CG-VAK Software & Exports Ltd Management Discussions

1. INDUSTRY STRUCTURE

The global economy is facing the effects of the on-going geo-political situations in Russia & Ukraine and Israel & Gaza inflicting a fear of supply chain crisis globally. As a result, the global economy is expected to be sluggish. Indian IT industry witnesses a continued revenue growth with a focus on strengthening industry fundamentals and building on trust and competencies. The IT industry in India continues to be the largest employer within the private sector. The Indian technology industry is estimated to grow at 2% year-over-year in the Fiscal Year 2024. The IT industry leverages cutting-edge technologies and platforms such as cloud services, DevOps, IoT, AI, and machine learning to enhance customer experiences and transform business operations. Despite global challenges, the Indian IT industry remains a significant contributor to the countrys GDP, driving innovation and economic growth. India continues to be one of the major players in the Global IT outsourcing market and has become the worlds largest capability hub.

FY 2023-24 presented significant challenges due to geopolitical tensions, leading to a more conservative stance on new investments by corporations worldwide. High inflation, economic volatility, and technological disruptions further compounded these difficulties. However, opportunities in digital technologies have continued to expand. The North American market remains the primary contributor to Indias IT exports, reinforcing the sectors crucial role in the global economy.

2. OPERATIONAL PERFORMANCE

During the year under review your Company has achieved a turnover of Rs.5,401.68 lakhs as against Rs.5489.33 lakhs in the previous year. The profit after tax for the year is Rs. 884.43 lakhs as against Rs.1168.75 lakhs in the previous year. The company strengthened its focus on the offshore software services and Outsourced Product Development (OPD) market segment.

3. SEGMENT-WISE PERFORMANCE

The contributions of business from various Geographical area were: North America contributed to 80% and Rest of the world 20%.

The company has strategically increased the focus on offshore software services. The revenue from Offshore Software Services is Rs. 5397.70 lakhs for the year 2023-2024 as against Rs. 5485.80 lakhs in the previous financial year.

4. OPPORTUNITIES, THREATS, RISKS AND CONCERNS

New technologies are significantly aiding businesses in todays connected world, prompting rapid adaptation to mitigate potential disruptions in business models. There is strong momentum in areas such as Cloud migration services, Analytics, Outsourced Product Development (OPD), Product modernization, Automation, AI, and Mobile application development services. Existing customers continue to invest in the latest technological upgrades, presenting ample opportunities. We have built many longstanding relationships with customers and seek to deepen the same by improving the value we offer to our clients particularly on technology adoption. The sales pipeline has been growing well and this provides good opportunities for growth. However there is stiff competition from many Indian and International IT companies for business.

While the ongoing geopolitical conflict between Russia & Ukraine and Israel & Hamas has no direct impact on our business, we are closely monitoring developments and will re-strategize as necessary to mitigate risks. Customers are taking a cautious approach in spending due to uncertainty in their respective economies. Our industry faces a high attrition rate, and retaining top talent remains a significant challenge. We are addressing this by implementing strong HR practices, offering career growth, and opportunities to work with cutting-edge technologies. The company is also exposed to the risks and benefits of foreign exchange fluctuations and is adopting a cautious approach to hedging currency. Additionally, our high dependency on the North American market, which currently accounts for 80% of our business, is a risk we are mitigating by expanding our geographical market spread.

5. OUTLOOK FOR THE FUTURE

The IT-BPM sector from India for FY 2023-24 experienced a growth during the financial year 2023-24. Revenue for the Indian IT services sector is expected to grow by 2% year-over-year in fiscal 2024, driven by infrastructure management, networking services in distributed environments, cloud-based software testing, and consulting services. There will be increased foundational spending on cloud, IT modernization, digital customer experience, and digital engineering projects.

AI-related activities have surged, with 2.7x growth in industry collaborations, product/service launches, and enterprise GenAI strategies. GenAI is anticipated to become a major focus for IT service providers, with the regulatory landscape evolving rapidly to support greater adoption in late 2024 and into 2025. Global governments are expected to implement regulations emphasizing data protection, breach detection, and responsible AI use. Sustainability and resilience are key priorities, as companies globalize operations to leverage cost advantages, access talent, and accelerate innovation. Digital transformation and infrastructure modernization, particularly in cloud and cybersecurity, continue to be global priorities.

CG-VAK has successfully delivered solutions and projects in areas such as Cloud, Mobile, Social Media, AI, DevOps, and Analytics. We are also channeling our efforts into emerging technologies like AI and IoT, positioning ourselves to capitalize on the opportunities these trends present.

The company has been investing in technology adoption, building domain expertise, and developing innovative delivery methods in the Outsourced Product Development space. This strategic focus has helped differentiate our service offerings and win new deals. We are striving for positive growth this financial year.

6. IN ACCORDANCE WITH THE SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS 2018) (AMENDMENT) REGULATIONS, 2018, THE COMPANY IS REQUIRED TO GIVE DETAILS OF SIGNIFICANT CHANGES (AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS.

* * Ratios are based on standalone financials. Wherever movements are not greater than 25%, they are not material

7. DETAILS OF ANY CHANGE IN NETWORTH AS COMPARED TO IMMEDIATELY PREVIOUS FINANCIAL YEAR WITH A DETAILED EXPLAINATION THEREOF

Explanation : Sales decreased marginally and increase in Cost of services/salaries

8. INTERNAL CONTROLS & THEIR ADEQUACY

We have a good control mechanism in place at all our departments. As we are an ISO 9001:2015 & 27001:2013 Certified Company, it has a well-matured development process in place where there is continuous enhancement of the processes in all our departments.

Every department has Performance Objectives fixed for each year and the same is reviewed every month. The Company has also a Risk Management plan in place where the potential risks are identified and a mitigation plan is also in place for each of the identified risks.

9. HUMAN RESOURCES

One of the top priorities for the company has been recruiting and retaining good talent. The company has made various HR initiatives to ensure that higher level of job satisfaction is attained for its engineers. Also the company adopts continuous skill enhancement practice for its engineers. As of 31 March 2024, the employee strength stood st at 311.

The views and statements expressed or implied in the Management Discussions and Analysis are based on available information, experience and our own assessments. They are subject to alterations. The Companys actual Performance may differ due to national or international ramifications, Government Regulations, Policies, Tax Laws and other unforeseen factors over which the Company does not or may not have any control.