aurionpro solutions ltd share price Management discussions


1. OVERVIEW:

Aurionpro Solutions Limited ("Aurionpro") financial statements have been prepared in accordance with Indian Accounting Standards ("Ind AS") as prescribed under section 133 of the Companies Act, 2013 ("the Act"), read with the Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time and other provisions of the Act to the extent notified and applicable. The management of Aurionpro accepts responsibility for objectivity and integrity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the state of affairs. The management of Aurionpro is committed to continuously improving the level of transparency and disclosure. As such, an attempt has been made to fully and completely disclose information herewith about the company, its business, operations, outlook, risks, and financial condition. The forward-looking statements contained herein are subject to certain risks and uncertainties, including, but not limited to, the risks inherent in the company?s growth strategy, dependency on strategic clients, and dependency on availability of qualified technical personnel and other factors discussed in this report. Readers are cautioned not to place undue reliance on these forward- looking statements, which reflect Aurionpro management?s analysis only as of the date hereof.

2. ECONOMIC OUTLOOK:

The global economy was on the verge of after recovery, post severe pandemic induced contraction, but sudden escalation of Russia - Ukraine has given birth to geopolitical instability and has set back the growth of the global economy. The war has disrupted the global supply chains and has increased inflationary pressures as both these countries account for large share of global energy exports as well as exports of a range of metals, food staples and agricultural inputs. The inflationary trend, considered to ebb over short period, has remained sticky and has reached highest levels not seen in decades. This has resulted in interest rate hikes by Central Banks aggressively across economies. Consequent rise in the borrowing costs and drying up of the liquidity has further impacted the growth momentum.

The World Bank has slashed the global economy growth to 3.2% from its earlier estimate of 4.1% on account of the ongoing war, peaked inflation and nagging effects of the pandemic. (Source: World Bank Economic Outlook) The International Monetary Fund (IMF) stated in its latest report that Global growth is projected to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022. (Source: IMF World Economic Outlook)

The economic landscape in India is also facing headwinds due to the uncertainties and the slowdown in the global economy. The growth rate is expected to moderate than projected before. Further, the rising commodity and energy prices, induced by the war, has resulted in depreciation of the currency against US Dollars. In spite of these challenges, India still remains the fastest growing economy in the world.

3. INDUSTRY STRUCTURE AND DEVELOPMENTS:

The worldwide IT spending is expected to total US$ 4.5 trillion in 2022, an increase of 3% from 2021, according to the latest forecast by a leading research organization. The pace of growth has slowed down compared to the last year, largely due to the postponement of budget spends amid rising economic challenges like elevated inflation levels worldwide and exchange rate volatilities. In India, IT spending is projected to total $114.9 billion in 2022, growing 7.7% from last year. However, the slowdown in growth is expected to be transient. The cloud service demand is reshaping the industry and the spending on data center business is projected to see strongest growth. Cloud Consulting & Implementation and Cloud Managed services are expected to witness tremendous growth in coming years.

Worldwide, banks and financial institutions continue to spend big on technology and rapid adoption of digital technologies has created opportunities which will fuel growth for the IT Sector over the next decade. Similarly, India is focusing strongly on improving the banking ecosystem in the country which has further accelerated digitization. This bodes well for Aurionpro as it is a leading player in the banking & fintech space especially in the Asia region.

The Government has announced an ambitious capex plan in the current year which will boost our businesses, particularly in the smart city and mobility segment. Mass transportation is witnessing transformation with the rapid adoption of new contactless and smart ticketing interface. The revolution in the digital payments space is complimenting this transformation in the mobility segment. This has boosted the entire ecosystem of Automated Fare Collection (AFC) the smart ticketing system.

Innovations in Digital payments has revolutionized the way transactions are conducted. Further, with increasing adoption of digital currencies, this sector is poised to see huge transformation and will increase demand for innovative technologies and solutions, which will facilitate ease of doing payments in a cost effective manner.

4. SEGMENT WISE OFFERINGS AND PERFORMANCE:

At Aurionpro, we provide world-class advanced technology solutions that help enterprises accelerate Digital Innovation - securely and efficiently. We are "One Platform", guiding businesses to ADAPT to a new paradigm in Digital Transformation across Banking, Transportation, Logistics, and Government sectors. Our offerings are described below:

a. Banking & Fintech:

Our digital solutions are designed in improving processes and automate manual activities, allowing teams to concentrate on building better experiences for the customers.

- Retail Banking:

In Retail Banking, we have powerfully built solutions connecting every aspect of Retail Banking and customer touchpoints - from branches to kiosks. Aurionpro offers an array of branch transformation solutions including Queue Management systems, Self-Service Terminals, Customer Feedback Systems & Digital Signage Solutions to banks and now this expertise is leveraged by other verticals such as Airlines, Telecom, Retail Outlets.

- Wholesale Banking:

Aurionpro has a streamlined Corporate Banking practice driven by solutions that optimize processes in Transaction Banking and management of Credit Risks

• iCashpro+, an Integrated Transaction Banking Platform that considers the digital transformation trend to deliver an optimal digital transaction banking solution for regional and super-regional banks, benchmarked to handle 5 million transactions per hour with more than 6,000 concurrent users.

• SmartLender, is a platform that provides end-to-end comprehensive credit risk management solution that boosts productivity, improves credit quality, and lowers operational risks. SmartLender is a market leader in SouthEast Asia serving top banks in Singapore, Malaysia, Thailand, and Vietnam.

• FXConnect, a Real-Time FX Branch Transaction Platform which has enabled HDFC Bank FX Branch?s business for corporate & retail customers with various inward and outward product flavors by bridging the gap between FX Treasury and Core Banking System.

• Aurionpro Market Systems is one of the leading Murex Business Partners. With immense experience we offer end-to-end services from installation to upgradation of projects for financial institutions, addressing their Capital markets, Treasury, Risk management, and Regulatory needs.

b. Technology Innovation Group

Recognizing huge opportunities in digital solutions around our current offerings, we have combined smart city, smart mobility and Data center offerings under single SBU Tech Innovation Group (TIG).

Aurionpro has been at the forefront of smart cities and mobility initiatives across the globe. We work closely with governments to implement Digital Urban Infrastructures that can help citizens realize their aspirations using a combination of disruptive technologies backed by a strong service network. We believe that our vision of Smart Cities enabled, powered, and integrated by Digital Future has the ability to touch and alter the lives of countless residents by providing a safer, more convenient, and desirable environment.

Innovative mobility solutions by our team of mobility experts are redefining the future of transit systems, simplifying the lives of citizens and government functions. To this end, we leverage an open loop methodology, providing greater flexibility and streamlining transit ticketing, their payments, visibility of fleets, eased tracking, route planners, department management, etc..

Aurionpro has also ventured into Data Centre building, consulting and hybrid cloud services in recent years and has built a strong team of industry veterans, with over 20+ years of experience in the field, for this purpose. Aurionpro has also signed up with some customer for providing consultancy and assistance for rolling out of 100 MW Data Centres within next few years. Further, Aurionpro is also providing consultancy to the other industry leaders on Data Centre designs and implementation. Recently, Aurionpro has also signed some key partnerships in this segments which shall boost our position best place us to tap immense opportunities in this segment.

5 OPPORTUNITIES AND THREATS:

The pandemic has accelerated the pace of digitization and automation which is transforming the interface of the businesses with their customers. This has opened up many opportunities for the IT sector which is expected to witness sustained growth trajectory over next decade. The companies which are quick to grasp the changing trends and offering innovative solutions are best placed to benefit in this rapidly growing market.

Aurionpro has re-invented itself with changing times and has positioned itself as a leading player catering to the Banking and Fintech industry with an arena of IP based offerings. Aurionpro, through constant technological innovations, has also diversified into newer businesses such as Smart City and Smart Mobility, data centre consulting etc.

There is an increased momentum in all our businesses. Being market leaders in Asia?s banking & Fintech space, we offer innovative products that help enhance customer experience. With constant innovation we are set to launch new products in this space which will strengthen our market position. Additionally, we have managed to capture decent market share in the smart city industry and are a preferred player to partner with the governments, helping them in their digital initiatives. The Smart Transit segment is expected to witness tremendous growth in the coming years. Aurionpro, with its robust IP based solutions in the Automated Fare Collection (AFC) space, coupled with the strategic acquisition of SC Soft and ATASPL has established itself as an only integrated player in the market. With these right partnerships and key wins in some large geographies, Aurionpro is foreseeing healthy gains in this segment. Data centre is another upcoming business with huge growth potential. Aurionpro has built a strong team of skilled and experienced resources which is expected to drive our future growth in this business.

Overall, with strong financial performance, healthy balance sheet, key order wins in recent businesses, Aurionpro is geared to take over the post-pandemic opportunities in the IT industry.

6. RISKS AND CONCERNS:

There are various risks an organization is exposed to and those risks are of varied nature like strategic, systemic, financial, technology related risks and operational risks. Some of these risks may be caused due to the external environment and systems in which they operate and some risks are inherent internal risks within the organization. At Aurionpro, the Audit Committee and the Board of Directors have deployed a disciplined mechanism to foresee, identify, evaluate such risks and has devised necessary controls and plans to avoid and mitigate those risks. The management periodically reviews the risk exposure and implements appropriate measures wherever required. The key risks and uncertainties have been highlighted below:

• The worldwide IT sector is expected to witness healthy growth for next few years. However, the pace of growth faced headwinds in recent months due to the disruptions in the economic environment driven by high inflation, currency depreciation in some countries and threat of recession as a consequence of these factors added by the war between Russia and Ukraine. If these factors subsist for longer duration the economic growth may slow down further and may have adverse impact on the businesses. The management is aware of these risks and would re-orient it?s strategies to deal with the consequent impact on the Company.

• The outbreak of war between Russia & Ukraine and consequent sanctions along with the slowdown in China has disrupted the global supply chain, which was being restored post pandemic. This may have adverse impact on the global trade and may also impact on the Company. The management is watchful of the situation and will reorient the strategies to address such threats.

• Attracting and retaining talent is critical for any organization. Aurionpro?s success depends on highly skilled resources and managers. Loss of key resources and talent, especially to the competitors, could materially impact our business. Attracting and retaining good talent takes efforts and Aurionpro is developing strategies to do the same. We adopt risk-reward model for all our top management and managers thereby creating additional incentives for them to drive the Company?s objective forward.

• Work from home or remote locations is a new normal. But this has led to exposing the company to data breach and cyber security issues. Organisations are required to invest in mechanisms to ensure IT security and lay down policies and procedures to ensure data protection.

• Aurionpro keeps investing in future technologies and enhancement of offerings which would dominate the markets. The success of such offerings would largely depend on the ability of the company to position rightly in the market coupled with strong marketing initiatives. We have adopted effective marketing and promotion initiatives that will help us educate and apprise the market about our innovations.

• It is prudent for any organization to deliver as per their customers? and market expectations. This is a key challenge which needs to be addressed effectively. Aurionpro believes in giving the best service to its customers, therefore, the company is constantly investing in its offerings and upgrading the same with evolving market trends. The company is investing in developing newer technologies and giving seamless experience to its customers.

• There is very tough competition in the industries the company operates in, especially it?s biggest market- Financial services, has strong players which are focusing on capturing our market share. The most effective strategy that we have adopted is to focus on providing exceptional customer experience by understanding our customers? business objectives and trying to deliver or exceed them.

7. RESEARCH AND DEVELOPMENTS:

Over the years, Aurionpro has built a strong portfolio of IP led offerings and has encouraged innovation with consistent spend on research and developments. It?s a continuous process for any IP led technology company. The technology landscape globally is evolving rapidly and the organisations are required to constantly keep abreast in the dynamic environment. Aurionpro has also built a team of skilled resources focused on research and development. We will continue to maintain healthy levels of R&D investments across all our offerings which shall drive our future growth.

8. FUTURE OUTLOOK:

We are at the beginning of a long term growth trajectory, with all segments having tremendous growth potential. We are increasing our sales reach, through partnerships and expanding our sales teams across geographies. This will be bolstered by unifying our product offerings which will improve both size and scope of our customer engagements. With a combined order book and pipeline of over INR 2000 Cr, we are confident to maintain the revenue growth rate as well as the margins for this financial year. The disruptive phase of the pandemic has receded and the businesses are getting back to normal after a long phase of uncertainties. However, there are some new challenges faced by the businesses like shortage of talent, Russia Ukraine war, china lockdown resulting in supply chain disruptions, shortage of chip sets and strong inflationary pressures across the world. However, like the pandemic, we are confident to overcome these challenges and continue with the momentum. The outlook remains positive.

DISCUSSION ON CONSOLIDATED FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Revenue from Operations

Our revenues are derived from Sale of Software Services & Sale of equipment and product license. During the year, the total revenue from operations was ? 50,501.22 Lakhs against ? 37,401.77 Lakhs for the previous year.

Operating and Other Expense

The operating and other expenses comprise of Software licenses and material costs, Administration and other general functions, travelling, communication, legal and professional charges, rent, repairs and maintenance, recruitment and training and other allocated infrastructure expenses.

During the year, the operating and other expense were Rs 21,747.63 lakhs as against Rs 14,047.12 Lakhs in the previous year.

Employee Benefit Expenses

During the year, the Employee Cost was ? 17,595.03 lakhs as against Rs 14,978.15 Lakhs in the previous year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) excluding other income.

During the year, our operating Profit was Rs 11,158.56 Lakhs as against Rs 8,376.49 Lakhs for the previous year.

Depreciation and Amortisation Expense

The depreciation and amortisation on Property Plant & Equipment (PPE), Other Intangible Assets and Right to Use Assets was Rs 1,397.91 Lakhs for the year as against Rs 13,939.06 Lakhs during the previous year. As percentage of revenue, It was 3% and 37% for the year and previous year respectively. It was lower on account of accelerated amortization of Rs 10,505.06 Lakhs charged in FY 2020-21 to unified Depreciation and amortization policy in group.

Other Income

Other Income primarily consists of interest income, dividend income, Foreign exchange fluctuation gain, Rental income and other miscellaneous income. Other income for the year was Rs 531.43 Lakhs compared to Rs 297.45 Lakhs for the previous year.

Tax Expense

Current tax expense was Rs 1,818.56 Lakhs as against Rs 738.95 Lakhs for the previous year and Deferred tax charge was Rs 89.75 lakhs as against Deferred tax credit of Rs 445.66 lakhs for the previous year.

Profit before Tax (PBT)

Net Profit / (Loss) before tax from Operations for the year was 9,465.69 Lakhs, i.e.19 % of revenue, (11,463.26) Lakhs, i.e.(31) % of Revenue for the previous year.

Profit after Tax (PAT)

Net Profit / (Loss) after tax for the year was Rs 7,557.38 Lakhs, i.e. 15% of revenue, Rs (11,756.55) Lakhs, i.e. (31%) of revenue for the previous year.

Other Equity

Other Equity as at 31st March, 2022 Increased to Rs 37,406.85 Lakhs as compared with Rs 31,366.70 Lakhs as at 31st March, 2021.

Short-Term and Long-Term Borrowing

The total short-term and long-term borrowing as at 31st March, 2022 was ? 5,275.23 Lakhs as against Rs 11,375.08 Lakhs as at 31st March, 2021.

Trade Payable and Other Current Liabilities

The total Trade Payable and other current liabilities (financial and Non Financials) increased by Rs 3,068.43 Lakhs from Rs 12,724.85 lakhs on 31st March 2021 to Rs 15,793.28 Lakhs on 31st March 2022.

PPE, Other Intangible Assets and Capital Work in Progress

The Net Block of PPE, Other Intangible Assets and Capital Work in Progress Increased by Rs 165.18 Lakhs from Rs 8,156.20 Lakhs as on 31st March 2021 to Rs 8,321.38 Lakhs on 31st March 2022.

Non-Current Investments

There was an increase in the investments by ? 449.23 Lakhs from ? 3,591.97 Lakhs as on 31st March, 2021 to ? 4,041.20 Lakhs on 31st March 2022.

Other Non-Current Assets (Financials and Non Financials)

There was a decrease in Long-term loans and advances from Rs 1,312.85 Lakhs on 31st March 2021 to Rs 978.08 Lakhs on 31st March 2022.

Trade Receivables

Trade receivables as on 31st March 2022 was Rs 13,900.45 Lakhs against Rs 10,305.44 Lakhs on 31st March 2021. In the opinion of management, all the Trade receivables are good, recoverable and necessary provision has been made for debts considered to be bad and doubtful. The level of receivables is normal and is in tune with business requirements and trends.

Cash and Cash Equivalents

The cash and bank balances lying with the company as on 31st March 2022 were Rs 4,044.12 lakhs as against Rs 2,219.31 lakhs in the previous year.

Non-Current Assets Held for Sale and Discontinued Operations

During the previous year the Company has divested the entire stake to Forcepoint LLC based on requisite regulatory and governing approval. Accordingly, the investment in Cyberinc Corporation Inc, USA and other entities (Disposal group) engaged in Cybersecurity business have been measured at fair value less cost to sale in the financial statements for the Company ‘share of INR 5,200.70 Lakhs in Assets held for Sale and the disposal group have also been considered as discontinued operations in accordance with Ind AS 105 - ‘NonCurrent Assets Held for Sale and Discontinued Operations?. The effect of fair valuation of INR 4,618.37 Lakhs has been included in the exceptional items of the previous year.

Key Financial Ratio:

Sr. Ratio No. 31st March,2022 31st March,2021 Reasoning
1 Debtors Turnover Ratio 4.17 3.16 Increase is mainly because the proportion of increase in receivable is more than increase in revenue from Operation.
2 Current Ratio 2.18 1.90 Improvement due to reduction in Current Liabilities
3 Debt Equity Ratio 0.13 0.33 Improved on account of profits and repayment of borrowings as compared to the previous year.
4 Interest Coverage Ratio 16.66 -3.77 Improved on account of profits and repayment of borrowings as compared to the previous year.
5 Operating profit margin 28.7% 30.9% There is no significant change.
6 Net Profit Margin 15.0% -31.4% Increase is mainly because the net profit after tax in current financial year as compare to previous year
7 Inventory Turnover Ratio 4.45 2.11 Increase is mainly because the proportion of increase in cost of goods sold is more than increase in average inventory
8 Return on Net Worth (RONW) 19.0% -34.9% Increase is mainly because the net profit after tax in current financial year as compare to previous year

9. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Directors Report section in the Annual Report discusses the adequacy of our internal control system and procedures.

10. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED:

The Employees are critical assets for the Company. Over a period Aurionpro has built a strong team consisting of domain experts. Our personnel policies are focused on creating an environment which will derive best returns for the organization as well as the concerned employees. The Company had strengthened its workforce by employing more than 1,700 employees at group level.