IRIS Business Services Ltd Management Discussions

Overview

The global growth proved surprisingly resilient despite higher policy rates. Economic activity outpaced expectations in most countries, and employment, in particular, remained robust, even as inflation retreated significantly.

The global economy registered a decline in growth from 3.5% in 2022 to an estimated 3.1% in 2023. Asia is expected to contribute significantly to global growth in FY 2023-24, despite the weaker-than-expected recovery in China, sustained weakness in USA, rising energy costs in Europe, weak global consumer sentiment due to the Ukraine- Russia war, and the Red Sea crisis resulting in increased logistics costs. A tightening monetary policy translated into increased policy rates and interest rates for new loans.

Inflation is edging down from multi-decade highs, with intermittent upticks. Financial market sentiments have been fluctuating with changing views about an early pivot by central banks in advanced economies (AEs). Growth in advanced economies is estimated to decline from 2.6% in 2022 to 1.5% in 2023 and further, 1.4% in 2024 as policy tightening takes effect.

Emerging markets and developing countries are projected to report a modest decline in economic growth from 4.1% in 2022 to 4.0% in 2023 and 2024. Emerging market economies (EMEs) are facing currency fluctuations amidst volatile capital flows.

The likelihood of lower interest rates has spurred rallies in equity markets, although uncertainty about the timing of interest rate reduction is reflected in bidirectional movements in the US dollar and sovereign bond yields. Global equity markets ended 2024 on a strong note, with major global equity benchmarks achieving double-digit returns. This outperformance was driven by a downturn in global inflation, a slide in the dollar index, declining crude prices, and higher expectations of rate cuts by the US Fed and other Central banks.

Global inflation is projected to decline steadily from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024 on account of a tighter monetary policy coupled with relatively lower international commodity prices. Core inflation is expected to decrease gradually, as inflation is not expected to return to its target until 2025 in most cases. The US Federal Reserve approved a much- anticipated interest rate hike that raised the benchmark borrowing costs to their highest in over 22 years.

Global headline inflation is expected to fall from an annual average of 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging markets and developing economies.

The pace of convergence toward higher living standards for middle- and lower- income countries has slowed, implying a persistence in global economic disparities.

Performance of major economies, 2023

GDP Growth %	Reported	Projections
	2023	2024	2025
World output	3.2	3.2	3.2
Advanced Economies	1.6	1.7	1.8
United States	2.5	2.7	1.9
United Kingdom	0.1	0.5	1.5
Europe Area	0.4	0.8	1.5
Japan	1.9	0.9	1.0
Canada	1.1	1.2	2.3
Emerging and developing economies	4.3	4.2	4.2
India	7.8	8.2	7.0
China	5.2	4.6	4.1
Russia	3.6	3.2	1.8
Saudi Arabia	-0.8	2.6	6.0

(Source: IMF Report)

Outlook

Asia is poised to continue leading global growth in 2024-25. Inflation is expected to ease gradually as cost pressures decrease; headline inflation in G20 countries is projected to decline. Amid high inflation and monetary tightening, the global economy has shown resilience as the growth is expected to be stabilised at previous levels over the next two years (Source: World Bank).

The baseline forecast is for the world economy to continue growing at 3.2% during 2024 and 2025, at the same pace as in 2023. A little acceleration in advanced countries—where growth is predicted to climb from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025—will be countered by a modest slowdown in emerging market and developing economies, from 4.3% in 2023 to 4.2% in both 2024 and 2025. The global growth projections for the next five years are at its lowest in decades, at 3.1%.

Global inflation is expected to slowly drop, from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced nations returning to their inflation objectives sooner than emerging market and developing economies.

Core inflation is expected to drop more gradually. Despite large interest rate rises by central banks to preserve price stability, the global economy has remained unexpectedly robust.

Overview

The Indian economy was estimated to grow 8.2% in FY 2023-24 as against 7.2% in FY 2022-23 primarily driven by improved performance in the mining and quarrying, manufacturing, and certain segments of the services sector. Along with being one of the fastest growing economies in the world, India ranked fifth in the world in terms of nominal GDP for 2023 according to IMF forecasts (World Economic Outlook -April 2024 Update). India overtook the UK to become the fifth-largest economy in the world in 2022 and has maintained its position since then. In terms of purchasing power parity ("PPP"), India is the third largest economy in the world, only after China and the United States.

The Indian rupee displayed relative resilience compared to the previous year as the rupee depreciated 0.8% from H82.66 against the US dollar on the first trading day of 2023 to H82.18 on the last trading day of December 2023.

The International Monetary Fund (IMF), in its April 2024 economic outlook update, revised its India economic growth estimate

in real terms for Fiscal 2024 to 7.6% from the previous 6.3% estimate in October 2023, citing momentum from resilient domestic demand. Further, the growth forecast for Fiscal 2025 also witnessed an increase of 6.5% from the previous 6.3% forecast in October 2023.In the 11 months of FY 2023-24, the CPI inflation experienced an average of 5.4% with rural inflation exceeding urban inflation. Food inflation experienced a spike on account of lower production and erratic weather. Core inflation, on the other hand, averaged at 4.5%, down from 6.2% in FY 2022-23, moderated by softening global commodity prices.

Indias foreign exchange reserves reached a historic peak of USD 645.6 billion.

The credit quality of Indian companies remained robust from October 2023 to March 2024 on account of deleveraged Balance Sheets, sustained domestic demand, and government-led capital expenditure. Rating upgrades continued to surpass rating downgrades in the second half of FY 2023-24. UPI transactions in India witnessed a record 56% growth in volume and 43% growth in value in FY 2023-24.

Growth of the Indian economy

	FY21	FY22	FY23	FY24
Real GDP growth (%)	-6.6%	8.7	7.2	8.2
Growth of the Indian economy quarter by quarter, FY 2023-24
	Q1FY24	Q2FY24	Q3FY24	Q4FY24
Real GDP growth (%)	8.2	8.1	8.4	7.8
(Source: Budget FY 2023-24; Economy Projections, RBI projections, Deccan Herald) Growth of the Indian economy quarter by quarter, FY 2024-25
	Q1FY25(P)	Q2FY25(P)	Q3FY25(P)	Q4FY25(P)
Real GDP growth (%)	7.2	6.8	7.0	6.9

(Source: Budget FY24; Economy Projections, RBI projections)

Indias monsoon in 2023 hit a five-year low, with August marking the driest month in a century. Despite receiving only 94% of its long-term average rainfall from June to September, wheat production estimatedly recorded 114 million tonnes in the 2023-24 crop year due to higher coverage. Rice production was anticipated to decrease to reach 106 million metric tons (MMT) in comparison to 132 million metric tonnes in the previous year. Total Kharif pulses produced in FY 2023-24 stood at an estimated 71.18 Lakh metric tonnes, which is lower than FY 2022-23 due to climatic conditions. As per the first advance estimates of national income released by the National Statistical Office (NSO), the manufacturing sector output is projected to have grown 6.5% in FY 202324 compared to 1.3% in FY 2022-23. The Indian mining sector experienced an estimated growth of 8.1% in FY 2023-24 compared to 4.1% in FY 2022-23. Financial services, real estate, and professional services grew a projected 8.9% in FY 202324 compared to 7.1% in FY 2022-23.

Real GDP or GDP at constant prices increased from to H160.71 Lakh cr in FY 2022-23 (provisional GDP estimate

released on 31^st May, 2023) to an estimated H173.82 Lakh cr in FY 2023-24. Growth in real GDP during FY 2023-24 stood at 8.2% compared to 7.2% in FY 2022-23. Nominal GDP or GDP at current prices was estimated at H295.36 Lakh cr in FY 2023-24 as compared to the provisional FY 2022-23 GDP estimate of H269.50 Lakh cr. The gross non-performing asset ratio for scheduled commercial banks improved from 4.1% as of March 2023 to 2.8% as of March 2024.

Indias exports of goods and services were expected to reach USD 900 billion in FY 2023-24 compared to USD 770 billion in the previous year despite global headwinds. Merchandise exports were expected to expand between USD 495 billion and USD 500 billion, while services exports were expected to touch USD 400 billion during the year. Indias net direct tax collection increased 17.7% to 719.58 Lakh cr in FY 2023-24. Gross GST collection amounted to H20.2 Lakh cr, marking an 11.7% increase, with an average monthly collection of H1,68,000 cr, surpassing the previous years average of H1,50,000 cr.

The agriculture sector projected grew 1.8% in 2023-24, which is lower than the

4% expansion recorded in FY 2022-23. Trade, hotel, transport, communication, and services related to the broadcasting segment are estimated to grow at 6.3% in 2023-24, a contraction from 14% in FY 2022-23. The Indian automobile segment was expected to close FY 2023-24 with a growth of 6-9%, despite global supply chain disruptions and rising ownership costs. The construction sector was expected to grow 10.7% year-on- year from 10% in FY 2022-23. Public administration, defense and other services were projected to grow by 7.7% in 2023-24 as against 7.2% in FY 2022-23. The growth in gross value added (GVA) at basic prices was pegged at 6.9%, down from 7% in FY 2022-23.

India entered a pivotal phase in its S-curve, marked by rapid urbanisation, industrialisation, increase in household incomes, and rising energy consumption. The country emerged as the fifth largest economy with a GDP of USD 3.6 trillion and a nominal per capita income of H1,23,945 in 2023-24.

In FY 2023-24, Indias Nifty 50 index experienced a 30% growth, propelling

Indias stock market to become the fourth largest globally with a market capitalisation of USD 4 trillion. Foreign investment in Indian government bonds saw a significant increase in the final quarter of 2023. India ranked 63^rd out of 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Moreover, Indias unemployment rate in urban areas declined to 6.7% in Jan-Mar 2024 according to NSSO from 6.8% during the same quarter last year, It was recorded at 6.6% in both the April-June 2023 quarter and July-Sept 2023 quarter, and 6.5% for Oct-Dec 2023 quarter.

Outlook

India successfully tackled its global economic challenges in 2023 and is poised to continue as the worlds fastest-growing major economy backed by a growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to reach USD 4.34 trillion by 2025.

Union Budget FY 2024-25

The Interim Union Budget 2024-25 continued to prioritise capital expenditure spending, comprising investments in

infrastructure, solar energy, tourism, medical ecosystem, and technology. In 2024-25, the top 13 ministries in terms of allocations accounted for 54% of the estimated total expenditure. Of these, the Ministry of Defence received the highest allocation at H6,21,541 cr, constituting 13% of the total budgeted expenditure of the central government. Other ministries with high allocation included Road transport and highways (5.8%), Railways (5.4%), and Consumer Affairs, food, and public distribution (4.5%).

(Source: Times News Network, Economic Times, Business Standard, Times of India)

Global SaaS market overview

The global Software as a Service (SaaS) market size was pegged at USD 273.55 billion in 2023 and is anticipated to rise from USD 317.55 billion in 2024 to USD 1,228.87 billion by 2032, growing at a CAGR of 18.4% during the forecasted period - 2023 to 2032. North America accounted for a market value of USD 131.18 billion in 2023.

The Software-as-a-Service (SaaS) market involves delivering software applications over the internet on a subscription basis.

In this model, software providers host and maintain the software, allowing users to access it remotely. SaaS applications encompass a wide range of functionalities, including customer relationship management (CRM), enterprise resource planning (ERP), human resource management (HRM) and collaboration tools, among others.

The growth of the SaaS market can be attributed to several factors, such as the rise in adoption of public and hybrid cloud- based solutions, integration with other tools and centralised data-driven analytics. SaaS solutions have rapidly evolved with the integration of technologies such as Machine Learning (ML) and Artificial Intelligence (AI), enhancing operational efficiency and intelligence across businesses.

In 2023, North America accounted for 49% of the global SaaS market share. Meanwhile, the Asia Pacific region is anticipated to exhibit the fastest compound annual growth rate from 2023 to 2030, with China and India leading the way on account of an increasing demand for outsourcing.

Globally, the United States is expected to be the highest revenue generating country, projected to reach USD150.7 billion in 2024. SaaS adoption has grown globally by 40% over the past year, with plans to continue this growth trend in the coming years.

(Sources: Fortune Business Insights, Verified Market Research, Statista, Your Story)

Global RegTech market overview

The global RegTech market size reached USD 13.2 billion in 2023. Key factors driving the growth of this market include the increasing occurrence of fraudulent activities like money laundering and phishing, the rising adoption of online payment modes, and the growing collaboration between national regulators and financial institutions.

The United States is expected to comprise the highest market share of the global RegTech market with USD 15.6 billion by the end of 2032, accounting

for over 30% of the worldwide sales on account of increased investment transactions. Besides, risk and compliance management, as well as regulatory process automation, are highly valued in the nation.

RegTech leverages cloud computing technology through software-as-a-service (SaaS) to help businesses comply with regulations efficiently. It aids in regulatory monitoring, reporting and compliance, offering various tools to examine online transactions in real-time to identify issues or irregularities in the digital payment sphere. RegTech automates a wide variety of tasks, including employee surveillance, compliance data management, fraud prevention and audit trail capabilities.

The United States is projected to comprise the highest market share, reaching USD 15.6 billion by the end of 2032 and accounting for over 30% of the global sales, which is driven by increased investment transactions.

The integration of AI with RegTech is a key market trend. The adoption of AI enhances the identification of patterns and similarities even in unrelated sets of data, which is crucial for deriving insights from these data sets. Furthermore, the development of digital economies across the Asia-Pacific (APAC) region is expected to significantly boost the growth

of RegTech. The internet economy in this region has been steadily expanding.

In Southeast Asia, it more than tripled over the last four years, reaching USD 100 billion in 2019, with Malaysia,

Thailand, Singapore, and the Philippines experiencing growth rates of 20-30% per year. The adoption of digital payment technologies has been consistently rising in the region, and non-cash transactions are anticipated to account for nearly one in every two dollars spent by 2025.

(Sources: Imarc Group, Future Market Insights, Ians, Tookitaki)

Indian SaaS market overview

The Indian SaaS market is anticipated to grow from USD 12 billion in FY 2022-23 to touch USD 37 billion in market size by 2028, at a CAGR of 23.7%. As Indian software startups persist to target international markets, the global market share of SaaS products from India is estimated to touch 8% by 2028. The market is projected to reach USD 50 billion of annual recurring revenue (ARR) by 2030. As several domestic software startups look at the US and

Europe markets for their go-to-market strategy, the current global market share of Indian SaaS products stands at 6%.

A total of 82 Indian startups were funded in the sector in 2023. During the calendar year, the number of deals stood at 111 with a funding size of USD 482.09 million. There is an increase in the number of early-stage companies surpassing USD 10 million in revenue, signifying a robust foundation for expansion.

India is the second-largest SaaS ecosystem by number and prominence of companies. From a domestic SaaS spend standpoint, the US has a giant lead with about USD 140-150 billion, followed by the UK with USD 13-15 billion and India at USD 2-3 billion.

There has been support from both established Indian SaaS investors and new entrants, especially at the later stages with funding deals surpassing USD 30 million. Furthermore, the Indian companies and unicorns are expected to generate revenues of USD 20-25 billion by 2030.

The Indian SaaS ecosystem is expected to create 100 unicorns, 50 centaurs and over 5 Lakh jobs by 2030.

With a strong talent pool, cost advantages and a track record of innovation, Indian firms are well-positioned to cater to diverse international markets. Moreover, the increasing trend towards digital transformation and cloud adoption globally further amplifies the demand for Indian SaaS solutions.

The Indian SaaS landscape is experiencing the emergence of several key trends that are shaping its trajectory. These include a shift towards digital and remote selling models, driven by changing consumer preferences and technological advancements. Moreover, there is a rising focus on vertical-specific software solutions, propelled by the grwoing adoption of digital technologies throughout industries such as BFSI, healthcare, and retail.

(Sources: The Economic Times, BVP, Your Story, The Hindu Businessline, Linkedin, The Economic Times)

Growing regulatory complexity: Effective compliance solutions are required due to the continuously changing regulatory environment that affects a number of industries, including banking, healthcare, and data privacy. During 2023, as many as 11,28,265 cases of financial cyber fraud worth H7,488.63 cr were reported, as per the data compiled by the National Crime Records Bureau (NCRB).

Efficiency and cost reduction: Manual, labour-intensive, and resource-intensive are common characteristics of traditional compliance procedures. Organisations can save money by using RegTech solutions to automate compliance procedures, lower manual error rates, and boost productivity.

Risk management: RegTech solutions assist firms in identifying, evaluating, and mitigating regulatory risks by offering sophisticated analytics and risk

assessment tools. RegTech solutions enhance risk management skills by using machine learning algorithms and data analytics to detect potential fraud and compliance violations in real-time. Nearly 67% of businesses believe that the future of fraud prevention will be driven by AI/ ML-powered solutions. The global AI in fraud management growth scenario is anticipated to witness an increase in revenue from USD 10,437.3 million in 2023 to USD 57,146.8 million by 2033. In addition, experts predict that between 2023 and 2027, the world will lose more than USD 343 billion due to digital fraud.

Initiatives for digital transformation:

By 2023, it will also become home to the largest, youngest and the most digitally savvy population in the world. About 1.64 billion consumers will demand digital services in all areas of their lives. In an

effort to modernise and increase agility, organisations are embracing digital technology more and more. The ‘Digital India initiative has been instrumental in achieving this goal, and it has been extended with a total budget of H14,903 cr from FY 2021-22 to FY 2025-26.

Growing adoption of Cloud computing:

On account of its scalability, flexibility and affordability, cloud-based RegTech solutions are becoming more and more popular. Organisations can simplify compliance operations by utilising cloud- based RegTech systems, which provide effortless setup, seamless integration and accessible from any location. Cloud is expected to add value worth USD 310-380 billion to Indias GDP in 2026, accounting for approximately 8% of relative GDP.

(Sources: Verified Market Research, The Economic Times, Experian, Invest India, Money Control, Future Market Insights, Assets.ey.com)

The Company propagates a welcoming and inclusive work environment, free from any form of discrimination. Employees are encouraged to take ownership of their work and are motivated to grow personally

and professionally. The Company acknowledges and rewards significant contributions made by employees across different areas of expertise. The Companys employee retention rate stood

at 87% during the year under review. The Companys resource strength stood at 500+ as on March 31, 2024.

The Company possesses a robust risk management system that covers various management and functional levels, and project areas.

The internal committee assists in the following activities:

¦ Review the risk portfolio and develop a response strategy to allocate resources effectively for mitigating respective risks.

¦ Receive new information and update the Board of Directors and other executive

bodies on the effectiveness of risk management practices.

¦ Direct comprehensive risk management processes.

¦ Set up guidelines to address risk management processes.

¦ Assess risk management processes daily throughout business units and controlled entities.

¦ Training in risk management and internal control.

Industry risk: A slowdown in demand from the user industry may impede business growth.

Mitigation: Regulators worldwide have mandated the implementation of XBRL in financial reporting, resulting in a substantial increase in demand for XBRL in the European and US markets.

Innovation risk: Our innovation may negatively affect our business sustainability.

Mitigation: The Company has been adapting to different regulatory taxonomies in various regions across the globe and tailoring its products accordingly. This unique capability to customise products based on the specific requirements of different geographical locations sets the Company apart in the market. The majority of the Companys capital investment is focused on improving and expanding its product portfolio. Moreover, the Companys ability to offer solutions throughout different stages of the product lifecycle positions it as a preferred vendor for leading global brands.

Security and data privacy risk:

Failure to adequately address data security risks could damage the Companys reputation.

Mitigation: IRIS has implemented substantial measures to improve the security and confidentiality of user data, ensuring robust protection and privacy for its users. The Company has broadened its presence to markets such as Singapore, thereby strengthening its position in that region. To further boost its credibility, IRIS consistently subjects its systems to third-party audits, showcasing its dedication to transparency and accountability.

Regulatory risk: Changes in regulatory compliance could render the product obsolete.

Mitigation: IRIS has designed its products using modular components, which allows for easy updates and enhancements. This modular approach ensures that updates can be made quickly and efficiently. Moreover, hosting the products on the cloud offers scalability, accessibility, and flexibility for users. The Companys thorough grasp of regulatory shifts, combined with its team of financial experts, has enabled successful product updates. This expertise and knowledge ensure that the products stay current and compliant with changing regulations.

Internal control systems and their adequacy

The Companys internal audit system has been continuously monitored and updated to ensure that assets are safeguarded, established regulations are complied with and pending issues are addressed promptly. The audit committee reviews reports presented by the internal auditors on a routine basis. The committee makes note of the audit observations and takes corrective actions, if necessary. It maintains constant dialogue with statutory and internal auditors to ensure that internal control systems are operating effectively.

Cautionary statement

The Management Discussion and Analysis report containing your Companys objectives, projections, estimates and expectation may constitute certain statements, which are forward looking within the meaning of applicable laws and regulations. The statements in this management discussion and analysis report could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operation include cyclical demand and pricing in the Companys principal markets, changes in the governmental regulations, tax regimes, forex markets, economic developments within India and the countries with which the Company conducts business and other incidental factors.