Onward Technologies Ltd Management Discussions.

A. Management analysis

Engineering R&D (ER&D) services and products are the fastest growing segments of the tech industry in India today. Together, they are also bigger than the business process management (BPM) segment, prompting some to say its time to change the industry nomenclature from IT-BPM to IT-ER&D.

ER&D involves work that Indian third-party outsourcers do for the core products of their customers, and work that MNC captive/GIC centers in the country do for their parents core products. Engineers in India work on development of products such as driver assistance, safety, and anti-lock braking systems. Some work in core areas like electric vehicle development, graphics/VR, data analytics, artificial intelligence and mobile camera image processing software.

ER&D services and products constituted $36 billion of the total revenue of $177 billion of the Indian tech sector in 2018-19, according to a report by NASSCOM and consulting firm Zinnov. BPM revenue was at $35 billion. About $18 billion of the ER&D revenue came from the 1,567 Global Competence Centers (or MNC Captive Centers) in India, and about $14.5 billion from Indian service providers and remaining are product revenue.

The report said global R&D spends grew significantly (about 11%) in 2018 across industries to $1.8 trillion, as companies tried to use new-age digital technologies to improve operations and increase customer engagement. About 5% of R&D is globally sourced, and India is the biggest beneficiary of that, accounting for 30% of the total in 2018, up from 28% in 2017. Compared to the $18 billion of work that MNC tech centers in India do, it is $12.5 billion in China.

R&D spend in automotive is focused on electronics, software and autonomous vehicles; semiconductor firms are focused on AI, IoT and cloud; healthcare firms in personalized medicine, AI in drug discovery; consumer electronics in connected and smart devices; industrial in predictive maintenance and in-flight connectivity; banking/insurance in payments technology and telematics based insurance; and retail in transformation of instore shopping. That opened up enormous opportunities for winning sizable deals.

Your Companys current capabilities, global presence and investments in new/emerging areas helped increase client relevance, and building the right business model. As we look back at fiscal 2019-20, this strategic direction has yielded strong results. Our clients have increased their trust in us. As our clients seek to transform their businesses, they are increasingly engaging with us to help them achieve their business objectives. Our deep capabilities in Engineering R&D and IT have helped us become one of the preferred service delivery organizations. We expanded our approach to engaging with clients via a larger team of client-facing individuals and a stronger team that drives strategic partnerships. This resulted in a significant increase in our ability to engage with clients for their large programs. We expanded our offices across thereby gaining access and direct engagement with our clients.

We consciously adjust our service and solution offerings to reflect emerging and disruptive industry trends. The Company has nurtured domain expertise and quality focus in its workforce in line with the stringent process and quality standards. The teams in the Company have also developed solutioning capability through their extensive experience and domain knowledge to be able to best meet customer needs at optimal cost, thus making its offerings competitive in the market.

B. Industry overview and developments

Technology and markets are moving today with a lightning speed, thus causing disruption in established business models and giving birth to entire new industries. The intensity of industry disruption and rate-of-change of consumer needs today necessitates staying ahead of market demand. In these challenging times, not the fittest, but the most amateur visionary will survive.

One of the biggest trends that is currently shaping the IT and ER&D sector is the digital disruption of Product Engineering value chain, both the product itself and process, in the form of Big Data, loT, Engineering and Data Analytes, 3D Printng, Artificial Intelligence, Blockchain, AR/VR, etc. This disrupton is pushing large corporatons to focus a larger part of their IT and ER&D spends on Digital. This trend is overlaying on other imperatves that are driving this sector such as sustainability, miniaturizai on, connectvity and localizaton. Smart products with embedded software and connectvity are increasingly commanding attenton, and more over that data and cyber security will be one of the big focus areas for IT and ER&D spends in the coming days.

At Onward Technologies, we are enabling some of the worlds leading organizatons to transform into the new areas of servicing - Big Data, Data Analytcs, Embedded, Electronics, PLM and 3D experience. Not only serving in our vanilla offerings: design, engineering analysis, engineering documentaton, technical publicaton, applicaton maintenance, test ng, we are exploring the vistas of new and disrupt ve business models for product manufacturers, technology firms, financial service sector, etc. Being a trusted advisor to many other Fortune 1000 companies, we recognize that to achieve digital transformaton at scale is key to future success. .Every day, we internalize the spirit of the customer first in its purest sense, which helps us power our clients forward with their ambitons to reinvent at scale in todays age of technology disrupton.

The company is focused on achieving growth with its strategy of invest ng in competency development, industry specializatons and pursuing OEM and large Tier-1s for long term contracts and mining them into a large potent al, having added significant capabilites to put the Company in a favorable posit on for high-end projects from exist ng clientele.

In additon to its largest market of North America, Europe (including UK) and India will contnue to remain the key growth markets for the Company on account of the large share of global IT and ER&D spends contributed by these regions, thus helping the Company to capture a larger wallet share from exist ng customer spends and also open up newer markets. We are committed to invest ng and delivering on the breadth and depth of our IT and ER&D capabilites. Global engineering centers are integral to the Companys business model to deliver proximity benefits, lower costs and sustainable innovat on to its customers.

C. Segment/Product wise performance:

Companys engineering operatons can broadly be categorized under following groups:

• Product Design

• Simulaton Engineering

• Automaton Solutons

• Engineering Change Management

While cost arbitrage remains a key in ER&D outsourcing, following other important Distnct Different ators in your Companys services that are attract ng the global ER&D sourcing:

• Design to Cost / Quality / Time

• Design driven manufacturing culture

• Commitment to R&D, Innovat on, Value-add deliverables

• Collaboratve Engineering to reduce "t me to market"

• Flexible and cost effectve Business models

The Company provides services in Mechanical, Electrical & Controls Engineering, Embedded Products & Systems Development, Mobile & Enterprise Software Development Data Analytics & Digital Transformation, Robotic Business Process Automation, and Enterprise Managed Services for Infrastructure, Applications & Databases.

The Companys employees are dedicated to provide expert consult ng and value-added services to customers in the Automotve, Aerospace, Off-Highway, Industrial Equipment & Machinery, Healthcare & Laboratory Equipment, Pharmaceutcal & Life Sciences, and Banking, Financial Services & Insurance industry domains. Its strategic alliances with large enterprise software OEMs help in providing a comprehensive range of end-to-end solutons and services.

D. Opportunities, Threats, Risks and Concerns

The business landscape is continuously changing with increasing focus on innovation and technology. This transition lays before us immense opportunities. As an organization we will strive towards our aspirations without compromising on our core values.

Following are few risks and uncertainties include, but are not limited to:

• Currency fluctuation in foreign exchange rates

• Unforeseen escalations in wages, statutory mandates, project cost overruns, liabilities, disasters

• Relevance of offerings and ability of investments meeting fast pace of change in the industry and disruptive technologies

• Misuse or loss of Companys confidential Data/IP

• Restrictions on visa & immigration policies, regulatory non-compliance

• Increased competitive pressure from peers local and global

• Economic uncertainty in any of the markets, regional trade wars may lead to decline in demand

• Failure of infra-systems, natural disasters, cyber-attacks, riots

E. Achievements/Testimonials

Below are some of the achievements that stands testimony to our renewed vision, mission and values of your company.

For a top global off highway equipment company of size $50 billion, company has been partnering with them for the last 10+ years and have executed many digital transformation projects . Last year, we built a complex engineering automation single sign on portal for the entire organization. Through this initiative, we were able to achieve more than 50% productivity improvement and direct cost savings to customer. This is reflective of our innovation culture at the core of whatever we do and exhibiting our value of puffing customer first.

For a global medical technology firm of size $12 billion, we re-engineered and designed a new equipment with embedded electronic components which can ease the patients life in a hospital set up through complex design and 3D printing. Again exhibiting and going the extra mile to help not only our customer but their customers as well.

Company received many accolades from customer on outstanding delivery of our projects. The Vice President (Supply Chain) of a leading Swedish based precision radiation medical company of size $120 million has appreciated our team for achieving multiple deployments and installations perfectly.

One of your Companys leading manufacturing domain experts has written an article on flexible manufacturing system in “Manufacturing Technology Insights" magazine for their special edition on Metal Manufacturing.

Your companys Technical Publishing team was highly appreciated by a leading OEM for a “Proof of Concept" assignment.

In the area of Cost Engineering, your Company continues to be at the highest levels of expertise. A leading locomotive manufacturer having revenues of US$8 billion+ continues to rely on your Company in this area of work.

Your Company recently completed 10+ years of partnership with a Swedish based precision radiation company of size US$120 million and also for a US$50 billion + global off-highway equipment manufacturer.

This shows our true strategic partnership of choice for digital and engineering services to many of our global customers.

F. Operations Performance - including Subsidiaries

For the FY 2019-20, the Company reaffirmed its commitment and position in the Engineering and IT segments.

Subsidiaries Performance: Each subsidiary continued to operate with adopting the customer-first attitude and operational discipline with right business strategy, Right People @ Right Role @ Right Job.

G. Outlook

Leading Analysts research reports indicate that the investments in Global Engineering R&D and Digital transformation is set to grow to approximately US$660 billion by 2023. While the traditional R&D will see a flat trend, the newer investments are bound to see a huge jump in the coming years.

Hence, your companys strategy to stay invested in the new age digital technologies will be the top priority. All the new investments is aimed at building these multi-level digital capabilities.

Our rebranded vision:

Onward Technologies aspires to become one of the most preferred Technology Services partners to top global companies who are leading innovation at the intersection of the digital and physical worlds.

This is the vision Onward Technologies subscribes to and there is a defined path laid out for each one of us to play our roles. While Covid created uncertainty is looming large, we see many customers transitioning to Industry 4.0 as quickly as they can. Hence, we will continue to invest significantly in these new digital transformation capability areas to have the right people in the right place with the right set of capabilities, added to our laser focus approach on aggressive growth to serve them.

A sales focused culture along with a renewed brand strategy and first time right delivery approach will place us favorably to achieve this. With a 2,100+ strong team pulling this together, there is no end to what we can achieve.

H. Material Development in Human Resources

As a business partner, Human Capital Management has been the key during the year by centralizing HR operations at Pune, in ensuring Right People @ Right Role @ Right Place. With the accelerated pace of changes in market and technology disruption, keeping up with the change and continuously striving to transform talent is hard work.

Company continued to make investments in strengthening of delivery expertise in India by addition of experienced talent & enhanced Delivery capabilities; Specialist for roles across the functions to provide a frame work for scalability & support to revenue growth. Improved revenue cost ratio by correct pyramid.

We are transforming our workplaces into open, collaborative spaces allowing employees to connect with each other and co-create seamlessly. This makes for an agile, immersive environment conducive for ideas to take shape and innovations to be at speed. More over top-performing employees seeking to proactively shape their careers to leverage emerging opportunities and to also develop corresponding skills. We deeply acknowledge and incentivize skill-building, training and on-the-job experience in new areas.

Performance based culture with Predefined Objectives, Standardized Appraisal Process, Regular review of objective (Goals Vs Achieved) and Structured Variable compensation scheme for performance based rewards. Prevalent ESOP scheme is a way to recognize the efforts put in by the top performers towards the organizations success.

Employee Engagement/Welfare/R&R with More focussed approach on employee engagement & motivation through Skip level & One on One connect through HR business partners, Continuous Engagement activities & awareness sessions to boost employee morale

Create a vibrant and highly motivated workforce. Better retention rate has created strong experienced team. Gender Diversity, Culture of Transparency & Strong Compliance align the human capital to companys core values and encourage positive minds.

I. Significant Changes in Financial Ratios:

During the year, the significant changes in the financial ratios of the Company, which are more than 25% as compared to the previous year are summarized below:

Financial Ratio 2018-19 2019-20 Change (%) Reason for such change
Debtors Turnover Ratio 5.34 5.41 1.38 -
Inventory Turnover Ratio* NA NA NA -
Interest Coverage Ratio 6.54 3.78 (42.18) Due to one-time impact of change in closure of low margin business.
Current Ratio 1.70 1.53 (10.30) -
Debt Equity Ratio 0.26 0.27 0.93 -
Operating Profit Margin (%) 9.00 8.96 (0.41) Due to one-time impact of change in closure of low margin business.
Net Profit Margin (%) 3.86 2.29 (40.80) Due to one-time impact of change in closure of low margin business.

J. Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof

Rati< 2018-19 2019-20 Change (%) Reason for such change
Return on Net Worth (%) 18.29 9.66 (47.16) Drop in net profit and increase in equity base

Formulae:

Debtors Turnover Ratio = Net Credit Sales/Average Net Accounts Receivables

Average Net Credit Accounts Receivable= (Opening Net Accounts Receivable + Closing Net Accounts Receivable)/2 Interest Coverage Ratio = EBIT/Total Finance Costs Current Ratio = Current Assets/Current Liabilities

Debt Equity Ratio = (Short Term Borrowings + Long Term Borrowings)/Total Equity Operating Profit Margin (%) = EBITDA/Total Income

EBITDA = Profit Before Tax + Finance Cost + Depreciation and Amortisation Expenses

Net Profit Margin (%) = Net Profit/Total Income

Return on Net Worth (%) = Net Profit/Average Total Equity

Average Total Equity = (Opening Equity + Closing Equity)/2

* Inventory Turnover Ratio is not applicable because the company is service oriented

For and on behalf of the Board of Directors
of Onward Technologies Limited
Place: Mumbai

Harish Mehta

Date: May 15, 2020 Executive Chairman