Teledata Technology Solutions Ltd Management Discussions

TELEDATA TECHNOLOGY SOLUTIONS LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS General The global economic downturn of the past year had a lingering effect on the GDP growth and employment in developed markets. As a result of an altered demand landscape, the IT and ITES sector had begun to transform itself by actively diversifying beyond core offerings and markets through new business and pricing models, specialize to provide end-to-end service offerings with deeper penetration across verticals, transform process delivery through re-engineering and enabling technology, innovate through research and development and drive inclusive growth in India by developing targeted solutions for the domestic Indian market. Worldwide technology products and services related spend is estimated to reach USD 1.6 trillion in 2010, a growth of 4 per cent over 2010, with emerging verticals and emerging geographies, in addition to US, driving growth. Worldwide hardware spends increased by 6.4 per cent on the back of a global refresh cycle. IT services spend increasing by 1.4 per cent in 2010, within which IToutsourcing grew by 2.4 percent. Your company experienced a decline of nine percent in the revenues during the year, even though there was considerable success in cementing ongoing business relationships. Delay in the finalization of new contracts with prospective customers put some of the companys efforts on the back foot. While the global market did rebound to an extent during the year, your company had undertaken a process of realigning itself as a global solutions provider, a process which would only play out over time and would bear results in the longer term. The efforts during the year however had succeeded in reducing the fall in revenues year overyear. Key Aspects of Performance Your company has made substantial investments in the Energy and Utilities space for the provision of data and transaction management and business (customer) intelligence solutions for the emerging Smart Grid and Smart Metering Market in the US, in line with strategy adopted in the last financial year, It has a beta version of its proprietary product running with a regional utility company. The success of this effort would enable the company to also pursue and develop a non-linear growth strategy, as against a purely employee driven revenue generation model. The company has completed the acquisition process for Abaris Inc., the Oracle spearhead in the organization and has taken steps to sync the available Oracle expertise with the provision of consultants from other global locations for a seamless oracle implementation and growth experience for its customers. The success of your companys Customer Relationship Management (CRM) initiative is best exemplified by the ongoing Amdocs-CRM effort which portents well for further expansion in the telecommunication space, particularly in the Indian environment. Personnel Your company has consistently believed in nurturing and caring for its workforce through good times and bad and believes that its employees are the key to its success. The focus on hiring only the very best has greatly enabled the setup of a better and newer delivery management system in line with the companys philosophy of customer-centric operations. Pursuing the growth strategy conceptualized in the past and implemented in the current year, the company has embarked on the addition of top level resources in order to oversee the transformation of your company from a purely technology solutions provider to a total business solutions partner. Future Outlook According to NASSCOM Strategic Review Report, 2011, the underlying theme of 2010 has been the steady recovery from recession. Worldwide GDP, which had declined by 0.6 per cent in 2009, grew 5 per cent in 2010 and is expected to stabilize at about 4.4 percent in 2011. Developing nations continue to grow faster than the developed countries by at least three times. IT spend is directly linked to growth in GDP and in line with this trend, IT spend in 2011 is expected to grow nearly 4 per cent. Worldwide IT spending will also benefit from the accelerated recovery in emerging markets, which will generate more than half of all new IT spending worldwide in 2011. In 2011, growth will reflect new demand for IT goods and services, not pent-up demand from prior years. 2011 will also see a major surge in the use of private and public cloud and mobile computing on a variety of devices and through a range of new apps. IT services is expected to grow by about 3.5 percent in 2011 and 4.5 percent in 2012. While focus on cost control and efficiency/productivity remain, customers are also evaluating how investments in IT impact can further business goals -ROI led transformation - leading to an increase in project-based spending. Services such as virtualisation, consolidation, and managed services that focus on ROI in the short term will drive opportunities in the market. Emerging Asian enterprises across multiple industries will continue to accelerate services spending in their efforts to challenge existing global MNCs. Organizations will look for alternative IT models-Cloud, on-demand services and SaaS-in order to reduce hardware infrastructure costs and provide scalability on demand. Worldwide packaged software revenue is estimated to reach USD 297 billion in 2011, a Y-o-Y growth of over 5 percent, led by emerging regions, such as APAC and LATAM. These regions are expected to invest heavily in enterprise software initiatives as they continue to round out the IT infrastructure necessary to do business. TTS, with its diverse skill sets, is uniquely positioned to take advantage of the growing market and with an increasing focus on organic growth, has embarked on a consolidation and growth phase. Review of Financial Performance: The financial performance of the company on a consolidated basis including the turnover of subsidiaries, have been taken for the purpose of analysis. I. Analysis of Profit and Loss Account: Turnover & Other Income The company has reported a turnover of Rs.21,054.52 lakhs for the year ended 31st March, 2011 compared to Rs.23,113.89 lakhs for the previous year ended 31st March, 2010, thereby showing a fall of 8.91% compared to the previous year. The fall in the total revenue was mainly on account of economic slowdown and decrease in Enterprise Resource Planning (ERP) & Customer Relations Management (CRM) segments especially in the developed countries. Expenditure 1. Purchase of Software/Outsourcing The Purchase of Software/Outsourcing expenses for the period stood at Rs. 13,325.79 lakhs compared to Rs. 13,563.12 lakhs in the previous year. This includes the expenses incurred by overseas subsidiaries for outsourcing services. The decrease is mainly due to cost cutting measures adopted by management. 2. Administrative Expenses The Administrative expenses for the period stood at Rs.7,539.59 lakhs compared to Rs.7,718.73 lakhs in the previous year, thereby registering a decline of about 2.32 %. This is because of decrease in personnel cost and rent expenses. a. Personnel Cost The personnel cost of the period stood at Rs.4,035.85 lakhs, compared to Rs.4,894.44 lakhs in the previous year, thereby recording a decline of about 18% which is mainly due to decrease in headcount. b. Travelling and Conveyance The traveling expenses during the period stood at Rs.257.91 lakhs, compared to Rs.245.00 lakhs in the previous period. c. Miscellaneous Expenses Miscellaneous expenses for the period stood at Rs.69.66 lakhs as against Rs.51.20 lakhs in the previous year. d. Foreign Exchange Fluctuation Loss The loss on account of exchange fluctuation during the period stood at Rs.221.29 lakhs. This is due to the rupee depreciation against dollar. e. Service Charges There was payment of Rs.608.75 lakhs for service charges for the period as against Rs.926.46 lakhs in the previous year. The increase is due to decrease in US outside service. f. Others The following major expenses have been incurred during the year against in the previous years. 1. Amounts written off During the year, the Company has written off Rs.465.50 lakhs towards bad & doubtful debts and advances, which includes advances unrecoverable to the tune of Rs.252.98 from Soltius. 2. Interest & other Finance charges The outgo on account of interest expenses for the period stood at Rs.288.37 lakhs as against Rs.357.51 lakhs in the previous year. 3. Selling & Distribution Expenses Selling and Distribution expenses for the period stood at Rs.47.26 lakhs as against Rs.40.52 lakhs during the previous year. The increase is mainly on account of increase in advertisement and business promotion expenses. 4. Depreciation The depreciation for the year stood Rs.87.69 lakhs as against Rs. 134.42 lakhs. 5. Profit before tax Profit before tax (PBT) for the period stood at Rs.(21.43) lakhs as against Rs. 1,647.49 lakhs during the previous period. 6. Provision for tax Provision for tax during the year is Rs.302.19 lakhs. 7. Profit after Tax The profit after tax for the year stood at Rs.(323.62) lakhs as against Rs.1,625.78 lakhs before providing for the minority interest. The decrease in profit is mainly due to reduction in sales. II. Analysis of Balance Sheet: 1.Share Capital The Paid-up Share Capital of the Company stood at Rs.9,991.70. There was no change over the previous year. 2. Reserves & Surplus The Reserves and Surplus of the Company stood at Rs. 17,098.62. 3. Secured Loans The overall Secured Loans for the period stood at Rs.2,931.74 lakhs as compared to Rs.3,444.92 lakhs in the previous years. 4. Unsecured Loans The outstanding unsecured loans at the end of the current year were at Rs.55.09 lakhs. 5. Minority Interest Minority Interest in subsidiaries represents the proportionate share of the minority shareholders in the net assets and net income of the subsidiaries and the same stands at Rs.(53.16) lakhs for the year as against Rs.(71.33) lakhs in the previous year. 6. Goodwill Goodwill is at Rs.5,132.90 lakhs during the current year as against Rs.5,032.30 lakhs in the previous year. The increase in carrying value of the goodwill is due to additional earn out payments & reimbursement of legal fees paid during 2010 to the sellers of M5 Global Inc., subsidiary of Teledata Technology Solutions Inc., 7. Fixed Assets The Net Blockduring the year stood at Rs.207.60 lakhs as compared to Rs. 197.46 lakhs in the previous year. The increase is mainly due to additions to fixed assets. 8. Investment The Investments atents the end of the year stood at Rs.3,673.61 lakhs as compared to Rs.3,673.53 lakhs in the previous year. 9. Sundry Debtors Sundry debtors stood at Rs.11,831.17 lakhs for the period ended 31st March 2011 as against Rs. 15,981.46 lakhs in the previous year. The debtors level has come down due to revised credit terms. The company has taken steps to collect the receivables and hopes to improve the debtors realization in the coming years. 10. Cash and Bank Balances The Cash and Bank Balances at the end of the year stood at Rs. 15,060.63 lakhs as against Rs. 17,337.58 lakhs in the previous year. 11. Loans and Advances Loans and Advances during the yearstood at Rs.3,477.43 lakhs as against Rs.3,396.24 lakhs in the previous year. 12. Current Liabilities and Provisions a. Sundry Creditors The outstanding sundry creditors as at 31/03/2011 stood at Rs.3,036.28 lakhs as against Rs.8,014.92 lakhs in the previous year. b. Provisions The provisions for the yearstood at Rs.282.32 lakhs compared to Rs.58.22 lakhs in the previous year.