Rolta India Ltd Management Discussions.

Company Overview

Rolta India Limited (referred to also as "Rolta" or "The Company" in this section) is an Indian Information Technology ("IT") company with its corporate headquarter in Mumbai. In addition to its headquarter, the Company operates through a network of more than 25 offices spread across the globe and in India.

Digital transformation has emerged as the #1 driver for sweeping change in the world around us. A deluge of digital data is created in our hyper- connected world with the proliferation of intelligent devices and IoT. It is the integration of digital technology into all areas of a business resulting in fundamental changes of how businesses operate and how they deliver value to customers. Organisations who recognise the fundamental value inherent within the data and learn to extract it, is able to reap huge benefits. Businesses need to generate real-time insights to remain relevant and succeed in the digital economy. With over 80% of digital data having a locational context, adding a geospatial dimension is vital for deeper insights.

With decades of expertise and leadership in the Geospatial technologies, Rolta has built a formidable track record and IP for replicable Smart City Solutions which include creation of rich geospatial enabled digital repositories, build geo enabled business critical applications, and deep learning based advanced geospatial analytics to drive business outcomes. Rolta has been successfully leveraging its Geospatial expertise and proven IP in the areas of Smart Cities and e-Governance. Having deployed more than 400 geospatial enabled Smart City projects in leading cities across Canada, North America, Europe, Middle East and India, Rolta has built deep expertise and a rich proven portfolio of rapidly deployable productized solutions.

One of the biggest challenges for companies, especially asset intensive organisations, is how to effectively manage all their diverse types of assets, without creating a huge management workload that impacts the profits. Organisations require effective Asset Lifecycle Management for both strategic as well as tactical maintenance and analytics. Roltas unique ability to integrate its portfolio of engineering solutions with enterprise level IT has positioned the Company to address this growing demand. Over last few years Rolta has successfully delivered hundreds of million dollar projects in North America, Middle East, Japan and India.

Roltas flagship enterprise product is at the leading edge with innovations such as AI, Deep Machine Learning, Data Lake and Predictive Analytics. Rolta OneView™ continues to win industry and analyst accolades as well as gaining global traction. The maturity and exceptional value of Roltas Products and Solutions are clearly evident from the tremendous traction built by Rolta over the years with 100+ BI and Big Data Analytics customers worldwide including many marquee clients with several global Fortune 500 Companies as well as Indian Navratnas who have adopted these solutions. What is even more encouraging is that Roltas BI and Big Data customers span across all the asset intensive industries served by the Company.

Organisations are increasingly embracing Mobility and ubiquitous Cloud Computing with Cyber Security to achieve greater accessibility and flexibility in this digital era. Additionally, customers are increasingly looking for a single vendor capable of designing, delivering, optimizing and subsequently managing their Enterprise wide solutions. Rolta addresses a variety of Enterprise IT, Converged System, Cloud Transformation, Mobility and Enterprise / Cyber Security requirements by combining its innovative IP and technical skills which is resulting in significant success and traction globally. Rolta now has an established track record and capability for delivering end-to-end solutions, whether for sophisticated BI and Big Data Analytics, building specialized Enterprise Applications customized for individual verticals, Mobility or for creating underlying sophisticated Cloud enabled IT Infrastructure.

Defence & Security

Rolta has successfully deployed its Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) solutions across the armed forces in India, enabling them to achieve synergy in inter service military operations. These Solutions have been extensively deployed along the sensitive land borders and actively utilised to ward off current threats in day to day operations. As one of the world leaders in Geographical Information Systems, Rolta joined a handful of companies worldwide, with the latest 64-bit release of its C4ISR software suite which brings sophisticated technology to fully exploit the latest advances in satellite and aerial imaging. This Next Generation ISR Solution seamlessly integrates Photogrammetry and Imaging with GIS to dynamically generate and display vast expanses of high quality imagery necessary for intelligence, operational planning and execution.

Rolta as an Indian organization with rich indigenous IP and an established track record is eminently suited and poised to reap the benefits arising out of the recent "Make India" vision and introduction of new categorization, "Buy Indian IDDM" (indigenously designed, developed & manufactured). A case in point is the recent project for procurement of Static and Mobile Photogrammetry and GIS systems (SMPGS) has been categorised as Buy (Indian-IDDM) where Rolta is a front runner.

Future Outlook

The Company made an announcement on the Stock Exchanges at Bombay Stock Exchange and National Stock Exchange on May 11, 2019 announcing an investment of Rs 5,500 crore by a reputed high tech international group "The Streamcast Group". Further in conjunction to this, the Company executed Definitive Restructuring Services Agreement (RSA) with Streamcast Group on August 6, 2019 under the terms of which, Streamcast Group will assist Rolta in repayment and restructuring its liabilities (including providing financial assistance) commencing with immediate effect.

With these steps the Company now is set for growth by delivering next-generation world class technologies along with Streamcast proprietary and globally patented architecture to provide next-generation technology services on sub-optimal networks using the Software-as-a-Services (SaaS) model, from FY 20-21 onwards.

Internal Control System and their adequacy

The internal control systems adopted by the Company are adequate and appropriate to its operations. The system has been designed to ensure that assets and interest of the Company are protected and dependability of accounting data and its accuracy are ensured with proper checks and balances. The Company has internal audit conducted by an independent firm of Chartered Accountants to examine and evaluate the adequacy and effectiveness of Internal Control System. The internal audit ensures that the systems designed and implemented, provides adequate internal control commensurate with the size and operations of the Company.

The Audit Committee of the Board, periodically apprised of internal audit finding. The Audit Committee of the Company chaired by an Independent Director and consisting of other Non-Executive Independent Directors and Whole Time Director periodically reviews the quarterly, half yearly and annual financial statements of the Company. A detailed note on the functioning of the Audit Committee forms part of the chapter on Corporate Governance in this Annual Report. Statutory Auditors also presents their important observation to the Audit Committee of the Board.

The Company has an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were effective operating as at March 31, 2019. The statutory auditors reviewed all such internal financial controls and have submitted their report under section 143 (3) of the Companies Act, 2013.

Revenues

The Companys revenues are generated principally from IT-based Solution & Services. Revenue from sale of IT solutions and services is recognized in accordance with the sales contract and when significant risks and rewards in respect of ownership are transferred to the customers. Revenue from customer-related long-term contracts is recognised by reference to the percentage of completion of the contract at the balance sheet date. Companys long term contracts specify a fixed price for the sale of license and installation of software solutions & services and the related revenue is determined using the percentage of completion method. The percentage of completion is based on efforts expended as a proportion to total estimated efforts on the contract. If the contract is considered profitable, it is valued at cost plus attributable profits by reference to the percentage of completion. Any expected loss on individual contracts is recognised immediately as an expense in the Statement of Profit & Loss. Unbilled revenues included in other financial assets represent cost and earnings in excess of billings as at the Balance Sheet date. Income from maintenance contract is recognized proportionately over the period of the contract.

For the year ended March 31, 2019 and March 31, 2018, consolidated revenues amounted to Rs 2,161.29 crore and Rs 2,860.81 crore, respectively. This represented a decline of 24.5% for the year ended March 31, 2019, as compared to the year ended March 31, 2018. The Company is focusing on IP led business and phasing out low end system integration work.

Revenues by Business Segment

The table below gives the consolidated revenue analysis by business segment for the periods indicated:

(Rs in Crore)
Financial Year Financial Year
Segment wise Revenue Ended March Ended March
31, 2019 31, 2018
Enterprise Geospatial and
553.68 1,034.14
Engineering Solutions (EGES)
System Integration & Enterprise
1,607.61 1,826.67
IT Solutions (EITS)
Total 2,161.29 2,860.81
Segment wise Profit [EBIDTA]
Enterprise Geospatial and
285.90 564.51
Engineering Solutions (EGES)
System Integration & Enterprise
-31.65 264.78
IT Solutions (EITS)
Total 254.25 829.29

For the year ended March 31, 2019 and March 31, 2018, consolidated revenues from Enterprise Geospatial and Engineering Solutions amounted to Rs 553.68 crore and Rs 1,034.14 crore, respectively. This represented a decline of 46.5% for year ended March 31, 2019, as compared to the year ended March 31, 2018. The consolidated revenues from System Integration & Enterprise IT Solutions amounted to Rs 1,607.61 crore and Rs 1,826.67 crore respectively for these two periods. This represented a decline of 12.0% for the year ended March 31, 2019, as compared to the year ended March 31, 2018.

Other Income

Other income comprises of dividend income, interest income, and other miscellaneous income. For the year ended March 31, 2019 and year ended March 31, 2018, other income amounted to Rs 10.74 crore and Rs 27.29 crore respectively. The other income was higher in previous year on account of Sale of fixed assets & higher interest income.

Expenses

The Companys expenditure principally consists of cost of materials and technical sub-contractors, employee costs, administrative and selling expenses as well as financial and depreciation charges. For the year ended March 31, 2019 and for the year ended March 31, 2018, consolidated expenses amounted to Rs 3,179.59 crore and Rs 2,932.04 crore. This represented an increase of 8.44% for the year ended March 31, 2019, as compared to the year ended March 31, 2018. Higher expenses are mainly on account of exchange difference loss and Finance cost.

The table below shows the principal components of the Companys costs for the periods indicated: (Rs in Crore)

Financial Year Ended March 31, 2019 Financial Year Ended March 31, 2018
Cost of Materials &
Technical 1,104.45 1,280.46
Sub-contractors
Employee benefit
537.90 576.66
expenses
Other Expenses 264.69 174.40
Depreciation and
253.17 268.22
Amortisation
Finance Cost 846.57 616.04
Exchange Difference 172.81 16.26
Total 3,179.59 2,932.04

Cost of Materials & Technical Sub-contractors

Cost of Materials & Technical Sub-contractors principally comprise of packaged software, software toolkits, hardware, peripherals, parts/ spares and cost of third party sub-contracting of services needed to execute the contracts & projects awarded to the Company.

In the year ended March 312019 and for the year ended March 31, 2018, material and technical sub-contractors amounted to Rs 1,104.45 crore and Rs 1,280.46 crore. This represented a decrease of 13.7% in the year ended March 31, 2019, as compared to the year ended March 31, 2018. The decrease in material and subcontracting cost was primarily attributable the change in the business mix of solutions and services undertaken by the Company in the relevant periods and lower Revenue.

Employee Benefits Expense

Employee benefits expenses comprise salaries, wages, bonuses, provident fund contributions and welfare expenses. Employee benefit expenses decreased in the year ended March 31, 2019 to Rs 537.90 crore from 576.66 crore in the year ended March 31, 2018. This represented a decrease of 6.7% for the year ended March 31, 2019, as compared to the year ended March 31, 2018. The decrease in employee benefit expenses was attributable to rationalization & streamlining of the Companys human resources at its offices in India and internationally through focused efforts.

Other Expenses

Other expenses include electricity expenses, repairs and maintenance, sales promotion expenses, legal and other miscellaneous expenses. In the year ended March 31, 2019 and for the year ended 31stMarch, 2018, other expenses amounted to Rs 264.69 crore and Rs 174.40 crore respectively. This represented an increase of 51.8% for the year ended March 31, 2019, as compared to the year ended March 31, 2018. Other expenses were higher because of larger legal cost in FY 2018-19.

Depreciation and Amortisation

Depreciation and amortisation is applied to the Companys property, plant and equipment at the rates set out in the notes to the financial statements. The principal depreciation costs relate to the Companys computer systems and the Companys buildings. The Company has made extensive investment in development facilities both in its SEZ and other units in India on account of the fact that the Companys business model is oriented towards an offshore model.

Depreciation and amortisation expenses for the year ended March 31, 2019 and for the year ended March 31, 2018 were Rs 253.17 crore and 268.22 crore. This represented a decrease of 5.6% for the year ended March 31, 2019, as compared to the year ended March 31, 2018.

Finance Cost

Finance cost reflects the interest payable by the Company on its borrowings. Interest cost for the year ended March 31, 2019 and for the year ended March 31, 2018 was Rs 846.57 crore and Rs 616.04 crore respectively. This represented an increase of 37.4% for the year ended March 31, 2019 as compared to the year ended March 31, 2018. Changes in exchange rates influence the interest cost of Company borrowings denominated in currencies other than Rupees and the Indian Rupee value of such borrowings in Company balance sheet and increase in interest cost of such debts. During the year ended March 31, 2019, interest expenses increased as compared to previous year ended March 31, 2018, primarily due invocation of SBLC which were at lower rate of interest as the loans were in foreign exchange and now the interest rate is being charged at higher rate by the Indian banks as the said foreign exchange loans have been converted into Indian rupee loans.

Profit before tax and exceptional item

The loss before tax in the year ended March 31, 2019 was Rs 1,007.56 crore as against loss of Rs 43.94 crore for the year ended March 31, 2018. The reason for the same has been explained above in various paras.

Tax expenses

The Company has recognized net Deferred Tax Asset of Rs 558.57 Crore after adjusting the Deferred Tax Liability of Rs 591.86 Crore. The Deferred Tax Asset has arisen on account of business loss of Rs 4,843.93 Crore. The management is of the opinion that the Company will be able to be utilize the Deferred Tax Asset of Rs 1,188.57 Crore against taxable profit from future years.

Loss after tax

Loss after tax in the year ended March 31, 2019 was Rs 3,657.42 crore as against loss of Rs 105.69 crore in the year ended March 31, 2018.

This is mainly because of the provision cum write off of Debtors under exceptional item appearing in the Profit & Loss Statement primarily due to a large prestigious project from a government organisation, over which the Company has been working for last three (3) financial years to create the Intellectual Properties (IPs) and the revenue so recognized by the Company in Work in Progress has been written off as the customer has cancelled the project due to budgetary constrain. It may be noted that the Company had invested almost Rs 2,750/- crore to create the said IPs which are very hi-tech and have tremendous use for many other organisations in domestic as well as international markets. The Company will be able to monetize these IPs through such prospective customers in future.

Property, Plant and Equipment and Intangible Assets (Fixed Assets)

The Companys net fixed assets for the year ended March 31, 2019 amounted to Rs 5,322.13 crore towards buildings, computer systems/ intangibles including software, other equipments, furniture etc. and the same were Rs 5,569.27 crore for financial year 2017-18.

Other Financial Assets

(Rs in Crore)
2019 2018
Non-current 1.17 4.10
Current 454.87 2,746.97
Total 456.04 2,751.07

Other Financial Assets were Rs 456.04 crore as on March 31, 2019 as against Rs 2,751.07 crore in March 31, 2018. The decrease was primarily due to unbilled revenue in respect of a project awarded by a large and reputed customer was cancelled during the year.

Trade Receivable

The Companys Trade Receivables as at March 31, 2019 and March 31, 2018 were Rs 315.48 crore and Rs 1,469.71 crore, respectively. The Companys projects in the domestic and overseas markets are spread over a period of a year to three years with payments linked to individual milestones and/or completion of each project.

Other Assets

(Rs in Crore)
2019 2018
Non-current 2.57 4.14
Current 50.60 50.35
Total 53.17 54.49

Other assets as on March 31, 2019 were Rs 53.17 crore as against Rs 54.49 crore as on March 31, 2018. These other assets extended during normal course of business and are considered necessary to carry out normal business operation.

Share Capital

As at March 31, 2019, the Companys authorised share capital was 2,500,000,000 (two and half billion rupees), comprising 250,000,000 (two hundred fifty million) equity shares of Rs 10 each, of which 165,891,355 equity shares of Rs 10 each, amounting to Rs 165.89 crore were issued and fully-paid. The Company did not have any preference shares on its books as on March 31, 2019 nor had issued any share warrants except for stock options granted to employees under the Companys Employee Stock Option Plan (in line with the guidelines issued by SEBI). The details as required by SEBI Regulations in regard to grant of options are given in Annexure to the Directors Report. Outstanding stock options as on March 31, 2019 were 18,62,500 options & which is 1.12% of current paid up capital.

Other Equity

Other Equity as on March 31, 2019 was Rs (1,464.27) crore as compared to Rs 2,323.20 crore as on March 31, 2018. Other Equity include Fair Valuation Reserves of Rs 1,246.45 crore, General Reserves of Rs 362.43 crore, Capital Reserves of Rs 168.43 crore, Balance in share option account outstanding of Rs 31.13 crore and Rs (2,983.64) crore was retained in the Statement of Profit and Loss.

Borrowings

The company has secured borrowings in its books amounting to 3,748.30 crore and unsecured total borrowings of Rs 3,987.70 crore amounting to total borrowings of Rs 7736.00 crore compared to last years total borrowings of Rs 5499.84 crore. This increase is because of fluctuations in $ v/s Rs rate and additional unsecured borrowings of 322.89 crore in the current financial year and the interest which became due during the current year.

Trade Payables

Trade Payables were Rs 268.56 crore as on March 31, 2019 as against 480.30 crore in March 31, 2018.

Other Financial Liabilities

The Companys other Financial Liabilities as at March 31, 2019 amounted to Rs 1,256.43 crore as compared to Rs 2,525.34 crore as at March 31, 2018.

Other Current Liabilities

The Companys other Current Liabilities as at March 31, 2019 amounted to Rs 101.48 crore as compared to Rs 59.61 crore as at March 30, 2018.

Provisions (current and non-current)

Provisions are made towards warranty, employee benefits schemes and proposed dividend. The details are as follows.

(Rs in Crore)
2019 2018
Long Term Provision 11.44 20.73
Short Term Provision 4.34 5.79
Total 15.78 26.52

Cash Flow

The following table sets out the Companys consolidated and summarized cash flows for each of the periods indicated: (Rs in Crore)

2019 2018
Cash inflow/(outflow) from operating Activities 36.29 82.44
Cash inflow/(outflow) from investment activities 125.43 75.97
Cash inflow/(outflow) from Financing (166.83) (179.57)
Cash and cash equivalents at the end of year 16.30 21.41

Forward Looking Statement

In the Companys report we have disclosed forward looking information so that investors can better understand the Companys future prospects and make informed investment decisions. This Annual Report and other written and oral statements that we make from time to time contain such forward looking statements that set out anticipated results based on managements plans and assumptions. We have tried wherever possible to identify such statements by using words such as ‘ anticipate, ‘estimate, ‘expects, ‘projects, ‘intends, ‘plans, ‘believes, and words and terms of similar substance in connection with any discussion of future operating or financial performance. We cannot guarantee that any forward looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.