R Systems International Ltd

BSE: 532735 | NSE: RSYSTEMS | ISIN: INE411H01032 
Market Cap: [Rs.Cr.] 817.27 | Face Value: [Rs.] 1
Industry: Computers - Software - Medium / Small

Director's Report
Directors

Dear Shareholders,

Your directors take great pleasure in presenting the Twentieth 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, 2013.

1. Financial Results

a. Standalone financial results of R Systems

(Rs. in Millions)

Financial Year ended

Particulars 31.12.2013 31.12.2012
Total income 2,739.72 2,331.49
Profit before depreciation, exceptional items and tax 589.30 369.66
Less : Depreciation and amortisation 47.81 62.40
Profit before tax 541.49 307.26
Less : Current tax (net of MAT credit) 188.29 95.40
Less : Deferred tax charge / (credit) (12.32) 6.58
Profit after tax 365.52 205.28
Surplus in the statement of profit and loss
Balance as per last financial statements 609.70 805.01
Add: Profit for the current year 365.52 205.28
Less: Appropriations
Proposed dividend (refer note below) 120.70 94.26
Tax on proposed dividend (refer note below) 21.24 15.29
Interim dividend 139.24 199.19
Tax on interim dividend 23.66 32.31
Transfer to general reserve 36.55 59.53
Total appropriations 341.39 400.58
Net surplus in the statement of profit and loss 633.83 609.70

The Company has issued 50,100 shares pursuant to exercise of ESOP up to book closuredate for distribution of dividend for the year 2012 and accordingly increased theappropriation in the current year by Rs. 0.38 million and Rs. 0.06 million as dividend andtax on dividend respectively. Further, due to increase in surcharge rate under FinanceAct, 2013 the Company has additionally appropriated Rs. 0.73 million towards tax ondividend proposed for the year 2012.

b. Consolidated financial results of R Systems and its subsidiaries

(Rs. in Millions)
Particulars

Financial Year ended

31.12.2013 31.12.2012
Total income 6,007.69 4,700.13
Profit before depreciation, exceptional items and tax 819.97 389.43
Less : Depreciation and amortization 101.71 100.89
Profit before tax 718.26 288.54
Less : Current tax (net of MAT credit) 192.50 94.99
Less : Deferred tax charge / (credit) (1.23) 9.93
Profit after tax 526.99 183.62
Surplus in the statement of profit and loss
Balance as per last financial statements 582.14 799.11
Add: Profit for the current year 526.99 183.62
Less: Appropriations
Proposed dividend 120.70 94.26
Tax on proposed dividend 21.24 15.29
Interim dividend 139.24 199.19
Tax on interim dividend 23.66 32.31
Transfer to general reserve 36.55 59.53
Total appropriations 341.39 400.58
Net surplus in the statement of profit and loss 767.74 582.14

Previous Year figures have been regrouped / recasted, wherever necessary.

2. Results of Operations

Standalone Accounts

• Total income during the year 2013 increased to Rs. 2,739.72 million as againstRs. 2,331.49 million during the year 2012, a growth of 17.51%.

• Profit after tax was Rs. 365.52 million during the year 2013 as compared to Rs.205.28 million during 2012, a growth of 78.06%.

• Basic earnings per share (of face value of Re. 1/- each) was Rs. 2.90 for theyear 2013 as compared to Rs. 1.65 for the year 2012, a growth of 75.76%.

Consolidated Accounts

• Consolidated total income during the year 2013 increased to Rs. 6,007.69 millionas against Rs. 4,700.13 during the year 2012, a growth of 27.82%.

• Profit after taxes was Rs. 526.99 million during the year 2013 as compared toRs. 183.62 million during 2012, a growth of 187%.

• Basic earnings per share (of face value of Re. 1/- each) were Rs. 4.18 for theyear 2013 as compared to Rs. 1.48 for the year 2012, a growth of 182.43%.

3. Appropriations and Reserves

Dividend

During the year 2013, the Board declared two interim dividends namely, first interimdividend of Rs. 2.50 per equity share of Rs. 10/- each at its meeting held on July 27,2013 and second interim dividend of Rs. 8.50 per equity share of Rs. 10/- each at itsmeeting held on October 25, 2013.

Taking into consideration the operating profits for the year 2013 and a positiveoutlook for the future, the Board of Directors (the "Board") is pleased torecommend a final dividend of Rs. 0.95 per equity share of Re. 1/- each (Rs. 9.50 perequity share of Rs. 10/- each before sub-division of equity shares), being 95% on the parvalue, to be appropriated from the profits of the Company for the financial year 2013subject to the approval of the shareholders at the ensuing Annual General Meeting. Totaldividend including two interim dividends already paid for the year 2013 comes to Rs. 2.05per equity share of Re. 1/- each (Rs. 20.50 per equity share of Rs. 10/- each) i.e. 205%,as compared to total dividend including interim dividend in the form of special dividendpaid for the year 2012 at Rs. 23.50 per equity shares of Rs. 10/- each i.e. 235%.

The aforesaid final dividend for the year 2013 as recommended by the Board, if approvedat the ensuing Annual General Meeting, will be paid to all the equity shareholders whosenames appear in the Register of Members of the Company as of the opening business hours onMay 02, 2014 after giving effect to all valid share transfers in physical form which wouldbe received by the Company's registrar and share transfer agent M/s Link Intime IndiaPrivate Limited up to the end of business hours on, May 01, 2014 and to those whose namesappear as beneficial 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 02, 2014to May 10, 2014, both days inclusive.

Transfer to Reserves

It is proposed to transfer a sum of Rs. 36,552,200/- (Rupees Thirty Six Million FiveHundred Fifty Two Thousand and Two Hundred only) from the current year profit incompliance with the Companies (Transfer of Profits to Reserves) Rules, 1975.

4. Business

R Systems is a leading provider ofoutsourced product development services, businessprocess outsource services and also offers own product suite in BFSI, Manufacturing &Logistic verticals. R Systems diversified offering includes:

(IPLM Services Group)

Under IPLM Services, R Systems delivers solutions and services in the area ofInformation Technology and Information Technology enabled services. The IT services coverapplication development, systems integration and support and maintenance of applications.Under the ITES we cover managed services, BPO services covering both technical support forIT and Hi-Tech electronic gadgets, high-end Quality Process Management and Revenue andClaims Management using our global delivery model in 20 languages.

Products Group

R Systems products group consists of two units. Indus which address the retaillending, telecom and insurance industry and ECnet which addresses supply chain,warehousing and inventory management.

Indus offerings include an integrated enterprise muti-portfolio lending suite forbanking and financial services in the Retail, Corporate and SME sectors, credit managementand revenue collection for telecom companies, iPerSyst for insurance companies which helpsin timely policy renewal and customer retention along with other IT services to bankingand financial clients.

ECnet Supply Chain products provide solutions for holistic management of the complexinteraction between an organisation and its trading partners. The integrated solution aimsto reduce all supply chain costs through improved collaboration and optimisation. Thesolutions are robust and scalable and give measurable ROI to clients within one year.Further, ECnet also operates as a channel partners for reselling and implementing severalERP products of one of the largest business software company to serve customers in a keycustomer segment: Small- to medium-sized businesses. These products present an opportunityto cross and up sell these solutions since these are adjunct to ECnet's own productofferings.

R Systems is focused on key business verticals - Telecom and Digital Media, Banking andFinance, Healthcare Services, Manufacturing and Logistics, and Government Services andinvested in building capabilities and domain knowledge around these focused verticals.This has helped in providing innovative and cost efficient solutions and services underchosen verticals.

Customers and Delivery Centres

R Systems rapidly growing customer list includes a variety of Fortune 1000, governmentand mid-sized organizations across a wide range of industry verticals including Bankingand Finance, High Technology, Independent Software Vendors, Telecom and Digital Media,Government, HealthCare, Manufacturing and Logistic Industries. R Systems maintainsthirteen development and service centres and using our global delivery model, we servecustomers in the US, Europe, South America, the Far East, the Middle East, India 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) andSix Sigma practices for processes have ensured that risks are identified and mitigated atvarious levels in the planning and execution process. R Systems journey for variousquality certifications / standards for the development and service centres in India isprovided below:

2013 : PCI-DSS (Ver 2.0)

2012 : PCMM Level 5 (Ver 2.0)

2011 : SEI CMMI Level 5 (Ver 1.2)

2010 : ISO 9001 : 2008

2009 : PCMM Level 5

2008 : PCMM Level 3

2006 : ISO 27001 : 2005

2006 : SEI - CMMI Level 5

2004 : SIX SIGMA Roll-Out

2003 : SEI - CMM Level 5

2002 : SEI - CMM Level 4

In the year 2013, Noida BPO center was certified as PCI-DSS ver 2.0 compliant for theCall Analytic Services provided to one of the major client.

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 :2008 and ISO 27001 : 2005 certified. Pune and Chennai development centres are SEI-CMMLevel 5, ISO 9001 : 2008 and ISO 27001 : 2005 certified. The continuing compliance withthese standards demonstrates the rigor of R Systems processes and differentiates us tokeep our competitive edge in service and product offerings.

To maintain and strengthen competitive strengths, R Systems continues to makeinvestments in its unique and proprietary pSutte with best practices, tools andmethodologies for flawless execution and consistent delivery of high quality software. ThepSuite framework offers services along the entire software lifecycle that includestechnology consulting, architecture, design and development, professional services,testing, maintenance, customer care and technical support. R Systems expects that itstechnology focus, investment in processes, talent and methodologies will enable it todistinguish itself from competition as it seeks to provide services to technology /product companies.

6. Acquisition

During the year under review, ECnet Limited, Singapore, a subsidiary of the Companycompleted the acquisition of ERP business from Nikko Computers System(s) PTE Ltd. (NCS).NCS provides ERP implementation and support services primarily to Japanese companieslocated in Singapore and Malaysia. This business acquisition will strengthen our ERPbusiness and customer base in South East Asia under our subsidiary ECnet Limited,Singapore. The acquisition will provide a good Japanese client base and help to grow ourbusiness in the South East Asia region.

7. Directors

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

Mr. Raj Kumar Gogia and Mr. Gurbax Singh Bhasin were reappointed as directors liable toretire by rotation and Mr. Raj Swaminathan was further re-appointed as Director and ChiefOperating Officer of the Company for a period of three years w.e.f. September 29, 2012 atthe previous Annual General Meeting held on May 11, 2013.

Pursuant to the approval of the Board at its meeting held on November 29, 2013 andapproval accorded by the shareholders by passing necessary resolution through postalballot on January 14, 2014, Mr. Satinder Singh Rekhi has been re-appointed as Chairman& Managing Director of the Company for a period of five years i.e. w.e.f. January 01,2014 to December 31, 2018 subject to the approval of the Central Government, ifapplicable.

Further, Mr. Anuj Kanish, who was appointed by the Board of Directors at its meetingheld on May 11, 2013 as an Additional Director to hold office till the ensuing AnnualGeneral Meeting of the Company, has expressed his unwillingness to be re-appointed andhence the Board has not proposed his appointment at the ensuing Annual General Meeting. Atthe ensuing Annual General Meeting, Mr. Suresh Paruthi and Lt. Gen. Baldev Singh (Retd.)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 High Courtsof Delhi and Mumbai. As on the date of this report, no stock options are in force underthis 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 as amended, details relatingto options approved, granted, vested, exercised, lapsed, in force etc. under theprevailing employees stock option plans / schemes during the year ended December 31, 2013are as follows:

R Systems International Ltd.

Year - 2004 Employee Stock Option Plan

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

 

R Systems International Ltd.

Year - 2004 Employee Stock Option Plan

R Systems International Ltd. - Year 2004 Employee Stock Option Plan - ECnet Indus Software Employees Stock Option Plan Year

2001

R Systems International Limited Employee Stock Option Scheme 2007
(a) # (b) # (c) # (d) #
c. Options granted during the year Nil Nil Nil Nil
d. Options vested during the year Nil Nil Nil Nil
e. Options exercised during the year Nil Nil Nil 144,750
f. The total number of shares arising as a result of exercise of options during the year Nil Nil Nil 144,750
g. Options lapsed during the year 4,495 Nil Nil 6,000
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 17,471,325
j. Total number of options in force at the end of the year 51,540 6,200 Nil 104,928

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. 2.90*

# Please note that the details given above for plan (a), (b) and (c) are after makingthe required adjustments in relation to consolidation of each of the 5 equity shares ofRs. 2 each into 1 equity share of Rs. 10 each as approved by the shareholders in the year2006 and before sub-division of each of the equity shares of Rs. 10 each into 10 equityshares of Re. 1 each as per record date of February 28, 2014.

* EPS is per equity share of Re. 1 each i.e. after giving into effect sub-division ofequity shares of Rs. 10 each into equity shares of Re. 1 each as per record date ofFebruary 28, 2014.

During the year ended December 31, 2013, R Systems had not granted any options underany of the aforementioned plans.

All options granted under Indus Software Employees Stock Option Plan - Year 2001 havealready been vested and exercised or lapsed and no options were in force as on December31, 2013.

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 above schemes is"Nil" and thus no accounting thereof is required.

The assumptions used for the purpose of determination of fair value are stated below:

Assumptions Unit Scheme (a) * Scheme (b) ** Scheme (c)*** Comments by the valuer
Strike price Rs. 42 154 26
Current share price Rs. 16 140 16 Taken on the basis of NAV and PECV method of valuation.
Expected option life No. of Years 5 2.5 5 Being half of the maximum option life.
Volatility % 1 0.5 1 In case of unlisted shares, the volatility may be taken as zero. Verma committee also recommends this.
Risk free return % 7 11.3 7 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.

** 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.

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

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 2006and before sub-division of each of the equity shares of Rs. 10 each into 10 equity sharesof Re. 1 each as per record date of February 28, 2014.

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 'Black ScholesValuation Model' is "Nil" and thus no accounting thereof is required.

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 site 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" peroption.<

Futures & Options Quote
Future Data Not present
Key Information

Key Executives:

Satinder Singh Rekhi , 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 : New Delhi-91-011-32591149 / New Delhi-
Fax : New Delhi-91-011-32591149 / New Delhi-
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

 
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