Exchange (BSE SME).
• The company claims compliance with SEBI regulations and the Companies Act, 2013, with noted exceptions detailed in the Secretarial Audit Report regarding timely compliances of certain SEBI Regulations.
• The company has a Vigil Mechanism/Whistle Blower Policy.
• The management assures steps to ensure future compliance with the Companies Act, 2013, and Listing Regulations.
• Accounting software, starting April 1, 2024, will have a feature of an audit trail.

Future Outlook for Pressure Sensitive Systems (India) Limited #

Business Overview #

The company manufactures adhesive tapes and has diversified into the textile and agriculture sectors.

Market Growth Forecasts #

The company anticipates future growth.

Strategic Initiatives #

• Diversification and expansion of business activities.
• Proposed additions to the Memorandum of Association to include agro/agri/food products and textiles.

Efficiency Improvement Targets #

• Implementation of prudent practices for saving electricity and other energy resources.
• Maintenance of an internal financial control system.

Potential Challenges and Opportunities #

• Challenges: Economical, compliance, cyber, operational, industry, environmental, financial, and regulatory risks.
• Opportunities: Expansion into new business segments (agro/agri/food products and textiles).

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The auditor issued a qualified opinion on the standalone financial statements.
• Qualifications include the lack of balance confirmation for trade receivables, trade payables, and loans and advances.
• The accounting software used lacked an audit trail (edit log) feature.
• Fixed assets were not depreciated, and their value was based solely on management certification.
• Inventory details and investment confirmations were based on management certification.
• Bank balance confirmation was not provided.

Key Accounting Policies and Changes #

• The company prepares financial statements in compliance with the Companies Act, 2013, and Generally Accepted Accounting Principles (GAAP) in India.
• There were no significant changes of accounting policies.

Internal Control Effectiveness #

• Auditor’s report (Annexure B) indicates the company has adequate internal financial controls over financial reporting.
• Material Weaknesses identified during audit includes:
  • Lack of balance confirmation or details for trade receivable, trade payable, loans and advances receivable/payable.
  • Accounting software lacks an audit trail (edit log) facility.
  • Fixed assets not depreciated; value determined solely based on management certification.
  • Inventory details solely based on management certification.
  • No confirmation for investments held by the company.
  • No confirmation for the bank balance.

Regulatory Compliance Status #

• The Secretarial Audit Report noted non-compliance with certain SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• The company is generally regular in depositing undisputed statutory dues.
• No penalties or strictures were imposed by stock exchanges, SEBI, or statutory authorities in the last three years.

Legal Proceedings and Their Potential Impact #

• There are no pending litigations against the company.
• No material foreseeable losses from long-term contracts, including derivatives, were identified.

Related Party Transactions #

• All related party transactions were conducted on an arm’s length basis and in the ordinary course of business.
• No materially significant related party transactions were identified that could conflict with the company’s interests.

Subsequent Events #

• No material changes or commitments affecting the financial position occurred between the end of the financial year and the date of the Directors’ Report.

Accounting Quality and Regulatory Risk Assessment #

• The accounting quality is impacted by the lack of independent verifications and use of management certificates.
• Regulatory risk exist because of not following the SEBI regulations.