Mastek Ltd Management Discussions.

Global economic overview

The global economy enjoyed a mini boom during the period of 2017 and in early 2018, when growth picked up in most major economies. However, in second half of 2018, the global expansion started losing momentum.

According to OECD (Organisation for Economic Co-operation and Development), the global economy grew by 3.6% in 2018 and is expected to ease down to 3.3% in 2019 and 3.4% in 2020, with downside risks continuing to build. Key risks include a prolonged period of higher tariffs on trade between the United States and China; further steps to raise new trade barriers, particularly additional tariffs on trade between the United States and the European

Union; a failure of policy stimulus to prevent a sharper slowdown in China; continuing policy uncertainty and prolonged sub-par growth in Europe, including lingering uncertainty about Brexit; and financial vulnerabilities from high debt and deteriorating credit quality.

Growth has been revised downwards in almost all G20 economies, particularly with large corrections in the euro area. High policy uncertainty, ongoing trade war between US – China, political uncertainty coupled with erosion in business and consumer confidence are the key factors contributing to the global economy slowdown. On the upside, decisive actions by policymakers to reduce policy-related uncertainty and strengthen medium-term growth prospects, including measures that reduce barriers to trade, would improve confidence and investment around the world.

In the United Kingdom (UK), the growth is projected to remain weak at under 1% in both 2019and2020from1.4%in2018.Thestill-strong labour market continues to support household spending but ongoing Brexit uncertainty and the persisting growth slowdown in the euro area are weighing on business confidence, investment and export prospects in the UK.

As per law firm Norton Rose Fulbright, the post Brexit impact on the technology sector would largely depend on what model the UK adopts for its relationship with the EU. If the UK remains in the European Economic Area then the changes may be minimal; if the UK joins the European Free Trade Association and negotiates sector specific access to the single market then the landscape depends on the exact nature of that relationship and if the UK distances itself further from the EU then the changes may be more extensive.

The United States (US) economy is forecasted to moderate from growth rate of 2.9% in 2018 to 2.6% in 2019 and 2.2% in 2020 as the boost from fiscal stimulus is likely to fade. Higher interest rates may dampen consumer spending and a strong dollar could continue to be a drag on net exports. However, the US growth rate is supported by strong labour market outcomes and supportive financial conditions along with substantial household incomes and spending. However, higher tariffs have added additional pressure due to which the growth of business investment and exports have moderated. Growth also had some bearing of partial shutdown experienced by the Federal Government.

Growth in China is expected to remain slow in 2020 at 6% from 6.6% in 2018 mainly due to the impact of US tariffs and higher debt levels.

India continue to remain fastest growing economy. According to the OECDs Interim Economic Outlook – March 2019, the GDP growth in India was 7% and is projected to be at 7.2% in FY 2018-19 and 7.3% in FY 2019-20, as the business confidence and investment remain strong along with easing financial conditions, lower oil prices, accommodative fiscal policy and recent structural reforms.

Investment growth will accelerate as capacity utilisation rises, interest rates decline, and geopolitical tensions and political uncertainty are assumed to wane. Lower oil prices and the recent appreciation of the rupee will reduce pressures on inflation and the current account Indias economy showed conflicting recovery in a climate clouded by uncertainty ahead of a general election beginning in April 2019. Economic growth slowed to 6.6% in the quarter of December 2018 due to political uncertainty, ahead of a national vote in April and May 2019 along with compounded challenges posed by weak domestic demand and a global slowdown.

Economy experts are of opinion that decisive actions by policymakers to reduce policy-related uncertainty and strengthen medium-term growth prospects, including measures that reduce trade barriers would improve confidence and investment across globe.

Global IT outlook

The IT industry has been continuously evolving from what has been a hard year earlier due to a broader slowdown in technology spending by banking and financial companies and doubt over work visa rules in the developed markets of US, Australia, Singapore amongst others. The positivity has returned as the industry now has diversified into more profitable digital segments such as cloud computing, artificial intelligence, data analytics and big data. As digital technologies reshape businesses, the IT industry is innovating to emerge as the hub for digital solutions. Upskilling for digital, acquiring competencies through mergers and acquisitions or partnerships, building platforms and products and leveraging centres of excellence in new technologies are some of the priorities for most of the IT vendors.

The world is experiencing a burst of tech-enabled innovation and with this, economies, jobs and personal lives are becoming more digital, more connected and more automated.

According to NASSCOM, the global IT BPM industry stood at US$ 1.4 trillion (excl. hardware), a growth of 4.9% in 2018 mainly due to growing software led digital penetration. The IT services grew at 3.2% primarily driven by increased demand for application development and management services. BPM grew at 4.5% led by innovation and adoption of emerging technologies particularly Robotic Process Automation (RPA) as organisations are looking to automate simple & repetitive work and shift their focus to more strategic work. Thesigns of a global revenue from digital business is projected to touch US$ 267 billion in 2019 and grow at +20% CAGR over 2017-19. Indias IT-BPM industry stood at US$ 177 billion in FY 2018-19 reflectinga growth of 6.1% from US$ 167 billion in FY 2017-18. The accelerated demand for emerging digital technologies such as Artificial Intelligence (AI), IoT (Internet of Things), Robotics, Blockchain, Business Intelligence and Data Analytics continue to remain key drivers of the overall industry growth.

NASSCOM also shared findings of CEO survey. Following are the key highlights of the survey:

While 51% of the CEOs felt that the year ahead would be similar or somewhat lower than 2018 for IT-business process management industry, 49% thought that it would be better.

Half of the CEOs surveyed believe that the global economic and business outlook will be lower than 2018, while 50% think it will be similar or better.

53% expect similar tech and BPM spending, while 34% expect somewhat better spending than 2018. The remaining 13% expect spending to be somewhat lower.

Advanced analytics and AI were the top priorities for more than 50% of the CEOs surveyed.

Hybrid cloud and cybersecurity are upcoming technology priorities.

IT companies will continue to invest in building products and platforms, upskill its talent pool and drive greater collaboration across the ecosystem.

IT service industry

In digital era, innovation & agility bring competitive differentiation to organisations. CTOs are increasingly investing in new emerging tools and technologies to help them accelerate growth and power organisations digital transformation journey.

The global IT services industry is currently going through a transition phase from traditional services to digital technologies. According to Gartner, IT services spending is projected to grow at 3.5% in 2019 to US$ 1,016 billion over 2018. In 2020, it is expected to grow at 4.8% to US$ 1,065 billion. The major factors driving the growth of IT services market are rise in number of start-up community, increasing adoption of advanced technologies and changing customer demands. Growing emphasis on developing an

IT efficient infrastructure and implementation of IT services such as consulting services and system integration services by organisations are also supplementing the growth of the market. However, stiff competition is a major challenge for IT companies. IT services market is expected to place a great prominence on the needs and outcomes necessitated by the business to improve revenue, profitability, employee productivity and customer experience in the upcoming years.

Organisations are increasingly outsourcing their IT-related requirements such as application and infrastructure management to IT service providers. The global sourcing grew at 3.7% in 2018 to touch approximately US$115 billion as per NASSCOM report. Indias share in global sourcing spend grew from 35% in 2012 to 38% in 2018 attributed to increase in customer trust. Indian IT services vendors are synchronising with demand and have brought the revolution within themselves to take advantage of the changing scenario. Indian IT companies have set up over 1,000 global delivery centres in about 80 countries across the world. India has become the digital capabilities hub of the world with around 75% of global digital talent present in the country.

In terms of geography, North America and

Europe continue to remain key markets for IT services. Majority of the customers are having high digital spending across verticals, which are driving high repetitive business from the horizontals. These business transformations are creating a huge opportunity for IT services companies.

The modern analytics and business intelligence (BI) market continues to grow rapidly with new innovations in augmented analytics. According to Gartner, the analytics and BI software market grew by 11.7% to US$ 21.6 billion in 2018. Modern BI platforms continue to be the fastest growing segment at 23.3%, followed by data science platforms with 19.0% growth. Augmented analytics, continuous intelligence and explainable artificial intelligence are the top trends in data and analytics technology that have significant disruptive potential next three to five years as per Gartner report.

Digital transformation

Digital transformation is all about integration of new innovative digital technologies such as Machine Learnings (ML), Robotics, Block

Chain, Artificial Intelligence (AI), Internet of Things (IoT), Big Data & Analytics, Cloud Computing, Mobility and Social Media in all the business functions to improve operational efficiency and deliver better value & outcome to customers. These digital technologies facilitate the transformation of business process models, better customer experience and competitiveness of the companies in the market. It also helps organisations to increase revenue and profitability.

According to Research and Markets report, the digital transformation market is forecasted to grow from US$ 290 billion in 2018 to US$ 665 billion by 2023, at a CAGR of 18.1% from 2018 to 2023. Digitalising business functions to serve changing customer preferences and enhance operational efficiency, the rapid proliferation of mobile devices and apps, increasing penetration of IoT and adoption of cloud services and the need to improve operational performance to gain competitive benefits in the market are expected to drive the growth of the market across the globe. However, security and privacy concerns for confidential data is expected to restrict the growth of the market across the globe. Digital transformation is rapidly gaining traction, as enterprises seek solutions, technologies and platforms to transform their operating processes and business models. Digital is disrupting value chains and compelling organisations to rethink nearly everything they do.

In the digital era, organisations are required to step up their innovation and operational efficiency, customer experience, brand and marketing efforts, reduce cost and time to market. Mastek is very well placed to grab this opportunity and be among the top providers of agile digital transformation solutions.

Company overview

Mastek Limited has proved itself to be one of the leading global technology companies, delivering enterprise level digital transformation services and solutions over three decades. Founded in 1982, the company has worked with various clients across their three focused markets of US, UK and India, to provide insightful and transformational solutions. The company works across six main verticals, namely, Application Development, Business Intelligence & Analytics, Digital Commerce, Application Support & Maintenance, Assurance & Testing and Agile Consulting. Whether its creating new applications, modernising existing ones or recovering failing projects, the company is considered as a trusted partner for digital transformation projects.

Our key differentiators

Mastek has a long heritage of delivering transformational IT projects. With customers increasingly managing their own system integration, this trend allows Mastek to offer its consulting, digital, data and devops services directly to customers whilst operating in multi-supplier environment. Our key differentiators are our enterprise architecting capability, transformational capability, an end-to-end offering and deep technological innovation capability. Our transformation capability has a long heritage of over 2 decades of public sector and private sector track record. With the speed of change in technology, we are, by design, able to absorb and adapt to new technologies quickly. Allied with business agility (Mastek 4.0), we are able to sense and respond to our customers needs with agility and speed, and impact their business through transformational IT.

Our customer base

Mastek added 37 new clients during the year, totalling up to 157 clients for the FY 2018-2019. The client profile includes marquee names across the verticals in US, UK and India. Our customers are from large public and private enterprises including Government, Retail, Healthcare and Financial Services sector.

Mastek in United Kingdom

As per OECD report, the UK economy growth is projected to remain weak at under 1% in 2019 and 2020 from 1.4% in 2018. The uncertainty continues to persist related to Brexit and the nature of the UK-EU trading relationship in the short and medium-term. However, IT spend in government space is expected to increase to support huge changes in the existing systems and a myriad of new systems that are required to support UK in post Brexit era.

The UK IT sector continues to be dynamic in adopting technology to impact business, public services and society and is at the forefront of many innovations. For the last several years, the UK public sector is fast catching up with most citizen services available online, 24x7, and with an improved quality and speed of service. This significantly improves the customer experience and supports massive cost savings. Aligned to the global trend, the IT spend is being repurposed to digital transformation. As a result, the digital spend is growing faster with a commensurate decline in legacy IT spend.

Key growth drivers:

There is an acceleration in the digital transformation projects taken up by the UK public sector to bring in efficiency and productivity whilst servicing their customers. Moving away from the traditional legacy projects, there is increasing implementation of digital projects, platform-based services and cybersecurity related software and services.

The key drivers of the IT spend are on the service quality, user experience and cost efficiency. As innovations appear in one sector, the customer expectations drive the adoption of these into other sectors. For many sectors such as retail, the digital transformation of the business is an imperative. For sectors such as Financial

Services and Public sector, an improved user experience also leads to increased customer satisfaction. It also leads to cost efficiency as customers are willing to self-serve provided the user experience is effective.

Risks faced by UK IT sector

Apart from any global economic impact, the main risk that the UK economy & IT sector faces, is related to Brexit and future arrangements with the EU. As a developed economy the UK will be resilient in the long term, it is obvious from various analysis that in an extreme scenario, the UK will face short term economic impact. This may lead to businesses moving locations, inflationary pressures driven by currency impact and increased complexity in supply chain leading to lower growth.

Business update

Mastek is registered on the UK public sector frameworks such as G-Cloud and Digital Outcomes and Specialist (DOS). These are new and easier routes to market, adopted by the government for all digital transformation programmes. Through these frameworks, we continue to serve major departments in delivering critical national infrastructure projects such as Home Office Biometrics, Immigration Platform and the National Health Services 24x7x365 Care Identity System. Services including Application Development, DevOps and Data Services continues our long heritage of implementing successful transformational IT. To this prestigious list we have now added further customers such as the Ministry of Defence, NHS Business Services Authority and West Yorkshire Police.

In the retail sector, we continue to serve our marquee customers across service lines encompassing Application Development, BI & Consulting to Testing and Maintenance. Despite challenging trading conditions for many of our customers, we have been able to support and service them to withstand challenging market conditions. Repeat business continues to be a strong pillar supporting annual growth, however, in the last year, we have added several clients including one of the largest global bottlers offering Data and Consulting services. We were also recognised along with our customer Specsavers as the Best Test Automation Project at the European Software Testing awards. We will continue to build on a strong foundation bringing new services to this sector in the coming year.

During the year, we merged the operations of our subsidiary IndigoBlue Consulting Limited, into Mastek (UK) Limited. This allows us to consolidate operations and bring the consulting services closer to our service lines for an end-to-end offering to our markets. We continue to trade under our award-winning IndigoBlue brand for consulting services in Agile and DevOps. In the forthcoming year, we intend to expand the range of our consulting services.

Mastek in the UK delivers 73.9% of the group revenue. Despite market headwinds such as delayed commissioning of investment due to Brexit and other factors, we have maintained the growth momentum. We expect the uncertainty to continue for the major part of FY 2019-20, which will provide for challenging business conditions. We aim to mitigate these through expansion of our service offerings, building beachheads in new technologies and improving market coverage.

The U.K. operations contributedर 76,361 lakhs in total operating revenue for the year FY 2018-19 reflecting a growth of 35.6%. UK business grew by 29.3% on constant currency basis.

Mastek in United States

According to OECD, the United States (U.S) economy grew at 2.9% in 2018 and is estimated to grow at 2.6% in 2019 and 2.2% in 2020 as the support from fiscal

The US continues to remain the largest tech market in the world, presenting huge growth opportunities to IT companies with solutioning capabilities.

Over last few years, the global digital commerce market has grown significantly and continues to evolve and experience high growth across the globe. Rising preference of consumers towards online shopping is propelling the demand for digital commerce globally. According to 451 Researchs Global Unified the digital commerce transactions are expected to grow globally at more than a 20% CAGR by 2022, touching US$ 5.8 trillion.

Digital commerce is inclusive of several features such as transaction that involves transfer of information across Internet, participation in online market places that process third-party business-to-consumer or consumer-to-consumer sales, trading of products or services using internet, online shopping web sites for retailers for direct selling of products to consumers, collection of demographic data through web contacts and social media, marketing to prospective and established customers by e-mail.

Digital commerce helps organisations to generate revenue through digital channels by incorporating mobile commerce and mobile payments. Increasing number of online shoppers across the globe are enabling the retailers to increase their presence on internet.

Retailing is undergoing two significant The first is technological and the other is consumer behaviour and preferences. Retailers that understand and overcome both shifts will thrive in competitive environment. According to the data suggested by Social Times, in the US 57.4% of population shops online. Thus, rapidly shifting consumer habits, fast changing technologies and challenging competitive dynamics are key factors disrupting the industry.

Digital transformation in retail sector of the US

In 2018, the U.S retail industry witnessed strong US economy, a record-breaking holiday season, mixed retail earnings, some high-profile and economic tensions. Bolstered by a solid labour market, growth in disposable personal income and elevated consumer confidence, the year experienced strong retail sales. However, Commerce forecast, the economy may face some headwinds due to persisting US – China trade war in 2019.

As per National Retail Federation (NRF), the United States retail sales is projected to grow in the range of 3.8% to 4.4%, to US$ 3.8 trillion in 2019, citing high consumer confidence, unemployment and rising wages. The overall economy is expected to gain an average of 170,000 jobs per month in 2019, down from 220,000 in 2018 and unemployment to drop to 3.5% by 2020 from 4% in 2019.

As per Statista.com, US transaction value in the Digital Commerce segment amounts to US$ 874,424 million in 2019 and transaction value is expected to show an annual growth rate (CAGR 2019-2023) of 5.7% resulting in the total amount of US$ 1,092,012 million by 2023.

Further, in the Digital Commerce segment, the number of users is expected to grow to 307.3 million by 2023. The average transaction value per user in the Digital Commerce segment amounts to US$ 3,238 in 2019.

Further, e-commerce represented a growing share of the retail market in 2018, taking a 14.3% share of total retail sales last year, up from 12.9% in 2017 and 11.6% in 2016.

• US Consumer spend on retail and ecommerce by 2020 - The total retail and ecommerce sales is projected to grow by 3.3% to US$ 5.5 trillion and 15.1% to US$ 605.3 billion respectively mainly led by the strong US labour market and rising incomes.

• The retail apocalypse will continue to threaten brick-and-mortar formats resulting in more store closures by traditional retailers. However, it will be offset by the expanding retail footprint of direct-to-consumer brands and other niche retailers better positioned to thrive in this environment.

• Retail innovations will reshape physical retail. Brick-and-mortar is amid a radical transformation as it transitions from an inventory led environment to a more frictionless, experiential environment. Emerging trends like cashier less checkout, pop-up stores and data-driven merchandising are causing retailers to reimagine the retail experience for modern consumers.

• Emerging retail technologies to gain traction with consumers - Voice commerce, social commerce and augmented reality are innovative technologies that will gain traction with consumers in 2019, but only in select use cases and category contexts.

This trend is transforming the overall retail industry and thus opening new door for IT industry. The retailers are restructuring their business to remain competitive in todays digital and on-line shopping age where consumers choice is changing rapidly. They are going to market by incorporating more intuitive, technology-driven user experiences.

Mergers and acquisitions are another dominant theme experienced in the retail sector. Top 21 deals in this sector ranged from US$ 25 million to US$ 16 billion, which shows that the US market is also on acquisition spree thereby consolidating the worlds e-commerce market.

Business update

Increase in digital commerce pie in the US coupled with retailers restructuring their businesses and acquisitions in retail space creates huge opportunity for the companies like Mastek to grow. We can facilitate digital transformation of retailers, help them deliver superior user experience and user interface, manage their legacy IT Infrastructure and help deploy new-generation technologies for better supply chain, inventory management and customer satisfaction.

In the United States, Mastek provides end-to-end solutions to financial and retail organisations using its unique agile based Adapt 2.0 methodology. Mastek entered the US geography in 2016 by acquiring TAISTech, an IT services company specialising in implementation and support for Oracle Commerce (ATG and Endeca) and Oracle Commerce Cloud (OCC). E-commerce companies in the US, account for 39.34% of market share of the top 10 countries using OCC platform. Taistech has impeccable delivery track record that ensures high customer advocacy and retention rate compared to industry standards.

During the year, the Company restructured its US business. It has made new appointments in local management and leadership team aimed at reinvigorating the business with new offering, accelerating the customer acquisition and driving the strategic focus.

Further, the Company is leveraging its Digital Commerce customer base to expand service offerings in areas of Business Intelligence & analytics, Quality Assurance automation and Robotic process automation, thus enabling clients to experience full spectrum of digital transformation services.

In FY 2018-19, US operations contributed25,275 lakhs in total operating revenue or 24.5% of the total revenues of Mastek. It reflected a 6.6% growth rate year on year.

The company sees significant momentum going forward in Retail and Digital Commerce space, as the retail market is transforming their operations from Brick and Mortar model to Click and Ship model.

Mastek in India

India has become the digital capabilities hub of the world, with around 75% of global digital talent present in the country. As per IBEF, Indias IT & IT enable services industry grew to US$ 167 billion in 2017-18. Exports from the industry increased to US$ 126 billion in FY 2017-2018, while domestic revenues (including hardware) advanced to US$ 41 billion. As per Gartners report, spending on IT in India is expected to grow over 6.7% to reach US$ 89.2 billion in 2019. Revenue from the digital segment is expected to comprise 38% of the forecasted US$ 350 billion industry revenue by 2025. India has an edge over other economies because:

(1) Indian IT firms have delivery centres across the world and are well diversified across verticals such as BFSIs, telecom and retail.

(2) The IT and ITeS sectors in India have a low-cost advantage by being 5-6 times less expensive than the US.

(3) Tax exemptions are given to start ups under ‘Start up India initiative.

Business Update

Mastek started “Automation First” journey in mid of 2018 and developed very robust and scalable value proposition under Robotic Process Automation (RPA). Service lines conducted marketing research, identified addressable market, evaluated potential business opportunities and initiated RPA tools partnership to develop business case and launched in the market space. Within six months of duration RPA value proposition was presented to 35+ customers and prospect and qualified pipeline is built in UK and India. Assets are designed and developed like Automation journey mapping framework, ready to deploy use cases in finance domain, Optical character recognition plug-ins etc. Mastek has partnered with UiPath for Go-to-Market strategy and various business events to develop sustainable and predictable revenue model under RPA value proposition.

RPA value proposition and service offerings are well appreciated by Gartner analyst. Gartner nominated Mastek under RPA competitive landscape report called “Leading IT Service Providers Offering RPA C&SI Services” for Proof of Value (POV) model and key automation services. Use cases are mainly span across verticals like finance, healthcare, public domain, retail, pharma & shared services. India operations contributedर 1,685 lakhs, representing 1.6% of the total operating revenue in FY2019. During the year, company opted out of non-strategic engagements and went for selective bidding to secure profitable projects and long-term customer relationships. This region continues to be an important geography for the Company for building capability and testing new service offerings.

Business highlights for the year

Worked with fashion retailer Rue21 to develop buy-online-pickup-in-store offering for over 700 stores.

Won a contract to provide strategic Application Development and Support capability for the Home Office Biometrics (HOB) Programme.

This is an important programme for Mastek and the Home Office. It is led under the Crown Commercial Service (CCS) Digital Outcomes and Specialists (DOS) Framework. This contract follows the recent DevOps contract also awarded to Mastek for delivering Platform and support services to the Biometrics programme.

Specialist lender, Together partnered with Mastek on several innovation opportunities. As a recognition of this partnership, Togethers digital transformations broker portal has been shortlisted in the Digital Project of the Year category at the 2018 UK IT Industry.

Company business verticals and performance

Service Line

Year ended 31 March, 2019

Year ended 31 March, 2018

Rs. in lakhs % Revenue Rs. in lakhs % Revenue
Application Development 48,917 47.3% 38,891 47.6%
Digital Commerce 23,914 23.2% 21,211 26.0%
Application Support & Maintenance 14,394 13.9% 8,008 9.8%
BI & Analytics 8,899 8.6% 6,484 7.9%
Agile Consulting 3,109 3.0% 4,771 5.8%
Assurance & Testing 4,088 4.0% 2,356 2.9%
Total 103,321 100.0% 81,721 100.0%

Company business geographies and performance

Year ended 31 March, 2019

Year ended 31 March, 2018

Region Rs. in lakhs % Revenue Rs. in lakhs % Revenue
UK 76,361 73.9% 56,315 68.9%
North America 25,275 24.5% 23,715 29.0%
Others (India / Asia Pacific) 1,685 1.6% 1,691 2.1%
Total 103,321 100.0% 81,721 100.0%

The UK operations contributedर 76,361 lakhs in total operating revenue for FY 2018-19 as compared toर 56,315 lakhs for FY 2017-18, resulting in an increase of 35.6%. UK business grew by 29.3% on constant currency basis.

North America operations contributed25,275 lakhs in total operating revenue for FY 2018-19 as compared toर 23,715 lakhs for FY 2017-18, resulting in an increase of 6.6%.

Revenue from other region (India and Asia Pacific region) isर 1,685 lakhs for FY 2018-19 as compared toर 1,691 lakhs for FY 2017-18, resulting in a marginal decline of (0.4%). The degrowth is due to selective bidding in this segment during the year.

Financial and operational performance overview

Financial performance review

For the year ended 31 March, 2019, the financialand operational performance in terms of revenue and profits saw strong growth.

Financials

On a consolidated basis, the Group registered total operating revenue ofर 103,321 lakhs for the year ended 31 March, 2019 as compared toर 81,721 lakhs in the year ended 31 March, 2018, which is an increase of 26.4%. The Group registered a net profit of 10,147 lakhs in the year ended 31 March, 2019 as compared toर 6,996 lakhs in the year ended 31 March, 2018, thereby registering an increase of 45%.

Profitability

During the year ended 31 March, 2019, the Group earned a profit 10,147of lakhs as compared toर 6,996 lakhs for the year ended 31 March, 2018. The profits for FY 2018-19 witnessed growth on account of the following:

a. Operational Improvement and Cost Containment Initiatives across the Organisation;

b. Focus on profitable growth across geographies.

Balance Sheet

Assets

1) Property Plant and Machinery

Tangible assets as at 31 March, 2019 wereर 4,555 lakhs as compared to4,589 lakhs in the previous year. Variance is explained as below:

- Gross additionsर 1,013 lakhs and deletions ofर 10 lakhs towards Computer, furniture and fixtures and office equipment.

- Depreciation charge ofर 1,019 lakhs

- Foreign Exchange translation adjustment (net) ofर 19 lakhs

2) Other intangible assets and Goodwill

Intangible assets as at 31 March, 2019 wereर 12,184 lakhs as compared toर 13,297 lakhs in the previous year. Variance is explained as below:

- Gross additions ofर 518 lakhs and deletions ofर 10 lakhs towards computer software

- Impairment of Goodwill ofर 1,792 lakhs

- Depreciation charge ofर 716 lakhs

- Foreign exchange translation including other adjustments (net) of886 lakhs.

3) Non- current financial assets A) Investments

Non-Current investment comprises of Investment in Majesco USA (quoted), Investment in Mutual Funds and Investment in Fixed deposits. Investment in Majesco USA as at 31 March, 2019 wereर 24,596 lakhs as compared to16,637 lakhs in the previous year; an increase driven by fair valuation of investments. Investment in Mutual funds as at 31 March, 2019 wereर 2,874 lakhs. Investment in Fixed deposits as at 31 March, 2018 were Under Ind AS 109, financial assets designated at fair value through other comprehensive income (FVTOCI) are fair valued at each reporting date with changes in fair value.

B) Loan and other non-current financial assets

The loan and other current financial assets as at 31 March, 2019 wereर 181 lakhs as compared toर 201 lakhs in previous year. Movement is on account of GBP depreciation resulting in decrease of mark to market gain on outstanding forward contract.

4) Other non-current assets

The Non-current assets as at 31 March, 2019 stood atर 64 lakhs as compared toर 86 lakhs as at 31 March, 2018. The difference is primarily on account of capital advances.

5) Income tax assets/liabilities

The Income tax assets balance as at

31 March, 2019 wasर 1,087 lakhs as compared toर 839 lakhs in previous year. The income tax assets represent domestic corporate tax. The current Income Tax liabilities balance as at 31 March, 2019 wasर 1,245 lakhs as compare toर 885 lakhs in previous year. Current income tax liabilities represent estimated income tax liabilities in overseas.

6) Deferred tax assets/liabilities

Deferred tax assets as at 31 March, 2019 wereर 3,672 lakhs as compared toर 5,304 lakhs in previous year. Deferred taxes assets primarily comprise deferred tax on property plant and machinery, compensated absences and compensation to employees. Deferred tax liabilities wereर 2,078 lakhs as compare toर 1,865 lakhs in previous year. Deferred tax liability primarily comprises undistributed profit of subsidiaries, fair value of Investments and cash flow hedge.

7) Current financial assets A) Investments

Investments comprises of quoted mutual fund units and fixed deposits. The Investments balance wereर 11,396 lakhs as at 31 March, 2019 as compare to11,770 in previous year. Under Ind AS, financial assets and financial liabilities designated at fair value through profit and loss (FVTPL) are fair valued at each reporting date with changes in fair value recognised in the statement of profit and loss.

B) Trade Receivable

Tarde receivables as at 31 March, 2019 stood atर 20,849 lakhs as compared toर 17,402 lakhs in previous year. Days sales outstanding was 72 compared to 67 in previous year.

C) Cash and cash equivalents

The cash and Bank balance as on 31 March, 2019 wasर 9,339 lakhs as compared toर 8,802 lakhs in previous year. The difference was primarily on account of net cash generated from operations.

D) Loan and other current financial assets

The loan as at 31 March, 2019 wasर 46 lakhs as compared toर 44 lakhs in previous year. The current financial assets wereर 1,863 lakhs as compared toर 1,400 lakhs in previous year. The increase was driven majorly by R & D tax credit receivable and mark to market loss on outstanding forward contract.

FY19 was another year of consistent and predictable financial performance that we endeavour for. We continue to demonstrate strong value with growing revenues and improving operating EBITDA margins. Growth this year was bolstered by government led contracts in UK as well as an increasing demands for digital transformation from Retail sector across the UK and US. We continue to focus on scaling our business through organic and inorganic investments and maximise values for all our shareholders.

Abhishek Singh,

Group CFO

8) Other current assets

Other current assets were atर 4,947 lakhs as at 31 March, 2019 as compared to3,419 lakhs in previous year. The increase was driven by unbilled revenue, advance to suppliers, input tax credit receivable, interest on IT refunds and prepaid expenses.

Equity and Liabilities

9) Total equity

We have one class of share- equity share capital of par valueर 5 each. The issued, subscribed and paid up capital stood at1,199 lakhs as at 31 March, 2019, which wasर 1,185 lakhs in previous year. The Company has allocated 280,747 shares under employees stock options plans during the financial year.

10) Non-current financial liabilities A) Borrowing

The non-current borrowing as at 31 March, 2019 wasर 6,921 lakhs as compared toर 4,961 lakhs in previous year. The increase is on account of term loans and reclassification of current portion of long-term loan in other financial liabilities.

B) Other financial liabilities

The other financial liabilities as at 31 March, 2019 wasर 3 lakhs as compared toर 2,653 lakhs in previous year. The decrease is on account of reclassification and payment of contingent consideration on business acquisition.

11) Provisions

The long-term provision balance as at 31 March, 2019 wasर 1,166 lakhs as compared to Rs. 664 lakhs in previous year. The difference is on account of cost over run in contracts and actuarial valuation of employee benefits.

12) Current financial liabilities A) Borrowing

The current borrowing as at 31 March, 2019 was Nil as compared toर 391 lakhs in previous year. The decrease was on account of loan repaid during the year.

B) Trade Payable

The trade payable as at 31 March, 2019 wereर 948 lakhs as compared toर 1,889 lakhs in previous year.

C) Other current financial liabilities

The current financial liabilities as at 31 March, 2019 wereर 10,550 lakhs as compared toर 10,929 lakhs in previous year. The decrease is on account of reclassification of term loan and contingent consideration, foreign exchange forward contract offset by accrued expense and employee benefits payable.

13) Other current liabilities

The current liabilities as at 31 March, 2019 wereर 3,565 lakhs as compared toर 4,359 lakhs in previous year. The decrease was on account of statutory dues, deferred rent and unearned revenue.

14) Provisions

The short-term provision balance as at 31 March, 2019 isर 575 lakhs as compared to Rs. 474 lakhs in previous year. The difference is on account of actuarial valuation of employee benefits.

Key financial ratios

In accordance with the SEBI (Listing Obligations and Disclosure Requirements 2018) (Amendment) Regulations, 2018, the Company is required to give details of significant changes (change of 25% or more) as compared to the immediately previous financial year) in key sector-specific financial ratios.

The Company has identified the following ratios financial as key ratios:

Consolidated
Particulars 2018-19 2017-18
Revenue Growth (%) 26.4 45.9
Net Profit Margin (%) 9.6 8.3
Operating Profit Margin (%) 12.7 12.2
Debtors Turnover (No. of days) 72 67
EPS Basic ( ) 42.6 29.7
Return on Net worth (%) 16.0 13.7

Details of ratios where there has been a significant change from FY 2017-18 to FY 2018-19:

On a consolidated basis operating revenue increased by 26.4% toर 1,03,321 lakhs for the year ended 31 March, 2019 fromर 81,721 lakhs in the previous year. This increase is on account of higher growth across UK and US geography.

Group net profit increased by 45% toर 10,147 lakhs for the year ended 31 March, 2019 fromर 6,996 lakhs in the previous year. This represent 9.6% and 8.3% of total income for the years ended 31 March, 2019 and 31 March, 2018, respectively. This also resulted in increase in basic EPS toर 42.6 for the year ended 31 March, 2019 fromर 29.7 in the previous year.

During the year, on a consolidated basis group earned operating EBITDA ofर 13,154 lakhs representing 12.7% of operating revenue, compared toर 9,966 lakhs representing 12.2% of operating revenue, during the previous year. Improvement in operating margins driven by cost efficiency and better utilisation of fixed investments on higher revenue base.

Return on net worth is computed as net profit by average net worth. Net profit increased to 10,147 lakhs for the year ended 31 March, 2019 fromर 6,996 lakhs in the previous year.

Operational review

High quality operational delivery has always been a core attribute at Mastek. The Company aligned the delivery organisation to focus on improving the overall productivity and efficiency levels within projects.

Fuelled by the Companys passion to improve the opportunities available to graduates in IT, during the year the Company developed a Digital Learning Centre in Leeds, which is available to students on its Graduate Development Programme. The aim of the Programme is to “create and nurture” millennial talent, enabling the tech innovators of tomorrow to gain key skills that are vital for the continued growth of the industry.

Update on board of directors: The Mastek Board currently has 6 members, of which 4 are Independent Directors and the remaining 2 are Promoter Directors.

Update on management: On 29 March, 2019, Mastek UK appointed Dennis Badman as Chief Business Officer of Mastek Group. He will join the Masteks Executive Committee and will be responsible for ensuring Mastek retains its global competitiveness as the Company looks to strengthen its management capacity and leadership experience as it scales over the coming years. Dennis most recently led Fujitsus European Services Division, an organisation of over 10,000 people with annual revenues over E2Bn. Prior to that he was CEO of GlobeRanger (a Fujitsu Company) and brings over 20 years of experience successfully selling and delivering complex IT services projects across the globe.

People strength: As on 31 March, 2019, the Company had a total headcount of 2,069 as compared to 2,058 employees at the end of 31 March, 2018. 38.9% of current employee strength resides in onshore locations of the US and the UK, whereas the rest of them are in offshore locations in India. The Company continues to recruit fresh talent and intends to add more technical resources at various levels during the new fiscal.

Dividend: The Company paid an interim dividend totalling to 70% ( 3.50/- per share) for FY 2018-19. The Company has recommended a final dividend of 100% ( 5/- per share) at the meeting held on 16th April 2019. Total Dividend for FY 2018-19 including interim dividend works out to 170% orर 8.50/- per share for Face Value ofर 5.00 per share.

Industry Recognition - Mastek, either directly or through its clients received multiple awards and accolades during the year including:

The Company won a prestigious award for “OUTSTANDING CONTRIBUTION - IT” at the 1st edition of the CNBC-AWAAZ CEO Awards on 7th July 2018. The award is given to honour and celebrate the outstanding contribution of companies that have excelled in building profitable, sustainable and socially conscious businesses. Mastek was chosen for its outstanding contribution in the IT Sector for an inspiring journey along with its impeccable credentials.

Mastek UK won 2 awards at DevOps Industry under its marquee brand IndigoBlue on 17th October 2018 (Best Overall DevOps Project – Public Sector and DevOps Manager of the Year) ‘The 10 Best Performing IT Leaders to Watch in 2019 – John Owen. A cover story, recognising Johns exemplary leadership skill, his work as the Group CEO of Mastek- leading by example and effectively driving transformation to deliver outstanding results and bringing about positive change, was ran by the Insights Success magazine, which has over 70,000 qualified subscribers across the globe.

Business outlook

Mastek delivered another year of strong financial performance with above industry growth in revenue and profits. The full year performance was driven by broad based growth across verticals implying solid fundamentals and disciplined execution. Despite the market headwinds caused by the uncertainty of Brexit in the second half of FY 2018-2019, the Company maintained its overall Group growth momentum. The management continue to remain focused on the Companys core areas of business, viz. Government, Retail and Financial Services.

Worldwide, organisations are shifting their business model from traditional legacy services to digital and platform-based services creating huge opportunity for service providers like Mastek. The Company continue to remain focused on execution of Vision 2020 to reposition Mastek as a leader in Enterprise Digital Transformation. The Company desire to invest in agile methodologies to be involved in large and complex transformation programmes, which will help its customers to leverage digital opportunities in an agile manner. The Company sees significant momentum in agile transformation solutions and expects a good growth traction in coming years.

To conclude, the Company is on its journey to achieve its objectives outlined under Vision 2020 strategy. Management continue to focus on growth through organic and inorganic investments. Mastek is very well poised to grab the opportunities in agile and Digital Transformation space.

Risk, concerns and mitigation strategies

Enterprise risk management

Enterprise Risk Management (ERM) plays a vital role to identify and manage risk for an organisation. It provides a framework of risk reporting, impact assessment, mitigation steps and periodic review of risks associated with the business.

At Mastek, we have ERM process that drives a strong risk management culture. Our ERM process focusses on the risk assessment, risk management, expected outcomes, governance and reporting structure at Corporate & Regional levels.

Risk governance

The success of a Company is dependent on how it manages the risk inherent in the business. The Company operates in a highly competitive segment, which is widely affected by the various external and internal risks. Thus, to minimise the effect of such risks, the Company has put in place a strong risk governance model to ensure risk management. The ERM process is approved by the Governance Committee of the

Board and is executed through the Functional and Geographical teams within Mastek.

Identification & Management of risk at Micro & Macro, Functional & Geographic and Strategic & Operational levels Setting strategy and process for manging the identified risk

Implementing risk management process with the proper understanding of the risk and monitoring mechanism

Driving risk awareness within the organisation including appropriate training

Periodic updates & reviews with local and corporate Board

Driving the risk management

The Business Unit heads are responsible for:

Providing oversight to line managers who manage risk on a day-to-day basis

Promoting risk awareness within their operations Ensuring that risk management is incorporated right from the beginning when the projects are conceptualised and /or commissioned Ensuring compliance with the risk management procedures

Periodic reviews of Risk register at geography & functional level followed by update to the Governance Committee of the Board Mastek provides a diverse array of services and there are multiple factors that could affect its future performance. Few events of higher risks that could affect the business have been identified below:

Macro-economic risks: Companys business may be affected by global political uncertainties, changes in interest rates, changes in policy, taxation and other economic developments. These changes can adversely affect the Companys outlook. Considering the nature of business, the volatility in foreign currency exchange rates could have a negative impact on the Companys performance. One of the major risks affecting the Company is the uncertainty surrounding Brexit and its impact on the private and public sector in UK. Due to ongoing uncertainty, companies are delaying their investment decisions, conserving cash and waiting for regulatory clarity although the fundamental demand environment continues to be robust. The Company is addressing it by being more involved with the decision-making cycle of its customers and driving efficiency projects to help them pursue their digital transformation agenda.

Strategic risks: This is an era of disruption.

The Company is prone to significant unfavourable shift in returns on capability investments due to change in industry or customer preferences. the Company is further prone to the risk of innovation or change in business or product portfolio mix of its customers. These risks are part offset by Masteks relationship with its customers at multiple levels and understanding of factors implementing business life cycle of its customers.

Competition-led risks: The Company operates in multi-vendor environment. Its business is faces risk of ‘consolidation with other vendors if customers are looking for single sourcing or vendor consolidation. Business is further at risk due to innovation and disruption brought in by the competition. These risks are part offset by strong domain expertise, robust delivery capabilities, and significant project experience.

Dependence on key personnel: Employee attrition and/or constraints in the availability of skilled human resources could pose a challenge to any services company. The Company believes that human capital is the key to its success and has initiated multiple steps for overall development and retention of its employees.

We encourage entrepreneurship culture within the organisation and offer new challenges and opportunities for our employees. We have made significant recruitment and training procedures to enable self-learningandcertificationtool to increase their employability. Mastek continuously endeavours to have an effective succession plan in place to mitigate these risks.

Client and account risks: The Companys strategy is to engage with a strategic customer and build long-term relationships with them. Any shift in customer preferences, priorities, and internal strategies can have an adverse impact on the Companys operations and outlook. Mastek does have the benefit of being very well entrenched with its customers. In most cases it is involved with the customers planning initiatives thereby addressing any risks arising out of client concentration.

Contractual, execution and delivery-related risks: The Company faces delivery and execution risk arising out of changing customer requirement, comprehension of those requirements and timeliness of the response. Any inability to adhere to delivery timelines or requisite quality can adversely affect our relationship with the customer. Any termination or modification of contracts and non-fulfilment of contractual obligations by clients due to their own financial difficulties or changed priorities or other reasons can expose the Company to operational risk. Mastek has strong operational review and quality check mechanisms in place to mitigate it. In addition, it carries out independent Customer Satisfaction Surveys covering all the aspects of customer interaction to get the feedback.

Acquisition/M&A related risk: The Company has stated objective of driving growth through inorganic route. Acquisitions will be made for capability and for capacity at Mastek. It helps in reducing the time to market and addressing immediate customer requirements. We have done acquisitions in past and continue to scout for right targets at optimal valuation. Acquisitions are fraught with risk of projections and capabilities not measuring up to the expectation. Further, acquired companies also run the market risks, same as Mastek. To address the risk, we have put in place stringent valuation criteria, diligence parameters and high standard of corporate governance practices for concluding any acquisition.

Cyber Security risk: Risk of Cyber-attacks risks are looming are forever. It can cause reputational damage, significant loss investmentsto customers,in penaltiesour and legal and financial liabilities to Mastek in addition to its impact on business operations. At Mastek we make continuous investment to upgrade our security infrastructure. This includes end points (on Desktops/laptops and Servers) solution with new threat monitoring and controls. This includes Live Malware Protection, Deep Learning malware detection, Exploit Prevention, Potentially Unwanted Application (PUA) Blocking, Automated Malware Removal, Malicious Traffic Detection, Ransomware File Protection (CryptoGuard), Download Reputation, Peripheral Control (e.g. USB). We also carry out periodic testing to ensure effectiveness through vulnerability assessment and penetration testing, data backup, strict access control, enterprise wide training and awareness programme on information security, data leak prevention tools, review and implementation of stringent security policies and procedures, etc.

Litigation risk: Considering the scale and geographic spread of the operations, litigation risks can arise from commercial disputes, employment related matters and perceived violation of intellectual property rights, etc. It poses reputational risk in addition to incurring legal cost and the distracting management from business focus. At Mastek, we have in-house legal counsels and network of reputed global law firms in countries of operations to assist the Management team with any potential and real litigations. We also have a mechanism to track and respond to notices and defend ourselves in all claims and litigation. We continuously strengthen our internal processes and controls to ensure compliance with Contractual obligations, information security and protection of intellectual property to avoid litigation situations.

There are multiple risk factors that the Company believes it will need to take cognizance of and manage. The Board and management team continually assess the operations and operating environment to identify potential risks and take meaningful mitigation actions. The Companys Executive Committee team and Board/Committee monitors the progress of each opportunity pre- and post-closure.

Human Resource Management at Mastek

Mastek is committed to create a conducive environment that inspires Mastekeers to achieve extraordinary milestones. For this purpose, genuine efforts have been taken to revisit and revise various policies during the year.

Fostering diversity and inclusion

We have introduced practices that create an ecosystem that further encourages and deepens the agenda of promoting diversity and inclusion mix. We have launched multiple initiatives including:

A) Women Empowered by Mastek (WEM) with a vision to achieve a gender ratio of 60:40 by 2020.

B) Gender Pay Parity: A salary benchmarking exercise was carried out to ensure equal pay for equal work.

C) On boarding differently abled workforce: Working in collaboration with the Hellen Keller Institute, we onboarded six differently abled individuals into the Mastek family.

Our aim is to be known as an equal opportunity employer; hence our practices are representative and focused on providing a fulfilling career path for all Mastekeers, irrespective of their background or gender.

Learning and development initiatives

The year brought special laurels for our Learning and Development team that was awarded the “Best Learning Strategy of the Year” at the Future of L&D Summit and Awards 2019. The event had participation from several big organisations across the sectors.

Some of the key initiatives undertaken by the team include partnership with PluralSight under our Learn Anytime Anywhere initiative. It offers tailor made high-quality online learning material globally with fast, easy, and round-the-clock access via mobile app, learning paths, offline learning options offered by the platform. Project Enhance initiative aimed at improving the communication skills, public speaking and cultural awareness of Mastekeers was launched. A Leadership Development program was also launched that focused on enhancing managerial competency and improving leadership capability.

Employee engagement activities

Multiple employee engagement activities were organised during the year to make our workplace interesting and infuse enthusiasm among Mastekeers. The highlight of these activities was Runtime 2018, which is a celebratory extravaganza to provide employees and their families a memorable experience. Runtime was attended by 1400 Mastekeers and their families in India while 680 Mastekeers attended the Family Fun Day in the UK. We also organised Mastek Premier League (our annual sports event), along with various festivals.

Internal controls

Masteks systems for internal control and risk management go beyond what is mandatorily required to cover the best practice reporting matrices and to identify opportunities and risks regarding its business operations.

The Company has mechanisms in place to establish and maintain adequate internal controls over all operational and financial functions. The Company intends to undertake further measures as necessary in line with its intent to adhere to procedures, guidelines, and regulations as applicable in a transparent manner.

Mastek maintains adequate internal control systems that provide, among other things, reasonable assurance of recording the transactions of its operations in all material respects and of providing protection against significant misuse or loss of company assets. The Company uses an Enterprise Resource Planning (ERP) package that enhances the efficiency of its internal control mechanism.

The Companys internal control systems are supplemented by an internal audit programme and periodic reviews by the management. Mastek has appointed an independent audit firm as its Internal Auditors, and the Audit Committee reviews its findings and recommendations at periodic intervals. Masteks internal control system is adequate considering the nature, size and complexity of its business. Mastek has also put in place a strong enterprise risk management function, which oversees the risk management of the Company on an ongoing basis.

Cautionary statement

Statements made in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be “Forward looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the government regulations, tax laws and other statutes and other incidental factors. All forward-looking statements included in this Annual Report are based on information and estimates available to us on the date hereof, and we do not undertake any obligation to update these forward-looking statements unless required to do so by law.