Compucom Software Ltd Management Discussions.

OVERVIEW

The Company operates in areas like e-governance projects, ICT education projects, software design & development, electronic Media, IT &media training and learning solutions, wind power generation etc. Pipeline projects underway in hospitality, food processing, cold-chaining and commodity trading sectors. Our Strategic objective is to build a sustainable organization that remains relevant to the agenda of our clients, while creating growth opportunities for our employees and generating profitable growth for our investors. The financial statements are prepared in accordance with the Indian Accounting Standards (Ind AS) under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values, the provisions of the Companies Act, 2013 ("the Act") and guidelines issued by the Securities and Exchange Board of India (SEBI). The Ind AS are prescribed under Section 133 of the Act, read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015, and relevant amendment rules issued thereafter.

I. INDUSTRY STRUCTURE AND DEVELOPMENTS:

Almost every industry around the globe is being driven by Software and Computing technology to transform their business in a profound way. Due to reduction in hardware and bandwidth cost the IT and ITES are helping in digitization of business process and it is cascading across the industries and enabling IT based market offerings and business models. The renewal of digitization era has translated into extracting value out of digitized data, building next-generation software applications and platforms and strengthening information and data security.

After FY 2018-19, the global market for IT services was estimated to grow toto $5.2tn with the US accounting for about 32% or $1.7tn (according to research consultancy International Data Corporation). But the current COVID-19 situation has meant that there may be a significant cut to these estimates for the current FY due to reduced demand and a general cut on spending across Government and Corporate organizations (the two main consumers of IT products and services). It is widely expected by analysts and industry professionals alike, that there would be at least 5-10% drop in revenue from IT services in Q1 due to clients cancelling or putting off discretionary spending for a few months until the situation becomes stable again. Indias IT & ITeS industry raked in over US $ 180bn in revenue for the year 2019-20 (NASSCOM). Exports from the major chunk (about two thirds) of these figures. The IT&BPM sector contributes to nearly 8% of Indias GDP. The Company is also targeting new customer segments and market verticals in order to leverage existing land bank and to continue the steady rate of diversification it has maintained over the years. One such upcoming project is a 4-star hotel property in Jaipur which the Company wants to develop and operate with existing best practices and an integrated self-sustaining supply chain, as far as possible, with backward integration from a cold chaining and food processing project being set up nearby. According to India Brand Equity Foundation (IBEF), during 2018, foreign tourist arrivals (FTAs) in India stood at 10.56 million, achieving a growth rate of 5.20 per cent year-on-year. FTAs in January 2019 stood at 1.10 million, up 5.30 per cent compared to 1.05 million year-on-year. International tourist arrivals are expected to reach 30.5 million by 2028. Jaipur is a major city in both international and domestic tourism circuits. As of FY 19, existing inventory of hotel rooms (branded, all categories) in Jaipur stood at 5,426, up from 5,058 and 4,129 respectively in immediately preceding years. The YoY growth for rooms inventory stood at 7.3% and CAGR at 5.6%, which were well above the average for top 11 tourism cities at 5.9% a piece for both figures. The proposed supply, as per CARE ratings will be around 1089 new rooms by end of FY 23 with upper-midmarket and midmarket segments grabbing the biggest chunks (38.6% and 30.5%) in this new inventory. It is important to note that these forecasts will have to be reconsidered in the light of the current global pandemic that has currently crippled most of travel and allied industries. Although we are still in development phase of the hotel and hence not incurring any operating costs, but the company has taken cognizance that whenever the travel and hospitality sectors would stabilize, there would be renewed focus on values such as hygiene, safety etc. and we are actively evolving our development strategy accordingly.

II. OPPORTUNITIES AND THREATS: Opportunities: a. ICT in Govt. Schools: India is one of the worlds largest education markets, with 445mn of the 1.3bn population comprising the target group (5-20 ages) of the education sector. The ‘ICT in schools scheme is a window of opportunity to bridge the digital device gap in India. The scheme is a comprehensive initiative to open new vistas of learning and provide a level playing field to school students of rural areas. Compucom is a passport for fulfilling career in computer literacy, providing students with hands-on courses to stay abreast with the requirements of the IT world and moreover Compucom is one of the prominent players for ICT School Projects, which are funded by Government of India and State Governments in 60:40 ratio. Compucom undertakes large projects that are similar in nature with a turnkey project, from setting-up of computer labs to imparting computer education and other computer aided learning program for government schools. These projects also involve supply of computer hardware, software and connected accessories as well as imparting of education services for a specified time (generally 3-5 years). Government having recognized the importance of IT in education as being fundamental to the development of a globally competitive economic and democratic society as well as placing India on the world IT map, now focus mainly on providing computers and computer literacy Programme in Government schools. Compucom has shaped the lives of millions of students by introducing computer literacy to the students in Government Schools.

 

The Government in order to streamline the school education projects has merged the Rashtriya Madhyamik Shiksha Abhiyan (RMSA) and SarvaShikshaAbhiyan(SSA) under the aegis of Samagra Shiksha Abhiyan (SMSA) as an effort to universalize Secondary and Elementary Education by community-ownership of the school system. It is a response to the demand for providing quality school education across the country. The Samagra Shiksha Abhiyan (SMSA) is also an attempt to provide an opportunity for improving human capabilities through provision of community owned quality education. It aims to provide useful and relevant Secondary and Elementary education for all children within the 6-18 age groups. The Programme also aims to bridge social, regional and gender gaps, with the active participation of the community in the management of schools. The increased allocation to the Samagra Shiksha Abhiyan (SMSA) will have a positive impact on all the IT training companies including Compucom as there would be increased allocation to computer training as well. The budget has also been positive for the IT-Training companies with increased allocation to the Samagra Shiksha Abhiyan (SMSA). Along with this, the demand for corporate training is increasing with more and more companies outsourcing training to specialized IT training companies hence the growth of the IT-Training companies will be further boosted. Skill training focus of Government under Pradhan Mantri Kaushal Vikas Yojana (PMKVY) is also going to prove beneficial to our company in the near future. Additionally, in the current FY, the governments introduction of New Education Policy 2020 has placed a renewed focus on both IT education and ICT based education media. Be it including coding for children from an early school going age or proposing quality tech-based options for adult learning such as apps, satellite-based TV channels, ICT equipped libraries etc., the company looks forward to these developments and shall work closely with all stakeholders to ensure it plays a role in modernizing Indian education.

b. Software & E-governance Services: Traditionally the company has been focusing on software export market, but the way India is emerging as a power house economy, many more software service opportunities in Government sector are emerging in areas of power utilities, Education, Rural Development, Infrastructure Development, etc. Our company has put significant efforts in harnessing this E-Governance business. Our company is also serving overseas clients by providing software development, testing and maintenance and customer support services. The company has developed its own news portal which works in conjunction with its satellite TV Channel and has added shimmer to the companys brand image and generated new business opportunities. This past FY though has seen a temporary downturn in number of client orders from overseas, but the company is fully geared to bounce back soon.

c. Media Services: Your companys subsidiary CSL Infomedia Pvt. Ltd. has successfully completed seventh year operation of its Satellite TV Channel "JAN TV" which is a vehicle of Educational, Financial, Social and Political change. This Channel offers Education, News, Employment, Skill Development, Agriculture, Tourism, Healthcare, Religious, Sports, Entertainment and News and Current Affairs based Programme. The Channel is available on Airtel DTH and all major Cable Networks in Rajasthan and across the globe through its portal www.jantv.in and on android, iPhone/ iPad mobiles through its mobile app available on Google Play store and Apple Store. Jan TV is also available on Reliance JIO TV which is already having 35+ Crore subscribers. CSL Infomedia Pvt. Ltd. had previously also started another Satellite TV channel ‘Jan TV Plus which is an infotainment channel and a platform for imparting remote education in schools. Both Jan TV and Jan TV Plus channels have been empaneled with Department of Information and Public Relations (DIPR) Government of Rajasthan. Jan TV has subscribed to BARC (Broadcast Audience Research Council) for Television Audience Measurement services. JAN TV is recently empaneled with DAVP (DIRECTORATE OF ADVERTISING AND VISUAL PUBLICITY)

d. Hospitality Sector: Since the Indian tourism & hospitality industry has emerged as one of the key drivers of growth among the services sector in India, and being located at Jaipur, which is among the preferred destination of domestic as well as international tourists, Compucom has decided to venture into this sector. Therefore, we have been constructing a four starred Hotel on our existing piece of land at IT 12-13 Sitapura Industrial Area, requiring phased investment of total 20 to 25 crore rupees approx. This project has been partly funded by the State Bank of India. The company is also exploring tie ups with reputed brands and operators in the hospitality space.

Threats: a. Competitive pressures: IT is one sector that is spreading its wing fast throughout the world and India is becoming a preferred destination for global IT players. As a result, the competitive pressure is intensifying. The Company has to operate in this competitive scenario and acquire a grip on the market to hold its foot firmly and upkeep the brand name.

b. Talent supply constraint: Both, the IT as well as the manufacturing sector seek Talent. This increases the cost of the talent. The Company has to ensure that it acquires good talent and retains it in order to constitute its major competitive edge. The Company maintains excellent work environment and competitive package for this purpose.

. Technology Obsolescence: These are the days when technology takes no time to become obsolete. Thus, to be at par with its competitors the company has to ensure that it constantly updates and upgrades its technology.

d. Exchange Rates: Since the company uses India as a major source of manpower, the exchange rate of the rupee vis--vis the US-dollar and other currencies affect its ability to compete. The Company attempts to minimize the foreign exchange exponent by taking appropriate measures wherever required.

e. Government Policies: As and when there is a change in the Government, there might be a change in its policies too. Any adverse changes in its policies may affect the business operations of the Company.

f. Downturn in industries being served: Any outlook of the industry needs to be looked at with caution since the current trend seems to be very fluid due to Government Policies and also the COVID-19 pandemic has hugely disrupted the demand and chain supply across industries, thus negatively impacting the business of companies and driving the Global Economy towards a possible recession. The COVID-19 pandemic has also forced the Government to impose lockdown and various other strictures in a bid to contain the spread of disease. This has forced companies to rework how their employees work and how their core business processes are supported and delivered.

III. SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE: Detailed information about segment-wise performance of the company are as follows:

Information about reportable segments

A. Information about primary segments

Particulars

Year ended March 31, 2020

Year ended March 31, 2019

Business Segment Allocated Unallocated Total Allocated Unallocated Total
Revenue
Software 520 - 520 282 - 282
Learning 719 - 719 5997 - 5997
Wind Power 172 - 172 180 - 180
Segment revenue 1411 - 1411 6459 - 6459
Expenses
Software 529 - 529 234 - 234
Learning 820 - 820 5975 - 5975
Wind Power 191 - 191 135 - 135
Segment Expense 1540 - 1540 6344 - 6344
Segment Results
Software (9) - (9) 48 - 48
Learning (101) - (101) 22 - 22
Wind Power (19) - (19) 45 - 45
Segment Results (129) - (129) 115 - 115
Less: expenses 29 29 - 30 30
Add: Interest income - - - -
Add: Other unallocable income 331 331 - 548 548
Profit before tax and exceptional items - 173 - - 633
Less: Exceptional item - - - - - -
Profit before tax - 173 633
Tax expenses - 65 - - 91
Other Comprehensive income - - - 13
Profit for the year 107 - 107 555
Particulars Year ended March 31, 2020 Year ended March 31, 2019
Revenue by geographical segment
India 1606 6859
USA 136 148
Total 1742 7007

C. Reconciliation between segment revenue and enterprise revenue

Particulars For the year ended March 31, 2020 For the year ended March 31, 2019
Segment Revenue
Software 520 282
Learning 719 5997
Wind Power 172 180
Total Segment Revenue 1411 6459
Enterprise Revenue
Revenue from operations 1742 7007
Less: Other operating revenues (331) (548)
Add: Export Incentives - -
Total Segment Revenue 1411 6459

IV. OUTLOOK:

The Company has a positive outlook for the coming year and endeavors to achieve a steady business performance in the coming year. This is however, subject to risks and uncertainties given below.

V. RISKS AND CONCERNS:

They are, but not limited to, risks and uncertainties regarding fluctuating earnings, interest rates, exchange rates, the Companys ability to manage growth, intense competition in IT services including those factors which may affect our cost advantage, wage increase, earnings and exchange rate fluctuations, intense IT competition, Government policies, ability to attract and retain skilled professionals, time- cost over-runs on fixed price contracts, client concentration, ability to manage the international marketing and sales operations as well as the local operations, alterations of the government fiscal incentives, political instability, legal framework and above all general economic conditions affecting the industry.

VI. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Companys internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Companys internal financial control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and Directors of the Company and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements. The Company has a robust internal audit program, where the internal auditor, conduct a risk-based audit with a view to not only test adherence to policies and procedures but also to suggest improvements in processes and systems. Their audit program is agreed upon by the Audit Committee. Internal audit observations and recommendations are reported to the Audit Committee, which monitors the implementation of such recommendations.

VII. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

Financial Performance:

Income: The Company derives its income from Software& E-Governance services, sale of software products, learning solutions including skilling and placement activities, IT education and training, Wind Power Generation, and treasury income. Treasury income mainly includes interest on FDRs.

Particulars 31.03.2020 31.03.2019
Software & E-Governance Services - Overseas 135.68 148.25
Domestic 384.32 133.41
Learning Solution 719.32 5997.26
Wind Power Generation 171.40 179.96
Other Income 331.68 547.93
Total 1742.40 7006.81

a. Software Services: Software development at overseas level has shown degrowth due to lower orders. E-Governance projects at domestic level has shown slight improvement. However, the Company is bidding for new project aggressively in the current Financial Year.

b. Learning Solution: Learning Solution comprises imparting computer education in Govt. Schools, skilling and placement activities, providing computer education to general public through Franchisees and Authorized Business Associates (ABAs) and IT finishing school. During the financial year revenue from this segment has reduced significantly due to the reason that ICT-III project completed in previous financial year. More than 90% of project value of 1172 school project and that of 303 school projects of ICT-V, of Rajasthan Government Project also completed during the previous year. The company is operating mainly ICT-IV Project amounting to Rs. 635.25 lakhs which ismore than 85% of total learning segment during the current year.

During the current financial year company received new work order from BOCW Welfare Board for Rs. 356 lakhs for manpower supply on contract basis. The company booked income of Rs. 253.54 lakhs on this account contributing14.55% of total revenue. Regarding the learning solution apart from the ICT and otherprojects of Government schools, the company indulges in providing skill development training to engineering & other curriculum batches, as well as government & other employees.

c. Wind Power Generation: The Company has set up five wind power plants two in Sikar and two in Jaisalmer, Rajasthan and one in Krishna, Andhra Pradesh. Wind World India Limited takes care of the wind power projects of the company and deals on behalf of the company with all regulatory bodies. Revenue from this segment has reduced by Rs. 8.56 lakhs compared to the previous year, mainly due to low flow of wind.

d. Foreign Exchange Risks/ Exposures: The Company operates from India with execution facilities in USA. A significant portion of revenue, expenses related to Software business is carried out in US foreign exchange exposure for the last two years is mentioned below:

Particulars 31.03.2020 31.03.2019
Revenue in Foreign Currency 135.68 148.25
Revenue Expenses in Foreign Currency - -
Capital Expenses in Foreign Currency - -
Net Exchange Earning 135.68 148.25

The reason of fall in revenue in foreign currency is due to lower overseas workorders. Expenditure:

Particulars 31.03.2020 % of Total 31.03.2019 % of Total
Revenue Revenue
Total Revenue 1742.40 100 7006.81 100
Expenses
Purchase of stock in trade - - 3128.32 44.65
Changes in inventories - - 189.96 2.71
Manpower Expenses 617.98 35.47 453.96 6.48
Learning Solution Execution Charges 391.95 22.49 1155.88 16.50
Administrative & Other Expenses 325.36 18.67 340.83 4.86
Finance Cost 94.79 5.44 199.08 2.84
Depreciation 138.64 7.96 905.38 12.92
Profit Before Tax 173.68 9.97 633.40 9.04
Exceptional Items 0.00 0.00 0.00 0.00
Provisions for Income Tax 65.19 3.74 90.61 1.29
Other comprehensive income (1.63) (0.09) 13.03 0.19
Profit After Tax 106.86 6.13 555.82 7.93

Interest: The Company relies on the internal accruals and/or term loans for financing the IT/ ICT projects awarded by the Government. Interest paid during the year amounted to Rs. 73.91 Lakhs and Company has not defaulted in the payment of principal and interest during the year. During the previous year purchase of Rs. 3128.32 lakhs and inventory of Rs. 189.96 lakhs include those for these two new projects namely 1172 and 303 school projects. Finance cost during the current year is lower due to repayment of long-term loans taken during the previous financing year for 1172 and 303 school projects. Depreciation has reduced by Rs. 766.74 lakhs. This was due to completion of ICT-III project for which remaining assets of ICT-III were depreciated during the previous year.

Operational Performance:

Share capital: The Company has only one class of shares namely equity shares. The face value of the share is Rs. 2/- per share. The paid- up capital of the company is Rs. 15,82,50,376/-

Reserves & Surplus

Particulars 31.03.2020 31.03.2019 Particulars 31.03.2020 31.03.2019
Profit & Loss Account 7915.45 7902.35 Gross Block 4519.31 9243.44
General Reserves 1484.79 1484.79 Accumulated depreciation 2512.21 7468.58
Securities Premium 1352.96 1352.96 Net Fixed Assets 2007.10 1774.86
Capital Reserve 209.22 209.22 Total Revenue/Net Block 0.87 3.95
Other Comprehensive Income 35.16 36.79
Total 10997.58 10986.11 Acc. Dep. as % of Gross Block 55.59 80.80

Investments: The details of investment made by the company are as under:

Particulars 31.03.2020 31.03.2019
Equity Investments in CSL Infomedia Pvt Ltd. 455.00 455.00
Equity Shares 0.51 2.37
Investments in Mutual Funds 26.83 87.88
Other Investments 17.32 16.62
Total 499.66 561.87
Non-Current &Current Liabilities: (Rs. in Lakhs)
Long-Term Borrowings 251.49 265.41
Deferred Tax Liabilities (Net) 0.00 0.00
Other Long-Term Liabilities 643.29 641.88
Long-Term Provisions 86.23 57.32
Short-Term Borrowings 825.23 238.18
Trade Payables 68.79 66.33
Other Current Liabilities 97.99 856.67
Short-Term Provisions 423.31 1017.16
Total 2396.33 3142.95
Long Term Loans and Advances & Other Non-Current Assets: (Rs. in Lakhs)
Long Term Loans and Advances 1393.28 1271.43
Other Non-Current Assets 99.61 101.80
Deferred Tax Assets (Net) 187.09 226.88
Other Financial Assets 1064.06 860.61
Total 2744.04 2460.72
Current Assets: (Rs. in Lakhs)
Trade Receivable 4671.41 5685.25
Cash and Bank Balances 3724.39 3880.53
Short Term Loans and Advances 1329.83 1348.33
Stock in trade 0.00 0.00
Total 9725.63 10914.11

Trade receivables are mainly related to Govt. Schools of Rajasthan. These debtors are considered good and are realizable.

VIII. MATERIAL DEVELOPMENT IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS, INCLUDING NUMBER OF PEOPLE EMPLOYED: Human resource development is paramount in every organization. The management continues to lay emphasis on identifying and developing talent on organization with a view to retain them and impart further training to those capable of handling additional responsibilities. This works to increase employee satisfaction within the organization, by providing employees with fresh challenges. Developing people and harnessing their ideas of high priority for the Company. The Companys employee count stood at 684 as of March 31, 2020.

IX. DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS:

In accordance with the SEBI (Listing Obligations and Disclosures Requirements) (Amendment) Regulations, 2018, the Company is required to give details of significant changes (change of 25% or more as compared to immediately previous financial year) in key sector-specific financial ratios. During the year the Company maintain the specificratios as follows:

Debtors Turnover Ratio 0.27
Inventory Turnover N.A.
Interest Coverage Ratio 1.28
Current Ratio 6.87
Debt Equity Ratio 0.19
Operating Profit/(Loss) Margin (%) (5.96)
Net Profit Margin (%) 6.23
Basic EPS (Rs.) 0.14

Almost 77% fall in debtor turnover ratio is due to the reason that net credit sales reduced to Rs. 1709.78 lakhs while it was Rs. 6454.29 lakhs and average receivable during the current year is Rs. 5178.33 lakhs while it was Rs. 5162.22 lakhs. The company does not regularly deal in purchase and sale of inventory. During the previous year the company received a project of 1172 and 303 school projects for which it was the requirement to sale some computer hardware to government schools. During the current year there was no such project and hence the company had no closing and opening stock. The inventory turnover ratio is therefore not applicable during the current financial year. Interest coverage ratio is also lower by 78% due to the reason that profit before tax and interest is only 94.73 lakhs in relation to the interest of Rs. 73.91 lakhs accounting for 1.28 times while the profit before tax and interest during the previous year was Rs. 767.59 in relation to the interest of Rs. 134.18 lakhs during the previous year which accounted for 5.72 times. Although total turnover, PBT and PAT was far lower as compared to the previous year the current ratio showed remarkable increase by 37% i.e. 6.87 which is due to the reason that company believes in keeping liquid funds in hand and avoids short term loans from banks and creditors. It is worth mentioning that company suffered operating loss of Rs. 84 lakhs while operating profit during the last year was Rs. 220 lakhs. Revenue from operation during the current year was Rs. 1410.72 lakhs while it was Rs. 6458.88 lakhs.

X. CHANGES IN RETURN ON NET WORTH:

Return on Net Worth is computed as net profit divided by average Net Worth. Net Profit was decreased from Rs. 556 Lakhs in the previous financial year to Rs. 107 Lakhs in the current financial year. Due to this return on net worth is lower at 0.86% as compared to the previous financial year at 4.32%. The Profit is decreased due to most of old big projects completed and few new small projects received by the Company.

XI. CAUTIONARY STATEMENT:

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward– looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements based on any subsequent developments.

For and on Behalf of the Board of Directors Compucom Software Limited

Sd/-

Surendra Kumar Surana

Chairman Managing Director & CEO (DIN: 00340866) Jaipur July 22, 2020

Sd/-

Vaibhav Suranaa Non-Executive Director (DIN: 05244109)