Odyssey Technologies Ltd Management Discussions

Pursuant to Regulation 34(3) and Para B of Schedule V of SEBI(Listing Obligations and Disclosure Requirements) Regulations, 2015 and the amendments thereof, details of the Management discussion and analysis are given below:

Industry structure and development

This year the IT industry saw a generally muted performance across the globe. Though the global political and economic events seem to have contributed to this, from an industry perspective, the creeping adoption of AI tools also has some bearing on it. Newer paradigms like AI enabled security and AI enabled attack techniques are also battling it out in the market place. It is our reading that the security industry is going to be heavily influencedby this ‘next great thing at least for a while. In the medium run, the AI assisted attacks industry is going to continue to flourish, largely as an underground phenomenon, mainly because of the tacit and occasionally direct support from nation-states and other global forces. The AI assisted security, on the other hand, would see a lesser growth because of the inherent skew in the balance between offence and defence. Further, we are also witnessingsignificantfragmentation of the security industry, largely because of the ease with which the so called AI tools can be adopted. It also does not callforanysignificanttechnical competence to create ‘AI enabled applications. That aside, the large enterprise players in India continued to focus on the age-old problems that are largely handled by traditional mechanisms like OTP. Though the Central Bank advised against the usage of OTP, that advice is yet to have a ground-level impact, largely because of the absence of credible alternatives.

The certifying authority business also has seen some growth in the number of Certifying Authorities though not in the number of certificates issued. Here again the common availability of the technology as contrasted from the early 2000s has led to a splintering of the once-exclusive Trust market which is unlikely to lead to anything good for the industry or the consumers.

Towards the end of the year, there were unsubstantiated information that a legislatively sanctioned Mobile PKI may be announced in the country. Though the details are scarce yet, we do not see any easy way of building a mobile PKI in the same lines as the existing PKI. If it comes to pass, we fear that it may have to sacrifice several existing maxims of public key based security. It may bring out some immediate and temporary fillip to the industry but will be detrimental to the health of the industry even in the medium term.

Odyssey Technologies is firm in its convictions that a public key based security and trust model as adopted by Odyssey will prove to be essential to the growth of the economy and industry notwithstanding any alluring developments in the AI or the temporary upsets from frivolous alternatives. We remain steadfast in our commitment to our chosen technology and our efforts to evangelize it.

Opportunities and Challenges

During the last year, we have successfully added support for two more Indian Customs related signing services in the xorkeesign G2C extension. More importantly we have added support for a State Governments official applications as requested by the Government. When fully adopted, the feature will service more than 5000 Government Functionaries across the state. It was introduced in the last quarter of the year and by year end, more than a hundred officerswere using it on a daily basis to render more than 2000 signatures per day. We expect the adoption to grow and the ease of use therein will prompt the other States also to adopt this solution. The year also saw a few pilot and proof of concept implementations of xorkee-based authentication. A large bank has been running POCs and expected to reach a decision in the first half of 2024-25. A few other banks and financial institutions have also started their due-diligence process.

The two biggest objections we see towards adoption of xorkee by large institutions are 1. That xorkee is outside the customers network and that their customers data may be compromised or merchandised and 2. The xorkee service could become a single point of failure for their services. The first is demonstrably unfounded and will melt away as they realize that several even more critical services are utilizing xorkee with absolute security and assurance. The second objection will also go away once more and more services come to depend on xorkee and the uptime statistics dispel their fear. However, in the short run, the customers and prospects need to be additionally assured. That can only be done by getting the infrastructure audited and certified by trustworthy third parties. Additional strengthening of the computing and network infrastructure as well as getting it certified widely, will be the companys primary agenda for the ensuing year.

We believe that the commercial performance will stay in-step with these developments this year.

Product-wise performance

A major portion of the companys revenue still accrued from the legacy products. ‘xorkee and related services saw reasonable user adoption but the revenue from them is not yet significant.

The total revenue for the year was 263.32 million rupees. 65.13% of the revenue came from product related services and 30.83% from product licenses. The balance came from software exports.

Of the service revenue, 5.20% came from Pay As You Go services, 18.40% from customization and implementation and the rest from Annual Maintenance, onsite services and xorkee subscription.

The product revenue is composed of 74.06% from Snorkel and Crypta, 5.70% from Certrix and eSign and 20.24% from AltaSigna as well as a number of variants of AltaSigna like the NPCI eMandate application.

Outlook

The company remains quite optimistic about the xorkee offerings. We believe that during the year the revenue from xorkee will surpass the license and service revenue from the legacy products.

The companys xorkee offerings have already gained the reputation of being the most user and customer friendly in the market and adoption has been gaining pace. The company remains extremely optimistic in its outlook.

Risks and Concerns

The biggest risk continues to be the attacks both by private and state-sponsored attacks. We continue to strengthen our operational processes to make our operations resilient.

Though the skills gap is as prounced as in the last few years, we propose to substantially retrain our existing workforce in tune with the xorkee offerings. It may still be necessary to add lateral talent for our selling and marketing.

Regulatory measures in the country and outside also can be a matter of concern.

Internal Control Systems

Internal control systems continued to function as effectively as in the past. Top management and the Board of Directors and the Committees thereof continue to be actively involved in ensuring that all controls work as intended.

Financial and Operations Performance

There is a revenue growth of 8.84% with the operating profit margin at 23.61%. The total expenditure during the year was Rupees 224.47 million against 203.29 million last year which was due to the considerable jump in employee benefits expense added with the increase in employee count. The PBT for the year stays at 59.76 million as against 56.52 million last year, a marginal increase of 5.73%. The tax provision is higher this year at 15.28 million instead of the last years 12.86 million. This has resulted in the net profit of 44.48 million as against 43.66 million last year, a marginal increase of 1.87%.

The cost of manpower stood at 175.73 million compared to 152.77 million last year, and continues to be the major cost component for the company.

The Company has identified the following as key financial ratios:

Key Financial Ratios	2023-24	2022-23	Variance %
Operating Profit Margin (%)	23.61	27.38	(13.76)
Net Profit Margin (%)	16.89	18.05	(6.42)
Return on Net Worth (%)	8.38	9.03	(7.19)
Current Ratio (times)	16.45	21.77	(24.43)
Days Sales Outstanding (in Days)	101	90	12.22

Ratios where there has been a significant change from FY 2022-23 to 2023-24 are explained below: Decline in operating profit margin is due to the increased employee benefits expense during the year.

Decline in current ratio is caused by increase in current liability during the year which is due to the jump in revenue received in advance.

The debt-equity ratio and the debt service coverage ratio are not applicable to the Company since there are no borrowings.

Research and Development

The company continued to spend a substantial portion of its efforts and resources on R & D. In the matter of cryptographic key enabling and usage Odyssey has gained a valuable advantage over other players and it is only the Research efforts that will help us to maintain that advantage.

Human Resources Development

There were one hundred and seventy eight employees in the rolls of Odyssey. Last year the figure stood at one hundred and sixty one. The attrition levels were under control. This has also had the effect of increasing the companys expenditure by way of a raised median compensation. The company feels that it should keep up the increased investment in its developmental resources to fully exploit the opportunities available to it at this juncture.