Religare Technova Global Solutions Ltd merged Management Discussions

RELIGARE TECHNOVA GLOBAL SOLUTIONS LIMITED (FORMERLY ASIAN CERC INFORMATION TECHNOLOGY LIMITED) ANNUAL REPORT 2008-2009 MANAGEMENT DISCUSSION AND ANALYSIS FORWARD-LOOKING STATEMENTS: This report contains forward-looking statements which may be identified by their use of words like plans, expects, will, anticipates, believes, projects, estimates or other words of similar meaning. All Statements that address expectations or projections about the future, including, but not limited to, statements about the companys strategy for growth, product development, market position, expenditure and financial results are forward looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee these assumptions and expectations are accurate or will be realised. The Companys actual results, performance or achievements could thus differ materially from those projected in any such forward looking statements. The Companys assumes no responsibility to publiclyamend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events. ECONOMY AND INDUSTRY OVERVIEW Year 2008-09, was a transformational year for the Indian Information Technology sector, as it began to re-engineer itself to face the challenges presented by a macro- economic environment which witnessed substantial volatility in commodity prices, inflation and decline in GDP rates, cross- currency movement, finally culminating in the economic downturn. In an increasingly globalised world, significant complexity and uncertainty is getting attached to this unprecedented economic crisis. The Indian economy has also been impacted by the recessionary trends, with a slowdown in GDP growth to seven per cent. The focus and exponential growth in the domestic market has partially offset this fall and insulated the country, resulting in net overall momentum. In year 2008-09, Indian Economic growth decelerated to 6.7 percent. The global financial meltdown and consequent economic recession in developed economies have clearly been major factor in Indias economic slowdown. Given the origin and dimensionof the crisis in the advanced countries, which some have called the worst since the Great Depression, every developing country has suffered to a varying degree. No country, including India remained immune to the global economic shock. The Indian economy has also been impacted by the recessionary trends, with a slowdown in GDP growth to seven percent. The focus and the exponential growth in the domestic market has partially offset this fall and insulated the country, resulting in net overall momentum. The IT Services segment aggregated export revenues of USD 26.9 billion, accounting for 57 per cent of total exports. Indian IT service providers have evolved from application development and maintenance companies, to full service players providing testing services, infrastructure services, consulting and system integration. Within these segments, it was IT outsourcing that exhibited strong growth, in line with global trends. Remote infrastructure management, expected to deliver almost 30 per cent net savings to customers, continued its robust performance, with an above average growth of 25 per cent expected in FY2009. Additionally, the engineering, R&D and software products segment is also expected to grow by 14.4 per cent in the current fiscal, to touch USD 7.3 billion, which highlights the strong impetus and renewed focus on improving IP driven service capabilities in India. Domestic IT services are expected to grow by 20 per cent in FY2009, driven by increased acceptance of IT as a growth enabler and a competitive tool for Indian corporations looking to compete in an increasingly globalised environment. Increased IT adoption in not only the large/mid-sized companies, but also the 35 million strong small and medium business (SMB) segment is expected to drive growth in the future. A. Industry Structure and Developments Changing economic and business conditions, rapid technological innovation, proliferation of the internet and globalization are creating an increasingly competitive market environment that is driving corporations to transform the manner in which they operate. Customers are increasingly demanding improved services with accelerated delivery times and at lower prices. To address these needs adequately, companies are focusing on their core competencies and are using technology to help improve productivity, develop new products, conduct research and development activities, reduce business risk and manage operations more effectively. There is an increasing need for highly skilled technology professionals in the markets in which we operate. At the same time, corporations are reluctant to expand their internal IT departments and increase costs. The role of technology has evolved from supporting companies to transforming them. The ability to develop, implement and maintain advanced technology platforms and solutions to address business and customer needs has become a competitive advantage and a priority for companies worldwide. The need for more dynamic technology solutions and the increased complexity, cost and risk associated with these technology platforms has created a growing need for specialists with experience in leveraging technology to help drive business strategy. B. Opportunities and Threats Strong fundamentals, a robust enabling environment and enhanced value delivery capability are the hallmarks of the Indian IT Industry. Strong fundamentals: Indias fundamental advantages-abundant talent and cost-are sustainable over the long term. With a young demographic profile, where over 3.5 million graduates and postgraduates are added annually to the talent base, no other country offers a similar mix and scale of human resources. While some gaps in talent suitability exist, they are being addressed through strong provider-level initiatives and industryled programmes. India enjoys a cost advantage of around 60-70 per cent as compared to source markets. Additional productivity improvements and the development of tier 2/3 cities as future delivery centres, is expected to enhance Indias cost competitiveness. Timely government policies and increased public-private participation have played a key role in developing an enabling business environment for the Indian IT industry. The Governments focus on education has helped create the large talent base from where the industry draws its workforce. Establishment of Software Technology Parks of India (STPI) stands out as a seminal policy action, specifically targeted towards encouraging, promoting and boosting the export of software and services from India. Public and private enterprises have contributed by building the required capacities of key business infrastructure, helping this sector enjoy world-class facilities and services. The private sector is now, in partnership with the Government, also beginning to play an increasing role in the overall infrastructure development in the country. In a globally integrated economy, outsourcing is leading to overall benefits for the source economies, providing significant monetary and employment benefits. The silver lining of the economic downturn is the opportunity for the industry to enhance its overall efficiency. Companies are increasingly looking inwards and focusing on process benchmarking, enhanced utilisation of infrastructure and talent, increasing productivity and greater customer engagement. Coupled with wage moderation and lower attrition, these measures will help industry sustain its margins and invest in future growth. While your Company is best equipped to capitalize on the available opportunities, it has well understood that the prospects expect the partner to prove themselves in a relationship, building trust and being a trusted advisor rather than a vendor selling them products and services. Your Company already positioned globally through its subsidiaries in various parts of the country to tap the potentials in this space, which is indicative of the enormous growth potentially available to the Company. In the present economic scenario, poses a global threat to the Industries but your company is totally committed and confident upon it strengths and is looking forward to overcome this economic meltdown soon. Though the global competitors emerges as a threat to our business, yet your Company is confident of handling the situations by enhancing their products and providing more prompt and competitive services. Fluctuation in foreign exchange also poses a threat but the company is positive in mitigating this risk by adopting suitable hedging strategies. C. Segment-wise or product-wise performance Segment Reporting i) Primary Segment - Business Segments: The groups primary business segments are identified as those relating to Trading Solutions (including customization, installation and support services) and Information Services Division (subscription/data content feed). Segments have been identified in line with the Accounting Standard on Segment Reporting (AS-17), taking into account the organization structure as well as the differential risks and returns of these segments. Segment revenue, results and capital employed figures include the respective amounts identifiable to each of the segments and also amounts allocated on a reasonable basis. Other unallocable expenditure includes expenses incurred on common services provided to the segments which are not directly identifiable to the individual segments as well asexpenses incurred at a corporate level which relate to the group as a whole. (Consolidated Figures in Lacs) Particulars 2009 2008 SEGMENT REVENUE (a) Information Services Division 369.90 89.20 (b) Trading Solution 7433.81 3947.68 Net Sales / Income From Operations 7803.71 4336.88 Segment Results Profit (+)/Loss(-) Before Tax and Interest From Each Segment (A) Information Services Division 48.59 48.43 (B) Trading Solution 1036.63 1436.97 Total 1085.22 1485.40 Less: (A) Interest 812.15 86.97 (B) Other Un-allocable Expenditure 3038.69 773.40 Add: Interest Income 417.87 287.91 Total Profit/ Loss Before Tax -2347.74 525.03 Segment Information ii) Secondary Segment - Geographical Segments (Consolidated Figures in Rupees) Particulars 2009 2008 SEGMENT REVENUE: Within India 142,301,779 195,387,658 Within Australia 356,224,924 163,575,493 Others 281,844,272 74,725,237 TOTAL 780,370,975 433,688,388 Segment Assets: Within India 1,018,271,998 1,146,107,211 Within Australia 161,418,118 300,296,406 Others 94,801,585 246,243,810 Total 1,274,491,701 1,692,647,427 Cost incurred for acquiring segment assets: Within India 66,178,715 28,767,090 Within Australia 7,615,091 5,566,004 Others 690,644 75,940 Total 74,484,451 34,409,034 Notes: a. Segments have been identified in line with the Accounting Standard on Segment Reporting (AS-17), taking into account the organisation structure as well as the differential risks and returns of these segments. b. The segment wise revenue and results relate to the respective amounts directly identifiable to each of the segments. D. Outlook Key global sourcing drivers will continue to be cost, access to talent, business improvements, increasing speed-to-market and access to emerging markets. The future outlook for all these drivers is positive, leading to increased momentum for global sourcing. The focus on cost reduction is expected to increase, keeping in mind the current recessionary environment. Environmental considerations such as climate change, global warming, social responsibilities, and compliance issues are all adding up to increase pressure on margins, which can be offset by increasing global sourcing to keep tabs on spiraling costs. Access to talent is likely to become more decisive as workforce demographics indicate a shortfall in the long term, in all major developed countries such as USA, UK, France, Germany, Japan and some developing countries as well. While the 2009 outlook for global technology related spending is affected by the recessionary environment, a rebound is expected from 2010 onwards. Worldwide adoption of outsourcing is also expected to rise significantly in the coming years. The size of the opportunity in hand can be gauged from the fact that India currently accounts for just over 4 per cent of worldwide technology related spend. Additionally, growth in global sourcing is estimated to be almost four times that of technology related spend. India, with its fundamental advantages can capture a large share of the opportunities available. However, in order to achieve this goal, the key stakeholders need to work in tandem. Companies need to focus on increasing their levels of customer intimacy, as well as developing the brand value of their organisations through product and service differentiation. The supportive policy environment created by the Government of India has played a key role in the rapid development of this sector. The Governments efforts on increasing the quality of talent from India needs to be stepped up by laying special emphasis on the talent needs of knowledge intensive industries, technology and innovation. The focus should be on improving the quality of graduate and post graduate out-turn, enhancing capacity across the country, policy de-regulation and nurturing clusters of research institutes. With enhanced competition from other low cost countries and the current recessive scenario, support is needed from the Government to extend the tax incentives under the Software Technology Parks Scheme (STPI). This would enable small and medium companies to reinvest their profits back into the business and invest for future growth. It would also make India competitive vis-a-vis other destinations that are offering tax incentives and subsidies on training and infrastructure costs. Removal of procedural obstacles- service tax refunds, taxation of software products and clarity around transfer pricing norms that are applicable to foreign companies is needed. Efforts to enhance talent availability and quality need concerted action from all the stakeholders-the government, academia and the industry. The role of academia in fact is critical. Specific initiatives like Faculty Development Programmes, upgrading the curriculum, setting up research labs, launching internship programmes and industry-academia collaboration can help to bridge the employable talent gap. Efforts towards enhancing information and data security; participation in public private initiatives in technology led development; proactively working with academia to address quality of education and building an integrated delivery model in leading cities. Expansion of new markets will require different strategies and focus from the industry players. In the developed regions, the industry will need to take a broader leadership role and drive global sourcing to the next level of customers. E. Risks and Concerns The company continues to be plagued by risks associated with currency fluctuation, market sentiments and more competition from global players. The dependency of the company on human capital remains high and we see this as a significant risk for the business. The company has instituted robust processes for managing its resources and is fairly confident of mitigating the above mentioned risks. F. Internal Control Systems The Company is equipped with adequate internal control systems for its business processes, which determine the efficiency of its operations, strengthens financial reporting and ensures compliance with applicable laws and regulations. The internal control systems are supplemented by extensive audits conducted by internal auditors. Moreover, regular internal audit and checks ensure that responsibilities are executed effectively across the organization. The Audit Committee of the Board of Director reviews the adequacy and effectiveness of the internal control systems and also suggest improvements for strengthening the same. The company has diligently worked on the QMS initiative during the year and is now a ISO 9001:2000 certified Company. During the year under review, Company has received CMMi level 3 certification which indicates highest level of Standards in delivery and execution, applicable in software product industry. G. Financial Overview of the Company (based on stand alone financials) Your company has been acknowledged as a domain expert in the capital market space and the growth of this segment inthe country has boosted the revenues and the profitability of your company. The globalization of the capital market segment has also forced the management of the company to invest into technologies and solutions that can enable it to become global player in this space in the future. On Standalone basis though the total turnover of the Company has increased from Rs. 2685.26 Lacs for Financial Year 2007-08 to Rs. 2835.41 Lacs in Financial Year 2008-09, however the Company has recorded a net loss of Rs. 1049.16 Lacs during the year under review as compared to Profit after Tax of Rs. 552.32 Lacs in Financial Year 2007-08. The change in Revenue and Profits is also visualized in following chart: OPERATIONAL OVERVIEW OF THE COMPANY: The Company again focused on improving its processes to enhance its scale of operations efficiently. The Company continued to enhance its Offshore Development Center (ODC) for its associate company Capital Market Solutions Pty. Ltd. The ODC now not only develops software, but can also provide design services. The Company successfully completed the empanelment of its new age dealing terminal in the MCX commodity exchange, thus delivering the only Dealing Terminal in India providing access to NSE Equity, NSE Derivative, NSE Currency Derivative, BSE Equity, MCX and NCDEX. The company also enhanced its product portfolio by adding additional products such as Acquire, Anysign, Chronicle, DigiSend, EnAct, Engage, Orchid, Mutex, InSense, Scholar and Dedupe .The company has also successfully integrated the DMA Platform in Religare Securities for a hedge fund over the internationally standard FIX Protocol. The Company also became one of the few vendors who have completed the electronic trading integration with Ho Chi Minh Stock Exchange successfully. We partnered with Bombay Stock Exchange and successfully implemented the Electronic Clearing and Borrowing system (E-bid). The Company continued its customer acquisition spree. Some of the big names that were added to the list of customers are: ENAM Securities, Matalia Stock Broking, Yahoo, State Bank of India, RBS (Royal Bank of Scotland), Sharekhan, Nomura Securities (Malaysia) and Bank of China International (Hong Kong). Besides this the business from existing customers continued to grow which clearly demonstrated the faith that such customers have reposed on your company. This is highlighted by the renewal of substantial contracts by Commonwealth Securities (Australia) and Cannacord Adams (UK). The information business also had a difficult year but by enhancing our offerings on the Portal development front and customising our packaged information delivery, we basically protected this business in a very difficult business environment. Religare Technova Global Solutions Pty. Ltd. (RTGSPL) (formerly known as Capital Market Solutions Pty. Ltd.) continued to invest in enhancing its products to position the RTGSPL group for future growth. This investment includes, but is not limited to, developing Custody and Margin functionality primarily for the Singapore market, localizing NOVA for institutional customers India and electronic trading functionality for Vietnam. H. Human Resources Employees are our most important assets. At Religare Technova, we value our employees as our Greatest Assets. The Company, therefore, strives for continuous learning and development for each and every employee to align the same with the business objective. The company has initiated various HR Strategies to attract, motivate, develop and retain staff in order to make it a productive workplace. Employee Training and Development, Employee Selection and Recruitment, Employee Engagement and Rewards, Performance Appraisal and Communication are the critical issues which HR targets to accomplish.