R Systems International Ltd Management Discussions.

Overview

The consolidated financial statements of the Group have been prepared in accordance with the Indian Accounting Standards (Ind-AS) prescribed under Section 133 of the Companies Act, 2013 read with Companies (Indian Accounting Standard) Rules as amended from time to time. 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.

The Group has adopted Ind AS 116 ‘Leases with the date of initial application being January 01, 2020. Ind AS 116 replaces Ind AS 17 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings as of January 01, 2020. Due to the adoption of Ind AS 116 lessee is required to recognise assets and liabilities for all the leases with a term of more than 12 months unless the underlying asset is of quite low. Further, due to the adoption lease rent has been classified into depreciation and interest expenses.

A. Industry Structure and Developments

The COVID-19 pandemic has brought years of change in the way companies across different sectors and regions operate and collaborate. The consumers have shifted towards online channels, and businesses were somehow forced to respond in turn. Businesses have rapidly accelerated digital transformation for their customers, supply chain interactions, and internal operations.

Digital transformation has become imperative for some of the businesses to remain relevant in the pandemic-led new normal. The COVID-19 crisis has demonstrated the importance of digital initiatives in the areas of e-commerce, deliveries, supply chain virtualisation, process automation and other activities, especially where physical activities are restrictive.

These changes in consumer behaviour, business paradigm and processes are likely to continue in the long term as well. Additionally, the share of digital or digital enabled products has accelerated multi-fold and has further led to a rise in the investments and returns in the digital transformation projects. An accelerated migration to the cloud, faster roll out of 5G, using big data, AI and ML for data driven decision making and intelligent process automations will bolster digital transformation across industries in the 2020s.

B. Company Overview

R Systems International Limited (the ‘Company or ‘the Parent Company) and its subsidiaries (hereinafter collectively referred to as ‘the Group) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956 having its registered office at New Delhi. Its shares are listed on National Stock Exchange of India Limited and BSE Limited. The Group is a leading global provider of technology, artificial intelligence, RPA services and solutions along with knowledge services. The Group delivers its services and solutions to leading technology companies and businesses to enable their digital transformation. The Groups services and solutions offerings span over five major business verticals, that is, Technology, Telecom, Healthcare and Life Science, Finance and Insurance, and Retail and e-commerce.

The Company has following subsidiaries:

Name of Subsidiary Holding as of Holding as of December 31, 2019 Country of incorporation and other particulars
R Systems, Inc., USA 100% 100% A company registered under the laws of California, USA in 1993 and subsidiary of the Company since January 2, 2001.
R Systems (Singapore) Pte Limited, Singapore 100% 100% A company registered under the laws of Singapore in 1997 and subsidiary of the Company since September 19, 2000.
R Systems Technologies Limited, USA 100% 100% A company registered under the laws of Delaware, USA in 1996 and subsidiary of the Company since April 1, 2002.
Name of Subsidiary Holding as of Holding as of December 31, 2019 Country of incorporation and other particulars
R Systems Consulting Services Limited (formerly known as ECnet Limited), Singapore * 99.75% 99.75% A company registered under the laws of Singapore in 1996. The Company has acquired majority share on January 8, 2004. R Systems Consulting Services Limited, Singapore has subsidiaries in Malaysia, Thailand, China, Hong Kong and Japan.
R Systems Computaris International Limited (formerly known as Computaris International Limited), UK 100% 100% A company registered under the laws of U.K in 2006. The Company has acquired the entire share on January 26, 2011.
R Systems Computaris International Limited, U.K. has subsidiaries in Romania, Poland, Moldova, Malaysia, Switzerland and Philippines.
RSYS Technologies Ltd., Canada 100% 100% A company registered under the laws of Canada in 2012 and subsidiary of the Company since October 29, 2012.
IBIZ Consultancy Services India Private Limited, India 100% 100% A company registered under the laws of India in 2008 and subsidiary of the Company since April 30, 2015.

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

Innovizant LLC, USA, (100% membership interest held by RSI) is a wholly owned subsidiary of R Systems, Inc., USA, w.e.f. January 1, 2019.

R Systems Consulting Services Limited , Singapore has following wholly owned subsidiaries:

Name of Subsidiary Holding as of Holding as of December 31, 2019 Country of incorporation
R Systems Consulting Services (M) Sdn. Bhd. (formerly known as ECnet (M) Sdn. Bhd.) 100 % 100 % Malaysia
R Systems Consulting Services (Thailand) Co., Ltd. (formerly known as ECnet Systems (Thailand) Co. Ltd.) 100 % 100 % Thailand
ECnet (Shanghai) Co. Ltd. 100 % 100 % Peoples Republic of China
R Systems Consulting Services (Hong Kong) Ltd.(formerly known as ECnet (Hong Kong) Ltd.) 100 % 100 % Hong Kong
R Systems Consulting Services Kabushiki Kaisha (formerly known as ECnet Kabushiki Kaisha) 100 % 100 % Japan

R Systems Computaris International Limited, UK has following wholly owned subsidiaries:

Name of Subsidiary Holding as of Holding as of December 31, 2019 Country of incorporation
R Systems Computaris Europe SRL (formerly known as Computaris Romania SRL) 100 % 100 % Romania
R Systems Computaris Poland sp z o.o (formerly known as Computaris Polska sp z o.o.) 100 % 100 % Poland
R Systems Computaris S.R.L (formerly known as ICS Computaris International Srl) 100 % 100 % Moldova
R Systems Computaris Malaysia Sdn. Bhd. (formerly known as Computaris Malaysia Sdn. Bhd.) 100 % 100 % Malaysia
R Systems Computaris Philippines Pte. Ltd. Inc. (formerly known as Computaris Philippines Pte. Ltd. Inc.) 100 % 100 % Philippines
R Systems Computaris Suisse Sarl, (formerly known as Computaris Suisse Sarl) 100 % 100 % Switzerland

R Systems IBIZCS Pte. Ltd., Singapore (Formerly known as IBIZ Consulting Pte Ltd) 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 of Subsidiary Holding as of Holding as of December 31, 2019 Country of incorporation
IBIZ Consulting Services Pte Ltd 100 % 100 % Singapore
R Systems IBIZCS Sdn. Bhd. (formerly known as IBIZ Consulting Services Sdn. Bhd.) 100 % 100 % Malaysia
PT. R Systems IBIZCS International (formerly known as PT. IBIZCS Indonesia) 100 % 100 % Indonesia
IBIZ Consulting (Thailand) Co. Ltd. (incorporated w.e.f. June 21, 2019) 100 % 100 % Thailand
IBIZ Consulting Service Limited (IBIZ HK) 100 % 100 % Hong Kong
IBIZ Consulting Service Shanghai Co., Ltd 100% by IBIZ HK 100% by IBIZ HK Peoples Republic of China

C. Opportunities and Threats

R Systems has truly lived a transformation culture since its beginning. Towards the start of pandemic, the Company has taken timely decisions to ensure safety and welfare of its employees while closely working with customers towards their rapidly changing business needs Year after year, we have been focusing and investing in strengthening our digital competencies and building a robust infrastructure, which has enabled us to accelerate the digital transformation for our customer to tackle near term challenges as well as meeting the long term objectives.

The rapidly evolving economic and social environment has made digital transformation an imperative strategy for businesses within all the industries. Every organisation needs reliable partners who can navigate and stimulate their tech-focused transformation with an innovative, agile and customer-centric philosophy. Therefore, At

R Systems, we have structured and positioned ourselves to partner with global ISVs and enterprise customers to speed-up their transformation journey.

As every opportunity comes up with inherent risks and challenges, R Systems has geared itself to reckon with as well as address such risks and challenges including threats from competitors such as their disruptive tactics, new technologies, cyber security, 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 monitored and managed proactively through well-planned 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 8,805.91 million during the year 2020 as against revenue of Rs 8,093.75 million during the year 2019. The revenue grew by 8.80% during the year 2020. Consolidated profit after tax during the year 2020 was

Rs 821.89 million as against net profit for year 2019 of Rs 581.24 million.

The basic earnings per share (based on consolidated financial statement) during the year 2020 was Rs 6.87 per share as against Rs 4.82 per share in 2019 of face value of Rs 1 each.

R Systems maintains a strong financial position with shareholder funds of Rs 4,266.15 million including net cash and bank balance of Rs 3,027.84 million as of December 31, 2020 to invest towards the future growth of the business.

R Systems is well positioned to leverage the following factors, which are pertinent to its differentiated strategy for growth in the marketplace:

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 meticulously manage them. 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 organisation. 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 the Companys internal control systems and procedures.

Deloitte Haskins & Sells LLP, the statutory auditors of the Company, have audited the financial statements and reviewed the other information included in this annual report and have also issued an 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

At R Systems, we identify our employees as our most valued asset and we recognise their commitment in the growth journey of our organisation. In the IT and ITES industry, attracting, developing, deploying and retaining talent is critical. Therefore, R Systems has also defined and implemented a people management initiative, which is in line with the industry best practices and People Capability Maturity Model (People CMM). It effectively manages the employee life cycle to ensure that individuals are committed to the broader organisational goals and show pro-activeness at work-place.

As of FY2020, R Systems has a talent pool of 3,103 associates including 431 sales and support associates.

I. Discussion on financial performance with respect to operational performance Financial Position as of December 31, 2020

1. Property, Plant and Equipment (PPE) , Right-to use Assets (ROU) and Intangible Assets

PPE includes land, building, lease hold improvement, computer hardware, furniture & fittings, vehicle, office, and electrical equipment. ROU includes land, building, computer hardware, computer software, vehicle, and furniture & fittings. Intangible assets includes Goodwill on consolidation, computer software, non-compete and customer contracts.

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Property, plant and equipment (net) 471.67 435.98 359.14 344.72
Right-to-use assets 470.42 - 364.74 -
Intangible assets
- Goodwill on Consolidation 97.24 195.94 - -
- Other intangible assets (net) 49.12 66.56 3.97 1.11
Capital work in progress 0.21 19.63 - 17.94
Total 1,088.66 718.11 727.85 363.77

Details of total additions to gross block during the year in :

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Property, plant and equipment 205.34 243.75 140.59 180.93
Right-to-use assets 224.16 - 167.01 -
Intangible assets
- Goodwill - 100.73 - -
- Other intangible assets (net) 7.52 79.86 5.08 0.90

Note: Refer Consolidated Financial Statements and Standalone Financial Statements for head wise details.

2. Investment Property

Investment Property represents the land and building in Pune given on rent. Investment Property value (net) as of December 31, 2020 was Rs 20.37 million as against Rs 21.84 million as of December 31, 2019.

3. Non-Current Investment

(Rs in Million)

Particulars

Consolidated

Standalone

2020 2019 2020 2019
Investment in subsidiaries - - 1,023.50 995.83
Other investment 0.03 0.03 0.03 0.03
Total 0.03 0.03 1,023.53 995.86

4. Other Non-Current Financial Assets

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Security deposits 32.72 33.04 15.75 23.00
Margin money deposits 46.05 53.95 25.16 46.55
Bank deposits to be matured after 12 months from reporting date - 51.40 - -
Interest accrued on bank deposits 0.75 1.84 0.75 1.83
Staff advance 0.01 0.14 0.01 0.13
Total 79.53 140.37 41.67 71.51

5. Deferred Tax Liability / Assets (Net)

Deferred tax reflects the timing differences between financials and tax books arising mainly from employees benefit provisions, Impact of Ind AS 116 (Leases), Provision for doubtful debts and advances, tax losses (results into deferred tax assets) and differences between accounting base and tax base for depreciable assets, M2M impact on financial instruments, Adjustment for change in the tax accounting (results into deferred tax liability).

Deferred tax assets and deferred tax liabilities across various tax jurisdictions, which cannot offset against each other are presented separately.

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Deferred Tax Assets (net) 133.44 62.53 89.07 48.86
Deferred Tax Liability (net) - 1.32 - -

6. Income Tax Assets / Liability

Income tax assets represent excess of tax paid over liability. It has been classified as non-current tax assets in financial statement. Income tax liability represents excess of tax liability over advance tax. It has been classified as current tax liability in financial statement as the Company is required to settle the same within 12 months from reporting date.

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Income tax assets (net) 67.13 49.26 32.17 32.20
Income tax liability (net) 67.14 50.95 47.78 41.27

Income tax assets / liabilities across various tax jurisdictions which cannot offset against each other are presented separately.

7. Other Non-Current Assets

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Capital advances - 10.75 - 9.92
Prepaid expenses 18.48 28.78 18.48 27.44
Total 18.48 39.53 18.48 37.36

In last year, capital advance represents mainly advance given to vendor for procurement of capital assets for expansion of SEZ operations.

8. Current Investments

Current investments as of December 31, 2020 was Rs 128.02 million as against Rs 342.45 million as of December 31, 2019, represent the surplus fund invested in Debt Liquid Mutual Fund to optimise the net tax yield based on the treasury management policy.

9. Trade Receivables

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Trade receivables (gross) 1,341.47 1356.72 665.86 575.98
Less : Allowance for doubtful debts 28.93 32.75 7.66 2.41
(expected credit loss allowance)
Trade receivables (net) 1,312.54 1,323.97 658.20 573.57

10. Cash and Bank Balance

Cash and cash equivalents comprises of cash at bank, cash in hand and short term deposits with an original maturity period of three months or less.

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Cash and cash equivalents
Cash on hand 1.07 0.95 0.51 0.51
Balances with scheduled banks 681.34 379.76 654.74 371.97
Balances with other banks 1,449.80 722.40 56.60 74.61
Cash and cash equivalents (A) 2,132.21 1103.11 711.85 447.09
Other bank balances
Deposit with original maturity of more than 368.48 183.18 283.35 -
3 months but less than 12 months
Balances in unclaimed dividend account 2.14 2.39 2.14 2.39
Bank balance towards interim dividend - 180.51 - 180.51
Other bank balances (B) 370.62 366.08 285.49 182.90
Total Cash and Bank Balance (A+B) 2,502.83 1469.19 997.34 629.99

Note: For detailed movement in cash and cash equivalent, please refer the Consolidated Cash Flow Statement and Standalone Cash Flow Statement.

11. Other Current Financial Assets

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Staff advance 8.85 7.40 1.80 2.91
Recoverable from related parties - 0.54 0.68 2.56
Unbilled revenue other than from fixed bid contract 162.55 200.59 99.66 136.89
Securities deposit 11.20 6.32 5.89 1.92
Bank deposits with original maturity of more than 12 months 626.36 265.11 591.28 229.77
Mark-to-market gain on derivative instruments 54.66 13.29 54.66 13.29
Interest accrued on bank deposits 8.95 4.75 7.88 2.17
Other 16.94 3.93 6.84 0.22
Total 889.51 501.93 768.69 389.73

Unbilled revenue constitutes of amounts that is 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.

12. Other Current Assets

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Balances with indirect tax authorities 44.00 41.98 43.59 41.89
VAT recoverable 7.15 7.67 - -
Unbilled revenue from fixed bid contract 59.59 82.74 1.25 13.29
Prepaid expenses 130.33 111.38 77.72 70.93
Advance to vendors 10.51 10.24 3.62 0.73
Tour and travel advance 0.04 5.30 0.04 5.30
Total 251.62 259.31 126.22 132.14

13. Share Capital

(Rs in Million)

Particulars As of December 31,
2020 2019
Authorised share capital 206.00 206.00
Issued, subscribed and paid up capital 120.34 123.99
Add: Shares Issued under ESOP Scheme, 2007 0.04 0.04
Less Buy-back of shares - (3.69)
Less Shares cancelled pursuant to capital reduction scheme * (0.74)
119.64 120.34
Less: advance to R Systems employee welfare trust - (0.74)
Total 119.64 119.60

During the year ended December 31, 2020, the Company has issued 37,500 (previous year 37,500) fully paid-up equity shares of Rs 1 each under ESOP Scheme, 2007.

* Honble National Company Law Tribunal, New Delhi, vide order dated January 28, 2020, has approved the reduction in share capital of the Company under Section 66 of the Companies Act, 2013. Pursuant to the said order, 738,980 fully paid up equity shares of Rs 1/- each of the Company as held by R Systems Employees Welfare Trust have been cancelled and extinguished.

Note: Detailed information about the movements in ESOP plan has been given in Note no. 11 of notes to the Consolidated Financial Statements.

14. Other Equity

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Reserve and Surplus
Securities premium account 46.66 44.37 46.66 44.37
Capital redemption reserve 3.69 3.69 3.69 3.69
Stock options outstanding - 1.72 - 1.72
General Reserve 155.04 155.04 155.04 155.04
Capital Reserve 0.03 0.03 - -
Retained earnings 3,604.41 2,796.95 3,113.77 2423.29
Other Comprehensive Income
Re-measurement of defined benefit plans (11.98) (0.79) (11.98) (0.79)
Foreign currency translation reserve 348.66 261.73 - -
Total Other Equity 4,146.51 3,262.74 3,307.18 2,627.32

15. Non-Controlling Interest

During the year, there is no change in the non-controlling interest in the Consolidated Financial Statement.

16. Borrowings (Non-Current portion)

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Term loans
- Motor vehicles Loan from non-banking financial corporation (secured) 8.12 13.20 8.12 13.20
- PPP forgivable Loan 222.05 31.76

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Finance lease obligation (Unsecured) - 48.88 - 31.99
230.17 62.08 39.88 45.19
Less : Amount shown under other current liabilities (146.55) (9.00) (24.64) (5.72)
Total 83.62 53.08 15.24 39.47

PPP forgivable loan has been taken under the Paycheck Protection Program (PPP) by Small Business Administration, United States of America ("SBA"). The aforesaid PPP loan is forgivable subject to certain condition.

Further, the Company has applied for the forgiveness and will account for forgiveness post its confirmation from SBA.

17. Other Non-Current Financial Liabilities

(Rs in Million)

Particulars

Consolidated

Standalone

2020 2019 2020 2019
Contingent consideration for business acquisition 44.27 116.23 - -
Security deposit 2.42 3.99 2.42 3.99
Lease liabilities * 425.36 - 359.88 -
Total 472.05 120.22 362.30 3.99

Contingent consideration represents the fair value of the amount payable to ex-members of Innovizant LLC on fulfilment of certain conditions. Detailed information about the Innovizant LLC acquisition has been given in Note no. 34 of notes to the Consolidated Financial Statements.

* During the year Company has adopted Ind As 116 Leases, which requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.

18. Provisions (Long Term)

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 174.94 million as of December 31, 2020 as against Rs 133.20 million as of December 31, 2019.

19. Trade Payables

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Trade Payable 215.97 253.39 38.30 46.24

20. Other Current Financial Liabilities

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Current maturities of term loan:
- Motor vehicles 4.30 5.08 4.30 5.08
- PPP forgivable Loan 142.25 - 20.34 -
Current maturity of Finance lease obligation - 3.92 - 0.64
Payable to subsidiary company - - 20.79 21.74
Security deposits received 10.13 9.08 10.14 9.08

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Lease Liability Payable 62.80 - 15.62 -
Liability for interim dividend payable - 179.40 - 179.40
Investor education and protection fund (not due) - Unclaimed dividend 2.14 2.39 2.14 2.39
Employee benefits payable 225.23 174.92 151.00 127.01
Capital creditors 3.92 - 3.92 -
JSS benefit payable* 26.50 - - -
Advance from Customers 5.44 4.14 - -
Other financial liabilities 7.32 4.56 3.37 -
Total 490.03 383.49 231.62 348.75

* JSS benefit payable is related to government grant under Job Support Scheme (JSS) received in Singapore for IT consulting operations, which is required to be passed on to the end customers.

21. Provisions (Short Term)

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Provision for employee benefits
- Gratuity 5.07 - 5.07 -
- Compensated absences 218.94 166.60 123.88 96.79
Total 224.01 166.60 128.95 96.79

22. Other Current Liabilities

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Statutory dues payable
Tax deducted at source / Withholding tax 26.53 24.03 19.83 15.83
PF / 401 K / other payables 62.29 44.62 21.01 16.85
GST / Service tax / VAT 33.45 28.58 3.47 3.15
Others 0.43 0.34 0.43 0.34
Unearned revenues 360.46 286.13 160.92 146.48
Deferred grant from Government 15.09 0.23 - -
Total 498.25 383.93 205.66 182.65

23. Liquidity

The consolidated cash and cash equivalents as of December 31, 2020 were Rs 2,132.21 million as against Rs 1,103.11 million as of December 31, 2019.

Net cash generated from operating activities was Rs 1,243.59 million for the year ended December 31, 2020 compared to Rs 642.90 million for the year ended December 31, 2019.

Cash used in investing activities was Rs 382.52 million for the year ended December 31, 2020 and mainly comprised of investment in long term deposit with bank Rs 465.64 million (net), purchase of fixed assets of Rs 179.56 million, as offset by redemption of liquid mutual fund Rs 226.86 million along with interest income of Rs 28.61 million.

Cash in from financing activities was Rs 110.31 million for the year ended December 31, 2020 mainly comprised of receipt of PPP forgivable Loan of Rs 225.19 million as offset by payment of lease liabilities of Rs 117.52 million.

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

R Systems has a credit facility from the Axis Bank Limited amounting to Rs 380 million (including non-fund-based credit limit of Rs 180 million for currency derivatives). As of December 31, 2020, the total credit balance was nil under fund based line of credit. Loan payable as of December 31, 2020 comprises of loan for motor vehicles purchased amounting to Rs 8.12 million and PPP forgivable Loan of Rs 222.05 million.

Analysis and Discussions of Operating Performance for the Year Ended December 31, 2020

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 2020 % of Total Income 2019 % of Total Income Change %
Income
Revenue from operations 8,805.91 98.55 8,093.75 98.13 8.80
Other income 129.15 1.45 153.85 1.87 (16.05)
Total income 8,935.06 100.00 8,247.60 100.00 8.34
Expenses
Employee benefits expense 6,116.27 68.45 5,462.13 66.23 11.98
Finance costs 56.66 0.63 15.65 0.19 262.04
Depreciation and amortisation expense 256.04 2.87 148.86 1.80 72.00
Other expenses 1,521.33 17.03 1,901.61 23.06 (20.00)
Total expenses 7,950.30 88.98 7,528.25 91.28 5.61
Profit before tax and exceptional items 984.76 11.02 719.35 8.72 36.90
Exceptional Items 18.65 0.21 - - 100.00
Profit before tax 966.11 10.81 719.35 8.72 34.30
Tax expense 144.22 1.61 138.11 1.67 4.42
Net profit for the year 821.89 9.20 581.24 7.05 41.40
Other comprehensive income / (loss) 75.74 0.85 27.29 0.33 177.54
Total comprehensive income for the year 897.63 10.05 608.53 7.38 47.51

Standalone Statement of Profit and Loss for the year:

(Rs in Million)

Particulars 2020 % of Total Income 2019 % of Total Income Change %
Income
Revenue from operations 4,387.15 97.21 3,917.69 96.39 11.98
Other income 126.08 2.79 146.71 3.61 (14.06)
Total income 4,513.23 100.00 4,064.40 100.00 11.04
Expenses
Employee benefits expense 2,972.00 65.85 2,641.84 65.00 12.50
Finance costs 37.02 0.82 4.26 0.10 769.01
Depreciation and amortisation expense 134.61 2.98 85.91 2.11 56.69
Other expenses 549.90 12.19 700.81 17.25 (21.53)
Total expenses 3,693.53 81.84 3,432.82 84.46 7.59
Profit before tax 819.70 18.16 631.58 15.54 29.79
Tax expense 118.73 2.63 116.63 2.87 1.80
Net profit for the year 700.97 15.53 514.95 12.67 36.12
Other comprehensive income / (loss) (11.19) (0.25) (8.33) (0.20) 34.33
Total comprehensive income for the year 689.78 15.28 506.62 12.47 36.15

1. Revenue

1.1 Revenue from Operations

R Systems derives revenue primarily from Information Technology services and Business Process Outsourcing services. Revenue is recognised when the performance obligations as promised have been satisfied with a transaction price and when there is no uncertainty as to measurement or collectability of the consideration

1.1.1 Based on Consolidated Financial Statement

(Rs in Million)

Particulars Year ended December 31, 2020 % Year ended December 31, 2019 % Change %
Information technology services 8,144.49 92.49 7,406.43 91.51 9.97
Business process outsourcing 661.42 7.51 687.32 8.49 (3.77)
services
Total 8,805.91 100.00 8,093.75 100.00 8.80

1.1.2 Based on Standalone Financial Statement

(Rs in Million)

Particulars Year ended December 31, 2020 % Year ended December 31, 2019 % Change %
Information technology services 3,700.67 84.35 3,199.49 81.67 15.66
Business process outsourcing services 686.48 15.65 718.20 18.33 (4.42)
Total 4,387.15 100.00 3,917.69 100.00 11.98

1.2 Other Income

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Interest income 53.20 60.46 47.35 50.50
Rental income from investment property 6.44 6.72 6.44 6.72
Foreign exchange fluctuation (net) 33.45 57.08 47.37 59.98
Provision for doubtful debts and advances (net) - - - 9.92
Profit on sale of PPE (net) - 0.65 0.04 0.46
Profit on discard of Right-to-use assets (net) 2.32 - - -
Lease rent concession 15.51 - 11.97 -
Net gain arising on financial assets measured at FVTPL 12.43 17.94 12.43 17.94
Miscellaneous income 5.80 11.00 0.48 1.19
Total other income 129.15 153.85 126.08 146.71

2. Expenditures 2.1 Personnel Expenses

Personnel expenses primarily consist of salaries, bonus, commissions, provision for compensated absences, gratuity benefits, contribution towards provident and other funds, employee share based payments expense and staff welfare expenses.

2.1.1 Based on Consolidated Financial Statement:

(Rs in Million)

Particulars 2020 % of Total Income 2019 % of Total Income Change %
Salaries, wages and bonus 5,640.27 63.13 4,989.61 60.50 13.04
Gratuity expenses 31.63 0.35 26.64 0.32 18.73
Contribution to provident and other funds 285.25 3.19 249.95 3.03 14.12

(Rs in Million)

Particulars 2020 % of Total Income 2019 % of Total Income Change %
Employees share based payments expense 0.15 0.00 0.67 0.01 (77.61)
Staff welfare expenses 158.97 1.78 195.26 2.37 (18.59)
Total 6,116.27 68.45 5,462.13 66.23 11.98

2.1.2 Based on Standalone Financial Statement:

(Rs in Million)

Particulars 2020 % of Total Income 2019 % of Total Income Change %
Salaries, wages and bonus 2,775.18 61.49 2,442.98 60.11 13.60
Gratuity expenses 31.63 0.70 26.64 0.66 18.73
Contribution to provident and other funds 103.30 2.29 93.22 2.29 10.81
Employees share based payments expense 0.15 0.00 0.67 0.02 (77.61)
Staff welfare expenses 61.74 1.37 78.33 1.92 (21.18)
Total 2,972.00 65.85 2,641.84 65.00 12.50

2.2 Finance cost (Interest expenses)

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
On term loan 2.76 1.08 1.20 1.08
On Interest expense on lease liabilities 41.37 3.66 35.78 3.18
On fair value of contingent consideration 12.49 10.91 - -
On income tax 0.04 - 0.04 -
Total 56.66 15.65 37.02 4.26

2.3 Depreciation and Amortisation Expense

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Depreciation and Amortisation 256.04 148.86 134.61 85.91
% of Total income 2.87 1.80 2.98 2.11

The increase in depreciation and amortization is mainly on account of depreciation of ROU assets recognized due to adoption of Ind AS 116 lease.

2.4 Operational and other expenses

Operational and other expenses include power and fuel, expenses on traveling and conveyance, short term lease rent, commission, communication, legal and professional expenses including sub-contractors costs, cost of third party items, audit fees, provision for doubtful debts (net), advance written off, contributions towards corporate social responsibility and other miscellaneous items.

2.4.1 Based on Consolidated Financial Statement:

(Rs in Million)

Particulars 2020 % of Total Income 2019 % of Total Income Change %
Power and fuel 41.04 0.46 51.56 0.63 (20.40)
Short term lease rent 37.73 0.42 143.20 1.74 (73.65)
Software subscription charges 94.44 1.06 82.86 1.01 13.98
Repair and maintenance 60.31 0.67 63.63 0.77 (5.22)
Commission 15.04 0.17 11.67 0.14 28.88
Travelling and conveyance 120.39 1.35 341.37 4.14 (64.73)
Communication costs 105.22 1.18 82.58 1.00 27.42
Legal and professional fees 682.98 7.65 706.13 8.56 (3.28)
Cost of third party items 133.93 1.50 189.89 2.30 (29.47)
Auditors remuneration 25.10 0.28 22.99 0.28 9.18
Provision for doubtful debts (net) 2.90 0.03 7.73 0.09 (62.48)
Advances written off 2.60 0.03 1.10 0.01 136.36
Loss on sale / discarding of 0.19 0.00 - - 100.00
property, plant and equipment (net) Contribution towards corporate 5.26 0.06 6.52 0.08 (19.33)
social responsibility Miscellaneous expenses 194.20 2.17 190.38 2.31 2.01
Total 1,521.33 17.03 1,901.61 23.06 (20.00)

2.4.2 Based on Standalone Financial Statement:

(Rs in Million)

Particulars 2020 % of Total Income 2019 % of Total Income Change %
Power and fuel 30.24 0.67 42.22 1.04 (28.38)
Short term lease rent 13.84 0.31 49.27 1.21 (71.91)
Software subscription charges 79.70 1.77 74.88 1.84 6.44
Repair and maintenance 45.67 1.01 46.20 1.14 (1.15)
Commission 15.04 0.33 19.03 0.47 (20.97)
Travelling and conveyance 61.39 1.36 210.90 5.19 (70.89)
Communication costs 76.75 1.70 58.09 1.43 32.12
Legal and professional fees 129.19 2.86 104.52 2.57 23.60
Auditors remuneration 5.69 0.13 5.11 0.13 11.35
Provision for doubtful debts (net) 6.24 0.14 - - 100.00
Contribution towards corporate social responsibility 5.26 0.12 6.52 0.16 (19.33)
Miscellaneous expenses 80.89 1.79 84.07 2.07 (3.78)
Total 549.90 12.19 700.81 17.24 (21.53)

During the year Company has adopted Ind As 116 Leases, which requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Due to the adoption lease rent has been classified into depreciation and interest expenses.

2.5 Exceptional Items

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Impairment of Goodwill 106.68 - - -
Other fair value gain on contingent consideration (88.03) - - -
Total 18.65 - - -

Refer Note no. 34 of notes to the Consolidated Financial Statements

2.6 Tax expense

Tax expense comprises current and deferred tax.

(Rs in Million)

Particulars Consolidated Standalone
2020 2019 2020 2019
Profit before tax 966.11 719.35 819.70 631.58
Current tax 206.17 134.84 149.86 104.22
Deferred tax charge / (credit) (61.95) 3.27 (31.13) 12.41
Total Tax Expense 144.22 138.11 118.73 116.63
Effective Tax Rate (%) 14.93 19.20 14.48 18.47

Effective tax rate has decreased due to higher contribution from SEZ operations.

J. Details of significant changes i.e. change of 25% or more as compared to the immediately previous financial year, in key financial ratios, along with detailed explanations therefore, including:

Particulars Consolidated Standalone
2020 2019 Variance 2020 2019 Variance
Debtors Turnover (in days) 53 61 -12.4% 50 56 -11.7%
Inventory Turnover NA NA NA NA NA NA
Interest Coverage* 16.10 37.13 -56.6% 19.74 114.82 -82.8%
Current Ratio% 3.40 3.15 8.1% 4.11 2.89 42.1%
Debt Equity Ratio@ 0.05 0.00 1282.5% 0.01 0.00 142.2%
Operating Profit Margin# 10.4% 7.2% 44.3% 16.7% 12.5% 33.4%
Net Profit Margin# 9.3% 7.2% 30.0% 16.0% 13.1% 21.6%
Return on Net worth# 19.3% 17.2% 12.1% 20.5% 18.7% 9.1%

 @ Debt equity ratio has increased due to PPP Forgivable loan which is classified under the term loan as at Dec 31, 2020.

 % Current ratio has improved due to operation profit during the year.

* Interest coverage ratio has deceased mainly on account of adoption of Ind AS 116 leases which has classified the lease rent into depreciation and interest expenses.

 # Increase in operating profit, net profit margins and return on net worth is mainly on account of increase in revenue, efficiency in operations as coupled with rupee depreciation.

Note :

Debtors Turnover = Average Trade Receivables / Billed Revenue * 360

Operating profit = Profit before tax (PBT) less Finance cost, exceptional items and other income Interest Coverage = Operating profit / Finance cost Current Ratio = Current Assets / Current Liability Debt Equity Ratio = Long term Borrowings / Net worth Operating Profit Margin = Operating profit / Revenue Net Profit Margin = Profit after tax (PAT) / Revenue Return on Net worth = Profit after tax (PAT) / Net Worth.

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 & Chief Executive Officer) (President & Senior Executive Director)
Place: Singapore Place: NOIDA
Date: February 16, 2021 Date: February 16, 2021