Vedavaag Systems Ltd Management Discussions.

Management Discussion & Analysis

Economic overview

The global economy contracted by 3.3% in CY 2020, as all major economies barring China slipped into recession with COVID-19 induced lockdowns.

Aligned to the decline in global GDP, Indias economic progress was expected to contract. But the decline was lesser than the initial estimates owing to a smart V-shaped recovery as most consumption and industrial indicators were back in positive growth zone in the Q3FY21.

India registered a positive GDP growth in Q3 at 0.4%, one of the few nations globally to emerge out of recession in such a short time period. As resurgence gained momentum, Indias GDP growth for Q4 of 2020-21 stood at 1.6%.

The external sector exhibited resilience as current account turned surplus for the first time since 2004, on weaker domestic demand, falling oil prices and strength in Indias services exports. FDI and equity FII flows were strong, driving Indias forex reserves to an all-time high of ~US$580 billion at the end of FY 2020-21, against ~US$475 billion at the end of FY 2019-20.

In keeping with the uptick in economic activity, GST collection was above the Rs 1 lakh crore mark in the second half of FY21, peaking at Rs 1.23 lakh crore in March 2021.

The agriculture sector, which largely supports the rural economy, remained robust - it registered a growth of 3.0% in FY21 (lower than 4.3% growth recorded in FY20).

In view of the economic momentum in Q4 FY21, leading opinion makers had estimated a sharp growth in India GDP for FY22. But, towards the end of FY21, a second wave of COVID-19 in the country intensified. It appears to be a hurdle in maintaining the pace of economic recovery.

While economic growth could get impacted in the first quarter of FY22, economic opinion makers are optimistic of a double digit growth. The RBI has projected Indias FY22 gross domestic product (GDP) forecast at 10.5%.

About the Company

Established in 1998, as an e-Governance solution provider, Vedavaag is a niche player in Citizen Services Delivery that includes Financial Inclusion, AI&ML based products, Internet of Things (IOT) & other e-Governance solutions, Retail & Logistics and Education services.

Headquartered in Hyderabad, Telangana, India, the Company has operations spread across Andhra Pradesh, Maharashtra,

Bihar, Jharkhand, Uttar Pradesh, Delhi, Chandigarh, Haryana, Punjab, Rajasthan, Telangana, Jammu & Kashmir, Odisha, Pondicherry, West Bengal, Uttarakhand, Himachal Pradesh and Tamil Nadu.

An ISO-certified enterprise, the Company is listed on the Bombay Stock Exchange (BSE 533056) since 2009.

Varishta Centres

Vedavaag is consolidating its brand of reliability and consistency in service by naming all its service points as Varishta Centres (VC). With the idea of maximising its service bouquet to rural citizens from these Varishta Centres range of financial services, Agri commodity services and other cross selling services education.

Business vertical - 1 Rural Financial Services

Vedavaag is a leading National Business Correspondent of State Bank of India. It has an entrenched network of 2,700 + CSPs in the rural parts of Bihar, Jharkhand, Uttar Pradesh, Punjab, Rajasthan, Andhra Pradesh, Telangana, Uttarakhand, Delhi, Haryana, Chandigarh, Odisha and Maharashtra - serving thousands of rural citizens for their banking services requirements. About 80% of these points are in rural India to provide financial services to the weaker sections of society. The Company offers all products and services as underlined under the Financial Inclusion mandate.

Performance in FY21

FY21 was a challenging period for India owing to the pandemic which spread with speed across the Indian landmass. A stringent nationwide lockdown was instituted to contain the contagion. The Government announced relief packages aimed at supporting rural India - it included direct transfer of funds to their accounts to cover up for their drop in livelihood owing to the lockdown. This proved to be a boon for the BC business as the volume of transactions increased significantly. The Company, on its part, continued to expand its CSP network, which also contributed to revenue growth.

FY19 FY20 FY21
Gross Transaction value (Rs crore) 5,709 8,324 9,714
FY19 FY20 FY21
Revenue (Rs crore) 21.27 31.25 41.08

About Rural India

India lives in its villages. More than 60% of the Indian diaspora resides in the lakhs of villages dotting the Indian landmass. As of March 31, 2020, there were about 640,000 villages in India, inhabited by about 893 million people, comprising about 66% of the countrys population.

Rural areas in India contributed to 47% of Indias GDP, however, the share in total credit outstanding as of Fiscal 2020 was 9% in rural areas as compared to 91% in urban areas. The divergence in the share of rural areas in Indias GDP and banking credit indicates the low reach of banking in rural areas.

About Financial Inclusion

Financial inclusion is a much-cherished policy objective for India and its economic policy has always been driven by an underlying intent of a sustainable and inclusive growth. India began its financial inclusion journey as early as in 1956 with the nationalisation of Life Insurance companies, followed by nationalisation of banks in 1969 and 1980.

The worlds largest Financial Inclusion Scheme

The most recent and relatively more successful policies towards financial inclusion has been the Pradhan Mantri Jan Dhan Yojana - the worlds largest financial inclusion initiative. This scheme which promises to make every citizen of the country avail a bank account, has successfully attracted 40 crore people in the last six years.

Indian policy making has shown unwavering resolve for inclusive growth which culminated in the National Mission for Financial Inclusion, namely the Pradhan Mantri Jan Dhan Yojana (PMJDY).

Launched in August 2014, it offers a bouquet of products viz., overdraft of ?10,000, accidental death cum disability insurance cover, term-life cover and old age pension. Jan Dhan Accounts, Aadhaar biometric ID and Mobile (JAM) are enablers which provide a unique opportunity to implement Direct Benefit Transfer (DBT) in all welfare schemes across the country. The DBT has enabled efficiency, effectiveness, transparency and accountability in all Government to Persons (G2P) transfers.

Under Pradhan Mantri Suraksha Bima Yojana (PMSBY) a renewable one-year accidental death cum disability cover of ?2 lakhs is offered to all subscribing bank account holders in the age group of 18 to 70 years for a premium as low as ?12/- per annum per subscriber.

Another insurance product with one-year term life cover of ?2 lakhs under Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) is made available to all subscribing bank account holders in the age group of 18 to 50 years, for a premium of ?330/- per annum per subscriber.

To take care of the financial needs in old age, a pension product named Atal Pension Yojana (APY) guaranteed by the Government of India has also been made available to the newly included bank account holders. Under APY, a subscriber (in the age group of 18 to 40 years) will receive fixed monthly pension in the range of 1,000 to 5,000 after completing 60 years of age, depending on the contributions made by the subscriber.

About Business Correspondent Channel

To bridge the gap in the last mile connectivity, RBI permitted banks to engage Business Correspondents / Business Facilitators (2006). This has resulted in cost effective delivery of services through ICT based solutions. Banks were mandated to open branches nationwide especially in underbanked pockets which led to a considerable increase in bank branches and later Automated Teller Machines (ATMs) in the 1990s to early 2000. The banks were advised to draw up a roadmap for having banking outlets in villages with population more than 2000 (in 2009) and less than 2000 (in 2012). Subsequently the banks were advised to open brick and mortar branches in villages with population more than 5000.

In 2017, RBI relaxed the branch authorisation guidelines wherein fixed-point Business Correspondent (BC) outlets serving for more than 4 hours a day and five days a week are treated on par with physical brick and mortar branches.

To strengthen the BC model of delivery and ensure certain minimum standards of service rendered by the BCs, the BC partners must undergo a Certification course conducted by the Indian Institute of Banking and Finance (IIBF).

At the forefront during Covid-19: Business correspondents came to the rescue of rural India in Covid-times.

While banks could not open many branches in the rural areas last year, they appointed a huge number of business correspondents to deliver services amidst the pandemic. The expansion of banks in the rural areas was hit in Covid- scarred FY21 but banking services was extended by a fast growth in the number of business correspondents (According to the RBI Annual Report).

Branches of banks in rural India went up marginally by 592 between December 2019 and December 2020. While it stood at 54,481 in December 2019, the number of branches rose to 55,073 a year later.

However, there is an explosion in the number of business correspondents, especially in bigger villages that have a population of more than 2,000. The number of business correspondents in these villages rose from 1,28,980 in December 2019 to 8,51,272 in December

2020 - a rise of 560%. In the smaller villages - those with less than 2,000 residents - the number of business correspondents went up marginally from 3,83,864 to 3,85,537.

According to NITI Aayog, less than 15% of villages have a brick-and-mortar bank branch and business correspondent agents are the only transaction point in many of the remaining villages. "COVID-19 has magnified the importance and agility of this network. With close to 8 lakh active agents, catering to approximately 34 crore people in face-to-face transactions, the agent network has become indispensable in the current scenario.

(Source:https://www.money9.com/news/ banking/business-correspondents-come-to-the- rescue-to-rural-india-in-covid-hit-year-41131.html)

Business strategy

Growth in this business is about strengthening the existing network and partnering with more banks.

Vedavaag is doing both. On the one hand, in June 2021, it has signed an MoU with Bank of Baroda as a National Business Correspondent. The company aspires to create additional 500 CSPs in 4 months. Company got mandate for another 400+ CSPs from the SBI in august 2021 and company expects rollout all by October/ November. The company has been shortlisted by PNB as BC for nationwide services.

Business vertical - 2

Artificial Intelligence & Internet of Things

1. Product development under Artificial Intelligence & Machine Learning (AI&ML)

India has less than 3% of the worlds total vehicles, but accidents are close to 11%. Every year around 4.5-5 lakh accidents and 1.5 lakh unfortunate deaths occur in the country. It is not less than a silent pandemic. Road accidents claimed around 1.32 lakh lives in 2020, which is the lowest in the past 11 years. In 2019, around 1.51 lakh lives were lost in road crashes in India. Majority of these accidents are owing to driver-related issues.

Vedavaag has determined to make a meaningful difference in reducing human-error related accidents. Leveraging technology, the Company has developed the Driver Activity Monitoring System (V-DAMS).

V-DAMS is developed using Computer vision, Machine learning (ML), Artificial intelligence (AI) and Internet of Things (IoT).

Artificial intelligence (AI) is a wide-ranging branch of computer science concerned with building smart machines capable of performing tasks that typically require human intelligence.

This solution captures and analyses first order biometrics of the driver such as gaze, head position, pupil diameter and other parameters. Having done that, the device detects human errors and alerts the driver in real time to avoid accidents.

This is a solution whose time has come.

The Company has developed two variants of the same device

V-DAMS Basic: This is a standalone device fixed in the vehicle to alert the driver in real time.

V-DAMS Pro: The device is fixed in the vehicle to alert the driver real time and is connected with the Command Control Centre (CCC) to facilitate real-time monitoring. This means, that in the unfortunate event of an accident, help reaches the spot in no time.

2. Product Development under IoT and Cloud

Women safety has been very high on the priority of every Government, at the Center and at States. This has specially gained sharpened focus after the Nirbhaya case which shook India and the world. According to the National Crimes Records Bureau (NCRB), India recorded 88 rape cases every day in 2019. The NCRB report highlights that rape vulnerability of a girl or woman has increased up to 44% in the last 10 years.

Government agencies have preferred technology-led solutions for safety of women across the country. Some important technology-based initiatives implemented are:

> Emergency Response Support System provides a pan-India, single, internationally recognised number (112) based system for all emergencies, with computer-aided despatch of field resources to the location of distress.

> Using technology to aid smart policing and safety management, Safe City Projects have been sanctioned in first Phase in 8 cities (Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Lucknow and Mumbai).

The company inhouse product development team designed this product to meet specific requirements of public transport utility needs in terms of citizen safety.

The Government of Andhra Pradesh has launched the Abhayam initiative as a decisive step towards women safety in the state. The project is envisaged as a first of its kind implementation under Nirbhaya Scheme initiated by Government of India scheme of funding.

The Abhayam Initiative is a technology-driven initiative to ensure safety of people (especially women and children) during their regular commuting. It promises to provide swift and efficient relief and rescue measures during accidents, emergency and casualty using latest technology such as IoT.

Vedavaag is executing a Rs 92 crore (supply and installation Rs 61 crore and AMC for 5 years Rs 31 crore) under the Abhayam initiative The scope of the project includes supply, installation and commissioning of 1,00,000 devices in public utility vehicles and connected over cloud to the Data Center to enable real time monitoring and rapid response in times of emergency.

Vedavaags comprehensive solution comprises of the following

> Install IoT device with in-built GNSS and GSM/GPRS in auto-rickshaws

> Provide a real-time location tracking and data communication solution

> Provide an integrated system that connect the IoT devise, the user (mobile app), driver (web app), Transport Department and Police Department for swift and real time communication

> Provide a Web-application for registration of vehicle and managing the IoT dashboard and back-end operations such as registration of driver, vehicle, trip etc.

The successful completion of the project is expected in FY22 to garner interest and traction among other states over the coming years.

Wholly owned Subsidiary VSL Data Systems Pvt. Ltd.

From the earlier days of being a support system, technology has become a business imperative, for everyone... even the roadside shop. Over the years, the Government has sharpened its focus on deploying technology for data accessibility and retrieval, processes and accuracy. Who would have imagined a decade ago, that Income Tax returns would have to be submitted only digitally?

Interestingly technology is not just confined to urban locales but is seeping into rural agencies and organisations. The Government has intensified its efforts on deploying technology for seamless operations of Primary Agricultural Cooperative Society, PACS is the smallest co-operative credit institution in India.

PACS work at the grassroot level (gram panchayat and village). They are created with the objective of promoting thrift and mutual/self-help among the members; cater to their credit requirements and provide credit-linked services like input supply, storage (inventory maintenance) and marketing of agricultural produce (Public Distribution System) etc.

PACS are the base tier of the 3-tier Short Term Cooperative Credit Structure (STCCS) comprising District Cooperative Central Banks (DCCB) at the district level and State Cooperative Banks (SCB) at the Apex / State level. The structure is owned and run by about 13 crore farmers as members at PACS, about 80% of whom are small and marginal in nature.

Vedavaag through its subsidiary, VSL Data Systems, has entered an exclusive implementation partnership with M/s Intellect Informatics Private Limited for deploying its UNITE ERP for Primary Agricultural Credit Societies (PACS).

VSL Data Systems has successfully implemented an ambitious project of automating 1,500 PACS in the states of Telangana and Uttarakhand.

The Telangana and Uttarakhand model of PACS computerisation provides a custom designed comprehensive ERP solution. The solution meets all the current business needs and provides considerable room for scale up to meet its future business needs, governance and statutory (CAS & MIS prescribed by NABARD) requirements of PACS.

The opportunity:

In one of the biggest initiatives towards institution building, NABARD is facilitating the process of bringing the co-operative sector onto a completely automated platform. It is expected to be a nation-wide transformation program across ~1,00,000 PACS. The Central Government made a budget allocation of Rs 1,900 crore in 2017-18 towards computerisation of about 63,000 PACS within a 3-year timeframe, which remains largely unutilised. Because only 1,500 of the 100,000 PACS are computerised yet.

The successful implementation in Telengana and Uttarakhand, become showcase projects for Vedavaag to garner additional work in this space. The Company remains focused on garnering new orders in this space.

Wholly owned Subsidiary Vagdevi Sark Edutech Pvt. Ltd.

If there is an area where the Covid-19 pandemic has shown we can succeed in multiple ways, it is education. All over the world, including in India, drastic steps were taken - schools, colleges and universities were shut down to fight the pandemic, and online learning became the order of the day.

Vedavaag, through its subsidiary

Vagdevi Sark Edutech has entered the online education space with a difference. It highly skilled faculty cherrypicked from premier IIT institutes across India will impart training and sharpen the skills of aspirants from rural India to crack highly competitive examinations such as IIT-JEE, NEET.

Why this space?

Vedavaag has chosen this space for important reasons:

1. Students from rural India occupy only 25% of the seats in IIT/ NEET even when more than 60% of India resides in its rural pin codes.

2. Rural India contributes close to 50% of Indias GDP current! an educated rural India would make a world of difference to Indias economic resurgence

3. As the aspiration of policy makers to place India firmly on the global map gains momentum, India will need much more qualified youth to make transform its dream into reality. Much of the new age educated youth will need to come from rural India.

Why has this not happened in the past?

1. Hitherto, rural India was never in the spotlight. Hence, the focus was primarily on urban India. But as the potential of rural India is becoming more visible in Indias economic progress, the focus of the Government and policy makers is shifting towards rural India.

2. Coaching for these competitive exams was largely classroom based. Moreover, the fee for such training is prohibitive - hence out of the reach of rural India. But the advent and success of online education, coaching can be made available across India at affordable rates.

Vedavaags solution: The Company will enrol children between Class IX and XII. It has devised two courses:

1. For school children of Classes IX & X (CBSE): The team will prepare them for IIT JEE Foundation + School syllabus.

2. For High School children of XI & XII (CBSE): The team will prepare them for IIT-JEE + NEET + School Syllabus.

Covid compulsion have made online classes an accepted reality and thus more and more students are positively disposed to online education services. This expected to give result in considerable ramp up over the coming years.

The opportunity:1 India has 35 million students enrolled in higher education contributing to a small gross enrolment ratio (GER) of 26%. China with a larger population has a much higher GER of 51.6%. If we are to achieve the target of 50% GER by 2035 as envisaged by the new National Education Policy (NEP) 2020, we have to give prominence to online learning.

1https://theprint.in/opinion/online-learning-is-the-future-education-ministry-and-ugc-must-not-hold-india-back- anvmore/605503/

Wholly owned Subsidiary

Vedavaag Common Service Centers Pvt. Ltd.

A. Insurance: Vedavaag is an IRDA certified Corporate Agency offering Insurance Services. The Company has a tie up with SBI general insurance & SBI LIFE INSURANCE Life and General insurance services. It markets the insurance products through its CSP network to the rural masses.

B. Retail: As e-commerce has become the buzz word across India, Vedavaag promises to emerge as the e-commerce partner for rural Indians. Branded as VedaRetail, this platform assists rural citizens in their monthly purchases of kirana, household items and FMCG goods (TV, refrigerators, washing machines, air-conditioners, etc.) by providing them with a superior value proposition.

C. Logistics: There a numerous courier services that zip through cities and towns. Interestingly though, there are hardly any couriers who service villages on a regular basis. The nearest service is usually available at the Block level.

Branded as VARIOR, the Company logistic services aim to provide convenience for rural citizens to send documents, gifts, medicines and other utility items to friends, family, and relatives within the district and across India. This service being offered from all its service centres.

D. Agri Commodities: The company wants to leverage from VARISHTA Centres its reach to rural community by providing a selling platform to its rural customer base for Agri products and services and to offer cross selling of allied products and services.

Human Resource

FY21 was one of the most challenging year from a people perspective owing to fear and uncertainty from the pandemic and the unprecedented lockdown. This held true even for Vedavaag Systems.

The Company took this crisis as an opportunity to connect with its team. It leveraged technology to connect virtually with the Vedavaag family. The senior leadership spoke periodically with the team to allay apprehensions.

The HR team also connected with the entire team at regular intervals to explain the Dos and Donts during the pandemic, about the need to wear masks and undertake sanitisation measures for the health of the individual and his family.

The HR team focused on keeping the team engaged and motivated. Knowledge sharing sessions and regular training sessions were organised virtually to enhance skill sets and for personality development.

The Company also developed a roadmap for aligning to the ‘new normal, drew up an action plan, reinforced the review mechanism for safety of business operations and its people. This helped in becoming business ready with the phased unlocking of the nation.

Even as work resumed, the HR team remained extremely vigilant to ensure that the Covid protocols announced by the Government from time-to-time were strictly adhered to.

Going forward, the HR team will sharpen its focus on Training and Development - working out customised training sessions for specific requirements.

Financial Overview

Significant changes i.e., change of 25% or more in the key financial ratios

In accordance with the amendments notified by SEBI in Regulation 17 of the SEBI (Listing Obligation and Disclosure Requirement) Regulation, 2015 on 9th May, 2018, the details of significant changes i.e. change of 25% or more in the key financial ratios as compared to the immediately previous financial year along with detailed explanations are reported hereunder:

FY21 FY20 % Change
Stability Ratios
Debt equity Ratio 0.002 0.003 32%
Debt Service Coverage Ratio 0.002 0.030 93%
Interest Coverage Ratio 173.77 67.41 158%
Liquidity Ratios
Current Ratio 8.01 6.25 28%
Debtor Turnover Ratio (days) 75 63 18%
Inventory Turnover Ratio (days) 30 15 97%
Profitability Ratios
Operating Profit Margin (%) 21% 18% 13%
Net Profit Margin (%) 10% 9% 22%

Internal control and its adequacy

The Company has in place a sound system of internal controls to ensure the achievement of goals, evaluation of risks and reliable reporting of financial and operational information. This efficient internal control procedure is driven by a robust system of checks and balances that ensures safeguarding of assets, compliance with all regulatory norms, and procedural and systemic improvements periodically.

The Company uses an ERP (Enterprise Resource Planning) package supported by in-built controls. This guarantees timely financial reporting. The audit system periodically reviews the control mechanism and legal, regulatory and environmental compliances.

The internal audit team also checks the effectiveness of internal controls and initiates necessary changes arising out of inadequacies, if any. All financial and audit controls are further reviewed by the Audit Committee of the Board of Directors.

Risk management

At Vedavaag, the risk strategy is determined by a risk appetite defined for a series of risk criteria. The criteria are based on sectoral circumstances, terrain realities, liquidity available and our earnings target within accepted volatility limits. These criteria provide a reference for our operating divisions.

Our risk management framework encompasses strategy and operations and seeks to proactively identify, address and mitigate existing and emerging risks. The risk management framework goes far beyond traditional boundaries and seeks to involve all our key managers.

The Company has a robust risk management framework to identify and mitigate risks arising out of internal as well as external factors. There is a formal monitoring process at unit and company level, wherein new risks are identified, categorised as per impact and probability, mapped to key responsibilities of select managers and managed with appropriate mitigation plan.

To ensure transparency and critical assessment, we have a Risk Management Committee that coordinates the risk management system. The risk management framework is reviewed annually by the Audit Committee on behalf of the Board.

Cautionary statement

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward looking statements within the meaning of applicable Securities Laws and Regulations.

Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual results could differ materially from those expressed in the statements or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent development, information or events.