expleo solutions ltd share price Management discussions

Our total income during the financial year 2022-23 grew by 23% compared to the previous year - from INR 7,486 million to INR 9,194 million. We continued to focus on our cost optimization strategy which is reflected in the continued increase in our EBITDA and net profits. EBITDA witnessed a growth of 66% from INR 1,301 million (17.5%) to INR 2,162 million (23.9%) and our PAT improved by 98% from INR 677 million (14.8%) to INR 1,339 million (9.11%). DSO as of 31st March, 2023 was at 113 days as compared to 93 days as of 31st March, 2022. Approval of the Scheme of Amalgamation ("Scheme") involving, Expleo India Infosystems Private Limited, Expleo Technologies India Private Limited, Expleo Engineering India Private Limited and Silver Software Development Centre Private Limited, with Expleo Solutions Limited was accorded by the Honble National Company Law Tribunal (NCLT), Chennai Bench on February 15, 2023, by Honble NCLT, Mumbai Bench on February 17, 2023, and Honble NCLT, Bengaluru Bench on February 28, 2023. Pursuant to the filing of the certified copies of the Order sanctioning the Scheme of the respective NCLTs with the Registrar of Companies (ROC), the Scheme has come into effect from April 1, 2023, the Effective Date, with Appointed Date as April 1, 2022. Your Company had consolidated all the Indian businesses of Expleo Group into a single entity to simplify the corporate structure, enhance business focus, improve synergies and focus on long term value creation. We are happy to inform you that the Board of Directors has recommended a final dividend of Rs. 5/- per equity share for the financial year ending March 31, 2023.

Financial Ratios

The details of significant changes (i.e., change of 25% or more as compared to the immediate previous financial year) in key financial ratios, along with detailed explanations, therefore:

S. Ratio No description	31-Mar-23	31-Mar-22	Change %	Explanation
1 Current Ratio	3.30	2.57	28.3%	Current asset increase is mainly due to increase in trade receivable.
2 Debt Equity Ratio	0.09%	0.14%	-34.5%	Decrease is mainly due to improvement in Equity.
3 Operating Profit Margin (%)	22%	17%	32.6%	Revenue growth by 22% and Operating Profit growth by 61% during the year has resulted in improvement in ratio.
4 Net Profit Margin (%)	15%	9%	62.6%	Revenue growth by 22% and Net profit growth by 98% during the year has resulted in improvement in ratio.

Industry Structure and Developments:

Over the past 12 months, Expleos ‘ahead of the curve technological aptitude has solidified our position as the trusted transformation partner for leading enterprises in our focus sectors around the globe. Against a backdrop of unprecedented macroeconomic uncertainty, enterprises across the industry spectrum are exploring innovative ways to meet customer demands, unlock operational efficiencies and cost savings with a newfound intensity. The hyper-competitive demand for talent is also compounding challenges for enterprises that are already contending with supply chain disruption and evolving regulatory frameworks pertaining to customer data. This strong phase of growth follows the consolidation of our Indian businesses, streamlining our corporate structure with a view to improving synergies and delivering sustained value generation for all stakeholders. This consolidation has reinforced Expleos credentials as a leading provider of engineering, consulting, and technology services across our focused industry verticals. As specialists in cutting-edge transformation solutions, we continue to facilitate accelerated project delivery for our clients. Championing the ‘Think Bold, Act Reliable modus operandi, Expleo guides businesses out of their technological comfort zone while modernizing operational frameworks with a ‘first time right approach in accordance with the urgent contours of todays global economy.

Opportunities and Threats:

Given this period of significant flux in the global economy, companies are recognising the need to become increasingly agile and adaptable. Business Agility is about understanding where you are now as an enterprise and being able to strategically allocate resources in order to achieve a desired future operational state. The significance of this has grown exponentially in recent months as businesses face the pressing need to transform, cut costs, and accelerate their rate of change in line with customer demands. In an intensely competitive landscape, companies acknowledge the critical importance of being agile and decisive more than ever before, while also addressing cultural and structural obstacles that hinder optimized performance. Thestrategicimpetusormotivationforchangewill vary from one business to another, underscored by the organisations overarching vision and core objectives. The rationale for embracing a culture of Business Agility may stem from a desire to be more adaptable and fungible to prevailing trends, enhancing customer engagement through increased feedback loops, or improving the efficacy of business models. In our day-to-day interaction with our clients, there is a growing acceptance that in order to change business models, digital first approach is imperative for success.

Our recently published Business Transformation Index (BTI) 2023 report provides a timely and comprehensive overview of how firms are faring on the global stage in terms of implementing digital transformation initiatives – aggregating the prevailing sentiments of 1,395 global business transformation leaders.

It is clear that enterprises are displaying a stronger drive towards embracing innovative strategies, generally expediting their digital transformation plans, and increasing investments in IT and technology-driven projects. Our research has shown that 81% of organizations boards are now more likely to approve new IT strategies and innovations than a year ago, indicating that the pandemic-related surge in IT spending has endured year-on-year. In essence, business leaders are actioning their digital transformation ambitions by allocating resources and investments accordingly. While there is heightened appetite for IT spending, controlling costs is still a big priority for enterprises, with 42% of respondents acknowledging this as a top priority this year, up from 36% last year.

Omnipresent Threats:

When it comes to accelerating the pace of enterprise change, heightened geopolitical tensions, talent shortages, evolving customer expectationsandsustainabilitytargetshaveclearly hindered the execution of digital transformation agendas. The current state of play in the digital transformation arena is seeing a stalling of progress for a wide number of organizations. While a lot has been done, a significant body of work remains, and this evolving environment has led to a significant number of businesses falling short of their transformation targets. In fact, our research indicates that an astonishing 76% of companies are facing challenges in meeting at least one crucial objective in their business transformation endeavors. This figure represents a notable rise from the 2022 figure of 60%. Skills gaps and talent shortages have undercut recruitmentefforts.Thelimitedavailabilityofskilled professionals to manage emerging technologies is a pressing concern for businesses across the enterprise spectrum. The intense competition in the recruitment landscape underlines the case for internal training programs. As a means of circumnavigating current skills shortages, many enterprises are actively outsourcing specific roles in order to quickly leverage on-demand talent, while leaning on external service providers for the technical knowledge and renowned industry expertise.

Segment–wise or Product-wise Performance: Enterprises embracing ERP solutions:

When queried on which technologies would be focus areas for their organisations transformation plans in the next 1-2 years, 38% of respondents cited enterprise applications/ERP (Enterprise Resource Planning), up slightly from 36% last year. On a global level, Expleo is experiencing higher demand for ERP solutions from clients seeking automation-led cost savings and enhanced data visibility to drive better decision-making and scalability. Our expertise in system selection and implementation, customized configuration capabilitiesandseamlessintegrationwithexisting systems continues to provide tremendous value to clients, as we work tirelessly to align the ERP solution with their specific needs and objectives.

Machine Learning and Artificial Intelligence:

According to our BTI research, Machine Learning (ML) and Artificial Intelligence (AI) is a focus area over the next 1-2 years for 37% of respondents. It is forecast that global investment in AI will exceed $420 billion by 2028, representing a remarkable four-fold rise from current levels. AI and ML innovations offer numerous advantages that can be applied to a litany of cross-sectoral processes, helping to mitigate the risk of fraud, enable predictive maintenance, streamline workflows, analyze transaction data, and identify platform security concerns. However, in terms of how their organization use data, making full use of AI and ML was often or sometimes a problem for 69% of respondents, elevating the case for leveraging the expertise of an innovation partner like Expleo to maximize the operational efficiency gains from AI and ML deployments. We have experienced an uptick in the number of clients seeking expert guidance on how to derive as much business value as possible from AI and ML solutions.

A new era of automation:

Perhaps acknowledging the breadth of omnipresent challenges, 70% of organisations feel they need to be far more radical in their adoption of automation. The use of automation is also being viewed as an effective means of freeing up time and resources to help businesses focus on more strategic initiatives. In terms of elevating the customer service experience, I anticipate Process Automation becoming an integral part of the customer journey, streamlining and automating complex business processes, resulting in faster and more efficient service delivery. Many of our clients already appreciate how Process Automation mitigates the need for manual intervention, minimizes errors, provides faster response times, and enables self-service options, ultimately enhancing the overall customer experience. We are ramping up our capabilities in this area, in expectation for even greater demand from our rapidly expanding client base.

Exploring the benefits of Low-code, no-code in the new era of Open AI:

23% of global respondents cited low-code, no-code as a focus area over the next 1-2 years. These solutions enable rapid application development without extensive coding knowledge, making them quite an attractive proposition for companies. From our firsthand interactions with clients, low-code, no-code is viewed as a solution to drive agility and also in addressing obsolescence. However, with the advent of Open AI and tools like Chat GPT, which is expected to reduce the coding timelines, it will be an interesting opportunity for us to work on low-code, no-code along with Open AI and automation tools. In fact, 73% said organisations need to more strongly embrace low-code and no-code approaches to combat skills shortages.

Low-code, no-code solutions are also helping companies expedite time to market with new products while reducing the burden on their internal IT departments.

Unlocking the promise of Web3:

Irrespective of market fluctuations, Web3, Blockchain and Decentralized Finance (DeFi) are focus areas for 34% of global respondents over the next 1-2 years. With regulatory frameworks such as MiCA (Markets in Crypto-Assets Regulation) comingintoforceintheEuropeanUnioncountries, this could lead to the emergence of similar policies in other jurisdictions, potentially spurring an influx of new participants into the global Web3 ecosystem. MiCA is geared towards establishing a comprehensive framework for regulating crypto-assets and related services across the European Union. The regulatory landscape plays a pivotal role in enterprise adoption of blockchain technology, and transparent regulations instill trust and attract the involvement of institutional investors. 2023 is set to be a landmark year for blockchain regulations, which will have a large bearing on innovation and investment in the sector.

Outlook:

Changing the culture:

A supportive and open corporate culture fosters innovation, enabling employees to embrace change, collaborate effectively, and drive the overall transformation forward. Culture and change management was considered a major focus area over the next 1-2 years for 34% of global organizations, which speaks of the possible constraints associated with antiquated ways of working. Culture change is vital for a successful business transformation, and involves breaking down silos, while adjusting behaviors to align with new goals and strategies. For some organisations, this may involve abandoning legacy mindsets and terminology such as ‘this is the way weve always done things. Simply put, diversity of thinking is essential. However, theres no point in embarking on a deep phase of operational recalibration without leadership buy-in. To effectively facilitate a tangible cultural shift, it is crucial that business leaders provide support and concrete guidance to staff, helping them to successfully adopt and maintain new work practices. Additionally, it is essential that teams comprehend the reasons driving the change,andtheyshouldbetrustedasproductand domain experts to carry out their core functions with a reasonable degree of autonomy. At Expleo India, we are firm advocates for providing staff members with avenues to engage in work beyond their specific technical responsibilities, through upskilling and professional development initiatives. This is intrinsically linked to our staff retention and onboarding strategy.

Sharp focus on Diversity, Equity, And Inclusion (DE&I):

In todays corporate environment, the DE&I imperative is a core facet of attracting diverse talent, enhancing employee morale and productivity, while contributing to a more equitable society. By embracing DE&I, businesses gain a competitive edge and drive sustainable growth. To address skills shortages, 38% are planning to hire from more diverse backgrounds, encompassing age, gender, ethnicity, and neurodiversity. Regarding their organisations progress in improving diversity in their IT department, our BTI research shows that 36% have formal targets and are making some progress in meeting them, while 26% have formal targets and are making strong progress. Only 9% have no specific plans or targets.

Expleo India has always prioritised unbiased employment, and last year, we bolstered our workforce by onboarding technology aspirants who are hearing and speech impaired, bringing diverse backgrounds and technical skills to our team. With the support of our recruitment partner Oorjja, we were able to carry out a series of training and assessments to understand the talent pools interests and abilities in delivering high-level UI/UX projects. This is just one example of our commitment to building a workforce that mirrors the wider community, demonstrating our passion for equality and inclusivity promotion.

Embracing the Sustainability imperative:

The urgency of taking decisive action on the environmental front has captured the attention of enterprises like never before. In the past, a strong sustainability agenda was perceived more as a ‘nice to have, but not a lynchpin of enterprise strategies. However, the landscape has shifted dramatically, and sustainability has swiftly risen to the top of operational priorities for businesses, as evidenced by Expleos BTI 2023 findings. 53% of respondents agreed that a focus on sustainability is a strong catalyst for innovation. From a competitive standpoint, it is crucial for organisations to integrate a culture of sustainability in their business model in order to attract and retain top talent. Today, environmentally conscious professionals are able to see past empty promises made by companies about vague sustainability efforts. They seek concrete evidence of improvements in IT infrastructure and clear allocation of funds. At Expleo, we have a deep passion for implementing digital-led sustainability initiatives for our clients, while exploring fresh ideas and deploying innovative technologies to elevate the customer experience, address skill gaps, strengthen cybersecurity, and enhance business agility. We take immense pride in being the trusted partner of choice for companies seeking to refine their transformation initiatives and accelerate innovation, while upholding a rigorous sustainability agenda.

Risks and Concerns:

While it is highly encouraging to witness the ‘digital-first mindset prevailing within the business community, our research illustrates that 37% of organisations had to significantly scale back digital/business transformation plans recently. 47% cited cost inflation as one of the biggest threats to their digital/business transformation plans over the next 12 months, and economic uncertainty was cited as a threat by 39% of respondents. Skills shortages were perceived as a threat for 38% of respondents, and in response to geopolitical uncertainty, 29% of UK respondents have stopped working with suppliers in certain locations. 75% of respondents agreed that there are significantly more external threats to their business compared to a year ago – giving expression to the sense of trepidation that has permeated the wider corporate consciousness. Lingering fear of potential service disruptions often makes the prospect of comprehensive changes to systems architecture seem overwhelming. For companies contemplating a transformation project, it is crucial to understand that undertaking extensive digital initiatives while maintaining reliable service delivery doesnt have to be an all-or-nothing scenario. With effective execution, it is possible to sustain service delivery while simultaneously rewiring digital infrastructure. However, the approach being taken by organisations could be stifling progress. 56% of respondents felt it is better to adopt a structured, methodical approach to digital projects in which they minimise the risk of failure at launch as opposed to a ‘fail fast approach to digital projects, where they aim to learn quickly from trialing solutions in-market. 28% of respondents preferred the ‘fail fast approach and 16% were comfortable with both approaches.

Despite the challenging environment, Expleo is well positioned to support the rapid digital adoption and to provide consulting and solutions to cross-sectoral enterprises to advance their digital ambitions. While roadblocks remain, the bottom line is this: companies remain steadfast in their efforts to launch innovative products, improve processes, and deliver exceptional customer value – key trends which are very promising for the global ecosystem at large. As a fast growing, consultative solution provider for enterprise transformation, Expleo looks forward to working with companies at every stage of development to nurture a culture of Business Agility from within and navigate the current climate with a greater degree of conviction and confidence.

Internal Controls Systems and their Adequacy:

To reduce the possibility or the impact of an adverse event, the CEO and CFO of the Company have provided a certificate, which forms a part of this annual report, confirming the adequacy of the internal control systems and procedures.