persistent systems ltd Management discussions

Overview

The pandemic which hit the world during the first quarter of calendar 2020 caused significant disruption in the first half with everyone. The healthcare infrastructure had to be augmented significantly and governments, businesses or consumers were engaged in coping with this unknown virus. Towards later part of 2020, after the first wave subsided and the treatment protocol was available, there was improvement in economic activity at a broader level. The second wave of the virus hit India hard during the past two months and it is hoped that we are near its peak. With the vaccine production being stepped up, the situation will improve with an increase in distribution of doses to cover a large part of the population. Most central banks have been infusing liquidity in the system to ensure availability of credit and address supply chain constraints.

After the initial impact faced by businesses in the first few months due to lockdowns, the businesses globally were quick to adjust to the new normal of remote working and adopted digital channels at an accelerated pace. The worldwide IT spend is expected to grow which will be majorly seen in digitization of internal processes, supply chain, customer and partner interactions and service delivery.

Industry Structure and Development

The significantly accelerated pace of digital adoption served as a tailwind for the technology sector in catering to this enablement of businesses. For those already at the forefront of digital such as Banking and Financial services, the pandemic has been a catalyst to go even faster. For others, there was a need to be able to cater to the demand for their products and create newer channels to sell. Persistent is one of the leading companies in enterprise modernisation and next generation product engineering. We help businesses convert their greatest challenges into competitive advantage through the blend of digital business acceleration and innovative digital product engineering. We saw increased demand for our services as more and more customers were transforming their business models. There was also a shift towards offshoring that has been evident.

Our Strategy

The Companys core strength is in product engineering or software ER&D. We are engaged in helping our customers build next-gen products using digital product engineering. We have built strategic partnerships which converge with our go-to- market approach. Our service offerings are differentiated with IP-led components, accelerators etc. Our inorganic growth plan is aimed at competency building and enhancing our ability to provide leading edge solutions to the customers. Our leadership team is engaged in defining and executing the plan in our next phase of growth. It is our endeavour to provide an environment which enables our talent to continuously learn and innovate while keeping customer delight as the goal.

Opportunities and challenges

As the businesses started adjusting to the disruption caused by the pandemic, the technology sector responded quickly and decisively to support their customers across the globe. They successfully pivoted into working from home mode, reconfigured supply chain and accelerated digital transformation enabling their customers to continue their operations despite several constraints. With a sharp increase in technology adoption, tech companies will play a leading role in the new ecosystem not just as enablers but also in designing solutions and creating new business models. The consumers have also embraced ordering goods and services online, whether it is less frequently bought goods like car tyres or more frequently purchased items like tea and coffee. This created a significant need for aligning the business processes with the help of technology.

As many companies accelerated the transformation to stay ahead, it has led to a surge in demand for technology talent. Finding the right talent will be a challenge and needs to be addressed by investments in learning platforms and tools so that the dependence on external hiring is limited.

In "work from anywhere" model, security will be one of the bigger challenges and we continue to enhance our infrastructure on an ongoing basis to mitigate the risks posed,

Outlook

Persistent has three decades of experience of working with companies that define technology. Our major strength is digital engineering combined with agile and DevOps methodologies to design scalable product architecture. We are transforming our delivery processes by investing in emerging technologies. This has helped us build high quality software solutions for customers. Our global presence adds to our capabilities of delivering quality services to our customers. Our focus on development of onshore and nearshore centres aligns with our plan of establishing CoE based delivery organization.

Risks and concerns

Major portion of our revenue comes for the top 10 customers. Any change at these clients can impact our growth

Any Economic slowdown in the US where we have higher concentration of our revenue would impact our business adversely

Large competition in the technology services would affect our pricing which in turn will have an effect on our margins

Shortage of resources in the niche technology areas would be a threat to our projects in these technologies

Internal control systems and their adequacy

The Board is responsible for establishing and maintaining adequate internal financial control as per Section 134 of the Act.

The CEO and CFO certification provided under Report on Corporate Governance section of Annual report discusses the adequacy and procedure of internal control over financial reporting.

Internal Audit

We have an in-house internal audit team which comprises of personnel with professional qualifications and certifications in audit and related areas. The audit team continuously upgrades its skills through a knowledge management program to continuously assimilate the latest trends and skills in the domain and to retain the knowledge gained for future reference and dissemination. For audit areas which require skill sets and industry specific expertise, the audit areas are co-sourced/ outsourced to consulting experts as and when deemed necessary in line with the audit plan.

The Head of Internal Audit team reports to the Chairman of the Audit Committee and is a permanent invitee to the quarterly meetings of the Audit Committee and the Risk Management Committee. Findings of the internal audits are presented to the Audit Committee at its quarterly meetings.

An extensive program of internal audits and management reviews supplements the process of internal financial control framework. The function provides an independent, objective assessment of operations and provides suggestions to improve Operations of Business Units. The audits are carried out throughout the year and are based on an internal audit plan, that is reviewed and approved by the Audit Committee every quarter. In line with the industry practice and regulatory requirements, the internal audit function covers mandatory areas such as review of Internal Financial Controls, Business and Financial operations and regulatory Compliances.

Material development in Human resource

Most valuable capital of Persistent is its employees. We believe that investment in our human capital has a significant impact on our performance and helps us to stay competitive among our peers. Developing our workforce is our way to grow our organization, improve productivity and reduce employee turnover. At Persistent, human resource development is a process of investing in improving and refining our employees existing skills and at the same time supporting development of the new ones.

As at March 31, 2021, we had a total workforce of 13,680, with net addition of 3,048 during the year which is 29% higher as compared to the previous year. We have a fairly diverse workforce spread across 15 countries and 44 nationalities.

It consists of 32% women employees. The Company employed 12,915 in main-stream technical positions. Of these 4,642 were graduates, 2,325 post-graduates and 24 Ph.D.s.

We recruit fresh graduates from universities across India. During the year under report, the Company added 491 new graduates through campus recruitment. The Company strongly believes in nurturing ‘Industry - Academia partnerships and has many programs such as final year project mentoring and providing guest lectures in colleges, Persistent Day where

students spend a day at Persistent to observe how the Company operates, and internships for college students. Persistent Computing Institute (PCI) conducts programs in cutting edge technology for students that were very popular.

Our internship programmes help undergrads to work on business projects with top talent in the field. They are also provided with mentorship and get a chance to learn from the community of technology experts. Persistent University and Persistent Computing Institute are our learning centres nurturing talent via innovative ways.

At Persistent our values are more than a list of ideals to improve our corporate image. We ensure that everything that we do revolves around our core values. We are dedicated to building an inclusive culture that reflects whats important to our employees based on what they value. In short #LifeAtPersistent is more about embracing the journey for the every employee who will see beyond and rise above.

The attrition rate during the year under report was 11.63% which was lower than the attrition rate of 14.28% for the previous year.

Life at Persistent

With the vision from our founder and CMD, over the last two years we were already well rooted in the Life at Persistent space. This helped us quickly adapt to the online mode of working.. When employees started working from home, they missed the office environment and colleagues. We launched Virtual Coffee Break sessions allowing employees a forum to have some fun, express their ideas and to engage with the leadership making the short time spent together refreshing.

We encouraged employees to post pictures as per the theme of the day and we had a few employees talk about their pictures and experience. This helped us get a feel that We Are In This Together! We received excellent response and feedback for this daily Virtual Coffee Break Room. Employees felt confident to see leaders in an informal setting.

Wellness was always the Focus at Persistent. This year we sharpened it further. We conducted weekly webinars on Wellness by experts on various topics related to Covid Care, Eye care, Ergonomics and Posture correction, Eye Care, Dental care, Diabetes Hypertension, Women health and so on. This helped create awareness, answer queries and encourage employees to invest in themselves. Our daily sessions on fitness helped employees get the required guidance.

Emotional Wellness, was the need of the hour, we had series of workshops by eminent people explaining the importance of Yoga, Meditation and Pranayam throughout the year. Our weekly webinars on Emotional Wellbeing by our inhouse counsellors helped employees cope up with the relationship challenges posed by staying in the house. The series helped guide parents to handle kids be it toddlers or teenagers. Our counsellors were available for our employees to guide and handhold them.

At Persistent we have been organizing Persistent Run every year. Nothing stopped us this year too. We did a virtual run and this saw a huge participation from friends and families. We had many employees who ran 21kms, 15kms and 10 kms along with the amateurs who did a 3k or a 5k Run.

While we ensured Physical Wellness and Emotional wellness was given the priority, we kept the Fun going. This year our annual event PULSE was held over a virtual platform. This was the first time all of us across the globe came together and celebrated one Pulse. Every year it was done at the respective locations. The week- long Fun culminated into a Grand Finale which was done by the employees for employees. It was amazing to see inhouse talent perform across the globe dance, act and sing. It was an amazing show of the rich diversity we have across our Persistent Family! Our employees enjoyed this spectacular evening along with their family!

Our employees showed Resilience throughout the year and helped the company perform well this year! The management decided to send a Resilience Gift to all its employees. The gift was carefully crafted with a cause in mind. It had a combination of Persistent branded backpack, a branded steel bottle and a silk and wool Stole which was weaved by the artisans in Kashmir. Through this gift we could ensure that the artisans in Kashmir and our local manufacturers were supported in these difficult times

Smart India Hackathon

The Company continued to play an active leadership role in organizing the fourth edition of Smart India Hackathon i.e. SIH2020.

SIH2020 involved 248 problem statements in the software category and 95 problem statements in the hardware category. The problem statements were shared by 43 Union ministries and departments as well as 26 private organizations collaborated for problem statements.

This year 4Lakhs+ students participated in the internal campus hackathon organized by their respective colleges and further 6500+ students participated in the virtual grand finale of both software and hardware edition.

More than 1200 evaluators and 2000 mentors provided their valuable guidance and feedback to the student innovators.

The 40 institutions served as Nodal Centers were key partners in the successful execution of this first ever virtual Smart India Hackathon.

Smart School Hackathon

Smart School Hackathon (SSH) is a distinctive innovation competition that helped identify, develop, showcase and further nurture the technical brilliance of school students in Goa. SSH is inspired from Smart India Hackathon, a platform created by Persistent, i4C and Government Ministries that hones technical skillsets of engineering students across India with a goal of providing solutions to our countrys problems.

SSH was held virtually on 20 Feb 2021 from Persistent Pune for students from schools across Goa for standard 6th to 10th. The 6 critical concerns addressed in SSH Goa included topics like Student Health Manager, Pothole Management, Electrical Line Fault Detection, Stray Cattle Management System, Teacher Assistant and Data Hackathon. Every school had various teams comprising of 3-4 participants. SSH Goa organized pre-event online workshops from industry experts covering topics like loT, Recycled art, Leadership, Science in daily life etc that helped students to prepare for the competition as well as their future careers.

Financial Analysis

The following discussion is based on the audited consolidated financial statements of Persistent Systems Limited, and its following subsidiaries and step-down subsidiaries:

1Persistent Systems, Inc

2Persistent Systems Pte. Ltd

3Persistent Systems France SAS

4) Persistent Systems Malaysia Sdn. Bhd.

5Persistent Systems Germany GmbH

6Capiot Software Private Limited (Acquired with effect from October 29, 2020)

7Persistent Telecom Solutions Inc. (step-down subsidiary)

8Aepona Limited (step-down subsidiary)

9Valista Limited (step-down subsidiary) (Dissolved with effect from June 24, 2020)

10Persistent Systems Lanka (Private) Limited (erstwhile Aepona Software (Private) Limited) (step-down subsidiary)

11Aepona Group Limited (step-down subsidiary)

12Persistent Systems Mexico, S.A. de C.V. (step-down subsidiary)

13Persistent Systems Israel Ltd. (step-down subsidiary)

14PARX Werk AG (step-down subsidiary)

15PARX Consulting GmbH (step-down subsidiary)

16Youperience GmbH (step-down subsidiary)

17Youperience Limited (step-down subsidiary)

18Capiot Software Inc. (step-down subsidiary) (Acquired with effect from November 7, 2020)

19Capiot Software Pty Limited (step-down subsidiary) (Acquired with effect from November 7, 2020)

20\Capiot Software Pte Limited (step-down subsidiary) (Acquired with effect from November 7, 2020)

21Persistent Systems S.R.L. (step-down subsidiary) (Incorporated on March 23, 2021)

In this report, Persistent Systems and its subsidiaries and step-down subsidiaries collectively have been referred to as "the Company", reflecting the financial position in the consolidated financial statements. The financial year 2020-21 has been referred to as "the year" and the financial year 2019-20 has been referred to as "the previous year".

The consolidated financial statements have been prepared in accordance with Ind-AS.

Financial position and results of operations

Persistent Systems Limited was listed on National Stock Exchange of India Limited (NSE) and the BSE Limited (BSE) on April 6, 2010.

The financial statements of the Company have been prepared on an accrual basis and under the historical cost convention except for certain financial instruments, equity settled employee stock options and initial recognition of assets acquired under business combinations which have been measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The accounting policies are consistently applied by the Company during the year and are consistent with those used in previous year except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.

Financial performance summary

Particulars	Unit	Financial Year 2020-21	% to revenue	Financial Year 2019-20	% to revenue	Growth
Revenue	f million	41,878.88		35,658.08		17.45%
Revenue	$ million	566.08		501.61		12.85%
Earnings before interest, depreciation, amortisation and taxes	f million	6,830.15	16.31%	4,929.54	13.80%	38.56%
Profit Before Tax	f million	6,094.43	14.55%	4,523.42	12.69%	34.73%
Profit After Tax	f million	4,506.77	10.76%	3,402.89	9.54%	32.44%
Earnings Per Share (EPS) (Basic and Diluted)	f	58.97		44.38		32.88%

Share Capital

The authorized share capital of the Company as at March 31, 2021 was Rs.2,000.00 Million divided into 200 Million equity shares of Rs.10 each. The paid-up share capital as at March 31, 2021 was Rs.764.25 Million divided into 76.425 Million equity shares of Rs.10 each. (Previous year Rs.764.25 Million divided into 76.425 Million equity shares of Rs.10 each). There were no changes in the authorized and paid up share capital during the year.

Other Equity

The Other Equity as at March 31, 2021 stood at Rs.27,192,41 Million as against Rs.23,093.30 Million as at March 31, 2020, showing a growth of 17.75%, The details of Other Equity are as below:

		(In Rs.million)
Particulars	As at March 31, 2021	As at March 31, 2020
General Reserve	14,356.53	12,227,41
Share Options Outstanding Reserve	470.70	290,51
Gain on bargain purchases	57.31	57.71
Capital redemption reserve	35.75	35,75
Special Economic Zone re-investment reserve	-	49,95
Retained Earnings	11,564.42	10,087,74
Effective portion of cash flow hedges	139.45	(244,09)
Exchange differences on translating the financial statements of foreign operations	568.25	588,32
Total	27,192.41	23,093.30

General Reserve

During the Financial Year 2020-21, the Company transferred Rs.2,020,34 Million out of the profits of the year to General Reserve in accordance with the Companys Policy of Transfer of Profits to General Reserve, Further, there has been transfer of Rs.108,78 Million from Share Options Outstanding Reserve on exercise/expiry of stock options by the employees, The balance in General Reserve stood at Rs.14,356,53 Million as at March 31, 2021 as against Rs.12,227.41 Million as at March 31, 2020,

Please refer "Other Equity" under Statement of Changes in Equity in the consolidated financials for details,

Share Options Outstanding Reserve

In accordance with Ind AS 102 - "Share Based Payments", the cost of equity-settled transactions is determined by the fair value of the options at the date of the grant and recognized as employee compensation cost over the vesting period following graded vesting method,

The amount of stock options outstanding as at March 31, 2021 was Rs.470,70 Million for 0,75 Million options exercisable as on that date (The corresponding amount in stock options outstanding account as on March 31, 2020 was Rs.290,51 Million for 0,88 Million options exercisable on that date), The increase in the liability represents fair value of options granted (including Restricted Stock Units) during the year to the employees, Please refer "Other Equity" under Statement of Changes in Equity in the consolidated financials for details,

Gain on bargain purchases

As per Ind AS 103- "Business Combinations", if the net fair value of the identifiable assets, liabilities and contingent liabilities acquired exceeds the cost of business acquisition, a gain is recognized as Gain on bargain purchases under other comprehensive income, The Company has carried out the fair valuation of all identifiable assets, liabilities and contingent liabilities acquired under the business acquisitions after the date of transition to Ind AS (i,e, April 1, 2015), Based on this, the Gain on bargain purchases stood at Rs.57.31 Million as at March 31, 2021 as compared to Rs.57,71 Million as at March 31, 2020,

Please refer "Other Equity" under Statement of Changes in Equity in the consolidated financials for details,

Capital redemption reserve

Capital redemption reserve represents the nominal value of the shares bought back; and is created and to be utilised in accordance with Section 69 of the Companies Act, 2013, The Capital redemption reserve was unchanged and stood at Rs.35,75 Million as at March 31, 2021 and March 31, 2020, Please refer "Other Equity" under Statement of Changes in Equity in the consolidated financials for details,

Special Economic Zone re-investment reserve

The Company had transferred Rs.70.00 Million to Special Economic Zone re-investment reserve out of the profit in terms of the provisions of Section 10AA(1)(ii) of the Income tax Act, 1961, in the year ended March 31, 2019.

The balance in the reserve as at March 31, 2020 was Rs. 49.95 Million. During the year ended March 31, 2021, the Company has completely utilised the reserve by acquiring new plant and machinery for the purpose of its business in terms of Section 10AA(2) of the Income tax Act, 1961.

Retained Earnings

The balance retained in the Statement of Profit and Loss as at March 31, 2021 is Rs.11,564.42 Million, after appropriation towards dividend of Rs.1,069.95 Million and transfer to General Reserve of Rs.2,020.34 Million.

The details of changes in Retained Earnings are as follows:

		(In Rs.million)
Particulars	For the year ended March 31, 2021	For the year ended March 31, 2020
Opening balance	10,087.74	10,657.52
Net profit for the year	4,506.77	3,402.89
Other comprehensive income for the year (Remeasurements of defined benefit schemes)	10.25	(34.80)
Dividend (including tax on dividend for year ended March 31, 2020)	(1,069.95)	(1,300.52)
Transfer to general reserve	(2,020.34)	(1,630.89)
Transfer to capital redemption reserve	-	(26.94)
Transfer from/(to) Special Economic Zone re-investment reserve	49.95	20.05
Transitional impact on adoption of Ind AS 116 (net of taxes)	-	(123.60)
Utilised towards buy back of shares	-	(875.97)
Closing balance	11,564.42	10,087.74

Please refer "Other Equity" under Statement of Changes in Equity in the consolidated financials for details.

Effective portion of cash flow hedges

The Company derives a substantial part of its revenues in foreign currency while a major part of its expenses is incurred in Indian Rupees. This exposes the Company to the risk of loss due to fluctuations in foreign currency rates.

The following chart shows movement of monthly spot and forward rates of the Rupee against the USD in Financial year 2020-21, indicating the volatility that the currency faced throughout the year:

The Company minimizes the foreign currency fluctuation risk as per Companys Foreign Exchange Risk Management Policy. The Company holds plain vanilla forward contracts against expected future receivables in USD to hedge the risk of changes in exchange rates.

As per the accounting principles laid down in Ind AS 109 - "Financial Instruments" relating to cash flow hedges, derivative financial instruments which qualify for cash flow hedge accounting are fair valued at balance sheet date and the effective portion of the resultant loss/(gain) is debited/(credited) to the hedge reserve under other comprehensive income and the ineffective portion is recognized in the statement of profit and loss. Derivative financial instruments are carried as forward contract receivable when the fair value is positive and as forward contract payable when the fair value is negative.

Changes in the fair value of derivative instruments that do not qualify for hedge accounting are recognized in the statement of profit and loss as they arise.

Hedge accounting is discontinued when the hedging instrument expires or is sold, or terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss on the hedging instrument recognized under other comprehensive income is transferred to the statement of profit and loss when the forecasted transaction occurs or affects profit or loss or when a hedged transaction is no longer expected to occur.

Accordingly, the Hedge Reserve (net of tax effects) as at March 31, 2021 stood at a credit balance of Rs.139.45 Million as against a debit balance of Rs.244.09 Million as at March 31, 2020. Please refer "Other Equity" under Statement of Changes in Equity in the consolidated financials for details.

Exchange differences on translating the financial statements of foreign operations

While consolidating the financial statements of subsidiaries (including step down subsidiaries) with the financial statements of the Parent Company, the assets and liabilities are stated in Indian Rupees by applying the closing exchange rates, equity is stated in Indian Rupees by applying the historical exchange rates and income and expenditure are stated in Indian Rupees by applying the average exchange rates. This creates exchange difference on consolidation which is accumulated under foreign currency translation reserve.

The balance in the foreign currency translation reserve was Rs.568.25 Million as at March 31, 2021 as against Rs.588.32 Million as at March 31, 2020. Please refer "Other Equity" under Statement of Changes in Equity in the consolidated financials for details.

Non-current assets (other than non-current financial assets)

The Non-current assets (other than non-current financial assets) as at March 31, 2021 stood at Rs.4,691.23 Million as against Rs.4,618.66 Million as at March 31, 2020. The details are as below:

		(In Rs.million)
Particulars	As at March 31, 2021	As at March 31, 2020
Property, Plant and Equipment	2,401.40	2,224.60
Capital work-in-progress	121.81	166.18
Right of use assets	852.58	566.81
Goodwill	85.94	88.94
Other Intangible assets	1,229.50	1,434.93
Intangible assets under development	-	137.20
Total	4,691.23	4,618.66

Property, Plant and Equipment

The gross block of Property, Plant and Equipment amounted to Rs.7,884.71 Million as at March 31, 2021 as against Rs.7,370.07 Million as at March 31, 2020. The increase is primarily because of acquisition of computers during the year. The company procured additional computers/hardware worth Rs. 559.91 million for the growing business needs.

Capital work-in-progress

Capital work-in-progress (Capital WIP) stood at Rs.121.81 Million as at March 31, 2021 as against Rs.166.18 Million as at March 31, 2020.

Management Discussion and Analysis

Right of use assets

The gross block of Right of use asset stood at Rs.1,245.63 million as at March 31, 2021 as against Rs.834.25 million as at March 31, 2020. Additions of Rs.584.67 million have been made towards renewals and additions of leased office premises.

Goodwill

Goodwill represents the cost of business acquisition in excess of the Companys interest in the net fair value of identifiable assets, liabilities and contingent liabilities of the acquired Company. The Goodwill as at March 31, 2021 was Rs.85.94 Million as against Rs.88.94 Million as at March 31, 2020. The difference represents exchange fluctuation.

Other Intangible assets

The gross block of intangible fixed assets amounted to Rs.8,657.70 Million as at March 31, 2021 as against 7,993.99 Million as at March 31, 2020. The additions pertain to software and acquired contractual rights, including those acquired through business combinations.

Please refer note no. 6.4 and note no. 45 of the consolidated financial statements for details.

Intangible assets under development

The intangible assets under development as at March 31, 2020 have been entirely capitalized during the current year. The developments have been completed on the Balance Sheet date and accordingly, the "Intangible assets under development" related to such resources are Nil as at March 31, 2021 as against Rs.137.20 million as at March 31, 2020.

Non-current financial assets

The non-current financial assets at March 31, 2021 were Rs.3,781.79 Million as against Rs.5,156.03 Million as at March 31, 2020. The details of non-current financial assets are as follows:

		(In Rs.million)
Particulars	As at March 31, 2021	As at March 31, 2020
Investments	3,621.27	4,620.97
Loans	134.76	176.13
Other non-current financial assets	25.76	358.93
Total	3,781.79	5,156.03

Non-current financial assets: Investments

The total non-current investments as on March 31, 2021 stood at Rs.3,621.27 Million as against Rs.4,620.97 Million in the previous year. The net decrease in non-current investments is mainly due lower investment in mutual funds intended to be held for more than 12 months. Please refer Note 7 of the consolidated financials for details.

Non-current financial assets: Loans

The non-current loans as at March 31, 2021 were Rs.134.76 Million as compared to Rs.176.13 Million as at March 31, 2020. Please refer Note 8 of the consolidated financials for details.

Other non-current financial assets

Other non-current financial assets consist of the non-current deposits with banks and the financial institutions including interest accrued on these deposits. The total of such deposits amounted to Rs.25.76 Million as at March 31, 2021 as against Rs.358.93 Million as at March 31, 2020. The Company has fully provided for the deposits of Rs.130.00 Million with IL&FS Ltd and Rs.300.00 Million with IL&FS Financial Services Ltd.

Please refer Note 9 of the consolidated financials for details.

Deferred Tax Assets and Deferred Tax Liabilities

The deferred tax assets (after set off) on March 31, 2021 amounted to Rs.1,037,57 Million as against Rs.960.08 Million as on March 31, 2020,

The net increase is mainly due to changes in timing differences in book value and tax base value of block of Property, Plant and Equipment, employee benefits and other timing differences,

Note 10 of the consolidated financials gives component-wise details of deferred tax balances,

Other non-current assets

Other non-current assets include capital advance and other advances recoverable in cash or kind, The amount of Other non-current assets was Rs.441,52 Million as at March 31, 2021 as against Rs.331,31 Million as at March 31, 2020,

The increase is mainly due to increase in advances recoverable in cash or kind,

Please refer Note 11 of the consolidated financials for details,

Current Financial Assets

		(In Rs.million)
Particulars	As at March 31, 2021	As at March 31, 2020
Investments	6,374.95	5,164,77
Trade receivables (net)	5,708.97	5,921,96
Cash and cash equivalents	2,419.30	1,899,99
Other bank balances	7,389.70	2,672,19
Loans	71.26	13,71
Other current financial assets	2,467.23	2,068,54
Total	24,431.41	17,741.16

Current Investments

As per the Investment Policy approved by the Board of Directors, the Company invests its surplus funds in liquid and debt schemes and fixed maturity plans of some reputed mutual funds with a focus on capital preservation, liquidity and optimization of returns,

Investment in mutual funds classified under current investments stood at Rs.6,374,95 Million as at March 31, 2021 as compared to Rs.5,164,77 Million as at March 31, 2020,

Trade Receivables

Trade receivables (net of provision for doubtful debts) amounted to Rs.5,708,97 Million as at March 31, 2021 as against Rs.5,921,96 Million as at March 31, 2020,

The Company uses a provisioning policy approved by the Board of Directors to compute the expected credit loss allowance for trade receivables, The policy takes into account available external and internal credit risk factors and the historical payment track record of customers, Further, the policy incorporates the provisioning of all customer balances which are overdue for a period of more than 180 days,

Provision for doubtful debts increased marginally to Rs.271,64 Million as at March 31, 2021 from Rs.242,13 Million as at March 31, 2020, Please refer Note 13 of the consolidated financials for details,

DSO as at March 31, 2021 was at 55 days as against 65 days as at March 31, 2020,

Cash and cash equivalents

Cash and cash equivalents include bank balances and cash on hand, Cash and cash equivalents increased to Rs.2,419,30 Million as at March 31, 2021 from Rs.1,899,99 Million as at March 31, 2020,

Other bank balances

Deposits with banks having maturity of more than twelve months from the balance sheet date including interest thereon and the balances on unpaid dividend accounts are considered under other bank balances. These deposits amounted to Rs.7,386.70 Million as at March 31, 2021 as compared to Rs.2,668.14 Million as at March 31, 2020. The deposits have increased because of additional deposits made during the year and increase in interest accrued on the deposits. The balances on unpaid dividend accounts was Rs.3.00 Million as at March 31, 2021 as against Rs.4.05 Million as at March 31, 2020. Please refer Note 15 of the consolidated financials for details.

Loans:

Current loans include unsecured short-term loans granted and the security deposits with short term maturity. The amount of current loans as at March 31, 2021 was Rs.71.26 Million as against Rs.13.71 Million as at March 31, 2020. Please refer Note 16 of the consolidated financials for details.

Other current financial assets

Other current financial assets were Rs.2,467.23 Million as at March 31, 2021 as compared to Rs.2,068.54 Million as at March 31, 2020. Following are the components of other current financial assets:

		(In Rs.million)
Particulars	As at March 31, 2021	As at March 31, 2020
Forward contracts receivable	294.46	-
Unbilled revenue	2,172.77	2,068.54

The amount of forward contracts receivable represented favourable position (i.e. Mark To Market gain) as at the Balance Sheet date in respect of the forward contracts entered by Company. Unbilled revenue represents revenue recognized in relation to work done until the Balance Sheet date for which billing has not taken place. Please refer Note 17 of the consolidated financials for details.

Other Current assets (other than financial assets)

Other Current assets other than financial assets include following:

		(In Rs.million)
Particulars	As at March 31, 2021	As at March 31, 2020
Current tax assets (net)	188.00	163.93
Other current assets	2,083.72	1,950.52
Total	2,271.72	2,114.45

Other current assets include advances recoverable in cash or kind within period of twelve months from the Balance Sheet date and VAT receivable, Service Tax and GST receivable.

Current ratio was 3.47 as at March 31, 2021 as against 3.07 as at March 31, 2020.

Non-current liabilities

		(In Rs.million)
Particulars	As at March 31, 2021	As at March 31, 2020
Financial liabilities
Borrowings (non-current portion)	44.27	46.22
Lease liabilities	716.17	353.36
Provisions	240.94	182.79
Total	1,001.38	582.37

Non-current financial liabilities- Borrowings

Under the scheme of NMITLI (New Millennium India Technology Leadership Initiative), the Company has undertaken a project on the ‘System based Computational Model of Skin. As a part of this scheme, Council for Scientific and Industrial Research (CSIR) has granted a financial help in the form of a loan at a nominal rate of interest of 3% p.a. Based on the project costs, an amount of Rs.40.71 Million has been sanctioned as a long-term loan. The loan is repayable in ten equal annual instalments commencing from October 2015. Loan amount outstanding under this scheme amounted to Rs.7.39 Million as on March 31, 2021 as against Rs.9.24 Million as on March 31, 2020.

The reduction in balance of borrowings represents the repayment of borrowings as per the repayment schedule in the agreements.

Under the Covid 19 scheme for medium and small scale industries by the Government of Switzerland, the step-down subsidiary company has received an interest free loan in March 2020, for a term of 5 years for an amount of CHF 500,000, equivalent to Rs.38.73 million as on March 31, 2021, (Previous year: 39.14 Rs.million).

Under the scheme of Biotechnology Industry Partnership Program of Department of Biotechnology (DBT), Ministry of Science and Technology, Government of India, financial aid is given to all the partners involved in the research project undertaken by the Ministry of Science and Technology in the field of biotechnology. The Company being an industrial partner, the aid is in the form of a long-term loan at a nominal rate of interest of 2% p.a. Based on the project costs, an amount of Rs.21.80 Million were sanctioned as a long-term loan. Loan amount outstanding under this scheme amounted to Rs.2.69 Million as on March 31, 2020 was fully repaid during the year as per the repayment schedule in the agreements.

The interest of Rs.0.11 Million (previous year Rs.0.18 Million) is accrued but not due on these loans. Out of the total outstanding balance of Rs.46.23 Million, the balance of Rs.1.96 Million is repayable within twelve months from the Balance Sheet date and hence, reclassified to Other Current Financial Liabilities.

Please refer Note 19 of the consolidated financials for details.

Debt-equity ratio as at March 31, 2021 was 0.0017 as against 0.0021 as at March 31, 2020.

Non-current liabilities- Provisions

The long-term provisions are those provisions which are not expected to be settled within twelve months from the date of the Balance Sheet. Long term provisions include the liability towards long service award. The total long-term provisions have increased to Rs.240.94 Million as at March 31, 2021 as compared to Rs.182.79 Million as at March 31, 2020.

Current Liabilities

		(In Rs.million)
Particulars	As at March 31, 2021	As at March 31, 2020
Financial liabilities
- Trade payables	2,733.44	2,247.09
- Lease liabilities	222.00	309.06
- Other financial liabilities	390.17	862.34
Other current liabilities	1,514.95	1,320.13
Provisions	2,477.79	1,610.99
Total	7,338.35	6,349.61

Trade Payables

Trade payables increased to Rs.2,733.44 Million as at March 31, 2021 from 2,247,09 Million as at March 31, 2020 essentially on account of the growth in operations of the Company.

Other current financial liabilities

Other current financial liabilities include capital creditors, current maturity of borrowings including interest thereon, accrued employee liabilities, unpaid dividend and other contractual liabilities. Other current financial liabilities have decreased to Rs.390.17 Million as at March 31, 2021 from Rs.862.34 Million as at March 31, 2020 mainly due to decrease in accrued employee liabilities, favourable mark to market position on forward contracts entered into by the Company, partially compensated by increase in capital creditors.

The details of major components of other current financial liabilities are shown below:

		(In Rs.million)
Particulars	As at March 31, 2021	As at March 31, 2020
Capital creditors	237.83	36.24
Current maturity of long-term borrowings	1.85	4.85
Current maturity of interest on long-term borrowings	0.11	0.18
Accrued employee liabilities	127.50	421.17
Unpaid dividend	3.00	4.05
Other liabilities	7.96	7.96
Payable to Selling Shareholder	11.92	-
Forward contracts payable	-	387.89
Total	390.17	862.34

Other current liabilities

Other current liabilities include unearned revenue, advances from customers and statutory and other liabilities. Unearned revenue represents the billing in respect of contracts for which the revenue is not recognized. The other current liabilities have increased to Rs.1,514.95 Million as at March 31, 2021 from Rs.1,320.13 Million as at March 31, 2020. The net increase in other current liabilities is primarily due to increase in statutory liabilities by Rs.139.01 Million and balance of Rs.154.16 Million pertaining to unutilized grant balances included in other liability. Please refer Note 24 of the consolidated financials for details.

Current liabilities: Provisions

The short term provisions denote the employee liabilities and other provisions expected to be settled within a period of twelve months from the date of the Balance Sheet. The short term provisions were Rs.2,477,79 Million as at March 31, 2021 as against Rs.1,610.99 Million as at March 31, 2020. The details of the components of short term provisions are given below:

		(In Rs.million)
Particulars	As at March 31, 2021	As at March 31, 2020
Provision for employee Benefits
Gratuity	37.78	20.41
Leave encashment	815.28	638.05
Long service awards	17.19	21.35
Other Employee benefits	1,607.54	931.18
Total	2,477.79	1,610.99

The increase in other Employee benefits is mainly due to increase in performance bonus provisions.

Current Tax Liabilities

Current tax liabilities were Rs.358.85 Million as at March 31, 2021 as against Rs.132.16 Million as at March 31, 2020. Refer Note 33 of Consolidated Financial Statements for details.

Revenue from Operations (Net)

The Company provides product engineering services, platform-based solutions and IP-based software products for global customers. The Company derives a significant portion of revenues from export of software services and products.

The revenue for the year in USD terms was up by 12.85% at USD 566.08 Million against USD 501.61 Million in the previous year. In Rupee terms the revenue was Rs.41,878.88 Million against Rs.35,658.08 Million representing a growth of 17.45% over the previous year. The average rate of rupee depreciated by 4.07 % during the year against US Dollar.

In order to better represent the Companys business the Company decided to reorganize its operating segments from April 1, 2020 along industry lines as under, instead of Technology Services and Alliance.

a. Banking, Financial Services and Insurance (BFSI)

b. Healthcare & Life Sciences

c. Technology Companies and Emerging Technologies

Following is the graphical presentation of the contribution of the segments in the total revenue:

Revenue Shares by Segments

			(In Rs.million)
Particulars	For the Year ended March 31, 2021	For the Year ended March 31, 2020	Growth
Segmental revenue
- BFSI	12,857.05	10,506.77	22.37%
- Healthcare & Life Sciences	8,104.24	6,719.15	20.61%
- Technology Companies and Emerging Technologies	20,917.59	18,432.16	13.48%
Total	41,878.88	35,658.08	17.45%
Segmental Operating income
- BFSI	4,818.38	3,598.15	33.91%
- Healthcare & Life Sciences	3,982.47	2,900.18	37.32%
- Technology Companies and Emerging Technologies	6,449.40	6,418.19	0.49%
Total	15,250.25	12,916.52	18.07%
Segmental Operating margin %
- BFSI	37.48%	34.25%
- Healthcare & Life Sciences	49.14%	43.16%
- Technology Companies and Emerging Technologies	30.83%	34.82%

In terms of geographical mix of revenue, North America continued to dominate by contributing 80.80% of the total revenue. Contribution from Europe was 9.20%, from India it was 8.40% while Rest of the World contributed 1.60% of total revenue. Revenue grew by 17.16% from North America, 13.74% from Europe, 33.32% from India and declined by 10.52% from the Rest of the World regions as compared to the previous year.

The details in respect of percentage of revenues generated from top customer, top 5 customers and top 10 customers are as under:

Revenue Concentration	2020-21	2019-20
Top 1	18.4%	22.0%
Top 5	38.7%	43.2%
Top 10	47.7%	51.7%

With significant growth in revenue from new customers, dependence on top customers has been decreasing.

Other Income

As explained in Note 27 of the consolidated financials, Other Income consists of income from investment of surplus funds in the form of dividend from mutual funds, profit on sale of investments, interest on deposits and bonds, foreign exchange gain and miscellaneous income. Other income has decreased to Rs.1,077.72 Million for the year ended March 31, 2021 from Rs.1,323.77 Million for the year ended March 31, 2020. This is primarily due to lower exchange gain for the financial year 2020-21.

The details of other income are given below:

			(In Rs.million)
Particulars	For the Year ended March 31, 2021	For the Year ended March 31, 2020	Change
Investment income (including interest, dividend, fair value gain/loss and profit on sale of investments)	905.44	843.09	7.4%
Foreign exchange gain	33.81	364.35	(90.7%)
Miscellaneous Income (including Advances and excess provisions written back and profit on sale of fixed assets)	138.47	116.33	19.0%
Total	1,077.72	1,323,77	(18.6%)

Personnel Expenses

Personnel Expenses for the year amounted to Rs.30,721.67 Million against Rs.25,475.34 Million for the previous year, showing an increase of 20.59%. As a percentage of revenue, these expenses were 73.36% during the year as compared to 71.44% in the previous year,

The main reason for increase in Personnel Expenses as a % of revenue is on account of impact on revenue due to prevalent economic disruptions as a result of pandemic during first half of the year and increased hiring in the later part of the year in response to the increased demand momentum which resulted into slightly lower utilisation.

Please refer Note 28 of the consolidated financials for details.

Other Expenses

Operating and other expenses for the year amounted to Rs.4,327.06 Million against Rs.5,260.15 Million in the previous year.

As a percentage of revenue, the expenses decreased to 10.33% from 14.75%.

The main reasons for variations in Operating and other expenses are as below:

Travelling and conveyance costs went down by Rs.763.24 million due to the restrictions on travel imposed across the world on account of pandemic.

Electricity expenses were at Rs.82.58 Million for the year ended March 31, 2021 as against Rs.114.94 Million in the previous year, on account of partial utilization of office infrastructure due to work from home becoming a new normal as a result of the pandemic

Donations have increased by Rs.117.70 Million as the Company committed to make additional donations in its response to the global pandemic

Provision for doubtful deposits included a provision made for the deposits with IL&FS Group in the previous year for Rs.248.48 Million.

Please refer Note 28 of the consolidated financials for details.

Profit Before Interest, Tax, Depreciation and Amortization

During the year, the Company reported Profit before interest, tax, depreciation and amortization of Rs.7,907.87 Million representing an increase of 26.60% over Profit before interest, tax, depreciation and amortization of Rs.6,246.36 Million during the previous year. The margin of Profit before interest, tax, depreciation and amortization increased to 18.88% during the year from 17.52% in the previous year.

Depreciation and Amortization

The depreciation and amortization for the year amounted to Rs.1,755.50 Million as against Rs.1,659.62 Million in the previous year. Increase is mainly on account of amortisation on intangibles acquired under business combinations.

Depreciation and amortization as a percentage of revenue was 4.19% for the year against 4.65% for the previous year.

The details on depreciation and amortization is as given below:

		(In Rs.million)
Particulars	For the year ended March 31, 2021	For the year ended March 31, 2020
On Property, Plant and Equipment	468.66	453.35
On Other Intangible assets	1,035.38	944.94
On Right of Use assets	251.46	261.33
Total	1,755.50	1,659.62

Tax expense

Tax expense consists of current tax and deferred tax.

The Companys two major tax jurisdictions are India and the United States, though the Company also files tax returns in other overseas jurisdictions.

The tax expense for the year amounted to Rs.1,784.59 Million (including tax charge in respect of earlier years of Rs.10.58 Million) against Rs.1,407.25 Million (including tax charge in respect of earlier years of Rs.52.55 Million) in the previous year. The deferred tax credit for the year was Rs.196.93 Million against deferred tax credit of Rs.286.72 Million in the previous year.

The total tax expense for the year amounted to Rs.1,587.66 Million against Rs.1,120.53 Million for the previous year. The Effective Tax Rate (ETR) for the year amounted to 26.05% as compared to 24.77% in the previous year.

Please refer Note 33 for reconciliation of estimated income tax expense at Indian statutory income tax rate to income tax expense reported in statement of profit and loss.

Net Profit after Tax

The Net Profit for the year amounted to Rs.4,506.77 Million against Rs.3,402.89 Million for the previous year, an increase of 32.44%. The Net Profit margin for the year was 10.76% as compared to 9.54% in the previous year.

Return on capital employed for financial year 2020-21 is 17.59% as compared to 14.63% for the previous year.

Dividend

The total dividend per share for the year was Rs.20 per share which includes interim dividend of Rs.14 and a recommended final dividend of Rs.6 per share.

For the previous year, the total dividend was Rs.12 per share. Additionally, the Company paid Dividend Distribution Tax amounting to approx. Rs. 2.40 per share.

The total appropriation towards interim dividend for the year was Rs.1,069.95 Million as against Rs.1,023.26 Million for the previous year.

On approval of final dividend of Rs.6 per share which was recommended by board in its meeting held in April 2021, the amount of Rs.458.55 Million will be appropriated from reserves.

The Finance Act, 2020 in India has repealed Dividend Distribution Tax (DDT). The Companies are now required to pay/ distribute dividend after deducting applicable taxes. The remittance of dividends outside India is governed by Indian law on foreign exchange and is also subject to withholding tax at applicable rates as per Finance Act, 2020.

Summary of dividends declared

		Financial Year 2020-21		Financial Year 2019-20
Type of Dividend		Interim	Final	Interim 1	Interim 2
Month of Declaration/recommendation		Jan-21	Apr-21	Jan-20	Mar-20
Amount of Dividend Per Equity Share of Rs.10 each	(In f)	14	6	9	3
% of Dividend		140%	60%	90%	30%
Total Dividend	(In Rs.million)	1,069.95	458.55	687.83	229.28
Dividend Distribution Tax	(In Rs.million)	-	-	87.47	18.67
Total Outflow (Including Dividend Distribution Tax)	(In Rs.million)	1,069.95	458.55	775.30	247.95
Total Dividend Outflow for the Year	(In ^ million)	1,528.50		1,023.25

The dividend payout ratio (including proposed final dividend) for the year was 33.92% as compared to 30.07% for the previous year.

Earnings Per Share (EPS)

Basic and Diluted earnings per share went up to Rs.58.97 per share, compared to Rs.44.38 per share in the previous year, recording an increase of 32.88%.

Report on Risk Management

The recent global pandemic has shown that generic pandemic risk was underestimated in both magnitude and dimension. The role of the Enterprise Risk Management (ERM) is to evaluate and define the risks that may affect the Organizations success in achieving its strategic objective. COVID-19 has shown that pandemic consequences are difficult to reliably estimate. As the organizations have been forced to enact preparedness and business continuity plan, ERM is more important than ever before. The response to COVID-19 pandemic is directly shaping how corporations view and manage risks. It has forced companies to re-examine its risk management approach. While no one could have predicted the nature, severity or timing of COVID-19 spread, it is clear that the organizations should include such risks scenarios in future strategic discussions.

Risk Management Framework

The risk management framework at Persistent is as follows:

The existing as well as newly identified risks are analyzed to form a basis of determining how risks are managed in terms of its probability and impact. The risk areas are categorized into financial, operational, reputational and compliance perspective for further assessment. The risks are identified and prioritized and properly addressed by each of the functional heads to accomplish a common organizational objective. A Risk Register is maintained and is regularly monitored and updated by taking emerging risks into account for continuous risk assessment and for building the risk management based internal audit plan. This enhances our risk and control framework effectiveness.

Risk owners are required to take mitigating actions to address these risks. Such actions are integrated in the day to day activities and are monitored very closely. If any of the risk indicators show ineffectiveness of the mitigation plans, then the risk owners have to re-assess the existing mitigation plans and propose the new ones if necessary.

Risk Governance Structure

Risk governance is fundamental part of the corporate governance. It assists organizations to accept and manage risks within agreed risk appetite. It puts in place a structure of risk responsibility throughout the organization. As a result, everybody in the organization is aware of his/her own responsibility and accountability.

The risk management framework at Persistent is as follows:

This risk governance structure emphasizes on strong central oversight and control of risks with clear accountability for and ownership of risks within each business unit. Every business unit owns the risk that it generates and is responsible for effective implementation of the mitigation plans. It has a senior management council which supports transparent risk reporting and discussion with the Board. Overall, this has helped for a comprehensive and proactive risk management approach for Persistent.

Some of the major risks which have either resulted or aggravated due the pandemic are given below:

Major Risks	Effect of risk	Measures for risk mitigation
Employees not able to focus on engagement due to COVID-19 illness of self or dear ones	Infected employees will have to be away from work which might impact the project deadlines	Employees wellbeing is a bigger concern than the delay in the project or loss of the revenue. The Company has formed Persistent Warriors Group which extends all possible help to employees who are tested positive. In respect of customer projects if getting delayed, we are replanning the activities and customers are informed accordingly.
Cyber Attack and Hacking Risk	Work from home has increased the exposure to data breach on endpoint devices	Endpoint patching is revisited and program is initiated to achieve desired compliance level for each active endpoint.
Increase in employee attrition rate	Higher demand for skilled workforce in the technology industry has led to increase in the employee turnover	Improving employee retention is the best strategy to mitigate increasing attrition rate. Effective team building activities, flexible work schedule, rewarding good performers and various training and development activities are some of the employee retention programs being implemented.
Foreign Exchange Risk	Economic slowdown due to the pandemic resulted in a big volatility in the currency	Following are some of the measures undertaken to manage this risk:
		Constant analysis and review of current economic scenario, exchange rate movement and net open position
		Regular consultation with forex risk advisors
		Forward cover on 12 month rolling basis to cover 45% to 70% of net open positions
Credit Risk	Non-collection/delay in collection of customer dues	In view of the liquidity crunch on account of the global pandemic, the credit risk especially related to small and medium enterprises increased. In addition, structured process of collection has been implemented. Regular follow-up process is done for all overdue invoices.
		Monthly collection targets are set-up for all major customers and collections are tracked against the targets.
Risk of economic downturn	Uncertainties in the global economy may impact the growth of business	Focus on an increase in the diverse customer base helps to reduce this risk to some extent.
		Emphasis on upsell and cross-sell within industry verticals.
IP and Data Leakage	The abrupt shift to work from home model has exposed companies to various cyber risks	Data Governance Policy and Processes are well established
		Operations are certified for ISO 27001:2013 information security management systems
		Industry standard data protections including DLP, VPN, isolated networks and encryption
		Continuous monitoring by 24X7X365 Security Operation Centre (SOC)