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 a) Software and IT Enabled Services and b) Environment Protection Solutions. 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, 2018 stood at Rs.29.01 lakhs as compared to Rs.18.22 lakhs as at March 31, 2017. Net carrying amount as at March 31, 2018 stood at Rs.138.82 lakhs as compared to Rs.168.06 lakhs as at March 31, 2017.
2 Intangible Assets Net carrying amount as at March 31, 2018 stood at Rs.2.38 lakhs as compared to Rs.5.96 lakhs as at March 31, 2017. Net carrying amount as at March 31, 2018 stood at Rs.2.38 lakhs as compared to Rs.63.12 lakhs as at March 31, 2017.
3 Investments in subsidiaries and associate & Other investments Investment in subsidiaries stood at Rs.6607.77 for the year March 31, 2018 as well as March 31, 2017. Investment in associate is Rs.2031.97 lakhs as at March 31, 2017.
On divestment of investment in associate the fair value of this investment as on March 31, 2018 is Rs.98724 lakhs.
4 Trades Receivables Net Receivables as at March 31, 2018 amounted to Rs.411.64 lakhs as compared to Rs.393.67 lakhs as at end of previous year March 31, 2017. Net Receivables as at March 31, 2018 amounted to Rs.431.25 lakhs as compared to Rs.433.81 lakhs as at end of previous year March 31, 2017.
Trade receivables as a percentage of revenue from operations is 33 % as at March 31, 2018 as against 29 % as at March 31, 2017. Trade receivables as a percentage of revenue from operations is 33 % as at March 31, 2018 as against 29 % as at March 31, 2017.
5 Cash and cash equivalents Cash and cash equivalents stood at Rs.372.65 lakhs which is more by Rs.173.05 lakhs compare to last year. Cash and cash equivalents stood at Rs.496.56 lakhs which is more by Rs.230.74 lakhs compare to last year.
6 Total Current Assets As at March 31, 2018 current liabilities amount to Rs.857.10 lakhs as compared to Rs.1627.92 lakhs as at March 31, 2017. As at March 31, 2018 current liabilities amount to Rs.1097.10 lakhs as compared to Rs.1746.33 lakhs as at March 31, 2017.
7 Total Equity Total equity stood at Rs.7911.22 lakhs as at March 31, 2018 as compared to Rs.8790.28 lakhs as at March 31, 2017. Total equity stood at Rs.71629.61 lakhs as at March 31, 2018 as compared to Rs.3403.22 lakhs as at March 31, 2017.
8 Equity share capital & Securitiespremium reserve: During the year, Share Capital and Securities Premium were Rs.1253.57 lakhs and Rs.6246.48 lakhs respectively. During the year, Share Capital and Securities Premium were Rs.1253.57 lakhs and Rs.6246.48 lakhs respectively.
9 Retained earnings Retained earnings as at March 31, 2018 amounting to Rs.2822.85 lakhs. Retained earnings as at March 31, 2018 amounting to Rs.205.18 lakhs.
10 General Reserves During the year there is no change in amount of general reserve from the previous year ended on March 31, 2017 which was Rs.19541 lakhs. No change same as previous year ended March 31, 2017 which was Rs.19541 lakhs
11 Capital Redemption Reserve During the year there is no change in CRR amount of Rs.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 Rs.6.30 lakhs which was created on account of buy-back of equity share capital in year 2009.
12 Total Other comprehensive income Other comprehensive income stood at Rs.4.27 lakhs for the current year compared to Rs.3.05 lakhs last year. Other comprehensive income stood at Rs.61014.55 lakhs for the current year compared to Rs.3.05 lakhs last year.
13 Trade payables Trade payables stood at Rs.74.51 lakhs current year compared to Rs.90.17 lakhs last year ended on March 31, 2017 Trade payables stood at Rs.86.41 lakhs current year compared to Rs.103.28 lakhs last year ended on March 31, 2017
14 Total Current Liabilities As at March 31, 2018 current liabilities amount to Rs.309.61 lakhs as compared to Rs.283.46 lakhs as at March 31, 2017. As at March 31, 2018 current liabilities amount to Rs.368.28 lakhs as compared to Rs.1318.72 lakhs as at March 31, 2017.
15 Sale of services For the year ended March 31, 2018, Revenue from Operations was Rs.1254.55 lakhs For the year ended March 31, 2018, Revenue from Operations was Rs.1359.95 lakhs
16 Operating Profit Reported Profit/ (Loss) before exceptional items and tax is of Rs.197.09 lakhs for the year ended March 31, 2018. Reported Profit/ (Loss before exceptional items and tax is of Rs.308.25 for the year ended March 31, 2018.
17 Exceptional items Exceptional expenses stood at Rs.1022.72 lakhs for the current year ended on March 31, 2018 Exceptional expenses stood at Rs.0.38 lakhs for the current year ended on March 31, 2018
18 Net Profit/ (Loss) for the year HOVS recorded a net loss of Rs.883.70 lakhs for the year ended March 31, 2018. Recorded a net profit of Rs.237.82 lakhs for the year ended March 31, 2018.
19 Total Comprehensive Income HOVS recorded a total comprehensive loss of Rs.882.47 lakhs for the year ended March 31, 2018. Recorded a total comprehensive income of Rs.61249.32 lakhs for the year ended March 31, 2018.

Revenues - standalone

Our total revenue in current year on a standalone basis decreased to Rs.1360.86 Lakhs from Rs.1470.66 Lakhs in the previous year. Our software export revenues aggregated to Rs.1254.55 Lakhs, from Rs.1364.51 Lakhs in the previous year.

Revenues - consolidated

Our total revenue in current year on a consolidated basis increased to Rs.1780.27 Lakhs from Rs.1644.00 Lakhs in the previous year. Our Income from operations aggregated to Rs.1359.95 Lakhs, from Rs.1543.21 Lakhs in the previous year.

Profits - standalone

Employee Benefit Expenses were at Rs.884.89 Lakhs for year ended March 31, 2018 and were at Rs.995.85 Lakhs for the year ended March 31, 2017. Other expenses were at Rs.269.12 Lakhs for year ended March 31, 2018 and were at Rs.284.88 Lakhs for the year ended March 31, 2017.

The EBITDA amounted to Rs.206.85 Lakhs as against Rs.189.93 Lakhs in the previous year.

The exceptional expenses amounted to Rs.1022.72 Lakhs for the current year.

The Loss for the year was Rs.883.70 Lakhs, as against Profit of Rs.113.04 Lakhs in the previous year.

Total Comprehensive Loss for the year Rs.882.47 Lakhs as against total comprehensive Income Rs.116.09 Lakhs in the previous year.

Profits - consolidated

Employee Benefit Expenses were at Rs.911.96 Lakhs for year ended March 31, 2018 and were at 1005.84 Lakhs for the year ended March 31, 2017.

Other expenses were at Rs.428.02 Lakhs for year ended March 31, 2018 and were at Rs.529.46 Lakhs for the year ended March 31, 2017.

The EBITDA amounted to Rs.440.29 Lakhs as against Rs.108.70 Lakhs in the previous year.

The Profits for the year is Rs.237.82 Lakhs, as against Loss of Rs.14555.85 Lakhs in the previous year.

Total Comprehensive Income for the year Rs.61011.50 Lakhs as against total comprehensive Loss of Rs.14552.80 Lakhs in the previous year.

Human Resources & Prevention of Sexual Harassment

The Human Resource is important asset of the Company. The Company maintained cordial relationship with the employees at all levels and provides and environment free of sexual harassment and discrimination on the basis of gender. 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 internal control framework is essentially based on various policies, procedures and process of different functional departments of the Company to achieve efficiency and effectiveness in operations and compliance with laws and regulations.

The Internal Auditor periodically do testing of the internal controls and monitors the effectiveness of internal controls and provide assurance of the adequacy and effectiveness of the internal controls to the Audit Committee and Board of Directors.

Risks and its mitigation

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 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 in continues endeavour 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 are 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 been 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 had 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 adheres 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 possess 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 aware of unwanted mails, implementation of antivirus software and proper patch management along with implementation of a strong IT policy. Please refer to Note No. 32 & 29 respectively of Consolidated and Standalone financial statements for more detail on risk management and mitigation.

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 leadersand has set up very well for the future.