OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations, and our assessment of the factors that may affect our prospects and performance in future periods, together with our Restated Consolidated Financial Information included in this Draft Red Herring Prospectus. Unless otherwise indicated or the context otherwise requires, the financial discussion and analysis as at andfor Fiscals 2023, 2022 and 2021, included herein is derived from the Restated Consolidated Financial Information, included in this Draft Red Herring Prospectus. For further information, see "Financial Information " on page 230. Our financial year commences on April 1 of the immediately preceding calendar year and ends on March 31 of that particular calendar year, and references to a particular year are to the 12 months ended March 31 of that year.
The Restated Consolidated Financial Information comprises the consolidated financial results of our Company and our Subsidiaries as at the year ended March 31, 2023, March 31, 2022 and March 31, 2021. In Fiscal 2023, our Company acquired the entire equity shareholding of Hansa Research Group and Hansa Customer Equity. Further, pursuant to Scheme, our Company acquired the marketing communication and allied businesses of Hansa Vision India Private Limited. In order to give potential investors a better understanding of what the consolidated results of operations for our Company and the Subsidiaries would have been had we been operating as one group for all of Fiscal 2023, 2022 and 2021, we have prepared the special purpose consolidated Ind AS financial statements for the year ended March 31, 2021, which gives effect to the consolidation pursuant to the Scheme as if they occurred on April 1, 2020. For details on the Scheme see "History and Certain Corporate Matters" on page 191.
Some of the information in the following discussion, including information with respect to our plans and strategies, contain forward-looking statements that involve risks and uncertainties. You should read the section "Forward-Looking Statements" on page 16 for a discussion of the risks and uncertainties related to those statements. Our actual results may differ materially from those expressed in or implied by these forward-looking statements as a result ofvarious factors, including those described below and elsewhere in this Draft Red Herring Prospectus. Also read "Risk Factors" and "— Factors Affecting our Results of Operations and Financial Condition " on pages 28 and 325, respectively, for a discussion of certain factors that may affect our business, financial condition or results of operations.
Unless otherwise indicated, industry and market data used in this section has been derived from the report titled "Assessment of Marketing Services Industry in India" dated August, 2023 (the "CRISIL Report") prepared and released by CRISIL MI&A. We have commissioned the report for the purposes of confirming our understanding of the industry in connection with the Offer and the CRISIL Report has been paid for by our Company for an agreed amount. Unless otherwise indicated, all financial, operational, industry and other related information derived from the Company commissioned CRISIL Report and included herein with respect to any particular year refers to such information for the relevant calendar year. See also, "Risk Factors - Industry information included in this Draft Red Herring Prospectus has been derived from an industry report prepared by CRISIL MI&A exclusively commissioned and paid for by us for such purpose and any reliance on such information for making an investment decision in the Offer is subject to inherent risks " on page 38. Also see, "Certain Conventions, Use of Financial Information and Market Data and Currency of Presentation - Industry and Market Data " on page 15.
Unless the context otherwise requires, in this section, references to ‘we, ‘us , ‘our and similar terms are to our Company together with its Subsidiaries.
OVERVIEW
We are the largest Indian majority owned integrated marketing services provider in India, offering a single- window solution for creative, media, data analytics and market research services. (Source: CRISIL Report, page 159) We are among the top 10 diversified integrated marketing communications services groups operating in India with a comprehensive range of services in the following interrelated and complementary business segments: (i) Integrated Marketing Communications, (ii) Customer Data Analytics and Marketing Technology ("Customer Data Analytics and MarTech"); and (iii) Full-Service Market Research (including customer experience measurement) and Syndicated Studies ("Full-Service Market Research"). (Source: CRISIL Report, page 159) We have a track record of over five decades, and have been serving leading companies such as Aditya Birla Sun Life AMC Limited, Cera Sanitaryware Limited, Dr. Reddys Laboratories Limited, E.I.D. - Parry (India) Limited, Fujitsu General (India) Private Limited, Gemini Edibles and Fats India Limited, Havells India Limited, Hawkins Cookers Limited, Himalaya Wellness Company, Hindustan Petroleum Corporation Limited, ICICI Prudential Life
Insurance Company Limited, IFB Industries Limited, Mahindra and Mahindra Limited, Oil and Natural Gas Corporation Limited, Royal Enfield (a unit of Eicher Motors), Shriram Finance Limited, Tata Play Limited, Ultratech Cement Limited, and Union Bank of India.
We are a data driven integrated marketing services provider and all segments of our business use digital initiatives extensively. During Fiscal 2023, we released over 818 creative campaigns on behalf of our clients across various media outlets, handled over 97.69 terabytes of data and have conducted over 2.37 million consumer interviews across quantitative, qualitative and telephonic surveys. We aim to provide the highest levels of professional service to meet the continuous needs of our clients and aim to continue growing our capabilities with an unyielding focus on the needs of our clients. Our solutions and offerings are serviced by over 2,391 employees spread across 12 offices and 12 field locations across twelve cities, across our three business segments.
Driven by our clients continuous demand for more effective and efficient marketing services, we strive to pursue a contrarian strategy by providing a wide range of advertising and marketing services under a unified management. Our business segments, and the services provided thereunder, are as follows:
The Integrated Marketing Communications business segment includes: (a) creative and digital content; (b) media (including digital); (c) events and activation planning, buying and executing; and (d) others including public relations, social media management, pharmaceutical communication. (Source: CR1SIL Report, page 121) For further details, please see, " Our Business - Our Products and Services - Integrated Marketing Communication" on page 173. The Integrated Marketing Communications business segment has evolved from traditional advertising as the landscape of advertising has expanded with the advent of new channels that have gained significant popularity in recent years. (Source: CRISIL Report, page 137) Social media advertising has become a prominent avenue, with platforms such as Facebook, Instagram, Twitter, and LinkedIn offering targeted advertising options, sponsored posts, and collaborations with influencers. (Source: CRISIL Report, page 117) Our creative advertising teams create interactive and engaging campaigns for our clients, through which our clients are able to connect with a wide range of audiences and offer these consumers unique and memorable brand experiences. For examples of our creative offerings, please see our creative portfolio at www.rkswamy.com, www.hansaresearch.com_and www.hansacequity.com.
The Customer Data Analytics and MarTech business segment includes: (a) customer data analytics; (b) delivery and management of customer experience; (c) online reputation management; (d) campaign management, campaign tracking; (e) customer relationship management tools; (f) customer insights, dashboards; (g) sentiment analysis; and (h) loyalty program management. (Source: CRISIL Report, page 121) For further details, please see " Our Business - Our Products and Services - Customer Data Analytics and MarTech on page 176. There has been an increasing recognition and adoption of MarTech solutions by Indian businesses, driven by their pursuit to gain deeper insights into consumer behaviour, optimise marketing strategies and improve overall performance. (Source: CRISIL Report, page 142). One of our subsidiaries, Hansa Customer Equity was set up to address this need and has now been recognised among the top 10 groups within the Customer Data Analytics and MarTech services segment providing integrated marketing solutions and is a key player in the industry. (Source: CRISIL Report, page 159)
The Full-Service Market Research business segment includes: (a) customer/ audience segmentation; (b) consumer surveys; (c) customer experience measurement; (d) brand equity and customer satisfaction indices and (e) consumer intelligence. (Source: CRISIL Report, page 121) For further details, please see "Our Business - Our Products and Services - Full-Service Market Research on page 179. We are among the top five entities/groups and one of the key Full-Service Market Research measurement agencies in India. (Source: CR1S1L Report, page 159) One of our subsidiaries, Hansa Research was set up to offer services such as customer/audience segmentation, consumer surveys, customer experience measurement, brand equity and customer satisfaction indices, consumer intelligence, through market research. (Source: CRISIL Report, page 159) Our market research offerings provide companies relevant information about the effectiveness of their advertising and marketing campaigns by leveraging surveys and focus group discussions and analysing customer data. Hansa Research conducted the Indian Readership Survey for 10 years from 2003 to 2012, covering a total sample size of over 2 million individuals in in-person interviews.
Our Company was founded by R K Swamy in 1973, and is led by our Promoters, Srinivasan K Swamy (Sundar Swamy) and Narasimhan Krishnaswamy (Shekar Swamy), who have extensive experience of over 45 years and 37 years respectively in the advertisement and marketing services industry. Our Promoters have held leadership positions in various industry forums such as the International Advertising Association, Advertising Agencies Association of India and the Asian Federation of Advertising Associations.
Our Integrated Marketing Communications business uses the ‘R K Swamy as well as the ‘Hansa brands. Our Customer Data Analytics and MarTech and Full-Service Market Research disciplines are offered under the ‘Hansa brand. The following chart sets out our various services mapped across our corporate structure:
For details of our various service offerings, please see "Our Business - Our Products and Services" on page 173.
The following chart shows the evolution of our offerings, which we have developed through a long track-record of client engagement and responding to evolving client requirements.
Evolution of offerings
| Calendar Year | Activities |
| 1973 | Our Company was incorporated at Chennai, India |
| 1973-1983 | We undertook geographical expansion by establishing offices across Delhi, Mumbai, Kolkata and Bengaluru which led to increased footprint across the country |
| 1984-1993 | • Incorporated Hansa Vision which focused on content creation for television. • Launched our first ‘R K Swamy Guide to Market Planning • Expanded our presence further, by establishing an office in Hyderabad |
| 1994-2003 | • Hansa Research was incorporated • Verticals such as the Media group, Pharma, Social Rural group set up • Hansa Research initiated the media research project, ‘Indian Readership Survey |
| 2004-2013 | • Verticals such as the outdoor media management, continuing medical education, and activation were set up • An integrated digital division was set up • Hansa Customer Equity was incorporated to offer Customer Data Analytics and MarTech solutions • CATI (Computer Aided Telephone Interviews) operations set up • Expanded our national footprint further, by establishing our seventh office in Kochi |
| 2014-2020 | • Hansa Direct Private Limited commenced CATI and Customer Experience Centre operations • Undertook panel management for the Broadcast Audience Research Council under Hansa Research • Autosense Private Limited became a wholly owned subsidiary of Hansa Customer Equity to focus on the automotive sector • Received ISO and QMS certifications for information security, data privacy and quality risks |
| 2021-2023 | • Commenced Production of Digital Content at ‘scale • Expanded our presence in international markets, by setting-up offices in Bangladesh and Dubai • Premium Customer Experience Centre launched • Hansa Research and Hansa Customer Equity became wholly owned subsidiaries of our Company • Approval of Scheme of Arrangement for Demerger for demerging marketing communication and allied business from Hansa Vision to our Company |
The table below provides our revenue contribution per business segment, including revenue contributions from digital operations, for each of the three Fiscals:
| Fiscal 2023 | Fiscal 2022 | Fiscal 2021 | ||||||||||
| Particulars | Revenue from Operations (in Rs million) | Share of Revenue from Operations (%) | Digital Revenue (in Rs million ) | Share of Revenue from Operations (segment wise) (%) | Revenue from Operations (in Rs million) | Share of Revenue from Operations (%) | Digital Revenue (in Rs million ) | Share of Revenue from Operations (segment wise) (%) | Revenue from Operations (in f million) | Share of Revenue from Operations (%) | Digital Revenue (in Rs million ) | Share of Revenue from Operations (segment wise) (%) |
| Integrated Marketing Communicati ons | 1,440.53 | 49.23 | 890.51 | 61.82 | 1,092.49 | 46.61 | 605.38 | 55.41 | 707.34 | 40.76 | 297.53 | 42.06 |
| Customer Data Analytics and MarTech | 786.38 | 26.87 | 786.38 | 100.00 | 668.02 | 28.50 | 668.02 | 100.00 | 538.77 | 31.04 | 538.77 | 100.00 |
| Full-Service Market Research | 699.22 | 23.90 | 609.23 | 87.13 | 583.62 | 24.90 | 491.64 | 84.24 | 489.35 | 28.20 | 375.20 | 76.67 |
| Total | 2,926.13 | 100.00 | 2,286.1 1 | 78.13 | 2,344.13 | 100.00 | 1,765.0 4 | 75.30 | 1,735.46 | 100.00 | 1211.5 0 | 69.81 |
We have long standing relationships with a large and well diversified client base and have catered to several large clients over the last five decades and provided services to over 475 clients during the Fiscal 2023. The average number of years of relationships with our top 10 clients is approximately 19 years, and for our top 50 clients is approximately 11 years as of March 31, 2023. 83.73% of our revenue for the Fiscal 2023 and 84.06% of our revenue for the Fiscal 2022 were from repeat clients with reference to the last Fiscal.
Our diversified client base is spread pan-India and are active across various industries. Our clients are primarily engaged in the following industries, (i) Banking, Financial Services and Insurance ("BFSI"), (ii) Automotive, and (iii) Fast-Moving Consumer Goods/Consumer Durables/Retail/E-Commerce which accounted for 32.60 %, 17.75 % and 17.02 %, respectively, of our revenue from operations in Fiscal 2023. We also serve clients across the rural and social (IEC)/ advocacy and media & entertainment sector. We continue to stay focused on these sectors where we have gained deep industry knowledge to be able to respond to diverse client requirements. We have also acquired domain experience covering various types of organization structures encompassing private as well as public sector enterprises, multinationals, government ministries and non-governmental organizations.
We have received various awards over the years, including:
• "Agency of the Year Creative" awarded to our Company at the MADDYS 2022;
• Gold rank in "Customer Experience - Effectiveness for Mahindra" and Silver rank in "Data Driven Marketing - Effectiveness for Westside", awarded to our Customer Data Analytics and MarTech business at the 11th Global Customer Engagement Awards, 2022;
• "Best Omni-channel Customer Experience Initiative" awarded to our Customer Data Analytics and MarTech business at the Customer Fest Awards, 2022;
• "Customer Experience Team of the Year" awarded to our Full-Service Market Research business at the Customer Fest Awards, 2022; and
• Gold rank in the "Best Use of Data Analytics/Insight" awarded to our Customer Data Analytics and MarTech business by ET Brand Equity.com at India DigiPlus Awards, 2021, for the Tata Cliq ‘Think Twice campaign.
For a detailed list of awards won by us, please see "Our Business - Awards and Certifications" on page 184.
A list of key operating and financial metrics for Fiscals 2023, 2022 and 2021 is set out below:
| Metric | Unit | As at / For Fiscal 2023 | As at / For Fiscal 2022 | As at / For Fiscal 2021 |
| Gross Revenue from Operations | (in Rs million) | 7,799.02 | 6,748.26 | 5,437.85 |
| Metric | Unit | As at / For Fiscal 2023 | As at / For Fiscal 2022 | As at / For Fiscal 2021 |
| Revenue from Operations | (in Rs million) | 2,926.13 | 2,344.13 | 1,735.46 |
| Revenue Growth | % | 24.83 | 35.07 | |
| Total Income | (in Rs million) | 2,999.13 | 2,449.71 | 1,832.20 |
| EBITDA | (in Rs million) | 629.06 | 444.22 | 288.26 |
| EBITDA Margin on Total Income | % | 20.97 | 18.13 | 15.73 |
| Profit after tax | (in Rs million) | 312.58 | 192.55 | 30.77 |
| Profit after tax margin | % | 10.68 | 8.21 | 1.77 |
| ROCE | % | 28.95 | 20.08 | 8.58 |
| RONW | % | 22.20 | 17.20 | 3.13 |
| Top 10 Clients | ||||
| Revenue from Operations | % | 41.89 | 42.03 | 41.15 |
| Average per Client | (in Rs million) | 122.58 | 98.53 | 71.41 |
| Top 50 Clients | ||||
| Revenue from Operations | % | 71.69 | 72.92 | 74.19 |
| Average per Client | (in Rs million) | 41.95 | 34.18 | 25.75 |
| Revenue from Operations per FTE | (in Rs million) | 1.83 | 1.16 | 0.81 |
| Integrated Marketing Communications | ||||
| Release orders1 | (Number) | 7,284 | 4,132 | 5,662 |
| Campaigns2 | (Number) | 818 | 865 | 984 |
| Videos Produced3 | (Number) | 2,828 | 1,963 | 1,507 |
| Customer Data Analytics and MarTech; | ||||
| Unique customer profiles4 | (Number) | 195,000,000 | 153,000,000 | 120,000,000 |
| Private cloud infrastructure5 | (Number) | 97.69 terabytes | 89.80 terabytes | 82.52 terabytes |
| One-to-one customer intelligence campaigns6 | (Number) | 2,264,000,000 | 1,774,000,000 | 1,706,000,000 |
| Voice calls7 | (Number) | 26,133,000 | 20,170,000 | 11,509,000 |
| Digital Queries (Online Relationship Mapping ("ORM")/Chat/E- Mail)8 | (Number) | 692,000 | 428,000 | 267,000 |
| Full-Service Market Research | ||||
| Depth interviews9 | (Number) | 4,016 | 3,533 | 3,024 |
| Group Discussions10 | (Number) | 3,594 | 3,936 | 4,286 |
| Quant Interviews11 | (Number) | 5,41,498 | 3,35,196 | 2,99,558 |
| Computer aided telephonic interviews ("CATI")12 | (Number) | 1,692,306 | 1,468,624 | 1,130,393 |
| Panel | (Number) | 1,31,728 | 1,15,037 | 1,20,138 |
Notes:
(1) Release order means an order placed on a media to carry advertisements/ campaigns;
(2) Campaigns are defined as a series of advertisement messages targeted to achieve a particular obbective or a set of objectives by utilising diverse media channels over a particular time frame and identified target audiences;
(3) Videos produced refers to digital video content including films, animated videos, in multiple languages for distribution on digital platforms including biddable media, display media, OTT, Social Media and television;
(4) This refers to the total (active and inactive) and prospect customer base ofour clients. It has been rounded down to multiples ofmillions;
(5) Data on private cloud includes infrastructure that resides on-premises at Hansa Customer Equity and its subsidiaries, infrastructure hosted at third-party datacentres, and other Cloud service providers. Hansa Customer Equity does not host any data on public cloud;
(6) This refers to the total number of customer touches done across all the channels, namely Email, SMS, and App Push etc. It has been rounded down in multiples of millions;
(7) Voice calls: Inbound: Handling incoming customer calls received in 1800 toll free numbers and to address and handle the end customer queries/ complaints and resolve their problems. Outbound: Make outgoing calls to prospective customers, leads who show interest in the brand product and to nurture and manage the customer until closure. It has been rounded down in multiples of thousands.
(8) Digital Queries — Non-Voice: Handle customer complaints received through email/ chatbots/ social media like Instagram, Twitter, WhatsApp etc/ ORM (Online Reputation Management) and with the intention to resolve those complaints to the customers satisfaction. It has been rounded down in multiples of thousands.
(9) A qualitative research technique, where in there is detailed focus interview conducted one-on-one. There is no structured questionnaire administered but more in terms of an in-depth discussion to gain insights as per the requirements of the research.
(10) A qualitative research technique where a group of 6-10 respondents (the numbers may vary as per the research) are called together at a central location and the research topic is collectively discussed. This is usually done in the presence of a trained moderator.
(11) Structured questionnaires of varying length of interview are administered to a target group pertaining to the research topic. Depending on the requirement and the specifications of the target group, a sample size is decided and are administered the questionnaire. Usually these are significant sample sizes more than 100/200 and can be much larger. The data collected is then analysed to quantify the findings.
(12) In CATI, the administration of the questionnaire is done telephonically. Numbers available are dialled and the respondent is administered the survey questions. The caller records the answers in the software script provided to the caller. This data is then further analysed as per the requirement.
(13) A panel is a group ofpeople who have agreed to participate in future research studies. At the time of their recruitment, it is conveyed to them that their opinion is of value to the agency and they will be compensated for their participating in the survey. The compensation is worked out based on factors like length of the interview, type of survey etc. When recruiting the panelists, certain information defining the profile of the panelist and contact details are captured.
(14) FTE is Full time Employees, Consultants and Retainers excluding Third Party Field Executives, Third Party Customer Experience and Third Party CATI employees.
(15) ROCE or Return on Capital Employed is Earnings before Interest and Tax divided by Shareholders Equity + Long Term Borrowings.
(16) RONW or Return on Net-worth is Profit after Tax divided by Net-worth
FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Our results of operations and financial condition are affected by numerous factors, including those discussed in the section titled "Risk Factors on page 28. In particular, we believe that the following specific factors have had a significant impact on our results of operations and financial condition during the period under review and may continue to impact our results of operations and financial condition in the future.
Ability to retain and increase revenue contributed by existing clients and establish new client relationships
Our revenues and continued growth are dependent upon (i) the renewal and expansion of, and the integration of our other services into, our existing arrangements with our clients and (ii) our ability to establish new client relationships.
Existing client relationships
We have catered to over 4,000 client organisations over the years and have served over 475 clients in the Fiscal 2023. The top 10 and 50 clients in the Fiscal 2023 have been with us for an average of approximately 19 and 11 years, respectively. 83.73% of our revenue for the Fiscal 2023 and 84.06% of our revenue for the Fiscal 2022 were from repeat clients with reference to the last Fiscal. Our diversified client base is spread pan-India and our clients are active across various industries.
Our core strategy is to continue building long-term relationships with our clients. Our integrated marketing communications strategy coupled with efforts to increase client engagement helps us in client retention.
New client relationships
A key factor impacting the increase in our revenue from operations is our ability to successfully identify new clients and establish relationships with them. By leveraging the experience and credibility that we have gained through our relationships with clients across multiple industries and business verticals, we aim to make further inroads into such industries with a focus on scaling the models implemented for our existing clients. We have onboarded over 180 new active clients in each of Fiscals 2022 and 2023.
Integrated service offerings
Depending on our clients needs, we leverage our interrelated and complementary business segments to provide support to our clients, in one or multiple aspects of the media and marketing value chain. As our clients increase their demands for marketing effectiveness and efficiency, they are likely to consolidate their marketing services requirements within one integrated service provider. Our engagement with a client typically starts with one or more of our sub-segments and with successful and satisfactory delivery, we strive to broaden our offerings, to cover additional business sub-segments over a period of time. With our integrated services model and digital capabilities, we are also able to provide solutions and products that are more focused on analytics and insights, such as data architecture consulting, quantitative and qualitative studies for consumer insights and MarTech offerings.
Sectoral diversification among clients and impact of changes in trends, technologies and preferences in such sectors
Our pan-Indian client base is diverse and covers leading brands across multiple sectors and industry verticals. Our clients are primarily engaged in the following industries, (i) BFSI, (ii) Automotive, and (iii) FMCG/Consumer Durables/Retail/E-Commerce which accounted for 32.60 %, 17.75%, and 17.02%, respectively, of our total revenue from operations in Fiscal 2023.
The table below sets out the revenue contribution of each of these sectors as a percentage of our net revenue in Fiscals 2023, 2022 and 2021, respectively:
| Sr. No Sectors | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 | |||
| Net Revenue (f in million) | Share of Net Revenue from Operations (%) | Net Revenue (f in million) | Share of Net Revenue from Operations (%) | Net Revenue (f in million) | Share of Net Revenue from Operations (%) | |
| 1. BFSI | 954.01 | 32.60 | 869.05 | 37.07 | 388.05 | 22.36 |
| 2. Automotive | 519.46 | 17.75 | 452.69 | 19.31 | 383.86 | 22.12 |
| 3. FMCG/ Consumer Durables/ Retail/ Ecommerce | 498.12 | 17.02 | 360.28 | 15.37 | 298.90 | 17.22 |
Note: The top sectors have been identified based on revenue share contribution for Fiscal 2023
Changes in industry trends, competitive technologies or consumer preferences specifically in relation to the abovementioned sectors, may impact our results of operations. The success of our business depends upon our domain expertise and ability to anticipate and identify changes in industry trends, consumer preferences and technology in relation to the above-mentioned sectors. Demand for our services, and in turn our revenues, depend on the growth of the key sectors in which our clients operate. Further, our clients growth / revenues impact their marketing strategy, budget and expenditure, which in turn impacts demand for our services. For instance, if the sectors in which our clients operate do not grow or exhibit demand in line with our clients projections, our clients may not launch new products or offerings and consequently may reduce their spend on marketing / publicity. Accordingly, our results of operations could be sensitive to any factors adversely impacting our clients in such sectors, including but not limited to competition, regulatory action and pricing pressures.
Enhancement of operating efficiency through investments in technology and infrastructure
Our results of operations have been, and will continue to be, affected by our ability to improve our operating efficiency, through investments in technology and infrastructure. As our business continues to scale up, it is essential to improve operating efficiency to enhance the competitiveness of our services.
In the future, we will continue to invest in technology to further enhance our operations, which may increase our expenditure or operating costs but will improve our operating leverage, cost efficiency and service quality. We intend to utilise the proceeds from the Offer to create the necessary infrastructure through a fully equipped production studio with post-production facilities and focus on enabling high quality production with a quick turnaround time. For further details please see "Objects of the Offer" on page 84. Additionally, our continued improvement of our offerings is imperative to our client experience, driving our ability to attract and retain clients, enhance our service portfolio and generate revenues. In order to capitalize on growth opportunities in key sectors, we seek to invest in physical and operational infrastructure to increase our content creation capabilities by pursuing various initiatives, such as the creation of an auto marketing platform, data mart of individual and household consumers, studio and post-production facilities and setting up the R.K. Swamy Center for Indian Markets. For further details, see "Our Business - Our Strategies - Focus on new initiatives aimed at enhancing our product and service portfolio on page 172.
Ability to recruit, train and retain qualified professionals and manage manpower costs
Our ability to properly staff engagements, to maintain and renew existing engagements and to win new engagements depends, in large part, on our ability to hire and retain qualified professionals.
Our cost of operations has historically been impacted by expenses relating to employees. Employee benefits expenses constitute the largest component of our total expenses. The number of full-time employees engaged by us was 1,603 as of March 31, 2023, 2,029 as of March 31, 2022, and 2,136 as of March 31, 2021. For the Fiscals 2023, 2022 and 2021, our employee benefits expenses amounted to Rs1,070.83 million, Rs899.85 million and Rs793.99 million, representing 45.18%, 44.87% and 51.43%, respectively, of our total expenses for such periods. The increase in employee benefits expense over the last three years has been driven by an increase in the scale of our operations in line with the growth of our business.
We conduct training and engagement programs for our employees. Our Company conducted 33 engagements in the Fiscal 2023 which included learning mission events, leadership development programs, wellness activities and team building exercises. Such interactions and engagements are conducted across various levels in the organisation to encourage development of technical skill sets. In addition to helping employees unlock their full potential through mechanisms like continuous feedback and performance appraisals, we have dedicated programs designed to develop effective leaders.
Our employee benefits expense varies depending on the mix of services that we provide and the campaigns we undertake. Employee wages vary by the type of service provided and the skill set of the relevant employees. Depending on the requirements of the services we provide, our employee benefits expense may also change. We aim to manage our manpower costs by, among other things, efficient deployment of manpower, ensuring right recruitment as well as adequate training, retention and development of employees.
We seek to maintain appropriate resource utilization levels, continue to increase the efficiency and productivity of our employees, effectively transition personnel from completed projects to new assignments, or source talent from other low-cost sources to maintain our profit margins.
Competing effectively against current and future competitors
We operate in a highly competitive market and face competition from domestic and multinational companies operating in the advertising and marketing services industry. We consider the following service providers as competitors under each of our business segments:
(A) Integrated Marketing Communications:
(i) Publicis Group (TLG India, Publicis India Communication);
(ii) WPP (Ogilvy, GroupM, Wunderman Thompson);
(iii) Madison Group;
(iv) Omnicom Group;
(v) Havas Group;
(vi) InterPublic Group; and
(iv) Dentsu (Dentsu Aegis Network India, Taproot, Dentsu Media);
(B) Customer Data Analytics and MarTech:
(i) Latent View;
(ii) Fractal Analytics;
(iii) Course 5;
(iv) Convonix; and
(v) Capillary
(C) Full-Service Market Research:
(i) Nielsen;
(ii) IPSOS;
(iii) Kantar; and
(iv) Unimarket Research.
Some of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and greater financial, technical and other resources than we do. As such, our competitors may be able to devote more resources to technology and infrastructure development, execute projects for our clients at lower costs, negotiate favourable rates for outsourced services and make more attractive offers to potential employees and third-party service providers. To remain competitive, we will need to enhance our product and service portfolio, develop our technology and infrastructure and focus on creating digital content at scale in a cost- effective manner.
SIGNIFICANT ACCOUNTING POLICIES
The notes to the Restated Consolidated Financial Information included in this Draft Red Herring Prospectus contain a summary of our significant accounting policies. Set forth below is a summary of our most significant accounting policies adopted in preparation of the Restated Consolidated Financial Information.
Property, plant and equipment
Recognition and measurement
Property, plant, and equipment is recognised when it is probable that future economic benefit associated with the asset will flow to the Group, and the cost of the asset can be measured reliably.
Items of property, plant and equipment are measured at original cost less accumulated depreciation and any accumulated impairment losses.
The cost of an item of property, plant and equipment comprises:
i. its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
ii. any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
Income and expenses related to the incidental operations, not necessary to bring the item to the location and condition necessary for it to be capable of operating in the manner intended by management, are recognised in the Statement of Profit and Loss.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment, and depreciated over their respective useful lives.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in the Statement of Profit and Loss.
Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.
Depreciation
The Group has followed the Straight Line method for charging depreciation on all items of property, plant, and equipment, at the rates specified in Schedule Il to the Act; these rates are considered as the minimum rates. If managements technical estimate of the useful life of the property, plant and equipment is different than that envisaged in Schedule Il to the Act, depreciation is provided at a rate based on managements estimate of the useful life. The useful lives followed for various categories of property, plant and equipment are given below:
| Asset Category | Useful Life |
| Lease hold improvements | As per lease term |
| Photographic and Sound Equipment | 8 years |
| Furniture and fixtures | 10 years |
| Electrical Fittings | 3 to 10 years |
| Computer, Printers and other office equipments | 3 to 6 years |
| Air conditioners | 5 to 10 years |
| Vehicles | 5 years to 8 years |
In respect of additions to/deductions from the assets, the depreciation on such assets is calculated on a pro rata basis from/upto the month of such addition/deduction. Assets costing less than Rs. 5,000 are fully depreciated in the year of purchase/acquisition.
Leasehold improvements are amortised over the period of the lease.
Intangible-assets Recognition and measurement
Intangible assets, including software, which is acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.
Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.
Amortisation
Intangible assets are amortised over their estimated useful life on straight line method. The amortisation period followed for intangible assets are:
| Intangible assets | Amortisation period |
| Computer software and Platform and solutions | 3 to 6 years |
Financial Instruments
Financial assets and financial liabilities are recognised in the Restated Consolidated Balance Sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial Assets
i. Initial recognition and measurements:
The Group recognises a financial asset in its balance sheet when it becomes party to the contractual provisions of the instrument. All financial assets are recognised initially at fair value, plus in the case of financial assets not recorded at fair value through profit or loss (FVTPL), transaction costs that are attributable to the acquisition of the financial asset.
Where the fair value of the financial asset at initial recognition is different from its transaction price, the difference between the fair value and the transaction price is recognised as a gain or loss in the Statement of Profit and Loss at initial recognition if the fair value is determined through a quoted market price in an active market for an identical asset (i.e. level 1 input) or through a valuation technique that uses data from observable markets (i.e. level 2 input).
In case the fair value is not determined using a level 1 or level 2 input as mentioned above, the difference between the fair value and transaction price is deferred appropriately and recognised as a gain or loss in the Statement of Profit and Loss only to the extent that such gain or loss arises due to change in factor that market participants take into account when pricing the financial asset.
However, trade receivables that do not contain a significant financing component are measured at transaction price.
ii. Subsequent measurement:
For subsequent measurement, the Group classifies a financial asset in accordance with the below criteria;
• The Groups business model for managing the financial asset and
• The contractual cash flow characteristics of the financial asset.
Based on the above criteria, the Group classifies its financial assets into the following categories:
a) Financial assets measured at amortised cost:
A financial asset is measured at the amortised cost if both the following conditions are met:
• The Groups business model objective for managing the financial asset is to hold financial assets in order to collect contractual cash flows, and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
This category applies to cash and cash equivalents, other bank balances, trade receivables, loans and other financial assets of the Group. Such financial assets are subsequently measured at amortised cost using the effective interest method.
Under the effective interest rate method, the future cash receipts are discounted to the initial recognition value using the effective interest rate. The cumulative amortisation using the effective interest method of the difference between the initial recognition amount and the maturity amount is added to the initial recognition value (net of principal/repayments, if any) of the financial asset over the relevant period of the financial asset to arrive at the amortised cost at each reporting date. The corresponding effect of the amortisation under effective interest method is recognised as interest income over the relevant period of the financial asset. The same is included under other income in the Statement of Profit and Loss.
The amortised cost of financial asset is also adjusted for loss of allowance, if any.
b) Financial asset measured at FVOCI:
A financial asset is measured at FVOCI if both of the following conditions are met:
• The Groups business model objective for managing the financial asset is achieved both by collecting contractual cash flows and selling the financial asset, and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payment of principal and interest on the principal amount outstanding.
This category applies to certain investments in debt instruments. Such financial assets are subsequently measured at fair value at each reporting date. Fair value changes are recognised in the other Comprehensive Income (OCI). However, the Group recognises interest income and impairment losses and its reversals in the Statement of Profit and Loss.
On derecognition of such financial assets, cumulative gain or loss previously recognised in OCI is reclassified from equity to the Statement of Profit and Loss. However, the Group may transfer such cumulative gain or loss into retained earnings within equity.
c) Financial asset measured at FVTPL:
A financial asset is measured at FVTPL unless it is measured at amortised cost or at FVOCI as explained above. This is a residual category applied to all other investments of the Group. Such financial assets are subsequently measured at fair value at each reporting date. Fair value changes are recognised in the Statement of Profit and Loss.
iii. Derecognition:
A financial asset (or, where applicable, a part of a financial asset or part of a Group of similar financial assets) is derecognised (i.e. removed from the Groups balance sheet) when any of the following occurs:
a) The contractual rights to cash flows from the financial asset expires;
b) The Group transfers its contractual rights to receive cash flows of the financial asset and has substantially transferred all the risks and rewards of ownership of the financial asset;
c) The Group retains the contractual rights to receive cash flows but assumes a contractual obligation to pay the cash flows without material delay to one or more recipients thereby substantially transferring all the risks and rewards of ownership of the financial asset; or
d) The Group neither transfers nor retains substantially all risk and rewards of ownerships and does not retain control over the financial assets.
In cases where Group has neither transferred nor retained substantially all of the risks and rewards of the financial asset, but retains control of the financial asset, the Group continues to recognise such financial asset to the extent of its continuing involvement in the financial asset. In that case, the Group also recognises an associated liability. The financial asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
On Derecognition of a financial asset, (except as mentioned in b) above for financial assets measured at FVOCI), the difference between the carrying amount and the consideration received is recognised in the Statement of Profit and Loss.
iv. Impairment of financial assets:
The Group applies expected credit losses (ECL) model for measurement and recognition of loss allowance on the following:
1) Trade receivables and Contract assets
2) Financial assets measured at amortised cost (other than Trade receivables and Contract assets)
3) Financial assets measured at fair value through other comprehensive income (FVOCI)
In case of Trade receivables the Group follows a simplified approach wherein an amount equal to lifetime ECL is measured and recognised as loss allowance.
In case of other assets (listed as (ii) and (iii) above), the Group determines if there has been a significant increase in credit risk of the financial assets since initial recognition, if the credit risk of such assets has not increased significantly, an amount equal to 12-month ECL is measured and recognised as loss allowance. However, if credit risk has increased significantly, an amount equal to lifetime ECL is measured as recognised as loss allowance.
Subsequently, if the credit quality of the financial asset improves such that there is no longer a significant increase in credit risk since initial recognition, the Group reverts to recognizing impairment loss allowance based on 12-month ECL.
ECL is the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive (i.e. all cash shortfalls), discounted at the original effective interest rate.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial asset. 12-month ECL are a portion of the lifetime ECL which result from default events that are possible within 12- month from the reporting date.
ECL are measured in a manner that they reflect unbiased and probability weighted amounts determined by a range of outcome, taking into account the time value of money and other reasonable information available as a result of past events, current conditions and forecasts of future economic conditions.
As a practical expedient, the Group uses a provision matrix to measure lifetime ECL on its portfolio of trade receivables. The provision matrix is prepared based on historically observed default rates over the expected life of trade receivables is adjusted for forward-looking estimates. At each reporting date, the historically observed default rates and changes in the forward-looking estimates are updated.
ECL allowance (or reversal) recognised during the period is recognised as expense (or income) in the Statement of Profit and Loss under the head Other expenses (or Other Income).
Financial Liabilities
i) Initial recognition and measurements:
The Group classifies all financial liabilities as subsequently measured at amortised cost, except for financial liabilities at fair value through profit or loss. Such liabilities, shall be subsequently measured at fair value.
Where the fair value of a financial liability at initial recognition is different from its transaction price, the difference between the fair value and the transaction price is recognised as a gain or loss in the Statement of Profit and Loss at initial recognition if the fair value is determined through a quoted market price in an active market for an identical asset (i.e. level 1 input) or through valuation technique that uses data from observable markets (i.e. level 2 input).
In case the fair value is not determined using a level 1 or level 2 input as mentioned above, the difference between the fair value and transaction price is deferred appropriately and recognised as a gain or loss in the Statement of Profit and Loss only to the extent that such gain or loss arises due to a change in factor that market participants take into account when pricing the financial liability.
ii) Subsequent measurement:
All financial liabilities of the Group are subsequently measured at amortised cost using the effective interest method.
Under the effective interest method, the future cash payments are exactly discounted to the initial recognition value using the effective interest rate. The cumulative amortisation using the effective interest method of the difference between the initial recognition amount and the maturity amount is added to the initial recognition value (net of principal repayments, if any) of the financial liability over the relevant period of the financial liability to arrive at the amortised cost at each reporting date. The corresponding effect of the amortization under effective interest method is recognised as interest expense over the relevant period of the financial liability. The same is included under finance cost in the Statement of Profit and Loss.
iii) Derecognition:
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When the existing financial liability is replaced by another from the same lender or substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in the Statement of Profit and Loss.
Cash and cash equivalents
The Group considers all highly liquid investments, which are readily convertible into known amounts of cash as cash and cash equivalents. Cash and cash equivalents in the Balance Sheet comprise of cash on hand, bank balances which are unrestricted for withdrawal and usage and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily takes a substantial period of time to get ready for its intended use are capitalised as part of the cost of that asset till the date it is ready for its intended use or sale. Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Other borrowing costs are recognised as an expense in the period in which they are incurred.
Finance costs are recorded using the effective interest rate method. All other borrowing costs are recognised in the profit or loss in the period in which they are incurred.
Provisions and Contingent Liabilities and Contingent Assets
A provision is recognised only when there is a present legal or constructive obligation as a result of a past event that probably requires an outflow of resources to settle the obligation and in respect of which a reliable estimate can be made. Provision is not discounted to its present value and is determined based on the best estimate required to settle the obligation at the Balance Sheet date. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation.
A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
Provisions and Contingent Liabilities and Contingent Assets are reviewed at each Balance Sheet date. Contingent Assets and related income are recognised when there is virtual certainty that inflow of economic benefit will arise.
A provision for onerous contracts is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.
Revenue Recognition
Revenue recognition is based on the delivery of performance obligations and an assessment of when control is transferred to the customer. Revenue is recognised either when the performance obligation in the contract has been performed (point in time recognition) or over time as control of the performance obligation is transferred to the customer. The Group enters into contracts which has combinations of services which are generally capable of being distinct and are accounted as separate performance obligations.
The transaction price, being the amount to which the Group expects to be entitled and has rights to under the contract is allocated to the identified performance obligations. The transaction price will also include an estimate of any variable consideration based on the achievement of agreed targets. Variable consideration is not recognised until the performance obligations are met. Revenue is stated exclusive of Goods and Service tax and other taxes, which are subsequently remitted to the government authorities. Following are the revenue recognition principles for major streams of business:
a. Commission Revenue in respect of advertisements placed with media by the Group on behalf of its clients (net of trade discount, as applicable) is recognised on telecast or publishing of the advertisements.
b. Revenue from creative jobs and other media related services is recognised at a point in time or over a period based on assessment of the terms of respective agreements.
c. Revenue from provision of Market research activities, based on the contracts entered with the customer is recognised over a period of time.
d. Revenue from provision of Data Analytics services and Call seat services contracts is recognised over a period of time.
e. Revenue from provision of customer experience management solutions is recognised over a period of time.
The amount of revenue recognised depends on whether the Group acts as an agent or as a principal.
Certain arrangements with customers are such that the Groups responsibility is to arrange for a third party to provide a specified good or service to the customer. In these cases the Group is acting as an agent as the Group does not control the relevant good or service before it is transferred to the client. When the Group acts as an agent, the revenue recorded is the net amount retained. Costs incurred with external suppliers (such as production costs and media suppliers) are excluded from revenue and recorded as work in progress until billed.
The Group acts as principal when the Group controls the specified good or service prior to transfer. When the Group acts as a principal, the revenue recorded is the gross amount billed. Billings related to out-of-pocket costs such as travel are also recognised at the gross amount billed with a corresponding amount recorded as an expense.
Other Income
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.
Dividend income is recognised when the right to receive the amount is established.
Employee benefits
Defined contribution plans
Provident Fund: Contribution towards provident fund is made to the regulatory authorities. Such benefits are classified as Defined Contribution Schemes as the Group does not carry any further obligations, apart from the contributions made on a monthly basis and are charged as an expense based on the amount of contribution required to be made and when services are rendered by the employees.
Employee State Insurance: Fixed contributions towards contribution to Employee State Insurance etc. are considered as defined contribution plans and are charged as an expense based on the amount of contribution required to be made and where services are rendered by the employees.
Defined Benefit Plans
Gratuity: The Group provides for gratuity, a defined benefit plan (the "Gratuity Plan") covering eligible employees in accordance with the Payment of Gratuity Act, 1972 as amended. The Gratuity Plan provides a lump sum payment to vested employees at the time of separation, retirement, death, incapacitation or termination of employment, of an amount based on the respective employees salary and the tenure of employment. For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period by an independent Actuary. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest) where applicable, is reflected immediately in the Balance Sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is reflected immediately in retained earnings and is not reclassified to profit and loss. Past service cost is recognised in the Statement of profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate to the net defined benefit liability or asset.
Defined benefit costs are categorised as follows:
i. Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);
ii. Net interest expense or income; and
iii. Remeasurements
The Group presents the service costs in profit or loss in the line item Employee benefits expense. Curtailment gains and losses are accounted for as past service costs.
The retirement benefit obligation recognised in the balance sheet represents the actual deficit or surplus in the Groups defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
A liability for a termination benefit is recognised at the earlier of when the Group can no longer withdraw the offer of the termination benefit and when the Group recognises any related restructuring costs.
Long Term Employee Benefits:
The Group accounts for its liability towards compensated absences based on actuarial valuation done as at the Balance Sheet date by an independent actuary using the Projected Unit Credit Method. The liability includes the long-term component accounted on a discounted basis and the short-term component which is accounted for on an undiscounted basis.
Short-term and other long-term employee benefits:
A liability is recognised for benefits accruing to employees in respect of wages and salaries in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.
Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.
Liabilities in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Group in respect of services provided by employees upto the reporting date.
Foreign currency transactions
Income and expenses in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are recognised in the Statement of Profit and Loss. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction.
Taxation
Income tax expense comprises current tax expense and the net change in deferred taxes recognised in the Statement of Profit and Loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.
Current tax
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in profit or loss because it excludes items of expense or income that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Groups liability for tax is calculated using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if, the Group:
i) has a legally enforceable right to set off the recognised amounts;
ii) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if:
a) the Group has a legally enforceable right to set off current tax assets against current tax liabilities; and
b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable Group.
Deferred tax asset / liabilities in respect of temporary differences which originate and reverse during the tax holiday period are not recognised. Deferred tax assets / liabilities in respect of temporary differences that originate during the tax holiday period but reverse after the tax holiday period are recognised. Deferred tax assets on unabsorbed tax losses and tax depreciation are recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The tax effect is calculated on the accumulated timing differences at the year-end based on the tax rates and laws enacted or substantially enacted on the balance sheet date.
Current and deferred tax for the year:
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for business combination, the tax effect is included in the accounting for the business combination.
Minimum Alternative Tax ("MAT") credit forming part of deferred tax asset is recognised as an asset only when and to the extent there is convincing evidence that the Group will pay normal income tax during the specified period. Such asset is reviewed at each Balance sheet date and the carrying amount of the MAT credit asset is written down to the extent there is no longer a reasonable certainty to the effect that the Group will pay normal income tax during the specified period.
A new section 115BAA was inserted in the Income Tax Act, 1961, by The Government of India on 20 September, 2019 vide the Taxation Laws (Amendment) Ordinance 2019 which provides an option to companies for paying income tax at reduced rates in accordance with the provisions / conditions defined in the said section. The provisions of MAT are also not applicable upon exercising this option. The Group has availed this option.
Lease (Where the Company is the lessee)
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise of fixed lease payments (less any lease incentives), variable lease payments, penalties, etc.
The lease liability is presented as a separate line in the Balance sheet.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• the lease term has changed or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
• the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is measured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
• a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate at the effective date of the combination.
The Group has made such adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under Ind AS 37. The costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset.
The right-of-use assets are presented as a separate line in Balance sheet. The Group applies Ind AS 36 Impairment of Assets to determine whether a right-of-use asset is impaired.
Earnings per share
Basic earnings per share is computed by dividing the profit / (loss) after tax (including the post-tax effect of extraordinary items, if any) by the weighted average number of equity shares outstanding during the year.
Diluted earnings per share is computed by dividing the profit/ (loss) after tax (including the post-tax effect of extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits / reverse share splits and bonus shares, as appropriate.
Segment Reporting
Operating segments reflect the Groups management structure and the way the financial information is regularly reviewed by the Groups Chief Operating Decision Maker (CODM) who is the Chief Executive Officer of the Group. The CODM considers the business from both business and product perspective based on the dominant source, nature of risks and returns and the internal organisation and management structure. The operating segments are the segments for which separate financial information is available and for which operating profit / (loss) accounts are evaluated regularly by the executive Management in deciding how to allocate resources and in assessing performance.
The accounting policies adopted for segment reporting are in line with the accounting policies of the Group. Segment revenue, segment expenses, segment assets and segment liabilities have been identified to segments on the basis of their relationship to the operating activities of the segment.
Inter-segment revenue, where applicable, is accounted on the basis of transactions which are primarily determined based on market / fair value factors. Revenue, expenses, assets and liabilities which relate to the Group as a whole and are not allocable to segments on reasonable basis have been included under unallocated revenue / expenses / assets / liabilities.
Changes are made to the segment reporting, wherever necessary, based on the change in the business model duly considering the above factors.
Impairment of non-financial assets
The Group assesses at each reporting dates as to whether there is any indication that any Property, Plant and Equipment or Other Intangible assets or Investment Property or other class of an asset or Cash Generating Unit (CGU) may be impaired. If any such indication exists, the recoverable amount of the assets or CGU is estimated to determine the extent of impairment, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the CGU to which the asset belongs.
An impairment loss is recognized in the Statement of the Profit and Loss to the extent, assets carrying amount exceeds its recoverable amount. The recoverable amount is higher of an assets fair value less cost of disposal and value in use. Value in use is based on the estimated future cash flows, discounted to their present value using pre- tax discount rate that reflects current market assessments of the time value of money and risk specific to the assets. The impairment loss recognised in prior accounting period is reversed if there has been a change in the estimate of recoverable amount.
Events after reporting date
Where events occurring after the Balance Sheet date till the date when the Restated Consolidated Financial information are approved by the Board of Directors of the Group, provide evidence of conditions that existed at the end of the reporting period, the impact of such events is adjusted within the Restated Consolidated Financial information. Otherwise, events after the reporting balance sheet date of material size or nature are only disclosed.
Non-Current Assets held for Sale
Non-Current Assets classified as held for sale are measured at the lower of the carrying amount and fair value less cost of disposal. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable, and the asset is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify as a completed for recognition as a completed sale within one year from the date of classification.
Statement of Cash Flows
Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Group are segregated based on the available information.
Goods and Service Tax Input Credit
Goods and Service Input Credit is accounted for in the books during the period in which the underlying service received is accounted and where there is no uncertainty in availing/utilizing the same.
Related party transactions
Related party transactions are accounted for based on terms and conditions of the agreement / arrangement with the respective related parties. These related party transactions are determined on an arms-length basis and are accounted for in the year in which such transactions occur and adjustments if any, to the amounts accounted are recognised in the year of final determination.
There are common costs incurred by the Holding Company / Other Group Companies on behalf of various entities in the group including the Group. The cost of such common costs are allocated among beneficiaries on appropriate basis and accounted to the extent debited separately by the said related parties.
Investment property
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and accumulated impairment loss, if any.
Investment properties are derecognised either when they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in statement of profit and loss in the period of derecognition. Depreciable investment properties have been ascribed a useful life in the range of 30 years.
Earnings before interest, tax, depreciation and amortisation ("EBITDA")
The Group presents EBITDA in the Statement of Profit and Loss; this is not specifically required by Ind AS 1. The term EBITDA is not defined in Ind AS. Ind AS compliant Schedule Ill allows line items, sub-line items and sub-totals to be presented as an addition or substitution on the face of the Restated Consolidated Financial information when such presentation is relevant to an understanding of the Groups financial position or performance or to cater to industry/sector-specific disclosure requirements or when required for compliance with the amendments to the Companies Act or under the Indian Accounting Standards.
Measurement of EBITDA:
Accordingly, the Group has elected to present earnings before interest, tax, depreciation and amortisation (EBITDA) before exceptional items as a separate line item on the face of the Statement of Profit and Loss. The Group measures EBITDA before exceptional items on the basis of profit/(loss) from continuing operations including other income. In its measurement, the Group does not include exceptional items, depreciation and amortisation expense, finance costs, and tax expense.
Business Combinations of entities or businesses under common control
Business combinations involving entities or businesses under common control are accounted for using the pooling of interest method. The assets and liabilities of the transferor entity or business are accounted at their carrying amounts on the date of acquisition subject to necessary adjustments required to harmonise accounting policies. Any excess or shortfall of the consideration paid over the share capital of the transferor entity or business is recognised as capital reserve under equity. The financial information in the Restated Consolidated Financial information in respect of prior periods shall be restated as if the business combination had occurred from the beginning of the preceding period in the Restated Consolidated Financial information, irrespective of the actual date of the combination.
Investment in foreign subsidiaries
The Group has incorporated two foreign subsidiaries as under:
a. The Group during the year has incorporated Hansa Marketing Services Private Limited in Bangladesh on 29 May 2022 through Hansa Customer Equity. The authorized share capital is Taka 10,00,000. Hansa Customer Equity has made foreign remittance for paid-up share capital of Taka 100,000.
b. The Group during the year has also incorporated Hansa Marketing Services LLC in Dubai on July 27, 2022 through Hansa Customer Equity. The share capital is AED 1,00,000. However, Hansa Customer Equity has not made any foreign remittance in respect of the Investment to the said entity during Fiscal 2023.
NON-GAAP FINANCIAL MEASURES
This Draft Red Herring Prospectus contains certain non-GAAP financial measures and certain other statistical information relating to our operations and financial performance, such as EBITDA, EBITDA margin, profit after tax margin and ROCE (together, the "Non-GAAP Measures") that are not required by, or presented in accordance with, Ind AS, Indian GAAP, or IFRS. Further, these non-GAAP measures are not a measurement of our financial performance or liquidity under Ind AS, Indian GAAP, IFRS or U.S. GAAP and should not be considered in isolation or construed as an alternative to cash flows, profit/ (loss) for the years/ period or any other measure of financial performance or as an indicator of our operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities derived in accordance with Ind AS, Indian GAAP, IFRS or U.S. GAAP. We compute and disclose such non-Indian GAAP financial measures and such other statistical information relating to our operations and financial performance as we consider such information to be useful measures of our business and financial performance. These non-Indian GAAP financial measures and other statistical and other information relating to our operations and financial performance may not be computed on the basis of any standard methodology that is applicable across the industry and therefore may not be comparable to financial measures and statistical information of similar nomenclature that may be computed and presented by other companies and are not measures of operating performance or liquidity defined by Ind AS and may not be comparable to similarly titled measures presented by other companies. For the risks relating to our Non-GAAP Measures, see "Risk Factors - Significant differences exist between Ind AS used to prepare our financial information and other accounting principles, such as IFRS and U.S. GAAP, with which investors may be more familiar" on page 54.
Reconciliation of Non-GAAP Measures
Reconciliation of EBITDA and EBITDA Margin
(Rs in million, except percentages)
| Particulars | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 |
| Total income (A) | 2,999.13 | 2,449.71 | 1,832.20 |
| Total expenses (B) | 2,370.07 | 2,005.49 | 1,543.94 |
| Earnings before interest, tax, depreciation and amortisation (EBITDA) (D=A-B) | 629.06 | 444.22 | 288.26 |
| Total income (E) | 2,999.13 | 2,449.71 | 1,832.20 |
| EBITDA Margin (F=D/E) | 20.97% | 18.13% | 15.73% |
Reconciliation of profit after tax margin
(Rs in million, except percentages)
| Particulars | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 |
| Restated profit after tax (A) | 312.58 | 192.55 | 30.77 |
| Revenue from Operations (B) | 2,926.13 | 2,344.13 | 1,735.46 |
| Profit after tax margin (C=A/B) | 10.68% | 8.21% | 1.77% |
Reconciliation of Return on Capital Employed
(Rs in million, except percentages)
| Particulars | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 |
| Earnings before interest, tax, depreciation and amortisation (EBITDA) (A) | 629.06 | 444.22 | 288.26 |
| Depreciation and amortisation expenses (B) | 147.16 | 138.90 | 150.40 |
| Earnings before interest and tax (EBIT) (C= A-B) | 481.90 | 305.32 | 137.86 |
| Total Equity (D) | 452.31 | 163.49 | 33.00 |
| Capital reserve (E) | (16.23) | (16.23) | (9.57) |
| Amalgamation adjustment deficit account (F) | (939.59) | (939.59) | (939.59) |
| Intangible assets (G) | 40.10 | 52.18 | 37.66 |
| Intangible assets under development (H) | - |
- |
30.50 |
| Deferred tax assets (I) | 48.21 | 52.33 | 54.96 |
| Tangible net worth (J=D-E-F-G-H-I) | 1,319.82 | 1,014.80 | 859.04 |
| Current borrowings (K) | 43.37 | 280.60 | 445.59 |
| Current lease liabilities (L) | 106.33 | 65.20 | 86.95 |
| Non-current borrowings (M) | 1.68 | 6.70 | 11.17 |
| Non-current lease liabilities (N) | 193.52 | 153.28 | 203.23 |
| Total Debt (O=K+L+M+N) | 344.90 | 505.78 | 746.94 |
| Capital Employed (P=J+O) | 1,664.72 | 1,520.58 | 1,605.98 |
| Return on Capital Employed% (N=C/M) | 28.95% | 20.08% | 8.58% |
PRINCIPAL COMPONENTS OF INCOME AND EXPENDITURE Income
Our total income is divided into revenue from operations and other income. The following table shows our revenue from operations and other income.
(Rs in million, except percentages)
| Particulars | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 |
| Gross revenue from operations | 7,799.02 | 6,748.26 | 5,437.85 |
| A. Revenue from operations (A1+A2+A3) | 2,926.13 | 2,344.13 | 1,735.46 |
| Revenue from contracts with customers | |||
| Sale of services | |||
| A1. Integrated Marketing Communications | 1,440.53 | 1,092.49 | 707.34 |
| Percentage of revenue from operations (% of A) | 49.23% | 46.61% | 40.76% |
| A2. Customer Data Analytics and MarTech | 786.38 | 668.02 | 538.77 |
| Percentage of revenue from | 26.87% | 28.50% | 31.04% |
| Particulars | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 |
| operations (% of A) | |||
| A3. Full-Service Market Research | 699.22 | 583.62 | 489.35 |
| Percentage of revenue from operations (% of A) | 23.90% | 24.90%, | 28.20% |
| B. Other income | 73.00 | 105.58 | 96.74 |
| Total income (A+B) | 2,999.13 | 2,449.71 | 1,832.20 |
Revenue from Operations
Our revenue from operations is primarily generated from the sale of services in three business segments, namely (i) Integrated Marketing Communications (ii) Customer Data Analytics and MarTech and (iii) Full-Service Market Research. The amount of revenue recognized depends on whether we act as an agent or as a principal. When our arrangements with clients require us to arrange for a third party to provide certain services to the client and we do not control the service, revenue recorded is the net amount retained by us after excluding costs incurred with external suppliers. However, when we act as principals and control the service provided to the client, the revenue recorded is the gross amount billed. For further details, see Significant Accounting Policies" on page
327.
Revenue from the sale of Integrated Marketing Communications services
Our Integrated Marketing Communications services primarily comprise the production of creative and digital content, the distribution of content across media platforms and events and activation. Our revenue from the sale of Integrated Marketing Communications services accounted for 49.23%, 46.61% and 40.76% of our revenue from operations for the Fiscals 2023, 2022 and 2021, respectively.
Revenue from the sale of Customer Data Analytics and MarTech services
Our Customer Data Analytics and MarTech services are targeted at transforming the effectiveness and efficiency of marketing and advertising at strategic and operational levels through data-based solutions. Our revenue from the sale of Customer Data Analytics and MarTech services accounted for 26.87%, 28.50% and 31.04% of our revenue from operations for the Fiscals 2023, 2022 and 2021, respectively.
Revenue from the sale of Full-Service Market Research services
Our Full-Service Market Research services deliver organized feedback regarding consumer and stakeholder preferences to provide clarity with actionable and objective insights to our clients. Our revenue from the sale of Full-Service Market Research services accounted for 23.90%, 24.90% and 28.20% of our revenue from operations for the Fiscals 2023, 2022 and 2021, respectively.
Other Income
Other income primarily includes (i) interest income earned on bank deposits, loans to related parties and, income tax refunds (ii) dividend income and (iii) profit on sale of property, plant and equipment, including assets held for sale. Our other income accounted for 2.49%, 4.50% and 5.57% of our revenue from operations for the Fiscal 2023, Fiscal 2022 and Fiscal 2021, respectively.
Expenses
Our expenses comprise (i) operational expense, (ii) employee benefits expense and (iii) other expenses.
The following table sets forth our expenditure as a percentage of our revenue from operations for the periods indicated.
(Rs in million, except percentages)
| Particulars | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 |
| Operational expense | 930.34 | 742.08 | 441.64 |
| Percentage of revenue from operations | 31.79% | 31.66% | 25.45% |
| Employee benefits expense | 1,070.83 | 899.85 | 793.99 |
| Percentage of revenue from operations | 36.60% | 38.39% | 45.75% |
| Other expenses | 368.90 | 363.56 | 308.31 |
| Percentage of revenue from operations | 12.61% | 15.51% | 17.77% |
| Total expenses | 2,370.07 | 2,005.49 | 1,543.94 |
Operational expense
Operational expense comprises production costs for our content and data collection and ancillary expenses. Operational expense accounted for 31.79%, 31.66% and 25.45% of our revenue from operations for the Fiscals 2023, 2022 and 2021, respectively.
Employee benefits expense
Employee benefits expense consists of (i) salaries and bonus, (ii) contribution to provident and other funds and (iii) staff welfare expenses. Employee benefits expense accounted for 36.60%, 38.39% and 45.75% of our revenue from operations for the Fiscals 2023, 2022 and 2021, respectively.
Other expenses
Other expenses primarily include electricity expenses, communication expenses, office maintenance, repairs and maintenance, traveling and conveyance, legal and professional fees, software expenses, consultancy fees and administrative expenses. Other expenses accounted for 12.61%, 15.51% and 17.77% of our revenue from operations for the Fiscals 2023, 2022 and 2021, respectively.
RESULTS OF OPERATIONS
Fiscal 2023 compared with Fiscal 2022
Total income
Our total income increased by Rs549.42 million or by 22.43% from Rs2,449.71 million for the Fiscal 2022 to Rs2,999.13 million for the Fiscal 2023. This was primarily due to an increase in our revenue from operations.
Revenue from operations
Our revenue from operations increased by Rs582.00 million or by 24.83% from Rs2,344.13 million for the Fiscal 2022 to Rs2,926.13 million for the Fiscal 2023. This increase was primarily driven by an increase in the revenue from sale of services across all segments, i.e., Integrated Marketing Communications, Customer and Market Analytics and Full-Service Market Research along with an increase in our revenue from digital operations, which contributed to 78.13% and 75.30%, respectively, of our total revenue from operations for the Fiscals 2023 and 2022, respectively.
Revenue from the sale of Integrated Marketing Communications services
Our revenue from the sale of Integrated Marketing Communications services increased by Rs348.04 million or by 31.86% from Rs1,092.49 million for the Fiscal 2022 to Rs1,440.53 million for the Fiscal 2023. This increase was primarily driven by a change in the revenue mix, driven by an increased focus on and resultant increase in business from content creation, including digital offerings.
Revenue from the sale of Customer Data Analytics and MarTech services
Our revenue from the sale of Customer Data Analytics and MarTech services increased by Rs 118.36 million or by 17.72% from Rs668.02 million for the Fiscal 2022 to Rs786.38 million for the Fiscal 2023. This increase was primarily driven by new business from existing clients and engagements with new clients in relation to connected customer experience and data analytics during Fiscal 2023.
Revenue from the sale of Full-Service Market Research services
Our revenue from the sale of Full-Service Market Research services increased by Rs 115.60 million or by 19.81% from Rs583.62 million for the Fiscal 2022 to Rs699.22 million for the Fiscal 2023. This increase was primarily driven by growth in our business and improvement in pricing in our customer contracts.
Other income
Our other income decreased by Rs32.58 million or by 30.86% from Rs105.58 million for the Fiscal 2022 to Rs73.00 million for the Fiscal 2023. This decrease was primarily due to lower interest income on loans to related parties which were recovered and decrease in interest income on income tax refunds in Fiscal 2023.
Expenditure
Total expenses increased by Rs364.58 million or by 18.18% from Rs2,005.49 million for the Fiscal 2022 to Rs2,370.07 million for the Fiscal 2023. This was primarily driven by increases in operational expense and employee benefits expense.
Operational expense
Operational expense increased by Rs188.26 million or by 25.37% from Rs742.08 million for the Fiscal 2022 to Rs930.34 million for the Fiscal 2023 primarily due to increases of (i) Rs105.45 million in production costs and (ii) Rs71.56 million in data collection and ancillary expenses.
Employee benefits expense
Employee benefits expense increased by Rs170.98 million or by 19.00% from Rs899.85 million for the Fiscal 2022 to Rs1,070.83 million for the Fiscal 2023. This was primarily due to (a) annual increments in salaries of employees and (b) certain key appointments made by us owing to the increased scale of our operations.
Other expenses
Other expenses increased by Rs5.34 million or by 1.47% from Rs363.56 million for the Fiscal 2022 to Rs368.90 million for the Fiscal 2023. This was primarily attributable to increases of (i) Rs8.64 million in electricity expenses, (ii) Rs6.75 million in allowance for expected credit loss and (iii) Rs7.28 million in administrative expenses. This was partially offset by decreases of (i) Rs10.27 million in rent expenses and (ii) Rs5.12 million in rates and taxes.
Restated profit before tax
In light of above, our profit before tax increased by Rs178.80 million or by 72.39% from Rs247.00 million for the Fiscal 2022 to Rs425.80 million for the Fiscal 2023.
Tax expense
Our total tax expense also increased by Rs58.77 million or 107.93% from Rs54.45 million for the Fiscal 2022 to Rs 113.22 million for the Fiscal 2023.
Profit after tax
For the various reasons discussed above, and following adjustments for tax expense, we recorded an increase in our profit after tax by Rs120.03 million or by 62.34% from Rs192.55 million for the Fiscal 2022 to Rs312.58 million for the Fiscal 2023.
Fiscal 2022 compared with Fiscal 2021
Total income
Our total income increased by Rs617.51 million or by 33.70% from Rs1,832.20 million for the Fiscal 2021 to Rs2,449.71 million for the Fiscal 2022. This was primarily due to an increase in our revenue from operations.
Revenue from operations
Our revenue from operations increased by Rs608.67 million or by 35.07% from Rs1,735.46 million for the Fiscal 2021 to Rs2,344.13 million for the Fiscal 2022. This increase was primarily driven by an increase in the revenue from sale of services across all segments, i.e., Integrated Marketing Communications, Customer and Market Analytics and Full-Service Market Research along with an increase in our revenue from digital operations, which contributed to 75.30% and 69.81%, respectively, of our total revenue from operations for the Fiscals 2022 and 2021, respectively.
Revenue from the sale of Integrated Marketing Communications services
Our revenue from the sale of Integrated Marketing Communications services increased by Rs385.15 million or by 54.45% from Rs707.34 million for the Fiscal 2021 to Rs1,092.49 million for the Fiscal 2022. This increase was primarily driven by a change in the revenue mix, driven by an increased focus on and resultant increase in business from content creation, including digital offerings.
Revenue from the sale of Customer Data Analytics and MarTech services
Our revenue from the sale of Customer Data Analytics and MarTech services increased by Rs129.25 million or by 23.99% from Rs538.77 million for the Fiscal 2021 to Rs668.02 million for the Fiscal 2022. This increase was primarily driven by new business from existing clients and engagements with new clients in relation to connected customer experience and data analytics during Fiscal 2022.
Revenue from the sale of Full-Service Market Research services
Our revenue from the sale of Full-Service Market Research services increased by Rs94.27 million or by 19.26% from Rs489.35 million for the Fiscal 2021 to Rs583.62 million for the Fiscal 2022. This increase was primarily driven by growth in our business and improvement in pricing in our customer contracts.
Other income
Our other income increased by Rs8.84 million or by 9.14% from Rs 96.74 million for the Fiscal 2021 to Rs105.58 million for the Fiscal 2022. This increase was primarily driven by a write back of provisions in our books of accounts in connection with certain restructuring processes.
Expenditure
Total expenses increased by Rs461.55 million or by 29.89% from Rs1,543.94 million for the Fiscal 2021 to Rs2,005.49 million for the Fiscal 2022. This was primarily driven by increases in operational expense and employee benefits expense.
Operational expense
Operational expense increased by Rs300.44 million or by 68.03% from Rs441.64 million for the Fiscal 2021 to Rs742.08 million for the Fiscal 2022 primarily due to increases of (i) Rs245.47 million in production costs and (ii) Rs49.39 million in data collection and ancillary expenses.
Employee benefits expense
Employee benefits expense increased by Rs105.86 million or by 13.33% from Rs793.99 million for the Fiscal 2021 to Rs899.85 million for the Fiscal 2022. This was primarily due to annual increments in salaries of employees.
Other expenses
Other expenses increased by Rs55.25 million or by 17.92% from Rs308.31 million for the Fiscal 2021 to Rs363.56 million for the Fiscal 2022. This was primarily attributable to increases of (i) Rs5.98 million in repairs and maintenance expenses, (ii) Rs5.34 million in electricity expenses, (ii) Rs19.70 million in consultancy fees and (iii) Rs7.30 million in rates and taxes and (iv) Rs6.97 million in traveling and conveyance expenses. This was partially offset by a decrease of Rs5.11 million in allowance for expected credit loss.
Profit before tax
In light of above, our profit before tax increased significantly from Rs46.76 million for the Fiscal 2021 to Rs247.00 million for the Fiscal 2022.
Tax expense
Our total tax expense also increased by Rs38.46 million or by 240.53% from Rs15.99 million for the Fiscal 2021 to Rs54.45 million for the Fiscal 2022.
Restated profit after tax
For the various reasons discussed above, and following adjustments for tax expense, we recorded a significant increase in our restated profit for the year by Rs161.78 million from Rs30.77 million for the Fiscal 2021 to Rs192.55 million for the Fiscal 2022.
CASH FLOWS
The following table sets forth certain information relating to our cash flows for the Fiscals 2023, 2022 and 2021.
| Particulars | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 |
| Net cash generated from operating activities | 291.65 | 640.09 | 499.45 |
| Net cash (used in) investing activities | (138.29) | (212.20) | (215.71) |
| Net cash (used in) financing activities | (442.63) | (334.87) | (276.07) |
| Net (decrease)/ increase in cash and cash equivalents | (289.27) | 93.02 | 7.67 |
| Cash and cash equivalents at the beginning of the year | 381.62 | 288.60 | 280.93 |
| Cash and cash equivalents at the end of the year | 92.35 | 381.62 | 288.60 |
Net cash generated from operating activities
Fiscal 2023
Net cash generated from operating activities in Fiscal 2023 was Rs291.65 million. Our operating profit before working capital / other changes was Rs583.92 million which was the result of profit before tax of Rs425.80 million, depreciation expense of Rs147.16 million and finance cost of Rs56.10 million, which was partially adjusted by interest income on loans to related parties of Rs26.56 million. Our movements in working capital primarily consisted of increase in trade receivables of Rs159.68 million and decrease in trade payables of Rs276.59 million which was partially adjusted by other current and non-current liabilities of Rs189.05 million.
Fiscal 2022
Net cash generated from operating activities in Fiscal 2022 was Rs640.09 million. Our operating profit before working capital / other changes was Rs363.75 million which was the result of profit before tax of Rs247.00 million, depreciation expense of Rs138.90 million and finance cost of Rs58.32 million, which was partially adjusted by interest income on loans to related parties of Rs43.17 million. Our movements in working capital primarily consisted of increase in trade payables of to Rs355.74 million which was partially adjusted by an increase in trade receivables aggregating of Rs133.39 million.
Fiscal 2021
Net cash generated from operating activities in Fiscal 2021 was Rs499.45 million. Our operating profit before working capital / other changes was Rs219.24 million which was the result of profit before tax of Rs46.76 million, depreciation expense of Rs150.40 million and finance cost of Rs91.10 million, which was partially adjusted by interest income on loans to related parties of Rs37.86 million. Our movements in working capital primarily consisted of increase in trade payables of Rs628.21 million, decrease in other non-current and current assets of Rs106.71 million and refund of income taxes of Rs154.86 million, which was partially adjusted by an increase in trade receivables of Rs673.64 million.
Net cash used in investing activities
Fiscal 2023
Net cash used in investing activities in Fiscal 2023 was Rs138.29 million. This reflected (i) payment of Rs48.53 million towards purchase of property, plant and equipment (including intangible assets) and (ii) payment of Rs955.78 million towards the acquisition of 100% equity shareholding in Hansa Research Group and Hansa Customer Equity. This was partially offset by (i) Rs1,038.88 million as recoveries of inter-company loans granted to related parties and (ii) Rs29.43 million as interest received from inter-company loans granted to related parties.
Fiscal 2022
Net cash used in investing activities in Fiscal 2022 was Rs212.20 million. This reflected (i) payment of Rs35.56 million towards purchase of property, plant and equipment and (ii) payment of Rs743.68 million as inter-company loans granted to related parties. This was partially offset by (i) Rs47.77 million as interest received on inter- company loans granted to related parties and (ii) Rs82.22 million as proceeds from the maturity of certain bank deposits.
Fiscal 2021
Net cash used in investing activities in Fiscal 2021 was Rs215.71 million. This reflected (i) payment of Rs10.16 million towards purchase of property, plant and equipment, (ii) payment of Rs232.48 million as inter-company loans granted to related parties and (iii) Rs48.73 million towards placement of bank deposits. This was partially offset by (i) Rs44.24 million as interest received on inter-company loans granted to related parties and (ii) Rs6.54 million as proceeds from the sale of investments in mutual funds.
Net cash generated used in financing activities
Fiscal 2023
Net cash used in financing activities in Fiscal 2023 was Rs442.63 million. This primarily relates to (i) payment of Rs20.40 million towards dividend; (ii) Rs27.46 million as payment towards finance costs; (iii) payment of Rs278.35 million towards repayment of short-term borrowings and (iv) payment/repayment of interest and principal on lease liability aggregating to Rs152.52 million.
Fiscal 2022
Net cash used in financing activities in Fiscal 2022 was Rs334.87 million. This primarily relates to (i) payment of Rs16.32 million towards dividend; (ii) Rs35.96 million as payment towards finance costs; (iii) payment of Rs165.00 million towards repayment of short-term borrowings and (iv) payment/repayment of interest and principal on lease liability aggregating to Rs86.55 million.
Fiscal 2021
Net cash used in financing activities in Fiscal 2021 was Rs276.07 million. This primarily relates to (i) payment of Rs4.69 million towards dividend; (ii) Rs62.87 million as payment towards finance costs; (iii) Rs126.73 million towards repayment of short-term borrowings; and (iv) payment/repayment of interest and principal on lease liability aggregating to Rs92.95 million.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed the expansion of our business and operations primarily through debt financing and funds generated from our operations. From time to time, we may obtain loan facilities to finance our short-term working capital requirements. We evaluate our funding requirements regularly in light of cash flows from our operating activities, the requirements of our business and operations and market conditions.
We had closing cash and cash equivalents of Rs92.35 million, Rs381.62 million and Rs288.60 million for the Fiscals 2023, 2022 and 2021, respectively. We had Rs1.68 million, Rs6.70 million and Rs11.17 million non-current borrowings for the Fiscals 2023, 2022 2021, respectively. We had Rs43.47 million, Rs280.60 million and Rs445.59 million current borrowings for the Fiscals 2023, 2022 2021, respectively. We had Rs193.52 million, Rs153.28 million and Rs203.23 non-current lease liabilities for the Fiscals 2023, 2022 2021, respectively. We had Rs106.33 million, Rs65.20 million and Rs86.95 million current lease liabilities for the Fiscals 2023, 2022 2021, respectively.
For further information, see "Financial Statements" on page 230.
CONTINGENT LIABILITIES AND COMMITMENTS
The following is a summary table of our contingent liabilities, as per Ind AS 37 as at March 31, 2023 as indicated in our Restated Consolidated Financial Information.
(in Rs million)
| S. No. Particulars | As at March 31, 2023 |
| 1. Claims against the Group not acknowledged as debts - Taxation matters - Income tax | 32.34 |
| Total | 32.34 |
For further information on our contingent liabilities and commitments, see "Restated Consolidated Financial Information - Note 37 - Contingent Liabilities, Claims, Commitments (to the extent not provided for) and Other Disputes" on page 303.
OFF-BALANCE SHEET ARRANGEMENTS
As on the date of this Draft Red Herring Prospectus, we do not have any off-balance sheet arrangements that have or which we believe reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, operating results, liquidity, capital expenditure or capital resources.
RELATED PARTY TRANSACTIONS
We enter into various transactions with related parties in the ordinary course of business including rent expenses, managerial remuneration and grant / recovery of inter-company loans. For further information relating to our related party transactions, see "Financial Statements - Notes to the Restated Consolidated Financial Information - Note 36.2 - Related Party Transactions" on page 299. For the risk relating to our related party transactions, see
"Risk Factors - We have in the past entered into related party transactions and may continue to do so in the future, which may potentially involve conflicts of interest with the equity shareholders." on page 43.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk that the changes in market prices, such as foreign exchange rates, interest rate and equity prices, will affect our financial instruments. We are exposed to certain market risks that arise from the use of financial instruments, including, currency risk, price risk and interest rate risk.
Credit risk
Credit risk is the risk that a customer or counterparty to a financial instrument will fail to perform or fail to pay amounts due, causing financial loss to us. This arises principally from our receivables from customers and investments in debt securities. The carrying amount of the financial assets represents the maximum credit exposure.
Liquidity risk
Liquidity risk is the risk that we will encounter difficulties in meeting, or will not meet, the obligations associated with its financial liabilities. We manage liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and by matching maturing profiles of financial assets and financial liabilities in accordance with the risk management policy. We invest our surplus funds in bank fixed deposits which carry minimal mark to market rates.
Interest rate risk
Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest-bearing investments. Cash flow interest rate risk is the risk that future cash flows of floating interest-bearing investments will fluctuate because of fluctuations in the interest rates. Our main interest rate risk arises from current borrowings with variable rates, which expose us to cash flow interest rate risk. We mitigate risk by structuring our borrowings to achieve a reasonable and competitive cost of funding.
UNUSUAL OR INFREQUENT EVENTS OR TRANSACTIONS
Except as described in this Draft Red Herring Prospectus, to our knowledge, there have been no unusual or infrequent events or transactions that have in the past or may in the future affect our business operations or future financial performance.
SIGNIFICANT DEPENDENCE ON A SINGLE OR FEW CUSTOMERS OR SUPPLIERS
We do not have any material dependence on a single or few suppliers. Our business is concentrated around certain key clients. For further details, see "Our Business" and "Risk Factors - Our business is concentrated around key clients, which account for a significant amount of our revenue. If we fail to retain these clients, or diversify our client base or if our key clients reduce their marketing budgets, our business, revenue growth, results of operations, cash flows and financial condition may be materially and adversely affected" on pages 161 and 28, respectively.
TOTAL TURNOVER OF EACH MAJOR INDUSTRY SEGMENT
We operate in three operating segments, namely (i) Integrated Marketing Communications, (ii) Customer Data Analytics and MarTech and (iii) Full-Service Market Research. Our Chief Executive Officer assesses our performance and focus in each of these operating segments and allocates resources thereto.
For further information on our revenue from operations from each operating segment, see " - Principal Components of Income and Expenditure - Income" and "Financial Statements - Note 32 - Segment Reporting" on pages 340 and 294, respectively.
SIGNIFICANT ECONOMIC CHANGES THAT MATERIALLY AFFECTED OR ARE LIKELY TO AFFECT INCOME FROM OPERATIONS
Other than as described in this section and in "Our Business", "Risk Factors", and "Industry Overview" on pages 161, 28 and 111, respectively, there have been no significant economic changes that materially affected or are likely to affect our Companys income from operations.
KNOWN TRENDS OR UNCERTAINTIES THAT HAVE HAD OR ARE EXPECTED TO HAVE A MATERIAL ADVERSE IMPACT ON SALES, REVENUE OR INCOME FROM CONTINUING OPERATIONS
Other than as described in this section and the section titled " Our Business" on page 161, to our knowledge, there are no known trends or uncertainties that have had or are expected to have a material adverse impact on our revenues or income.
FUTURE CHANGES IN RELATIONSHIP BETWEEN COST AND REVENUE
Other than as described in this section and the sections of this Draft Red Herring Prospectus titled "Our Business" and "Risk Factors" on pages 161 and 28, respectively, to our knowledge there are no known factors that may adversely affect our business prospects, results of operations and financial condition.
MATERIAL INCREASES IN NET INCOME AND SALES
Material increases in our Companys net income and sales are primarily due to the reasons described in the section titled "- Results of Operations" above on page 342.
PUBLICLY ANNOUNCED NEW PRODUCTS OR BUSINESS SEGMENTS/ MATERIAL INCREASES IN REVENUE DUE TO INCREASED DISBURSEMENTS AND INTRODUCTION OF NEW PRODUCTS
Other than as disclosed in this chapter and in "Our Business" on page 161, there are no publicly announced new products or business segments or material increases in revenue due to increased disbursements and introduction of new products that have or are expected to have a material impact on our business prospects, results of operations or financial condition.
COMPETITIVE CONDITIONS
We operate in a competitive environment. For further information, see "Our Business - Competition", "Industry Overview" and "Risk Factors" on pages 184, 111 and 28, respectively.
SEASONALITY OF BUSINESS
Our results of operations and key business metrics are subject to quarterly variations. Historically, our Company records an increase in revenue from operations in third and fourth quarters (September to March) of each Fiscal, as most of our clients initiate research projects and schedule their advertising spends for such period. For further details, see "Risk Factors - Our results of operations and our key business measures are subject to quarterly variations that could cause fluctuations in our results of operations" on page 37.
CHANGE IN ACCOUNTING POLICIES
There have been no changes in the accounting policies of our Company in the last three Fiscals.
For further information, see "Financial Statements" on page 230.
MATERIAL DEVELOPMENTS SUBSEQUENT TO MARCH 31, 2023 THAT MAY AFFECT OUR FUTURE RESULTS OF OPERATIONS
No circumstances have arisen since the date of the last financial statements disclosed in this Draft Red Herring Prospectus, which materially and adversely affect or are likely to affect our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next 12 months.
QUALIFICATIONS AND EMPHASIS OF MATTER
There are no qualifications which have not been given effect to in the Restated Consolidated Financial Information.
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