CMC Ltd Merged Management Discussions

A. INDUSTRY STRUCTURE AND DEVELOPMENTS

The year saw continued volatility even in the midst of positive factors like declining oil prices and US economy showing signs of revival. In spite of this backdrop, the IT-BPM sector recorded steady sequential growth of 4.6 per cent to touch a global spends of USD 2.3 Trillion. Software products, IT and BPM services continued to lead, accounting for nearly USD 1.3 trillion i.e. 55 per cent of total spend. Balance 45 per cent was on Hardware. Americas remained the largest market while APAC recorded the highest growth of 5.1 per cent.

There was a renewed demand for global sourcing which grew by 9-10 per cent over 2013 which was double the growth in total spend. Domestic IT-BPM is set to grow faster than exports at 14 per cent largely driven by e-Commerce.

India maintained its leadership position in the global sourcing area with a share of 55 per cent in 2014. New delivery centers added in 2014 recorded an impressive growth of 49 per cent with over 27 per cent additions being in India. Indian IT BPM Industry is expected to cross USD 146 billion a growth of 13 per cent and exports are likely to record a 12.3 per cent growth to cross USD 98 billion in 2014-15.

There is an increasing trend seen in customers both in India and in the Global context, embracing Social media, Mobility, Analytics and Cloud (SMAC) to drive growth and derive competitive advantage especially with analytics and mobility becoming integral to IT strategy, in addition to a shift to cloud based Information systems architecture. Such Digital technologies are being leveraged especially in healthcare provision, financial services, retail, travel and education.

This has led to a dynamic value ecosystem digitally connecting products and services that combine to meet customer needs and deliver more business value.

B. OPPORTUNITIES & THREATS

Opportunities

The opportunities observed are based on the trends noticed in past couple of years, which continues to be relevant. Some of the key ones are as follows:

(1) Domestic market to get boosted due to Government focus on "Digital India" and "make in India".

(2) Increasing penetration of Internet in India with the rapid expansion of broadband spectrum availability is enabling businesses to look at Tier II/Tier III cities not only for addressing newer markets but also for IT companies to look for delivery centres in these places. As a result, IT and network Infrastructures services and associated value added services would therefore be a growth area.

(3) The adoption of SMAC technologies is expected to drive growth in all the segments. Cloud and client maturity are the major drivers for across the industry verticals.

(4) E Commerce is driving rapid growth with unprecedented levels of funding. This will bring in opportunities for IT services and associated opportunities for provision of skilling services.

Threats

(1) Attrition: Since the IT sector is exposed to high attrition rate due to more opportunities available in market for the employee, retaining existing talent pool and attracting new talented manpower is a major risk to the Company. The Company has initiated various measures to enhance the retention of employees during the year which includes, employee engagement surveys, transparent Performance Management System, and CMC connect to maintain employee-friendly culture in the organization.

(2) Protectionism: Since the Company’s business requires deputation of technical staff on overseas projects, which require appropriate visa to work in those countries. Legislation in certain countries where the Company operates may impose necessary legislative restriction which may have adverse impact on the business of the Company.

(3) Technological Changes: The Company operates in high end technology domain which is subject to continuous innovations based on the customer requirement. To mitigate the risk of technological changes, the Company has its own R&D center to track technological innovations which are relevant to the business of the Company.

C. FOCUS AREAS OF THE COMPANY

1. Strategy and value proposition

CMC’s market strategy is to offer the full range of IT services, have presence in all industry segments through a diverse range of products and service offerings, and continue expanding geography presence outside India. CMC product and service portfolio is based on providing end-to-end solutions in the Systems Engineering and Integration (SE&I) space. CMC maintains a competitive edge through a wide spectrum of technology skills, including niche areas like real-time systems, embedded systems, process control, image processing, e-commerce technologies; and others.

2. Business Segments of the Company:

The Company generates its revenue from 5 segments:

• Customer Services (CS)	• Systems Integration (SI)
• IT enabled Services (ITeS)	• EducationandTraining(E&T)
• Special Economic Zone (SEZ)

2.1 Customer Services (CS)

The CS SBU focuses on creating solutions and providing services for the IT infrastructure requirements covering infrastructure architecture, design and consulting services; turnkey system integration of large network and data centre infrastructures. The scope of services includes supply of associated equipment and software; On-Site and Remote Support Services for multi-locations for the IT infrastructures of domestic and international clients. The previous five years trend in CS SBU is as follows:

The CS SBU earned revenue of Rs. 435.15 crore during the financial year 2014-15 on a consolidated basis compared to Rs. 408.46 crore during the financial year 2013-14, registering an increase of 7% on yearly basis. The revenue in CS segment increased mainly in domestic markets as detailed below:

(Rs. /crore)

Market	2014-15	2013-14	Variation
Domestic	390.60	361.91	8%
International	44.55	46.55	(4%)
Total	435.15	408.46	7%

The share of CS SBU in total revenue from operations decreased to 17% during the financial year 2014-15 from 18% during the financial year 2013-14.

2.2 Systems Integration (SI)

The SI SBU undertakes the activities of solution deployment that includes embedded systems, software development, software maintenance and support, turnkey project implementation and systems consultancy and has been one of the key drivers of its transformation towards more value added business with a view to improve overall margin. SI SBU continued to invest and grow its solution asset base so that it can offer innovative solutions around the core IPs’ of these assets. This includes enhancements of Biometrics based Assets for identity management, mining assets for mining solutions, transportation assets, insurance & financial solution assets and e-governance assets. We also continue to focus on emerging areas related to big data and analytics, mobility management and integration and cloud related services.

The SI SBU earned revenue of Rs. 1,652.49 crore during the financial year 2014-15 compared to Rs. 1,413.51 crore earned during the financial year 2013-14, registering an increase of 17% over the previous financial year. The Company has achieved broad based growth in SI segment across the geographies. Both the domestic as well as international markets contributed the revenue growth. The breakup of revenue from domestic and international markets is as follows:

(Rs. /crore)

Market	2014-15	2013-14	Variation
Domestic	175.95	157.74	12%
International	1,476.54	1,255.77	18%
Total	1,652.49	1,413.51	17%

The share of SI SBU in total revenue from operations increased to 66% during the financial year 2014-15 from 63% during the financial year 2013-14. During the previous financial year the revenue from international markets in SI segment included Rs. 18.97 crore resulting from a favorable decision in a legal case. If we exclude the impact of this one time transaction the SI growth during the current financial year stands at 18%.

2.3 IT enabled Services (ITeS):

The ITeS SBU provides a variety of IT enabled services which include Business Process Outsourcing and Knowledge Process Outsourcing for front end and Back office. This SBU has created specific business domain expertise such as on-demand software services; office records digitization and document management; recruitment and examination results management; legacy data migration management.

The ITeS SBU earned revenue of Rs. 301.78 crore during the financial year 2014-15 compared to Rs. 306.14 crore during the financial year 2013-14, on consolidated basis registering a marginal decrease of 1% on yearly basis. The ITeS segment achieved revenue growth from domestic markets while the revenue decline in international markets due to completion of a large overseas project. The details are as follows:

(Rs. /crore)

Market	2014-15	2013-14	Variation
Domestic	164.00	152.05	8%
International	137.78	154.09	(11%)
Total	301.78	306.14	(1%)

The share of ITeS SBU in total revenue from operations decreased to 12% during the financial year 2014-15 as compared to 14% during the financial year 2013-14.

2.4 Education & Training (E&T):

The E&T SBU of the Company offers education and training solutions for corporate organizations, government institutions and individuals. Its offerings mainly include:

• ITandNonITVocationalprograms.

• Integrated career development plans.

• Soft skill trainings.

• Integrated learning solutions for corporate houses.

• Job enabled training program.

The E&T SBU earned revenue of Rs. 54.63 crore during financial year 2014-15 compared to Rs. 57.92 crore during financial year 2013-14.The share of E&T SBU in total revenue from operations has decreased to 2% as compared to 3% during financial year 2013-14. The Education and training segment faced industrywide general slowdown which resulted in reduction in revenue during the year. E&T segment earned all revenues from domestic markets.

2.5 Special Economic Zone (SEZ)

The Company has developed an SEZ facility spread over about 46.33 acres at its campus at Hyderabad. The Company reports SEZ as a separate segment in compliance with Accounting Standard (AS) -17 Segment Reporting, as its assets reached the level of more than 10% of the total assets of the Company. The income from this segment represents income from renting out SEZ facilities toTCS.The performance of the SEZ segment during the previous five years is as under:

The Company has earned a rental income of Rs. 69.44 crore during the financial year 2014-15 compared to Rs. 44.90 crore during the financial year 2013-14. The increase in rental income is on account of increase in area let out to 1704 (SFT’000) as at 31 March, 2015 compared to 1235 (SFT’000) as at 31 March, 2014.

D. DISCUSSIONS ON CONSOLIDATED FINANCIAL RESULTS:

The Management Discussion and Analysis below gives an overview of consolidated audited financial statement of CMC Limited and its subsidiaries:

Particulars	Year ended 31 March, 2015		Year ended 31 March, 2014		Variation
	(Rs. /crore)	% of revenue	(Rs. /crore)	% of revenue
Income:
Income from sales and services	2,513.49	100%	2,230.93	100%	13%
Expenditure:
Material	234.22	9%	224.00	10%	5%
Manpower	591.47	24%	554.68	25%	7%
Sub - Contracting Costs	1,099.80	44%	887.89	40%	24%
Others	203.62	8%	175.02	8%	16%
Total Expenditure	2,129.11	85%	1,841.59	83%	16%
Operating Profit	384.38	15%	389.34	17%	(1%)
Other Income	14.32	1%	25.01	1%	(43%)
Profit before interest, tax and depreciation	398.70	16%	414.35	18%	(4%)
Depreciation	67.23	3%	26.98	1%	149%
Interest	0.05	-	0.08	-	(38%)
Profit before tax	331.42	13%	387.29	17%	(14%)
Provision for taxes	54.30	2%	106.87	5%	(49%)
Profit after taxes	277.12	11%	280.42	12%	(1%)

Numbers or % in bracket represents negative numbers or %.

1. Income:

1.1 Income from sales and services

The Company earned a total income from sales and services of Rs. 2,513.49 crore during the financial year 2014-15 compared to Rs. 2,230.93 crore during the financial year 2013-14 registering a growth of 13% during the year.

The Company has achieved broad based revenue growth across the geographies during the financial year 2014-15. The revenue from international geographies grew by 14%, while domestic market contributed 10% revenue growth during the financial year 2014-15.

The Company’s wholly owned subsidiary CMC Americas, Inc., earned revenue of $244.56 mn (equivalent to Rs. 1,498.27 crore) during financial year 2014-15 compared to $209.06 mn (equivalent to Rs. 1,273.85 crore) during financial year 2013-14 registering a growth of 17% in dollar terms over the previous financial year.

A brief summary of the Company’s Revenue profile is as follows:

Income Category	Year ended 31 March, 2015		Year ended 31 March, 2014		Variation
	(Rs. /crore)	% of Revenue	(Rs. /crore)	% of Revenue
Sale of equipment	220.88	9%	228.49	10%	(3%)
Services	2,292.61	91%	2,002.44	90%	14%
Total Income from sales and services	2,513.49	100%	2,230.93	100%	13%
Domestic markets	799.95	32%	729.64	33%	10%
International markets	1,713.54	68%	1,501.29	67%	14%
Total Income from sales and services	2,513.49	100%	2,230.93	100%	13%

The revenue from sale of equipment during the previous financial year included Rs. 18.97 crore resulting from a favorable decision in a legal case. Excluding the impact of this one time transaction, the growth in sale of equipment stands at 5% during current financial year.

2. Expenses:

2.1 Materials:

The cost of material includes costs that are incurred on procurement of equipment for resale and consumption of spares on maintenance and warranty service.

(Rs. /crore)

Particulars	Year ended 31 March, 2015	Year ended 31 March, 2014	Variation
Equipment Resale:
- Sale of purchased equipment	220.88	228.49	(3%)
- Cost of equipment purchased for resale	210.74	201.97	4%
- Cost of equipment as a % of equipment revenue	95%	88%
Maintenance Services:
- Revenue from maintenance services	54.11	52.63	3%
- Cost of spares consumptions	23.48	22.02	7%
- Spares consumption as a % of maintenance revenue	43%	42%

• The margin from equipment business decreased to 5% during the financial year 2014-15 compared to 12% during the financial year 2013-14. The sale of purchased equipment and cost of equipment during financial year 2013-14, included Rs. 18.97 crore and Rs. 5.83 crore respectively resulting from a favorable decision in a legal case against a customer, leading to increase in margin in equipment business during financial year 2013-14. The margin from equipment business excluding the effect of this transaction was 6% in financial year 2013-14.

• The cost of spares consumptions includes consumables of Rs. 2.01 crore for initial set up cost for a large project. Excluding the effect of this cost the spare consumption as a % of maintenance Company has been 40%.

2.2 Employee benefits expenses:

The employee costs during the financial year 2014-15 increased to Rs. 591.47 crore compared to Rs. 554.68 crore during the financial year 2013-14.

(Rs. /crore)

Particulars	Year ended 31 March, 2015	Year ended 31 March, 2014	Variation
Employee benefit Expenses	591.47	554.68	7%
Revenue from Services	2,292.61	2,002.44	14%
Manpower Costs as % of Revenue from Services	26%	28%

The employee cost during the financial year 2014-15 increased mainly due to the following reasons:

• Increase in manpower cost by Rs. 14.38 crore due to annual increments given during the year.

• Increase in cost of contract employees by Rs. 17.74 crore. On a year on year basis, the Company had net addition of 1290 contract employees for new projects.

• The Employee base of the Company (including contract employees) increased to 12665 as at 31 March, 2015 compared to 11109 as at 31 March, 2014.

• Increase in cost of earned leaves, Gratuity, and Retrial medical benefits by Rs. 4.16 crore due to decrease in discount rates to 8% compared to 9% during the previous financial year.

The manpower cost as a % of revenue from services decreased to 26% during the financial year 2014-15 from 28% during financial year 2013-14 on account of increased utilization of sub-contracted services to achieve cost efficiencies and necessary variability in costs.

2.3 Sub- Contracting and outsourced cost:

(Rs. /crore)

Particulars	Year ended 31 March, 2015	Year ended 31 March, 2014	Variation
Sub contract and outsourced services	1,099.80	887.89	24%
Revenue from Services	2,292.61	2,002.44	14%
Sub-contracted Costs as % of Revenue from Services	48%	44%

The sub-contracting costs as a percentage of services revenue has increased to 48% during the financial year 2014-15 from 44% during the financial year 2013-14. The Increase is mainly due to utilization of vendor employees for onsite projects in CMC Americas Inc. The share of onsite of business in CMC Americas Inc. increased to 79.10% during the financial year 2014-15 compared to 78.60% during the previous financial year.

The Company has been using services of various vendors in order to achieve cost efficiencies and necessary variability in costs which plays important role in the cost management of the Company.

2.4 Other Expenses:

The other expenses as a percentage of income from sales and services remained almost unchanged at 8% during the financial year 2014-15. The details are as tabled below:

(Rs. /crore)

Particulars	Year ended 31 March, 2015	Year ended 31 March, 2014	Variation
Purchased software	3.92	2.88	36%
Electricity	28.19	28.59	(1%)
Rent and Hire Charges	25.05	25.51	(2%)
Repair and maintenance	16.07	14.68	9%
Travel and conveyance	34.72	30.19	15%
Communication and postage	11.69	11.43	2%
Printing and Stationery	8.23	8.20	-
Legal and Professional fees	17.10	14.26	20%
Payment to Franchisees and other E&T expenses	10.41	18.76	(45%)
Living expenses on overseas projects	16.58	15.86	5%
Expenditure on corporate social responsibility	4.18	-	100%
Liability/provision written back and Bad Debts recovered	(7.97)	(17.79)	(55%)
Provision for doubtful trade receivables	17.20	13.44	28%
Net Loss on foreign exchange fluctuations	(4.41)	(12.88)	(66%)
Miscellaneous expenses	22.66	21.89	4%
Total	203.62	175.02	16%
As a % of income from sales and services	8%	8%

The reasons of variation in some key expenses are as follows:

• Purchased software increased due to procurement of project related software during the year.

• Repair and maintenance increased by 9%dueto increase in maintenance charges on SEZfacilitiesand refurbishment of other facilities owned by the Company.

• Travel and conveyance increase in line with increase in business.

• Legal and professional fee includes Rs. 3.08 crore paid in connection with services pertaining to the amalgamation of the Company.

• The Payment to franchisees and other E&T expenses decreased by 45%. The reduction is mainly on account of setting off Rs. 5.81 crore pertaining to E&T related provisions no longer required on this account. Further the Company also increased execution of projects through CMC owned centers during the year.

• Living allowances increased in line with the increase in international service revenue.

• The Company has spent Rs. 4.18 crore towards expenditure on corporate social responsibility as provided by the Companies Act, 2013. The details of this expenditure are given in the Annexure-III which forms part of directors reports.

• The Company has reviewed its liabilities and provisions which were no longer required and written back

an amount of Rs. 7.46 crore on this account. Further the Company has also recovered bad debts amounting to

0.51 crore during financial year 2014-15. The Company had received Rs. 15.27 crore resulting from a favorable decision in a legal case against a customer during financial year 2013-14.

• The Company has provided Rs. 17.20 crore for doubtful debts in accordance with the policy approved by the Board.

• The foreign exchange gain decreased to Rs. 4.41 crore (net) compared to Rs. 12.88 crore (net) in line with the movement in exchange rates. The exchange rate of US Dollar against Rupee appreciated by 4% during the financial year 2015 compared to 11% during the financial year 2014.

• The Miscellaneous expenses increased mainly due to increase in business activities.

3. Other Income:

The other income has decreased to Rs. 14.32 crore during the financial year 2014-15 compared to Rs. 25.01 crore during the financial year 2013-14

The breakup of other income is as follows:

(Rs. /crore)

Particulars	Year ended	Year ended	Variation
	31 March, 2015	31 March, 2014
Interest Income	0.31	6.19	(95%)
Dividend / profi ts from mutual funds	9.86	9.65	2%
Profi ts on sale of fi xed assets	0.30	4.36	(93%)
Miscellaneous income	3.85	4.81	(20%)
Total	14.32	25.01	(43%)

• The Interest income during the financial year 2013-14 included Rs. 5.94 crore receivable as a result of a favorable decision in a legal case against a customer.

• The profits on sale of fixed assets during the financial year 2013-14 included Rs. 4.25 crore profits on sale of residential property.

• The miscellaneous income includes:

• Interest received on tax refundsfrom authorities Rs. 1.24 crore (previous year Rs. 1.06 crore);

• Recoveriesfromemployees Rs. 1.78 crore (previous year Rs. 1.31 crore)

• Sale of scrap, Insurance claims received and others Rs. 0.83 crore (previous year Rs. 0.43 crore)

4. Depreciation:

Depreciation increased to Rs. 67.23 crore during financial year 2014-15 compared to Rs. 26.98 crore during the financial year 2013-14, due to change in useful life of the assets based on evaluation by the Company. The Company has revised its estimates of providing depreciation on fixed assets effective 1 April, 2014. The carrying amount as on 1 April, 2014 is depreciated over the revised remaining useful life. As a result of these changes, the depreciation charge for the year ended 31 March, 2015 is higher by Rs. 37.57 crore. The effect relating to the period prior to 1 April, 2014 is Rs. 18.83 crore which has been shown as an Rs. Exceptional Item for the financial year 2014-15 in the statement of profit and loss.

The changes in useful life are as detailed below:

Class of asset	Previous useful life (Years)	Revised useful life (Years)
Freehold Buildings	60	20
Plant and equipment
- Computers and Servers	6	4
- Others	6	10
Furniture and Fixtures	15	5
Vehicles	10	4
Office equipment	21	5

The depreciation as a percentage of revenue from operations has increased to 3% during financial year 2014-15 as compared to 1% during financial year 2013-14.

5. Interest:

Interest expenses decreased to Rs. 0.05 crore in financial year 2014-15 compared to Rs. 0.07 crore in financial year 2013-14. The Interest cost includes interest paid on vendor/employee deposits held in the ordinary course of business. The Company has remained debt free during the financial year 2014-15.

6. Provision for tax:

The tax expenses of the Company decreased to Rs. 54.30 crore compared to Rs. 106.87 crore during the previous financial year. The effective tax rate decreased to 16% compared to 28% during the previous financial year. The decrease in tax expenses is mainly due to following reasons:

Particulars	(Rs. /crore)
Decrease in tax expenses on account of revision in estimated useful life of fixed assets during financial year 2014-15	(12.76)
Tax on dividend received from subsidiary company during financial year 2013-14	(19.96)
Tax on profits on sale of fixed assets during financial year 2013-14	(1.48)
Tax expenses on increase in profit before tax by Rs. 37.66 crore consequent upon a favorable decision in a legal case during the financial year 2013-14	(12.80)
Increase in tax expenses in CMC Americas, Inc. in line with increase in the profits of the company	2.60
Decrease in tax expenses in CMC Limited, in line with decrease in profits	(8.17)
Net decrease in tax expense	(52.57)

E. FINANCIAL POSITION (CONSOLIDATED):

Capital Structure

1. Share Capital:

Share Capital of the Company remained unchanged at Rs. 30.30 crore.

2. Reserves and Surplus:

General reserve as at 31 March, 2015 increased to Rs. 128.05 crore compared to Rs. 108.27 crore as at 31 March, 2014. The Company has transferred Rs. 19.78 crore being 10% of standalone profits after tax for the year to general reserve as stipulated by Companies Act.

Foreign currency translation reserve increased to Rs. 30.63 crore as at 31 March, 2015 compared to Rs. 25.23 crore as at 31 March, 2014 due to the foreign currency translation gain of Rs. 5.40 crore on net investments and current year profits of foreign subsidiary.

Net worth of the Company as at 31 March, 2015 increased to Rs. 1,355.16 crore compared to Rs. 1,155.97 crore at the beginning of the year resulting in an increase of 17% during the year mainly on account of retained profits after tax earned during the year.

3. Other long term liabilities:

The long term liability increased to Rs. 24.60 crore as at 31 March, 2015 as compared to Rs. 11.59 crore as at 31 March, 2014.The Company has received Rs. 12.66 crore as security deposit towards lease of SEZ premises during thefinancial year 2014-15.

The Income received in advance mainly includes warranty related income received in advance against which services will be rendered after a period of 12 months.

4. Long term provisions:

The long term provisions increased to Rs. 24.06 crore as at 31 March, 2015 compared to Rs. 23.59 crore as at 31 March, 2014, mainly on account of increase in liabilities for post-retirement medical benefits partially offset by reduction in provision of gratuity.

The post-retirement medical benefits increased to Rs. 4.52 crore as at 31 March, 2015 compared to Rs. 3.91 crore as at 31 March, 2014. The liability on this account increased mainly on account of decrease in discount rate to 8% as at 31 March, 2015 compared to 9% as at 31 March, 2014.

The gross liability for Gratuity increased as a result of decrease in discount rates to 8% as at 31 March, 2015 compared to 9% as at 31 March, 2014. The increase due to decrease in discount rate is offset by increase in plan assets for employee gratuity resulted in marginal decrease in net provision for gratuity.

The reconciliation of Provision for Gratuity is as follows:

(Rs. /crore)

Particulars	As at 31 March, 2015	As at 31 March, 2014	Variation
Gross Provisions for Gratuity	30.35	29.52	3%
Plan Assets	10.80	9.84	10%
Net Liability	19.55	19.68	(1%)

5. Trade payables:

The trade payable increased to Rs. 373.87 crore as at 31 March, 2015 compared to Rs. 367.77 crore as at 31 March, 2014 in line with increase in business. However, the Days Payable Outstanding (DPO) decreased to 54 days during the financial year 2014-15 compared to 60 days during the financial year 2013-14.

6. Other current liabilities:

Other current liabilities decreased to Rs. 40.01 crore as at 31 March, 2015 compared to Rs. 66.50 crore as at 31 March, 2014. The reduction in other current liabilities was mainly on account of decrease in creditors for fixed assets. The other current liabilities mainly decreased due to:

Particulars	(Rs. /crore)
Decrease in creditors for fixed assets	(20.12)
Decrease in advance for supplies and others payables	(4.00)
Decrease in statutory due	(2.60)
Decrease in security deposits	(0.74)
Increase in income received in advance	0.97
Net Decrease in other current liabilities	(26.49)

7. Short term provisions:

The short term provisions increased to Rs. 122.29 crore as at 31 March, 2015 compared to Rs. 115.89 crore as at 31 March, 2014. The short term provision during the year increased mainly due to:

Particulars	(Rs. /crore)
Increase in dividend on equity shares	15.15
Increase in provision for compensated absences	2.80
Increase in provision for taxes	0.04
Decrease in tax on dividend	(11.59)
Net increase in short term provisions	6.40

8. Tangible assets:

The gross block of tangible assets increased to Rs. 616.68 crore (including capital WIP) as at 31 March, 2015 compared to Rs. 578.21 crore as at the beginning of the year, resulting in an increase of 7% on net basis during the financial year 2014-15 mainlyon accountofbuilding construction activities in SEZ Hyderabad and Kolkata projects.

9. Intangible assets:

The Company has recognized intangible assets of Rs. 2.88 crore during the financial year 2014-15. The total gross block of intangible assets as at 31 March, 2015 stood at Rs. 11.21 crore compared to Rs. 8.33 crore as at 31 March, 2014.

The Company recognizes perpetual software licenses purchased for internal uses as intangible assets.The Company amortizes such software over a period of 4 years.

10. Deferred tax assets (net):

The deferred tax assets increased to Rs. 17.51 crore as at 31 March, 2015 as compared to Rs. 4.81 crore as at 31 March, 2014. The increase in deferred tax assets is mainly on account of:

Particulars	(Rs. /crore)
Deferred tax assets on provision for doubtful debts during the year	5.85
Reversal of deferred tax liabilities on fixed assets mainly due to change in useful life	5.39
Increase in deferred tax assets on employee related benefits	1.21
Increase in deferred tax assets on other items	0.25
Net increase in deferred tax assets	12.70

11. Long term loans and advances:

Long term loans and advances increased to Rs. 171.17 crore as at 31 March, 2015 compared to Rs. 127.33 crore as at 31 March, 2014. The increase in long term loans and advances are mainly on account of:

Particulars	(Rs. /crore)
MAT credit entitlement during the year	26.01
Increase in advance tax mainly due to increased tax deductions by customers eligible for refund	12.07
Increase in security deposits	2.38
Increase in prepaid expenses for warranty related projects	2.85
Increase in other long term advances	2.73
Decrease in capital advances during the year	(2.20)
Net increase in long term loans and advances	43.84

12. Other non-current assets:

The other non-current asset represents unbilled revenue which is scheduled to be billed after a period of 12 months. The Company assessed these amounts that may be billable only after a period of 12 months and hence classified these transactions as other non-current assets.

13. Current investments:

Current Investments increased to Rs. 218.68 crore as at 31 March, 2015 from Rs. 200.85 crore as at 31 March, 2014. The Company invests its surplus funds generated from operations in low risk debt funds that optimized the return and protected invested principle, details of which are given in note 14 of the financial statements.

14. Inventory:

Inventory mainly consists of equipment purchased for resale to customers. The inventory as at 31 March, 2015 decreased to Rs. 3.15 crore compared to Rs. 6.25 crore as at 31 March, 2014.

15. Trade Receivables

The Trade receivables increased to Rs. 594.83 crore as at 31 March, 2015 as compared to Rs. 467.83 crore as at 31 March, 2014. The Days Sales Outstanding (DSO) increased to 86 days as compared to 77 days during the previous financial year. The following table provides age wise analysis of the Trade Receivables (Net of Provisions for doubtful debts) as on 31 March, 2015:

(Rs. /crore)

Ageing	As at 31 March, 2015	As at  31 March, 2014
Not due	175.53	86.13
Due < 30 days	224.45	180.69
Due 30 - 60 days	49.10	48.69
Due 60 - 90 days	30.05	34.20
Due 90 days - 120 days	19.93	16.88
Due 120 days - 180 days	19.91	14.78
Due > 180 days	75.86	86.46
Total	594.83	467.83

The Company has collected $13.65 mn (equivalent to Rs. 85.44 crore) on 2 April, 2015 from a large overseas project. This outstanding was due for less than 30 days as at 31 March, 2015. After factoring the impact of this collection, the days sales outstanding during the financial year 2014-15 was 74 days.

16. Short term loans and advances:

The short term loans and advances decreased to Rs. 37.77 crore as at 31 March, 2015 compared to Rs. 48.72 crore as at 31 March, 2014. The details of movement in short term loans and advances are as follows:

Particulars	(Rs. /crore)
Decrease in other short term advances mainly due to property tax recovered from lessee for SEZ facility.	(8.88)
Decrease in indirect tax credits	(2.39)
Decrease in security deposits	(3.39)
Decrease in employee loans	(0.42)
Increase in short term advances for supplies	1.28
Increase in prepaid expenses	2.85
Net decrease in short term loans and advances	(10.95)

17. Other current assets

Other current assets represents unbilled revenue (accrued debtors) which are recognized for services rendered / goods supplied but not invoiced till the Balance Sheet date as per the customer contracts other than those amounts which are likely to take more than 12 months to bill. Unbilled revenue as at 31 March, 2015 was Rs. 314.71 crore compared to Rs. 278.14 crore as at 31 March, 2014. The level of current unbilled revenue has remained unchanged at 46 days in financial year 2014-15.

F. FUTURE OUTLOOK

Indian IT-BPM industry would continue its growth path and will weather any volatility in the global economy on the back of strong domestic market which is still largely unserved and has unmet needs. The IT skills supply is marked by some very high levels of skills in areas such as ER&DC and cutting edge web technologies. In addition there is a strong trend towards digital and e commerce based start-ups indicating a healthy innovative culture building up which would foster IP led as an add-on to services led growth so far witnessed.

G. RISK AND CONCERNS:

The increasing global trends in digitization driven by the forces of social, mobility, analytics and cloud coupled with the large size of the addressable global market and the relatively low current levels of penetration of the target markets suggest significant headroom for future growth. The Company has positioned itself well for the growth in business with an aligned strategy, structure and capabilities.

A comprehensive and integrated risk management framework forms the basis of all the de-risking efforts of the Company. Formal reporting and control mechanisms ensure timely information availability and facilitate proactive risk management. These mechanisms are designed to cascade down to the level of the line managers so that risks at the transactional level are identified and steps are taken towards mitigation in a decentralized fashion.

The Board of Directors is responsible for monitoring risk levels on various parameters and the Managing Director & CEO ensures implementation of mitigation measures. The Audit Committee provides the overall direction on the risk management policies.

The following table lists some of the key risks which may be faced by the Company.

Key Risk	Impact on the Company	Mitigation Plan
Global economic situation	The global economy has been showing signs of growth. For the IT service industry, the demand momentum is looking healthy in the major markets. Discretionary spend is increasing. However, there are pockets of global markets where there are still some uncertainties. IT service industry is closely linked with the global economic situation.	• The Company aggressively looks for new markets segment where the growth is relatively faster. • CMC focus on several selected vertical segments with a view to leverage accumulated domain expertise to deliver enhanced value to its clients.
Business Risk	Excessive dependence on any single business and exposure to a few large clients has the potential to impact profitability and to increase credit risks segment increases risks. Hardware supply and integration is significant part of our revenue for which the Company depends on OEMs. Any default and delays on the part of OEMs exposes the Company to the risk of not meeting its commitments to the Customer. Further, a high geographical concentration of business could lead to volatility because of political and economic factors in target markets.	• The Company aggressively focuses on broad base and diversify revenue stream to prevent undesirable concentration in any one vertical technology client or geographic area.
		• CMC actively seeks new business opportunities and clients to reduce client concentration levels. However large clients and high repeat business lead to higher revenue growth and lower marketing cost. The Company makes efforts to strike a balance.
		• The Company continuously focusesto negotiate better terms with OEMs. In addition, the Company has reduced its share of such business and is focusing on increasing value added services business.
		• Exposure to the inherent risks in a specific geography consists of legal and contractual risks as well as tax related changes. The company has a process of evaluating country risks by taking legal opinion from the legal counsel operating/familiar with the geography.
		• Proactively looking for business opportunities in new geographies and thereby increasing their contribution to total revenues helps manage this risk.
Financial Risk	The Company is exposed to longer recovery cycles and incidents of defaults by customers due to its involvement in large turnkey projects implementation and Government entities in its customer profile resulting in need to finance higher level of working capital.	• The Company has been focusing on improved execution and negotiation of better terms with customers and vendors. • Credit assessment done at the time of initial client acceptance and every subsequent project acceptance. The collection follow-up process has been tightened up. • These measures have helped Company in significant reduction in collection cycle and working capital, resulting in cash surplus. • The Company is confident to have adequate funding to finance its working capital requirements as well as future growth needs.
Currency volatility	Volatility in currency exchange movements resulting in transaction and translation exposure	• Currency hedging policies and practices are in place. • Hedging strategy is continuously monitored by the Audit Committee frequently.
Cost pressures	Increasing employee costs and escalating operation expenses may create pressure on margin	• Well monitored frameworkofcost management is in place. • Company continuously focuses on productivity improvement. • Leveraging offshoring and utilization of employees under direct contract, to the maximum extent possible.
Compliance Risk	Increasing regulatory requirement may pose compliance related risk to the Company.	• The Company has a well-established process of identifying the regulatory requirements. • The Company has a dedicated in-house team of professionals to mitigate any compliance related risk. • All processes and check lists, to comply with the statutory requirement are well documented and are regularly followed and reviewed to incorporate any changes.
Availability of desired Resources	Non availability of resources with right skill at the right time may pose risk to the Company. Ability of the Company to attract and retain talent is critical.	• The Company has a well-established process for identification of career aspiration of professionals and helping them reach their goals. • Identification of competency and skill gaps on a continuous basis and aligning the market needs. • Focus on career aspiration planning for high performers and incentivize them with learning, growth and leadership opportunities.

H. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

CMC has in place adequate systems of internal control commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance of corporate policies. CMC has a well-defined delegation of power with authority limits for approving revenue as well as expenditure and processing payments. Processes for formulating and reviewing annual and long term business plans have been laid down.

CMC uses a state-of-the-art ERP system to record data for accounting, consolidation and management information purposes and connects to different locations for efficient exchange of information. It has continued its efforts to align all its processes and controls with best practices in the group and industry. CMC has appointed Ernst & Young to oversee and carry out internal audit of its activities. The audit is based on an internal audit plan, which is reviewed each year in consultation the audit committee. In line with international practice, the conduct of internal audit is oriented towards the review of internal controls and risks in its operations such as software and hardware delivery, accounting and finance, procurement, employee engagement, travel, insurance, IT processes including the subsidiaries. CMC has an audit committee, the details of which have been provided in the corporate governance report. The audit committee reviews audit reports submitted by the internal auditors. Suggestions for improvement are considered and the audit committee follows up on corrective action. The Audit Committee also meets CMC statutory auditors to ascertain, inter- alia, their views on the adequacy of internal control systems and keep the board of directors informed of its major observations periodically.

I. HUMAN RESOURCES:

Your Company maintained the momentum during the year implementing Human Resource practices for effective staffing, retention, training and staff development facilitating delivery excellence for our customers.

CMCs people centric focus providing an open work environment fostering continuous improvement and development helped several employees realize their career aspirations during the year. CMC has continually adopted structures that help attract best external talent and promote internal talent to higher roles and responsibilities.

Your company improved efficiency in HR operations by digitizing key HR processes during the year. External recognition of this was in terms of being awarded the DMA Thomas National Award for HR Process Digitization and the SHRM Runner Up trophy for Best Practices Award for HR Analytics. CMC continued to build upon its PCMM Level 5 practices demonstrating high commitment in the area of People Engagement.

During the year the E- Learning access was extended to all employees including direct contract employees. Increased emphasis was also given to Instructor led class room training and there was significant increase in training hours across the employee base. Competency measurement was done across the company with standardized online assessment tools to drive specific training and skill development initiatives.

The company improved its focus on enhancing per person realization by balancing the mix of senior-junior and regular- direct contract-outsourced employees in the resource management area. This also helped the company retain talent by giving adequate job rotation opportunities to the staff - thus keeping their interests alive and continuously engaging with them.

Employee Engagement through Mentoring programmes for campus hires, high performers and senior leadership team, CMC Connects at each location, Mini-Connects at project locations and Maitree events helped bringing employees together to celebrate birthdays, recognize Stars of the Month, and encourage participation by staff in cultural activities. Your organization also celebrated the Tata Volunteering Week in March, 2014, September, 2014 and March, 2015 where several employees across the Tata Group of Companies came together in a Tata Engage forum and participated in Community Development activities for the welfare of Women and Children across the country. This helped give everybody a sense of fulfilment and belonging to the Group.

For fostering Diversity and Inclusion, specific focussed initiatives have been launched to promote gender diversity in the Company - CMC women workforce now stands at 23% of total workforce.

The total staff strength including employees on direct contract rolls of the Company as on 31 March, 2015 stood at 12665 as compared to 11109 as on 31 March, 2014.

J. CAUTIONARY STATEMENT:

Statements in the Management Discussion and Analysis describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities, laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include change in Government regulations, tax laws, economic & political developments within and outside the country and such other factors.

PERFORMANCE SUMMARY - CONSOLIDATED

(Rs. /crore)

Particulars	FY 2015	FY 2014	FY 2013	FY 2012	FY 2011
Income from sales and services	2,513.49	2,230.93	1,926.09	1,466.96	1,080.53
International Revenue	1,713.54	1,501.29	1,223.23	884.14	597.71
Domestic Revenue	799.95	729.64	702.86	582.82	482.82
Income from sales and services by Geographic Segment
India	905.75	842.62	790.44	664.62	555.40
USA	1,498.27	1,273.85	1,044.51	733.54	468.23
UK	33.56	41.92	42.57	30.43	24.54
Others	75.91	72.54	50.34	38.37	32.36
Cost
Employee Cost	591.47	554.68	521.64	440.22	345.13
Other Operating Cost	1,537.64	1,286.91	1,087.64	802.41	524.69
Total Cost(excluding interest & depreciation)	2,129.11	1,841.59	1,609.28	1,242.63	869.82
Profitability
EBIDTA(before other income)	384.38	389.34	316.81	224.33	210.71
Profit before tax	331.42	387.29	306.59	220.40	211.83
Profit after tax	277.12	280.42	230.23	151.81	179.41
Capital Accounts
Share Capital	30.30	30.30	30.30	30.30	15.15
Reserves And Surplus	1,324.86	1,125.67	915.96	741.89	638.87
Gross Block - Tangible Assets	616.68	578.21	402.72	354.27	172.91
Current Investments	218.68	200.85	85.33	151.58	226.17
Earnings per share in Rs.
EPS - as reported*	91.46	92.55	75.98	50.10	59.21

Notes:

Previous years figures have been regrouped/reclassified where necessary.

*EPS for all previous years has been adjusted for bonus issue of 1:1 in financial year 2011-12

RATIO ANALYSIS CONSOLIDATED

Particulars	Unit	FY 2015	FY 2014	FY 2013	FY 2012	FY 2011
Financial Performance:
International Revenue / Income from sales and services	%	68.17	67.29	63.51	60.27	55.32
Domestic Revenue / Income from sales and services	%	31.83	32.71	36.49	39.73	44.68
Equipment Revenue / Income from sales and services	%	8.79	10.24	10.38	10.51	9.51
Services Revenue / Income from sales and services	%	91.21	89.76	89.62	89.49	90.49
Employee Cost / Income from sales and services	%	23.53	24.86	27.08	30.01	31.94
Other Operating Cost / Income from sales and services	%	61.18	57.68	56.47	54.70	48.56
Total Cost / Income from sales and services	%	84.71	82.55	83.55	84.71	80.50
EBIDTA (before other income) / Income from sales and services	%	15.29	17.45	16.44	15.29	19.50
Profit before tax / Income from sales and services	%	13.19	17.36	15.92	15.02	19.60
Tax / Income from sales and services	%	2.16	4.79	3.96	4.68	3.00
Effective Tax Rate-Tax / PBT	%	16.38	27.59	24.91	31.12	15.30
Profit after tax / Income from sales and services	%	11.03	12.57	11.95	10.35	16.60
Growth Rates:
International Sales and services	%	14.14	22.73	38.59	47.92	37.30
Total Income from sales and services	%	12.67	15.83	31.30	35.76	24.10
EBIDTA (before other Income)	%	(1.27)	22.89	41.22	6.46	27.89
Profits after tax	%	(1.17)	21.80	51.66	(15.38)	25.26
Balance Sheet Ratios:
Debt - Equity Ratio	Nos.	0.00	0.00	0.00	0.00	0.00
DSO Days - Debtors	Days	86	77	79	95	85
DSO Days - Accrued Debtors	Days	46	50	44	37	42
Capital turnover	%	1.85	1.93	2.04	1.90	1.65
Per share information:
Earnings Per Share*		91.46	92.55	75.98	50.10	59.21
Price Earnings Ratio, end of year	Nos.	21	15	18	20	18
Dividend Per Share		27.50	22.50**	17.50**	12.50**	20.00
Dividend Payout (including CDT) / PAT	%	30.01	28.45	26.95	29.00	19.63
Market Capitalization as at 31 March	Cr.	5,811	4,198	4,066	3,014	3,151

Notes:

* EPS for all previous years has been adjusted for bonus issue of 1:1 in financial year 2011- 12.

** On enhanced share capital after bonus issue in the ratio of 1:1 issued during financial year 2011- 12.