R Systems International Ltd Management Discussions.

Overview

The financial statements of the Company have been prepared to comply in all material respects with the accounting standards notified under Section 133 of the Companies Act, 2013, and other accounting principles generally accepted in India. The management accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably present the state of affairs, profits and cash flows for the year.

A. Industry Structure and Developments

Digital is a driving force of the present global iT spending as digital transformation is no more an option but must do for every businesses to be relevant. According to iDC, the global information technology spending will top $4.8 trillion in 2018, with the U.S. contributing approximately $1.5 trillion of the market. As per another estimate from IDC, worldwide spending on digital transformation technologies is expected to be nearly $1.3 trillion in 2018, an increase of 16.8% over the $1.1 trillion spent in 2017. It forecasts that digital spending to maintain a strong pace of growth with a compound annual growth rate (CAGR) of 17.9%. In 2021, Digital spending will nearly double to more than $2.1 trillion.

B. Company Overview

R Systems international Limited (the Company) and its subsidiaries (collectively referred to as R Systems) is a leading global provider of iT services and Business Process Outsourcing ("BPO") services. The parent Company is a public company domiciled in india and incorporated under the provisions of the Companies Act, 1956, with its Registered Office at New Delhi and has following subsidiaries:

Name of subsidiary Year of incorporation Location Subsidiary since Holding
R Systems (Singapore) Pte Limited * 1997 Singapore September 19, 2000 100%
R Systems, Inc. 1993 USA January 2, 2001 100%
R Systems Technologies Limited, USA 1996 USA April 1, 2002 100%
ECnet Limited* * 1996 Singapore January 8, 2004 99.75%
Computaris International Limited * 2006 UK January 26, 2011 100%
RSYS Technologies Ltd. 2012 Canada October 29, 2012 100%

* The shareholding by the Company and R Systems (Singapore) Pte Limited is 69.37% and 30.38%, respectively.

* the aforesaid subsidiary have following subsidiary.

(a) ECnet Limited, Singapore, has the following wholly- owned subsidiaries:

Name Holding Country of incorporation
ECnet (M) Sdn. Bhd. 100% Malaysia
ECnet Systems (Thailand) Co. Ltd. 100% Thailand
ECnet (Shanghai) Co. Ltd. 100% Peoples Republic of China
ECnet (Hong Kong) Ltd. 100% Hong Kong
ECnet, Inc. 100% USA
ECnet Kabushiki Kaisha 100% Japan

(b) Computaris International Limited, UK, has the following wholly- owned subsidiaries:

Name Holding Country of incorporation
Computaris Romania SRL 100% Romania
Computaris Polska sp z.o.o. 100% Poland
Computaris USA Inc. 100% USA
ICS Computaris International Srl 100% Moldova
Computaris Malaysia Sdn. Bhd. 100% Malaysia
Computaris Philippines Pte Ltd. Inc. 100% Philippines

(c) iBIZ Consulting Pte. Ltd., Singapore (formerly known as iBIZCS Group Pte Limited, Singapore), is a wholly- owned subsidiary of R Systems (Singapore) Pte Limited, Singapore w.e.f. April 30, 2015 and has following wholly owned subsidiaries:

Name Holding Country of incorporation
iBiZ Consulting Services Pte Ltd 100% Singapore
iBiZ Consulting Services Sdn. Bhd. 100% Malaysia
PT. iBiZCS indonesia 100% Indonesia
iBiZ Consultancy Services india Private Limited 100% India
iBiZ Consulting Service Limited (iBiZ HK) 100% Hong Kong
iBiZ Consulting Service Shanghai Co., Ltd 100% by iBiZ HK Peoples Republic of China

As at December 31,2017, R Systems is maintaining fifteen global development and service centres in India, USA, Romania, Poland, Moldova, Singapore, Malaysia, Indonesia and Thailand. R Systems diversified offering includes:

iPLM Service

R Systems defines its product engineering business as Integrated Product Life Cycle Management (iPLM) services where R Systems help ISV and enterprise customers to accelerate the speed to market for their products and services with a high degree of time and cost predictability by using our proprietary pSuite framework and global delivery model.

Under iPLM Services, R Systems delivers services and solutions in the area of information Technology and Knowledge Services. The IT services cover product development, systems integration and support and maintenance. Under the Knowledge Services, we cover technical support, customer care, analytics service, back office services, business process transformation and revenue and claims management.

R Systems competitive advantage in iPLM Services is further enhanced by its industry specific domain expertise, global delivery capabilities, multi-language support capabilities, industry best quality and security certification and agile development methodologies supported by R Systems proprietary pSuite framework. Further, R Systems iPLM Services have been aligned with latest digital technologies i.e. analytics, artificial intelligence, cloud, mobility, IoT, robotics, etc. as enabler for digital transformation.

Solution Offerings

ECnet Supply Chain provide solutions for holistic management of the complex interaction between an organisation and its trading partners. The integrated solution aims to reduce all supply chain costs through improved collaboration and optimisation. The solutions are robust and scalable and give measurable ROi to clients that meet the clients strategic business goals.

ECnet also operates as Infor Gold-certified channel partner for reselling and implementing several enterprise solutions, including enterprise resource planning, warehouse management, corporate performance management, business intelligence etc. it mainly serves small to medium-sized businesses in the manufacturing and distribution industries. These products present an opportunity to cross and up sell these solutions since these are adjunct to ECnets own product offerings. Further, ECnet has also partnered with JDA to offer category management solution suite to retail customers.

Our Subsidiary iBiZ, is a Microsoft Gold Channel Partner and is specialized in deploying Microsoft business management solution suites, including enterprise resource planning, customer relationship management, point of sales, mobility, business intelligence and portals. iBiZ addresses industry vertical like retail, manufacturing and supply chain.

R Systems focused on key verticals i.e. Telecom, Media & Entertainment, Banking & Finance, Healthcare & Life Sciences, Technology, Retail & E-commerce and Manufacturing & Logistics. Telecom and Digital Media is the largest industry vertical which contributes ~26 percent of the total consolidated revenue for the year ended December 31, 2017.

Further with the deep expertise in the key vertical like Telecom, Media & Entertainment, Banking & Finance, Healthcare & Life Sciences, Technology, Retail & E-commerce and Manufacturing & Logistics. R Systems have horizontally embraced digital technologies like analytics, artificial intelligence, cloud, mobility, IoT, robotics etc. to further strengthen its product engineering capabilities.

R Systems rapidly growing customer list includes a variety of Fortune 1000, government and mid-sized organizations across a wide range of industry verticals and has served twenty one million $ plus customer during the year 2017.

C. opportunities and Threats

As digital transformation has become a strategic imperative, if companies ignore and go on with their legacy way of doing business, they are in imminent danger of losing their competitive advantage. However, mere bringing technology into the company is not digital transformation. A successful digital transformation requires revamping of business model and alignment of newer technology with the business needs. It gives immense opportunities to product engineering companies to partner legacy as well as digital-born businesses to maximize their potential with technology.

R Systems has continued to navigate its customers to build scalable software products using digital technologies like analytics, artificial intelligence, cloud, mobility, IoT, robotics etc. to simplify their processes and offer enhanced value propositions.

Every opportunity comes up with inherent risk and challenges. However, over the years, R Systems has learnt to reckon with as well as address such risks and challenges including threats from competitors including their disruptive tactics, new technologies,

intensifying demand for global talent, retention of employees and stringent governing norms regarding restrictions on outsourcing services. At R Systems, these threat and uncertainties are managed proactively through our risk mitigation processes and strategies.

D. Segment-wise and Product-wise Performance

Detailed information about segment-wise and product-wise performance has been given in the Consolidated Financial Statements and Standalone Financial Statements.

E. Performance and Outlook

R Systems reported consolidated revenue of Rs. 5,926.36 mn

during the year 2017 as against revenue of Rs. 5,882.37 mn for the year 2016. The revenue grew by 0.75% during the year 2017.

Consolidated profit after tax during the year 2017 was Rs. 244.81 mn as against net profit for year 2016 of Rs. 536.88 mn.

The basic earnings per share (based on consolidated financial statement) during the year 2017 was Rs. 1.98 per share as against Rs. 4.24 per share in 2016 of face value of Re. 1 each.

R Systems maintains a strong financial position with shareholder funds of Rs. 3,033.13 mn including cash and bank balance of Rs. 1,607.21 mn as of December 31,2017 to invest for future growth of business.

F. Risk and Concerns

At R Systems, risk management is a dynamic process with an attempt to constantly identify all the emerging risks and propose solutions to manage these. This is further explained in detail in Risk Management Report.

G. Internal Control Systems and Their Adequacy

Internal control systems are a set of policies, processes and procedures put in place to help achieve the strategic objectives of an organization. The Company has an internal Control System commensurate with the size, scale and complexity of its operations. This has been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use, executing transactions with proper authorisation and ensuring compliance of corporate policies.

The CEO/CFO certification provided in this report places responsibility on the CEO and CFO to continuously ensure adequacy of our internal control systems and procedures.

Deloitte Haskins & Sells LLP, the statutory auditors of the Company, have audited the financial statements included in this annual report and have issued a unmodified opinion on the adequacy and operating effectiveness of the Companys internal financial controls over financial reporting.

H. Material Development in Human Resources / Industrial Relations Front, including Number of People employed

Our employees are most precious assets and we value their commitment in building R Systems. In the IT industry attracting, developing, deploying and retaining talent is critical. R Systems has also defined and implemented a People Management initiative which is in line with industry best practices and People CMM. it effectively manages the employee life cycle so that the individuals are committed, have pride and show pro-activeness on the job.

R Systems concluded year 2017 with 2,353 associates including 359 sales and support.

I. Discussion on Financial Position and Financial Performance with respect to Operational Performance Analysis and Discussions of Financial Position as at December 31, 2017

1. Share Capital

(Rs. in million)

Particulars

As at December 31,

2017 2016
Authorised share capital 200.00 200.00
Issued, subscribed and paid up capital 123.87 126.87
Less: Buy back of shares - 3.00
Add: Shares Issued under ESOP Scheme, 2007 0.08 -
123.95 123.87
Less: advance to R Systems employee welfare trust 0.74 0.74
Total Share Capital 123.21 123.13

The issued, subscribed and paid up capital is Rs. 123.21 mn as at December 31,2017 and Rs. 123.13 mn as at December 31, 2016. This is after adjusting Rs. 0.74 mn advance to R Systems Employee Welfare Trust in compliance with guidance note issued by the institute of Chartered Accountants of India.

During the year ended December 31, 2017, the Company has issued 82,500 fully paid-up equity shares of Re. 1 each under ESOP Scheme, 2007.

Detailed information about the movements in ESOP plan has been given in Note no. 31 of notes to the Consolidated Financial Statements.

2. Reserve and Surplus

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Capital redemption reserve 16.34 16.34 16.34 16.34
Securities premium account 712.42 709.65 712.42 709.65
General reserve 153.80 153.80 153.80 153.80
Stock Options Outstanding 3.35 2.59 3.35 2.59
Surplus in the statement of profit and loss 1,804.31 1,559.50 1,436.77 1,197.94
Capital reserve 0.03 0.03 - -
Foreign currency translation reserve 219.67 214.69 - -
Total 2,909.92 2,656.60 2,322.68 2,080.32

3. Minority Interest

During the year, there is no change in the minority interest in the Consolidated Financial Statement.

4. Long-term borrowings (non-current portion)

(Rs. in million)

Particulars 1 2017 2016
Against Motor Vehicles 5.24 8.43
Against Financial Lease Obligation 10.61 10.72
Total 15.85 19.15

Finance lease obligation represents furniture and fixtures taken for SEZ unit.

5. Deferred Tax Liability / Assets (net)

Deferred tax reflects the timing differences between financials and tax books arising mainly from provision for gratuity, compensated absence, doubtful debts and advances (results into deferred tax assets) and differences in books base and tax base of fixed assets (results into deferred tax liability).

Deferred tax assets and deferred tax liabilities across various tax jurisdictions cannot be offset against each other therefore has been presented separately.

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Deferred Tax Liability (net) 0.26 : - - -
Deferred Tax Assets (net) 58.92 46.14 52.99 43.66

6. Other long-term liabilities

The liabilities which are due for payment after 12 months from reporting date are considered under the other long-term liabilities.

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Security deposits 2.23 10.30 2.23 10.30
Deferred payment compensation to the erstwhile - 44.00 - -
shareholders of subsidiary
Deferred payable others 0.29 0.58 - -
Total 2.52 54.88 2.23 10.30

In 2016, deferred payment compensation to the erstwhile shareholders of subsidiary represents the amount payable after 12 months from the reporting date for the acquisition of iBiZ Consulting Pte. Ltd., Singapore (formerly known as iBiZCS Group Pte. Ltd., Singapore).

7. Long-term provisions

Long-term provisions represent the provision towards the gratuity liability due after 12 months from the reporting date based on actuarial valuation. The provision amounts to Rs. 91.18 mn as at December 31, 2017 as against Rs. 89.42 mn as at December 31, 2016.

8. Other current liabilities

The liabilities which are due for payment within next 12 months from reporting date are considered under other current liabilities.

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Trade payables 461.45 438.94 150.58 157.73
Payable to subsidiary companies - - 14.17 16.83
Current maturities of long-term borrowing 4.50 5.18 4.50 5.18
Deferred payment compensation to the erstwhile shareholders of subsidiary 45.47 25.38 - -
Unearned revenues 321.18 167.27 181.35 61.29
investor education and protection fund (not due) - Unclaimed dividend 2.43 2.58 2.43 2.58
Payable for purchase of fixed assets 0.27 10.78 0.27 10.78
Security deposits received 9.88 2.33 9.88 2.33
Other payables 63.80 59.07 21.56 21.01
Total 908.98 711.53 384.74 277.73

For detailed information about the deferred payment compensation refer Note no. 30(a) of notes to the Consolidated Financial Statements. 9. Short-term provisions

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Provision for employee benefits
- Gratuity 3.59 2.54 3.59 2.54
- Compensated absence 135.99 113.59 82.64 75.55
Provision for income tax 47.27 58.77 36.06 42.39
Total 186.85 174.90 122.29 120.48

10. Fixed Assets

Fixed assets includes tangible fixed assets such as land, building, lease hold improvement, computer hardware, furniture & fixture, vehicle, office and electrical equipment etc, intangible assets covering computer software and customer contracts.

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Net tangible assets 300.38 289.52 258.45 246.39
Net intangible assets 17.03 32.13 4.44 5.42
Capital work in progress 0.59 26.29 - 26.29
Total 318.00 347.94 262.89 278.10

Details of additions during the year in fixed assets:

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Total addition to gross block- tangible assets 104.90 106.38 79.13 82.00
Total addition to gross block-intangible assets 11.36 10.12 6.67 3.48

The additions in gross block - tangible assets were mainly on account of purchases of computer hardware, plant & machinery, office equipments, vehicles, furniture & fittings etc.

11. Goodwill on consolidation

(Rs. in million)

Particulars

As at December 31,

2017 2016
Goodwill on Computaris International Ltd acquisition 296.59 277.74
Goodwill on iBiZ Consulting Pte. Ltd. (formerly known as iBIZCS Group Pte. Ltd.) acquisition 171.01 174.47
Total Goodwill on consolidation 467.60 452.21

12. Non-current investments

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Investment in subsidiaries - - 942.22 925.49
Other investment 0.03 0.03 0.03 0.03
8% Redeemable Debentures in Indus Software 87.55 175.12 87.55 175.12
Technologies Private Limited
Investment Property - Land and Building in Pune 24.78 26.25 24.78 26.25
Total 112.36 201.40 1,054.58 1,126.89

For detailed information about the non-current investment refer Note no. 11.1 of notes to the Standalone Financial Statements and Note no. 13.1 of notes to the Consolidated Financial Statements

13. Long-term loans and advances

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Capital advances 0.03 10.29 0.03 10.29
Advances recoverable in cash or in kind or for value to be received 9.50 16.68 9.39 16.33
Security deposit 28.45 27.34 15.32 16.06
Income tax recoverable 34.11 34.80 22.47 28.93
Total 72.09 89.11 47.21 71.61

14. Other non-current assets

Other non-current assets includes the long term fixed deposits with banks due for maturity after twelve months from reporting date , margin money deposits and accrued interest there on.

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Non-current bank deposits 58.56 56.46 44.95 48.17
Interest accrued on deposits 1.64 5.12 1.64 5.12
Total 60.20 61.58 46.59 53.29

15. Current investment

Particulars 2017 2016
8% Redeemable Debentures in indus Software Technology Private Limited 87.57 87.57
investment in Liquid Mutual Fund 48.00 -
Total 135.57 87.57

16. Trade receivables

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Trade receivables (gross) 1,253.93 1,147.10 575.96 501.72
Less : Provision for doubtful debts 45.86 64.88 6.68 0.88
Trade receivables (net) 1,208.07 1,082.22 569.28 500.84
Days Sales outstanding (DSo in days) 55 55 56 59

17. Cash and Bank Balance

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Cash on Hand 0.70 0.77 0.07 0.12
Balances with scheduled banks
On current accounts 39.04 18.16 33.68 16.38
On EEFC accounts 99.32 95.30 99.32 95.30
On deposit accounts 667.59 286.74 619.94 286.74
On unclaimed dividend accounts # 2.43 2.58 2.43 2.58
Balances with other banks
On current accounts 580.22 771.48 19.87 49.13
On deposit accounts 169.92 24.67 - -
Less : Non-current bank balances 1,559.22 58.56 1,199.70 56.46 775.31 44.96 450.25 48.17
Total Cash and Bank Balance 1,500.66 1,143.24 730.35 402.08

# the Company can utilise these balances for respective dividend.

For detailed movement in cash and bank balance, please refer the Consolidated and Standalone Cash Flow Statement.

18. Short-term loans and advances

Short-term loans and advances include the amount recoverable in cash and kind or for value to be received with in twelve months from reporting date.

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Advances recoverable in cash or in kind or for value to be received 110.46 102.47 59.37 39.19
Advances to related parties - - 10.48 1.89
Security deposit 2.01 0.81 1.79 0.80
Mark-to-market gains on derivative instruments 16.33 26.42 16.33 26.42
Balances with indirect tax authorities 18.55 21.88 18.55 21.88
Total 147.35 151.58 106.52 90.18

19. Other Current Assets

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Interest accrued 8.45 5.52 8.14 5.52
Unbilled revenue 149.50 161.10 48.06 60.79
Total 157.95 166.62 56.20 66.31

Unbilled revenue constitutes amounts not billed to customers at year end which is expected to be billed in due course in accordance with the contract with the respective customers.

20. Liquidity

The consolidated cash and cash equivalent as at December 31,2017 were Rs. 925.42 mn as against Rs. 1,136.05 mn as on December 31, 2016.

Net cash generated from operating activities were Rs. 374.34 mn for the year ended December 31, 2017 compared to Rs. 436.24 mn for the year ended December 31, 2016.

Cash used in investing activities were Rs. 576.87 mn for the year ended December 31, 2017 comprised of investment in long term deposit with bank Rs. 567.16 mn (net), purchase of fixed assets of Rs. 89.97 mn, investment in Liquid mutual fund Rs. 48 mn and earn out payment to ex-shareholders of iBiZ Rs. 18.40 mn as offset by proceeds from redemption of debenture Rs. 87.57 mn, interest income Rs. 49.73 mn, rental income from investment property Rs. 6.40 mn and sale of fixed assets Rs. 2.96 mn.

Cash used in financing activities were Rs. 5.79 mn for the year ended December 31,2017 mainly consist of Rs. 3.97 mn (net) for repayment of long term borrowings.

R Systems policy is to maintain sufficient liquidity to fund the anticipated capital expenditures, operational expenses and investments for strategic initiatives.

Analysis and Discussions of Operating Performance for the Year Ended December 31, 2017

The following section discusses in detail the composition of different items in the Consolidated and Standalone Statement of Profit and Loss Account.

Consolidated Statement of Profit and Loss for the year:

(Rs. in million)

Particulars 2017 % of Total Revenue 2016 % of Total Revenue Change %
Revenue
Revenue from operations 5,926.36 97.49 5,882.37 97.89 0.75
Other income 152.49 2.51 127.07 2.11 20.01
Total Revenue 6,078.85 100.00 6,009.44 100.00 1.15
Expenses
Employee benefits expense 4,160.83 68.45 3,797.89 63.20 9.56
Operational and other expense 1,410.97 23.21 1,377.99 22.93 2.39
Depreciation and amortisation expense 119.67 1.97 115.12 1.92 3.95
Finance cost 10.87 0.18 7.92 0.13 37.28
Total Revenue 5,702.34 93.81 5,298.92 88.18 7.61
Net profit before tax and exceptional items 376.51 6.19 710.52 11.82 (47.01)
Exceptional items - - 46.35 0.77 (100.00)
Net profit before tax 376.51 6.19 756.87 12.59 (50.25)
Tax expense 131.70 2.17 219.99 3.66 (40.13)
Net profit after tax 244.81 4.02 536.88 8.93 (54.40)

Standalone Statement of Profit and Loss for the year:

(Rs. in million)

Particulars 2017 % of Total Revenue 2016 % of Total Revenue Change %
Revenue
Revenue from operations 2,637.51 95.17 2,631.77 95.51 0.22
Other income 133.75 4.83 123.67 4.49 8.15
Total income 2,771.26 100.00 2,755.44 100.00 0.57
Expenses
Employee benefits expense 1,856.05 66.97 1,663.18 60.36 11.60
Operational and other expense 478.30 17.26 451.87 16.40 5.85
Depreciation and amortisation expense 73.74 2.66 69.30 2.52 6.40
Finance cost 6.33 0.23 3.68 0.13 71.88
Total expenses 2,414.42 87.12 2,188.03 79.41 10.35
Net profit before tax and exceptional items 356.84 12.88 567.41 20.59 (37.11)
Exceptional items - - 46.35 1.68 (100.00)
Net profit before tax 356.84 12.88 613.76 22.27 (41.86)
Tax expense 118.01 4.26 201.62 7.32 (41.47)
Net profit after tax 238.83 8.62 412.14 14.96 (42.05)

1. Revenue

1.1 Revenue from operations

R Systems derives revenue primarily from information Technology services and Business Process Outsourcing services. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.

1.1.1 Based on Consolidated Financial Statement

(Rs. in million)

Particulars Year ended December 31,2017 % Year ended December 31,2016 % change %
information technology services 5,461.68 92.16 5,449.12 92.63 0.23
Business process outsourcing services 464.68 7.84 433.25 7.37 7.25
Total 5,926.36 100.00 5,882.37 100.00 0.75

1.1.2 Based on Standalone Financial Statement

(Rs. in million)

Particulars Year ended December 31,2017 % Year ended December 31,2016 % change %
information technology services and products 2,153.28 81.64 2,179.51 82.82 (1.20)
Business process outsourcing services 484.23 18.36 452.26 17.18 7.07
Total 2,637.51 100.00 2,631.77 100.00 0.22

1.1.3 Consolidated Revenue by Geography

R Systems earns income from five principal geographic territories, namely the United States of America, Europe, South East Asian countries ("SEAC"), india and others. A significant proportion of the revenues were derived from clients located in the United States of America. The geographic break-down is given below:

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1.1.4 Consolidated Revenue by Client Concentration

The breakdown of R Systems consolidated revenue on the basis of client concentration for the year ended December 31, 2017 and 2016 is as follows:

1.2 Other Income

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Interest income 59.84 56.81 59.27 56.57
Rental income from investment property 6.40 6.40 6.40 6.40
Provision for doubtful debts and advances written back (net) - 4.39 - 2.31
Profit on sale / discard of fixed assets (net) 0.36 - 0.32 -
Foreign exchange fluctuation (net) 56.71 41.94 64.82 52.38
Excess Provision written back 2.53 5.15 2.53 5.15
Liability no longer required written back 11.01 1.14 - -
Government Grant 5.32 7.50 - -
Miscellaneous income 10.32 3.74 0.41 0.86
Total other income 152.49 127.07 133.75 123.67

2. Expenditures

2.1 Personnel Expenses

Personnel expenses primarily consist of salaries, bonus, commissions, provision for compensated absence, gratuity benefits, contribution towards provident and other funds and staff welfare expenses.

2.1.1 Based on Consolidated Financial Statement:

(Rs. in million)

Particulars 2017 % of Total Revenue 2016 % of Total Revenue Change %
Salaries and bonus 3,843.38 63.23 3,498.64 58.22 9.85
Gratuity 12.62 0.21 35.76 0.60 (64.72)
Contribution to provident fund and other payments 252.48 4.15 225.47 3.75 11.98
Staff welfare expenses 52.35 0.86 38.02 0.63 37.70
Total 4,160.83 68.45 3,797.89 63.20 9.56

2.1.2 Based on Standalone Financial Statement:

(Rs. in million)

Particulars 2017 % of Total Revenue 2016 % of Total Revenue Change %
Salaries, wages and bonus 1,738.85 62.74 1,541.01 55.93 12.84
Gratuity 12.62 0.46 35.76 1.30 (64.72)
Contribution to provident fund and other payments 67.76 2.44 56.42 2.05 20.09
Staff welfare expenses 36.82 1.33 29.99 1.08 22.78
Total 1,856.05 66.97 1,663.18 60.36 11.60

2.2 operational and other expenses

Operational and other expenses includes expenses on traveling and conveyance, legal and professional expenses including subcontractors costs, cost of third party hardware and software, recruitment and training, communication, provision for doubtful debts and advances (net), rent of premises, equipment rental, audit fees, repairs and maintenance, commission, contributions towards corporate social responsibility and other miscellaneous items.

2.2.1 Based on Consolidated Financial Statement:

Particulars 2017 % of Total Revenue 2016 % of Total Revenue
Travelling and conveyance 235.82 3.88 243.33 4.05
Legal and professional expenses including audit fees and subcontracting expenses 530.60 8.73 593.77 9.89
Communication costs 74.85 1.23 72.19 1.20
Repair and maintenance 101.64 1.67 90.38 1.51
Recruitment and training expenses 29.15 0.48 24.82 0.41
Power and fuel 44.83 0.74 45.00 0.75
Rent - premises and equipments 112.45 1.85 90.44 1.50
Advertising and sales promotion 30.69 0.51 18.90 0.31
Provision for doubtful debts and advances (net) 8.75 0.14 0.00 0.00
Bad debts and advances written off (net) 0.91 0.01 0.73 0.01
Cost of third party items 156.65 2.58 110.79 1.84
Contributions towards corporate social responsibility 2.46 0.04 1.50 0.02
Others 82.17 1.35 86.14 1.44
Total 1,410.97 23.21 1,377.99 22.93

2.2.2 Based on Standalone Financial Statement:

(Rs. in million)

Particulars 2017 % of Total Revenue 2016 % of Total Revenue
Travelling and conveyance 140.26 5.06 145.16 5.27
Legal and professional expenses including audit fees and subcontracting expenses 54.70 1.98 63.37 2.30
Communication costs 56.91 2.05 53.84 1.95
Repair and maintenance 81.19 2.93 72.74 2.64
Recruitment and training expenses 7.92 0.29 8.94 0.32
Power and fuel 40.80 1.47 40.69 1.48
Rent - premises and equipments 34.80 1.26 27.45 1.00
Advertising and sales promotion 7.06 0.25 4.19 0.15
Provision for doubtful debts and advances (net) 6.67 0.24 - -
Contributions towards corporate social responsibility 2.46 0.09 1.50 0.05
Others 45.53 1.64 33.99 1.24
Total 478.30 17.26 451.87 16.40

2.3 Depreciation and Amortisation Expense

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Depreciation on tangible assets 90.93 87.74 64.62 64.40
Amortisation on intangible assets 27.27 25.91 7.65 3.43
Depreciation on investment property 1.47 1.47 1.47 1.47
Total 119.67 115.12 73.74 69.30

2.4 Finance cost

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Interest 3.09 1.36 2.76 1.34
Bank charges 7.78 6.56 3.57 2.34
Total 10.87 7.92 6.33 3.68

2.5 Exceptional items

(Rs. in million)

Particulars 2017 2016
Profit on sale of investment - 37.18
Profit on sale of subsidiaries - 9.17
Total - 46.35

For detailed information about exceptional items refer Note no. 30 of notes to the Consolidated Financial Statements and refer Note no. 31 of notes to the Standalone Financial Statements.

2.6 Tax expense

Tax expense comprises current tax and deferred tax.

(Rs. in million)

Particulars

Consolidated

Standalone

2017 2016 2017 2016
Profit Before Tax 376.51 756.87 356.84 613.75
Current tax 143.82 244.03 127.34 224.95
MAT credit [related to earlier years] - (15.13) - (15.13)
Deferred tax charge / (credit) (12.12) (8.91) (9.33) (8.20)
Total Tax expense 131.70 219.99 118.01 201.62
effective Tax Rate (%) 34.98 29.07 33.07 32.85

On behalf of the Board

For R Systems International Limited

Sd/- Sd/-
Satinder Singh Rekhi Lt. Gen. Baldev Singh (Retd.)
(DIN: 00006955) (DIN: 00006966)
(Managing Director) (President & Senior Executive Director)
Place : CA, U.S.A. Place : NOIDA, (U.P.)
Date : April 18, 2018 Date : April 18, 2018