Wisec Global Ltd Management Discussions

OVERVIEW:

This report is an integral part of the Boards Report and covers management perspective on economic environment, industrial scenario, business performance, opportunities, threats, risks & concern, internal control etc. during the Financial Year 2023-2024. This should be read in conjunction with the Companys Financial Statements, the schedules and notes thereto and other information included elsewhere in the Annual Report.

Over the past few years, the Company has not generated any revenue from the IT industry. This trend has prompted a thorough evaluation of our business operations, market opportunities, and strategic direction. After careful consideration, the management has proposed a change in the main object clause of the Company.

Rationale for Change:

Revenue Trends: The Company has not experienced revenue generation from the IT industry for several consecutive years. This has necessitated a reassessment of our business focus and operational priorities.

Market Dynamics: The IT industry has undergone significant changes, with increased competition and evolving technology landscapes. Our current business model and offerings have not aligned with these changes, impacting our ability to generate revenue.

Strategic Realignment: To ensure sustainable growth and profitability, the Company aims to realign its strategic focus towards industries and sectors where we can leverage our strengths, resources, and capabilities more effectively.

Future Outlook:

The proposed change in the main object clause is a strategic move aimed at revitalizing the Companys growth trajectory. By diversifying our business operations and exploring new market opportunities, we aim to achieve the following:

Revenue Growth: Establish new revenue streams by entering industries with robust demand and growth potential.

Market Position: Enhance our market position by offering diversified products and services that cater to a broader customer base.

Long-term Sustainability: Ensure long-term sustainability and profitability through strategic investments and innovation.

The Company remains committed to creating value for its stakeholders. The proposed change in the main object clause is a proactive measure to adapt to market conditions, leverage new opportunities, and drive sustainable growth. We will continue to engage with our stakeholders, keeping them informed of our strategic initiatives and progress.

In conclusion, the decision to change the main object clause reflects our commitment to realigning our business focus, driving innovation, and achieving long-term growth. The management is confident that this strategic shift will position the Company for future success and enhanced shareholder value.

INDUSTRY OVERVIEW:

Global technology spending grew at a slower pace of 4.4% year-over-year in the calendar year ended December 31,2023, with enterprise software and IT services being the primary drivers of growth and degrowth seen in hardware and devices according to the Strategic Review 2024 published by NASSCOM (the NASSCOM Report). Digital transformation and infrastructure modernization continue to be a global priority, with a particular focus on cloud and cybersecurity. We expect that increased interest and adoption of technologies such as automation, intelligent applications, and AI including responsible AI, GenAI-enabled virtual assistants, Edge computing, 5G, and industrial IoT will create opportunities for the services industry.

Global IT service providers are equipped to support enterprises across various industries to overcome the current challenges, with a wide range of offerings for digital transformation cutting across consulting, application development, maintenance and support, R&D, technology infrastructure and business process services. We expect the IT services industry to accelerate and drive decisions in fiscal year 2025 based on investments made by clients in key areas such as AI, GenAI implementation, cost optimization, operational excellence, digital transformation, vendor consolidation, productivity improvement, customer experience programs, innovation in products and services, talent management, future of workplace and workforce, and ESG initiatives.

According to the NASSCOM Report, revenue for the Indian IT servicessector is expected to witness growth of 2% year-over-year in fiscal year 2024, led by infrastructure management and networking services in distributed environments, cloud-based software testing services, and consulting services. It is expected that there will be an increase in foundational spend across cloud, IT modernization, digital customer experience, and digital engineering projects. According to the NASSCOM Report, AI-related activities have witnessed a significant uptick with 2.7x growth in activities related to industry collaborations and partnerships, product/service launches and enterprise GenAI strategies. We expect that GenAI will be a key priority for IT service providers, with the legal and regulatory landscape expected to evolve rapidly, setting the stage for greater adoption in the second half of calendar year 2024 and into 2025. Governments across the world are expected to implement regulations which prioritize data protection, breach detection and containment, and responsible use of AI.

The NASSCOM Report estimates that the engineering services (ER&D) will grow at 7.4% year-over-year. With digital imperatives and the resurgence of AI, ER&D maintains its concentration on digital engineering, leading to development of new products and service categories. Data analytics capabilities are enabling constant reinvention of services and aiding the launch of personalized products. Digital testing, virtual twins and increasing reliance on software and coding have led to reduced costs and accelerated timelines for R&D and entering the market.

Enterprises continue to prioritize cost takeout and operational excellence initiatives, with spending expected to gradually improve in fiscal year 2025. Enterprises are also prioritizing sustainability and resilience, aiming to globalise their operations to take advantage of cost arbitrage, greater access to talent, and faster innovation. The Financial Services, Hi-Tech and Telecom sectors continue to be soft with the Healthcare and Automotive sectors being bright spots. Consumer goods and Manufacturing sector clients are investing cautiously due to cost takeouts and weak consumer spending.

We believe focus on ESG parameters is now a key business imperative driving innovation, efficiency and lowering risks. Enterprises expect providers to not only meet the global standards on ESG, but also help them make progress on their ESG goals across key focuses such as climate change, diversity and inclusion, corporate governance and cybersecurity.

ECONOMIC ENVIRONMENT:

Despite the macroeconomic challenges through the year, the technology/IT Services industry

stayed resilient as large-scale cost optimization and automation deals helped maintain demand for enterprise software and IT services. Global tech spending increased at a lower rate in CY2023, at 4.4% Y-o-Y, mainly because of decline in hardware and devices. The growth was mainly led by enterprise software and IT services spend, which grew almost 1.1x the total tech spending. In the midst of significant business caution towards investments and delayed decision-making, Indias technology industry revenue (including hardware) is still expected to hit USD 254 Billion (3.8% Y-o-Y growth) in FY24, representing an addition of over USD 9 Billion over last year. Exports are poised to touch the USD 200 Billion mark, growing at 3.3% Y-o-Y, while the domestic technology is expected to cross USD 54 Billion, growing at 5.9% Y-o-Y.

The tough market conditions have necessitated a strong focus on cost efficiency and employee utilization, resulting in the total employee base for the industry growing 1.1% (adding 60,000 employees and taking the total employee base to 5.43 Million).

Key growth markets have been Europe & Asia Pacific amongst the geographies, and Manufacturing, Retail and Healthcare among the industry verticals. India continues to be one of the major economies with the highest growth rates in the world, supported by soli macroeconomic fundamentals. The growth momentum is strong because of strong domestic consumption, high public capital expenditure, a recent rise in private investment, and robust exports of services. However, there are potential risks to external demand from the spillover effects of lower global trade, tighter global financial conditions, increasing geopolitical conflicts and fragmentation.

On the domestic side, the El Nino conditions could pose a challenge to agricultural output and food price. The inclusion of Indian government securities in the JP Morgan Global Bond Index - Emerging Markets from June 2024 will bode well for the outlook for capital flows to India. The domestic financial system is sound and is enhanced by the improving health of financial institutions.

OPPORTUNITIES:

In 2023, Generative AI (GenAI) and ChatGPT sparked a global revolution, with the AI Software & Services market now valued at approximately $100 billion. Indian tech giants and mid-scale players are investing in GenAI solutions, positioning India as a top-5 nation in AI talent. The IT services sector is expected to grow by 2% in FY-2025, as per NASSCOM estimates. This growth is driven by increased demand for infrastructure management, networking services, cloud-based software testing, and consulting services.

The Engineering Research & Development (ER&D) segment is projected to expand at 7.4%, emphasizing digital engineering.

THREATS:

The Company has not experienced revenue generation from the IT industry for several consecutive years. This has necessitated a reassessment of our business focus and operational priorities. The IT industry has undergone significant changes, with increased competition and evolving technology landscapes. Our current business model and offerings have not aligned with these changes, impacting our ability to generate revenue.

FINANCIAL PERFORMANCE:

The Financial Statements for the year ended 31st March, 2024, have been prepared in accordance with the Companies (Indian Accounting Standards) Rule, 2015 (Ind AS) prescribed under section 133 of the Companies Act, 2013 and other recognized accounting practices and policies to the extent applicable.

For the financial year ended 31st March, 2024, revenue at as level stood at Nil.

OUTLOOK:

Global productivity will get a boost from technological progress, but policies that improve the quality of growth are necessary to restore global dynamism and balance the effects among income groups. Specifically, the focus needs to be on appropriate fiscal and monetary policies, improving educational outcomes, ensuring the economy is resilient to future economic shocks, while also ensuring inflow of investments to support green transitions.

RISK & CONCERNS:

Indias information technology (IT) services sector revenue growth is expected to decline by 700-900 basis points (bps) to 10-12 per cent in the financial year of 2023-24 amid global macroeconomic and financial sector headwinds in key markets, according to a report released by CRISIL Ratings Friday.

The sectors revenue will witness a growth of 18-20 per cent this year, accentuated by a sharp depreciation of 7-8 per cent of the Indian rupee, the rating agency said. The sectors revenue was around 19 per cent in the financial year 2022, the highest in eight years up till then.

However, CRISIL said, healthy growth in cost-optimisation deals, along with strong digital solutions, cloud, and automation capabilities, and a wide range of offerings will support the demand scenario.

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY:

In keeping with the size and nature of its business and complexity of its operations, commensurate internal control procedures are implemented by the Company. The guidelines are set by the Audit Committee Members and Board of Directors who are responsible for the internal control system. They carry out periodic reviews of the internal audit plan, verify the adequacy of the control system, marks its audit observations, and monitors the sustainability of the remedial measures.

Observations made in internal audit reports on business processes, systems, procedures and internal controls and implementation status of recommended remedial measures by the Internal Auditors, are presented half yearly to the Audit Committee.

The Companys internal control system is designed to ensure management efficiency, measurability and verifiability, reliability of accounting and management information, compliance with all applicable laws and regulations, and the protection of the Companys assets. This is to timely identify and manage the Companys operational, compliance-related, economic and financial risks.

RESEARCH & DEVELOPMENT:

During the financial year 2023-24, the Company did not allocate any funds towards Research and Development (R&D). This decision was influenced by several strategic considerations, including a focus on optimizing current product lines, improving operational efficiencies, and managing financial resources prudently in response to market conditions. In conclusion, while FY 2023-24 saw a temporary pause in R&D spending, the Company is dedicated to resuming and intensifying its R&D efforts to ensure continued innovation and market leadership in the future. Given the economic uncertainties and market volatility, the Company adopted a cautious approach to financial management. This included a temporary reallocation of resources from R&D to other critical areas to maintain financial stability and liquidity. The Company prioritized streamlining existing operations and enhancing the efficiency of current processes. This approach aimed to ensure optimal performance and cost-effectiveness in our core business activities.

While there were no expenditures on R&D in FY 2023-24, the Company remains committed to innovation and technological advancement. Plans are in place to resume and potentially increase R&D activities in the coming financial years. The Company is actively exploring partnerships, collaborations, and strategic initiatives to enhance its R&D capabilities and ensure sustained growth and competitiveness.

HUMAN RESOURCES DEVELOPMENT:

Human Resource is Companys greatest asset and your Company believe that in the roadmap for building the future, employee involvement is crucial to be continually creative and drive organizational excellence. The organizational excellence depends on the quality of people employed. Therefore, your Company focus on the culture of recognition, innovation in technology, engagement of right people for the right job and process improvements. Your companys ethics, principles and ideals have fostered a positive work culture among the employees across all its plants and offices.

The employees are treated with respect and dignity at all times and senior management is easily accessible for counseling and redressal of grievances.

KEY FINANCIAL RATIOS:

The Key Financial Ratios for FY 2023-2024 and FY 2022-2023, along with explanation for significant changes (change of 25% or more) are as follows:

CAUTIONARY STATEMENT:

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the

Companys operations include, among others, downtrend in the industry, economic conditions affecting demand/supply and price conditions in the domestic market in which the Company operates, changes in political and economic environment in India, changes in the Government regulations, tax laws and other statutes, litigations and incidental factors.