Canarys Automations Ltd Management Discussions

You should read the following discussion of our financial condition and results of operations together with our restated consolidated financial statements for the financial year ended on March 31, 2023, 2022 and 2021 including the notes and significant accounting policies thereto and the reports thereon, which appear elsewhere in this Draft Red Herring Prospectus. You should also see the section titled "Risk Factors" beginning on page 33 of this Draft Red Herring Prospectus, which discusses a number of factors and contingencies that could impact our financial condition and results of operations. The following discussion relates to our Company, unless otherwise stated, is based on restated audited financial statements.

These financial statements have been prepared in accordance with Ind GAAP, the Companies Act and the SEBI (ICDR) Regulations and restated as described in the report of our auditors dated August 21, 2023 which is included in this Draft Red Herring Prospectus under the section titled "Restated Consolidated Financial Statements" beginning on page 209 of this Draft Red Herring Prospectus. The Restated Consolidated Financial Statements have been prepared on a basis that differs in certain material respects from generally accepted accounting principles in other jurisdictions, including US GAAP and IFRS. We do not provide a reconciliation of our restated consolidated financial statements to US GAAP or IFRS and we have not otherwise quantified or identified the impact of the differences between Indian GAAP and U.S. GAAP or IFRS as applied to our Restated Consolidated Financial Statements.

This discussion contains forward-looking statements and reflects our current views with respect to future events andfinancial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those described under "Risk Factors" and "Forward Looking Statements" beginning on pages 33 and 22 respectively, and elsewhere in this Draft Red Herring Prospectus.

Accordingly, the degree to which the financial statements in this Draft Red Herring Prospectus will provide meaningful information depends entirely on such potential investors level offamiliarity with Indian accounting practices. Our F.Y. ends on March 31 of each year; therefore, all references to a particular fiscal are to the twelve-month period ended March 31 of that year. Please also refer to section titled "Certain Conventions, Use of Financial Information and Market Data and Currency of Financial Presentation " beginning on page 20 of this Draft Red Herring Prospectus.

BUSINESS OVERVIEW

Started in 1991, the Company is a leading IT solutions provider with over 30 years of existence in the industry. Our expertise lies in enabling digital transformation for businesses through our comprehensive range of software solutions in the space of Digitalization, Modernization, Automation and Intelligence.

Our Company was originally incorporated as a private limited company under the Companies Act, 1956 in the name and style of "Canarys Automations Private Limited" pursuant to certificate of incorporation dated July 1, 1991 issued by the RoC, Bengaluru, Karnataka. Our Company became a deemed public limited company under Section 43A of the Companies Act, 1956 and the word ‘private was deleted with effect from June 22, 1992, pursuant to that our Company once again became a private limited company with effect from June 20, 2000. Subsequently, our Company was converted into public limited company pursuant to special resolution passed in the EGM held on August 01, 2006, and consequently, the name of our Company was changed to "Canarys Automations Limited" and a fresh certificate of incorporation consequent upon conversion from private company to public company was issued by RoC, Bengaluru, Karnataka on September 21, 2006. Subsequently, our Company was converted into private limited company pursuant to the approval of our shareholders at an EGM held on November 16, 2007, and Consequently, the name of our Company was changed to "Canarys Automations Private Limited" and a fresh certificate of incorporation consequent upon conversion from public company to private company was issued by RoC, Bengaluru, Karnataka on November 27, 2007. Subsequently, our Company was converted into public limited company pursuant special resolution passed by the shareholders at the EGM held on May 19, 2023, and consequently, the name of our Company was changed to "Canarys Automations Limited" and a fresh certificate of incorporation consequent upon conversion from private company to public company was issued by RoC, Bengaluru, Karnataka on June 27, 2023.

Our business operates across two verticals.

• Technology solutions: Our technology solution offerings include multiple array of consulting solutions in Digitalization, Modernization, Cloudification, Automation, Transformation and Intelligence. Technology expertise includes DevOps Consulting (Azure, GitHub, Atlassian, GitLab, etc.), Cloud Consulting (Azure, AWS, GCP), Digital Enterprise Solutions using SAP, MS Dynamics 365, RPA, Digital Applications and Mobility Solutions.

• Water Resource Management Solution:. We offer automation solutions to modernize irrigation water conservation, and improve water use efficiency, Turnkey flood risk assessment and mitigation, cloud based water utilisation process automation for water sharing in rivers and canals and SCADA gate control systems.

We understand the evolving demands of the digital landscape, and we are dedicated to helping organizations harness the power of technology to drive growth and success. Our solutions span across various industry sectors, BFSI, Retail, Healthcare, Pharmaceutical, Manufacturing, Insurance and more.

With a strong focus on digital transformation, we empower businesses to optimize their operations, enhance customer experiences, and stay ahead of the competition. Our commitment to excellence has been recognized and rewarded by various customers, alliance partners and OEMs.

KEY PERFORMANCE INDICATORS OF OUR COMPANY:

Particulars	FY 2020-21	FY 2021-22	FY 2022-23
Water Resource Management Solutions business
No. of Projects	10	12	15
No. of Employees	11	14	14
No. of clients	10	19	22
Avg. Revenue per project (Z in Lakhs)	114.52	198.88	191.82
Avg. Revenue per Employee ( Rs. in Lakhs)	104.11	170.47	205.52
Solution Development business
No. of Projects	55	68	102
No. of Employees	180	297	337
No. of clients	62	74	110
Avg. Revenue per project ( Rs. in Lakhs)	25.69	40.49	41.86
Avg. Revenue per Employee ( Rs. in Lakhs)	12.10	17.21	15.25
Total Revenue ( Rs. in Lakhs)	2561.72	5150.90	7451.94
EBITDA ( Rs. in Lakhs)	333.72	706.47	1347.46
EBITDA(%)	13.03%	13.72%	18.08%
PAT ( Rs. in Lakhs)	210.42	455.81	852.51
PAT (%)	8.21%	8.85%	11.44%
Net Worth ( Rs. in Lakhs)	1258.17	1683.44	2537.91
Debt Service Coverage Ratio	-	-	-
Return on Net Worth	16.06%	23.99%	31.54%
Current Ratio	2.071	1.369	1.582
Total No. of countries served	6 to 7	6 to 7	6 to 7
No. of solutions framework developed	3 to 4	3 to 4	3 to 4

 

Particulars	Description
Water Resource Management Solutions business	Water Resource Management Solutions include automation solutions to modernize irrigation water conservation, and improve water use efficiency, Turnkey flood risk assessment and mitigation, cloud based water utilisation process automation for water sharing in rivers and canals and SCADA gate control systems.
No. of Projects	Calculated as total projects the Company has executed in Water Resource Management Solutions segment.
No. of Employees	Calculated as total employees employed in the projects relating to Water Resource Management Solutions business
No. of clients	Calculated as total clients for whom we are providing solutions relating to Water Resource Management Solutions business
Avg. Revenue per project	Calculated as total business in Water Resource Management Solutions division divided by No. of projects.
Avg. Revenue per Employee	Calculated as total business in Water Resource Management Solutions division by No. of employees employed in the projects.
Technology Solutions Development business	Technology solution offerings include multiple array of consulting solutions in Digitalization, Modernization, Cloudification, Automation, Transformation and Intelligence
No. of Projects	Calculated as total projects the Company has executed in solution development segment.
No. of Employees	Calculated as total employees employed in the software solution development projects
No. of clients	Calculated as total clients for whom we are providing solution development
Avg. Revenue per project	Calculated as total business in solution development business divided by No. of projects.
Avg. Revenue per Employee	Calculated as total business in solution development business divided by No. of employees employed in the projects.
Total Revenue	Revenue from Operations is used by our management to track the revenue profile of the business and in turn helps assess the overall financial performance of the Company and size of our business.
EBITDA	EBITDA provides a comprehensive view of our financial health as it considers all sources of our income.
EBITDA(%)	EBITDA margin (%) is financial ratio that measures our profitability as a percentage of its total revenue.
PAT	Profit after tax provides information regarding the overall profitability of the business.
PAT (%)	PAT Margin is an indicator of the overall profitability and financial performance of our business.
Net Worth	Networth represents the shareholders funds invested in the business.
Debt Service Coverage Ratio	Calculated as the sum of profit before tax, depreciation and amortization expense and finance cost divided by the sum of lease payments, principal repayments of secured and unsecured loans, and finance cost related to borrowings
Return on Net Worth	Return on Networth (%) is an indicator of our efficiency as it measures our profitability. It represents how efficiently we generate profits from our shareholders funds.
Current Ratio	It tells management how business can maximize the current assets on its balance sheet to satisfy its current debt and other payables.
Total No. of countries served	Total number of countries where the Company has served the clients
No. of solutions development frameworks	No. of solutions or services provided to clients during the year

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

1.01 Basis of preparation of financial information

The Restated Consolidated Financial Statements of the Group have been prepared in accordance with Generally Accepted Accounting Principles in India (Indian GAAP) under the historical cost convention on the accrual basis. The company has prepared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act,2013 read with relevant Rules issued thereunder and other pronouncements of Institute of Chartered Accountants of India (ICAI).

The consolidated financial information related to Canarys Automations Limited (‘the Company) and its subsidiary companies and joint ventures. The consolidated financial information have been prepared on the following basis:

(a) The financial information of the Company and its subsidiary companies are combined on a line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses, after fully eliminating intra-group balances and intra-group transactions in accordance with Accounting Standard (AS) 21 - "Consolidated Financial Statements"

(b) Interest in Joint Ventures have been accounted by using the proportionate consolidation method as per Accounting Standard (AS) 27 - "Financial Reporting of Interest in Joint Ventures".

(c) In case of foreign subsidiaries, being non-integral foreign operations, revenue items are consolidated at the average rate prevailing during the year. All assets and liabilities are converted at rates prevailing at the end of the year. Any exchange difference arising on consolidation is recognised in the Foreign Currency Translation Reserve.

The Restated Consolidated Financial Statements have been approved by the Board of Directors of Canarys Automations Limited at their meeting held on 21 August 2023 and has been specifically prepared for inclusion in the draft red herring prospectus to be filed by Canarys Automations Limited with the Securities and Exchange Board of India (‘SEBI) in connection with the proposed Initial Public Offer of equity shares (‘IPO) of Canarys Automations Limited (referred to as the ‘Issue). The Restated Consolidated Financial Statements has been prepared by the management of Canarys Automations Limited to comply in all material respects with the requirements of:

a) Section 26 of Part I of Chapter III of the Companies Act, 2013 (the ‘Act) as amended from time to tim e;

b) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended to date (‘SEBI ICDR Regulations); and

c) The Guidance Note on Reports in Company Prospectuses (Revised 2019) issued by the Institute of Chartered Accountants of India ("ICAI"), as amended from time to time (the "Guidance Note").

Particulars	Nature of Interest	Notes no.	% of ownership	Considered in consolidation	Country of Incorporation
Canarys Corp, USA	Subsidiary	43	100%	Yes	USA
Canarys APAC Pte Ltd	Subsidiary	43	100%	Yes	Singapore
Canarys-Hanuka Apo Technologies Pvt Ltd	Joint Venture	43	49%	Yes	India

1.02 Use of Estimates

The Company uses prudent and reasonable assumptions and estimates in the preparation of its consolidated financial statements, and these are reflected in the reported amounts of income and expenses during the year, and the reported balances of assets and liabilities, and disclosures relating to contingent liabilities, as at the date of the financial statements. Due care and diligence have been exercised by the management in arriving at such "estimates & assumptions" since they may directly affect the reported amounts of income and expenses during the period, as well as the balances of Assets and Liabilities, including those which are contingent in nature, as at the date of reporting of the financial statements.

Accounting estimates could change from period to period. Actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in current and future years and if material, their effects are disclosed in the notes to the financial statements.

1.03 Current and Non Current Classification Assets

An asset is classified as current when it satisfies any of the following criteria:

a. It is expected to be realised in, or is intended for sale or consumption in, the companys normal operating cycle;

b. It is held primarily for the purpose of being traded;

c. It is expected to be realised within 12 months after the reporting date; or

d. It is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.

Current assets include the current portion of non-current financial assets. All other assets are classified as non-current

Liabilities

A liability is classified as current when it satisfies any of the following criteria:

a. It is expected to be settled in the companys normal operating cycle;

b. It is held primarily for the purpose of being traded;

c. It is due to be settled within 12 months after the reporting date;

d. The company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of liability that could, at the option of the counterparty, result in it settlement by the issue of equity instruments do not affect its classification.

Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non-current.

1.04 Operating cycle

Operating cycle for the business activities of the company covers the duration of the specific project/contract/product line/service including the defect liability period, wherever applicable and extends up to the realization of receivables (including retention monies) within the agreed credit period normally applicable to the respective lines of business. The operating cycle identified by the company is a duration of 12 months from the end of balance sheet date.

1.05 Revenue from operations:

(a) Income and Expenditure are accounted ongoing concern basis.

(b) The companys income consists of income from development of software and distribution of software, electronic items and hardware. Customer contracts on software development are billed based on time and material content of the work/assignment. Revenue from distribution of software & electronic items are billed and accounted based on delivery.

(c) Export of software products are accounted based on the export documents that are available with company. Export of software has been billed on mile stone basis based on the exchange rate prevailing on that respective day.

(d) All other operational revenue represents income earned from the activities incidental to the business and is recognized when the right to receive the income is established as per the terms of the contract.

(e) Interest income is accrued at applicable interest rate. All other income has been recognized when right to receive payment is established.

1.06 Property, Plant and Equipment, Intangible Assets, Capital Work in Progress & Intangible assets under development

(a) Property, Plant and Equipment are stated at their original cost of acquisition or construction less accumulated depreciation/amortization. Costs include all expenses incurred to bring the assets to its working condition for its intended use.

Subsequent improvements thereto including taxes, duties, freight and other incidental expenses related to acquisition and installation of the assets concerned is capitalized if it increases the future economic benefits from the existing asset beyond its previously assessed standard of performance. Interest on borrowings attributable to qualifying assets are capitalized and included in the cost of property, plant and equipment as appropriate.

(b) Intangible assets are recognized when it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably.

Intangible assets are stated at original cost net of tax/duty credits availed, if any, less accumulated amortization and cumulative impairment. Cost of the software has not been bifurcated and shown separately wherever computer and laptop has been bought along with the software loaded into it and under such circumstances, the computers and laptops has been classified as tangible assets by the Company. "

1.07 Depreciation/Amortisation

Depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated residual value. 5% of the cost of acquisition of the assets has been taken as the residual value of assets.

Depreciation on tangible assets is provided on written down value method over the estimated useful life of the assets using the indicative useful life as prescribed under Schedule II to the Companies Act, 2013. The Company has used the following useful life to provide depreciation on property, plant and equipment:

Asset Category	Useful Life (in years)
Buliding	60
Computer equipments	5
Computer equipments	6
Motor vehicles	8
Furniture and fittings	10
Office equipments	5
Software	1-3

Intangible assets are amortised over the estimated period of economic benefits on a straight line basis, commencing from the date the assets are available to the Company for its use.

1.08 Impairment of Assets

The Company periodically assesses whether there is any indication that an asset may be impaired. If any indication exists, the Company estimates the recoverable amount of the asset and if such recoverable of the asset is less than carrying cost of the asset, then the carrying amount is reduced to its recoverable amount. The deduction is treated as an impairment loss and is recognised in profit and loss account.

If at the balance sheet date there is an indication that if a previously assessed impairment loss no longer exits, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to maximum of depreciable historical cost. An impairment loss is reversed only to the extent that the carrying amount of asset does not exceed the net book value that would have been determined; if no impairment loss had been recognised.

Due consideration is given at the balance sheet date to determine whether there is any indication of impairment of the companys assets as defined in Accounting Standard 28 - "Impairment of Assets" issued by the Institute of Chartered Accountants of India and the management is of the opinion that none of the property, plant and equipment were impaired as at the date of the Balance sheet.

1.09 Inventories

Inventories are valued after providing for obsolescence. Raw Materials and finished (traded) goods are valued at lower of cost and net realizable value, on first-in, first-out basis. Work in progress were also assessed at the end of the year and valued based on the cost associated to that respective WIP.

Stock as at the end of year has been valued as per FIFO excluding GST and other taxes.

1.10 Investments

Non - current Investments are valued at cost. Provision for diminution in the value is made to recognize a decline, other than temporary, in the value of long-term investments.

Current investments are valued at cost or market value, whichever is less.

Investment in subsidiary has been consolidated as per AS 21 and investment in joint venture has been consolidated as per 27. These figures were eliminated from investment while preparing consolidated financial statements.

1.11 Employee Benefits Defined benefit plans

The company has recognized the gratuity payable in the books of accounts based on the Certificates of Actuarial Valuation received from the LIC in case of holding company. In case of Subsidiary no such amounts were provided in the books of accounts.

(i) Short term employee benefit:

Employee benefits payable wholly within twelve months of receiving employee services are classified as short-term employee benefits. The benefits like salaries, wages, short term compensated absences etc. and incentives if any, are recognized in the period in which the employee renders the related service.

Defined contribution plan

Contributions made by the Company towards Employees Provident Fund have been charged to the revenue account in case of holding company. In case of Subsidiary no such amounts were provided in the books of accounts.

1.12 Borrowing Costs

Borrowing Costs that are attributable and exclusively relating to the acquisition, construction of the qualifying assets are capitalized as part of cost of such assets up to the date the assets are ready for its intended use. All other borrowing costs are recognized as an expense in the year in which they are incurred.

1.13 Segment Reporting

The accounting policies adopted for segment reporting are in conformity with the accounting policies adopted for the Company. Further, inter-segment revenue have been accounted for based on the transaction price agreed to between segments which is primarily market based. Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the segment. Revenue and expenses, which relate to the Company as a whole and are not allocable to segments on a reasonable basis.

1.14 Foreign Currency transactions

Transactions in foreign currency are recognized at the rates of exchange prevailing on the dates of the transactions.

Exchange differences arising on foreign exchange transactions settled during the year are recognised in profit and loss for the year.

All other monetary assets and liabilities denominated in foreign currency are restated at the rates ruling at the year end and all exchange gains/ losses arising there from are adjusted to the Profit and Losses Account.

Exchange differences arising on long-term foreign currency monetary items related to acquisition of fixed asset are capitalized and depreciated over the remaining useful life of the asset.

1.15 Earnings per share

The basic earnings per share is computed by dividing the net profit/loss after tax available to equity shareholders for the y ear by the weighted average number of equity shares outstanding during the year.

1.16 Income tax

Tax expense compromises of both current and deferred taxes, Provision for current taxes is made at the current tax rates. Based on the assessable income after considering tax allowances and exemptions it terms with the applicable Income Computation Disclosure Standards (ICDS). Deferred income taxes reflects the current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred taxes is measured based on the tax rates and the tax laws enacted or substantially enacted at the balance sheet date. Deferred tax assets are recognized only to the extent that there is reasonable certainity that sufficient future taxable income will be available against which such deferred tax asset can be realized. Unrecognized deferred tax asset of earlier years are reassessed and recognized to the extent that it has become reasonable certain that future taxable income will be available against which such deferred tax asset can be realised.

1.17 Leases

Assets acquired under Leases, where the Company has substantially all the risks and rewards of ownership, are classified as finance leases. Such leases are capitalized at the inception of the lease at lower of the fair value or the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period.

1.18 Provisions and contingent liabilities

Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent liabilities are not recognized but are disclosed in the notes and are not usually provided for unless it is probable that future outcome may be detrimental to the company.

1.19 Cash and cash equivalents

Cash and cash equivalents comprise cash and balances with banks. The Company considers all highly liquid investments with an original maturity of three months or less and that are readily convertible to known amounts of cash to be cash equivalents.

1.20 Cash flow statement

Cash flows are reported using the indirect method, whereby net profit or loss before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows arising from regular revenue generating, investing and financing activities of the Company are segregated.

1.21 Related Party Disclosure

Disclosure is made as per the requirements of Accounting Standard 18. Related Party Disclosures and as per the clarification issued by the Institute of Chartered Accounts of India.

1.22 Capital Redemption Reserve (CRR)

In the financial year 2020-21, the company had issued redeemable preference shares with certain terms and conditions. All such terms & conditions connected with issue of preference shares have been reported elsewhere in the financial statements. As required under the Companies Act, 2013, the company has created the capital redemption reserve on a pro-rata basis as per the terms of the issue of such preference shares accordingly. The said CRR has been transferred from the accumulated profit of the company. Over a period of five years or before the redemption of such preference shares the entire amount of preference shares would be transferred to capital redemption reserve.

1.23 Investments classified as long term investments should be carried in the financial statements at cost. However, provision for diminution shall be made to recognise a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually

NON-GAAP MEASURES

We use certain supplemental non-generally accepted accounting principles measures ("Non-GAAP Measures") to review and analyse our financial and operating performance from period to period, and to evaluate our business, and for forecasting purposes. Although these Non-GAAP Measures are not a measure of performance calculated in accordance with applicable accounting standards, our Companys management believes that they are useful to an investor in evaluating us because they are widely used measures to evaluate a companys operating and financial performance. Further, our management believes that when taken collectively with financial measures prepared in accordance with Indian GAAP, these Non-GAAP Measures may be helpful to investors because they provide an additional tool for investors to use in evaluating our ongoing results and trends. Presentation of these Non-GAAP Measures and key performance indicators should not be considered in isolation from, or as a substitute for, analysis of our historical financial performance, as reported and presented in our Restated Consolidated Financial Statement set out in this Draft Red Herring Prospectus.

These Non-GAAP Measures are not defined under Indian GAAP, are not presented in accordance with Indian GAAP and have limitations as analytical tools which indicate, among other things, that they do not reflect our cash expenditures or future requirements for capital expenditure or contractual commitments; changes in, or cash requirements for, our working capital needs; and the finance cost, or cash requirements. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and these measures do not reflect any cash requirements for such replacements. These Non-GAAP Measures may differ from similar titled information used by other companies, including peer companies, who may calculate such information differently and hence their comparability with those used by us may be limited. Therefore, these Non-GAAP Measures and key performance indicators should not be viewed as substitutes for performance or profitability measures under Indian GAAP or as indicators of our operating performance, cash flows, liquidity or profitability.

The table below sets forth certain Non-GAAP Measures as of and for the periods indicated:

Sr. Metric No.	As of and for the Financial Year
	2023	2022	2021
1. Return on Networth	31.54%	23.99%	16.06%
2. Net Asset Value per share	12.44	8.66	7.22
3. EBIDTA	1,347.46	706.47	333.72

Return on Networth (RoNW)

Return on Networth is a calculation of the profitability of a company expressed in percentage. The RoNW is calculated by dividing the net profit after tax as reduced by the preference dividend, if any, by shareholders equity i.e. the aggregate value of the paid-up equity share capital and all reserves created out of the profits and securities premium account and debit or credit balance of profit and loss account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation each as applicable for the Company on a consolidated restated basis.

Net Asset Value per share

Net asset value per share is calculated by dividing the networth at the end of the year by total number of equity shares outstanding at the end of the year.

EBIDTA

Earnings before Interest, Depreciation, Tax and Amortization (EBIDTA) is arrived at by adding back the Finance Costs (Interest), Depreciation, amortization and impairment expense, exceptional items and Tax expense to the net profit after tax for the year.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our business is subjected to various risks and uncertainties, including those discussed in the section titled "Risk Factors" beginning on page 33 of this Draft Red Herring Prospectus. We believe that the our results of operations, cash flows and financial condition during the periods under review and future periods will be affected due to the factors such as ability to acquire new customers, adapting to changes in technology, enhancing existing solutions and services, developing new solutions and services, research and development, ability to effectively handle competition in ever evolving business scenario, handling the disruptions in domestic and international markets including geo-political, product related, etc. Our operations and financial condition will also be affected by factors such as our ability to secure, maintain and expand existing partnerships expanding customer base, managing working capital cycles and receipt of payment from customers, managing the perceptions of anti outsourcing, restrictions on work permits, attract appropriate talent and lateral resources, managing on time delivery of our solutions and services and effective execution of long lead projects.

RESULTS OF OUR OPERATION ( Rs. in Lakhs)

Particulars	FY23	% of Total Income	FY22	% of Total Income	FY21	% of Total Income
I. Income
a) Revenue from operations	7,451.94	98.74%	5,150.90	99.06%	2,561.72	99.36%
b) Other income	95.35	1.26%	49.03	0.94%	16.50	0.64%
Total Revenue	7,547.28	100.00%	5,199.93	100.00%	2,578.23	100.00%
II. Expenses
a) Cost of project	1,897.24	25.14%	1,944.31	37.39%	546.93	21.21%
b) (Increase)/decrease in inventory	98.45	1.30%	-327.29	-6.29%	129.91	5.04%
c) Employee benefits expenses	3,045.31	40.35%	1,976.05	38.00%	1,206.51	46.80%
d) Finance costs	149.95	1.99%	66.81	1.28%	9.63	0.37%
e) Depreciation and amortization expenses	39.73	0.53%	38.41	0.74%	34.65	1.34%
f) Other expenses	1,136.26	15.06%	878.64	16.90%	351.52	13.63%
Total Expenses	6,366.93	84.36%	4,576.93	88.02%	2,279.15	88.40%
III. Profit/(loss) before exceptional items and tax (I-II)	1,180.35	15.64%	623.00	11.98%	299.07	11.60%
IV. Exceptional items		0.00%		0.00%		0.00%
V. Profit/(loss) before tax (I-II)	1,180.35	15.64%	623.00	11.98%	299.07	11.60%
VI. Tax expenses
a) Current tax	326.46	4.33%	168.77	3.25%	80.06	3.11%
b) Deferred Tax	1.38	0.02%	(1.59)	-0.03%	8.58	0.33%
VII. Profit/(loss) for the year (m-IV)	852.51	11.30%	455.81	8.77%	210.42	8.16%

Review of Restated Financials

Key Components of Companys Profit and Loss Statement

Revenue

Revenue consists of revenue from operations and other income.

Revenue from operations. Revenue from operations comprises revenue from the sale of services from Water Resource Management Solutions division and software development

Other income: Other income primarily comprises interest on bank deposits, interest income on income tax refunds, gain on foreign exchange fluctuations and miscellaneous income.

Expenses

Expenses consist of operating expenses, purchases of stock-in-trade, changes in inventories of stock-in-trade, employee benefits expenses, depreciation and amortization expense, finance cost and other expenses.

Cost of project: Cost of project includes cost in relation to execution of all the projects.

Purchases of stock-in-trade: Purchases of stock-in-trade relates to costs incurred for the procurement of inventories primarily comprising components used for Water Resource Management Solutions business.

Changes in stock of finished goods: Changes in stock of finished goods comprises net increase or decrease in the inventory of stock of finished goods.

Employee benefit expenses: Employee benefits expenses comprise salary, allowances and bonus, employee insurance expenses, contribution to provident and other funds, staff welfare expenses, leave compensation, and gratuity.

Financial cost: Financial cost comprises interest expenses on term loans and on working capital/cash credit. This amount is further reduced by the borrowing cost capitalised during the reporting period/year.

Depreciation and amortization expense: Depreciation and amortization expense relate to depreciation of tangible assets (property, plant and equipment) and amortization of intangible assets. Intangible assets include our software applications trademarks and other software licenses.

Other expenses: Other expenses primarily comprise expenses relating to rent, rates & taxes, legal and professional fees, advertisement, business promotion, sales promotion expenses, printing & stationery, power

Fiscal 2023 compared with Fiscal 2022

Revenue from Operation

Revenue from operations had increased by 44.67 % from Rs. 5,150.90 lakhs in Fiscal 2022 to Rs. 7,451.94 lakhs in Fiscal 2023. This growth is mainly attributed to several pivotal drivers, including an expanded customer base of 132 clients in Fiscal 2023, up from 93 in the previous fiscal year. We also saw a significant rise in revenue from our top 10 customers, increasing from Rs. 34.14 Crore to Rs. 46.25 Crore. Additionally, our focus on consulting services, a transition towards a solutions-driven

approach, and improved project utilization have all contributed to this remarkable revenue augmentation. As we continue this trajectory, we remain steadfast in our commitment to sustaining and building upon this growth momentum.

Other Income

Other income had increased by 94.45 % from Rs. 49.03 lakhs in Fiscal 2022 to Rs. 95.35 lakhs in Fiscal 2023 majorly due to foreign exchange gain.

Cost of projects

Cost of projects had decreased by 2.42 % from Rs. 1,944.31 lakhs in Fiscal 2022 to Rs.1,897.24 lakhs in Fiscal 2023.

A primary driver of this decrease is the augmentation in employee costs, underscoring our steadfast commitment to nurturing and empowering our workforce. This investment aligns with our pursuit of excellence and innovation, reinforcing our capabilities to meet evolving project demands.

Furthermore, a strategic decision to engage external consultants for project execution has contributed to this cost shift. While this approach enhances project outcomes through specialized expertise, it also entails higher associated expenses. This choice underscores our unwavering dedication to delivering unparalleled value to our clients and shaping a robust operational framework.

Employee Benefit Expenses

Employee benefit expenses had increased by 54.11% % from Rs. 1,976.05 lakhs in Fiscal 2022 to Rs. 3,045.31 lakhs in Fiscal 2023. This increase was primarily due to increase in salary expenses since the Company had earlier outsourced some of its operations which are now in-house.

Finance Costs

Finance Costs had increased from Rs.66.81 lakhs in Fiscal 2022 to Rs. 149.95 in Fiscal 2023. This was primarily due to increase in borrowings and higher interest paid during the financial year.

Depreciation and Amortization Expenses

Depreciation had marginally decreased from Rs.39.81 lakhs in Fiscal 2022 to Rs.39.79 lakhs in Fiscal 2023 due to in Fiscal 2021 addition fixed assets at higher side comparatively additional in fiscal 2023 at lower side.

Other Expenses

Other expenses had increased by 29.32 % from Rs. 878.64 lakhs in Fiscal 2022 to Rs. 1,136.26 lakhs in Fiscal 2023 majorly due to increase in outsourcing expenses as company has shifted some of its in-house activity to third parties. Onboarded multiple vendors/partners to support consulting business. They work on contract basis

Tax Expenses

The Companys tax expenses had increased by 96.09% % from Rs. 167.18 lakhs in the Fiscal 2022 to Rs. 327.84 lakhs in Fiscal 2023. This was primarily due to higher profit before tax during the financial year.

Profit after Tax

After accounting for taxes at applicable rates, our Company reported a net profit of Rs. 852.51 lakhs in Fiscal 2023 as compared to a net profit of Rs. 455.81 lakhs in Fiscal 2022. The increased in Profit is due to increase in sales and reduction in expenses and realization of operating synergies.

Fiscal 2022 compared with Fiscal 2021

Revenue from Operation

Revenue from operations had increased by 101.07% to Rs. 5,150.90 lakhs in Fiscal 2022 from Rs. 2,561.72 lakhs in Fiscal 2021. The change was primarily due to increase in sales, increase in customer base, increase in average project ticket size.

Other Income

Other income had increased by 197.14 % from Rs.16.50 lakhs in Fiscal 2021 to Rs.49.03 lakhs in Fiscal 2022 due to increased in interest income in Deposits and exchange fluctuation.

Employee Benefit Expenses

Employee benefit expenses had increased by 63.78% % from Rs.1,206.51 lakhs in Fiscal 2021 to Rs. 1,976.05 lakhs in Fiscal 2022. This increase was primarily due to higher salary expenses and increase in employee count.

Finance Costs

Finance Costs had increased from Rs.9.63 lakhs in Fiscal 2021 to Rs.66.81 lakhs in Fiscal 2022. This was primarily due to higher interest paid during the financial year.

Depreciation and Amortization Expenses

Depreciation had increased by 10.83% from Rs. 34.65 lakhs in Fiscal 2021 to Rs. 38.41 lakhs in Fiscal 2022 due to increase in depreciation on computers.

Other Expenses

Other expenses had increased by 149.95% % from Rs.351.52 lakhs in Fiscal 2021 to Rs. 878.64 lakhs in Fiscal 2022 majorly due to increase in outsourcing expenses as company has shifted its in-house activity to third parties.

Tax Expenses

The Companys tax expenses had increased by 88.60 % from Rs. 87.65 lakhs in the Fiscal 2021 to Rs.167.18 lakhs in Fiscal 2022. This was primarily due to higher profit before tax during the financial year.

Profit after Tax

After accounting for taxes at applicable rates, our Company reported a net profit of Rs.455.81 lakhs in Fiscal 2022 as compared to a net profit of Rs.210.42 lakhs in Fiscal 2021. The increased in profit is due to increase in sales and reduction in expenses and realization of operating synergies.

Cash Flows

Particulars	For the year ended March 31,
	2023	2022	2021
Net cash from / (used in) Operating Activities	(619.25)	(265.10)	(160.23)
Net cash from / (used in) Investing Activities	(178.15)	25.83	(138.03)
Net cash from / (used in) Financing Activities	459.80	846.46	563.83

Cash Flows from Operating Activities

Net cash used in operating activities for fiscal 2023 was at Rs. 605.93 lakhs as compared to the Profit Before Tax at Rs.1,180.29 lakhs while for fiscal 2022 Net cash used in operating activities was at Rs. 265.72 lakhs as compared to the Profit Before Tax at Rs. 620.96 Lakhs. During these period the Company has generated the cash flow from operations (before working capital changes) of INR 1,338.01 Lakh and INR 693.81 lakhs for fiscal 2023 and fiscal 2022 however the Company has invested in non cash working capital requirements to the tune of INR 1,616.08 lakhs and INR 791.83 lakhs in fiscal 2023 and fiscal 2022 respectively which has resulted in overall negative cash from operating activities.

Net cash from operating activities for fiscal 2022 was at Rs. 265.10 Lakhs as compared to the Profit Before Tax at Rs. 623.00 Lakhs while for fiscal 2021, net cash from operating activities was at Rs. 160.23 Lakhs as compared to the Profit Before Tax of Rs. 299.07 Lakhs. This was primarily due to adjustments against, changes in Working Capital. During these period the Company has generated the cash flow from operations (before working capital changes) of INR 693.91 Lakh and INR 352.66 lakhs for fiscal 2022 and fiscal 2021 however the Company has invested in non cash working capital requirements to the tune of INR 791.83 lakhs and INR 424.24 lakhs in fiscal 2022 and fiscal 2021 respectively which has resulted in overall negative cash from operating activities.

Net cash from operating activities for fiscal 2021 was at Rs. 160.23 Lakhs as compared to the Profit Before Tax at Rs. 299.07 Lakhs.

Cash Flows from Investment Activities

In fiscal 2023, the net cash invested in Investing Activities was Rs. 191.48 Lakhs. This was mainly on account of investments in Mutual Funds.

In fiscal 2022, the net cash invested in Investing Activities was Rs. 26.46 Lakhs. This was mainly on account of purchase of fixed assets and liquidation of non current investments.

In fiscal 2021, the net cash invested in Investing Activities was Rs. 138.03 Lakhs. This was mainly on account changes in non-current investments.

Cash Flows from Financing Activities

In fiscal 2023, the net cash inflow from financing activities was Rs. 459.80 Lakhs. This was mainly on account of increase in borrowings (at Company and CHAT level both) and payment of dividend.

In fiscal 2022, the net cash inflow from financing activities was Rs. 846.46 Lakhs. This was mainly on account of increase in borrowings (at Company and CHAT level both), issue of new shares and payment of dividend.

In fiscal 2021, the net cash inflow from financing activities was Rs. 563.83 Lakhs. This was mainly on account of issue of shares.

Information required as per Item (II) (C) (iv) of Part A of Schedule VI to the SEBI Regulations:

An analysis of reasons for the changes in significant items of income and expenditure is given hereunder:

1. Unusual or infrequent events or transactions

There has not been any unusual trend on account of our business activity. There are no Unusual or infrequent events or transactions in our Company. The transactions are as per usual business operations.

2. Significant economic changes that materially affected or are likely to affect income from continuing operations.

Except for any change in economic policy affecting IT and IT enabled services industry in India, there are no other significant economic changes that may materially affect or likely to affect income from continuing operations.

3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section "Risk Factors" beginning on page 33 in the Draft Red Herring Prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

4. Future changes in relationship between costs and revenues

Our Companys future costs and revenues will be determined by growth of industry in which we operate, economic activities and government policies and consumer preferences.

5. Increases in net sales or revenue and Introduction of new services or increased sales prices

Increases in revenues are by and large linked to increases in volume of our business.

6. Status of any publicly announced New Service or Business Segment Our Company has not announced any new Service.

7. Seasonality of business

Our Company is into IT Solutions concentrated on business verticals Banking, Retail, Insurance, Manufacturing and Water Resources. Business fluctuation is very minimal in the business verticals we target. Our solutions evolve as business maturity is seen in the industry.

8. Dependence on few customers/ clients

The percentage of contribution of our Companys Top Customers/Clients for the year ended March 31, 2023 is as follows:

S. No.	Particulars	% of Turnover
1	Customer 1	12%
2	Customer 2	10%
3	Customer 3	10%
4	Customer 4	6%
5	Customer 5	6%

9. Competitive conditions

Competitive conditions are as described under the Sections "Our Industry" and "Our Business" beginning on pages 139 and 146, respectively of the Draft Red Herring Prospectus.

10. Details of material developments after the date of last balance sheet i.e. March 31, 2023

After the date of last Balance sheet i.e. March 31, 2023, the following material events have occurred after the last audited period:

a. Our company had issued 20401960 Equity Shares as bonus in the ratio of one Equity Share for every one Equity Share held.

b. Our Company was converted into Public Limited Company vide Special resolution passed by the Shareholders at the Extra- Ordinary General Meeting held on May 19, 2023 and a fresh certificate of incorporation dated June 27, 2023 issued by the Registrar of Companies, Bengaluru.

c. Company entered into new solution area IMS (Infrastructure Maintenance Solutions) and acquired a major North American based client

d. The corporate guarantee given by the Company for the bank facility availed by CHAT is no longer required and accordingly stands cancelled.

CAPITALIZATION STATEMENT

The following table sets forth our capitalization and total debt as of March 31, 2023 (based on our Restated Consolidated Financial Statements) and as adjusted to give effect to the Issue. This table should be read in conjunction with the ‘Summary Financial Information, ‘Risk Factors, ‘Managements Discussion and Analysis of Financial Condition and Results of Operations and "Other Financial Information" contained in the "Financial Information" on pages 64, 33, 250 and 249 respectively.

( Rs. in Lakhs except ratio)

PARTICULARS	PRE-OFFER AS AT 31-03-2023	ADJUSTED FOR THE POSTOFFER
Borrowings
Current borrowings (including current maturities of Long term Debt)	863.29	[•]
Non-current borrowings	-	[•]
Total borrowings	863.29	[•]
Total Equity
Equity share capital*	928.04	[•]
Reserves and Surplus	1,609.87	[•]
Total Equity	2,537.91	[•]
Ratio: Non-Current Borrowing/Total Equity	0.34	[•]

FINANCIAL INDEBTEDNESS

Set forth below, is a brief summary of our Companys borrowings as on July 31, 2023 together with a brief description of certain significant terms of such financing arrangements.

A. Except as stated below, the Promoters have not provided any material guarantees with respect to specified securities of the Company held by them.

Name of the Promoter	Amount of Guarantee as on March 31, 2023 ( Rs.. in Lakhs)	Reason	Individual/entity in whose favour the guarantee has been provided.	Period
• Mr. Raghu Chandrashekhariah	1300	To avail the working capital finance and non-fund based BG Limit	State Bank of India	12 months
• Mr. Metikurke Ramaswamy Raman Subbarao
• Mr. Danavadi Krishnamurthy Arun
• Mr. Sheshadri Yedavanahalli Srinivas
• Mr. Danavadi Krishnamurthy Arun	1200	To avail the working capital finance and non-fund based BG Limit	Canara Bank	12 months
• Mr. Pushparaj Shetty

 

Name of the Promoter	Amount of Guarantee as on July 31st , 2023 ( Rs.. in Lakhs)	Reason	Individual/entity in whose favour the guarantee has been provided.	Period
• Mr. Raghu Chandrashekhariah	1300	To avail the working capital finance and non-fund based BG Limit	State Bank of India	12 months
• Mr. Metikurke Ramaswamy Raman Subbarao
• Mr. Danavadi Krishnamurthy Arun
• Mr. Sheshadri Yedavanahalli Srinivas
• Mr. Danavadi Krishnamurthy Arun	1200	To avail the working capital finance and non-fund based BG Limit	Canara Bank	12 months
• Mr. Pushparaj Shetty

B. SECURED LOANS:

STATEMENT OF PRINCIPAL TERMS OF SECURED LOANS AND ASSETS CHARGED AS SECURITY

Category of borrowing	Sanctioned Amount ( Rs.. in Lakhs)	Outstanding amount ( Rs.. in Lakhs) as on 31st March, 2023	Rate of Interest	Tenure	Repayment Terms	Collateral / Asset Charged	Principal Terms and Conditions
Cash Credit (Canarys)	300	392.7	10.55%	12 months	Working Capital which is a running limit	Charge on stock, receivables and other current assets.	The working capital is repayable on demand and subject to review by the Bank once in every 12 months. Penalty: 5% p.a on the irregular portion for the period of irregularity.
Cash Credit (Joint Venture)	1200	961.2	12.4%	One year	Working Capital which is a running limit	1. Fixed deposit (40%) 2. Deposit by way of 10% cut back on every remittance as and when required.	Penalty: 2% monthly if book debts statement is not sent monthly and if terms are not met. Penalty: 1% will be charged for delayed/ non submission of QOS/HOS The working capital is repayable on demand and subject to review by the Bank once in every 12 months
Bank Guarantee	1000	776		Renewed once a year		Charge on stock, receivables, other current assets. House property owned by Mr. Raman Subba Rao the Managing Director of the Company, secured by Industrial Flat at Electronic City owned by the Company. Further secured by personal guarantees offered by the Directors of the Company.	Non-fund based limit of Rs.100 million is secured by Omnibus Counter Guarantee.
Total	2500	2,129.9				Fund based limit - 100	Non-Fund based limit - 30
Category of borrowing	Sanctioned Amount ( Rs.. in Lakhs)	Outstanding amount ( Rs.. in Lakhs) as on 31st July, 2023	Rate of Interest	Tenure	Repayment Terms	Collateral / Asset Charged	Principal Terms and Conditions
Cash Credit	500	392.2	11.65%	12 months	Working Capital which is a running limit	Charge on stock, receivables and other current assets.	The working capital is repayable on demand and subject to review by the Bank once in every 12 months. Penalty: 5% p.a on the irregular portion for the period of irregularity.
Cash Credit	1200	877.7	12.4%	One year	Working Capital which is a running limit	1. Fixed deposit (40%) 2. Deposit by way of 10% cut back on every remittance as and when required.	Penalty: 2% monthly if book debts statement is not sent monthly and if terms are not met. Penalty: 1% will be charged for delayed/ non submission of QOS/HOS
Bank Guarantee	800	666.3		Renewed once a year		Charge on stock, receivables, other current assets. House property owned by Mr. Raman Subba Rao the Managing Director of the Company, secured by Industrial Flat at Electronic City owned by the Company. Further secured by personal guarantees offered by the Directors of the Company.	Non-fund based limit of Rs.100 million is secured by Omnibus Counter Guarantee.
Total	1300	1936.2				Fund based limit - 100	Non-Fund based limit - 30

C. UNSECURED LOANS AS ON March 31, 2023:

Category of borrowing	Sanctioned Amount ( Rs.. in Lakhs)	Outstanding amount ( Rs.. in Lakhs) as on 31.03.2023	Rate of Interest	Tenure	Repayment Terms	Collateral / Asset Charged	Principal Terms and Conditions
Inter corporate Loan	100	0.09	10.4%	1 year	To be repaid in one year.	Unsecured	Principal has to be repaid in one year and the same has been paid back. Outstanding amount is interest payable on the said loan
Inter corporate Loan	200	1,109.6	8.5%	1 year	To be repaid in one year.	Unsecured	Principal has to be repaid in one year and the same has not been paid back. Outstanding amount is payable.
Total	300	1,109.69

D. GUARANTEES BY PROMOTER SHAREHOLDER:

Name of the Promoter	Amount of the Guarantee as on March 31, 2023 ( Rs.. in Lakhs)	Reason	Obligations of the Company	Individual/ entity in whose favor the guarantee has been provided.	Period	Financial implications in event of default	Security available	Consideration
Mr. Raghu Chandrashekhariah		To obtain working cash.			12 months		The same has been mentioned in A. above.
Mr. Metikurke Ramaswamy Raman Subbarao	1300		There is no obligation of the company.	Individual		Assets pledged will be confiscated
Mr. Danavadi Krishnamurthy Arun
Mr. Sheshadri Yedavanahalli Srinivas
Mr. Danavadi Krishnamurthy Arun		For Bank					The same has been mentioned in A. above.
Pushparaj Shetty	1200	Guarantee of Telemetry Project
Mr. Raghu Chandrashekhariah		To obtain working cash.			12 months		The same has been mentioned in A. above.
Mr. Metikurke Ramaswamy Raman Subbarao	1300		There is no obligation of the company.	Individual		Assets pledged will be confiscated
Mr. Danavadi Krishnamurthy Arun
Mr. Sheshadri Yedavanahalli Srinivas
Mr. Danavadi Krishnamurthy Arun		For Bank					The same has been mentioned in A. above.
Pushparaj Shetty	1200	Guarantee of Telemetry Project