MANAGEMENT DISCUSSION AND ANALYSIS
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-over’s 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 student’s
sentiment is likely to improve as major IT Companies are planning to step-up their hiring
during the second half of FY’12. 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.
• India’s 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 student’s
sentiment is likely to improve as major IT Companies are planning to step-up their hiring
in FY’12. 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
• India’s 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 doesn’t have the necessary mandate for
building training facilities like the local SI’s. 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 Star’s 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
Microsoft’s 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) CSC’s 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 Star’s 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
holder’s 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 Star’s 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
Company’s 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 today’s market leaders into market laggards and changes in
customer and market needs can result in a mismatch between customer/market requirements
and the Company’s 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 Company’s 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 Company’s recruitment process, values and
vision programmes, leadership and Performance management. The Company’s 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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