3i Infotech Ltd Management Discussions.
The management discussion and financial analysis is based on the consolidated financial statements prepared in accordance with the Indian Accounting Standards ( referred to as "Ind AS").
Global IT services
As per Gartner, worldwide IT spending is projected to total $3.7 trillion in 2018, an increase of 4.5 percent from 2017, Global IT spending growth began to turn around in 2017, with continued growth expected over the next few years. However, uncertainty looms as organizations consider the potential impacts of Brexit, currency fluctuations, and a possible global recession. Despite this uncertainty, businesses will continue to invest in IT as they anticipate revenue growth, but their spending patterns will shift. Projects in digital business, blockchain, Internet of Things (IoT), and progression from big data to algorithms to machine learning to artificial intelligence (AI) will continue to be main drivers of growth.
3i Infotech is a global Information Technology company based out of Mumbai, India. A comprehensive set of 20+ IP based software solutions, coupled with a wide range of IT services, uniquely positions the Company to address the dynamic requirements of a variety of industry verticals, predominantly Banking, Financial Services, Insurance, Capital Markets, Asset & Wealth Management (BFSI). The Company also provides solutions for other verticals such as Government, Manufacturing, Distribution, Telecom, Healthcare and Retail. The Company has over 1200 customers, in more than 50 countries across 4 continents.
The Companys quality certifications include ISO 9001:2008 Quality Management System for BPO, ADMS, business Intelligence and Infrastructure Management Services along with ISO/IEC 27001:2013 Information Security Management System for its Data Centre Operations and CMMi Level 3 for Development and Services. The Companys Global Delivery Model provides for optimal resources, to be drawn from its vast talent pool across the globe, to offer best fit solutions, by integrating its products and services to create customized solutions facilitating customers to undertake technology-based business transformation that enables reorganization in line with todays dynamic digital business environment. The Company, which has won many awards and recognitions globally, operates in two main business lines viz. IT solutions and Transaction services. Its IT Solutions business contributes 95% and Transaction services contributes 5% of the total operating revenue.
IT Solutions segment includes sale of IT products developed by the Company and providing IT services to varied companies on an outsourcing business model. IT product business includes packaged applications for the BFSI space and an ERP suite. IT services include customized software development & maintenance, system integration, IT consulting and offshore & onsite support through its BPO operations. Through IT service offerings, the Company provides clients with application development and maintenance, IT infrastructure services, retail, business intelligence, document management service, business process management and data warehousing. Our Services are being strengthened with digital transformation offerings including Consulting, recommending appropriate solutions and partnering with the customers in building, testing & maintaining them.
Transaction Services segment covers management of back office operations for BFSI clients. Through transaction service offerings, the Company provides clients with services such as remittance, cheque processing, account origination, printing and mail room services, collection services, record management, registrar and transfer agent services, securitization and contact center services. The transaction service offerings cover the banking, insurance, capital markets, healthcare, energy, utilities and telecommunications industries. The Companys major thrust in the Transaction Services space is in the activities of Digitization, Customer On-boarding, Credentials Validation and Payment Management.
3i Infotech Services pivots its offerings on three distinct areas: co-innovation for transformation; customer centric and modular frameworks based on a curated technology stack for adept deployments and quantifiable outcomes that maximise ROI and enable easy technology adoption and effortless scalability for enterprises. Its Software Services portfolio focuses on the new set of technologies such as IoT, Blockchain, Social Media, Analytics, Cloud (SMAC), robotics, Artificial Intelligence, machine learning, telematics, Augmented Reality (AR)/ Virtual Reality (VR) and cybersecurity. Mobility and new age technologies will form the bedrock for enterprises seeking digital transformation. The Companys offerings cater to all levels of the mobility maturity curve.
Services offerings encompass new frameworks
AxES(Accelerate, Enable, and Scale) a mobility and portal framework; and
CRUx (Customer Reach and User Experience), a digital transformation solution. Both AxES and CRUX aim to catalyse the digital adaption for mid-sized and large enterprises with built-in end-to-end framework elements, cutting across B2B and B2C centric options.
A comprehensive solutions landscape includes
momenta, the Data and Insights Marketplace, a pre-built Analytics apps suite, which support a multitude of industries and business functions
Another solution, Flexib, offers performance, security and automation testing. The Company continually invests heavily in the areas of TaaS, DevOps, Agile, and CT (Continuous Testing framework) to meet enterprise demand.
HybridNxT helps enterprises move towards digital transformation with Hybrid Cloud
To make this cloud journey seamless and enable easy decisions, the Company provides an interactive framework - CReAT - Cloud Readiness Assessment for Transformation, which is based on financial savings, responsiveness, business impact and compliance. Customers can prioritise workloads to be migrated and decide applications to be re-architected or re-engineered with minimum resources and maximum benefits to business.
maggie part of cognitive service desk that will help contact centers to address hundreds of user requests simultaneously while successfully meeting the expectations of the digital-age users anytime, from anywhere.
Powered by Artificial Intelligence, and combined with Natural Language Interface, which helps it understand user queries and learn from past experience, Maggie reduces human intervention in communication and operations.
The Company offers end-to-end solutions for banks and financial institutions to efficiently onboard and service clients through multiple channels. Its varied offerings include:
Kastle ULS innovative lending solution with retail, corporate and Islamic finance encompassing origination, management, collections, customer service
AmLOCK Chartis-listed anti-money laundering (AML) solution offering regulatory compliance for 30+ countries
AmLOCKLiteFS comprehensive compliance solution for NBFCs for AML and counter-terrorist financing
KastleTreasury front-to-back Integrated Treasury Management solution covering asset classes like domestic treasury, forex, derivatives, commodities, funding, issuance
KastleRisk management Enterprise Risk Management solution covering credit, liquidity, market risk management, compliance to Basel III guidelines
KastleCBS scalable customer-centric Core Banking solution covering CIF management, deposits, loans, remittances, enterprise financials
KastleFactoring flexible Receivables and Payables Finance solution for open account trade
KastleDigital Banking omni-channel platform is a digital extension of the Companys core solutions for end-customers, sales force, collections agencies, business partners The Company offers Insurance organizations an array of powerful solution accelerators and software that enable efficient end-to-end management of business processes for Life, General, Health, Group Life and Islamic
Insurance. The Company also offers solutions covering entire gamut of investment management activities to financial services companies, such as dealing, compliance, accounting and valuation. Products include
Premia Insurance management Suite empowers insurance companies to deliver best-in-class solutions across domains. With Premia, customers can drive new business acquisitions through a digital eco-system
mFund Suite, a comprehensive, multi-currency-enabled web-based application provides powerful automation tools to various financial institutions undertaking Fund Management activities. It has proven expertise in Investment Management with MFund Suite and Quantis Suite which are market leaders in India and Malaysia The Company has made sustained investments in best-in-class technology and services to give enterprises the right ERP applications. Its product, ORION ERP, is an integrated, cost-effective and cloud-enabled industry solution for growing and mid-sized enterprises. ORION process packs are to various industries. ORION ERP is a globally trusted partner with 1,000+ installations and 50,000+ users across multiple verticals. The Company has extended its product line to GeSTup, an application that effectively addresses the compliance requirements of GST, Indias largest tax reform. The Company is approved by the GSTN (GST Network) as a GST Suvidha Provider (GSP).
In the ever evolving Technology landscape, the IT Services offerings of the Company, which is a big part of our business, is poised to ride on digital transformation offerings as a key focus area for Banking, Financial Services, Insurance, Healthcare, Enterprise and Government, including Consulting, recommending appropriate solutions and partnering with the customers in building, testing & maintaining them. The combination of our Products & Services portfolio offers a one stop shop for all our active customers globally.
The Company has marked its presence in Asia Pacific, South Asia, Middle East and Africa, Kingdom of Saudi Arabia,
Western Europe and North America, providing a platter of end-to-end solutions that offer product innovation, faster time to market, efficient business processes, productivity and cost savings, enhanced customer service and comprehensive risk management.
Vision and Strategies
The Company has carried forward the good work done in FY2017, with further positive strides in FY2018. In addition to the milestones achieved during the year, a number of steps have also been taken to lay the groundwork for further growth going forward.
The Company has succeeded in improving its CRISIL rating to CRISIL BBB-/Stable (Investment Grade as per RBI Circular dated February 12, 2018) from D/Default earlier.
The Company has also prepaid during FY2018, 15 instalments of principal, which were due from Apr 2018 to Jun 2019. The aggregate amount prepaid is Rs 97.66 crores amounting to 20.83% of the total principal due.
Since the past two years, 3i Infotech has been undergoing a resurgence of sorts. This has been a journey with its own challenges, but the Company has emerged like a phoenix from the ashes. With a revival in the Companys health it is necessary to reinvent itself to offer higher value to stakeholders and fast pace its growth. While retaining its core values of Innovation, Insight and Integrity, the Companys aim is to serve its customers, above and beyond their expectations. To signal this transformation, the brand identity has undergone a makeover to reflect our invigorated philosophy.
The new corporate logo reflects both the transformation of the Company and its vision for the future. The logo brings to life the Companys renewed promise of creating opportunities and value for its clients and highlights the strength and focus of its products and services portfolio. The distinctive colors represent a fresh approach, bringing vibrancy and dynamism to the brand, and the logo overall conveys building contemporary solutions in the ever changing technology landscape. The geometric shapes signal the coming together of Customers, Employees & Stakeholders and emphasizes its values of Innovation, Insight and Integrity that are at the core of the Companys DNA.
The new tagline, "Limitless Excellence" represents the Companys passion and zeal to go beyond the expected and deliver extraordinary levels of performance using the combination of evolved products and services, emphatic customer engagement and deep domain expertise.
Over the years, to keep pace with changing times and technology, the Company has always remained ever sensitive to the needs of its customers, focused on providing them with solutions that comprehensively address their challenges, and unlock triggers to their growth. The new brand identity represents the Companys renewed commitment to its clients & its employees, and reflects how it wants to be perceived - as a forward-thinking brand, dynamically keeping pace with the ever-changing technology landscape, which pushes boundaries and brings together the best of expertise, talent, products and services, creating outstanding results across the spectrum.
Along with the revamp of the Corporate brand, the Company has also repositioned its IT Services portfolio with the name AltirayTM. The new brand for Services reflects the Companys conviction towards being a future-ready & innovative organization. The Company is positioned to proactively do for its customers today, what others will do tomorrow. ALTIRAY speaks of performing above expectations. The brand line - Actioning Tomorrow, connotes the Services mission to accelerate the accomplishment of its customers goals. Delivering its customers ambitions ahead of time is the differentiator.
Altiray is a coined name from the word Altus in Latin meaning High and Ray meaning beam of light. The logo for the brand signifies the forward looking nature of the Services business, where the accentuated Y graphic in the symbol represents the ray of improvement and the arrow depicts a way forward for the Companys customers.
This new identity reflects the transition to an organization with a distinctive IT Services portfolio and a goal towards continuous improvement.
Over two decades of experience across a diverse client base in developed and emerging geographies like North
America, the Asia Pacific, Middle East and Africa as well as South Asia has given rise to an established domain expertise in BFSI and well-founded capabilities which form the foundation for its growth today.
This evolution is the result of a three phase Protect-Consolidate-Grow approach which helped the Company revive and revamp its business. As part of the Protect Phase, the Company upped its offerings content with software upgrades, contemporary add-ons and technical support. The Consolidate Phase during the last year-and-half saw investments in R&D in both software products and services, to make them more adaptable to local conditions in diverse markets and to meet each customers unique needs for competitive advantage. With its Protect and Consolidate phases successfully completed by end 2017, The Company has laid a strong foundation to accelerate into a growth phase. The success is reflected in its second consecutive year of net profits and its operating margins.
During FY2018, the Company faced a number of challenges including large IT players entering the Companys market space, banking sector constraints in India, economic slowdown in the Middle East, brand recognition challenges in its Services business and visa process challenges in the US. The Company met these challenges head-on with focused investments in its Products and Services. The Company has launched new versions of its products which are cloud ready. One of the factors contributing to the swiftness with which this has been achieved is the multi-skilling initiatives the Company has taken with respect to its human resources. It has also invested in new products, AmlockLite and GeSTup. The customer feedback and market response to the newer versions of the products is encouraging. Within the complexities of the solutions expected by customers, the Company has also taken steps to shorten its product implementation life cycle with the objective of quicker release of resources and realization of cash flows. This is an ongoing process and the Company plans to further this objective in FY2019.
The Company continues to strengthen the position of its Products in its traditional emerging markets. The intense customer engagement practiced by the Company has led to good references and this in turn has led to deepening the penetration of products. In addition to the new versions and products, the Company has also built add-ons to its existing products including Mobility and Business Intelligence to increase the expanse and value of its products. All the product lines show promise and the Company plans to expand to new geographies bordering its existing presence. In addition, with further investment to facilitate catering to advanced markets, the Company expects to initiate its foray into advanced markets with select products in FY2019. Due to the significantly different market requirements and customer expectations in advanced markets, the Company will plan its next steps in this direction based on the response to its initial overtures.
On the Services front, the frameworks that have been developed for Digital Transformation, Mobility, Business Intelligence, Testing, Infrastructure Management Services and IT Operations automation, give the Company the advantage of delivering quicker time-to-market solutions to customers. The traction witnessed in the market for the contemporary solutions offered by the Company is encouraging in the light of the Services brand recognition challenges faced. To counter the brand recognition challenges, the Company has also engaged in public relations activities to increase the visibility of its Services portfolio. The Company has also made headway in path-breaking e-Governance initiatives. and it is also open to working with partners to further strengthen its Services offerings and simultaneously facilitate entry into developed markets.
The above is in line with the Companys objective of revitalizing as a future-ready IT enterprise of 2020 by remaining focused on People, Business Verticals, New Products and Solutions and Growth Markets. While working towards increasing wallet share from its existing customers with its range of products and services, the Company is exploring the possibility of creating, as a service, composite offerings of its products and services which will obviate the requirement of capital expenditure by its customers, as is expected to be the need of the market, in addition to enhancing longevity of engagements and increase in annuity revenues.
In the rapidly changing technology landscape, one of the challenges faced by the Company is to ensure that the technological advancements required to keep the solutions offered relevant and contemporary are taken on an ongoing basis. The investment and timelines involved could be a cause for concern. The Company mitigates this by shorter releases of versions of its solutions so as to enable course corrections where necessary. In this manner the challenge of keeping abreast of cutting edge technology is reduced. The opportunities available in the industry for quality resources are increasing and attrition of resources needs to be kept under control. Additionally, due to the domain and product knowledge amassed by the resources in its Products Groups, this risk is further increased. The Company takes measures to retain its key resources by positive measures of regular engagement and career enhancements by larger roles. The Company also encourages multi-skilling of its resources.
With other solutions available in the market place, it is essential for the Company to retain an edge. The Company depends on the insights it has on its chosen focus verticals to ensure that features and functionalities are constantly upgraded in line with market requirements. Going forward the Company will have the added challenge of winning acceptability for its products and solutions in the advanced market where it plans to enter in the near future. Since a substantial portion of its revenue is earned in foreign currency, any adverse movement in foreign exchange rates will have a consequential impact on the Companys profitability.
Operations during the year
The table below shows the Profit and Loss account of the Group for the year ended March 31, 2018:
|Rs in crores|
|I. Revenue from operations (net)||991.19||1,003.79|
|II. Other income||19.24||52.12|
|III. Total Revenue (I + II)||1,010.43||1,055.91|
|Employee benefits expense||528.04||572.33|
|Cost of third party products and services||198.54||160.57|
|Depreciation and amortization expense||8.94||13.50|
|V. Profit/(loss) before tax (III-IV)||79.48||102.58|
|VI. Tax expense||8.37||8.51|
|VII. Profit/(loss) for the Year ( V - VI)||71.11||94.07|
|OTHER COMPREHENSIVE INCOME|
|A. Other Comprehensive income not to be reclassified to profit and loss in subsequent periods:|
|Remeasurement of gains (losses) on defined benefit plans||0.50||7.01|
|Income tax effect||-||(0.43)|
|B. Other Comprehensive income to be reclassified to profit and loss in subsequent periods:||-||-|
|Other Comprehensive income for the year, net of tax||0.50||6.58|
|TOTAL COMPREHENSIVE INCOME FOR THE PERIOD, NET OF TAX||71.61||100.65|
The Company made a profit of Rs 71.61 crore for the year ending March 31, 2018 as against a profit of Rs 100.65 crores for the year ending March 31, 2017.
The decrease in Net profit can be substantially attributed to reduction in Other Income covered further in this analysis.
Revenue from operations, Employee Benefit expenses and
The revenue from Operations for the year FY 2018 stands at Rs 991.19 crores compared to Rs 1,003.79 crores in FY 2017. The reduction is mainly due to discontinuation of certain service in FY 2017 provided to ICICI Bank.
The reduction in employee benefit expenses and cost of third party products and services pertain to discontinuance of certain services provided to ICICI Bank.
Reduction in other Income from Rs 52.12 crores in FY 2017 to Rs 19.24 crores in FY 2018 is mainly due to foreign exchange fluctuations
The reduction in finance Rs 92.97 crores in FY 2017 to Rs 86.65 crores in FYcostfrom 2018 is on account of prepayment of principal to lenders during FY 2018.
Depreciation and amortization expense
These expenses stand reduced from Rs 13.50 crores in FY 2017 to Rs 8.94 crores in FY 2018.
|The breakup of the other costs is given in the table below :||Rs in crores|
|Legal and professional fees||22.37||18.68|
Profit before depreciation and interest, excluding Other Income (Operating EBITDA) for the current financial year was at Rs 156.14 crores as compared to Rs 163.94 crores for the previous year.
The reduction can be attributed to discontinuation of certain portion of ICICI business.
Analysis of Balance Sheet
|Rs in crores|
|Particulars||As at March 31, 2018||As at March 31, 2017|
|I. EQUITY AND LIABILITIES|
|Equity share capital||1,615.36||1,183.65|
|Non Controlling Interest||3.50||2.81|
|Trade payables and other Liabilities||272.42||275.75|
|Rs in crores|
|Particulars||As at March 31, 2018||As at March 31, 2017|
|Property , Plant and Equipment and Intangible Assets||367.97||371.33|
|Goodwill arising on consolidation||435.06||435.06|
|Non current investments||0.16||0.16|
|Deferred tax asset||3.24||3.07|
|Income tax assets and other non current assets||160.84||155.98|
|Cash and bank balances||51.68||123.62|
|Trade receivables and other Assets||354.35||292.61|
Equities and Liabilities
1. Equity Share Capital
The Authorised capital of the Company is Rs 3,155 crores divided into 2,200,000,000 Equity shares of Rs 10 each, 200,000,000 Non Convertible Cumulative Redeemable Preference shares (Class A Preference Shares) of Rs 5 each, 1,500,000,000 Non Convertible Cumulative Redeemable Preference shares (Class B Preference Shares) of Rs 5 each, 1,050,000,000 Non-Convertible Cumulative Redeemable Preference shares (Class C Preference Shares) of Rs 1 each The issued, subscribed and paid-up capital stood at Rs 1,615.36 crores as at March 31, 2018 compared to 1,183.65 crores as at March 31, 2017
2. Other Equity
The increase in Other Equity is on account of issue of shares to lenders pertaining to the amount shown under Share Suspense account.
There has been a decrease of Rs 80.14 crores in FY 2018 from Rs 926.74 crores as at March 31, 2017 to Rs 846.60 crores as at March 31, 2018. This is primarily on account of Principal Prepayment and Unwinding of discount under Ind AS 109 on Fair Valuation of Preference Share Capital.
4. Trade payables and other liabilities
Trade payables and other current liabilities consist of trade liabilities, short term provisions for employee benefits and other liabilities.
1. Goodwill on consolidation
Goodwill on consolidation represents the excess of purchase consideration over the net asset value on the date of such acquisitions. The Company annually carries out an impairment analysis of its Cash Generating Units / Long term investments, in order to ascertain the extent of impairment, if any, in their carrying values. There is no impairment for FY 2018.
2. Non-Current Investments
Non-current investments consist of unquoted / non-trade long term investments.
3. Property, Plant and Equipment and Intangible Assets
As at March 31, 2018, the Property, Plant and Equipment and Intangible Assets of the Company stood at 367.97 crores as compared to Rs 371.33 crores in as at March 31, 2017.
4. Deferred Tax Asset / Liability
Deferred tax asset primarily comprises of deferred taxes on fixed assets and other expenses allowable on payments. The likelihood that the deferred tax asset will be recovered from future taxable income is assessed annually.
5. Income tax assets and other non current assets
There is an increase in Income tax assets and other non-current assets, the amount increased from Rs 155.98 crores as at March 31, 2017 to Rs 160.84 crores as at March 31, 2018.
6. Cash and Bank balance
The decrease in Cash and Bank balance as compared to FY 2017 is due to prepayment of principal to lenders during the FY 2018.
Inventories consist of hardware and supplies and are stated at cost or net realizable value, whichever is lower.
8. Trade receivables and Other assets
The increase of Rs 61.74 crores is contributed by increase in trade receivables and unbilled revenue.
Internal Control Systems
The Company exercises internal controls through a formalized process of an authorization matrix approved by the Board. The adherence to these controls is periodically reviewed by the internal audit process. The Companys budgeting process at various levels monitors performance by business, delivery and support groups.
Enterprise Risk management
The Enterprise Risk Management (ERM) at 3i Infotech encompasses practices relating to identification, assessment, monitoring and mitigation of various risks to our business. Our ERM seeks to facilitate mitigation of risks that may affect the achievement of our business objectives and impact stakeholder value. Risk management is an integral part of our business model. The business practices at 3i Infotech are oriented to leverage the risk management to generate maximum reward while keeping risks below a defined level.
Major risks identified include geographic and client concentration, attrition, managing of contractual obligations, etc. To address these risks, the Company has increased its diversification across geographies, enlarged the basket of offerings and is considering various steps for employee retention.
Certain statements made in the Management Discussion and Analysis report relating to the Companys objectives, projections, outlook, expectations, estimates, etc. may constitute "forward - looking-statements" within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections, etc. whether expressed or implied. Several factors could make a significant
These include climatic and economic conditions affecting demand and supply, government regulations and taxation, natural calamities, etc. over which the Company does not have any direct control.