Cambridge Technology Enterprises Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENTS

EMBRACING A NEW WORK PARADIGM

Enterprises are going through a new normal. The Coronavirus outbreak is a black swan event and no one knows when the world will be free of it. This calls for safeguarding the health of the workforce while maintaining business as usual. The global pandemic has also prompted companies to encourage remote working strategy, heralding a new era in harnessing productivity while maintaining a healthy work-life balance.

The ongoing pandemic gives an opportunity to remodel the approach of delivery and scaling. The narrative may just shift from being at a brick and mortar office to embracing a new work culture that is anchored in global affinity and collaboration.

Embracing innovation

Businesses will witness a massive disruption in the way they operate post-Coronavirus scenario. Global businesses should spend time to reshape and reassess their journeys. Digital transformation should be embraced to thrive in the unsettling backdrop.

Embracing the transformation

Our thesis is that the world is transforming. We are in the middle of the single largest transformation the world has seen in a very long time led by a classic black swan event, unpredictable and unsolvable at the moment. Businesses are going to end up being haves and have-nots. Businesses with haves will have the capital and resources to embrace innovation, scale and make decisions while the businesses with the have-nots will feel the heat and find a new Sustain-even level of continuity.

Increase in adoption of Big Data and Cloud technologies are acting as a catalyst for AI adoption. Enterprises that are at the forefront of Big Data, Digitalization and Cloud adoption are the ones that are going to have a competitive advantage because of the innate capabilities of AI to create measurable impact from data insights.

Embracing the new digital environment

The magnitude of the impact that will be created by worlds leading technologies like computer vision, advanced machine learning, virtual assistants is undeniable. To realize the complete potential of any technology, first it needs to be trusted.

As we approach a new sunrise, we will see businesses unlock their potential to re-invent and innovate. Every human life and business in this world will be transformed with this disruption. A fluid, secure and integrated business model is the need of the hour, post that the focus should shift to innovation to break the ceiling and leapfrog in the new normal.

Business decisions on digital transformations need a reboot, just like our planet is going through.

CAMBRIDGE TECHNOLOGY (CT): TRANSFORMING CUSTOMER JOURNEYS

The digitization of our world is in full effect, and for most industries, that is a great thing. However, if a business does not have the applications to keep up, it can place you far behind a competitor that does. Many organizations report that it is too expensive or too complex to attempt to keep up with so many new applications that play a vital role in everything from collecting data to interacting with customers.

This is where Cambridge Technology comes in. Your Company has been on the cuffing edge of every advancement in IT, ranging from the cloud to helping large enterprises build customer applications or mobility platforms.

Your Company is a global business & technology services provider. Your Company gives organizations unparalleled access to cuffing-edge technology by bringing together the best-in-industry using its years of expertise in building solutions for some of the worlds largest and most innovative enterprises; leveraging Big Data, Cloud & Machine Learning experience.

Your Companys expertise across multiple domains makes it the preferred choice for organizations seeking a partner to innovate and leapfrog the competition. Your Companys core delivery platforms are headquartered in India with marketing and support capabilities in the USA.

Over the last few years, your Company was focused on building the right capacity and capability to deliver value to its customers. For instance, your Company is differentiated from more than 10,000 AWS partners globally by achieving competencies in niche technologies.

Each organization is different, even within the same industry, this is the reason your Company always works to come up with a strategic plan to fit the needs of a customer. In these uncertain times, your Company brings certainty to delivery standards and helps customers speed scale amidst the cloud of challenges. Your Company brings an incredible track record of maintaining strict SLAs round the clock. Your Company is here to build the fluid and agile digital workspace for its customers to achieve continuity at all times.

Service Offerings

Your Companys IT services address all the technology needs of an organization and establishes a critical foundation through strategic workshops, add ready-to-deploy solutions, and finally, implement transformative business solutions.

Your Company has been awarded with ISO 20000-1: 2011, ISO 27001:2013 certifications.

Your Company has extensive experience implementing the following:

Application Services

As an end-to-end service provider, your Company understands customers need to keep up with the latest trends to ensure it has a winning strategy in place. This is the reason why your Company uses an agile development methodology that allows it to provide its customers with end-to-end application services.

Cloud Services

Over the last few years, thousands of companies across all industries have taken the plunge and moved their applications and infrastructure into the cloud, reaping endless benefits. During that time, your Company helped guide many of those organizations through every step of the way, and today, your Company is ready to take on new challenges.

Your Companys innovative services make migration and transformation easier than ever. The Company ensures that Cloud is accessible, scalable, agile, efficient, reliable, secure and flexible. Your Company also offers 24/7 global cloud management services including private cloud or public one like AWS, Google or Microsoft Azure.

IAM Services

Advancements in technology are changing the world, and your Company has been at the forefront of it all. Unfortunately, this also means that your Company has witnessed first-hand, the increase in the number of threats to a customers IT systems, parhcularly its data and applicahons. Your Companys experhse in IAM (Idenhty Access & Management) soluhons using technologies like Microsoft, Oracle, Computer Associates, and ForgeRock, as well as capability to run large IAM platforms is what sets it apart from other IT companies.

DevOps Services

In todays digital world, consolidation and agility are synonymous with efficiency, and that is what DevOps is all about. Instead of having separate groups of people that handle product management, software development, and operatons, one should merge them all together to create one powerful and agile team. This speeds up the process of software and applicaton development and puts its customer ahead of the competton.

Your Company helps customers begin their DevOps journey and provide support along the way. Your Companys competency in AWS DevOps and its partnership with the enterprise software company Atlassian sets it apart from the competton.

Big Data Services

Without a data strategy in place, business simply cannot compete. This is the reason your Company takes pride in serving large enterprises and build, manage, and maintain their Enterprise Data Warehouse (EDW) platforms. As data becomes even bigger, your Company assists those same customers in leveraging Cloud and Big Data technologies to define their EDW strategy in the cloud.

From acquisit on and management to analytcs and warehousing, your Company assists in unlocking customers data potental so that their business remains dynamic and relevant in changing tmes.

Artificial Intelligence Services

Irrespectve of the industry or the size of an organisat on, there are AI services and solutons that can be integrated into any business model to improve everything from advertse to interact with current customers. Whether one manages a small start-up or a Fortune 500 Company, your Companys goal is to help its customer analyze individual needs and challenges, develop a unique plan and act on it.

Focus

There is no guarantee that old businesses will survive (Eg: Blackberry, Kodak, Nokia) and new businesses may not have all the tools to transform industries. They are the have-nots and will need help. Your Company is transforming businesses across vertcals like Energy/Industrials, Life Sciences & Pharmaceut cals, Demand Funnel, BFSI and Security/Access Management.

Energy/Industrials

a. AI can revolutionize the way energy is produced, transmitted and consumed. For instance, about 40% of total US energy consumption is consumed by the residential and commercial sectors. Advances in AI and smart grid infrastructure will see potential challenges in Energy sector getting resolved. Powerful computation models can help reduce dependency on energy, availability, costs and consumption.

b. In Energy vertical, your Company is proud to serve one of the worlds largest energy management and automation specialists.

Life Sciences

a. The use of transformative technologies to understand the complexities that arise from the combination of a variety of data from areas like clinical research, plants and animal genomics could reveal completely innovative approaches to treatment of diseases. With the use of AI, the time spent to make a drug discovery can be brought down significantly by migrating to virtual trials to detect patterns and anomalies.

b. In this vertical, your Company serves a global leader in pet nutrition and nutrigenomics.

Banking, Financial Services & Insurance (BFSI)

a. Your company serves a US based pioneering platform in building cross-border electronic trading infrastructure to enable global institutional flows and provide a unique distribution and regulatory network for capital raising in the global markets.

Demand Funnel Management

a. Your Company is serving a leading consumer company to predict shift in demand and change in demand.

b. Your Company articulated the problem as a multi arm bandit maximization problem. The solution aims at optimizing the client conversion ratio in one of the key lines of businesses by employing a systematic, automated and statistically sound methodology to optimally formulate offers.

c. The solution employs a number of state of the art algorithmic techniques such as contextual multi-armed bandits, and using techniques in the emerging subfield of counterfactual machine learning.

Security/Access Management

a. According to CISCO, Global Internet traffic in 2021 will be equivalent to 127 times the volume of the entire global Internet in 2005 and annual global IP traffic will reach 3.3 ZB by 2021. This presents a huge opportunity to collaborate Information Management with AI in the areas like data storage, fraud detection and prevention, compliance reporting, risk management to name a few.

b. In this vertical, your Company serves one of the worlds largest companies in storage and information management solutions.

• Your Company launched its cloud practice in the 1st quarter of 2010 and over the years, it has built its expertise across the AWS platform - as the AWS platform grew so have your Companys capabilities. Since then, your Company has added Azure, Google and Oracle as strategic cloud partners.

• Capabilities span an expansive set of services complimentary to the AWS (also Azure, Google, Oracle) platform through the building of practices that support Application Development, DevOps, Cloud, Managed Services, Big Data, Analytics, AI/ML and loT.

• Your Companys cloud-managed services on AWS are supported by a 100% AWS certified team of IT professionals.

• Your Companys workforce includes more than 40 engineers with AWS professional certifications in SysOps, DevOps,

2. STRONG PARTNER ECOSYSTEM FOR REFERENCEABILITY

Your Company has strengthened its partner ecosystem to provide access to innovative solution to its customers and build referenceability in client acquisition.

3. CULTURE

While on the outside, your Company is developing revolutionary solutions and applications for businesses; on the inside your Company is sharing values and vision. While your Company is changing the way organizations do business with the latest technology, internally, your Company is creating a partnership that will foster the growth of the individual employees and, in turn, your organization.

4. FOCUSED ON USA - PRESENCE IN INDIA, USA AND PHILIPPINES

• In line with providing its global customers access to 24/7 development cycle, your Company has expanded its presence across USA (Atlanta, Boston, Kansas and Louisville), India and Philippines.

• Your company realizes the significance of trained and skilled employees and has invested heavily into training employees through its competency centers in India and the US.

5. CERTIFICATIONS

• Awarded ISO/IEC 20000-1:2011 certification in recognition of its IT service management excellence.

• Attainment of this ISO/IEC 20000-1:2011 certification validates that your Company meets internationals standards for IT Service Management Systems.

OUTLOOK

Your Companys client base of established market players encompass the US, Europe and Asia. Its service solutions have received some of the highest industry certifications. Your Company has completed a substantial restructuring and retooling of capabilities to position as a market leader in AI and Data Management to focus on higher margin service solutions.

The client eco system is changing at a rapid pace. Your Companys trained employees, deep delivery capabilities, technological expertise, customer interests demonstrated by exciting new projects and opportunities is a result of strong foundation built over the years.

Despite unpredictable times, the company is committed to safeguard the health of the workforce and continue to recruit the best talent. The clients are maintaining business as usual and the good part is all customers are looking at investing in technology to approach the future with an edge to tackle the uncertainty.

The long-term objective is to create transformative business models and build real value for our customers, employees and shareholders.

THREATS, RISKS & CONCERNS

The potential threats and risks are usually aligned either to change in the external environment such as changes in the technology/customer preferences/business dynamics or finding the right talent and retaining them. Your company is well positioned to minimize the potential identified threats and risks, and the way it does is detailed below:

Changing Technological Trends

With the rapid advancements in technology in this day and age it becomes imperative for the service provider to keep pace and adopt the learning curve. We constantly endeavor to stay ahead of the curve by building capabilities that meet the current and future needs of our customers.

Training

At your company all employees undergo relevant set of trainings imperative to serve the existing and future business needs. This helps greatly minimize the risk of change of technology.

Attracting and Retaining Talent

Finding the right kind of talent and retaining them could pose a challenge for a business like ours. The dynamic nature of technology, increasing demand from clients, etc., warrants the company to focus on finding the right kind of talent and their retention for its existence and delivering sustainable growth. Hiring the best of the breed talent forms the core belief at your company.

Financial Risk

The Company is exposed to market risk (fluctuation in foreign currency exchange rates, price and interest rate), liquidity risk and credit risk, which may adversely impact the fair value of its financial instruments. The Company assesses the unpredictability of the financial environment and seeks to mitigate potential adverse effects on the financial performance of the Company. The details related to financial risk management are provided in Note 35 of the Standalone Financial Statements which forms part of the annual report.

Exchange rate risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Companys exposure to the risk of changes in foreign exchange rates relates primarily to the trade/other payables, trade/other receivables and derivative assets/liabilihes. The risks primarily relate to fluctuations in US Dollars against the functional currencies of the Company. The Companys exposure to foreign currency changes for all other currencies is not material. The Company evaluates the impact of foreign exchange rate fluctuations by assessing its exposure to exchange rate risks.

Employee benefits - Risk exposure

Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are Interest rate risk, Salary inflation risk and Demographic risk. The details of the same are provided in Note 33 of the Standalone Financial Statements which forms part of the annual report.

Competifion

The IT services industry is intensely compefitive with local and MNC players, each with a sizable presence in the market. Competifive pressure could adversely affect pricing strategy for services, impacting growth and profitability. To remain competitive over the years, your company has developed deep domain knowledge and delivery capabilities with skilled workforce.

FINANCIAL AND OPERATIONAL PERFORMANCE

CONSOLIDATED PERFORMANCE

Year 2019 - 20 2018 - 19 Change (in %)
Revenue from operations 105.71 102.55 3.08
Total Expenses 102.47 84.11 21.82
Profit Before Tax 5.43 19.78 (72.54)
Profit After Tax 4.77 18.85 (74.69)
Total Comprehensive Income 9.85 4.05 143.21
Reserves & Surplus 51.18 41.53 23.24
EPS 2.43 9.60 (74.69)

a. Revenue

Revenue increased by 3.08% to Rupees 105.71 crores ("cr") for the year ended 31st March, 2020 as compared to Rupees 102.55 crores for the same period last year.

b. Profit Before Tax

Profit Before Tax decreased by 72.54% at Rupees 5.43 cr for the year ended 31st March, 2020 as compared to Rupees 19.78 cr for the same period last year.

c. Profit After Tax, Comprehensive Income & Reserves and Surplus

Profit After Tax decreased by 74.69% to Rupees 4.77 cr for the year ended 31st March, 2020 as compared to Rupees 18.85 cr for the same period last year, whereas, Total Comprehensive Income increased by 143.21% during the FY 2019-20. Reserves and Surplus have increased from Rupees 41.53 cr in FY 2018-19 to Rupees 41.53 cr in FY 2019-20.

d. Expenditure

Total Expenditure increased by 21.82% to Rupees 102.47 cr for the year ended 31st March, 2020 as compared to Rupees 84.11 cr for the same period last year. Out of the above, Employee benefits expense stood at Rupees 48.97 cr in FY 2019-20 as compared to Rupees 46.31 cr for the same period last year.

STANDALONE PERFORMANCE

Year 2019 - 20 2018 - 19 Change (in %)
Revenue from operatons 38.37 36.66 4.66
Total Expenses 36.01 34.28 5.05
Profit Before Tax 3.06 2.79 9.68
Profit After Tax 2.34 1.95 20.00
Total Comprehensive Income 2.07 1.55 33.55
Reserves & Surplus 15.73 13.69 14.90
EPS 1.19 1.00 19

a. Revenue

Revenue increased by 4.66% to Rupees 38.37 cr for the year ended 31st March, 2020 as compared to Rupees 36.66 cr for the same period last year.

b. Profit Before Tax

The PBT increased by 9.68% at Rupees 3.06 cr for the year ended 31st March, 2020 as compared to Rupees 2.79 cr for the same period last year.

c Profit After Tax, Comprehensive Income & Reserves and Surplus

Profit After Tax increased by 20% to Rupees 2.34 cr for the year ended 31st March, 2020 as compared to Rupees 1.95 cr for the same period last year, whereas, Total Comprehensive Income increased by 33.55% during the FY 2019-20. Reserves and Surplus have increased from Rupees 13.69 cr in FY 2018-19 to Rupees 15.73 cr in FY 2019-20.

d. Expenditure

Total Expenditure increased by 5.05% to Rupees 36.01 cr for the year ended 31st March, 2020 as compared to Rupees 34.28 cr for the same period last year. Out of the above, employee benefits expense stood at Rupees 26.00 cr in FY 2019-20 as compared to Rupees 23.39 cr for the same period last year.

The details of the financial performance of your company are appearing in the Balance Sheet, Profit & Loss Account and other financial statements forming part of this Annual report.

SEGMENT INFORMATION

The primary business segment of your Company is Information Technology Services. The primary acfivity as per NIC code is Computer programming, consultancy and related actvites.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Your companys board and management team monitor and make enhancements to your companys systems for internal control and risk management on an ongoing basis. Your companys efforts towards this go beyond what is mandatorily required, with actve monitoring and review to ensure adequacy of control systems and to identfy potental risks as well as recommend or implement measures to mitgate them.

Your Company has a proper and adequate system of internal control to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposit on and that the transactons are authorized, reported and recorded correctly. Your companys internal control system is adequate considering the nature, size and complexity of its business. Your companys internal control systems provide, among other things, reasonable assurance of recording the transactons of its operatons in all material respects and of providing protecton against significant misuse or loss of company assets. These also enable your company to adhere to procedures, guidelines, and regulatons as applicable in a transparent manner.

HUMAN RESOURCES / INDUSTRIAL RELATIONS

Your company is committed to create an environment of learning and development, openness, promote internal talent and build an appreciating culture and transparent communication. Your Company has created platforms for recognizing and motivating employees for the good work they do in the organization. Sound human resource development policies of your Company ensures that each employee grows as an individual and contributes to the performance of your Company. It also works towards building a work culture aimed at achieving higher performance orientation. Recognition and Appreciation culture in the Company has been further strengthened. It also continues to build on the engagement level of employees.

Our employees are our most important and valuable assets. All your Companys policies are focused towards a healthy, happy and prosperous work environment for its employees and thereby also fulfill the aspirations of the people at work. The key elements that define our culture include professional working environment, training and development, and compensation.

As of 31 March 2020, your Company had 226 permanent employees on its rolls. The headcount of the Company along with its subsidiaries is 310.

FINANCIAL RATIOS

Following are ratios for the current financial year and their comparison with preceding financial year, along with explanations where the change has been 25% or more when compared to immediately preceding financial year:

STANDALONE:

S. No Ratio Description March 31, 2020 March 31, 2019 Change (%) Explanation
1 Debtors Turnover 6.89 5.49 25.55 The Debtors Turnover Ratio is increased to 6.89 in current year when compared to previous year of 5.49 which is a positive indication as the company is following effective collection strategies from its high quality debtors.
2 Inventory Turnover NA NA NA NA
3 Interest Coverage Ratio 3.32 7.43 (55.25) The company interest coverage ratio has been decreased to 3.32 from the previous year of 7.43 where the company is still maintaining above the minimum acceptable levels due to its constant revenues maintaining year on year and ability to meet its debt.
4 Current Ratio 1.91 1.52 25.59 The current ratio is 1.91 for the year when compared to previous year of 1.52 which is positive indication that the company has enough liquid assets to cover its short term debts as most of the debts raised in lieu of 100% bank fixed deposits.
5 Debt Equity Ratio 0.03 0.04 (28.39) The debt equity ratio for the current year is lower at 0.04 compared to previous year of 0.03 which is a positive indication and that it is mainly due to decrease in using to finance the company assets. During the year, change in equity by raising the shareholders funds in the form of share warrants to meet the working capital is also the another reason for lowering the ratio.
6 Operating Profit Margin (%) 11.19 8.71 28.53 The Operating profit margin is increased to 11.19 from 8.71 due to increase in sales and control on other administrative and general expenses.
7 Net Profit Margin (%) 7.97 7.62 4.56 The net margin is increased to 7.97 from 7.62 due to consistent and constant revenues from key accounts and increased operating expenses when compare to previous year.
8 Return on Net Worth (%) 6.15 5.87 4.75 The return on net worth in the current year has been increased to 6.15 when compared to last year of 5.87 due to increase in the proportion profit margin than increase in raising of shareholding funds in the form of share warrants.

CONSOLIDATED:

S. No Ratio Description March 31, 2020 March 31, 2019 Change (%) Explanation
1 Debtors Turnover 3.42 1.61 112.14 The Debtors Turnover Ratio is increased to 3.42 in current year when compared to previous year of 1.61 which is a positive indication as the group is following various collection strategies and efficiently managing its debtors.
2 Inventory Turnover NA NA NA NA
3 Interest Coverage Ratio 3.91 14.64 (78.24) The company interest coverage ratio has been decreased to 3.19 from previous year of 14.64 due to decrease in its net profits which are still at acceptable levels as the company is maintaining its consistent and constant revenues with its key overseas customers by maintaining its service quality and also due to having ability to meet its debt.
4 Current Ratio 2.40 1.73 39.15 The current ratio is 2.40 for the year when compared to previous year of 1.73 which is a positive indication that the group has enough liquid assets to cover its short term debts as most of the debts raised in lieu of 100% bank fixed deposits.
5 Debt Equity Ratio 0.01 0.02 (31.95) The debt equity ratio for the year is lower at 0.01 when compared to previous year of 0.01 which is a positive indication and that it is mainly due to decrease in using to finance the assets in its holding company. During the year, the holding company has raised the shareholders funds in the form of share warrants to meet its additional working capital is also the another reason in lowering the ratio.
6 Operating Profit Margin (%) 7.33 20.43 (64.10) The operating profit margin is decreased to 7.33 from 20.43 due to its consistent and constant revenues from key accounts and increased operating expenses in the group resulting to decrease in its core business profits when compared to previous year.
7 Net Profit Margin (%) 5.14 19.28 (73.36) The net margin is decreased to 5.14 from 19.28 due to consistent and constant revenues from key accounts and increased operating expenses when compare to previous year.
8 Return on Net Worth (%) 6.48 30.82 (78.96) The return on net worth of the Group has been decreased to 6.48 when compared to last year of 30.82 due to consistent and constant revenues from key accounts with increased operating expenses compare to last year.

CAUTIONARY STATEMENT

Certain statements in this report or elsewhere in the Annual Report may contain statements concerning Cambridge Technology Enterprises Limited and its growth prospects, expected financial posifion, business strategy, future development of the companys operafions, general economy, industry structure and other developments that are individually and collectively forward-looking statements.

Such forward-looking statements are not guarantees of actual results, future performance or achievements and are subject to known and unknown risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties include, but are not limited to, the performance of the Indian economy and of the economies of various international markets, the performance of the industry in India and world-wide, competition, changes in government policies or regulations of India, changes relating to the administration of the company, the companys ability to successfully implement its strategy, the Companys future levels of growth and expansion, technological implementation, changes and advancements, changes in revenue, income or cash flows, the Companys market preferences and its exposure to market risks, as well as other risks.

The Companys actual results, levels of activity, performance or achievements could differ materially and adversely from results expressed in or implied by this report. The Company assumes no obligation to update any forward-looking information contained in this report.