CG-VAK Software & Exports Ltd Management Discussions.

1. INDUSTRY STRUCTURE

The Global market for IT services is estimated to have grown by 3.2% year on year in FY 2019. Companies across the globe are undergoing a significant change due to the Digital Transformation, emergence of new technologies, platforms like cloud services and this has brought a paradigm shift in the way business is done. It is estimated that Indias IT industry contributed about 7-8% of the GDP and had grown at a CAGR of about 10% since FY 2010. The IT-BPM exports revenue is expected to grow at 7-9% annually in the FY 2019.

India is one of the major players in the Global IT outsourcing market and as an outsourcing destination, India is estimated to get about 55% share of the global services sourcing market.

FY 2019 has been a challenging year due to economic volatility, technological disruptions and protectionism by leading markets like USA. However, opportunities in Digital Technologies continue to grow. North American market continues to be the major contributor for Indias IT exports.

2. OPERATIONAL PERFORMANCE

During the year under review your Company has achieved a turnover of Rs. 2035.24 lakhs as against Rs.1425.81 lakhs in the previous year. The net profit for the year is Rs.343.68 lakhs as against the net profit of Rs. 108.29 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 78% and Rest of the world 22%.

The company has strategically increased the focus on offshore software services. The revenue from onsite services is Rs.16.06 lakhs and the business from Offshore Software Services is Rs. 1971.50 lakhs for the year 2018-2019 as against Rs.1302.11 lakhs in the previous financial year. The increase has been at 51% compared with previous year.

4. OPPORTUNITIES, THREATS, RISKS AND CONCERNS

Good traction is seen in Cloud migration services, Outsourced Product Development (OPD), Product modernization, Automation and Mobile application development services. We see good opportunities from existing customers as they continually invest in latest technology upgradation. 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 and we expect a good growth in the repeat business we get. The sales pipeline has been growing well and this provides good opportunities for growth. There is stiff competition from many Indian and International IT companies for business.

Our Industry is marked by high attrition rate and the prime challenge is to retain the best talent. We are trying to mitigate the risk by offering good HR practices, career growth and opportunity to work on cutting edge technologies. The company is exposed to the risks and benefits of foreign exchange fluctuations. The company is now adopting a very cautious approach in hedging the currency. High dependency on the North American market is again a risk, which we are trying to mitigate by expanding the geographical spread of our market. Currently we get over 78% of our business from the North America.

5. OUTLOOK FOR THE FUTURE

The IT-BPM exports from INDIA for FY 2019-20 is expected to grow at the same level of last year. The Digitization initiatives by organizations worldwide is expected to continue at the same momentum. CG-VAK has successfully delivered solutions/projects in the areas like Cloud, Mobile, Social media and Analytics. We are also investing our efforts in emerging technologies like AI and we are well positioned to capitalize on the opportunities that are thrown open due to these trends.

The Company has been investing on technology adoption, building domain expertise, innovative delivery methods in the Outsourced Product Development space that has helped in differentiating our service offerings to win deals. A positive growth is expected to continue in the current financial year as well.

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 31.03.2019 31.03.2018
1. Debtors turnover 28 days 26 days
2. Inventory turnover NA NA
3. Interest coverage 925 927
4. Current ratio 3.10 2.88
5. Debt Equity ratio 0.22 0.21
6. Operating profit margin 24% 11%
7. Net profit margin 17% 8%

* Ratios are based on standalone financials.

The Operating and Net profit margin ratios have improved significantly during the current FY due to the following reasons.

i) We could execute few high margin projects mainly Fixed price projects.

ii) The utilization, and productivity of resources have been lot better.

iii) The Turnover increased by 43% whereas the expenses did not increase proportionately.

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

Return on Networth 31.03.2018 11.06%
Return on Networth 31.03.2019 26.59%

The Return on Networth has increased during the Financial Year 2018-19 as the performance of the Company has improved as compared to the previous year due to the measures taken by the Company to improve the productivity, utilization and efficiency.

8. INTERNAL CONTROLS & THEIR ADEQUACY

We have a good control mechanism in place at all our departments. As we are an ISO 9001:2015 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 company adopts continuous skill enhancement practice for its engineers. As of 31st March 2019, the employee strength stood at 205.

10. CAUTION

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 do not or may not have any control.

(By Order of the Board)
For CG-VAK SOFTWARE AND EXPORTS LIMITED
Place: Coimbatore C. Ganapathy
Date : 09th August, 2019 Chairman
DIN 00735840