HOV Services Ltd Management Discussions.

HOV Services Limited ("HOVS" or the "Company") operates as a hybrid between an investment company and a diversified services corporation. The Companys business encompasses Software and IT Enabled Services. The Company believes that this operational structure is fundamental to our value proposition for our future success.

Financial Performance

Management discussion and analysis on financial performance of the Company for the year under reporting is as under:

Sr. No. Particulars On Standalone basis On Consolidated basis
1 Property, Plant and Equipment Net carrying amount as at March 31, 2019 stood at 41.39 lakhs as compared to 29.01 lakhs as at March 31, 2018. Net carrying amount as at March 31, 2019 stood at 104.72 lakhs as compared to 138.82 lakhs as at March 31, 2018.
2 Intangible Assets Net carrying amount as at March 31, 2019 stood at 0.16 lakhs as compared to 2.38 lakhs as at March 31, 2018. Net carrying amount as at March 31, 2019 stood at 0.16 lakhs as compared to 2.38 lakhs as at March 31, 2018.
3 Investments in subsidiaries and associate & Other investments Investment in subsidiaries stood at 6607.77 lakhs for the year March 31, 2019 as well as March 31, 2018. The fair value of this investment is 58622 lakhs as at March 31, 2019 as against 98724 Lakhs as at March 31, 2018 due to drop in market price of shares.
4 Trades Receivables Net Receivables as at March 31, 2019 amounted to 281.40 lakhs as compared to 411.64 lakhs as at end of previous year March 31, 2018.

Trade receivables as a percentage of revenue from operations is 27% as at March 31, 2019 as against 33% as at March 31, 2018.

Net Receivables as at March 31, 2019 amounted to 281.40 lakhs as compared to 431.25 lakhs as at end of previous year March 31, 2018.

Trade receivables as a percentage of revenue from operations is 27% as at March 31, 2019 as against 33% as at March 31, 2018.

5 Cash and cash equivalents Cash and cash equivalents stood at 549.36 lakhs as on March 31, 2019 compared to 372.65 Lakhs as on March 31, 2018 which is more by 176.71 lakhs compare to last year. Cash and cash equivalents stood at 700.71 lakhs as on March 31, 2019 compared to 496.56 Lakhs as on March 31, 2018 which is more by 204.15 lakhs compare to last year.
6 Total Current Assets As at March 31, 2019 total current assets amounted to 927.16 lakhs as compared to 857.10 lakhs as at March 31, 2018. As at March 31, 2019 total current assets amounted to 1100.83 lakhs as compared to 1097.10 lakhs as at March 31, 2018.
7 Total Equity Total equity stood at 8064.41 lakhs as at March 31, 2019 as compared to 7911.22 lakhs as at March 31, 2018. Total equity stood at 44361.94 lakhs as at March 31, 2019 as compared to 71629.61 lakhs as at March 31, 2018.
8 Equity share capital & Securities premium reserve: During the year, Share Capital and Securities Premium reserve were 1258.90 lakhs and 6261.89 lakhs respectively. During the year, Share Capital and Securities Premium reserve were 1258.90 lakhs and 6261.89 lakhs respectively.
9 Retained earnings Retained earnings as at March 31, 2019 amounting to 333.61 lakhs. Retained earnings as at March 31, 2019 amounting to 2840.41 lakhs.
10 General Reserves During the year there is no change in amount of general reserve from the previous year ended on March 31, 2018 which was 195.41 lakhs. General Reserves stood at 195.41 Lakhs as on March 31, 2019 which is same as per last year ended on March 31, 2018.
11 Capital Redemption Reserve During the year there is no change in CRR amount of 6.30 lakhs which was created on account of buy-back of equity share capital in year 2009. During the year there is no change in CRR amount of 6.30 lakhs which was created on account of buy-back of equity share capital in year 2009.
12 Total Other comprehensive income Total other comprehensive income stood at 8.29 lakhs for the current year compared to 4.27 lakhs last year. Total other comprehensive income stood at 33749.37 lakhs for the current year compared to 61014.55 lakhs last year.
13 Trade payables Trade payables stood at 77.80 lakhs current year compared to 74.51 lakhs last year ended on March 31, 2018. Trade payables stood at 94.42 lakhs current year compared to 109.55 lakhs last year ended on March 31, 2018.
14 Total Current Liabilities As at March 31, 2019 current liabilities amounted to 318.09 lakhs as compared to 309.61 lakhs as at March 31, 2018. As at March 31, 2019 current liabilities amounted to 413.62 lakhs as compared to 368.28 lakhs as at March 31, 2018.
15 Sale of services For the year ended March 31, 2019, Revenue from Operations was 1054.43 lakhs as compared to 1254.55 lakhs for the year ended March 31, 2018. For the year ended March 31, 2019, Revenue from Operations was 1054.43 lakhs as compared to 1359.95 lakhs for the year ended March 31, 2018.
16 Operating Profit Operating Profit/ (Loss) before exceptional items and tax is of 179.91 lakhs for the year ended March 31, 2019. Operating Profit/ (Loss before exceptional items and tax is of 69.04 for the year ended March 31, 2019.
17 Exceptional items Exceptional expenses stood at Nil for the current year compared to 1022.72 Lakhs ended on March 31, 2018. Exceptional expenses stood at Nil for the current year compared to 0.38 Lakhs ended on March 31, 2018.
18 Net Profit/ (Loss) for the year HOVS recorded a net profit of 128.43 lakhs for the current year ended on March 31, 2019 as compared to 883.70 lakhs for year ended March 31, 2018. HOVS on consolidated basis recorded a net profit of 17.56 lakhs for the current year ended on March 31, 2019 as compared to 237.82 lakhs for year ended March 31, 2018.
19 Total Comprehensive Income HOVS recorded a total comprehensive loss of 132.45 lakhs for the year ended March 31, 2019. Recorded a total comprehensive income of (27247.62) lakhs for the year ended March 31, 2019.

Revenues - standalone

Our total revenue in current year on a standalone basis decreased to 1147.60 Lakhs from 1360.86 Lakhs in the previous year. Our software export revenues for the year ended March 31, 2019 was 1054.43 Lakhs, as against 1254.55 Lakhs in the previous year.

Revenues - consolidated

Our total revenue in current year on a consolidated basis decreased to 1150.20 Lakhs from 1780.27

Lakhs in the previous year. Our Income from operations aggregated to 1054.43 Lakhs, against 1359.95

Lakhs in the previous year.

Profits - standalone

• Employee Benefit Expenses were at 713.92 Lakhs for year ended March 31, 2019 and were at 884.89 Lakhs for the year ended March 31, 2018. Other expenses were at 245.23 Lakhs for year ended March 31, 2019 and were at 269.12 Lakhs for the year ended March 31, 2018.

• The EBITDA amounted to 188.45 Lakhs as against 206.85 Lakhs in the previous year.

• The exceptional expenses amounted to Nil compared to 1022.72 Lakhs for the previous year.

• The Profit for the year was 128.43 Lakhs, as against Loss of (883.70) Lakhs in the previous year.

• Total Comprehensive Income for the year was 132.45 Lakhs as against total comprehensive Loss (882.47) Lakhs in the previous year.

Profits - consolidated

• Employee Benefit Expenses were 732.36 Lakhs for year ended March 31, 2019 and were 911.96 Lakhs for the year ended March 31, 2018.

• Other expenses were 296.28 Lakhs for year ended March 31, 2019 and were 428.02 Lakhs for the year ended March 31, 2018.

• The EBITDA amounted to 121.56 Lakhs as against 440.29 Lakhs in the previous year.

• The Net Profit for the year was 17.56 Lakhs, as against Net Profit of 237.82 Lakhs in the previous

year.

• Total Comprehensive Loss for the year was (27247.62) Lakhs as against total comprehensive Income of 61249.32 Lakhs in the previous year.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous

financial year) in key financial ratios, along with detailed explanations therefor

Sr. Particulars No. FY 2018-19 FY 2017-18 % change Detail explanation for change (where the change is 25% or more as compared to the immediately previous financial year)
i Debtors Turnover 2.960 3.140 -5.73%
ii Interest Coverage NA 13.130 NA There is no interest cost incurred during the year
iii Current Ratio 2.660 2.980 -10.74%
iv Debt Equity Ratio 0.007 0.006 16.67%
v Operating Profit Margin 1.090 1.310 -16.79%
vi Net Profit Margin 0.015 0.130 -88.46% The net profit % is reduced mainly due to reduction in other income compared to previous financial year
vii Return on Net Worth 0.002 0.022 -90.91% Return on net worth % is reduced mainly due to reduction in other income compared to previous Financial year

Human Resources & Prevention of Sexual Harassment

During the year the Company maintained cordial relationship with the employees at all levels and provided an environment free of sexual harassment and discrimination on the basis of gender. The Human Resource is important asset of the Company. The training and developments needs of the employees has been addressed on continuous basis with time to time internal programmes. The Company has constituted Internal Complaints Committee pursuant to the Section 4 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 for protection against sexual harassment of women at work place. During the year there were no complaints of such manner.

Internal Control Systems and their adequacy

The Companys management is responsible for establishing and maintaining internal controls.The management has established adequate internal control systems with checks and balances observed at all levels, covering not only, financial transactions but other department functions as well. The Companys Internal Control framework is commensurate with the size and the nature of its operations. The internal control framework is essentially based on various policies, procedures and processes of different functional departments of the Company to achieve efficiency and effectiveness in operations and compliance with laws and regulations.

The Company has appointed reputed firms of Chartered Accountants to carry out internal audits. The audit is based on focused and risk based internal audit plan, which is reviewed each year after consulting the Audit Committee. The conduct of internal audit is aimed towards the review of internal controls and risks, accounting and finance, and human resources, and as per scope decided by the Audit Committee. The Internal Auditor periodically does testing of the internal controls and monitors the effectiveness of internal controls and provides assurance of the adequacy and effectiveness of the internal controls to the Audit Committee and Board of Directors.

Risks and its mitigation

The Company has an appropriate risk management framework comprising of risk governance structure and defined risk management processes. The risk management is a mechanism to identify risk, if any to business of the Company, which in the opinion of the Management need mitigation. The Audit Committee has oversight in the area of financial risks and controls. The Management has identified the following key risks considering the operations relating to the businesses of the Company and continuously monitor and review to mitigate the key risks in manner stated herein below:-

a) Business model related risk: - The revenue of the Company is based on cost plus mark up for contracts with customers. The wage cost is major risks which may not be acceptable to customers due to change in minimum wages requirements. This could expose the Company to risks like price pressure, excessive dependency on select customers. In order to mitigate the risk, Management of the Company make continues endeavour to keep appraised its customers about any change in cost factors well in advance.

b) Foreign currency fluctuation risk: - A substantial part of Revenue accrues in US Dollars and expenditure of the Company is incurred in the Indian Rupees. Therefore, there is risk exposure due to adverse fluctuation of exchange rate between the US Dollar and the Indian Rupees. In order to mitigate the risk the Management tracks foreign currency movements closely.

c) Financial risk:-The surplus funds of the Company are invested in fixed deposits with banks which is averse to risk related to volatility of interest rate. To mitigate the risk of interest rate the Management closely tracks movement of rate change with banks.

d) Credit risk: - It is exposed to risk of delay in collection from customers and to mitigate such risk predefined credit period is mentioned in contract entered and the same is followed for receiving payments from customers.

e) Operational risk: - The Company is exposed to risks of operational performance on account of costs. If the performance is lower than expected from the operators, it could have impact on profitability. So to mitigate such risks the Company had proper MIS in place.

f) Investment risk: - The Company through its wholly owned subsidiary HOVS LLC holds investments in quoted shares. The Company is exposed to the risk of value of investment getting effected due to performance of the investee company. To mitigate such risk the Management of the Company keeps constant liaison with investee company and the Board of the Company is kept informed about necessary information on timely basis.

g) Information Technology risk: - The evolving technologies throw challenges. The business operations are mostly dependent on systems involving computers/ servers which are prone to hacking due to advancement in technology. In order to mitigate the hacking risk, appropriate anti-hacking multi layered systems are installed.

h) Legal, Compliance risk: - There is a risk on account of dynamic legal environment. Understanding regulations and statutory compliance is vital to mitigate such risk. The Management has created a robust compliance framework and at times takes help from professional firms in order to ensure compliance.

i) Social Media risk: - Being listed entity, the Company is exposed to risks of any inappropriate discloser made by any employee in social media. In order to mitigate such risk the employees and Management including board members strictly adhere to the code of "Fair Disclosure Code" of the Company.

j) Business Continuity and Disaster Recovery risk:- To ensure continued delivery of services to customers irrespective of any disturbances the Company has implemented strong systems and processes across different locations so as to enabling it to take appropriate measures in respect of disaster recovery and business continuity.

k) Inflation risk: - The rising inflation and salaries along with high attrition among employees is a risk. The impact of this is hard to manage and to the extent possible, the Management uses technology, automation, incentives and good work environment to reduce its impact.

l) Cyber Security risk:- It poses risk for business in all aspects, right from phishing emails; vulnerable to hacking of IT systems; and clicking on links or downloading documents that turn out to be malware. Key steps to mitigate such risk is educating employees to be aware of unwanted mails, implementation of antivirus software and proper patch management along with implementation of a strong IT policy.

Opportunities, Outlook & Threats

We are positive to capture opportunities in growing emerging markets. The landscape of information technology has been continuously evolving and one has to keep pace with the changing trend in order to excel and tap significant growth opportunities.

With Management having strong domain knowledge and experience of leading business venture in technology space, the Company is well placed in building next generation technology, partnerships with the worlds technology leaders and has set up very well for the future.