Omnitech Infosolutions Ltd Management Discussions

ECONOMIC OVERVIEW

During the year 2012, uncertainties in global economies persisted. The last three years have presented unprecedented challenges for these economies.2008-10 saw one of the worst global recessions that led to severe cutbacks across sectors and drastic reduction in IT budgets. Organizations focused on Keeping the lights on that impacted discretionary spend. On the positive side, unlike 2008 downturn, when the most companies were caught off-guard by the sudden slowdown in the economic activity, this time they are relatively better prepared and more nimble footed. Several measures undertaken post financial crisis have helped them to reshape their business model and to adapt to the new market conditions. Also, while the 2008 crisis was triggered due to highly leveraged balance sheet of financial institutions and companies the current slowdown is mainly driven by the increase in leverage of the government. The business sentiments across most markets are relatively better as the companies have been performing well and have improved their balance sheets. While due to economic and political uncertainties, the decision making is slow, there has not been across the board cut in IT budgets. The financial year 2012-13 was also one of the toughest for Indian economy, with the Indian out put growth slowing to the nine year low rate of 5% against 6.5% in the financial year 2011-12. Due to the combination of rapidly slowing growth, weakening of rupee, uncertain demand outlook, high inflation, tight monetary policy and slowdown in overall decision making, there was a considerable slowdown in the investments during the financial year which in-turn had an impact on the demand for IT products and services.

INDUSTRY OVERVIEW

Global Market

Despite global economic slowdown, IT and IT-ITES industry continued to grow albeit at a lower rate. Globally, companies are increasingly adopting disruptive technologies like cloud, mobility, social and big data/analytics to stay agile and reduce their cycle time. While reducing upfront cost companies want to stay future ready and act fast as and when opportunities arise and more customers demand opens up. During the year, the IT-ITES sector grew by 4.8% to over USD 1.9 trillion. Global sourcing grew slower this year, by 9% due to consolidation and cost containments from the EMEA region and industrys shift towards smaller contract deals. Of the USD 1.9 trillion, IT-ITES accounted for the 57% or USD 1.08 trillion, while the remaining USD 797 billion was IT hardware spend.

Domestic Market

Domestic IT-ITES consumers include government, large enterprises, micro, small & medium enterprises and household consumers. Domestic ex-hardware IT-ITES market grew by 14.1 per cent to 1047 billion in FY2013. The sector is supported by several supporting factors like increasing adoption of ITITES, globalization, rapid advancement in technology infrastructure. Even in the domestic market, IT services grew the fastest by 14.5 per cent to 674 billion. Indias domestic IT services market ranks third in Asia/Pacific but has comparatively much lower IT spending as a percentage of GDP (less than 2.5%) compared to the global average. The industry is forecasted to continue strong growth at a (CAGR) of 13-15% through 2014 and onwards.

Indian IT industry

During the year 2012, the Indian IT-ITES industry not just successfully weathered the strong global headwinds but also crossed an important milestone. The Indian IT-ITES revenues crossed an USD 100 billion. Within the global sourcing industry, Indias market share has reduced from 58% in 2011 to 52% in 2013 due to emergence of other destination like China, Indonesia, and Philippines etc. but has continued to retain its competitiveness and the effectiveness by enhancing their engagement models and value appeal to clients. Excluding hardware, the IT software and services revenues during the year were at USD95 billion and grew by 8%. The IT software and services contribution to export revenue grew by impressive 10.2% and reached USD 76 billion, almost a quarter of the overall Indian exports. This growth was led by IT services which grew by 10% to USD 44 billion and accounted for 58%, while the BPO segment grew by 12% to USD 17.8 billion or 23.5% during the financial year. The ER&D, OSPD and software products segments grew by nearly 8.4 per cent and contributed USD 14.1 billion to export revenues or the remaining 18.5%. Within software and services exports, IT services accounted for 58%, BPO was nearly 23.5% and Engineering R&D and software products accounted for the remaining 18.5% to IT software and services export revenue.

Infrastructure management

Globally, IMS industry currently accounts for little less than a quarter of the overall IT spends. The industry is shifting towards a remote delivery model (RIMS or IS outsourcing) as services are increasingly delivered by vendors from low-cost locations. Unlike the ADM market, the IS outsourcing is largely an untapped market. Backed by number of support factors like improvement in infrastructure, availability of low-cost & high speed bandwidth, development of modern remote management tools, significant cost saving along with quality improvement and prompt resolution are driving growth of this segment. Other factors like modern governance tools that reduce costs, and create unprecedented transparency and improvement in security solutions are also aiding in the growth of this segment is outsourcing is one of the fastest growing segment and accounts for nearly 24 per cent of incremental IT exports growth. As per Nasscom estimates, the addressable market for RIM is at USD96 billion to USD104 billion and excludes the infrastructure management spend by segments that are not serviceable. RIMS being a nonlinear model help companies to scale up capacities at much lower cost.

Future Outlook

The Industry, on back of increasing penetration of emerging technology is going through paradigm shift and is increasingly investing in domain solutions and technology platforms that will drive its future growth. The role of IT Services is no more limited to adding cost efficiencies but is gradually moving to front end as a revenue contributor and increasing business value. While the global technology spending is expected to maintain its current momentum of near 5 per cent over the next 2-3 years, the global outsourcing market is expected to grow much faster at 9 per cent over the same period.

The global IT services are expected to grow by 5 per cent in 2014. The Indian IT-ITES service industry is expected to grow by 12-14 per cent and its revenues are expected to cross USD100 billion. The penetration of IT in India is relatively low and is expected to grow much faster as the organizations get more matured and globalized. Increasing adoption by small and medium enterprises is also expected to contribute to the faster growth momentum. During the financial year, the domestic technology spending is expected to increase by 13-15 percent to reach Rs. 1,180-1,200 billion.

The IS outsourcing, aided by disruptive technologies like virtualization, cloud, mobility, analytics and social media is expected to grow the fastest in IT services. The growth shall be driven with focus on greater efficiencies and flexibilities comprising initiatives on reengineer IT internally, diversify, bring non-linearity and solutions for transforming customers business.

OPERATIONAL OVERVIEW

In 25 years of our active participation, we have witnessed several phases in the evolution of Information Technology, in India and across the globe. We have also evolved as an organization all along and transformed ourselves from pure-play System Integrator to a pure play Technology Services Company. In the process, we have grown, have direct business presence in India, Singapore, Hong Kong, Netherlands and USA. However, During the last financial year, the business have gone down due to market conditions and certain other unavoidable circumstances, due to which revenue has gone down drastically.

Customer Centric Approach: Omnitech has positioned itself as a Transformational Partner with an outside in approach, where we act as IT partners to our clients and provide them with services and solutions that their business demands, help them reduce their cost of operations, and provide them with scalability and efficiency in their operations.

Industry Vertical Focus: While BFSI continues to remain the major focus vertical for us, we have widened our industry vertical focus to include education, retail, healthcare and pharmaceuticals as new focus areas.

HUMAN RESOURCES

Human capital is regarded as the most valuable asset to this company. Our human capital has been divided into the Core Executive Committee, The Key Management People, Rising Stars and other employees. We take proud in the fact that we have been able to retain all of our Core Executive Committee members and our Key Management People. As an organization, we promote healthy attrition at the lower levels to remain profitable and sustainable. Our ELTP (Entry Level Training Program) has enabled Omnitech reduce its man power costs by 10-15% and at the same time equipped our entry level resources with better skills and knowledge to serve our customers in an efficient manner. Our employees spent close to 25000 hrs in Learning and Development initiatives. These initiatives have further strengthened our employees ability to deliver in an efficient way and add to customer delight.

Review of Financials Share Capital

Omnitech has only one class of shares - equity shares of face value of Rs. 10 each. The Companys authorized share capital is Rs. 2,000 Lac, subdivided into 200 Lac shares of Rs. 10 each. The paid up capital of the Company is Rs. 1500.22 Lac divided into 150.02 Lac shares of Rs. 10 each. During the year under review, 4741 ESOPs were converted into equity shares.

	As on 31st March, 2014	As on 31" March, 2012
Authorized Share Capital	Rs. 2,000.00 Lac	Rs. 2,000.00 Lac
Paid Up Capital	Rs. 1500.70 Lac	Rs. 1500.22 Lac

Reserves & Surplus

During the year under review, the Share Premium Account increased by Rs. 5.50 Lac on account of conversion of stock options. There was no increase in General Reserves.

Non-Current Liabilities: Long Term Borrowings

During the year under review, there was a net decrease of Rs. 1295.62 Lac in long term borrowings. This decrease is mainly net effect of increase in WCTL and FITL from IDBI Bank and also reclassification of Term Loan from Ge Capital to Short Term Borrowings.

Deferred Tax Liability

The Company reported cumulative net deferred tax liability of Rs. 4688.95 Lac as against Rs. 3627.84 Lac incurred in the previous financial year. Deferred Income Taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. The differences that result between the profit considered for income taxes and the profit as per the financial statements are identified, and thereafter a deferred tax asset or deferred tax liability is recorded for timing differences, namely the differences that originate in one accounting period and reverse in another, based on the tax effect of the aggregate amount being considered. The tax effect is calculated on the accumulated timing differences at the end of an accounting period based on prevailing enacted or substantially enacted regulations. Deferred tax assets are recognised only if there is reasonable certainty of their realization and are reviewed for the appropriateness of their respective carrying values at each balance sheet date.

Long Term Provisions

During the year under review, there was marginal increase in long term provisions by Rs. 5.26 Lac.

Current Liabilities:

Short Term Borrowings

During the year under review, there was a net increase in short term borrowings by Rs. 5476.48 Lac. This increase is mainly due to fund raising through public deposits, other unsecured loans and reclassification of certain borrowings from long term to short term borrowings.

Short Term Provisions

During the year under review, there was a net decrease in short term provisions by Rs. 324.14 Lac. This decrease is mainly due to the fact that there was no provision made for the dividend during the year.

Non-Current Assets:

Fixed Assets

During the year under review, there was a net increase in fixed assets by Rs. 8055.70 Lac. The increase was mainly due to increase in intangible assets. Non- Current Investments

Non-Current investments mainly consist of investments made in subsidiaries and Joint Ventures. During the year, there was no additional investment made. During the year, there was decrease in Non-Current Investments, mainly due to writing off certain investments made in subsidiaries and Joint Ventures.

Current Assets:

Trade Receivables

The Companys trade receivables outstanding position stood at Rs. 12498.40 Lac, from Rs. 15929.56 Lac last year, thereby an decrease of 21.54%. This decrease is mainly due to decrease in overall business.

Revenue Analysis

Total Income from Operations stood at Rs. 19131.15 Lac from Rs. 44938.80 Lac last year, thereby a decrease of 57.42%. This decrease was mainly due to due to economic slowdown, global uncertainty, competition and rising interest costs.

Expenditure Analysis

Total Expenditure decreased to Rs. 30597.60 Lac from Rs. 41705.95 Lac. Decrease in Total Expenditure was mainly due to the following reasons:

• Decrease in purchase of stock in trade (including changes in inventories) by 50.62 %.

• . Decrease in Employee Benefit Expense by 45.67 %.

Profit Analysis

The Company reported a Net Loss After Tax amounting to Rs. 14648.12 Lac, as compared to a Net Profit After Tax of Rs. 1869. 66 Lac reported last year. The dip in PAT was due to decrease in overall revenues as well as dis-proportionate decrease in overall expenditure.

Dividend Policy

Due to non-availability of Profits for the year, there was no recommendation of dividend.

Risk Management

The business domain of IT products and services is a fast evolving. Human Capital is the most critical asset in the business of IT. In addition to the usual risks faced by any business, the specific risks facing the business of IT emanate from the speed of evolution and people-centricity.

With our business being in the realm of IT, the set of risks we stand to face are similar to those faced by the IT industry. The Company, however, have a definite set of practices and strategies in place to mitigate various risks facing its business. Companys diverse bouquet of offerings are organised under Business Availability, Business Continuity and Business Enhancement. The diversity of these offerings translates into set of unique risks to each of them. Yet, at company level, they provide cushion for one another.

Revenue Concentration risk

The companys top 10 clients account for 55 per cent of its Total Revenue. Any attrition in the key clientele might have adverse impact on the revenue growth.

We has a proven track record of retaining key clients with some of the relations going back up to 20 years. However, the Company has cautiously been minimising its dependence on select clients by diversifying the clientele across various business verticals. Recent initiatives on securing inorganic growth will help us address the said risk in coming years. From top 10 clients contribution to Total Revenue being 66 per cent in FY 07, we have already lowered our dependence on them to the current levels.

Attrition risk

Our business currently is in accelerated growth phase and attritions at key levels might adversely impact the prospects.

Being promoted and led by techno-commercial professionals, we value talent and engage it with effective and efficient talent management policies and programmes. We acknowledge the value of our key people by offering ESOP to members of the Core Executive Committee, Key Management Personnel and even to rising stars. Transcending the usual employment considerations, the members of the key team shape and share Companys vision and work towards realising them. While shared vision binds the members together, we continue to. create future leaders from within and maintains a robust second line.

Competition risk

We operate in a competitive environment of managed IT services and face competition from the established organised players as well as the fragmented unorganised segment.

We have carefully chosen niche domains and built a formidable reputation, clientele and scale in each of them. We continue to look at unexplored segments and geographies and approaches them with a definitive plan. Our fortification in the SME segment, pioneering entry and subsequent growth in Disaster Recovery domain and ahead of competition penetration in European markets bear testimony to our ability to stay ahead of the competition.

Outsourced Service Risk

We deploy third-party services to service clients at remote locations. Any deficit in service quality from these vendors might adversely impact our reputation.

We screen our partners on pre-defined parameters and practice utmost care in choosing the right partners. Once the partner is engaged, we orient the partner and its frontline personnel through a structured programme. They are aligned with our values and customer-centricity before being deployed. A close monitoring of their performance is done on periodic basis.

Internal Control System and its Adequacy

Our approach towards internal control is aimed at optimising resources at one hand and protecting our assets on the other. We deploy a robust system of internal controls that facilitates the accurate and timely compilation of financial statements and management reports; ensures the regulatory and statutory compliance; and safeguards investors interest by ensuring highest level of governance and periodical communication with investors. Our internal auditors conduct internal audits and submit reports to the Audit Committee.

On monthly basis, meeting is held with an internal auditor, wherein all the department personnel and the Company Secretary participate. In the meeting, observations made by auditors are discussed and the department personnel are asked what measures they have taken to rectify the discrepancies. Further, if any serious discrepancy is found out by the internal auditors during their audit, which requires immediate attention of Management, the same is brought to the notice of the Company Secretary, who has been entrusted with the task of looking after internal audit function and immediate action is taken thereon.

Our Audit Committee consists of three directors and is chaired by an Independent Director. The role and terms of reference of the Audit Committee include overseeing the Companys financial reporting process, reviewing periodic financial results, financial statements, internal control and internal audit systems, accounting policies and practices, related party transactions and performance of internal and external auditors.

The committee also holds discussions with statutory auditors, internal auditors and the management on matters pertaining to internal controls, auditing and financial reporting periodically.

Future Outlook

At Omnitech, our business strategy is modeled to seek sustained growth. Accordingly, we have been continuously strengthening our growth engines organically as well as inorganically. The slew of alliances and acquisitions that we have made are at various stages of maturing. The scaling up of our IT and talent infrastructure together with our increasing product offerings and customer base augur well for future. Courtesy its competitive strengths, managed services would be the key growth driver for us, at Omnitech. Asia Pacific appears to be the major contributor to the revenue as well as growth for the company. Our Cloud based offerings are nearing the commercial launch. Besides revenue growth, they will also bring the cost advantage. We are slated for significant organic growth in all our geographies. Clubbing the cross selling opportunities of unique strengths/services of our allies and those of acquired companies shall further augment our growth prospects. We are also looking at inorganic growth in Europe and US by way of acquisition and strategic alliances in the Managed services space. We are also planning to tap new and upcoming verticals like healthcare, pharma and retail. We are planning to provide vertical specific solutions and services to penetrate deeper into the existing verticals.