1. INDUSTRY STRUCTURE, DEVELOPMENT AND OUTLOOK
1.1 Economy & IT Industry
Global Economy saw a slow recovery in 2011 (3.8% growth in 2011 as compared to 5.2% in 2010, as per IMF), owing to strains in the euro-area and shocks in Japan. 2012 is expected to see a much slower, subdued recovery (3.3% growth), with escalating downside risks that include growing concerns of a mild recession in the euro-area causing spill-overs in other economies and slower growth in emerging economies due to poor domestic demand and an uncertain external environment. Emerging economies are expected to grow by 5.4%; the advanced economies by 1.2% and the euro-area likely to contract by 0.5%.
However, there are few positive signs of recovery in the U.S., with the unemployment rate in the U.S. touching a 3-year low of 8.3% (in Feb 2012) and industrial production showing an upward trend (with the index of industrial production touching a 3.5-year high of 96.2 in Jan-Feb 2012). Though the overall economic outlook appears sluggish, global spending on technology continues to grow and the global IT off-shoring market is expected to grow much faster (as per NASSCOM Strategic Review 2012). India currently accounts for about 74% of the global IT off-shoring market.
Looking forward, the global IT services spending is expected to grow at a CAGR1 of 4.5% over 2011-2013 while the global BPO services spending is expected to grow at CAGR of 5.3% during the same period.
1.2 Indian IT Industry
Indian IT services vendors have been increasingly focusing on strengthening front-ending teams, deepening vertical specialization, expanding services portfolio, building non-linear revenue streams and global delivery models. Conscious of the increasing concerns of protectionism, Indian IT majors have been ramping up their onshore and near-shore presence.
NASSCOM estimates that the Indian IT and BPO exports is at $ 59 billion in FY12, a growth of 16.3% and is likely to grow at 11-14% in FY13. The U.S. continues to be the single largest customer market for IT services. Mature verticals such as BFSI and Manufacturing continue to drive a large share of the IT off-shoring market and emerging verticals such as healthcare, telecom, media and retail continue to grow.
2. BUSINESS STRUCTURE OF THE COMPANY
SQL Star is a leading global Information Technology Company, primarily into IT Services & Consulting, headquartered in Hyderabad, India. The Company is involved in integrated operations of Knowledge Services, E-Governance, Software Development and Services. In each of the lines of businesses, the Company has built key strategic partnerships with industry leaders in these segments. The Company enjoys elite partnerships with fortune 1000 companies such as ORACLE, Sun Microsystems, and Red Hat etc. Our service delivery process puts a tremendous emphasis on quality.
Over the past two and half decades, SQL Star has established itself as a leading player in the Education & Learning space in the areas of Information Technology. Today, we boast of a set of comprehensive services delivering value to our customers
The Company operates in the following primary business segments:-
Knowledge Services
Software Development & Services
E-Governance
3 . SEGMENT WISE OVERVIEW
3 . 1 KNOWLEDGE SERVICES
The Company offers IT Training / Education services to:-
Students from IT or non-IT background, aspiring to make a career in IT
Working professionals in IT and non-IT domains, aspiring to upgrade their skills;
Training programs for Corporate Sector.
Offerings from the Knowledge Services Division can be broken down into the following basic segments i.e. Individual Training Groups (ITG), Corporate Training Group (CTG).
Learning Services from Individual Training Group
The ITG business segment includes fresh graduates, graduates seeking employment, professionals seeking industry-recognized certification and even students who are in still at university (who want to have an accelerated start to their career). Knowledge Services provides the Retail learner a range of learning options to choose from:
In class training for those who want to learn the basics of IT
Certification Tracks for those learners who want to equip themselves with industry-recognized IT certification
Self-paced Learning titles for those learners who would like to be in control of the pace, time and intensity of their learning schedules. For example, full-time students and busy professionals
Learning Services from College Training Group
The College business segment includes undergraduates in university (who want to have an accelerated start to their career). Knowledge Services in partnership with Leading Partners, provides the students a range of learning options to choose from:
In class training for those who want to learn the basics of IT
Certification Tracks for those learners who want to equip themselves with industry-recognized IT certification
Self-paced Learning titles for those learners who would like to be in control of the pace, time and intensity of their learning schedules. For example, full-time students and busy professionals
Learning Services from Corporate Training Group:
SQL Star helps corporate justify their investments in Human Capital by means of training their resources. SQL Star has been in the business of conducting highly customized, High End technology training for companies to meet specific business requirements; whether to induct new hires in Fresher Induction Programs or to more experienced project level technology up-skilling and also some advanced level training.
Future Outlook
Education represents one of the most powerful factor in providing individuals with the ability to improve their quality of life, increase earning power, and provide the basic foundation for future economic growth.
The year has seen negative growth in the Knowledge Services division which can be attributed to poor growth sentiment amongst both in Corporate and Students, resulting from the global economic crisis. Spending on supplementary IT education has seen a slowdown with lower employment opportunities, but the main driver for IT education will be to meet the skill shortage that the industry faces. While the industry grows, the no. of employable graduates in technology has not kept pace with the development.
However, based on various industry reports, we strongly believe that the students sentiment is likely to improve as major IT Companies are planning to step-up their hiring during the second half of FY12. The Company is also seeing a growing pipeline of deals for Training, particularly in the Corporate Sector and would continue its thrust to provide end-to-end high end solution set.
Our training programs are constantly engineered with inputs from the industry to keep them in sync with the skills demand, characterized by both relevance and completeness.
Opportunity
While, the financial year 2011-12 saw a progression in economic trends from cautious optimism at the beginning of the year leading into full scale recoveries and rapid growth in many emerging economies by the year end, some of the positive trends of next fiscal are:-
Slowdown in the number of fresh graduates hired each year has urged large IT companies to look for role/ technology specific training. Focus is on productivity of existing manpower rather than to hire large numbers and then train them to be deployed.
Indias large pool of educated entry-level job-seekers and the low levels of employability have been principal factors in driving the growth in the Indian career training market. In the times of slowdown, with fewer vacancies available for candidates with low employability, there is always a need for candidates to get "trained before getting hired" and hence get trained on courses offered by career training players.
The need for existing skills to improve exponentially will mean the opportunity to increase offerings in each vertical.
Spending on supplementary IT education has seen a moderate growth with increased hiring by the IT Companies but the main driver for IT education will be, to meet the skill shortage that the industry faces. While the industry grows, the no. of employable graduates in technology has not kept pace with the development.
However, based on various industry reports, we strongly believe that the students sentiment is likely to improve as major IT Companies are planning to step-up their hiring in FY12. The Company is also seeing a growing pipeline of deals for Training, particularly in the Government sector and would continue its thrust to provide end-to-end solution set.
Education represents one of the most powerful factors in providing individuals with the ability to improve their quality of life, increase earning power, and provide the basic foundation for future economic growth.
Our training programs are constantly engineered with inputs from the industry to keep them in sync with the skills demand, characterized by both relevance and completeness.
Opportunity
The Company sees the tremendous growth opportunity in the IT Education & Training services, based on the following trends:-
Indications of large hiring plans across sectors
Indias large pool of educated entry-level job-seekers and the low levels of employability have been principal factors in driving the growth in the Indian career training market.
Slowdown in the number of fresh graduates hired each year has urged large IT companies to look for role/ technology specific training. Focus is on productivity of existing manpower rather than to hire large numbers and then train them to be deployed.
The need for existing skills to improve exponentially will mean the opportunity to increase offerings in each vertical.
3.2 SOFTWARE DEVELOPMENT & SERVICES
3.2.1 Strategic Resourcing Group ("SRG")
The Strategic Resourcing group of SQL Star provides consulting services to large scale system integrators, various government departments and IT/ITeS companies. The group is extremely agile and responds to the ongoing business requirements by suitably up-scaling and down-scaling the consultant base. This is a time tested strategy and has been delivering the results for the organisation.
After successfully executing the Hire-Train-Deploy model introduced earlier, the organization has plans to expand the model by utilizing technology and reaching out to maximum employers and students so as to address the skill gap problem that exists in the industry today.
Opportunity
A lot of product development and services MNCs are hunting for ready made talents, who can perform in their projects. These MNCs doesnt have the necessary mandate for building training facilities like the local SIs. Hence, SQL Star with its Knowledge Services Framework integrated with its Staff Augmentation Framework supported by latest technologies can play a major role in partnering with these organizations to scale their competencies.
3.2.2 Technology & Managed Services
In implementing business and application software, enterprises are faced with new challenges - attracting and retaining skilled work force to maintain and enhance systems in line with business requirements.
SQL Stars Technology & Managed Services provide end-to-end solutions to address business requirements, be it application, software infrastructure, or hardware infrastructure. SQL provides outsourced management of IT services proactively through a combination of offshore and onsite delivery model.
SQL Star has established itself as one of the credible player in Business Intelligence, Microsoft, Share point, .Net Technologies. SQL Star, Singapore has been recognized as Microsofts most preferred Vendor on "Business Intelligence & Share Point platforms etc. we have gained good traction on the project side and bagged a few orders; some of them are in the Government space
Opportunity
As enterprises begin to focus on their core competencies and functions such as product development, marketing, brand management and customer relationships and seek more cost effective solution to manage their IT back bone and IT development the trend for out sourcing is fast catching up. This development means a growing opportunity for technology and managed services. SQL Star with its global reach, near shore, offshore advantages and multi dimensional capabilities in IT sector is well poised to offer end-to-end solutions in this market segment.
3.3 E-GOVERNANCE SERVICES
E-Governance is a relatively new area in India and India has been home to pioneering innovations in this area. The innovations have come from applying technology to rising customer expectations in terms of citizen services, a growing awareness and acceptance, among citizens, bureaucrats and their political masters, of the potential of technology to allow any time, any where access to information, use of local languages, the extending reach of public networks and new business models of public-private partnerships. Unlike, commercial IT applications, which are often evaluated in terms of Returns on Investments and Total Cost of Ownership, e-Governance applications have benefits which are difficult to quantify, at least in short term. These benefits are in terms of customer service, greater convenience, saving of hours of time in millions of customer transactions, empowerment of ordinary citizens, enabling Right to Information, reducing corruption, improving profitability of public services, improving transparency in decision-making, intra-government communication, and so on.
This Business Unit at SQL Star creates customized solutions that address the entire spectrum of the information technology needs of state governments, central government, and local government bodies facilitating effective Government-to-Government (G2G), Government to Employee (G2E), and Government to Citizen (G2C) interaction.
The Mandi Project which was one of the major contributors to the Revenues and Margins of the Company was unilaterally and un-lawfully terminated by the Mandi Board. This has severely impacted the Company financially and otherwise. The Company had invoked the Arbitration, which is pending for disposal. The other e-Governance project viz., Sampark Project in the Union Territory of Chandigarh has come to a logical conclusion as of Dec 31, 2010. As a result of this change, the Company has lost the project revenues from 4th quarter of financial year 2010- 11 onwards. Now DIT, Chandigarh is planning to initiate the re-tender process soon.
Opportunity
SQL Star specializes in operationalization of automation of market yards and management of G2C & B2C utility bill payment services. The huge thrust and spending on nationwide (Common Services Centers) CSCs under National e-Governance Plan (NeGP) that integrates back to back with State Service Delivery Gateway (SSDG), National Service Delivery Gateway (NSDG) and State Portal requires a lot of innovation & in depth domain understanding for making it a viable business model under Public Private Partnership (PPP). A lot if thrust is also going on in automation of various state agricultural marketing boards. SQL Star being an early entrant holds a lot of edge in terms of domain understanding and successfully executing some award winning projects.
4. RISKS AND CONCERNS
As a global enterprise, SQL Star is exposed to wide variety of risks across our entire range of business line/operations. A comprehensive and integrated risk management framework forms the basis of all the de-risking efforts of the Company. Formal reporting and control mechanisms ensure timely information availability and facilitate proactive risk management. These mechanisms are designed to cascade down to the level of the line managers so that risks at the transactional level are identified and steps are taken towards mitigation in a decentralized manner.
In broadest sense, the Company perceives risks as the danger of not achieving financial, operative and strategies goals set to be achieved during the year. It has a comprehensive risk management structure in place, which is intended to enable the Company to recognize and analyze risks early and put an appropriate mitigation plan in place. This system is implemented as an integral part of SQL Stars business process across the Company. It constitutes of multiple control mechanisms with major and important constituents of the decision making process. This mechanism includes recording, monitoring and controlling internal enterprise process and business risks with comprehensive risks reporting system. Through the said mechanics, SQL Star is intended to maximize the stake holders value by maintaining a steady balance between risks and concerns.
Your Company too faces several business risks, of which some prominent ones are discussed hereunder alongside the risk mitigation approach followed by the Company:
4 . 1 Uncertain economic environment in leading economies like the US and Europe can impact demand for IT services:
The overall business environment is a little uncertain given the macro economic issues in the US and Europe. The recent prediction by industry body NASSCOM of lowered growth expectation of 11-14% in FY13 for the Indian IT services Industry also kind of supports this view. One view of the economic situation is that given the low economic growth which is likely in the US and Europe, companies in these countries will look to outsource more to get higher business benefits with lower spends.
4.2 Pressure on pricing:
In a highly competitive environment, customers have tough expectations on pricing. We are focusing on providing higher value and differentiated services to beat the pricing pressures
4.3 Concentration risks:
Excessive dependence on any single business segment increases risk. The Company continuously makes efforts to broad base and diversify its revenue streams to prevent undesirable concentration in any one vertical technology client or geographic area. However, considerable efforts are being made to generate business from new geographies and clients.
4.4 Financial risks
SQL Stars activities expose the Company to a variety of financial risks such as market risks, credit risks, change in regulations of economy in which Company operates etc. All these risks arise in the normal course of business. The Company is exposed to longer recovery cycles due to its involvement in long duration projects and Government entities in its customer profile resulting in need to finance higher level of working capital. The Company is confident to have adequate funding to finance its working capital requirements as well as future growth needs. The volatility in foreign currency rates may impact the profitability of the Company to the extent of its exposure to the International business and specific currencies.
4 . 5 Legal risks
Litigation regarding intellectual property rights, patents and copyrights is significantly high in the software industry. In addition, there are other general corporate legal risks. The management has clearly charted out a review and documentation process for all contracts.
4.6 Exchange rate risks
The functional currencies for SQL Star and our subsidiaries operations are the respective currencies of the countries in which they operate. A portion of our revenues is derived from foreign exchange; any fluctuation in this could have an impact on the Companys performance. We actively book foreign exchange forward covers/ derivative options to hedge against foreign currency fluctuations related to bills receivables and anticipated realizations from projected revenues.
4.7 Availability of skilled personnel & attrition:
Retaining the existing talent pool and attracting new talent is a major risk. SQL Star has taken initiatives such as Faculty Development Programs, participating in seminars etc. Rising attrition is a major risk in the industry. The Company is addressing this through higher investments in building the competencies of its employees. The Company also addresses employee aspirations through well planned career management and job rotation and by giving the employees exposure to multiple technologies, domains and geographies. The Company also strives to create a conducive environment for work life balance. The Company has created employee friendly policies which enhance retention of employees. Wage Inflation is the other factor which has an impact on the industry. The Company has a very strong performance management system and a systematic process for annual increments which rewards performance.
4.8 Regulatory & Compliance risk:
The Company has a global footprint and as it increases its global reach and operations, the risk of ensuring compliance with the regulations and laws in the various jurisdictions, of any global organization also increases. To mitigate this risk, the Company has put in place an institutionalized structure to ensure regulatory and legal compliance across the globe. The use of local managers as well as consultants, auditors, lawyers, specialists and experts in these countries where we have a presence is encouraged to ensure compliance.
4.9 Information Security related risks:
Information security and business continuity is an area of concern of most customers, particularly when key business processes are outsourced. The Company has adopted information security management system complying with ISO 9001-2008.
4 . 10 Competition-related risk:
Indian IT services market remains a very competitive space. The Company is facing competition from large Indian IT vendors and global vendors who are increasing their India presence by setting up offshore delivery centers.
4.11 New technologies and business models continue to emerge:
The Company operates in the Information Technology Services Industry where fast and dramatic changes in technology, business models and intense competition are a fact of life. The Company continues to engage in newer business models in order to address changing requirements. This results in alliances, strategic investments and joint ventures. SQL Star focus on achieving improvements based on innovation has been influenced by the need to harness the implicit knowledge of the people within the organization.
4.11 Industry Dissonance Risk:
The Company operates in the fast changing Information Technology space where changes in technology can make todays market leaders into market laggards and changes in customer and market needs can result in a mismatch between customer/market requirements and the Companys offerings.
The Company adopts the following approaches to address these risks:-
Growth engines: The Company systematically focuses on addressing emerging buyer trends and needs by developing solutions such as in infrastructure services or engineering services. We constantly scan the environment for emerging technology areas and develop offerings of value in the selected areas.
Deep customer relationships: The Company has a deep understanding of its customers needs and enhances this by engaging systematically with customers on periodic review of customer needs and fulfillment of the same for prospective periods.
Geo-political risks: The ability of Indian IT/BPO services companies to secure offshore projects from client organizations abroad is often subject to threat perceptions as regards the Indian subcontinent. Current civil situations in neighboring countries of India may have negative implications for the operations of the Company. To mitigate these risks and to ensure continued delivery of services to clients irrespective of any geo-political disturbances, the Company has been taking appropriate measures in respect of disaster recovery and business continuity in different locations.
5. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has an adequate system of internal controls implemented by the management towards achieving efficiency in operations, optimum utilization of resources and effective monitoring thereof and compliance with applicable laws. These have been designed to provide reasonable assurance with regard to recording and providing reliable information complying with applicable statues, safeguarding assets from unauthorized use or losses, executing transactions with proper authorization and ensuring compliances with corporate policies. The system is continuously reinforced with analysis of data to strengthen it to meet the changing requirements. The Company has well defined delegation of power with authority limits for approving revenue as well as expenditure. Process of evaluating long term and short term business plans have been laid down. It has continued its efforts to maintain all its processes in line with the global best practices. The Internal Audit process is designed to check the adequacy of internal controls and checks in the system and cover all significant areas of Companys operations including subsidiaries.
A qualified and independent Audit Committee of the Board of Directors reviews the internal audit reports and the adequacy of internal controls and also reviews all quarterly and yearly financial results of the Company and conveys to the Board its recommendation for consideration of such results and their approval.
6. HUMAN RESOURCE MANAGEMENT (HRM):
The main objective of the HR System is to attain the support of various Business Units of the Company and to streamline the different functions related to HRM. SQL Star has always believed in creating an environment where our employees feel safe, secure and inspired to achieve excellence in their respective area of functioning.
SQL Star continues to focus and invest in human resource development to provide an open work culture and rewarding career opportunities to all its employees.SQL star provides an environment that can help the employees maintain work-life balance. Your Company has maintained a competitive, healthy and harmonious work environment at all levels. We have taken new initiatives to strengthen the Companys recruitment process, values and vision programmes, leadership and Performance management. The Companys HR policies and processes are aligned to effectively drive its expanding business and emerging Opportunities. This has been achieved by continuously investing in learning and development programs, creating a compelling work environment, empowering employees at all levels and maintaining well-structured reward and recognition mechanisms. Employee engagement remains a key focus of HR initiatives undertaken by the Company. SQL enables its employees to meet their career objectives through rotation across projects, functions and locations. The Company helps employees build new skills and competencies and promotes knowledge sharing and team building.
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