R Systems International Ltd


BSE: 532735 | NSE: RSYSTEMS | ISIN: INE411H01032 
Market Cap: [Rs.Cr.] 542 | Face Value: [Rs.] 1
Industry: Computers - Software - Medium / Small

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Director's Report

Directors

Dear Shareholders,

Your directors take great pleasure in presenting the Seventeenth Annual Report on thebusiness and operations of R Systems International Limited ("R Systems" or the"Company") together with the audited statements of accounts for the year endedDecember 31, 2010.

1. FINANCIAL RESULTS

(a) Standalone financial results of R Systems

Particulars Financial Year ended
(Rs. in lakhs)
31.12.2010 31.12.2009
Total income 18,638.60 20,031.17
Profit before depreciation, exceptional items and tax 2,311.46 4,189.39
Less: Depreciation 862.65 804.62
Less: Exceptional item (Provision for diminution in value of long term investments) 18.50 2,473.21
Profit before tax 1,430.31 911.56
Less: Current tax (net of MAT credit) 185.89 204.87
Less: Deferred tax (430.95) 41.85
Less: Fringe benefit tax - 9.68
Profit after tax (available for appropriation) 1,675.37 655.16
Proposed final dividend 295.60 288.45
Corporate dividend tax on final dividend 49.10 49.02
Transfer to General Reserve 167.54 65.52
Balance carried forward to 1,163.13 252.17
Balance Sheet

(b) Consolidated financial results of R Systems and its subsidiaries

Particulars Financial Year ended
(Rs. in lakhs)
31.12.2010 31.12.2009
Total income 29,745.94 33,556.74
Profit before depreciation, exceptional items and tax 2,786.66 4,488.06
Less: Depreciation 1,330.86 1,348.19
Less: Exceptional item (Impairment of goodwill recognised on earlier acquisition of subsidiaries) - 2,087.14
Profit before tax 1,455.80 1,052.73
Less: Current tax (net of MAT credit) 209.11 229.16
Less: Deferred tax (430.95) 41.85
Less: Fringe benefit tax - 9.68
Profit after tax (available for appropriation) 1,677.64 772.04
Proposed final dividend 295.60 288.45
Corporate dividend tax on final dividend 49.10 49.02
Transfer to General Reserve 167.54 65.52
Balance carried forward to 1,165.40 369.04
Balance Sheet

2. RESULTS OF OPERATIONS

Standalone Accounts

• Total income during the year 2010 decreased to Rs. 18,638.60 lakhs as againstRs. 20,031.17 lakhs during the year 2009, a decline of 6.95%.

• Profit after tax was Rs. 1,675.37 lakhs during the year 2010 as compared to Rs.655.16 lakhs during 2009, an increase of 155.72%.

• Basic earnings per share was Rs. 13.60 for the year 2010 as compared to Rs. 5.17for the year 2009, an increase of 163.06%.

Consolidated Accounts

• Consolidated total income during the year 2010 decreased to Rs. 29,745.94 lakhsas against Rs. 33,556.74 lakhs during the year 2009, a decline of 11.36%.

• Profit after taxes was Rs. 1,677.64 lakhs during the year 2010 as compared toRs. 772.04 lakhs during 2009, an increase of 117.30%.

• Basic earnings per share was Rs. 13.62 for the year 2010 as compared to Rs. 6.09for the year 2009, an increase of 123.65%.

3. APPROPRIATIONS AND RESERVES

Dividend

Taking into consideration the operating Profits for the year 2010 and positive outlookfor future, the Board of Directors (the "Board") is pleased to recommend a finaldividend of Rs. 2.40 per equity share, being 24% on the par value of Rs. 10 per share(previous year Rs. 2.40 per share, being 24% on the par value of Rs. 10 per share), to beappropriated from the Profits of the Company for the financial year 2010 subject to theapproval of the shareholders at the upcoming Annual General Meeting. The dividend, ifapproved, will be paid to all the equity shareholders whose names appear in the Registerof Members of the Company as of the opening business hours on May 17, 2011 after givingeffect to all valid share transfers in physical form which would be received by theCompany’s registrar and share transfer agent M/s Link Intime India Private Limited upto the end of business hours on, May 16, 2011 and to those whose names appear asbeneficial owners in the records of National Securities Depository Limited("NSDL") and Central Depository Services (India) Limited ("CDSL") asof the said date.

The register of members and share transfer books shall remain closed from May 17, 2011to May 25, 2011, both days inclusive.

Transfer to Reserves

It is proposed to transfer a sum of Rs. 16,753,688 (Rupees one crore sixty seven lakhsfifty three thousand six hundred eighty eight only) to the General Reserve being 10% ofthe current year’s Profit in accordance with the Companies (Transfer of Profits toReserves) Rules, 1975.

4. BUSINESS

R Systems’ primary focus is to provide full service IT solutions, softwareengineering, technical support, customer care and other IT enabled services to the hightechnology sector, independent software vendors (ISV’s), banks, financial servicescompanies, telecom and digital media technology companies and services providers,insurance and the healthcare sector. On January 26, 2011, R Systems has completed theacquisition of 100% shares of Computaris International Limited ("Computaris"), aU.K. based Software Company engaged in the telecom sector. With the acquisition ofComputaris, R Systems has eleven global development and service centres in India, USA,Europe and Singapore. R Systems diversified offering includes:

Services Group

R Systems founded in 1993 is one of the leading providers of outsourced productdevelopment and customer support services. We help companies accelerate the speed tomarket for their products and services with a high degree of time and cost predictabilityby using our proprietary pSuite execution framework. Our clients can choose servicesSpecific to their needs from R Systems suite of services. We help companies buildscalable, configurable and secure products and applications; and help our clients tosupport their customers worldwide with products and services using our global deliverymodel in 18 languages. R Systems competitive advantage in product development and supportis further enhanced by its global delivery capabilities, multi-language supportcapabilities and agile development methodologies supported by R Systems’ proprietaryPSuite Framework.

Products Group

In the Products Group, R Systems has a range of products that cater to the banking,telecom, finance, manufacturing and logistics industry. The banking and consumer financesolutions are sold under the brand name, Indus and the supply chain solutions formanufacturing and logistics industry are sold under the brand name, ECnet.

Customers and Delivery Centres

R Systems rapidly growing customer list includes a variety of Fortune 1000, governmentand mid-sized organisations across a wide range of industry verticals including Bankingand Finance, High Technology and Independent Software Vendors, Government, HealthCare,Manufacturing, Telecom, Insurance and Logistic Industries. R Systems maintains elevendevelopment / technical support centres and using its global delivery model R Systemsserve customers in the US, Europe, South America, the Far East, the Middle East andAfrica.

There were no changes in the nature of the Company’s business and generally in theclasses of business in which the Company has an interest and in the business carried on bythe subsidiaries during the year under review. For details of Company’s subsidiariesplease refer note number 14 relating to subsidiaries.

5. QUALITY

R Systems has continuously invested in processes, people, training, informationsystems, quality standards, frameworks, tools and methodologies to mitigate the risksassociated with execution of projects. Adoption of quality models and practices such asthe Software Engineering Institute’s - Capability Maturity Model Integrated(SEI-CMMI) and Six Sigma practices for processes have ensured that risks are identifiedand mitigated at various levels in the planning and execution process. R Systems journeyfor various quality Certifications / standards for the development and service centres inIndia is provided below:

In the year 2010, Software Development and BPO Centres of R Systems, based in Noidahave been certified by STQC IT Certifications Services, Ministry of Communication andInformation Technology, Government of India for ISO 9001: 2008.

As of the date of this report, Noida IT centre is SEI-CMMI level 5, PCMM Level 5, ISO9001: 2008 and ISO 27001: 2005 certified; Noida BPO centre is PCMM Level 5, ISO 9001: 2008and ISO 27001: 2005 certified. Pune and Chennai development centres are SEI-CMM Level 5,ISO 9001: 2008 and ISO 27001: 2005 certified. The continuing compliance with thesestandards demonstrates the rigor of R Systems processes and differentiates us to keep ourcompetitive edge in service and product offerings.

To maintain and strengthen competitive strengths, R Systems continues to makeinvestments in its unique and proprietary with best practices, tools and methodologies forflawless execution and consistent delivery of high quality software. The pSuite frameworkoffers services along the entire software lifecycle that includes technology consulting,architecture, design and development, professional services, testing, maintenance,customer care and technical support. R Systems expects that its technology focus,investment in processes, talent and methodologies will enable it to distinguish itselffrom competition as it seeks to provide services to technology / product companies.

6. ACQUISITION

Subsequent to the year end, the Company has acquired Computaris International Limitedon January 26, 2011 for a maximum consideration of GBP 9 million (Rs. 653,625,000) out ofwhich GBP 4.25 million (Rs. 308,656,250) is initial payout and balance is based on earnouts of Computaris as well as fulfillment of certain condition by the former shareholdersof Computaris over the next two years.

Computaris is a System Integrator providing software products & solutions as wellas being a services company. They are focused on the provision of convergent and real-timerating, charging and billing solutions as well as messaging solutions to networkoperators, especially mobile, worldwide. The ability to combine high level IT andreal-time telephony skills enables Computaris to provide a range of solutions and productsthat ensure that they are the provider of choice for many large corporations.

Computaris specializes in system integration, BSS technical consulting and softwaredevelopment for software vendors and communication service providers (CSP) in Europe,Middle East, Africa and SE Asia.

On completion of the said acquisition, Computaris along with its six subsidiariesbecame the wholly owned subsidiaries of R Systems International Limited.

7. DIRECTORS

During the year under review, the following changes took place in the office ofdirectors of the Company.

Mr. David Richard Sanchez resigned from the office of Director effective February 26,2010. Your Directors place on record their sincere appreciation for the advice andcontribution of Mr. David Richard Sanchez during his tenure with the Company.

Lt. Gen. Baldev Singh (Retd.) and Mr. Raj Kumar Gogia were reappointed as directors ofthe Company at the previous Annual General Meeting held on May 20, 2010.

Mr. Satinder Singh Rekhi was reappointed as Chairman & Managing Director of theCompany by the Board at its meeting held on October 30, 2010 for a term of three yearsw.e.f. January 01, 2011 to December 31, 2013 subject to the approval of the CentralGovernment and the shareholders at the upcoming Annual General Meeting.

At the upcoming Annual General Meeting, Mr. Gurbax Singh Bhasin and Mr. Suresh Paruthi,directors of the Company are liable to retire by rotation in accordance with theprovisions of Section 255 and 256 of the Companies Act, 1956 read with the Articles ofAssociation of the Company and being eligible, offer themselves for reappointment asdirectors of the Company.

None of the directors of the Company are disqualified as per the provisions of Section274(1)(g) of the Companies Act, 1956. The directors of R Systems have made necessarydisclosures, as required under various provisions of the Act and Clause 49 of the ListingAgreement.

8. EMPLOYEES STOCK OPTION PLANS / SCHEMES

The industry in which R Systems operates is people intensive and R Systems believesthat human resources play a pivotal role in the sustainability and growth of the Company.R Systems has always believed in rewarding its employees with competitive compensationpackages for their dedication, hard work, loyalty and contribution towards betterperformance of the Company. To enable more and more employees to be a part of thefinancial success of the Company, retain them for future growth and attract new employeesto pursue growth, R Systems has set up employees stock option plans / schemes from time totime for its employees and for the employees of its subsidiaries. As on the date of thisreport, the prevailing stock option plans of R Systems are as follows:

(a) R Systems International Ltd. - Year 2004 Employee Stock Option Plan: For theemployees of R Systems and its subsidiaries other than ECnet Limited.

(b) R Systems International Ltd. - Year 2004 Employee Stock Option Plan - ECnet: Forthe employees of ECnet Limited, a subsidiary of R Systems.

(c) Indus Software Employees Stock Option Plan - Year 2001: Initially formulated forthe employees of Indus Software Private Limited which got amalgamated with R Systems andthe plan continues as per the scheme of amalgamation approved by the Hon’ble HighCourts of Delhi and Mumbai.

As on the date of this report, no stock options are in force under this plan.

(d) R Systems International Limited Employee Stock Option Scheme 2007: For theemployees of R Systems and its subsidiaries.

As required under the Securities and Exchange Board of India (Employee Stock OptionScheme and Employee Stock Purchase Scheme), Guidelines, 1999, details relating to optionsapproved, granted, vested, exercised, lapsed, in force etc. under the prevailing employeesstock option plans / schemes during the year ended December 31, 2010 are as follows:

S. No. Particulars R Systems International Ltd. - Year 2004 Employee Stock Option Plan (a) R Systems International Ltd. - Year 2004 Employee Stock Option Plan - ECnet (b) Indus Software Employees Stock Option Plan - Year 2001 (c) R Systems International Limited Employee Stock Option Scheme 2007 (d)
a. Total number of shares covered under the plan 199,500 200,000 73,898 650,000
b. Pricing Formula Prevailing Price once the Company’s shares are listed and at the Fair Market Value as per the terms of R Systems International Ltd. - Year 2004 Employees Stock Option Plan on the date such option is granted when the Company’s shares are not listed. Prevailing Price once the Company’s shares are listed and at the Fair Market Value as per the terms of R Systems International Ltd. - Year 2004 Employees Stock Option Plan - ECnet on the date such option is granted when the Company’s shares are not listed. As approved under the "Scheme of Amalgamation" of Indus Software Private Limited with the Company by the Hon’ble High Courts of Delhi and Mumbai. "Exercise Price" means the market price which is payable for exercising the options and "Market Price" means the latest available closing price, prior to the date of the meeting of the Board of Directors/Compensation Committee, in which options are granted, on the stock exchange on which the shares of the Company are listed. If the shares are listed on more than one stock exchange, then the stock exchange where there is highest trading volume on the said date shall be considered.
c. Options granted during the year Nil Nil Nil Nil
d. Options vested during the year Nil Nil Nil 127,250
e. Options exercised during the year Nil Nil Nil Nil
f. The total number of shares arising as a result of exercise of options during the year Nil Nil Nil Nil
g. Options lapsed during the year 6,120 Nil Nil 27,000
h. Variation of terms of options during the year Nil Nil Nil Nil
i. Money realised by exercise of options during the year (Rs.) Nil Nil Nil Nil
j. Total number of options in force at the end of the year 73,380 6,800 Nil 503,000
k. Employee wise details of options granted to (during the year)
(i) Senior managerial personnel Nil Nil Nil Nil
(ii) Any other employee who receives a grant in any one year of options amounting to 5% or more of options granted during that year Nil Nil Nil Nil
(iii) identified employees who were granted options, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant Nil Nil Nil Nil
l. Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of options N.A. N.A. N.A. 13.44

Please note that the details given above for plan (a), (b) and (c) are after making therequired adjustments in relation to consolidation of each of the 5 equity shares of Rs. 2each into 1 equity share of Rs. 10 each as approved by the shareholders in the year 2006.During the year ended December 31, 2010 R Systems had not granted any options under any ofthe aforementioned plans. All options granted under Indus Software Employees Stock OptionPlan - Year 2001 have already been vested and exercised or lapsed and no options were inforce as on December 31, 2010.

For options granted during the earlier years under plan (a), (b) and (c), R Systemsused the fair value of the stock options for calculating the employees compensation cost.

For the purpose of valuation of the options granted during earlier years, themanagement obtained fair value of the options at the date of grant under respectiveschemes from a firm of Chartered Accountants, to determine accounting impact, if any, ofoptions granted over the periods. In the considered opinion of the valuer, the fair valueof option determined using ‘Black Scholes Valuation Model’ under each of aboveschemes is "Nil" and thus no accounting thereof is required. The assumptionsused for the purpose of determination of fair value are stated below:

Assumptions Unit Scheme Scheme Scheme Comments by the
(a) * (b) ** (c)*** valuer
Strike price Rs. 42 26 154
Current share price Rs. 16 16 140 Taken on the basis of NAV and PECV method of valuation.
Expected option life No. of Years 5 5 2.5 Being half of the maximum option life.
Volatility % 1 1 0.5 In case of unlisted shares, the volatility may be taken as zero. Verma committee also recommends this.
Risk free return % 7 7 11.3 Zero coupon rate estimated from trading government securities for a maturity corresponding to expected life of option - taken from sites of NSE and / or BSE.
Expected dividend Yield % - - 15 Company has no set policy so dividend taken as zero. In case of Indus plan, as the dividend had been paid by the erstwhile company, it has been assumed at 15%.

* R Systems International Ltd. - Year 2004 Employee Stock Option Plan under which theprice was based on Rs. 2 per share.

** R Systems International Ltd. - Year 2004 Employee Stock Option Plan - ECnet underwhich the price was based on Rs. 2 per share.

*** Indus Software Employees Stock Option Plan - Year 2001 under which originally theprice was based on Rs. 10 per share for 21,967 shares. As a result of amalgamation ofIndus Software Private Limited into R Systems, R Systems had issued 206,822 equity sharesof Rs. 2 each pursuant to the swap ratio approved by Hon’ble High Courts of Delhi andMumbai.

The above information is based on Rs. 2 per share prior to consolidation of 5 equityshares of Rs. 2 each into one equity share of Rs. 10 and subsequent allotment of bonusshares in the ratio of 1: 1.

Further, for the purpose of valuation of the options granted during the year 2005 underR Systems International Ltd. - Year 2004 Employee Stock Option Plan, the managementobtained fair value of the options at the date of grant from a firm of CharteredAccountants, to determine accounting impact, if any, of options granted. In the consideredopinion of the valuer, the fair value of these options determined using ‘BlackScholes Valuation Model’ is "Nil" and thus no accounting thereof isrequired.

The assumptions used by the valuer for the purpose of determination of fair value arestated below:

Assumptions Unit Scheme Comments by the valuer
Strike price Rs. 42
Current share price Rs. 13.58 Taken on the basis of NAV and PECV method of valuation.
Expected option life No. of Years 5 Being half of the maximum option life.
Volatility % 1 In case of unlisted shares, the volatility may be taken as zero. Verma committee also recommends this.
Risk free return % 7.42 Zero coupon rate estimated from trading government securities for a maturity corresponding to expected life of option - taken from sites of NSE.
Expected dividend Yield % - Company has no set policy so dividend taken as zero.

The above information is based on Rs. 2 per share prior to consolidation of 5 equityshares of Rs. 2 each into one equity share of Rs. 10 and subsequent allotment of bonusshares in the ratio of 1: 1.

For the purpose of valuation of the options granted during the year ended December 31,2007 under R Systems International Limited Employee Stock Option Scheme 2007, thecompensation cost relating to Employee Stock Options, calculated as per the intrinsicvalue method is nil.

The management obtained fair value of the options at the date of grant from a firm ofChartered Accountants. In the considered opinion of the valuer, the fair value of theseoptions determined using ‘Black Scholes Valuation Model’ is "Rs.50.73" per option.

The assumptions used by the valuer for the purpose of determination of fair value arestated below:

Assumptions Unit Scheme Comments by the valuer
Strike price Rs. 120.70
Current share price Rs. 118.50 Price on the date of grant by Board of Directors i.e. closing price on July 11, 2007.
Expected option life No. of Years 4 Being the vesting period.
Volatility % 44 On the basis of industry average.
Risk free return % 7 Zero coupon rate estimated from trading government securities for a maturity corresponding to expected life of option - taken from sites of NSE.
Expected dividend Yield % 0.86 Company has declared Dividends of 12% in the past. Assuming that it will continue declaring similar dividends in future.

The stock based compensation cost calculated as per the intrinsic value method for thefinancial year 2009 and 2010 was nil. If the stock based compensation cost was calculatedas per fair value method prescribed by SEBI, the total cost to be recognised in thefinancial statements for the year 2010 would be Rs. 1,527,947 (Previous year Rs.4,673,959). The effect of adopting the fair value method on the net income and earningsper share is presented below:

Pro Forma adjusted Net Income and Earnings Per Share

(Amount in Rs.)
Particulars Year ended December 31, 2010 Year ended December 31, 2009
Net Income as reported 167,536,880 65,515,857
Add: Intrinsic Value - -
Compensation Cost
Less: Fair Value 1,527,947 4,673,959
Compensation Cost
Adjusted Pro-forma Net Income 166,008,933 60,841,898
Earnings Per Share Basic
- As reported 13.60 5.17
- Proforma 13.48 4.80
Diluted
- As reported 13.44 5.11
- Proforma 13.32 4.74

Weighted average exercise price of options granted during the year

S. No. Particulars Scheme Scheme Scheme Scheme
(a) (b) (c) (d)
1. Exercise price equals market price N.A. N.A. N.A. N.A.
2. Exercise price is greater than market price N.A. N.A. N.A. N.A.
3. Exercise price is less than market price N.A. N.A. N.A. N.A.

Weighted average fair value of the options granted during the year

S. No. Particulars Scheme Scheme Scheme Scheme
(a) (b) (c) (d)
1. Exercise price equals market price N.A. N.A. N.A. N.A.
2. Exercise price is greater than market price N.A. N.A. N.A. N.A.
3. Exercise price is less than market price N.A. N.A. N.A. N.A.

 

Scheme (a): R Systems International Ltd. - Year 2004 Employee Stock Option Plan.
Scheme (b): R Systems International Ltd. - Year 2004 Employee Stock Option Plan - ECnet.
Scheme (c): Indus Software Employees Stock Option Plan - Year 2001.
Scheme (d): R Systems International Limited Employee Stock Option Scheme 2007.

As no options are granted during the year under Scheme (a), Scheme (b), Scheme (c) andScheme (d), hence the required information is not applicable.

9. LIQUIDITY AND BORROWINGS CONSOLIDATED FINANCIAL STATEMENT

Cash and bank balance, including bank deposits, as of December 31, 2010 was Rs.9,568.91 lakhs against Rs. 8,719.75 lakhs as of December 31, 2009. Increase in the cashand bank balance was mainly on account of cash generated from operations. The cash andbank balance per share as of December 31, 2010 was Rs. 78.16 against Rs. 71.22 as ofDecember 31, 2009.

The consolidated cash and cash equivalent as of December 31, 2010 were Rs. 4,040.33lakhs against Rs. 3,093.04 lakhs as of December 31, 2009.

Net cash generated from operating activities was Rs. 1,680.92 lakhs for the year endedDecember 31, 2010 compared to Rs. 4,326.48 lakhs for the year ended December 31, 2009.Cash flow generated from operating activities is the significant source of funding forinvesting and financing activities.

During the year, R Systems consolidated operations invested Rs. 795.43 lakhs in thepurchase of fixed assets. The interest received during the year 2010 was Rs. 429.06 lakhsagainst Rs. 305.66 lakhs during the year 2009.

Cash used in financing activities during the year 2010 was Rs. 402.28 lakhs mainly dueto payment of Rs. 294.63 lakhs and Rs. 50.24 lakhs for the dividend and dividenddistribution tax respectively, for the year 2010 and Rs. 57.41 lakhs as net repayment ofborrowings and interest thereon.

R Systems policy is to maintain sufficient liquidity to fund the anticipated capitalexpenditures, operational expenses and investments for strategic initiatives.

R Systems has a credit facility from the State Bank of India amounting to Rs. 1,440lakhs (including non-fund based credit limit of Rs. 940 lakhs). As of December 31, 2010,the total credit balance was nil under the said line of credit. The total liability of RSystems for motor vehicles purchased against the loan was Rs. 50.23 lakhs and in relationto finance leases for assets was Rs. 33.26 lakhs as of December 31, 2010. R Systemsprimary bankers in India are State Bank of India, ICICI Bank Limited, HDFC Bank Limitedand Axis Bank Limited. In U.S.A., Singapore, Europe and Japan, the primary bankers areCalifornia Bank & Trust, Citibank N.A., Fortis Bank N.V. and Sumitomo Mitsui BankingCorporation respectively.

10. CHANGES IN THE CAPITAL STRUCTURE

During the year under review, there were no changes in the capital structure of theCompany. As of December 31, 2010, the authorised share capital of the Company was Rs.200,000,000 divided into 20,000,000 equity shares of Rs. 10 each and the issued,subscribed and paid up share capital was Rs. 123,168,860 divided into 12,316,886 equityshares of Rs. 10 each.

11. CORPORATE RESTRUCTURING

During the year under review, the Board has approved a scheme for corporaterestructuring of its two subsidiaries based in Singapore for their revival and growthnamely, ECnet Limited and R Systems (Singapore) Pte Limited subject to applicablecorporate and other regulatory approvals in India and Singapore. The proposed corporaterestructuring involves conversion of loan by the Company to ECnet Limited into equityinvestment and thereafter amalgamation of both these subsidiaries. Implementation of thesaid corporate restructuring is under process.

Following the corporate restructuring strategy for growth, subsequent to the year end,the Board has approved liquidation of R Systems NV, Belgium (wholly owned subsidiary)subject to required statutory and corporate approvals in India and Belgium.

12. MATERIAL CHANGES AFFECTING THE FINANCIAL POSITION OF THE COMPANY

Subsequent to the year end, the Company has acquired 100% shares of Computaris onJanuary 26, 2011 for a maximum consideration of GBP 9 million (Rs. 6,536.25 lakhs) out ofwhich GBP 4.25 million (Rs. 3,086.56 lakhs) is initial payout and balance is based on earnouts of Computaris as well as fulfillment of certain condition by the former shareholdersof Computaris over the next two years.

Except the proposed corporate restructuring and as detailed above, there were no othersignificant events subsequent to the balance sheet date till the date of this report whichwould materially affect the financial position of the Company.

13. PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGEEARNINGS AND OUTGO

The particulars as prescribed under Section 217 (1) (e) of the Companies Act, 1956,read with the Companies (Disclosure of Particulars in the Report of Board of Directors)Rules, 1988 for the year ended December 31, 2010 are as follows:

A. Conservation of Energy

During the year ended December 31, 2010 R Systems continued its action plans to curtailthe energy bills by adopting various energy conservation options / technologies asidentified by Federation of Indian Chambers of Commerce & Industry ("FICCI")through a detailed Energy Audit carried out by FICCI for R Systems Noida operations in theyear 2007. Significant measures were taken to reduce energy consumption by using energyefficient equipments and devices. R Systems constantly evaluates new technologies andmakes appropriate investments to be energy efficient. Currently, the Company uses CFLfittings and electronic ballasts to reduce power consumption of fluorescent tubes. The airis conditioned with energy efficient compressors for central air conditioning and withsplit air conditioning for localized areas. R Systems is always in search of innovativeand efficient energy conservative technologies and applies them prudently. However, RSystems being in the software industry, its operations are not energy intensive and energycosts constitute a very small portion of the total cost, therefore, the financial impactof these measures is not material.

Form A is not applicable to the software industry.

B. Technology Absorption

The particulars with respect to technology absorption are given below:

(a) Research and Development (R & D)

1. Specific areas in which R & D carried out by the Company R Systems continues toinvest in developing new versions of its proprietary products to operate in differentenvironments and in developing new tools in CRM, RMA and other processes to serve thecustomers. In addition, R Systems carries out research, makes investment in developing newprototypes in varied areas like digital media, mobility, WiMax etc. to demonstrate to itsclients.

2. Benefits derived as a result of the above R & D

Research and development has helped R Systems in fulfilling clients’ needs,winning new engagements from existing clients, winning new customers, growing revenues andenhancing the quality of services. We have been benefited in product improvement, costreduction, better product development, import substitution etc. which has resulted in highproduct quality and increased business potential.

3. Future plan of action

The Company continues to focus its efforts on innovations in software developmentprocesses, methodologies and tools.

4. Expenditure on R & D

The Company’s R & D activities are part of its normal software developmentprocess. There is no separate R & D department and hence there is no Specific capitalor recurring R & D expenditure. It is not practicable to identify R & Dexpenditure out of the total expenditure incurred by the Company.

(b) Technology absorption, adaptation and innovation

1. Efforts made towards technology absorption, adaptation and innovation The Companyhas established practice streams in Specific technologies to analyze their implicationsand the benefits they can provide to Company’s customers. These steps enable theCompany to find and execute the most appropriate solutions for its clients.

2. Benefits derived as a result of the above efforts

The benefits derived from the above mentioned efforts are fulfilling customer needs,efficiency in operations, improvement in quality and growth in revenues.

3. Technology imported during the last 5 years

Not applicable, as no technology has been imported by the Company.

C. Foreign Exchange Earnings and Outgo (Accrual Basis)

A significant percentage of R Systems revenues are generated from exports. Thedevelopment and service centres in Noida, Pune and Chennai are registered with theSoftware Technology Park of India in their respective areas as 100% Export OrientedUndertakings. All efforts of the Company are geared to increase the business of softwareexports in different products and markets. We have made investments in sales and marketingactivities in various growing markets.

The total foreign exchange used and earned by R Systems during the year as comparedwith the previous year is as follows:

Particulars Financial Year ended
(Rs. in lakhs)
31.12.2010 31.12.2009
(a) Earnings (Accrual Basis) 16,400.32 18,192.74
(b) Expenditure (Accrual Basis) 3,468.33 3,360.05
(c) CIF value of imports 117.95 973.15

14. SUBSIDIARIES

As on December 31, 2010, R Systems has fourteen subsidiaries. The names and country ofincorporation of those subsidiaries are as follows:

S. No. Name of the Subsidiaries Country of Incorporation
1. R Systems (Singapore) Pte Limited Singapore
2. R Systems, Inc. U.S.A.
3. Indus Software, Inc. U.S.A.
4. ECnet Limited Singapore
5. R Systems Solutions, Inc. U.S.A.
6. R Systems NV Belgium
7. R Systems Europe B.V. The Netherlands
8. R Systems S.A.S. France
9. ECnet (M) Sdn. Bhd. # Malaysia
10. ECnet, Inc. # U.S.A.
11. ECnet (Hong Kong) Limited # Hong Kong
12. ECnet Systems (Thailand) Company Limited # Thailand
13. ECnet Kabushiki Kaisha # Japan
14. ECnet (Shanghai) Co. Ltd. # People's Republic of China

# wholly owned subsidiaries of ECnet Limited, Singapore being 98.59% subsidiary of RSystems

All the aforementioned fourteen subsidiaries are incorporated and based outside India.In addition to providing services to various international clients these subsidiaries alsohelp to generate revenues for R Systems. The Board of Directors of the Company regularlyreview the affairs of these subsidiaries.

The holding company is required to attach the documents relating to its subsidiaries asprescribed under Section 212 of the Companies Act, 1956 along with its Annual Report. RSystems had applied and has been exempted by the Ministry of Corporate Affairs withreference to their letter no. 47/721/2010-CL-III dated January 06, 2011 from attaching thebalance sheet, Profit & loss account, directors’ report, auditors’ report,etc. in respect of all the fourteen subsidiaries as of December 31, 2010. Accordingly, theannual report of the Company does not contain the financial statements of itssubsidiaries, but contains the consolidated audited financial statement of the Company andits subsidiaries. Further, as directed by the Ministry of Corporate Affairs, informationin aggregate in respect of key items i.e. (a) capital (b) reserves (c) total assets (d)total liabilities (e) details of investments (except in case of investment insubsidiaries) (f) turnover (g) Profit before taxation (h) provisions for taxation (i)Profit after taxation and (j) proposed dividend for each subsidiary has been disclosed inbrief abstract forming part of the consolidated balance sheet.

Further, the annual accounts of the subsidiaries and the related detailed informationwill be made available to the investors of the holding company and its subsidiariesseeking such information at any point of time. The annual accounts of the subsidiarieswill also be available for inspection during business hours at the Company’sregistered office and in the offices of the subsidiaries. The same will also be hosted onR Systems’ website, www.rsystems.com.

Subsequent to the year end, the Company has successfully completed the acquisition ofComputaris International Limited along with its following six subsidiaries on January 26,2011.

1. Computaris International Srl, Moldova

2. Computaris Malaysia Sdn. Bhd., Malaysia

3. Computaris Polska sp z o.o., Poland

4. Computaris Romania SRL, Romania

5. Computaris USA, LLC, U.S.A.

6. Computaris Limited, U.K.

After the said acquisition, R Systems has in aggregate twenty one subsidiaries all ofwhich are incorporated and based outside India.

15. PARTICULARS OF EMPLOYEES

As required under the provisions of Section 217 (2A) of the Companies Act, 1956, readwith the Companies (Particulars of Employees) Rules, 1975, as amended by notificationdated March 31, 2011, the names and other particulars of employees are set out in AnnexureA to this report.

16. DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 withrespect to directors’ responsibility statement, your directors hereby confirm that:

(i) In the preparation of the annual accounts for the financial year ended December 31,2010, the applicable accounting standards had been followed along with proper explanationrelating to material departures, wherever applicable;

(ii) The directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe Profit or loss of the Company for the year under review;

(iii) The directors had taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act, 1956for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities;

(iv) The directors had prepared the annual accounts for the financial year endedDecember 31, 2010 on a going concern basis.

17. AUDITORS

M/s S. R. Batliboi & Associates, the statutory auditors of the Company will retireat the upcoming annual general meeting and are eligible for reappointment. However M/s S.R. Batliboi & Associates have expressed their unwillingness to get reappointed as thestatutory auditors of the Company.

The Board, based on the recommendation of the audit committee, recommends theappointment of M/s S. R. Batliboi & Co. (Firm Registration No. 301003E) as thestatutory auditors of the Company. M/s S. R. Batliboi & Co. have confirmed theireligibility and willingness to act as the statutory auditors of the Company and havefurther confirmed that their appointment, if made, shall be within the limits prescribedunder Section 224(1B) of the Companies Act, 1956.

Further, the auditors’ report being self-explanatory, does not call for anyfurther comments by the Board of Directors.

18. AUDIT COMMITTEE

R Systems has a qualified and independent audit committee (the "Committee").At the beginning of the financial year i.e. on January 01, 2010, the Committee comprisedof four directors with non-executive independent director as the Chairman and three othernon-executive independent directors as the members of the Committee. During the year, Mr.David Richard Sanchez, Director of the Company had tendered his resignation to the Companyeffective on February 26, 2010. Accordingly, the Committee was reconstituted and comprisesof three directors with non-executive independent director as the Chairman and two othernon-executive independent directors as the members of the Committee.

The constitution of the Committee is in compliance with the provisions of the CompaniesAct, 1956 and the Listing Agreement entered into with the stock exchanges.

The terms of reference and role of the Committee are as per the guidelines set out inthe Listing Agreement with the stock exchanges read with Section 292A of the CompaniesAct, 1956 and includes such other functions as may be assigned to it by the Board fromtime to time. The Committee has adequate powers to play an effective role as requiredunder the provisions of the statute and Listing Agreement.

19. DETAILS OF UTILISATION OF IPO PROCEEDS

Pursuant to the Initial Public Offer, the Company collected Rs. 7,062.50 lakhs (net ofselling shareholders’ proceeds). For details of utilisation of IPO proceeds, pleaserefer note no. 19 under Schedule 17 in the standalone financial results for the financialyear ended December 31, 2010.

Please note that subsequent to the year ended December 31, 2010, the Company hasutilised the remaining IPO proceeds amounting to Rs. 1,004.40 lakhs available under thehead General corporate purposes, towards the initial payout for the acquisition ofComputaris International Limited.

20. CORPORATE GOVERNANCE

As required under Clause 49 of the Listing Agreement entered into with the stockexchanges the detailed report on corporate governance is given as Annexure B to thisreport and the certificate obtained from a practicing company secretary regardingcompliance of the conditions of corporate governance as stipulated in the said clause isannexed as Annexure C to this report.

Further the disclosure as required pursuant to Section II Clause C of Part II ofSchedule XIII to the Companies Act, 1956 and in terms of Clause 49 of the ListingAgreement entered into with the stock exchanges for all the directors is given in thedetailed report on corporate governance which forms part of this report and annexed asAnnexure B to this report.

21. DEPOSITS

The Company has neither invited nor accepted any deposits from the public within themeaning of Section 58A of the Companies Act, 1956 and as such, no amount of principal orinterest was outstanding on the date of the balance sheet.

22. CUSTOMER RELATIONS

R Systems recognises that the customers have choice of service providers and thedirectors would like to place on record their gratitude on behalf of the Company for thebusiness provided by them. The Company’s quality policy mandates that the Voice ofCustomer is obtained on a regular basis. We constantly review the feedback and incorporateits impact into our delivery systems and communications.

23. EMPLOYEE RELATIONS

R Systems is inspired by its customers and its employees transform that inspiration andcustomers’ needs into value for all stakeholders. We thank all R Systems employeesworldwide for their hard work, commitment, dedication and discipline that enables theCompany to accomplish its customer commitments and commitments to all its stakeholders. RSystems conducts regular employee satisfaction surveys, and open house meetings to getemployees feedback. R Systems is constantly validating key employee data with industry andpeer group business. These practices have helped the Company achieve many of its businessgoals and have been recognised in many industry surveys over the last few years. The opendoor policy of our senior management team ensures that the feedback loop is completedpromptly.

We thank our shareholders for their continuous support and confidence in R Systems. Weare aware of our responsibilities to our shareholders to provide full visibility ofoperations, corporate governance and creating superior shareholder value and we promise tofulfill the same.

24. MANAGEMENT DISCUSSION AND ANALYSIS REPORT

In terms of Clause 49 of the Listing Agreement entered into with the stock exchanges,management discussion and analysis report is given as Annexure D to this report.

25. ACKNOWLEDGMENTS

Your directors once again take this opportunity to thank the employees, investors,clients, vendors, banks, business associates, regulatory authorities including stockexchanges, Software Technology Park of India, the Central Government, State Government ofDelhi, Uttar Pradesh, Maharashtra, Tamil Nadu for the business support, valuableassistance and cooperation continuously extended to R Systems. Your directors gratefullyacknowledge the trust and confidence and look forward for their continued support in thefuture.

On behalf of the Board
For R Systems International Limited
Sd/-
Place: CA, U.S.A. Satinder Singh Rekhi
Date: April 15, 2011 (Chairman and Managing Director)

Annexure ‘A’ to the Directors’ Report

Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies(Particulars of employees) Rules, 1975 and forming part of the Directors’ Report forthe year ended December 31, 2010 Employed for full financial year

S. No Name Designation / nature of duties Qualification Age (Years) Date of Joining Experience (Years) Gross Remuneration (Rs.) Previous employment & designation
1 Ashok Bhatia Vice President - Govt. Solutions / Vice President - Offshore Services B.Sc, PGDMM and Certified Project Manager (SAPM) from Stanford University, USA 43 January 1, 2006* 19 9,379,591 ACT Inc., Pittsburgh, PA Vice President - Marketing
2 Belinraj Mathias Country Manager - Japan BE in Computer Science 42 February 1, 2008 18 6,229,177 Satyam Computers Limited, Japan Senior Manager
3 Harsh Verma Vice President (Global Innovative Research) & Head, Mobility Solutions BE (Hons) in Electrical & Electronics Engineering, MS PhD in Computer Science from BITS, Pilani, Executive Mgmt Prog from IIM, Ahmedabad, Post- Doctoral Res Prog, UC Berkeley. 51 February 19, 2007 26 6,467,654 Glocol, Inc., California, USA Vice President, R&D
4 Jeremy Dawson Sales Manager BS - Buisness Administration (Graduation) 38 January 1, 2008* 15 6,012,273 DSA Inc. Manager
5 Mandeep Singh Vice President - Sales Bachelors degree in Electronics 43 January 1, 2008* 18 15,539,645 Sark Synertek, Noida
Sodhi Engineering from Marathwada University and MBA from University of California, Davis Senior Marketing Engineer
6 Satinder Singh Rekhi Chairman & Managing Director Bachelor of Technology from IIT, Kharagpur; MBA California State University, Sacramento; Senior Management programs from University of Berkeley and Harvard Business School 60 January 1, 2006* 28 15,562,573# Digital Information Systems Corporation Senior Management Personnel

* Prior to joining R Systems International Limited "the Company" theseemployees were working with R Systems, Inc the US subsidiary of the Company. The date ofjoining in the subsidiary, of these employees is given hereunder:

Name Date of Joining
Ashok Bhatia December 11, 2000
Jeremy Dawson March 11, 2002
Mandeep Singh Sodhi April 1, 1993
Satinder Singh Rekhi April 1, 1993

# Includes an amount of Rs. 890,000 which was approved by the Central Govermment forthe year 2006. Notes:

1 The remuneration includes basic salary, allowances and taxable value of perquisites.

2 Mr. Mandeep Singh Sodhi is related to Lt. Gen Baldev Singh (Retd.) and Mr. SatinderSingh Rekhi, the directors of the Company. None of the other employee in the above statedlist is related to any director of the Company.

3 None of the employee owns more than 2% of the outstanding shares of the Company as onDecember 31, 2010.

4 Nature of employment is contractual in all the above cases.

On behalf of the Board

For R Systems International Limited

Sd/-

Satinder Singh Rekhi

(Chairman and Managing Director)

Place: CA, U.S.A.

Date: April 15, 2011

   

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eClerx Services 3,737.69 16.47 9.09 8.07 41.8 50.4 0.00
Infotech Enterp. 3,713.71 15.21 3.18 4.60 16.7 23.0 0.00
KPIT Tech. 3,144.58 24.93 3.54 11.45 13.7 14.5 0.28
Pine Animation 2,637.04 0.00 104.62 0.00 1.1 1.1 0.14
NIIT Tech. 2,495.73 11.17 3.25 6.09 23.9 31.6 0.01
Firstsour.Solu. 1,863.75 14.34 1.51 3.10 12.9 11.0 0.62
Tata Elxsi 1,715.35 29.01 8.94 10.55 11.0 15.0 0.24
Cressanda Solns. 1,671.32 0.00 53.97 0.00 1.3 2.0 0.00
Zensar Tech. 1,641.66 9.91 3.22 5.11 26.2 36.1 0.01
Financial Tech. 1,632.86 7.71 0.61 8.10 11.1 12.5 0.23
Rolta India 1,299.51 2.61 0.87 0.00 21.4 14.4 1.12
Accelya Kale 1,193.73 14.86 15.64 6.07 78.2 102.4 0.01

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Key Information

Key Executives:

Satinder Singh Rekhi , Chairman & Managing Director  

Baldev Singh , President & Senior Execut. Dir  

Raj Swaminathan , Director & COO  

Raj Kumar Gogia , Director  


Company Head Office / Quarters:
B-104A Greater Kailash-I,
,
New Delhi,
New Delhi-110048
Phone : 91-011-32591149
Fax : 91-011-32591149
E-mail : investors@india.rsystems.com
Web : http://www.rsystems.com
Registrars:
Link Intime Spectrum Reg. Ltd
44 Naraina Indl Are
Phase I
Naraina
New Delhi - 110028

Fund Holding

 
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