Encore Software Ltd Management Discussions

ENCORE SOFTWARE LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL RESULTS: (Rs. In Million) Particulars Year ended Year ended March 31, 2012 March 31, 2011 Operating Income 33.07 34.99 Gross Profit/(Loss) after Interest, but before depreciation and tax (17.15) (24.12) Less: Depreciation 0.89 1.63 Provision for Tax Nil Nil Profit/(Loss) after Tax (18.04) (25.75) Transfer to Reserve Nil Nil OPERATIONS: While yet another difficult year has passed by, your Company has been able to trim its operations and move back towards profitability. Simultaneously, the Company has been patiently working towards reorienting the Company into new areas of business, so that we may turn out a better performance during 2012-2013. INDUSTRY OUTLOOK: Despite the fact that the desire for affordable computing devices for Education continues to grow rapidly, the same has not resulted yet in any significant procurement of such devices in India, except for the laptop procurement by the Government of Tamil Nadu. However, it is expected that the new year might result in procurement of such devices on a larger scale, as several states intend implementing schemes to provide laptops to students. The efforts of nationalized banks in India in pursuing rural and doorstep banking, however, seem to have met with some roadblocks as Business Correspondents who are expected to procure the hardware for this application, are beginning to find the remuneration (per transaction) offered by the banks rather uneconomical, resulting in low procurement of the hardware. If this issue can be satisfactorily resolved, the demand for mobile computing products such as those made by your Company will definitely grow, in the banking as well as other applications such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGS), the National Rural Health Mission (NRHM), and Aadhar-related applications. As the Indian economy continues to grow, one interesting trend that is being observed in the market is the application of IT in industry and business, to improve efficiency and comply with international standards and best practices in some cases, especially in areas such as process control, logistics management, manufacturing track-and-trace of individual products, etc., which all require technologies and products such as those manufactured by your Company. However, the market requires solutions for these applications, rather than just hardware. Therefore, specialist knowledge in these areas of application, combined with expertise in hardware development and manufacturing, and the ability to develop application software in these specialized areas, are what the market is looking for. MOBILE COMPUTING PRODUCTS: Owing to the lack of orders in this business, your Company has trimmed the workforce in this area, and has initiated efforts at reorienting the activities towards being able to offer products and solutions in Defense, process control, manufacturing track-and-trace, and logistics management, in addition to Education. During the new financial year, your Company expects to be able to convert these efforts into a few successful orders and deliveries. Your Companys efforts in Brazil have not yet yielded the desired results, owing to complexities in the local situation there, but your Company continues to be strongly placed in the One-Computer-per-Student project of the Ministry of Education there, even though there has been a further delay in placement of purchase orders during this year. The proposed Joint Venture is expected to be established during the coming year. SATHI: Your Company continues to remain hopeful of orders for the SATHI, as there seems to be a growing recognition of the need for procurement of Defence products from indigenous manufacturers. In addition, the Defense offsets opportunity may also lead to procurement of products such as the SATHI. NASDO: The three products your Company custom-developed for NASDO (Naval Aircraft Servicing and Development Organization, Goa) -Client Interface Platform (CIP), Air Publication Network Interface (APNI), and Air Publication Reader Tablet (APRT), for NASDOs Aircraft Publication System project, are all actively in the process of procurement by NASDO for their next round of requirements, and your Company expects to receive firm orders from NASDO during the coming year. TECHNOLOGY SOLUTIONS: The Technology Solutions Group continued to support customers with integration services in VOIP related product development. New solutions for modem over IP, video decoder software were developed. The forthcoming year will see the Group continue its focus on the two-pronged approach of software licenses and system integration services based on our IP. It is also planning to significantly increase the manpower resources to strengthen the system solution offerings as well as new IPs. OVERSEAS OPERATIONS: Ncore USA, the wholly-owned subsidiary in the United States, continues to be kept alive as in the past, in order to have a base when the market for your Companys affordable information appliances starts growing there. The investment made in the subsidiary is fully provided for under provision for diminution in the value of investments. Since the subsidiary has no assets or liabilities and has also not carried out any operations during the year under review, Consolidated Accounts have not been prepared. RISKS AND CONCERNS: Aside from usual ups and downs of any business, the Company does not foresee any special risks or concerns for the coming year.