prism informatics ltd Management discussions

Introduction

India is the worlds largest sourcing destination for the information technology (IT) industry, accounting for approximately 52 per cent of the US$ 124-130 billion market. The industry employs about 10 million Indians and continues to contribute significantly to the social and economic transformation in the country.

The IT industry has not only transformed Indias image on the global platform, but has also fuelled economic growth by energizing the higher education sector especially in engineering and computer science. Indias cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US, continues to be its unique selling proposition (USP) in the global sourcing market. The Indian IT and ITeS industry is divided into four major segments IT services, business process management (BPM), software products and engineering services, and hardware. The IT-BPM sector in India grew at a compound annual growth rate (CAGR) of 25 per cent over 2000-2013, which is 3-4 times higher than the global IT-BPM spend, and is estimated to expand at a CAGR of 9.5 per cent to US$ 300 billion by 2020.India has emerged as the fastest growing market globally and the third largest market in terms of revenue after the US and China.

Macro-view

The global economy belied initial optimism and continued to remain patchy in 2014. While the global output increased by 3.3%, lower than initial expectations, emerging and developing economies performed better (4.4%) than developed economies (1.8%). GDP growth among developed economies which are also the largest markets for IT Services was very uneven with the US (2.2%) and UK (3.2%) performing better than the Euro region (0.8%) and Japan (0.9%). Businesses are adapting, reshaping their strategies and increasingly using technology to establish a stronger customer-connect, create competitive differentiation and address new opportunities, though it is taking longer than expected, for economies to regain their stride. In particular, the adoption of the digital five forces namely mobility, cloud, big data analytics, social media and artificial intelligence continues apace resulting in reimagined business models, business processes, systems and workplaces, disrupting the old ways of doing business in multiple industries and opening up entirely new, often unconventional, revenue sources for those who have imaginatively leveraged these forces

Market Size

India, the fourth largest base for young businesses in the world and home to 3,000 tech start-ups, is set to increase its base to 11,500 tech start-ups by 2020, as per a report by Nasscom and Zinnov Management Consulting Pvt Ltd.

Indias internet economy is expected to touch Rs 10 trillion (US$ 161.26 billion) by 2018, accounting for 5 per cent of the countrys gross domestic product (GDP), according to a report by the Boston Consulting Group (BCG) and Internet and Mobile Association of India (IAMAI). In December 2014, Indias internet user base reached 300 million, the third largest in the world, while the number of social media users and smartphones grew to 100 million.

Public cloud services revenue in India is expected to reach US$ 838 million in 2015, growing by 33 per cent year-on-year (y-o-y), as per a report by Gartner Inc. In yet another Gartner report, the public cloud market alone in the country was estimated to treble to US$ 1.9 billion by 2018 from US$ 638 million in 2014. The increased internet penetration and rise of e-commerce are the main reasons for continued growth of the data centre co-location and hosting market in India. Indian ITs core competencies and strengths have placed it on the international canvas, attracting investments from major countries.

Government Initiatives

The adoption of key technologies across sectors spurred by the Digital India Initiative could help boost Indias gross domestic product (GDP) by US$ 550 billion to US$ 1 trillion by 2025, as per research firm McKinsey.

Some of the major initiatives taken by the government to promote IT and ITeS sector in India are as follows:

• India and the United States (US) have agreed to jointly explore opportunities for collaboration on implementing Indias ambitious Rs 1.13 trillion (US$ 18.22 billion) Digital India Initiative. The two sides also agreed to hold the US-India Information and Communication Technology (ICT) Working Group in India later this year.

• India and Japan held a Joint Working Group conference for Comprehensive Cooperation Framework for ICT. India also offered Japan to manufacture ICT equipment in India.

• The Government of Telangana began construction of a technology incubator in Hyderabad dubbed T-Hub to reposition the city as a technology destination. The state government is initially investing Rs. 35 crore (US$ 5.64 million) to set up a 60,000 sq.ft. space, labelled the largest start-up incubator in the county, at the campus of International Institute of Information Technology-Hyderabad (IIIT-H). Once completed, the project is proposed to be the worlds biggest start-up incubator housing 1,000 start-ups.

• Bengaluru has received US$ 2.6 billion in venture capital (VC) investments in 2014, making it the fifth largest recipient globally during the year, an indication of the growing vibrancy of its startup ecosystem. Among countries, India received the third highest VC funding worth US$ 4.6 billion.

Factors leading to growth in the IT/ITes sector are:

• Low operating costs and tax advantage.

• Favorable government policies.

• Technically qualified personnel easily available in the country.

• Rapid adoption of IT technologies in major sectors as Telecom, Manufacturing and BFSI.

• Strong growth in export demand from new verticals and non-traditional sectors as public sector, media and utilities.

• Use of new and emerging technologies such as mobility analysis and cloud computing.

• All these factors have given IT/ITES industry a strong competitive position with high market share.

Business Overview & Capabilities

Prism Informatics Ltd. (BSE: 505530) is a Software Development and IT Business consulting services provider headquartered in India. Prism caters to the Enterprise Customers through its range of services from Software Application Development and Strategic IT Consulting, Implementation and support of third Party Enterprise-wide products, including Oracle, SAP, Cognos, TIBCO, and Sybase. Today the brand is well recognized across Europe, Asia-pac, Middle-East, Africa and South East Asia.

Prism has consistently proved its mettle in the consulting industry, and has grown organically and focuses on strategic investments to accelerate market presence and leadership position, in SME segment, in chosen verticals including Retail, Manufacturing, Media & Entertainment, Engineering & Construction, Pharmaceuticals, Life Sciences and Education. Our approach is premised on building deep domain specialization in chosen verticals and augmenting our service offerings to provide end-to end solution for our customers. We recruit talent from some of the best universities, colleges and institutes in India and abroad, as well as some of the leading IT companies in India and overseas. In order to create a differentiated culture and preferred place to work, we have taken multiple measures. These include transparent evaluation criteria, continuous focus on training and new skills, competitive compensation packages, being a value-based organization, open communications policies and mentoring our minds for leadership roles.

Prism intricately understands the varying needs of its customers expectations and develops well- packaged solutions to fulfill their requirements. On time, cost-effective solutions have led Prism to consistently serve its clients across the globe. Prism provides a complete holistic range of solutions by leveraging deep domain expertise and close-knit associations with leading technology companies.

Prism designs and delivers technology solutions and services that span across various industries, built up with matured, proven and integrated framework for managing technology infrastructure, providing IT and Technology Implementation, IT security consulting and IT forensics & Risk management services. Our expertise on Enterprise Solutions spans across Oracle, SAP, EPM and Cognos Controller. Prism has won several awards from SAP, IBM for its quality commitment and delivery leadership. The company now has launched several new products in the Cloud computing and Mobility space. Prism is one of the leading partners across the world where SAP has recognized the market leader in the Mobility Rapid Deployment solution space.

Prism recently achieved Gold Partner status in the SAP Partner Edge program. Achieving gold partner status further demonstrates Prisms commitment to the SAP solution portfolio and its focus on helping companies of all sizes to reduce costs, optimize assets, meet customer requirements, and surpass quality and compliance objectives.

Prism leverages technology across every aspect of the enterprise. Prisms experience in various technologies and domains enables Prism to suggest and choose the best technology and solution based on clients requirements and application type. Prisms consistent investments across R&D and innovation meet Prisms inherent need to scale greater heights.

Prism Success factor has been to enter into niche areas like:

• Business Planning and Consolidation.

• Predictive Analytics.

• KPI and Balance score card

• Risk Modeling

• Governance, Risk & Compliances

Prisms growth is powered by consultative approach, deep understanding of business and technology, passion for innovation and above all, values. Consistent performance has been the hallmark of Prisms success. The focus on innovation ensures that Prism is constantly reaching the frontiers to cater diverse business requirement of the global market.

Key Differentiator

Today, India is transforming into world IT hub and all major players in the field are working constantly towards promoting and expanding their market. In this scenario Enterprise Resource Planning (ERP) is playing a major role in growth of small and medium size industries in India apart from contributing largely into the big business enterprises. Our approach towards business differentiates us from the rest.

Opportunities, Threats and Risks

Opportunities:

Our Strategy of focusing on growth, service innovation and unique positioning in the market place has improved our competitive standing. Prism has performed reasonably well in the Indian IT industry over past few years, if we keep aside certain unavoidable factors in the Indian economy as well as the global economy.

Prism has identified opportunities based on the trends noticed in past couple of years, which continues to be focus of our growth strategies during 2015-16, the key ones of which are as follows:

1. The adoption of Social media, Mobile, Analytics and Cloud (SMAC) technologies is expected to drive growth in all the segments. Cloud and client maturity are the major drivers for this, especially in IT. PRISM is adapting this technology for upgrading its existing solutions as part of its offerings.

2. Emerging Geographies like MEA/APAC and emerging verticals- Healthcare, energy and retails are the key areas where CMC will tap opportunities with its core competency of asset based solution.

3. Pioneering / innovator: We have thrived on building a culture of performance and innovation. Delivering truly innovative services and solutions to our clients underpins our objectives. We continue to strengthen our culture of innovation through an open and collaborative environment.

Threats

1. Attrition: Since the IT sector is exposed to high attrition rate due to more opportunities available in market for the employee, retaining existing talent pool and attracting new talented manpower is a major risk to the Company. The Company has initiated various measures to enhance the retention of employees during the year which includes employee engagement surveys, transparent Performance Management System, Training, Instilling positive culture, Using Communication to build credibility, Fostering Trust and confidence in senior leaders. Prism connects to maintain employee-friendly culture in the organization.

2. Technological changes: Company operates in high end technology which is subject to continuous innovations based on customer requirement. To mitigate the risk of technological changes, Company has its own R&D center to track technological innovations which are relevant to the business of the Company.

Risks

Risk Internal to the Company:

I. Presently the company does not have bank guarantee facility and hence not able to conduct its SAP licensing business to its full extent.

II. Company in order to meet its working capital requirement has availed certain inter corporate loan at higher rate of interest i.e. simple interest of 27% p.a.

Management representation (MP) for point (I) &(II) above: The Company is taking all reasonable steps to avail bank guarantee. Company has approached various banks in this regards and is in talk with leading banks to assist the company by providing Bank Guarantee and enable company to secure the operational activities of the Company. One of the leading Bank have considered our proposal and we are in negotiation stage to solve these internal problems and same might take some time as same involves restructuring of business.

III. Company has receivable of Rs. 13.07 Crores which is outstanding for a period of more than six months as on 31st March, 2015. Company has provided provision for receivables due from its own subsidiaries amounting to Rs. 11.21 Crores.

Risk External to the Company:

I. IT business is technology driven and there is a risk of present technology becoming obsolete.

MP: Prism has a channel partner and leading implementation of SAP solutions constantly upgrades its resource with latest technology and encourages technical team to look into futuristic technology through various training programmes designed and conducted through SAP.

II. Investment by customers in Information Technology is a function of prevailing economic conditions and government policies in their respective country. Any adverse political or economic shift will have a bearing on investment decisions of customers.

MP: Prism is present in India, Srilanka, USA and the Middle East and has thus spread its country specific risk.

III. IT business is subject to attrition

MP: Prism has been a leader in SAP implementation projects in SME segment and offers excellent work experience and knowledge to its employees. This leads to greater work satisfaction as demonstrated by low attrition rate of 14%.

IV. Information Technology business has no entry restriction and thus carries risk of competition

MP: Prism by its sustained performance has earned a niche position in SME segment for implementation of SAP Solutions and as a channel partner of SAP is a leading reseller of SAP licenses and has thus curved out a place for itself to sustain competition.

V. Risk relating to exchange rate fluctuation

The Company is into IT and IT enabled services which subjects it to foreign exchange exposure. Fluctuations in foreign exchange rates might have an impact on the financial performance of the Company.

Marketing Strategies

Our Marketing Strategy revolves not only around the goal of increasing Prisms presence in market by acquiring new clients but also by serving existing client to their complete satisfaction. Modes in which we do marketing are:

a) Email Marketing

Our major focus for generating leads is through a series of event that starts with targeted & monitored email campaigns for which databases are created specific to every campaign (Industry, Revenue, Employees etc.). Modern tools helps us track the actions of recipient in respect to the emails.

a) Tele Marketing

A rigorous telecallling session follows up every email campaign in order to generate leads. The prospects who opened/clicked the emailers are first contacted and followed up. The purpose of the telecalling sessions is to help set up calls, client meetings in order to generate interest in our services & offerings.

b) Events

Our focus for attending/organizing events is to broaden our network of clients, contacts, vendors, prospects etc. These events help showcase Prisms diverse offerings and services. We can also generate a sizable database during these events with a sign-up sheet for people who visit our booth/contacts attending the event.

c) Account Mining

Our existing clients are targeted with our other offerings through various marketing collaterals & meetings.

d) Promoting Prism

We create the brand & service offering awareness by sharing our success stories through periodic news releases, releasing whitepapers, online promotions on various sites and targeting the Industry influencers regarding our services and offerings on social media.

Internal control systems and their adequacy

The CEO and CFO Certification provided in the CEO and CFO Certification section of the Annual Report discusses the adequacy of our internal control system and procedures.

Segmental information (Standalone)

Business segments (For year ended 31st March, 2015)

Particulars	Software Consultancy Services	Software License Sales	Total
Total	168,143,638	41,849,601	209,993,239
Income
Accounts	76,647,135	-	76,647,135
Receivables
Unbilled
	11,177,817	-	11,177,817
Revenue

Segmental information (Standalone)

Business segments (For year ended 31st March, 2015)

Particulars	India	Rest of the World	Total
Total	91,063,825	118,929,414	209,993,239
Income
Accounts	9,523,967	67,123,168	76,647,135
Receivables
Unbilled
	1,343,000	6,304,056	7,647,056
Revenue

Material developments in Human Resources / Industrial Relations front, including number of people employed

The Human resource (HR) strategy is focused on creating a performance-driven environment in the Company, where innovation is encouraged, performance is recognized and employees are motivated to realise their potential. The Human Resource initiatives of the company in the year continued to be aligned with the overall business strategy and individual career aspirations of staff members. HR is the core of the Company, influencing change, building culture and capabilities. The HR processes are continuously evolving and aligning with the changing business requirements. HR is structured into the specialized business units to enable them respond better to the needs of their customers and get more strategic advantage. The emergence of digital forces have given the Company, the ability to build a vivacious enterprise by reimagining how it works and collaborates, with engagement and simplification as core themes. These digital forces help the diverse workforce to collaborate, bond together and act as a critical driver of competitive advantage. Digital technologies are used by HR to increase connect, reduce time to respond and make it possible to understand the employees better which has a positive impact on retention

Prism continued to invest in developing the human capital, building strong relationships with academia and establishing its brand in the market to attract and retain the best talent. Company has 170 employees as on March 31, 2015. The company continues to invest in recruiting highly qualified and skilled employees in the organization.

Human resource strategy enabled the company to attract, integrate, develop and retain the best talent required for driving business growth. Sustained strategic focus to enhance employee capability, improve efficiency and groom future leaders has helped company to maintain its benchmark status in the IT Industry. Our Mature HR processes enable us to agile and be responsive to the dynamic global environment and stay relevant to the customers. Companies have created a performance based environment where innovations are welcomed by the top management, their performance is valued and recognized, further employees are motivated to realize their potential.

The effort is towards developing competencies in technology, domain and processes to meet customer requirements and help our employees to stay relevant and realise their potential. Key leadership attributes at different levels of leadership are identified and mapped to specific programmes. These include personal leadership, organizational knowledge and ethical business practice attributes

The Company ensures compliance of employment, immigration and labour laws in countries of operation. Changes in the applicable regulations are tracked on a global basis. The Company has zero tolerance for sexual harassment at workplace and has adopted a policy on prevention prohibition and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules thereunder for prevention and redressal of complaints of sexual harassment at workplace.

CAUTIONARY STATEMENT

Certain statements made in the management discussion and analysis report relating to the Companys objectives, projections, outlook, expectations, estimates and others may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations whether expressed or implied. Several factors could make significant difference to the Companys operations. These include climatic and economic conditions affecting demand and supply, government regulations and taxation, natural calamities over which the Company does not have any direct control.