ESDS Software Solution Ltd Management Discussions

The following discussion of our financial condition and results of operations should be read in conjunction with our Restated Consolidated Financial Statements on page 188.

This Draft Red Herring Prospectus may include forward-looking statements that involve risks and uncertainties, and our actual financial performance may materially vary from the conditions contemplated in such forward looking statements as a result of various factors, including those described below and elsewhere in this Draft Red Herring Prospectus. For further information, see "Forward-Looking Statements" on page 20. Also read "Risk Factors" and "- Significant Factors Affecting our Results of Operations" on pages 28 and 267, respectively, for a discussion of certain factors that may affect our business, financial condition or results of operations.

Unless otherwise indicated or the context otherwise requires, the financial information for Fiscals 2021, 2020 and 2019 included herein is derived from the Restated Consolidated Financial Statements, included in this Draft Red Herring Prospectus, which have been derived from our audited consolidated financial statements and restated in accordance with the SEBI ICDR Regulations and the Guidance Note on Reports in Company Prospectuses issued by the ICAI, as amended from time to time, which differ in certain material respects from IFRS, U.S. GAAP and GAAP in other countries. For further information, see "Restated Consolidated Financial Statements" on page 188.

Unless otherwise indicated, industry and market data used in this section has been derivedfrom the report titled "India Cloud Services and Data Centre - 2020 - 2025" published in August 2021, prepared and released by Ken Research, which has been commissioned and paid for by our Company (the "Ken Research Report"). Unless otherwise indicated, all industry and other related information mentioned in this section is derived from the Ken Research Report. For more information, see "Risk Factors - Industry information included in this Draft Red Herring Prospectus has been derived from an industry report exclusively commissioned and paid for by our Company for such purpose. There can be no assurance that such third-party statistical, financial and other industry information is either complete or accurate" on page 44. Also see, "Certain Conventions, Use of Financial Information and Market Data and Currency of Presentation - Industry and Market Data " on page 17.

OVERVIEW

We are amongst Indias leading managed cloud service and end to end multi-cloud requirements provider (Source: Ken Research Report). We have built a comprehensive cloud platform which our customers rely on, consisting of cloud infrastructure, well-architected solutions aimed at reducing cost and providing safety, flexibility, scalability and reliability to enterprises compared with the traditional on-premise IT models. As part of our portfolio, we offer:

(c) Cloud Computing Infrastructure as a Service (IaaS) which includes our patented vertically auto scalable cloud technology platform, "eNlight Cloud";

(d) Software as a Service (SaaS) and Managed Services, which include, (i) SaaS which is a software distribution model wherein we host applications on cloud platforms and make them available to end users on periodic subscription model, allowing clients to develop, run and manage applications, and (ii) Managed Services, through which we offer several services enabling companies to optimise and modernise their cloud environment, secure their data and migrate their legacy data on cloud environments, and fully manage it on a day to day basis.

We believe such a diversified portfolio positions us as a "one stop shop" for our customers cloud adoption. We also serve our customers with differentiated billing models in India such as "pay-per-consumption", "pay-per- branch" (for BFSI customers) and "pay-per-transaction", which we believe helps in reducing our clients "Total Cost of Operation" (TCO). We operate our business on an asset light model, which comprises of ownership of computing hardware assets only, thereby allowing quicker scalability and reduced capital cost of operations. We offer our products across diversified industries that include government ministries & companies and corporate entities across sectors such as BFSI, manufacturing, IT and ITES, telecom, real estate, pharmaceuticals, retail and education and in several countries across the APAC region, Europe, Middle East, the Americas and Africa.

Our comprehensive IaaS cloud computing services portfolio includes public cloud, private cloud, virtual private cloud, hybrid cloud and various community cloud offerings. Our indigenously developed vertical autoscaling technology, which powers our IaaS "eNlight Cloud", is patented in the United Kingdom and the United States of America. The eNlight Cloud adheres to international security standards and follows the concept of layered security to provide high level of data protection over hypervisor platforms (Source: Ken Research Report). A hypervisor is a kind of emulator - a software, hardware or firmware that creates and runs virtual machines and allows one host computer to support multiple guest virtual machines by virtually sharing its resources, such as memory and processing (Source: Ken Research Report). Our cloud customers are supported by our round the clock services team. For details of total addressable market, please see "Industry Overview on page 103.

As part of our SaaS offerings, we provide software products and applications, hosted on our cloud platform, on annual, semi-annual, monthly or quarterly subscription model, which allow our clients to develop, run and manage applications and services. Further, we provide both in house and third party developed applications on a digital marketplace developed by us, namely "Spochub". Spochub enables us and our software vendors to offer their solutions with custom packages to enterprise customers. For details of total addressable market, please see "Industry Overview" on page 103.

Our SaaS offerings include, among others, a comprehensive data center management and monitoring suite, vulnerability scanners, which are programs designed to assess computers, networks or applications for known weaknesses, web access firewalls, virtual private network (VPN) - for secure connectivity. For further details, see " - SaaS Portfolio and Managed Services" on page 142.

We collaborate with Governmental and public sector organisations to offer SaaS offerings and data center solutions, which we term as "G-SaaS". As part of G-SaaS, we provide services that include document and data migration to cloud, software offerings on Spochub, data center management and back-up servers for disaster management. Smart city applications are software applications that help the Government to optimize their expenses, provide deployment of software services and ensure data confidentiality. Our G-SaaS collaborations include (a) partnering with a Government energy service company (ESCO) for implementing a smart metering project around various states in India, (b) collaborating on e-governance projects of certain ministries of the Government, (c) collaboration with several smart cities in India, to who we provide smart city solutions by hosting their data on our cloud platform.

Our Managed Services portfolio includes a diverse range of services to our customers, to complement day to day data management of IT services and cloud migration. As part of our managed services, we offer 24x7 IT support, data back-up and recovery, migration services database administration services, SAP Basis, SAP HANA administration, security operations center (SOC) services, and disaster recovery services. For further details on managed services see "- SaaS Portfolio and Managed Services" on page 142. For details of total addressable market, please see "Industry Overview on page 103.

We operate our business through three data centers in India, one each in Navi Mumbai, Nashik and Bengaluru. Our data centers cover, in aggregate over, 50,000 sq. feet across the three locations in India. Our data centers are connected on a 10 Gbps backbone network (backbone network is a part of a computer network which interconnects data center locations), providing a secure path for the exchange of information between different local area networks (LANs) or subnetworks) and is backed up with state-of-the-art disaster recovery services (Source: Ken Research Report). During the last three fiscal years, all our data centers, during their period of operation, have maintained an uptime of at least 99.995%. Our data centers have been granted "Tier III" status by QSA International Limited and have received Green IT Infrastructure Award at the Maharashtra IT Awards, 2010 held by the Department of Industries, Government of Maharashtra. For further details of our data centers, see "- Data Centers on page 145.

We offer our products across industries and a diversified customer base, which include clients from BFSI, healthcare, education, energy and utilities, real estate, IT and ITES, agriculture, manufacturing, entertainment and media and government departments. We believe our diversified customer base allows us to insulate ourselves from sector fluctuations and industry concentration risks. We believe we have been able to specifically service co-operative banks, with our unique "pay-per-branch" billing model, which allows a bank to pay a fixed amount per month per branch and we manage their core banking software hosting and other managed services, together with our BFSI technology partners.

As part of our business, we also adopt a "go-to-market" strategy, by collaborating with other companies to deliver customers with bundled solutions. Our partners include Tech Mahindra Limited, Infrasoft Technologies Limited,

NTT Data Business Solutions Private Limited and Larsen & Toubro Limited. Such collaboration allows us to benefit from our partners goodwill, have access to their technologies, collaborate on innovation and scale our offerings. We have collaborated with such partners on smart city projects, offer core banking solutions, host SAP HANA on our cloud, Government digitization initiatives and other cloud based services.

We attribute our growth to the strength and experience of our senior management team. Piyush Prakashchandra Somani, who is our Managing Director and Chairman, has over 16 years of experience in the information technology sector. He has been instrumental in expanding the operations of our Company in several international markets. Our Chief Growth Officer, Rajeev Papneja, has experience in the field of technology and has been recognised as one of the "Eminent 100 CIOs of India" award at the 18th Infotech Forum 2020. We were ranked 28^th amongst Indias Best Companies to Work for in 2020, by Great Place to Work Institute India and the Economic Times and have consistently been ranked amongst the best places to work by Great Place to Work Institute India during the last six years across various categories.

The following table sets forth certain key financial and operational metrics for our Company as at/for the periods indicated:

Metrics	Fiscal 2021	Fiscal 2020	Fiscal 2019
Total Income (in Rs. million)	1,741.01	1,605.34	1,375.41
EBITDA	638.05	517.23	471.46
EBITDA Margin (%)	36.65	32.22	34.28
Revenue from long term contracts (as a % of the total revenue for that respective year)	92.88	84.38	88.53
Revenue from existing customers (as a % of the total revenue for that respective year)	88.53	74.53	69.22
New customers added during the period (nos.)	406	318	297
Revenue from top 20 customers (as a % of the total revenue for that respective year)	50.90	53.63	59.87
Average revenue per customer (in million)	24.39	23.40	20.96
Revenue from IaaS (as a % of the total revenue for that respective year)	51.15	52.99	54.90
Revenue from SaaS & Managed Services (as a % of the total revenue for that respective year)	48.85	47.01	45.10

(3) Long term contracts refer to contracts of more than 12 months duration (including business from customers continuing for more than 12 months after contract renewals)

(4) Calculated for the top 50 customers

PRESENTATION OF FINANCIAL INFORMATION

The Restated Consolidated Financial Statements have been prepared from our audited consolidated financial statements as at and for the years ended March 31, 2021, March 31, 2020 and March 31, 2019, which are prepared in accordance with Ind AS, as specified under the Section 133 of the Companies Act, Companies (Indian Accounting Standards) Rules, 2015 and other accounting principles generally accepted in India. Further, we have adopted Ind AS from Fiscal 2021. In accordance with the transition provision specified under Ind AS 101, the date of transition to Ind AS is April 1, 2019. The Restated Consolidated Financial Statements for Fiscal 2019 have been prepared on a proforma basis, in accordance with applicable guidance note. For further details, please see "Restated Consolidated Financial Statements" on page 188.

SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our business, prospects, results of operations, cash flow and financial condition are affected by a number of factors, including key factors:

Our ability to ensure continuous and uninterrupted service to our customers

As a company engaged in the business of providing managed cloud services, continuous and uninterrupted supply of our services is a critical component of our business. Our customers require continuous access to their data, on demand access to increased cloud space, cloud security and round the clock service assistance. We cater our services through our three data centers in India, one each in Navi Mumbai, Nashik and Bengaluru, which during

the last three fiscal years have maintained an uptime of at least 99.995%. Our data centers are also connected on a 10 GBPS backbone network and is backed up with state-of-the-art disaster recovery services (Source: Ken Research Report). Further, our patented vertical auto scaling cloud technology allows us to scale, in case of additional demand. Vertical autoscaling allows (a) efficient handling of unexpected loads, (b) scales up RAM, CPU, bandwidth, etc. (c) effective use of virtualization technology (d) quick and easy way to scale resources and (e) maximum uptime and performance with auto-scalability. Moreover, our eNlight cloud adheres to international security standards and follows the concept of layered security to provide high level of data protection, in order to reduce the risk of data security breaches (Source: Ken Research Report). We also serve our cloud and managed services customers with round the clock IT support as well as data back-up and recovery. Our inability to ensure continuous and uninterrupted services directly affects our revenues as any downtime permits our customers to deduct a significant component of the payments due. It also has the potential to adversely affect our reputation and business prospects.

Our relationship with technology and business collaboration partners

As part of our business, we collaborate with technology and business collaboration partners. Such partnerships allow us to collaborate on large contracts, have access to our partners clientele, benefit from their goodwill, capitalise on shared technologies and scale our offerings. For instance, we have partnered with STPI to provide digital services, SaaS services and digital platforms to Government entities on a subscription-based payment model, collaborated with Larsen & Toubro Limited and Tech Mahindra Limited, smart city projects, offer core banking solutions, host SAP HANA on our cloud, Government digitization initiatives and other cloud based services, formed consortiums with entities to cater to clients in the banking sector, wherein cloud services have been outsourced to us, etc. Such partnerships apart, we have also collaborated with various companies, to collaborate on disaster recovery services, and on software partnerships. Over the years, we have increased our partnership base and propose to continue to scale such collaborative efforts. For Fiscals 2021, 2020 and 2019, our revenue from such partnerships constituted 19.20%, 14.03% and 5.77% of our consolidated revenues for such periods, respectively. For further details, see "Business - Strategies on page 139.

Relationship with our customers and customer acquisition

A large part of our success is attributable to the relationship we maintain with our customers. Over the years, we have been able to consistently increase our client base. During Fiscals 2021, 2020 and 2019, we provided our products and services to 1,388, 1,317 and 1,162 customers, respectively. We believe that such increase is due to our ability to provide innovative billing solutions such as "pay-per-consumption", "pay-per-branch" and "pay- per-transaction". We believe, the "pay-per-consumption" billing model has helped our customers reduce their TCO and has helped us to increase our operational efficiency to compete with hyperscalers. Another reason that has allowed us to increase our clientele is our ability to provide "end-to-end" multi-cloud services, which allows us to up-sell and cross-sell our products and services and thereby increase our clientele across product verticals. Further, pursuant to our partnership with entities such as Larsen & Toubro Limited and Tech Mahindra Limited, we believe that we are in position to cross sell and up sell our products to the end customer. Moreover, the development and introduction of "SPOCHUB" has further augmented our customer base. Such increase in the number of customers is essential for the growth of our business. Our key customers include SIDBI, Tata Capital Financial Services Limited, Vadilal Industries Limited, EPL Limited, MIDC, amongst others. Our business relationship with several key customers extends to over several years. Revenue from our top 10 customers contributed 36.35%, 35.57%, and 44.73% of our revenue from operations for Fiscals 2021, 2020 and 2019. Our ability to maintain close relationships with these and other major clients is essential to the growth and profitability of our business.

Research and development initiatives

R&D has played a key role in our corporate growth and remains a focus area in our business. We have invested significant time and effort on R&D initiatives. We are one of the few datacenter and cloud services provider who has its own R&D team (Source: Ken Research Report). For Fiscals 2021, 2020 and 2019, our R&D expenses, comprised of 5.34%, 4.98% and 2.40% of our total revenue generated during the respective periods. We were one of the first companies to offer a true ‘MakeIn India cloud in the nation in 2011 when the nation only knew virtualization (Source: Ken Research Report). Through our R&D initiatives, we have developed our vertically auto scalable cloud, which is patented in the USA and the UK. For details of other products developed in-house by our R&D team, please see "Business - Research and Development on page 145. Presently, we are working on developing an operating system combined with a hypervisor called "eNlight OS". As of June 30, 2021, our R&D team comprises of 177 team members. We propose to continue to focus on our R&D initiatives going forward, which is a significant factor that affects our results.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations is based on the Restated Consolidated Financial Statements. The preparation of the Restated Consolidated Financial Statements require us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and accompanying disclosure of contingent liabilities and other attributes of our income, expenditure and cash flows. Our results of operations and financial condition are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our financial statements. We evaluate these estimates on an on-going basis. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount values of assets and liabilities that are not readily apparent from other sources. For details of significant accounting policies followed by us while preparing our financial statements, see "Restated Consolidated Financial Statements" on page 188.

PRINCIPAL COMPONENTS OF INCOME AND EXPENDITURE

Total Income

Total income comprises revenue from operations and other income.

Revenue from operations

Our revenue from operations comprises of sale of services and products. Sale of services comprises of cloud hosting and managed services and technical support services. Sale of products comprises of cloud hosting related products such as storage, servers, switches, routers etc.

Other income

Other income comprises of interest received from bank deposits, receipt of income tax refunds, other interest, unwinding of discounts on security deposits, net gains from foreign exchange fluctuations and other miscellaneous income, which include liabilities no longer payable written back.

Expenses

Our expenses comprise of cost of purchase of products such as servers and software, employee benefit expenses, finance cost, depreciation and amortization expenses and other expenses.

Cost of products purchased

The cost of products purchased includes the cost hardware and software required for cloud hosting.

Employee benefit expenses

Employee benefit expenses comprises of salaries, wages and bonuses paid, contribution to provident and other funds, gratuity payments, compensated absences and other employee related costs.

Finance cost

Finance cost comprises of interest on borrowings, lease liabilities for our data centers at Nashik, Navi Mumbai and Bengaluru our brand offices and leasing of other business equipment, other interest expenses which include interest paid to vendors, other borrowing costs such as stamp duty, loan processing fees and professional fees and bank charges.

Depreciation and Amortisation Expense

Depreciation and amortisation expenses comprises of depreciation of property, plant and equipment located at our data centers, amortization of intangible assets and amortisation of right to use assets on leased premises and equipment.

Other expenses

Other expenses predominantly comprise of contract cost for setting up of a data center, rental charges, expected credit loss allowance, travel and conveyance expenses, communication charges, power and fuel charges, advertisement and sales promotion expenses, contract labour charges, membership and subscription charges of software licenses, legal and other professional expenses and miscellaneous expenses. Miscellaneous expenses primarily include printing and stationery and postage and courier expenses.

RESULTS OF OPERATIONS

The following table sets forth selected information from our results of operations as a percentage of total income for Fiscals 2021, 2020 and 2019:

Particulars	Fiscal
	2021		2020		2019
	(in Rs. millions)	Percentage of total income (in %)	(in Rs. millions)	Percentage of total income (in %)	(in Rs. millions)	Percentage of total income (in %)
Income:
Revenue from operations	1,719.27	98.75	1,585.73	98.78	1,355.77	98.57
Other Income	21.74	1.25	19.61	1.22	19.64	1.43
Total income	1,741.01	100.00	1,605.34	100.00	1,375.41	100.00
Expenses:
Purchase of products	-	0.00	42.37	2.64	3.26	0.24
Employee benefit expense	590.30	33.91	483.17	30.10	274.79	19.98
Finance costs	176.47	10.14	113.17	7.05	118.40	8.61
Depreciation and amortization expense	373.93	21.48	369.30	23.01	173.04	12.58
Other Expenses	512.65	29.44	562.57	35.04	625.89	45.51
Total expenses	1,653.35	94.96	1,570.58	97.84	1,195.38	86.91
Profit before tax	87.66	5.04	34.76	2.16	180.03	13.09
Income tax expense:
Current tax (MAT)	19.28	1.11	29.53	1.84	68.32	4.97
(Less) MAT credit entitlement	(19.28)	(111)	(22.11)	(1.38)	-	-
Deferred tax	32.81	1.88	17.99	1.12	(26.41)	(1.92)
Total tax expenses	32.81	1.88	25.41	1.58	41.90	3.05
Profit for the year (A)	54.85	3.15	9.35	0.58	138.12	10.04
Other comprehensive income (B)	0.23	0.01	(4.99)	(0.31)	0.01	-
Total comprehensive income (A+B)	55.08	3.16	4.36	0.27	138.13	10.04

FISCAL 2021 COMPARED TO FISCAL 2020

Total revenue

Revenue from operations

Our revenue from operations increased by 8.42% to Rs. 1,719.27 million in Fiscal 2021 from Rs. 1,585.73 million in Fiscal 2020, due to increase in sales of cloud hosting and managed services and technical support services. Such increase was offset by sales of cloud hosting related products, from which, during Fiscal 2021, we did not derive any revenue. Increase in sales of (a) cloud hosting and managed services were driven by new contracts and scaling of old contracts and (b) technical support services were driven by an increase in demand of managed services.

Other income

Other income increased by 10.86% to Rs. 21.74 million in Fiscal 2021 from Rs. 19.61 million in Fiscal 2020. This increase was predominantly due to receipt of income tax refund.

Total expenses

Purchase of products

In Fiscal 2020, the cost of products purchased was Rs. 42.37 million, which predominantly comprised of hardware products such as switches, networking equipment and software licences required for one-time business contracts with certain customers. In Fiscal 2021, we did not incur any expenditure towards purchase of products, as we did not execute such contracts during this period.

Employee benefit expenses

Employee benefit expenses increased by 22.17 % to Rs. 590.30 million in Fiscal 2021 from Rs. 483.17 million in Fiscal 2020. Such increase was predominantly due to an increase in the number of employees as well as increase in salaries, wages and bonuses in the ordinary course. The increase in number of employees was predominantly due to expansion in capacities of existing data centers, addition of our new data center in Bengaluru as well as addition in manpower in certain existing business departments.

Finance costs

Finance costs increased by 55.93% to Rs.176.47 million in Fiscal 2021 from Rs.113.17 million in Fiscal 2020, predominantly driven by increase in borrowings and lease liabilities. Such borrowings included loans from Axis Bank Limited, State Bank of India, Tata Capital Financial Services Limited, Kotak Mahindra Prime Limited and SIDBI. For details, see "Financial Indebtedness" on page 278. Leases included lease from Rent Alpha Private Limited, Hewlett-Packard Financial Services (India) Private Limited and Software Technology Parks of India.

Depreciation and amortization expense

Depreciation and amortization expense increased marginally by 1.25% to Rs.373.93 million in Fiscal 2021 from Rs.369.30 million in Fiscal 2020. Such increase was predominantly due to an increase in the amortisation of right to use asset. This increase was partially offset by a decrease in depreciation of property, plant and equipment.

Other Expenses

Other expenses decreased by 8.87% to Rs. 512.65 million in Fiscal 2021 from Rs.562.57 million in Fiscal 2020, predominantly due to a decrease in (a) project servicing cost, rental charges, advertisement expense etc.

Tax expenses

Our tax expenses comprised of current tax, net of tax credit entitlement, and deferred tax. Our tax expenses increased by 29.12% to Rs.32.81 million in Fiscal 2021 from Rs.25.41 million in Fiscal 2020, due to the reasons mentioned below:

In Fiscal 2020, we paid current tax aggregating Rs.7.42 million (net of tax credit entitlement). We paid no current tax in Fiscal 2021 (net of tax credit entitlement). This was due to loss as per income tax provisions.

Our deferred tax expenses increased by 82.38% to Rs.32.81 million in Fiscal 2021 from Rs.17.99 million in Fiscal 2020. During Fiscal 2021, there have been significant additions to our property, plant and equipment and right of use assets, which comprised of expansion in cloud computing infrastructure. Consequently, the deferred tax expense has increased due to difference in rates of depreciation and amortisation on plant, property and equipment and right of use of assets between the Companies Act and the Income Tax Act, 1961.

Profit for the year

Due to the reasons stated above, our profit for the year increased to Rs.54.85 million in Fiscal 2021 from Rs.9.35 million in Fiscal 2020.

FISCAL 2020 COMPARED TO FISCAL 2019

Total revenue

Revenue from operations

Our revenue from operations increased by 16.96% to Rs. 1,585.73 million in Fiscal 2020 from Rs. 1,355.77 million in Fiscal 2019, due to increase in the sale of our products and services, primarily driven by the sales of cloud hosting and managed services and cloud hosting related products.

Other income

Other income decreased marginally by 0.15% to Rs.19.61 million in Fiscal 2020 from Rs.19.64 million in Fiscal 2019. Total expenses

Purchase of products

Cost of products purchased was Rs.42.37 million in Fiscal 2020 as compared to Rs. 3.26 million in Fiscal 2019. In Fiscal 2020, the cost of products purchased predominantly comprised of hardware products such as switches, networking equipment and software licences required for one-time business contracts with certain customers. Such contracts were not executed during 2019, which resulted in a marginal net spend on expenses during this period.

Employee benefit expenses

Employee benefit expenses increased by 75.83% to Rs. 483.17 million in Fiscal 2020 from Rs. 274.79 million in Fiscal 2019. Such increase was predominantly due to an increase in number of employee and increase in salaries, wages and bonuses paid in the ordinary course. The increase in number of employees was due to expansion of existing data centers and additions in manpower in the some of the certain business departments.

Finance costs

Finance costs decreased marginally by 4.42% to Rs.113.17 million in Fiscal 2020 from Rs.118.40 million in Fiscal 2019.

Depreciation and amortization expense

Depreciation and amortization expense increased to Rs. 369.30 million in Fiscal 2020 from Rs. 173.04 million in Fiscal 2019. Such increase was predominantly due to increase in depreciation of plant, property and equipment and increase in amortization of right of use assets. Such increase in depreciation and amortisation was predominantly due to addition of fixed assets during this period in our data centers and due to increase in right of use assets.

Other Expenses

Other expenses decreased by 10.12 % to Rs. 562.57 million in Fiscal 2020 from Rs. 625.89 million in Fiscal 2019, predominantly due to a decrease in (a) project servicing cost, because of data center turnkey projects undertaken in Fiscal 2019 and (b) legal and professional charges. This was partially offset by an increase in travel expenses, communication charges, advertisement and sales promotion expenses and power and fuel charges.

Tax expenses

Our tax expenses decreased by 39.38% to Rs. 25.41 million in Fiscal 2020 from Rs. 41.90 million in Fiscal 2019, due to the reasons mentioned below:

Our current tax (net of tax credit entitlement) expenses decreased by 89.14% to Rs. 7.42 million in Fiscal 2020 from Rs. 68.32 million in Fiscal 2019, predominantly since tax was assessed in Fiscal 2019 on the basis of the Income Tax Act, 1961 whereas for Fiscal 2020, it was assessed under the provisions of the "minimum alternate tax" as per Income Tax Act,1961. Further, we paid higher current tax in Fiscal 2019 due to higher taxable profits in Fiscal 2019 as compared to Fiscal 2020.

Our deferred tax expenses were Rs. 17.99 million in Fiscal 2020 as compared to a deferred tax credit of Rs. 26.41 million during Fiscal 2019. During Fiscal 2020, there have been additions to our property, plant and equipment and right of use assets, which comprised of expansion in cloud computing infrastructure. Consequently, the deferred tax expense has increased due to difference in rates of depreciation and amortisation on plant, property and equipment and right of use of assets between the Companies Act and the Income Tax Act, 1961.

Profit for the year

Due to the reasons stated above, our profit for Fiscal 2020 was Rs. 9.35 million, as compared to a profit of Rs. 138.12 million in Fiscal 2019.

DISCUSSION ON THE STATEMENT OF CASH FLOWS

The following table sets forth certain information relating to our Companys statement of cash flows for the periods indicated:

			(Rs. in million)
Particulars	Fiscals
	2021	2020	2019
Net cash inflow from/ (outflow in) operating activities	492.22	528.70	257.07
Net cash inflow from / (outflow in) investing activities	(572.44)	(838.28)	(510.58)
Net cash inflow from/ (outflow in) financing activities	217.49	229.89	278.18
Net increase/ (decrease) in cash and cash equivalents	137.28	(79.69)	24.67

Operating activities

In Fiscal 2021, net cash inflow from operating activities was Rs. 492.22 million. The profit before income tax was Rs.87.66 million, which was primarily adjusted for depreciation and amortization expenses of Rs. 373.93 million, finance cost of Rs. 176.47 million and bad debts written off of Rs. 46.48 million. The resultant operating profit before working capital changes was Rs. 672.41 million, which was primarily adjusted for an increase in trade receivables by Rs. 58.09 million, increase in other current and non-current financial assets by Rs. 181.01 million, decrease in other current assets by Rs. 54.19 million, decrease in trade payables by Rs.75.21 million, decrease in other current financial liabilities by Rs. 27.84 million, increase in provisions by Rs. 26.93 million and increase in other current liabilities by Rs. 29.85 million.

In Fiscal 2020, net cash inflow from operating activities was Rs.528.70 million. The profit before income tax was Rs.34.76 million, which was primarily adjusted for depreciation and amortization expenses of Rs. 369.30 million and finance cost of Rs. 113.17 million. The resultant operating profit before working capital changes was Rs. 514.66 million, which was primarily adjusted for a decrease in trade receivables by Rs. 27.86 million, decrease in other current and non-current financial assets by Rs. 110.12 million, increase in other current assets by Rs. 161.82 million, increase in trade payables by Rs.90.85 million, increase in other current financial liabilities by Rs. 39.42 million, increase in provisions by Rs. 20.70 million and decrease in other current liabilities by Rs. 24.32 million.

In Fiscal 2019, net cash inflow from operating activities was Rs. 257.07 million. The profit before income tax was Rs. 180.03 million, which was primarily adjusted for depreciation and amortization expenses of Rs. 173.04 million, finance cost of Rs. 118.40 million and bad debts written off of Rs. 72.84 million. The resultant operating profit before working capital changes was Rs. 547.16 million, which was primarily adjusted for an increase in trade receivables by Rs. 341.58 million, increase in other current and non-current financial assets by Rs. 39.74 million, increase in other current assets by Rs. 72.05 million, increase in trade payables by Rs. 168.86 million, increase in other current financial liabilities by Rs. 79.77 million, increase in provisions by Rs. 5.20 million and increase in other current liabilities by Rs. 3.04 million.

Investing activities

In Fiscal 2021, net cash used in investing activities was Rs.572.44 million, which primarily comprised of cash used for purchase of property, plant and equipment and intangible assets (net of deferred tax) of Rs. 691.20 million, proceeds from sale of property, plant and equipment of Rs. 131.92 million, bank balances not considered to be cash and cash equivalents of Rs. 31.21 million and interest/income on investment received Rs. 18.05 million.

In Fiscal 2020, net cash used in investing activities was Rs. 838.28 million, which primarily comprised of cash used for purchase of property, plant and equipment and intangible assets (net of deferred tax) of Rs. 779.11 million, interest/income on investment received of Rs. 15.46 million and bank balances not considered to be cash and cash equivalents of Rs. 74.62 million.

In Fiscal 2019, net cash used in investing activities was Rs.510.58 million, which primarily comprised of cash used for purchase of property, plant and equipment and intangible assets (net of deferred tax) of Rs. 472.07 million, proceeds from sale of property, plant and equipment of Rs. 0.05 million, bank balances not considered to be cash and cash equivalents of Rs. 40.30 million and interest/income on investment received Rs.1.74 million.

Financing activities

In Fiscal 2021, net cash inflow from financing activities was U217.49 million, which predominantly comprised of the equity component of compound financial instrument of Rs. 299.27 million, increase of non-current borrowings of Rs. 173.58 million and proceeds from current borrowings of Rs. 24.78 million. This was partially offset by principal elements of lease payments of Rs.189.34 million and interest paid on borrowings of Rs. 90.80 million. Foreign currency translation impact on net increase or decrease in cash and cash equivalents is Rs.0.12 million. Equity component of compound financial instrument implies the difference arising out of the financial instruments issued less fair value of the liability component on initial recognition of such compound financial instrument.

In Fiscal 2020, net cash inflow from financing activities was Rs. 229.89 million, which predominantly comprised of the equity component of compound financial instrument of Rs. 410.00 million increase of non-current borrowings of Rs. 18.11 million and decrease of current borrowings of Rs. 28.57 million. This was partially offset by principal elements of lease payments of Rs. 111.25 million and interest paid on borrowings of Rs.58.40 million. Equity component of compound financial instrument implies the difference arising out of the financial instruments issued less fair value of the liability component on initial recognition of such compound financial instrument.

In Fiscal 2019, net cash inflow from financing activities was Rs. 278.18 million, which predominantly comprised of the equity component of compound financial instrument of Rs. 530.57 million, redemption of optionally convertible preference shares of Rs. 238.73 million, increase of non-current borrowings of Rs.55.41 million and increase in current borrowings of Rs. 60.07 million. This was partially offset by principal elements of lease payments of Rs. 64.35 million and interest paid on borrowings of Rs. 64.79 million. Equity component of compound financial instrument implies the difference arising out of the financial instrument issued less fair value of the liability component on initial recognition of such compound financial instrument.

BUSINESS SEGMENTS

We operate under a single business segment and our entire business involves the design, development, installation and servicing of information technology related resource.

INDEBTEDNESS

As at March 31, 2021, we had total borrowings of Rs. 705.68 million.

There are a number of covenants in our financing agreements that we have entered into with our lenders. Further, some of our financing agreements include conditions and covenants that require us to obtain their consent prior to carrying out certain activities and entering into certain transactions. Failure to meet these conditions or obtain these consents could have significant consequences on our business. For further details, see "Risk Factors" and "Financial Indebtedness" on pages 28 and 278.

CONTINGENT LIABILITIES

The following table sets forth certain information relating to our contingent liabilities and commitments as of March 31, 2021, March 31, 2020 and March 31, 2019:

Contingent liabilities

(Rs. in million)

Particulars	As at March 31, 2021	As at March 31, 2020	As at March 31, 2019
Claims against the company not acknowledged as debts - income tax matters	-	-	2.52
Performance bank guarantees given to customers	121.84	164.27	140.65

Capital commitments			(Rs. in million)
Particulars	As at March 31, 2021	As at March 31, 2020	As at March 31, 2019
Estimated amount of contracts remaining to be executed on capital account (net of advances)	-	16.55	138.20

For further details, please see "Restated Consolidated Financial Statements" on page 188.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements.

RELATED PARTY TRANSACTIONS

For details of our relation party transactions, please see "Restated Consolidated Financial Statements" on page 243.

AUDITORS OBSERVATIONS

There have been no reservations/ qualifications/ adverse remarks/ matters of emphasis highlighted by our Statutory Auditor in their auditors reports on the audited consolidated financial statements as of and for the years ended March 31, 2021, 2020 and 2019, as applicable.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to risks from the use of financial instruments, which include credit risk, liquidity risk, market risk, foreign currency exchange rate risk and interest rate risk. Our senior management oversees the management of such risks. Our financial risk activities are governed by appropriate policies and procedures and financial risks are identified, measured and managed in accordance with our policies and risk objectives. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below.

Credit risk

We are exposed to credit risk as a result of risk of counterparties defaulting on their obligations. Our exposure to credit risk primarily relates to trade receivables. We monitor and limit our exposure to credit risks on a reasonable basis. Our credit risk associated with trade receivables is primarily related to customers not able to settle their obligations as agreed upon. To manage this, we periodically review the financial reliability of our customers, taking into account their financial condition, current economic trends, analysis of historical bad debts and ageing of trade receivables. Financial instruments that are subject to such risks, principally consist of trade receivables, contract assets such as unbilled revenue, security deposits (comprising bank guarantees, EMDs etc.) and cash and bank balances. None of our financial instruments result in material concentration of credit risk.

Liquidity risk

We are exposed to liquidity risk related to its ability to fund its obligations as and when they become due. We monitor and manage liquidity risk to ensure access to sufficient funds to meet operational and financial requirements. We have access to credit facilities and monitor cash and bank balances on a regular basis. In relation to our liquidity risk, our policy is to ensure that we have sufficient liquidity to meet our liabilities when due, under both normal and stressed conditions without incurring unacceptable losses.

Market risk

Market risk is the risk of any loss in future earnings, in realisable fair values or in future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, foreign currency exchange rates, liquidity and other market changes. Future specific market movements cannot be normally predicted with reasonable accuracy.

Foreign currency exchange rate risk

We deal with receivables from customers and payables to vendors. Therefore, we are exposed to foreign exchange risk associated with exchange rate movements. The foreign exchange rate fluctuations do not have any material impact on our profitability as such exports and foreign currency expenditure is negligible in totality. There are no forward exchange contracts which have been entered into by us.

Interest rate risk

Interest rate risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Our exposure to the risk of changes in market interest rates relates primarily to our debt obligations with floating interest rates.

For further information, see, "Restated Consolidated Financial Statements " on page 250.

UNUSUAL OR INFREQUENT EVENTS OR TRANSACTIONS

Except as described in this Draft Red Herring Prospectus, to our knowledge, there have been no unusual or infrequent events or transactions including unusual trends on account of business activity, unusual items of income and discretionary reduction of expenses etc. that have in the past or may in the future affect our business operations or future financial performance.

CHANGES IN ACCOUNTING POLICIES

For details of changes in accounting policies in the last three years, please see "Restated Consolidated Financial Statements -36 Financial risk management" on page 250. Further, our Company has not deviated from applicable accounting standards for recording sales and revenues.

SEASONALITY/ CYCLICALITY OF BUSINESS

Our business is not seasonal in nature.

DEPENDENCE ON CUSTOMERS AND SUPPLIERS

We have derived and believe that in the foreseeable future we will continue to derive, a significant portion of our revenues from a limited number of clients. Our top 10 clients contributed 36.35%, 35.57%, and 44.73% of our revenue from operations for Fiscals 2021, 2020 and 2019. For further details, see "Risk Factors - We generate a significant portion of our revenues from a limited number of clients, and any loss or reduction of business from these clients could reduce our revenues and materially adversely affect our business, financial condition, and results of operations"" on page 32. We do not derive a significant portion of our business from foreign customers / suppliers.

KNOWN TRENDS OR UNCERTAINTIES

Our business has been subject, and we expect it to continue to be subject, to trends and uncertainties identified above in " -Significant Factors Affecting our Results of Operations"" and as described in "Risk Factors" on page 28. To our knowledge, except as disclosed in this Draft Red Herring Prospectus, there are no known factors which we expect to have a material adverse effect on our sales, revenue or income from continuing operations.

FUTURE RELATIONSHIP BETWEEN COST AND REVENUE

Other than as described in "Risk Factors", "Our Business" and "Managements Discussion and Analysis of Financial Position and Results of Operations"" on pages 28, 134 and 265, respectively, to our knowledge there are no known factors that may adversely affect our business prospects, results of operations and financial condition.

SIGNIFICANT ECONOMIC CHANGES THAT MATERIALLY AFFECTED OR ARE LIKELY TO AFFECT INCOME FROM CONTINUING OPERATIONS

Other than as described in the "Risk Factors"" and "Industry Overview" on pages 28 and 103, respectively, there are no significant economic change that materially affected or are likely to affect our income from continuing operations.

SIGNIFICANT DEVELOPMENTS AFTER MARCH 31, 2021 THAT MAY AFFECT OUR FUTURE RESULTS OF OPERATIONS

Except as disclosed below, there are no significant developments that have occurred or circumstances that have arisen post March 31, 2021 that materially or adversely affect or are likely to affect with the next 12 months (a) our trading or profitability, (b) the value of our assets, or (c) our ability to pay our liabilities:

1. Our Board and Shareholders at their meeting held on July 26, 2021 by way of special resolution approved split of one equity share having face value of 10 each into 10 equity shares having face value of 1 each. Accordingly, the cumulative number of equity shares of our Company was changed from 5,222,100 equity shares of Rs. 10 each to 52,221,000 Equity Shares of Rs. 1 each. Further in addition to the aforesaid the Shareholders agreed to increase the authorised share capital and altered the capital clause of the Memorandum of Association;

2. Our Company made a fresh issue of compulsory convertible cumulative preference shares (Class C CCCPS) of 10 each issued at a premium of 285 per share;

3. Sarla Prakashchandra Somani, has diluted 22,00,000 equity shares to ESDS Employee Benefit Trust. Pursuant to the ESOP Plan, duly approved by a resolution of the Board passed at their meeting on August 7, 2021 (as amended on August 26, 2021) and by a special resolution of the Shareholders passed at the extra-ordinary general meeting held on August 9, 2021 (as amended on August 27, 2021), our Company has granted 2,045,000 Equity Shares to the employees of the Company as on the date of this Draft Red Herring Prospectus.