MANAGEMENT S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(a) Information Technology Industry in India
Information Technology Enabled Services is a growing sector of a country s economy andindustrial development. It includes all the fields related to Information Technology suchas Business Process Outsourcing, Software Development Industry, Customer Care Centre etc.Besides, the IT industry generates substantial employment and provides a growth impetus toother sectors through backward and forward linkages.
The Information Technology sector in India which accounts for considerable share of thegross domestic product is amongst the largest economic activity and provides direct orindirect employment to millions of people. The sector consumes lesser outflow of theNational Plan and contributes considerably to GDP. As per the performance of theInformation Technology sector world wide, development in India is amongst leadingCountries in the world on the scale of global performances.
(b) Overview of our Company
The company is engaged in the business of providing customer care services and handlingclients business relations on their behalf by maintaining relation with their consumersand also providing them service by assisting them in managing their work flow and updatingtheir records.
The company is equipped with an extensive fleet of IT sector related equipments,including advanced mechanism in IT Sector, latest software to conduct operations smoothly.The company has employed software and hardware experts to render services, to look afterworking mechanism of the company and to assure that the process flow of the company is nothindered by any outside factors or the factors related to software or hardware mechanism.
The company has been accredited with ISO 27001:2005 Information Security ManagementSystem certificate for management and awareness of Security System. The company isregistered with NASSCOM.
(c) Significant developments subsequent to the last financial year
There are no such significant developments that have taken place from the date of thelast financial statements that have an adverse material impact on the financials.
(d) Factors affecting results of our operations
Our financial condition and results of operations are affected by the followingfactors:
Foreign currency risk
All revenues of the company are denominated in USD, GBP and most of our expenses areincurred and paid in Indian rupees. The exchange rates between the Indian rupee, the U.S.Dollar have changed substantially in the recent years.
Cost of people
The principal component of our cost is the wages of our employees. The number of peopleassigned to a programme will vary according to size, complexity, duration and demand ofthe programme. If wages in India increase due to competitive pressures, we may experiencea greater increase in our human resource cost. These being human changes in cost duringthe execution of the services may increase cost of services and alter profitability oncontracts, which are not covered by escalation provisions.
The demand for our services is dependent on acceptance of our service offerings in theinternational markets, our ability to keep pace with technological changes and provideinnovative solutions services. The business of the company is significantly dependent onthe global economic condition and information technology sector activity in India/abroadand Government policies relating to information Technology projects. The Government ofIndia s focus on and sustained increase in budgetary allocation for the informationtechnology sector and the development of software technology parks and comprehensivepolicy that encourages greater private sector participation as well as increased fundingby international and multilateral development financial institutions for projects in thisregion have resulted in or expected to result in several large software technology parksprojects in this region. Our ability to benefit from the considerable investments proposedin the IT sector in the medium and long term will be key to our results of operations.
Our operations are exposed to uncertain political, legal and economic environment,government instability and complex legal systems and laws and regulations in the India andabroad. Our ability to manage, evolve and improve our operational, financial and internalcontrols across the organization and to integrate our widespread operations and derivebenefits from our operations is key to our growth strategy and results of operations.
We compete against major IT enabled service providers as well smaller regional ITenabled Service provider companies. Our competition varies depending on the clients andlocation of the clients.
Our capabilities to participate and execute
The nature of the Government s policy to allow export trade tendering process is suchthat the pre qualifications obtained in the past play an important role in allowingcompanies to provide new services. The ability to compete strategically with othercompetitors will also determine the success in award of some major clients. The clientmanagement capability will also determine the profitability.
Collection of receivables from our clients
There are usually no delays associated with the collection of receivables from ourclients which are totally foreign based. Our operations involve significant workingcapital requirements and prompt collection of receivables affect favourably to ourliquidity and results of operations. We will ensure that such services do not involve ourtaking on the long term risk that the client may default on its annuity payment to us.However, there can be no assurance that any such development would not adversely affectour business.
Variability of payment terms
Our revenues are dependent on the payment terms involved in a service agreement. Ourcontracts typically stipulate payment terms on the basis of achievement of specifiedmilestones and schedules for the project.
The extent to which the company s business is seasonal.
The company s business is non seasonal.
Any significant dependence on a single or few suppliers or customers
Revenues of company are dependent on IT enabled customers. However, the company hasexcellent relations with existing clientele who continue to support to the operation ofthe company which is evident from rise in income from operations, in past years.
The operations of company do not face significant competition due to excellent existingcustomer base as well as expanding new clientele base. However, in long run competitionfrom existing players in IT Industry in India could be there.
The company believes it is in a dynamic market with a potential for substantial growthin future.
(f) Internal Control Systems and their adequacy
The company has adequate internal control systems and procedures commensurate with thesize and nature of business. The company continuously upgrades its systems in line withthe best availability practices. These systems are supported by periodical reviews by themanagement and standard policies and guidelines to ensure that financial and other recordsare prepared accurately.
(g) Our Results of Operations
As a result of the various factors discussed above that affect our income andexpenditure on specific projects, our results of operations may vary from period to perioddepending on the nature of projects undertaken by us, their completion schedules, thenature of expenditure involved in a particular project and the specific terms of thecontract, including payment terms.
Analysis of Revenue
Our revenues, referred to in our financial statements as total income comprises ofincome from operations and other income. The income from operations comprises of BPO / ITenabled services receipts from clients in lieu of services provided to them in form ofhandling their customers and managing their work flow process in accordance with theirrequirements as per agreement and up-to their satisfaction.
Our income from other sources comprises of interest income from bank and dividend andcapitial gain from mutual fund.
Our expenditure mainly comprises of employees cost, operation & other expenses anddepreciation. Employee Cost consists payments made to the employees at all levels of thehierarchy. Operation cost comprises of expenditure incurred for maintaining computersystems including development/maintenance expenses for software and hardware systemsutilized. Communication cost, electricity expenses, overseas travel, exchange fluctuationloss and advertisement. Other expenses consists of expenses incurred for day to dayroutine office expenses like printing & stationery, professional fees, insurance, rentrates & taxes and sundry expenses.
Comparison of the financials of the year ended 31st March, 2009 & 31stMarch, 2010.
Income from operations increased from Rs. 1860.41 lacs for the year ended March 31st,2009 to Rs. 2041.61 lacs, for the year ended March 31st, 2010.
There was increase in revenue of 9.74% during the financial year 2009-10. The companydelivered better financial performance with improvements.
Employee compensation & other related expenses
Employee s compensation & related expenses increased from Rs. 164.07 lacs for theyear ended March 31st, 2009 to Rs. 171.38 lacs for the year ended March 31st,2010.
The increase in staff cost by 4.45% is due to increment given to the employees infinancial year 2009-10.
Operation & other expenses
There was also increase in operation & other expenses by 35.53% from Rs. 297.15lacs for financial year 2008-09 to Rs.402.71 lacs for financial year 2009-10. This wasmainly due to the fact that our exchange rate fluctuation cost increased from Rs. 58.10lacs for the year 2008-09 to Rs. 124.57 lacs in year 2009-10. IPO expenses written off wasRs. 73.43 lacs.
Depreciation increased from Rs. 83.36 lacs for the year ended March 31st,2009 to Rs.86.24 lacs for the year ended March 31st, 2010. This increase of3.46% in depreciation charge was due to addition to fixed assets.
Profit after tax
Profit after tax has been reduced by Rs. 98.68 lacs due to increase in tax rate from11.33% to 16.995%.Profits of our company are exempt from Income Tax u/s. 10B of the IncomeTax Act, 1961, for the period 2009-10. We recognized deferred tax . However, due toapplicability of Minimum Alternate Taxes (MAT) u/s. 115JB of Income Tax Act, 1961 to STPIcompanies w.e.f. fiscal 2008, we have to provide current income tax of Rs. 261.20 lacs forfinancial year ended 31st March 2010, we have taken MAT credit entitlement ofRs. 234.48 lacs.
The company formed subsidiary company viz. Excel Info FZE on 16th December,2009. Consolidated accounts of subsidiary company are attached to this annual report.