Intrasoft Technologies Ltd Management Discussions.

U.S. Economy

The U.S. Economy Grew At 2.3% For The Year 2017, Significantly Higher Than 1.5% Growth Achieved In The Previous Year.The Economic Outlook For The Coming Years Is Expected To Be Positive, Based On Key Economic Indicators Like Gdp Growth, Decline In Unemployment Rate And Increasing Consumer Confidence. According To The Forecast Released At The Federal Open Market Committee Meeting Held On 20 March 2018, The Gdp Growth Rate Is Expected To Rise To 2.7% In 2018 And 2.4% In 2019.

The Policies Of President Trumps Republican Government Have Had A Favourable Impact On The Economy So Far. Corporate Tax Rate In America Has Been Slashed From 35% To 21% Effective From January 2018. Economists Expect That The Tax Cuts Could Help Boost Growth. President Trump Has Said That, The New Tax Plan Will Serve As "Rocket Fuel" For The Economy, Prompting Americans To Spend More And Businesses To Increase Investments.

Overall, The U.S. Economy Is Looking On Track To Continue On The Growth Trajectory. Buoyed By An Increasing Employment Rate, Rise In Housing Demand And An Overall Optimism In Industry And Financial Markets, Both Consumer And Investor Sentiments Are Scaling Higher. Consumer Confidence Is The Highest Since 2000, Unemployment Is The Lowest In 17 Years, And The Economy Has Added Jobs Every Month For More Than Seven Years.

The Impact Of Tax Cuts, Low Unemployment, And Marginally Increasing Wages Is Likely To Have A Positive Impact On Inflation In The Near Future. The Core Inflation Rate, Which Tracks The Price Changes For A Basket Of Products Excluding Volatile Food And Fuel, Has Been At 1.78%, Below The Fed Target Of 2% For 2017.

Consumer Spending Which Accounts For More Than Two-Thirds Of Total Economic Output Has Continued To Rise, Supported By Factors Including Low Unemployment And Rising Consumer Confidence, However Sales At Department Stores Have Dropped 1.1% In December 2017, A Key Month Of The Holiday Shopping Season, Indicating A Shift In Consumer Preferences Towards Online Stores.

GLOBAL E-COMMERCE

The Share Of E-Commerce Sales In Total World-Wide Retail Sales Has Increased To 10.1% In 2017 As Compared To 8.7% During Previous Year. The Worldwide Retail E-Commerce Sales Clocked Us$ 2.29 Trillion In 2017, Which Is A 23.2% Increase Over The Previous Year. As Per The Industry Analysts, It Is Projected To Grow Up To Us$ 4.48 Trillion By 2021. Asia Pacific Region Has Witnessed The Highest Growth Rate Expected To Be Around 30% In 2017. This Growth Is Driven By Very High Mobile Commerce Sales For The Region.

I Nternet Penetration Across The World Is Increasing At A Very Rapid Pace, Leading To Growing Population Of Digital Buyers. Worldwide Digital Buyers Grew By 9.4% To Reach 1.66 Billion In 2017, As Per The Industry Experts, It Is Expected To Reach 2.14 Billion By 2021.

Any Digital Channel During The Calendar Year, Including Online, Mobile And Tablet Purchases Source: Emarketer, June 2017

M-Commerce Accounted For 58.9% Of E-Commerce Sales. Consumers Have Started To Feel More Comfortable Making Purchases On Their Smartphones Resulting In 40% Rise In Global M-Commerce Sales To Us$ 1.4 Trillion For The Year 2017. Markets With Significant Mobile Spending Include China, Japan, South Korea, The Uk And The U.S.

THE U.S. E-COMMERCE Industry

Ni The Year 2017, The U.S. Online Retail Sales Grew By 16% To Us$ 454 Billion, This Was The Highest Growth Rate Since 2011. The Major Factors Contributed For This Growth Are Strong Broad-Based Retail Market Growth And Shifting Pattern From Offline To Online Shopping.

E-Commerce Comprised 13% Of Total Retail Sales In 2017, When Factoring Out Sale Of Items Not Normally Purchased Online, Such As Fuel, Automobiles And Sales In Restaurants. This Is A Significant Increase From 11.6% Achieved In 2016 And Doubled From 6.4% In 2010.

2018 TOP 1000 RETAILERS The Report Of The Internet Retailers Includes A List Of Top 1000 Retailers In North America And The Report Provides Current E-Commerce Trends Including In-Depth Analysis. Ni The 2018 Guide, Internet Retailer Has Rebased The Rankings, And Added Many More Companies That Were Not Included In The Rankings Till Last Year. The Retailers Ranked In The Report Account For Roughly 92% Of The 2017 Online Retail Sales In The U.S. And Canada. The Largest Groups In The Top 1000 Are The 397 Retailers That Are E-Commerce Companies. Web-Only Retailers Increased Their Sales By 20.6% In 2017 Over 2016. 123Stores Ranked #231 In The Internet Retailers Top 1000 Guide For 2018 And Outpaced The Growth For Web-Only Retailers And The Overall Us E-Commerce Industry.

Industry Outlook

The Entire World Is Today Witnessing A Shift In The Retail And E-Commerce Landscape. In 2017, Retail E-Commerce Sales Worldwide Reached US$ 2.30 Trillion And M-Commerce Accounted For 58.9%. Current Retail Trends Show That 51% Of Americans Prefer Online Shopping, With E-Commerce Growing 23% Year-Over-Year And Is Expected To Grow At An Even Faster Rate As Brands Embrace The Power Of Voice Search And Omni-Platform/Omni-Device Options. Voice Assistants Are Already Being Used To Make Purchases By 40% Of Millennials, Which Is Expected To Exceed 50% By 2020. This Transformation Of The Digital Retail Landscape Will Only Continue To Grow As More Consumers Integrate Digital Devices Into Their Shopping Habits. Technology Will Continue To Transform The Lives Of Humans. As AI-Powered Chat-Bots Become Even Smarter, The Rise Of Artificial Intelligence Chat-Bot Interfaces Will Continue. From Virtual Personal Shoppers To Personal Recommendation Technology Powered By AI Software, The Future Of Retail Will Be More Personalized.

Intrasoft Technologies Limited – Overview

Intrasoft Is A Leading Online Multi-Channel Retailer And Has Significant Presence Across Major Online Marketplaces Such As Amazon, Ebay. Com, Rakuten.Com, Sears.Com, Jet.Com, Newegg Etc. In Addition, The Company Also Sells Products Through Its Own Web Portal. The Company Offers Products Under Various Categories, Such As Furniture, Patio, Lawn And Garden; Musical Instruments And Gadgets; Home Improvements And Art Crafts, Kitchen Dining And Appliances; Toys, Games And Baby Products; Sports And Outdoor, And Others.

123Stores Has Been Ranked 231st Amongst The Largest Online Retailers In U.S. As Per Re-Based Annual Internet Retailer Top 1000 Guide For 2018, This Is The 5th Consecutive Year That 123Stores Has Featured In The List Of Largest Online Retailers. Whilst Online Retailing In U.S. Grew By 16%, 123Stores Grew At 31% During 2017. As The Company Continues To Invest In Technology To Provide Customers A Better Shopping Experience, The Focus On Market Share Growth Has Yielded Results.

A Wide Product Range, Attractive Pricing, Speedy And Convenient Delivery To Customers Backed By Superior Technology And Efficient Supply Chain Have Resulted In Our Strong Sales Growth. 123Stores Was Ranked 689 On The 2017 List Of Americas Fastest Growing Private Companies, As Compared To 1641 On The 2014 List.

Business Performance

We Had A Remarkable Year As We Continued Our Momentum From Last Year And Grew By 30% In Constant Currency And 25% In INR Terms, While Maintaining Our Positive Customer Ratings And Strengthening Our Position In The Market. This Has Been Driven By The Scalability Of Our Technology Platform, Our Data Driven Decision Making And Our Focus On Improving Our Service Level For Our Vendors. The Result Is An Increase In Our Wallet-Share Of The Vendors.

In The Burgeoning World Of E-Commerce That Is Dominated By Global Online Marketplaces, Intrasoft Play A Crucial And Critical Role – That Of Bridging The Gap Between Marketplaces That Are Customer-Focused And Vendors That Are Product Focused. Through A Deep Understanding Of Customers Buying Patterns That Has Been Enabled By Our Technology Platform And The Demand Forecasting, Intrasoft Ensures There Is A Wide Range Of The Product Selection For Marketplaces Customers. On The Other Side, Intrasoft Has A Developed Lasting Vendor Relationships That Assure Consistency In Supply And Best Prices. Intrasofts Expertise Thus Enables To Connect Demand With Supply. With A Wide And Well-Entrenched Network Using Top Logistic Partners, The Company Ensures Timely Fulfilment Of Each Order.

It Is Our Efficiency, Our Strong Technology Backbone And Our High Service Levels For Our Vendors That Makes Us One Of The Most Attractive Online Retailers To Look Out For, As The US Retail Market Continues With Its Shift From Online To Offline, Opening Up Yet Bigger Opportunities For Growth For Sellers.

Financial Highlights

FY 2017-18 Continues To Be Another Record Breaking Year For Intrasoft In Terms Of Revenues.

Consolidated Profit And Loss For The Year Ended 31 March 2018

( Amount In Lacs)

Particulars

Year Ended 31 March 2018

Year Ended 31 March 2017

Revenue From Operations

116,986.78

93,901.06

Cost Of Goods Sold

96,673.62

74,747.62

Incl. Shipping
Gross Profit

20,313.16

19,153.44

Sales & Marketing Expenses

14,952.79

13,573.23

Employee Benefit Expenses

2,039.06

2,341.25

General & Administrative

1,417.83

1,491.62

Expenses
Earnings/(Deficit) From

1,903.48

1,747.34

Operations
Other Income )Net(

510.88

674.54

Earnings Before Interest,

2,414.36

2,421.88

Tax, Depreciation &
Amortisation
Depreciation & Amortisation

195.57

187.44

Earnings Before

2,218.79

2,234.44

Interest & Tax
Finance Costs

264.33

355.53

Profit Before Tax PBT

1,954.46

1,878.91

Tax Expense

581.31

550.63

Profit After Tax (Pat)

1,373.15

1,328.28

GROWTH DRIVERS

Technological Advancement

The Rapid Improvement And Innovation In Internet And Mobile Technologies Have Widened The Horizon For E-Commerce. Machine Learning And AI Are Creating A Better Customer Experience As Behaviour-Based Analysis Leads To Personalisation And Data Driven Optimisation For E-Commerce Customers. As Consumers Have Started To Speak With Their Devices And Use Voice To Interact )Conversational AI(, Retailers Will Have To Respond By Changing The Ways They Communicate.

M-Commerce

The Adoption Of Latest Mobile Technologies Is Playing A Big Role In The Growth Of E-Commerce. According To Hootsuite, Mobile Internet Penetration Had Grown To 4.96 Billion Mobile Internet Users Against A World Population Of 7.48 Billion In April 2017. M-Commerce Is Expected To Make Up 39.6% Of E-Commerce Sales And 4% Of Total Retail Sales In 2018 And Will Rise To Nearly Half Of E-Commerce Sales By 2020. In 2018 There Will Be 155.5 Million Mobile Buyers, Up 5.6% Over Last Year. And 64.7% Of Those Mobile Buyers Will Use A Smartphone To Make The Purchase.

Increased Range Of Payments

Mobile Payments Have The Largest Share Of The Payment Market Share. As Per Industry Experts, It Is Estimated That Payment Transaction Will Reach US$ 142 Billion By 2019. There Has Also Been A High Growth Of Online Wallets And Crypto Currencies And Other Digital Currencies That Are Making It Possible To Trade Without Worrying About Exchange Rates And Country-Specific Financial Issues. The Advancement Of Simplified Payment Technology On Mobile, Including Fingerprint And Facial Recognition, Will Boost The Percentage Of Transactions Completed On Mobile.

Risk Management

Seasonal Business – As The U.S. Festive Season Falls In The Third Quarter Of Financial Year, The U.S. E-Commerce Sales Activity Is Concentrated In The Third Quarter. Accordingly, The Companys Revenue Generation Is Concentrated Towards The Third Quarter Of The Financial Year.

Mitigation

The Company With Its Investments In Proprietary Technology Development Has Built A Robust Order Processing System And Delivery Engine. This Makes The Whole Platform Scalable And Seamlessly Deliver Manifold Orders, As Demand Increases During The Holiday Season. Moreover, Coupled With A Better Demand Forecasting Engine, The Company Is Able To Procure More Judiciously And Optimise Inventory Management. The Inventory Turns Has Increased From 13.4 Times During The End Of FY17 To 16.3 Times As Of FY18 On A Trailing 12-Month Basis.

Managing Growth Through Improved Processes And Systems Could Be A Challenge.

Mitigation

The Tech Platform Has Been Strengthened And There Is Adequate Inventory Build-Up To Cater The Demand In The Forthcoming Quarters. Having Optimised The Inventory Efficiency During FY18, The Focus Now Is On Increasing The Vendors Credit And Generating Cash Flows Through Operations. This Should Strengthen The Balance Sheet To Fuel Growth In Future. Additionally, The Recent Tax Reforms By The U.S. Government Will Provide A Stimulus For Long Term Growth And Will Aid To Add New Products From Our Vendors And Increase Our Wallet Share Amongst Our Vendors.

Operational Challenges In Building Up A Large Vendor Network.

Mitigation

The Company Invests A Lot Of Resources To Expand And Nurture The Vendor Network. The Company Has A Dedicated Team To Manage Vendors And Also Explores All Opportunities To Participate In Industry Events Like Trade Shows, Marketplaces Promotional Events, Conferences, Etc. These Initiatives Along With Consistent Positive Ratings And Robust Technology Platform Would Support The Company To Grow The Vendor Network To Achieve Higher Scale.

Human Resources Management

The Company Realises That Its Employees Are The Most Valuable Assets And Constantly Endeavours To Provide The Best Work Culture And Environment. The HR Team Helps In Building Teams Of Talented And Motivated Individuals. Through Regular Investments In Training Initiatives, The Company Provides A Platform To Nurture Personal Development And Skill Enhancement Of Employees.

The Success Of The Company Is A Result Of The Talented, Skilled And Hard-Working Team Of Professionals. The Approach Has Been To Hire The Right Employees And Provide Them An Environment To Grow And Learn And To Keep Them Motivated.

The Company Has Put In Place A Rewards And Recognition Programme To Recognise And Appreciate The Talented Employees. The Efforts Of The Company Have Been Fruitful As Can Be Seen From The Growth In Revenue Per Employee And Also The Company Can Be Considered Amongst The Best Tech Companies In Terms Of Employee Productivity. The Company And Its Subsidiary Had 144 Employees On Its Rolls As On 31 March 2018.

Internal Controls

The Company Has Put In Place An Adequate System Of Internal Controls To Ensure Robust Processes Are In Place. Internal Audit Is A Critical Pillar Of The Internal Control Strategy And Is Conducted Regularly To Check And Verify Whether All Systems And Processes Are Complying With Applicable Statutes And Adequate In Safeguarding The Assets From Unauthorised Use Or Are Losses. An Audit Committee Has Been Set Up To Keep A Check On The Existing Systems And Take Corrective Actions As Required. The Management Also Regularly Reviews All Vital Processes And Control Systems Which Further Strengthen The Organisation.

The Emphasis On Internal Controls Is Implemented Across All Functions And Processes. All Measures Are Taken To Ensure That The Controls Put In Place Are Both Adequate And Commensurate With Size And Nature Of The Companys Operations.