estar infotech ltd Management discussions

E.STAR INFOTECH LIMITED ANNUAL REPORT 2006-2007 MANAGEMENT DISCUSSION AND ANALYSIS Overview The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956, and Generally Accepted Accounting Principles (GAAP) in India. The management of e.Star Infotech Limited accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably present the Companys state of affairs and profits or the year. Industry Structure, Developments And Outlook The Indian IT sector has proved to be the countrys fastest growing segment. The software and services industry, a major component of Indias IT sector has showed significant momentum, higher than that of other industries in he country. India continued to be a compelling investment destination, as leading companies either set up shop here or beefed up their existing infrastructure. Outsourcing of IT requirements by leading global companies to Indian majors has also picked up pace in line with worldwide trends. Software and services exports continued to remain on top of the IT industrys revenue table. Global IT services spending is projected to grow at a compound annual growth rate of 5.9% to reach US$556 billion by 2009, from an estimated IT services spending of US$441 billion in 2005 according to International Data Corporation. The growth of global IT services spending is primarily driven by following factors and trends Increased importance of IT to businesses Impact of Internet and other new technologies on business Managing and upgrading existing systems Increasing trend towards offshore outsourcing. India is considered to be the most favored destination for offshore IT service delivery. The Nasscom-Mc-Kinsey Report of 2002 estimates that export revenue generated from the software and service industry in India was approximately US$15.5 billion in 2004 and is expected to reach US$50 billion by 2008 representing a compound annual growth rate of 34%. Opportunities And Threats The Company foresees a big market for new software products in identified segments. The significant threats to the Companys business continues to be the following (a) Competitive pressures: Since the company operates in world markets, competitive pressures can develop from any corner of the globe. Company has to be on the lookout for tracking the competition and maintaining its competitive edge in terms of quality and value proposition. (b) Talent retention: Company has to ensure that the people working for it who constitute its major competitive advantage continue to contribute productively to its business. Company has always maintained excellent work environment and competitive remuneration packages for this purpose. (c) Technology obsolescence : The Company has to ensure that it constantly updates and upgrades it technology so as to be on par with the competitors. (d) Exchange Rates : As the company uses India as a major source of manpower, the exchange rate of the Rupee vis-a-vis the US Dollar and other currencies affect its ability to compete. The Company attempts to minimize the risk by diversifying the currency in which it invoices the customers and by taking forward covers where appropriate. Risk And Concerns The risks and uncertainties include, but are not united to, risks and uncertainties regarding fluctuations to earnings and exchange rates, our ability to manager growth, intense competition in IT sector including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price contracts, client concentration, restrictions on immigration, our ability to manage our international marketing and sales operations, reduced demand for technology in our key focus areas, damages on our service contracts & product warranty, the success of the companies in which the Company has made strategic investments, withdrawal of governmental fiscal incentives, political instability, legal restrictions on acquiring companies outside India, and unauthorized use of our and our customers intellectual property, the latter when in our possession as well as general and economic conditions affecting our industry. Internal control systems and their adequacy e.Stars internal control systems as well as procedures adequately commensurate with the magnitude of its current business. The operating and business control procedures have been framed in order that they ensure efficient use of resources and comply with the procedures and regulatory requirements. The internal control system is being further strengthened by laying out well-documented guidelines, approval and authorization procedures. Human Resources During the year under review, the company has enjoyed cordial professional relations with employees at all levels. Forward looking statements Certain statements as discussed and mentioned under Management Discussion and Analysis and elsewhere, constitute forward looking statements articulated as expectations of future business prospects. However, there are risky and uncertainties with regard to not only general economic conditions but also to the nature of the Companys business including foreign currency fluctuations, technological developments etc., which are out of the Companys control. Hence, these and other crucial factors could cause the actual results to differ materially from the performance or achievements discussed or implied by such forward looking statements.