Virinchi Ltd Management Discussions

GLOBAL ECONOMY

Overview

Global economic growth declined from 3.5% in 2022 to an estimated 3.1% in 2023. A disproportionate share of global growth in FY 2023-24 is expected to come from Asia, despite the weaker-than-expected recovery in China, sustained weakness in USA, higher energy costs in Europe, weak global consumer sentiment on account of the Ukraine-Russia war and the Red Sea crisis resulting in higher logistics costs. A tightening monetary policy translated into increased policy rates and interest rates for new loans.

Growth in advanced economies is expected to slow from 2.6% in 2022 to 1.5% in 2023 and 1.4% in 2024 as policy tightening takes effect.

Emerging market and developing economies are projected to report a modest growth decline from 4.1% in 2022 to 4.0% in 2023 and 2024. Global inflation is expected to decline steadily from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024, due to a tighter monetary policy aided by relatively lower international commodity prices. Core inflation decline is expected to be more gradual; inflation is not expected to return to target until 2025 in most cases. The US Federal Reserve approved a much-anticipated interest rate hike that took the benchmark borrowing costs to their highest in more than 22 years.

Global trade in goods was expected to have declined nearly USD 2

Trillion in 2023; trade in services was expected to have expanded USD 500 Billion. The cost of Brent crude oil averaged USD 83 per barrel in 2023, down from USD 101 per barrel in 2022, with crude oil from Russia finding destinations outside the European Union and global crude oil demand falling short of expectations.

Global equity markets ended 2023 on a high note, with major global equity benchmarks delivering double-digit returns. This outperformance was led by a decline in global inflation, slide in the dollar index, declining crude and higher expectations of rate cuts by the US Fed and other Central banks.

Regional growth (%)	2023	2022
World output	3.1	3.5
Advanced economies	1.69	2.5
Emerging and developing economies	4.1	3.8

(Source: UNCTAD, IMF)

Performance of major economies, 2023

United States: Reported GDP growth of 2.5% in 2023 compared to 1.9% in 2022

China: GDP growth was 5.2% in 2023 compared to 3% in 2022

United Kingdom: GDP grew by 0.4% in 2023 compared to 4.3% in 2022

Japan: GDP grew 1.9% in 2023 unchanged from a preliminary 1.9% in 2022

Germany: GDP contracted by 0.3% in 2023 compared to 1.8% in 2022

(Source: PWC report, EY report, IMF data, OECD data, Livemint)

Outlook

Asia is expected to continue to account for the bulk of global growth

in 2024-25. Inflation is expected to ease gradually as cost pressures moderate; headline inflation in G20 countries is expected to decline. The global economy has demonstrated resilience amid high inflation and monetary tightening, growth around previous levels for the next two years

(Source: World Bank).

Overview

The Indian economy was estimated to grow 7.8% in the FY 2023-24 fiscal against 7.2% in FY 2022-23. India retained its position as the fifth largest economy. The Indian rupee has demonstrated resilience compared to the preceding year, outperforming many other Asian currencies. Since April 2023, it has experienced a 0.6% depreciation against the dollar, indicating its relative stability. This resilience is underpinned by the robust growth anticipated for the Indian economy, expected to reach 7.6% during the fiscal year 2023-2024 according to government projections. The rupees stability is strengthened by the countrys surplus in balance of payments.

In the 11 months of FY 2023-24, the CPI inflation averaged 5.4% with rural inflation exceeding urban inflation. Lower production and erratic weather led to a spike in food inflation. In contrast, core inflation averaged at 4.5%, a sharp decline from 6.2% in FY 2022-23. The softening of global commodity prices led to a moderation in core inflation.

The nations foreign exchange reserves surged to a record high of USD 645.6 Billion as of March 2024 surpassing the previous high of USD 642.49 Billion recorded in March 2023. The credit quality of Indian companies remained strong between October 2023 and March 2024 following deleveraged Balance Sheets, sustained domestic demand and government-led capital expenditure. Rating upgrades continued to surpass rating downgrades in H2 FY 2023-24. UPI transactions in India posted a record 56% rise in volume and 43% rise in value in FY 2023-24.

Growth of the Indian economy
	FY 21	FY 22	FY 23	FY 24
Real GDP growth (%)	-6.6%	8.7	7.2	8.2
Growth of the Indian economy quarter by quarter, FY 2023-24
	Q1 FY 24	Q2 FY 24	Q3 FY 24	Q4 FY 24E
Real GDP growth (%)	8.2	8.1	8.4	7.8

(Source: Budget FY 2023-24; Economy Projections, RBI projections, Deccan Herald)

Indias monsoon in 2023 hit a five- year low, with August marking the driest month in a century. Despite receiving only 94% of its longterm average rainfall from June to September, wheat production estimatedly recorded 114 Million tonnes in the 2023-24 crop year due to higher coverage. Rice production was anticipated to decrease to reach 106 Million metric tons (MMT) in comparison to 132 Million metric tonnes in the previous year. Total kharif pulses produced in 2023-24 stood at an estimated 71.18 Lakh metric tonnes, which is lower than FY 2022-23 due to climatic conditions.

As per the first advance estimates of national income released by the National Statistical Office (NSO), the manufacturing sector output is projected to have grown 6.5% in FY 2023-24 compared to 1.3% in FY 2022-23. The Indian mining sector experienced an estimated growth of 8.1% in FY 2023-24 compared to 4.1% in FY 2022-23. Financial services, real estate and professional servicesgrew a projected 8.9% in FY 2023-24 compared to 7.1% in FY 2022-23.

Real GDP or GDP at constant prices increased from to Rs. 160.71 Lakh Crore in FY 2022-23 (provisional GDP estimate released on May 31, 2023) to an estimated Rs. 173.82 Lakh Crore in FY 2023-24. Growth in real GDP during FY 2023-24 stood at 8.2% compared to 7.2% in FY 2022-23. Nominal GDP or GDP at current prices was estimated at Rs. 295.36 Lakh Crore in FY 202324 as compared to the provisional FY 2022-23 GDP estimate of Rs. 269.50 Lakh Crore. The gross nonperforming asset ratio for scheduled commercial banks improved from 4.1% as of March 2023 to 2.8% as of March 2024.

Indias exports of goods and services were expected touch USD 900 Billion in FY 2023-24 compared to USD 770 Billion in the previous year despite global headwinds. Merchandise exports were expected to expand between USD 495 Billion and USD 500 Billion, while services exports were expected to touch USD 400 Billion during the year. Indias net direct tax collection increased 17.7% to Rs. 19.58 Lakh Crore in FY 2023-24. Gross GST collection amounted to Rs. 20.2 Lakh Crore, marking an 11.7% increase, with an average monthly collection of Rs. 1,68,000 Crore, surpassing the previous years average of Rs. 1,50,000 Crore.

The agriculture sector was expected to see a growth of 1.8% in FY 202324, lower than the 4% expansion recorded in FY 2022-23. Trade, hotel, transport, communication and services related to broadcasting segment are estimated to grow at 6.3% in FY 2023-24, a contraction from 14% in FY 2022-23. The Indian automobile segment was expected to close FY 2023-24 with a growth of 6-9%, despite global supply chain disruptions and rising ownership costs.

The construction sector was expected to grow 10.7% year-on-year from 10% in 2022-23. Public administration, defence and other services were estimated to grow by 7.7% in FY 202324 compared to 7.2% in FY 2022-23. The growth in gross value added (GVA) at basic prices was pegged at 6.9%, down from 7% in FY 2022-23.

India reached a pivotal phase in its S-curve, characterised by acceleration in urbanisation, industrialisation, household incomes and energy consumption. India emerged as the fifth largest economy with a GDP of USD 3.6 Trillion and nominal per capita income of Rs. 1,23,945 in FY 2023-24.

Indias Nifty 50 index grew 30% in FY 2023-24 and Indias stock market emerged as the worlds fourth largest with a market capitalisation of USD 4 Trillion. Foreign investment in Indian government bonds jumped in the last three months of 2023. India was ranked 63 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Indias unemployment declined to a low of 3.2% in 2023 from 6.1% in 2018.

Outlook

India withstood global headwinds in 2023 and is likely to remain the worlds fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass USD 4 Trillion in FY 2024-25.

Union Budget FY 2024-25

The Interim Union Budget2024- 25 retained its focus on capital expenditure spending, comprising investments in infrastructure, solar energy, tourism, medical ecosystem and technology. In FY 2024-25, the top 13 ministries in terms of allocations accounted for 54% of the estimated total expenditure. Of these, the Ministry of Defence reported the highest allocation at Rs. 6,21,541 Crore, accounting for 13% of the total budgeted expenditure of the central government. Other ministries with high allocation included Road transport and highways (5.8%), Railways (5.4%) and Consumer Affairs, food and public distribution (4.5%).

(Source: Times News Network, Economic Times, Business Standard, Times of India, The Hindu Businessline, fxstreet.com)

GLOBAL IT INDUSTRY REVIEW ^

The information technology market size has grown strongly in recent years. It is expected to grow from USD 8,508.63 Billion in 2023 to USD 9,039 Billion in 2024 at a CAGR of 6.2%. The information technology market size is expected to grow to USD 12,417.21 Billion by 2028 at a CAGR of 8.3%.

The growth in the forecast period can be attributed to globalisation of its services, digital transformation, cybersecurity innovations, smart cities development and e-commerce evolution. Major trends during the forecast period include hybrid work environment, cloud computing, climate tech solutions, AI business processes, sustainable it practices and blockchain technologies.

The United States IT services market size is estimated at USD 461.03 Billion in 2024 and is anticipated to reach USD 630.76 Billion by 2029, growing at a CAGR of 6.47%. While the IT services market in China is expected to reach USD 78.03 Billion in 2024.

Worldwide IT spending is expected to reach USD 5.06 Trillion in 2024, an increase of 8% from 2023. In 2024, global data generated to 147 zettabytes, marking a 22.5% increase from the previous year. The installed base of storage capacity worldwide is expected to grow 16.6% this year to reach 6.8 zettabytes.

(Source: gartner.com,thebusinessresearchcompany.com,explodingtopics.com)

Global IT spending (in USD Billion)

	2023 spending	2023 growth (%)	2024 spending	2024 growth (%)
Data center systems	2,36,179	4.0	2,59,680	10.0
Devices	6,64,208	-9.1	6,87,943	3.6
Software	9,14,689	12.6	1,042,174	13.9
IT Services	1,385,120	6.1	1,519,928	9.7
Communication services	1,487,161	3.3	1,551,288	4.3
Overall IT	4,687,177	3.8	5,061,013	8.0

(Source: gartner.com)

Virinchis service offering

The Company is a prominent leader in providing IT solutions for retail micro-lending in the USA. Over time, it has delivered comprehensive solutions in business analytics, artificial intelligence and enterprise mobility. The Company manages complete projects for diverse US clients in healthcare and financial technology sectors. It has expanded its presence in IT-enabled healthcare delivery in recent years. Virinchi Hospitals stands out with its unique approach to patient care, emphasising modern flexibility to ensure a consistent patient-doctor experience.

INDIAN HEALTHCARE INDUSTRY REVIEW

Healthcare ranks among one of Indias largest sectors, encompassing hospitals, medical devices, clinical trials, outsourcing, telemedicine, medical tourism, health insurance, and medical equipment. The sector is gaining momentum with expanded coverage, improved services, and increased investment from both public and private entities.

The Indian healthcare industry continued its healthy growth in 2023, reaching a value of USD 372 Billion, driven by both the private sector and the government. In 2024, the Indian healthcare sector is one of the countrys largest employers, employing a total of 7.5 Million people. Indias hospital market was valued at USD 98.98 Billion in 2023 and is expected to grow at a CAGR of

8.0% from 2024 to 2032, reaching an estimated value of USD 193.59 Billion by 2032.

Revenue in the digital health market is projected to reach USD 5.34 Billion in 2024. Revenue is expected to grow at 13.14% CAGR from 2024 to 2029, resulting in a projected market volume of USD 9.90 Billion by 2029.

(Source: ibef.com, statista.com)

GOVERNMENT INITIATIVES

Increased government allocation:

In 2024-25, the budget allocated Rs.90,171 Crore to the health sector, marking an increase from Rs. 79,221 Crore allocated in FY 202324. This large increase shows a strong commitment to improving healthcare infrastructure and services across the country, aiming to address public health challenges and enhance the well-being of citizens.

PMABHIM: The allocation for the Pradhan Mantri Ayushman Bharat Health Infrastructure Mission

(PMABHIM) has seen a significant increase, rising from Rs. 2,100 Crore in FY 2023-24 to Rs. 4,108 Crore in FY 2024-25. This substantial boost highlights the governments enhanced focus on strengthening the countrys health infrastructure, aiming to provide better healthcare services and address the growing health needs of the population.

Ayushman Bharat-PMJAY: The allocation to Ayushman Bharat (PMJAY) has increased from Rs. 7,200cr. in 2023-24 to Rs. 7,500

Crore in 2024-25. This increase demonstrates the governments commitment to expanding and improving the Ayushman Bharat scheme, ensuring that more citizens have access to affordable healthcare services and financial protection against health-related expenses.

PLI scheme: The allocation for the production linked incentive scheme has increased from Rs. 4,645 Crore in FY 2023-24 to Rs. 6,200 Crore in FY 2024-25.

GROWTH DRIVERS OF THE INDIAN HEALTHCARE SECTOR

Population: : Indias population is expected to reach 1.45 Billion in 2024 and is anticipated to peak at 1.69 Billion by 2054. Population growth is expected to drive increased demand in the Indian real estate sector.

Increasing disposable income:

Indias per capita disposable income is expected to reach Rs. 2.14 Lakh in 2023-24. Per capita disposable income grew 8% in FY 2023-24 and 13.3% in the previous year. Gross national disposable income is expected to expand 8.9% in FY 202324 and 14.5% in FY 2022-23. (Source: economictimes.com)

Increasing elderly population: The total estimated target for senior living facilities in 2024 is around 1 Million, projected to increase to 2.5 Million in the next 10 years. In 2024, there are approximately 150 Million elderly individuals in India, a number expected to rise to 230 Million over the next 10-12 years. (Source: Financial express.com)

Medical tourism: The medical tourism industry in India is expected to be valued at Rs. 0.88 Lakh Crore in 2024. It is anticipated to surpass Rs. 4.3 Lakh Crore by 2034. The industry growth in India is expected to develop at a healthy 17.2% CAGR from 2024 to 2034. (Source: medical buyer.co.in)

Robotic process automation: India is poised to lead the global RPA market with the fastest growth rate, projected at 20.8% CAGR. It is expected that 84% of Indian organisations will adopt RPA by 2025.

Growing medical colleges: As of 2024, Indias healthcare landscape includes a total of 706 medical colleges across the country. This extensive network of educational institutions plays a crucial role in training and producing healthcare professionals to meet the nations healthcare needs. In 2024-25, India will see the establishment of 113 new medical colleges, substantially expanding MBBS seats to tackle the countrys shortage of healthcare professionals. (Source: vedantu.com)

Healthcare insurance: The Indian healthcare insurance market is expected to reach USD 82.5 Billion by 2030. The growth of the Indian healthcare insurance market significantly drives the health sector, enhancing accessibility, reducing out-of-pocket expenses, stimulating infrastructure investment, and fostering economic stability through improved financial protection.

Established in 1990 and headquartered in Hyderabad,

India, Virinchi Limited has evolved into a prominent global company specialising in fintech, technology services, and healthcare. The company has grown its expertise in analytics, mobility, and healthcare delivery, operating three hospitals and offering a nationwide healthcare mobility solution. Virinchi Limited has also extended its footprint across North America.

Opportunities

? Governments proactive backing of the healthcare sector

? Implementation of blockchain- as-a-service for decentralised and scalable IT infrastructure

? Increasing migration of IT workloads to private and public clouds by numerous companies

? Embracing ESG-driven clean technologies

? Implementation of stringent cybersecurity measures by companies

? Technology serving as the cornerstone of business operations

Threats

? Rising cyber attacks

? Increasing attrition within the IT industry

? Shortage of semiconductor chips

? Technological obsolescence

RISK MANAGEMENT

Customer risk: The company could potentially lose customers because of ineffective services.

Mitigation: The Company is focused to develop a customer-centric business environment. The Company addressed more than 5 Million customers in fintech in the US and more than 20 customers in the IT Services space in FY 2023-24. The Company emerged as a market leader in the fintech space for the retail micro-credit industry.

Competition risk: The entry of new competitors could impact the companys market share.

Mitigation: The company integrated top-rated technologies and upgraded facilities to ensure it provides quality services to patients at an affordable price.

Compliance risk: The company risks facing penalties due to potential non-compliance with regulatory norms.

Mitigation: Virinchi invests in initiatives to enhance employee engagement, fostering ownership and empowerment within the organisation. Additionally, the company stays updated with the latest regulatory and compliance norms.

Employee risk: Failure to maintain a safe work environment could impact employee retention.

Mitigation: The Companys employee strength in IT stood at 463 as on March 31, 2024 while talent retention stood at 92% for FY 2023-24. The Companys employee strength in

Healthcare stood at 500 for FY 202324.

Financing risk: Lack of a safe work environment may affect employee retention.

Mitigation: The Companys net worth stood at Rs. 453.80 Crore and total debt stood at Rs. 199.58 Crore as on March 31, 2024. The Companys gearing stood at 0.44 during FY 202324.

Geographic risk: Relying too heavily on a particular geographic region could negatively impact the companys financial health.

Mitigation: The Company services clients across North America and generated 57.5% of its revenues from exports in FY 2023-24.

Analysis of the Profit & Loss statement

Revenues

Revenues from operations reported a 3.8% decrease from Rs. 311.94 Crore in FY 2022-23 to Rs. 300.03 Crore in FY 2023-24. Other income of the Company accounted for a 1.6% share of the Companys total revenues, reflecting the Companys dependence on core operations.

Expenses

Total expenses of the Company decreased by 7.2% from Rs. 205.71 Crore in FY 2022-23 to Rs. 190.95 Crore in FY 2023-24. Administrative expenses accounting for a 40.4% share of the Companys expenses, decreased by 11.7% from Rs. 87.24 Crore in FY 2022-23 to Rs. 77.05 Crore in FY 2023-24, owing to a decrease in the operational scale of the Company.

Analysis of the Balance Sheet Sources of funds

The capital employed by the Company increased by 8.7% from Rs. 600.85 Crore as on March 31,

2023 to Rs. 653.38 Crore as on March 31, 2024 owing to a Rs. 46.7 Crore increase in net worth and Rs. 5.83 Crore increase in total debt. Return on capital employed, a measurement of returns derived from every rupee invested in the business, increased by 24 basis points from 9.38% in FY 2022-23 to 9.62% in FY 2023-24.

Net worth and details of any change in Return on Net worth compared to the immediately preceding financial year

The net worth of the Company increased by 11.5% from Rs. 40710 Crore as on March 31, 2023 to Rs. 453.80 Crore as on March 31, 2024, owing to an increase in reserves and surplus and increase in equity on account of exercise of ESOPs by employees and exercise of warrants by the promoters. Long-term debt of the Company increased by 25.6% to Rs. 92.08 Crore as on March 31, 2024 due to increase in borrowings for purchase of a property in Jubilee Hills, Hyderabad for setting up internet data centers and city Development Center. Long-term debt-equity ratio of the Company stood at 18% in FY 2022-23 compared to 20.3% in FY 2023- 24. Finance costs of the Company increased by 29.6% from Rs. 33.09 Crore in FY 2022-23 to Rs. 42.90 Crore in FY 2023-24. The Companys interest cover stood at a comfortable 2.65 x in FY 2023-24 (3.32x in FY 2022-23).

Applications of funds

Fixed assets (Net) of the Company increased by 10.6% from Rs. 569.94 Crore as on March 31, 2023 to Rs. 630.32 Crore as on March 31, 2024. Depreciation and amortisation decreased by 4.5% from Rs. 56.07 Crore in FY 2022-23 to Rs. 53.54 Lakh in FY 2023-24.

Investments

Non-current investments, loans and advances and other non-current assets increased by 7.6% from Rs. 10.65 Crore in FY 2022-23 to Rs. 11.46 Crore in FY 2023-24.

Working capital management

Current assets of the Company increased by 1.5% from Rs. 206.04 Crore as on March 31, 2023 to Rs. 209.14 Lakh as on March 31, 2024 owing to the growing scale of business of the Company. The Current and Quick Ratios of the Company stood at 1.52 and 1.47, respectively in 2023-24, compared to 1.81 and 1.74, respectively in 2022-23. Inventories including raw materials, work-in progress and finished goods among others decreased by 21% from Rs. 8.71 Crore as on March 31, 2023 to Rs. 6.88 Crore as on March 31, 2024 owing to a decrease in healthcare operations. Trade receivables increased by 11.9% from Rs. 66.18 Crore as on March 31, 2023 to Rs. 74.04 Crore as on March 31, 2024. All receivables were secured and considered good. The Companys debtors turnover cycle increased to 90.07 days of turnover equivalent in FY 2023-24 compared to 86.63 days in FY 2022-23. Cash and bank balances of the Company decreased by 34.8% from Rs. 30.71 Crore as on March 31, 2023 to Rs. 20.03 Crore as on March 31, 2024.

Key ratios and numbers

Particulars	2023-24	2022-23
EBITDA/Turnover (%)	37.4	34.8
EBITDA/Net interest ratio	2.65	3.32
Debt-equity ratio (x)	0.44	0.48
Return on equity (%)	3.13	3.27
Book value per share (Rs.)	48.30	48.67
Earnings per share (Rs.)	1.43	1.56
Debtors turnover (days)	90.07	86.36
Interest coverage ratio (x)	2.65	3.32
Current ratio (x)	1.52	1.81
Operating profit margin (%)	19.79	17.04
Net profit margin (%)	4.42	4.03

INTERNAL ECOSYSTEMS AND THEIR ADEQUACY

The internal control and risk management system adheres closely to the principles and criteria outlined in the organisations corporate governance code. It is deeply integrated into both the Companys and Groups overall organisational framework, involving coordinated efforts from various personnel in executing their respective roles.

The Board of Directors provides strategic guidance and oversight to the Executive Directors, management, monitoring committees, and support committees. Additionally, the Control and Risk Committee, along with the Audit Department headed by the Board-appointed Statutory Auditors, operates under the supervision of the Board.

The Company places a strong emphasis on its dedicated and motivated employees, viewing them as the foundation of its success. It supports their growth by offering competitive compensation packages and maintaining a nurturing work environment. Recognition of outstanding performance is central to its structured reward and recognition program. Committed to fostering an environment where each individual can thrive, the Company encourages employees to pursue voluntary projects that stimulate learning and innovation, empowering them to achieve their highest potential.

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 statement 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 based on any subsequent developments.