datamatics global services ltd Management discussions

Industry Review

Digital Technologies

• Worldwide IT spending is projected to total $4.6 trillion in 2023, an increase of 5.5% from 2022. IT spending is likely to accelerate to 8.6% in 2024 to $5.04 trillion. Despite continued global economic turbulence, all regions worldwide are projected to have positive IT spending growth in 2023.

• IT purchasing and investing preference will be focused in areas including on-premises data centers, automations, analytics, cloud computing, seamless customer experiences and security.

• The market for process-agnostic software enabling hyperautomation is projected to reach $35 billion in 2023 and is forecasted to grow at a CAGR of 18.8%, thereby amounting to over $42 billion by end of 2024.

• Datamatics will further continue to investing in deep digital technologies, such as Cloud, Digital Workplace, DevOps, Intelligent Automation, Artificial Intelligence, etc Datamatics is also investing in updating its own IP solutions in the digital technology space. Datamatics Intelligent Automation Platform combines the capabilities of TruBot for Robotic Process Automation (RPA), TruCap+ for Intelligent Document Processing (IDP) along with artificial intelligence (AI)/machine learning (ML) models developed by Datamatics. The company will continue to strengthen its footprint in these technologies in the years to come.

Digital Operations

• The global BPM market is projected to total $290 Billion in 2023, an increase of around 7% from 2022. BPM market is likely to grow at around same rate and is estimated to be $310 billion in 2024.

• The Finance & Accounting Outsourcing (FAO) market is projected to total $13.3 billion, an increase of around 10% from 2022. The FAO market is likely to grow at 9-10% and is estimated to be $14.5 Billion in 2024.

• Enterprises are focused on driving functional digital transformation, and strongly view their BPM relationship shifting from transactional relationship to one of strategic business partner.

• Technology and data capabilities emerge as the most important value creation levers to drive Digital Operations growth.

Digital Experiences

• The global Customer Experience (CX) Management market is projected to total $13.2 billion in 2023 and accelerate at CAGR of 16.2% to reach $15.3 billion in 2024.

• Front office process outsourcing globally, is growing the fastest across all other outsourcing types. The whole industry is transitioning from a call center to OmniChannel Customer Experience Centres which is no longer time-zone and geography dependent.

• Humanizing the Digital - an approach that combines Human & Digital will be the way forward to deliver Superior Customer Experience.

• Adoption of AI and Augmented Reality will become a prerequisite to enhancing customer service, improving operations and reducing costs. Adoption of emerging technologies like Virtual Assistants, Chat-bots, voice-bots, agent assistance, Virtual Reality (VR) and Augmented Reality, Voice recognition, RPA tools etc. will help enterprises keep up with evolving customer expectations.

• Super Agents augmented by technology & AI will provide personalized and real-time issue, resolution.

• The renewed Customer Experience offerings include the end-to-end spectrum of offerings right from CX Consulting, CX Management, CX Transformation & CX Analytics that deliver Customer experience, the way you want it. Datamatics technology landscape includes partners for Cloud, Communication, Process Optimization, Training, Quality, Lead Generation and Nurturing, CSAT, Workforce Management, and Analytics to provide the customer with a complete suite of CX services. The focus verticals for Datamatics include Healthcare, Travel & Hospitality, BFSI and EdTech.

B. Key Analyst Recognition:

Digital Technologies

• Everest Group recognized TruCap+ IDP as Major Player in Intelligent Document Processing (IDP) - Technology Provider Landscape PEAK Matrix? Assessment 2022

• HFS recognized TruCap+ IDP among 44 IDP vendors in Unlock the data in your documents to transform processing

• Avasant recognized TruCap+ IDP in Intelligent Document Processing Platforms 2022 RadarView

• Gartner mentioned Datamatics in Vendor ID Tool: Natural Language Technologies 2022

• Everest Group recognized TruBot RPA as Major Contender in Robotic Process Automation (RPA) - Technology Provider Landscape with PEAK Matrix^? Assessment 2022

• ISG recognized Datamatics as Product Challenger in the ISG Provider Lens - IA services and solutions 2022

• Zinnov recognized Datamatics Intelligent Automation Platform in Zinnov Zones: Intelligent Automation (IA)

Platforms (IDP) - H1 2023

• NelsonHall recognized Datamatics as Innovators in Transforming Financial Services with Cloud 2022

• Quadrant Knowledge Solutions recognized Datamatics as Leaders in SPARK Matrix: "Application Transformation Services, 2022"

Digital Operations

• Gartner recognized Datamatics in Magic Quadrant for Finance and Accounting Business Process Outsourcing, 2022

• NelsonHall recognizes Datamatics as Innovators in Financial Services Cloud, SaaS and BPaas 2023

• HFS mentioned Datamatics in the CFO F&A Services Capabilities, 2022

• Datamatics recognized as Product Challenger in ISG Provider Lens study Finance & Accounting Outsourcing Services 2022

• Datamatics recognized by Everest Group as Major Contender in the Finance and Accounting Outsourcing (FAO) PEAK Matrix^? Assessment 2022

Digital Experiences

• Everest Group recognized Datamatics as Aspirants in the Customer Experience Management (CXM) in the Americas - Service Provider Landscape

• Quadrant Knowledge Solutions recognized Datamatics as Leaders in SPARK Matrix: CX Management Services 2022

• ISG recognized Datamatics as Product Challenger in Provider Lens - Contact Center - Customer Experience Services 2022

Key Awards

• Datamatics named as Leader in the IAOP 2023 Global Outsourcing 100 List

• Datamatics & Axis Bank won ET Ascent Business Leader of the Year 2022, under the category Leveraging IT for Business Performance

• Datamatics featured in the Circle of Excellence Awardee for the Wellness Company of the Year 2022 in the 13th Asia CEO Awards Philippines

• Datamatics TruCap+ won Bronze Stevie Award at the American Business Awards 2022

• Datamatics awarded for best use of Tech in HR at the UBS Forums HR Tech Summit and Awards 2022

• Lumina Datamatics awarded Excellence in Customer Service Award and Excellence in Process Optimization Award by BPO Innovation Awards 2023

• Lumina Datamatics won Best Employer Award by Employer Branding Awards 2022

• Lumina Datamatics won Excellence in CSR Award by National Award for Excellence 2022

C. Business drivers

• Deep in Digital: Datamatics is well-positioned to deliver end-to-end digital solutions and help enterprises go Deep in Digital to boost their productivity, customer experience, and competitive advantage. Datamatics has been investing in cutting-edge technologies such as Intelligent

Document Processing, Robotic Process Automation, Digital Experiences, Analytics, Cloud, and Artificial Intelligence to enhance its customers experience. Datamatics with its experience and deep expertise has carved a niche for itself towards becoming a strategic partner to its valued customers and offering intelligent solutions that will enable businesses to further evolve by improving productivity and enhancing customer satisfaction. In FY 23, Datamatics continued making significant efforts and investments in strengthening its digital footprint. Datamatics has been chosen by numerous companies to lead their digital transformation journeys, resulting in several successful project launches and several more deals in the pipeline.

• Products & Platforms: Products & Platforms: Datamatics is investing in developing as well as updating its own IP solutions in the digital technology space. Datamatics Intelligent Automation Platform (IAP) is a unified platform to automate a series of tasks, processes, and unstructured and semi-structured data in documents. The IAP combines the capabilities of TruBot for Robotic Process Automation (RPA), TruCap+ for Intelligent Document Processing (IDP) along with artificial intelligence (AI)/machine learning (ML) models developed by Datamatics. Apart from this Datamatics has developed iPM for end-to-end workflow management, TruBI for business intelligence & data visualization and Automatic Fare Collection (AFC).

In addition to developing its own IP solutions, Datamatics is investing in cloud and AI to drive innovation and growth for its clients. The company is expanding its expertise in cloud technologies, such as DevOps, SaaS platforms, and digital workplace, while also focusing on AI technologies like machine learning, natural language processing, and robotics.

All these products and platforms are getting good traction in the market and the new logos in the marquee that we are getting, are extremely promising.

• Automatic Fare Collection (AFC): This has been a focus area for Datamatics, with it being the only Indian company to have highly evolved AFC, Smart Gates, and Contactless Gates service offerings. Datamatics sees this as a huge opportunity in US and emerging economies around the world, including India. In this financial year of Mumbai Metro Line 2A and 7 were inaugurated by Honorable Prime Minister Shri Narendra Modi ji, for which Datamatics has implemented Automatics Fare Collection (AFC) system. The implementation marks Indias first true interoperable open loop NCMC system and is estimated to be used by over 1.3Mn Mumbaikars daily. The system is operational across 30 stations and includes 600 fare gates, 350 ticket counters, 350 ticket vending machines and 820 ticket readers. In addition to this, Datamatics also successfully implemented its AFC system for Kolkata Metro Line 3. It was deployed and integrated with Rail Vikas Nigam Limited. Additionally, Datamatics has won a significant AFC contracts for other transportation projects such as Delhi- Meerut RRTS Corridor and Memphis Area Transit Authority (MATA) in the USA.

• Account Penetration: Datamatics has customers across industries; many of these are Fortune 500 companies. Datamatics is focusing on deeper penetration within the customer accounts through account management for cross-selling and up-selling through its integrated sales and marketing efforts.

D. Business performance

Datamatics consolidated revenue for the year was at 1459.2 Crores, a growth of 21.5% over previous year. Our consolidated EBIT stood at 207.6 Crores, a growth of 29.8% on a yearly basis. Consolidated EBIT margin was at 14.2%. Compared to 13.3% in prior year.

Digital Technologies- include especially Cloud, Digital consulting, Automation and Automated Fare Collection (AFC) - constitute 42%. On the other hand, Digital Operations constitute 43% and Digital Experience constitute 15% of total revenues. The revenues from Digital Technologies solutions grew by 15.9% over previous year, Digital Operations grew by 21.9% and Digital Experiences grew by 38.8% over previous year.

E. Financial Performance Balance Sheet

Equity and Liabilities

• The change is primarily attributed to profit for the year of Rs 188.95 Crores., create reserve for Performance based employee stock option plan of Rs 3.42 Crores and reduction due to dividend paid of Rs 737 Crores.

• Non- current liabilities includes maturity of lease liabilities, creditors for capital expenditure, advance from others, fair value of outstanding forward contracts, provision for Share appreciation rights and provision for employee benefits plan. The increase is mainly on account of lease liabilities of Rs 6.38 Crores, and provision for employee benefits plan of Rs 5.27 Crores and provision for share appreciation rights of Rs 2.28 Crores.

Current liabilities other than borrowings includes trade payable, fair value of outstanding forward contracts, maturity of lease liabilities, unearned revenue, advance from customers, accrued employee liabilities, unpaid dividend and other contractual liabilities. The increase is primarily attributed to increase in trade payable of Rs 13.10 Crores, fair value of outstanding forward contracts of Rs 3.85 Crores, provision for employee benefits plan of Rs 5.24 Crores and current tax liabilities of Rs 6.81 Crores offset by decreased of unearned revenue of Rs 3.19 Crores and advance from customers of Rs 8.30 Crores.

ASSETS

(Rs In Crores)

• Addition to Property, Plant and Equipment and capital work in progress were Rs 40.34 Crores during the year as compared to Rs 17.63 Crores in previous year.

Addition to Right to use assets were Rs 16.21 Crores during the year as compared to Rs 6.62 Crores in previous year.

Others non- current assets includes investments, deferred tax and non- current tax. The increase is mainly on account of investment of Rs 57.99 Crores offset by decrease in deferred tax assets and non-current tax assets of Rs 5.11 Crores.

(Rs In Crores)

• The primary reason for the decrease in cash, bank and investment balances is due to foreign currency being converted and some portion invested to non-current investment.

• Other current assets includes security deposits, unbilled revenue, balances with government authorities, prepaid expenses and other financial assets. Other assets increased mainly due to unbilled revenue of Rs 83.95 Crores balance with govt. authority of Rs 6.41 Crores and Prepaid expenses of Rs 6.89 Crores

Statement of Profit and Loss Revenue from operations

• Revenue at Rs 1459 Crores; grew by 21.5% YoY as compared to Rs 1201 Crores in Fy22.

Other Income

(Rs In Crores)

Expenditure

• Operating expenses (excluding depreciation and finance costs) include purchase of IT products and licenses, employee benefits expense and other expenses. The total operating expenses stood at Rs 1216.63 Crores in FY 202223 compared to Rs 100778 Crores in FY 2021-22. Operating expe-nses as a percentage to revenue has decreased from 83.91% of revenue in FY 2021-22 to 83.38% of revenue in FY 2022-23.

• Employee benefits expense has increased to Rs 897.00 Crores in FY 2022-23 from Rs 783.69 Crores in FY 2021-22. Employee bene-fit expenses has decreased from 65.25% of revenue in FY 2021-22 to 61.47% of revenue in FY 202223.

Depreciation and Amortization

• Depreciation charge has increased to Rs 34.95 Crores in FY 2022-23 from Rs 33.33 Crores in FY 2021-22.

Exceptional items

(Rs In Crores)

During the previous year ended 31st March, 2022,

• Exchange gains of Rs 10.17 Crores, arising from buy back of equity share capital and redemption of preference share capital held in overseas subsidiary.

• Impairment charges of Rs 1.50 Crores created on investments.

Tax expense

• The tax expense for the year amounted to Rs 58.07 Crores against Rs 36.65 Crores for the previous year. The Effective Tax Rate (ETR) for the year amounted to 23.9% as compared to 19.1% in the previous year.

Profit after Tax

Net profit after non-controlling Interest increased from Rs 157.48 Crores in FY 2021-22 to Rs 188.95 Crores in FY 2022 - 23.

Cash Flow

(Rs In Crores)

Price reduction, lose key projects and customers, deterring financial performance.

Datamatics mitigates global economic risk by generating business from new market segments and enhances steeper growth in geographies other than the US and Europe.

Employee Related Risks

Datamatics business is dependent on the quality of its workforce. Companys inability to attract, retain and motivate key employees would impair its ability to offer the right quality of service to the clients.

As a talent-driven organization, the Companys key goal is to have the best talent, with highly specialized skills in every business vertical, at the right levels and at the right locations, to enhance differentiation and competitiveness.

It strives to maintain its position as the employer of choice Its Human Resources Department (HRD), is aligned with the Companys vision to attract, retain, and nurture high-quality talent.

The Company consistently tries to create a culture of learning and continuous improvement, to build and grow employees career, across all HR functions.

Key Financial Ratios

Note:

1. Increase in profit during the current year.

2. Debt repaid during the current year.

F. Risk management

The Companys global operations bring in considerable complexities and in response to that, Datamatics has established a robust enterprise risk and compliance management framework and process. This process provides an enterprise-wide view of risks and compliance which enables it to take a more holistic approach towards informed decision making. Some significant risks that could hinder Company operations are identified below:

Global Economic Risk

Datamatics derives majority of its revenues from overseas geographies. The changing economic conditions, inflation, reforms in tax laws, fiscal and monetary policies in these markets could enhance cost pressure and affect the Company adversely in several ways. The Company may also witness

Headcount

The total number of Employees including subsidiaries as on March 31, 2023 was 12,463 as against 10,744 as on March 31, 2022.

Business Continuity and Information Security

Datamatics is fully aware of Business Continuity risks arising out of global disruptions such as natural disasters, IT outages, cyber, pandemic, terror and unrest, power disruptions, to name a few. This is likely to hinder availability of people and process, technology and infrastructure.

The Company has a well-defined, robust and tested Business Continuity Plan (BCP) and Disaster Recovery (DR) processes in place. There are primary and secondary locations identified and equipped with the necessary infrastructure and facilities to ensure that the business processes can continue uninterrupted. There are dedicated, trained and empowered cross-functional teams at various levels in all locations to ensure that the BCP and DR processes are implemented in shortest possible times. Readiness according to the BCP and

DR processes are regularly tested through surprise mock drills and audits. The audit and mock-drill findings are reviewed by senior management in Management Information Security Forum (MISF). In the past, the readiness was successfully verified in real scenario during the floods in Nasik and Chennai / Puducherry locations. The Company could bring up customer processes at the BCP and DR locations well-within the defined timelines. The Company was appreciated by customers for the several such occasions.

The Companys operations and ISMS have been successfully assessed and are compliant to ISO 27001:2013, ISO 9001: 2015, SSAE 16 SOC 1 and SOC2 requirements and HIPAA requirements. The Company is in the final stages of renewing its PCI-DSS certification. These standards are extremely important for financial, insurance and healthcare industries.

Moreover, Datamatics successfully implemented Security Information and Event Management (SIEM) solution, strengthening Information security management framework.

Competition Risk

The technology market is evolving at a lightning speed. The world is moving towards smart automation and the emerging digital technologies are disrupting and changing the paradigm of business operations across Industries. This enhances the risk of competition. Datamatics manages to mitigate the competition risk by adopting the following measures:

• Datamatics invests in new technologies and product development in Robotics, Artificial Intelligence, Mobility and Analytics and consistently updates its own IP solutions in the digital technology space.

• With rapid urbanization, Datamatics is focusing on areas such as Automated Fare Collection, Smart Gates, and Contactless Gates service offerings to name a few Datamatics has deep domain knowledge, skilled professionals, delivery capabilities and efficient sales force along with relationship managers to help retain its competitive positioning amongst peers.

• Adopting a customer centric approach together with its ability to innovate customer specific solutions, through its in-house incubation hub, DataLabs, Datamatics conducts research and development based on emerging trends and cutting-edge technologies.

• Datamatics aggressively invests in widening its partner network and believes that the evolving partner ecosystem will increase sales momentum and ensure smooth implementation and support for Datamatics IP solutions globally.

Legal and Regulatory Compliance Risk

To keep the Company protected against the risk of data privacy breach, all its contracts with the customers in the EU region have been revised to incorporate GDPR requirements. A dedicated Data Protection Officer (DPO) has been appointed to address issues, if any, raised around GDPR compliance. Regular online training and workshops on Data Privacy and GDPR are conducted to foster a culture of awareness and responsibility among its employees. GDPR awareness is an integral part of the employee induction program.

Datamatics also uses services of professional consultants under the supervision of its dedicated in-house compliance team which is equipped to anticipate compliance risks and ensure compliance with domestic as well as overseas laws and regulations. Changes in the applicable regulations are monitored and tracked on a global basis.

Currency Risk

Datamatics derives majority revenues in foreign currencies. Volatility in currency exchange movements negatively impacts Companys financial performance. Through appropriate hedging strategy and business marketing practices aligned with market best practices, the management team takes adequate steps to minimize currency-related value erosion. The Company consistently reviews economic scenario and updates policies accordingly.

Internal Control Systems and their Adequacy

Datamatics has mechanisms in place to establish and maintain adequate internal controls over all operational and financial functions. The Company intends to undertake further measures as necessary in line with its intent to adhere to procedures, guidelines, and regulations as applicable in a transparent manner.

The Company has appointed, M/s. SKPAG & Co., Chartered Accountants, Mumbai as Internal Auditors of the Company. During the year, the Internal Auditor has carried out Company audit on significant areas affecting the Companys business. The Audit Committee reviews its findings and recommendations at periodic intervals.

The Companys internal control system is adequate considering the nature, size and complexity of its business.

G. Outlook

Datamatics is optimistic about the growth opportunities in the current fiscal year. The company will continue to focus on AI, training and upscaling key talent, a focus on the US and European market, tight cash flow management and investments both in R&D and technology and acquisitions.

Diving deep in Digital. Digital transformation is omnipresent across enterprises, geographies, and industries. Datamatics has aligned its solutions under three pillars - Digital Technologies, Digital Operations, and Digital Experiences.

Datamatics has established Centre of Excellence in deep digital technologies, such as Cloud, DevOps, low-code nocode (LCNC), SaaS platforms, Digital Workplace, Intelligent

Automation, Artificial Intelligence, etc. The company will continue to strengthen its footprint in these technologies in the years to come.

Datamatics will continue to invest in developing and updating its IP solutions in the digital technology space. It is expanding its partner network and believes that the evolving partner ecosystem will increase the sales momentum and ensure smooth implementation and support for Datamatics IP solutions globally.

Datamatics has also been focusing on new-age Digital Technologies like the open loop, NFC, contactless mobile ticketing in Automatic Fare Collection, and Smart transport as growth areas across the globe and will continue the focus.

Datamatics will deploy deep technologies to enhance and drive digital operations in areas like finance & accounting, banking process management, insurance process management, publishing, etc., to increase productivity and customer experience.

With Digital Experiences, Datamatics helps enterprises take significant strides toward their digital and customer experiences goals.

Artificial Intelligence at the core. Artificial Intelligence is the most exciting and transformative technology and is fast becoming integral to everyones daily lives. Datamatics sees AI as an opportunity to showcase its capabilities. Datamatics has integrated AI into its operations, services, and products. For example, Datamatics teams use AI to process 15 million balance sheet documents for global credit agencies annually. The company has also integrated Gen AI capabilities into TruBot RPA and TruCap+ IDP to offer an enhanced automation experience. Datamatics is working on multiple projects using AI, which it can take to its customers. The company has established an AI Centre of Excellence, and the team is developing robust offerings around AI that it can take to the market in the coming months.

Datamatics will scale talent globally, invest in employees and accelerate innovation and digital capabilities to capitalize on the expanding market opportunities. The company sees enormous potential to engage and partner with customers to help them go deep in digital to enable transformation.