Secmark Consultancy Ltd Management Discussions

Overview of Industry:

Over the past few years our country has been doing exceedingly well and the results thereof are reflected in the stock market that has been growing leaps and bounds not just in terms of price but in terms of adding more and more investors and traders joining the markets.

Almost all business of your company comes from offering services to market intermediaries inter alia including stock exchanges, stock and commodity brokers, depository participants, portfolio managers, alternative investment funds, investment advisors, research analysts etc.

With the increased customer base and increase in revenue per client has helped the Company grow. As can be observed from the financial results, your Company has been able to post a fairly reasonable growth in its topline from Rs. 1,827.08 Lakh in the year 22-23 to Rs. 2,528.97 Lakh in the year 23-24 effectively resulting in a growth of over 38%. The losses after tax of your Company have come down from Rs. 526.23 lakhs in the previous year to Rs. 236.46 in the current year. The revenues have grown by 38% and the losses have reduced by 55% as compared to the previous year.

The bottom line is in red, because the Company has incurred expenses to the tune of Rs. 766/- Lakhs and for PY of Rs. 812 Lakhs for consultancy service for handover and knowledge transfer of the software applications that your Company had purchased. Further the depreciation on these applications was Rs. 380.57/- Lakhs (PY Rs. 211.81/- Lakh).

The team of Company comprises of competent, qualified and experienced professionals and employees having working experience with exchanges and financial market participants in India. Company has two wholly owned subsidiary viz. Markets on Cloud Private Limited and Sutra Software Services Private Limited and one associate viz. Trakiot Solutions Private Limited.

Financial Results and Growth:

Year Ending on:	31.03.2022	31.03.2023	31.03.2024
Total Operating Income	1454.17	1743.72	2459.17
Employee Costs	386.35	504.61	664.89
Other Expenses	658.73	1744.86	1670.93
Profit/(Loss) Before Interest Depreciation and Taxation	409.09	(505.75)	(193.15)
Depreciation	112.64	239.63	408.16
Profit/(Loss) Before Interest and Taxation	296.46	(745.38)	(215.01)
Finance Cost	3.96	37.25	103.98
Operating Profit/(Loss) Before Tax	292.50	(782.63)	(318.99)
Operating Profit/(Loss) After Tax	274.90	(782.63)	(318.99)
Non-Operating Income /(Expense)	62.91	45.97	-
Profit/ (Loss) Before Tax	355.41	(699.41)	(318.99)
Current Tax	17.6	-	-
Provision for Deferred Tax	71.88	(173.18)	(82.53)
Profit/ (Loss) After Tax	265.93	(526.23)	(236.46)

Industry structure and developments

Your Company provides consulting, technology and outsourcing services to financial market participants. In the last Annual Report, your Company had sensitised you about the possible impact of global events and the possibility of reduced spending by your clients due to reduction in investment by Private Equity Investors (PE) investors.

Though some of the aforesaid came true in the current year, your Company managed to grow its topline by rationalising the price of the software and services offered to its clients and adding new clients to its existing and newly launched products like compliancesutra.com and smartkyc.in. Further your Company has also acquired iBeats and Busiwin back office product suit and the revenues from therefrom will add to the business of your Company. This acquisition has added more than 70 financial market participants as clients of these products. Your Company has now become one of the largest vendor of back office application with more than 300 clients.

Further your Company has also taken up a few capital intensive projects like revamping its PMLA products it acquired from Analyze N Control, which will help enhance the business and reduce the cost of support in the years to come. Your Company has substantial cash outflows for software purchase and consultancy services with regards to software purchase from TradePlus Technologies LLP and Comtek Bizsoft(for Software purchase and Consultancy) as under in the coming year:

Software	Apr 1, 2023 to Mar 31, 2024	Apr 1, 2024 to Mar 31, 2025	Apr 1, 2025 to Mar 31, 2026	Apr 1, 2026 to Mar 31, 2027	Apr 1, 2027 to Mar 31, 2028
TradePlus Back Office product suit (For Consultancy)	536	Nil	Nil	Nil	Nil
Comtek Bizsoft Pvt. Ltd. for software purchase )	620	Nil	Nil	Nil	Nil
Comtek Bizsoft Pvt. Ltd. (For Consultancy)	150	150	200	Nil	Nil
Comtek Bizsoft Pvt. Ltd. (For Sales Commission)*	80	300	620	Nil	Nil
ComTek Software Systems LLP (For software purchase)	50	Nil	Nil	Nil	Nil
ComTek Software Systems LLP (For consultancy)	Nil	200	150	150	200

* Sales Commission is payable at a rate of 50% of sales in the next year for sales in previous year. If the total sales for the period April 1, 2024 to March 31, 2086 is less than Rs. 20 Crores then the minimum amount payable will be Rs. 10 Crores across the span of 3 years and if the sales are more than Rs. 20 Crores, then the sales commission will be paid at 50% of sales value subject to a maximum of Rs. 15 Crores over a span of 3 years.

Our Competitive Strength

We believe that the following strengths contribute to our success and position us well for future growth:

1) Qualified and Experienced Team

2) Company is managed by professionals having a varied experience in financial services.

The team of the Company exhibits a synergy of both, qualified professionals (Chartered Accountants, Cost and Management Accountants, Company Secretaries, Advocates, CISAs, DISAs, Engineers, Technology Experts, Management Professionals etc.) as well as experienced personnel having diversified experience in the fields of Software Development, Operations, Outsourcing, Corporate Consultancy and Compliance, and the like. Since management has been actively involved in the Financial Services Industry and has gained requisite domain knowledge, experience and industry networks, going forward they would be able to take benefits of opportunities in the Financial Services Industry thereby improving our operational performance and brand value.

4) The Tech Initiatives:

Company’s major clientele are brokers and depository participants and they require the following 5 major type of software / services: i) E-KYC Software – for client on-Boarding. ii) Trading and Risk Management Software – for enabling clients to transact on stock exchanges. iii) Back Office Software – for handling back-office operations of Broking and DP businesses. iv) PMLA Software – for client screening and transaction monitoring. v) Compliance Software – for managing compliance activities. Your Company had shared in the previous annual report that it has all Software Applications in its fold except Trading and Risk Management Software. Your Company has already commenced the development of online RMS software of its own and the same shall hit the markets before March 31, 2024.

5) Long-term relationships

Long term client relationships provide the foundation for our business. Client list includes stock brokers, depository participants, stock exchanges, wealth managers, research analysts, insurance companies, insurance brokers, corporate agents, portfolio managers, investment advisors, merchant bankers, NBFCs, banks etc. Company’s track record of delivering solutions to complex business problems backed by demonstrable industry and technology expertise has helped to forge strong relationships with clients.

The relationship with clients has grown with a good interest in the latest products of Compliance Management and E-KYC. Both these products are seeing good traction.

Opportunities and Threats Opportunities

• Your company has increased its offerings by acquisition of Software and added several clients. There is further scope of increasing the business and adding more clients.

• Favourable market conditions on the back of overall growth in the sector.

• Government push to increase securities market out reach across India and increase in products offering for different types of investors

• Acceptance of outsourcing as a suitable business model.

• Technology driven services.

• Regulatory stringent approach requiring specialized teams to handle tasks and situation.

• Using technology to reduce transactions cost, improve compliance.

Knowing above opportunities, threats shall be as:

• Global uncertainties, high inflation in various countries and possibilities of wars can pose a significant risk to business as it will reduce the spending capacity of the clients of your Company.

• Changing regulatory landscape.

• Large scale influx of competitors (Requires several capabilities which cannot be acquired overnight)

• Cyber Attacks (Controls to be placed for prevention, detection and correction).

• Technological advancements.

Segment–wise or product-wise performance

As the Company is dealing in only in one industry and offers products and services that are interlinked to each other segment reporting is not applicable to the Company. There is no identical geographical segment of the Company as there are no major differences in factors affecting the segment of market.

Outlook

As aforesaid, with the increase in products on offer there is higher possibility of business with each client. Also, addition of clients can result in substantial growth in business. The overall outlook of the business looks positive.

Risks and Concerns

Your Company has substantial foreseeable cash outflows for the consultancy services for software applications it acquired and this will have an impact on the profitability in the near term.

The Company recognizes the importance of well-structured system to identify and manage the different elements of risk. The management of the Company regularly identifies reviews and assesses risks involved in its various business activities and work out guidelines for mitigating the same.

The Risk factors have been determined on the basis of their materiality. The following factors have been considered for determining the materiality.

1. Some events may have material impact qualitatively instead of quantitatively;

2. Some events may not be material individually but may be found material collectively;

3. Some events may not be material at present but may be having material impact in future.

Our systems are potentially vulnerable to data security breaches, whether by our employees, or our service providers or others that may expose sensitive data to unauthorized persons. We process and transfer data, including personal information, financial information and other confidential data provided to us by our clients. Although we maintain systems and procedures to prevent unauthorized access and other security breaches, it is possible that unauthorized individuals could improperly access our systems, or improperly obtain or disclose sensitive data that we process or handle. Data security breaches could lead to the loss of intellectual property or could lead to the public exposure of personal information (including sensitive financial and personal information) of our clients’ investors or our employees. Any such security breaches or compromises of technology systems could result in institution of legal proceedings against us and potential imposition of penalties, which may have an adverse effect on our business and reputation.

Internal control systems and their adequacy.

The Company has proper and adequate systems of internal controls. These have been designed to provide reasonable assurance that all assets are safeguarded and protected against loss from unauthorized use or disposition and that all transactions are authorized, recorded and reported correctly and the business operations are conducted as per the prescribed policies and procedures of the Company.

Discussion on financial performance with respect to operational performance.

The Key highlights pertaining to the business of the Company for the financial the year ended have been given hereunder. In the Consolidated Financial Statements, total income was Rs. 2459.17 and Rs. 1743.72 lakhs for the Financial Year 2024 and 2023. Profit/(Loss) after Tax for the similar fiscal years mentioned above were Rs. (236.46) and Rs. (526.21)* lakhs respectively. For the Standalone Financial Statements, total income was Rs. 2459.17 and Rs. 1743.72 lakhs for the Financial Year 2024 and 2023 respectively. Profit/(Loss) after Tax for the similar fiscal years mentioned above were Rs. (236.46) and Rs. (526.23)* lakhs respectively.

*Note :

The company has paid _8.16 Crores for software purchase / consultancy / commission as under:

• 5.36 crores to Tradeplus Technologies LLP as consultancy charges.

• 1.5 crores to Comtek Bizsoft Pvt Ltd. as consultancy charges.

• 80 lakhs to Comtek Bizsoft Pvt. Ltd. as sales commission.

• 50lakhstoComtekSoftwareSystemsLLPforacquisitionofintellectualpropertyofbusywin software.

The performance of the Company in the opinion of the Directors is satisfactory. Your Directors are hopeful to further improve the growth rate in turnover and profitability in current year.

Material developments in Human Resources / Industrial Relations front, including number of people employed.

The Directors want to place on record their appreciation for the contribution made by employees at all levels, who through their steadfastness, solidarity and with their co-operation and support have made it possible for the Company to achieve its current status. Human resource is the key element for our Company’s growth strategy and handling the day to day activities within the organization. We focus on attracting and retaining the best possible talent. Our team is a blend of experienced, professional with expertise in capital markets. Our Company strongly believes that its human resources are the key enablers for the growth of the Company and important asset. Hence, the success of the Company is closely aligned with the goals of the human resources of the Company. Currently our company has employed 88 employees. Taking into this account, our Company continued to invest in developing its human capital and establishing its brand on the market to attract and retain the best talent. The employee relations continue to be cordial and harmonious.

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:

Ratios	2023-24	2022-23	Growth	Reason for variance
Current Ratio (in times)	0.89	1.34	-34%	The Company has availed short term borrowings for payment of consultancy fee for the services related to the software applications purchased by the company.
Debt Service Coverage Ratio (in times)	0.39	-6.69	-106%	The Company has availed short term borrowings for payment of consultancy fee for the services related to the software applications purchased by the company. Further Shareholders equity has reduced on account of loss suffered by the company because of these large payments.
Trade Receivables Turnover Ratio (in times)	22.81	13.25	72.16%	The Company has been able to grow its sales while recovering the sales proceeds faster, resulting in lesser average receivables.
Trade Payables Turnover Ratio (in times)	7.53	13.72	-45%	The decrease is mainly on account of increase in dues for consultancy fee for the services related to the software applications purchased by the company.
Net Capital Turnover Ratio (in times)	-14.49	4.23	-443%	Decreased is mainly "Increased" in proportion of required working capital more than proportion of increase in revenue from operation in current financial year as compare to previous year on account of payment due in relation to software purchased by the company.
Net Profit Ratio (in %)	-0.10	-0.30	-68%	Ratio is negative due to loss from Operations in the current year. However, quantum of losses is improved as compared to previous year with increased sales.
Return on Capital Employed (in %)	-0.09	-0.24	-65%	Ratio is negative due to loss from Operations in the current year. However, quantum of losses is reduced as compared to previous year with increased sales.

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof

Particulars	2023-24	2022-23	Growth	Reasons
Return on Networth	-0.15	-0.29	-48%	Ratio is negative due to loss from Operations in the current year. However, quantum of losses is reduced as compared to previous year with increased sales.

Disclosure of Accounting Treatment

While preparation of financial statements, treatment as prescribed in an Accounting Standard has been followed.