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CES Ltd Management Discussions

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Oct 4, 2024|09:00:00 AM

CES Ltd Share Price Management Discussions

(a) Overview of the Industry

Global GDP in FY 2023 was affected by the Russia-Ukraine war and resultant dislocations in supply chains, leading to surging food and energy inflation. Central banks raised interest rates sharply in response. As a result, the global GDP is estimated to have grown at a more subdued 3.4% in 2022, versus 5.9% in the prior year

Global technology spending on Enterprise software and IT services crossed the $2 trillion mark in 2022, growing 5.5% YoY. IT services grew 3.5% YoY, to $1,250 billion. This growth was led by accelerated cloud adoption, preference for external expertise due to severe talent scarcity, and expanding scope of digital transformation to cover more back-office operational areas.

COMPANY OVERVIEW

A leading name in the Business Process Management (BPM) and IT Services space in India, CES Ltd. (CES) specializes in providing customer-oriented solutions in Financial Services, Healthcare and e-Commerce domains. Its strengths lie in building long-term customer relationships through alignment with customers business goals, and offering world class, flexible and cost effective solutions. The Company is headquartered in Hyderabad, with presence across the globe through its state-of-the-art delivery centers and offices. Within India, the delivery centers are located in the IT hubs of Hyderabad, Chennai and Visakhapatnam. It also has near-shore presence through facilities in Europe, North America and the Middle East. IT-enabled Services or BPM solutions is the larger segment from a revenue standpoint, with majority of the services exported to United States. The Company has mastered the onsite, offsite and offshore delivery models, and can tailor its solutions as per customers needs, and deliver to their satisfaction leveraging its proven, quality processes and skilled manpower. It has an established track record of delivering faster ROI for its customers in specific niches within various industries, such as:

Asset Management space within the Financial Services industry EHR/EMR offerings and Consulting services to the Healthcare

FUTURE OUTLOOK

This push towards cloud services has boosted hyper-scale data centre investments, with global investments estimated to exceed US$ 200 billion annually by 2025. India is expected to gain a significant share in the global market, with the countrys investment expected to hit US$ 5 billion annually by 2025.

OPPORTUNITIES

The constant focus on process improvement by automation and continuous benchmarking of delivery to improve focus, have resulted in customer satisfaction every time. Our customers stand testimony to our track record of providing outstanding customer experience and maximizing their Return on Investment. Building Lasting Relationships has always been our culture and that focus enables us to deliver enhanced business value, a culture that inspires our actions and is a part of our DNA. We also aim to offer our services in the domestic market by positioning our services to suit the domestic business with its unique Services.

THREATS

CES Limited is in an industry where attrition is one of the major concern areas . However, your Company kept the attrition rates well within the industry averages by giving emphasis on benefits, rewards, and training.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

CONSOLIDATED

Our revenue for financial year 2022-23 is Rs. 42,645.23 Lacs and our consolidated profit after tax (PAT) is Rs. 1,951.43 Lacs.

STANDALONE

Our revenue for financial year 2022-23 is Rs. 20,371.26 Lacs and our profit after tax (PAT) Rs. 894.96 Lacs.

(b) Segment wise.

SEGMENT WISE RESULTS (STANDALONE):

BUSINESS SEGMENTS: (Amount in Lakhs)

Profit and Loss Statements for the year ended 31st March 2023

IT Services IT Enabled Services Total

Revenues

7,011.34 13,359.92 20,371.26

Direct Expenses

3,145.55 5,993.76 9,139.31

Gross Income

3,865.79 7,366.16 11,231.95

Less: Un-allocated Expenses

10,481.56

Add: Interest & Other Income

530.65

Net Profit Before Taxes

1,281.04

Income Taxes

386.09

Net Profit After Taxes

894.96

GEOGRAPHICAL SEGMENTS: (Amount in Lakhs)

Profit and Loss Statements for the year ended 31st March 2023

USA DOMESTIC Total

Revenues

20,287.82 83.44 20,371.26

Direct Expenses

9,098.88 40.43 9,139.31

Gross Income

11,188.94 43.01 11,231.95

Less: Un-allocated Expenses

10,481.56

Add: Interest & Other Income

530.65

Net Profit Before Taxes

1,281.04

Income Taxes

386.09

Net Profit After Taxes

894.96

BUSINESS SEGMENTS: (Amount In Lakhs)

Profit and Loss Statements for the year ended 31st March 2023.

IT Services IT Enabled Services Total

Revenues

17,623.83 25,021.40 42,645.23

Direct Expenses

8,905.42 12,643.45 21,548.87

Gross Income

8,718.41 12,377.95 21,096.37

Less: Un-allocated Expenses

18,867.36

Add: Interest & Other Income

623.02

Net Profit Before Taxes

2,852.03

Income Taxes

900.60

Net Profit After Taxes

1,951.43

GEOGRAPHICAL SEGMENTS: ( Amount In Lakhs)

Profit and Loss Statements for the year ended 31st March 2023.

USA DOMESTIC Total

Revenues

42,561.79 83.44 42,645.23

Direct Expenses

21,508.43 40.43 21,548.86

Gross Income

21,053.36 43.01 21,096.37

Less: Un-allocated Expenses

18,867.36

Add: Interest & Other Income

623.02

Net Profit Before Taxes

2,852.03

Income Taxes

900.60

Net Profit After Taxes

1,951.43

(c) Risks and concerns.

BUSINESS RISKS.

An economic slowdown or other factors may affect the economic health of the United States and other parts of the world where our revenues are concentrated Financial stability of our clients may be affected owing to several factors such as demand and supply challenges, currency fluctuations, regulatory sanctions, geo-political c onflicts and other macroeconomic conditions which may adversely impact our ability to recover fees for the services rendered to them. Intense competition in the market for technology services could affect our win rates and pricing, which could reduce our market share and decrease our revenues and our profits.

INDIAN COMPLIANCE AND TAXATION RISK

Taxes and other levies imposed by the Government of India. In particular we will be affected by the taxes and laws levied by authorities such as a) Income Tax b) GST etc. We are taking adequate efforts to comply with the entire statutory requirement on an ongoing basis and the same is subject to Internal Audit on a quarterly basis. We also take the help of external consultants to handle specific issues as and when it arises. Ministry of Corporate Affairs and Security Exchange Board of India has issue various circulars, Notification and amendments during the financial year 2022-23. Our Company has taken necessary steps to ensure Compliance of all the above.

EXCHANGE FLUCTUATION

Movements in exchange rates continue to be a threat. There has been volatility in the exchange rate between INR and USD in the recent years and these currencies may continue to fluctuate significantly in future as well. Also the increase in share of domestic revenue will mitigate this risk to an extent. Our results of operation will be affected if the rupee- dollar rates continues to behave in a volatile manner in future or rupee appreciates significantly against dollar and other currencies.

GEOGRAPHICAL CONCENTRATION OF CLIENTS

Our Company has a global footprint and the revenues are dependent on clients located predominantly in US. As a strategy we continue to focus on increasing the share of our Revenues from US as the margins are better compared to Domestic business. As a result the Company is exposed to various risks typically associated with doing business in various countries, many of which are beyond the control of the management.

INFRASTRUCTURE RISKS

The Company has invested substantially in the state of the art infrastructure and equipment in its centers to provide a world-class service to its customers. Service to our clients also depends on the uninterrupted functioning of these equipment, power and stability of telecom network. Any obsolescence in the infrastructure and equipment leading to incompatibility with clients systems or any disruption in the essential services may affect the business of the company. Adequate backups and redundancy measures are in place for uninterrupted functioning of IT and telecom equipment. AMC of all equipment is being monitored for timely renewals wherever needed. Insurance for fixed assets and all office locations is in force and is monitored for timely renewals and adequacy of risks covered under Office package policy.

HUMAN RESOURCES RISK

ITES (BPM) industry is a labor intensive industry and the Companys success depends on its ability to retain key employees. Historically employee attrition has been a common feature in this Industry. However, your Company kept the attrition rates well within the industry averages by giving emphasis on benefits, rewards, and training.

a) Internal control systems and their adequacy:

CES Limited (CES) has adequate internal controls and checks in place for its operations across all locations. The internal control systems are robustly designed keeping future requirements and needs also in focus. The management systems being followed at CES comply with international standards.

DETAILS OF KEY FINANCIAL RATIOS

Ratios

Numerator

Denominator

Curren t year Previo us year

Varianc e (in %)

Current ratio (in times) Debt-Equity ratio (in

Total current assets Debt consists ofborrowings and

Total current liabilities

2.03 2.16

(6.09)

times)

lease liabilities* Earning for Debt Service =

Total Equity

N.A N.A

-

Net Profit after taxes +
Non- cash operating

Debt service =

Debt service

expenses + Interest +Other non-cash

Interest and lease payments +

coverage ratio (in times)

Adjustments

Principal repayments*

N.A N.A

-

Return on equity ratio (in %)

Profit for the year less Preference dividend (if any)

Average total equity

10.09% 19.47%

15.40

Trade receivables turnover ratio (in times)

Revenue from operations

Average trade receivables

5.99 5.51

8.76

Trade payables turnover ratio (in times)

Purchase of Servicesand other expenses

Average trade payables

8.89 8.83

0.68

Average working capital

Net capital turnover ratio (in times)

Revenue from operations

(i.e., Total current assets less Total current liabilities)

4.22 5.38

(21.53)

Net profit ratio (in %)

Profit for the year

Revenue from operations

4.39% 8.98%

-4.59%

Capital employed = Tangible

Return on capital employed (in %)

Profit before tax and finance costs

Net worth + Lease liabilities +

13.14% 24.11%

-10.97%

 

Deferred tax liabilities

Return on investment (in %) -Unquoted

Income generated from invested funds Average invested funds in treasury investments 95% 180% -85.24%^

* The company does not have any borrowings and lease liabilities

^ Current year Profit from subsidiaries is decreased for the year, hence ROI was decreased

DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS F INANCIAL YEAR ALONG WITH A DETAILED EXPLANATION THEREOF.”

There has been a marginal increase in Return on Net worth when compared with previous return on Net worth.

Date

: 04/09/2023

Mohan Rao Kancharla Rama Krishna Sabbineni

Place

: Hyderabad

DIN: 00004288 DIN: 01825682
Whole- Time Director Director

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