Rating Rationale

Tags

Top Highlights

• D-Link is the market leader in switches and wireless local area network (WLAN) products, with a significant market share. In fiscal 2019, the company introduced a series of high-end products for its enterprise business, including unmanaged long-term Power over Ethernet (PoE)/PoE plus switches; new generation layer 3 stackable managed switches with advance hardware and software enhancements for better performance, flexibility and ease of management; and industrial grade switches

• D-Link mainly operates in the home and small and medium enterprise segments of the networking industry, where profitability is lower than that in the institutional sales segment. The latter is dominated by Cisco India and other new entrants in the industry. Profitability in the retail segment is constrained by intense competition and commoditised products

• Revenue of the parent, D-Link Corporation, has been continuously declining from NT$ 26 billion in calendar year 2015 to NT$ 15.00 billion in calendar year 2021, while networth has fallen from NT$ 10.3 billion to NT$ 8.5 billion in the said period on account of mounting losses

• However, cash surplus has been utilised to pay off the debt, resulting in a debt-free balance sheet as on December 31, 2020. Despite weak performance, the parent is not likely to depend on D-Link India for financial support

• Copper, the key input for manufacturing cables, is an open market commodity traded globally on exchanges, leading to volatility in its prices

• fluctuations in currency also impact profitability, as the company imports about 30% of its traded products

• Complete and immediate passing on of cost increases is difficult given the competitive pressure—the company experiences a lag of 45-60 days in passing on price hikes

• D-Link hedges currency exposure up to 70% of the total exposure by entering into forward contracts

• Incorporated in 2008, D-Link is a step-down subsidiary of D-Link Corporation. The company markets networking products of the parent and procures from third-party vendors

• The product profile comprises network switches, wireless local area networks, routers, modems, storage devices, copper and fibre cables and cameras. In 2010, D-Link began marketing structured cabling products procured from third-party vendors

• In January 2014, D-Link acquired Team F1, a company that specialises in providing network and security software for embedded devices. The consideration for the acquisition was in the form of equity shares of D-Link, which resulted in the equity stake of D-Link Corporation in D-Link reducing to 51% from 60%

• D-Link Corporation, founded in 1986, is a multinational company that designs, markets and manufactures networking equipment and has presence across over 100 countries

• The operating performance of D-Link improved, as reflected in 26% revenue growth in fiscal 2022 compared with the previous fiscal, backed by pent-up demand for information technology hardware products following the Covid-19 pandemic. The company benefitted from opening of commercial offices and easing logistics

• The company continues to face challenges related raw material supply and pricing pressure on account of global chip shortage, exacerbated by geopolitical issues between China and Taiwan as well as the Russia-Ukraine war

• The company’s revenue is expected to grow steadily at 10% per annum, with the operating margin remaining stable at ~6% over the medium term

• D-Link maintains a healthy liquidity position, as reflected in cash and equivalents of Rs 135 crore as on March 31, 2022