Indus Networks Ltd Management Discussions

INDUS NETWORKS LIMITED ANNUAL REPORT 2009-2010 MANAGEMENT DISCUSSION AND ANALYSIS 1. Indian IT 2009-10 Industry Outlook: The year 2009-2010 was been very challenging for the entire Indian it services industry. With customer it spending staying mostly flat or showing a decline, the focus among client organizations was on driving efficiencies into their existing it systems, and pursue projects that higher levels of guaranteed return on investments and quicker payback. According to NASSCOM, the IT industry growth rate for financial year 2009- 10 has been estimated at 5.5 percent. However, for the next financial year, 2010-11, NASSCOM has given healthier projections for it services exports to grow between at 13 percent to 15 percent. They have forecasted the Indian market to grow between 15 percent to 17 percent. Customers perception of outsourcing has undergone a distinct and perceptible change.. They are increasingly looking at outsourcing as a tool to meet their ever changing and dynamic business environment. It budgets are subject to high levels of scrutiny to ensure alignment to their overall business strategy. Customers are seeking partners with mature processes, financial stability and a demonstrated track record in not only delivering cost savings but also those who show sustained and continuous improvements in productivity. 2. Opportunities and Threats: In every challenge lies an opportunity. Todays enterprises are looking for solutions that can help them reduce their operational cost and derive maximum value from their it spend. According to industry analysts like forrester, enterprises are looking for help making the move from a time & material model of engagement to a managed services model which not only help in driving down costs but also ensures that the projects are more outcome oriented. The industry has been talking about this changed business, engagement and pricing models for some time now. However, they are fast becoming a reality. Further, enterprises are prioritizing at projects that involve application consolidation / rationalization and those which are collaborative and high impact solutions that enhance productivity. In the customer segment of software product companies who outsource their product development to offshore outsourcing companies, there has been a growing preference for engagement models that align their costs with activity levels (output). We have seen an increased level of activity among product companies that are relatively new to off shoring - driven by the need to compete in a challenging economy. The financial upheaval that hit the developed markets last year threw up a risk which the industry was not really exposed to earlier i.e. customer sustainability. Constantly changing business priorities, mergers, acquisitions and consolidations of companies require it service providers to be quick and deliver according changing situations. Companies which are slow to react will get negatively impacted by risks on account of failed projects, unhappy customers and in extreme cases customer delinquencies. Further, with costs of delivery from near shore locations closing up with that offshore, emergence of these centers coupled with protectionist steps taken by developed economies faced with the recession could threaten the growth prospects of this sector. 3. Business Outlook: The Company during the year 2009-2010 has achieved a turnover of Rs. 9099.75 lakhs. During the current year, the Company is expected to achieve better results with an increased growth rate in comparison to previous year. 4. Internal Controls and their adequacy: The Company has suitable internal control systems and processes in place for the smooth conduct of its businesses. The Company maintains a system of internal controls designed to provide reasonable assurance regarding the Effectiveness and efficiency of operations and for safeguarding the assets of the Company and for ensuring appropriate recording and reporting of financial information for ensuring reliability of financial controls and for ensuring compliance of applicable laws and regulations. 5. Discussion on Financial Performance with respect to Operational Performance: A. Financial Conditions: Share capital:- The authorized share capital of the company as at 31st March 2010 is Rs.2500 lakhs divided into 250 lakhs Equity shares of face value of Rs.10/- each. The Share Capital of the Company consists of only Equity Shares. As on March 31, 2010, the issued, subscribed and paid up capital of the Company stands at Rs. 650 lakhs consisting of 65,00,000 Equity Shares of Rs.10/- each fully paid-up. Reserves & Surplus: The Reserves and Surplus of the Company as an 31st March 2010 stands at Rs.911.47 lakhs. Loan funds: In Rs Lakhs Particulars 2009-10 2008-09 Secured Loan Nil 28.98 Unsecured Loan 5464.37 3268.90 Total 5464.37 3297.88 Fixed assets: Gross Block of Fixed Assets stood at Rs. 1726.31 lakhs and the net block stood at Rs. 873.83 lakhs as at 31st March 2010 compared to Rs. 2646.547 lakhs and Rs. 659.321 lakhs as at 31st March 2009 respectively. Investments: Investments as at 31st March, 2010, amounted to Rs. 1145.00 lakhs as against Rs. 0.99 lakhs as at 31st March, 2009. Current Assets: Sundry debtors Increased from Rs. 2760.57 lakhs as on March 31, 2009 to Rs.7030.98 lakhs as on March 31, 2010 Cash and Bank Balances Decreased from Rs. 30.34 lakhs to Rs2.42 lakhs. Current liabilities and provisions: Current liabilities and provisions have increased from Rs. 10538.06 lakhs as on March 31, 2009 to Rs. 6185.23 lakhs as on March 31, 2010. B. Results of operations Income: Income from operations for the year was Rs. 9099.75 lakhs against Rs.4032.48 lakhs recorded in the previous year which represents a growth rate in income of 3.84%. Expenditure: The manpower cost for the year was Rs. 39.54 lakhs as against Rs. 72.26 in the previous year. Selling and administrative expenses for the year was Rs.263.54 lakhs, as compared to Rs 196.98 lakhs incurred in the previous year. The finance expenses increased from Rs. 9.11 lakhs in the previous year to Rs. 23.46 lakhs for the year ended March 31, 2010. The company provided Rs. 852.48 lakhs for depreciation compared to Rs.1987.21 lakhs that was provided in the previous year. The company has made a provision for current tax of Rs.3.75 lakhs and fringe benefit tax of Rs.Nil lakhs for the year ended March 31, 2010. Other Income: Other income earned was Rs. 9.66 lakhs against Rs. 0.006 lakhs earned in the previous year. Net Profit: During the year the Company incurred a Net Profit of Rs 1.51 lakhs as against net loss Rs. 135.88 lakhs recorded in the previous year. Liquidity: The liquidity of the company was comfortable throughout the year 6. Segment wise performance and Geographical Information: The Company provides IT Services globally across various industry and geographical segments. The industry wise, the geographical wise customers risks will differ. Due to stiff competition prevailing in the market, there is marginal revenue growth in manufacturing and other industrial categories while the trend is not so in software and IT enabled services. In terms of geographical segments, revenue growth on export front has shown stable growth although the domestic revenues have considerably fallen compared to previous year. A detailed segment wise profitability statement is presented elsewhere in the report. In view of the emerging competitive trends, despite the spurt in demand for IT products and services, the margins are falling, requiring the company to cut down operating costs and adapt improvements in the range of services to sustain and thrive in the market. 7. Human Resources Development: Your directors are happy to report that the industrial relations have been extremely cordial at all levels throughout the year and your Company continues to develop industry leading HR practices and has conducted a number of initiatives for recruiting, training and retention of high quality manpower resources.