OVERVIEW
Xchanging Solutions Limited was incorporated on February 1, 2002 with
operations in India, and an international presence established through subsidiaries in
several countries.
DXC Technology Company, ultimate holding company, is listed on New York
Stock Exchange, and through its indirect subsidiaries Xchanging (Mauritius) Limited,
Xchanging Technology Services India Private Limited & DXC Technology India Private
Limited, owns 75% of the outstanding share capital of the Company.
INDUSTRY STRUCTURE, OUTLOOK AND DEVELOPMENTS:
FY 2023 has started with signs of moderation - with worldwide growth
expected at 2.9%. Even as the global economic climate will continue to remain uncertain,
volatility and business resilience will co-exist and that will define the No Normal
world that we embark on. Globally, enterprises are likely to see headwinds - demand
contraction in some markets, and this uncertainty may result in delayed decision-making.
Nasscoms Annual CXO Outlook Survey 2023, indicates that while
enterprises digital transformation remains core strategic priority for 2023, cost takeout
and optimization requirements are also in demand given the macro environment.
Cybersecurity, cloud, AI and analytics continue to be the main focus but with more
integrated use cases and higher value realization. Hyper-automation and virtual
experiences are new themes, driving optimization and new business growth. End-user
enterprises are demanding greater domain specialization as also purpose-driven
partnerships from their technology partners.
As such, for technology providers, CY 2023 is expected to be a year of
rationalization (improving utilization & lower attrition), as they consolidate and
strengthen current expertise, while making early moves into new business opportunities.
The growth areas of technology segments will continue to focus on digital CX,
digitization, cloudification, building SaaS-enabled products, cybersecurity and
platformization - digital components that are increasingly being built into all deals,
partnerships and M&As.
OPPORTUNITIES
Indias technology sector, which showed remarkable resilience in
FY2021, the year impacted by COVID-19 virus, followed up with a strong resurgence in
FY2022 and continues to move forward in FY2023. Nasscom estimates that Indias technology
revenue is set to grow 8.4% in FY2023 - from $226 Bn in FY2022 to $245 Bn (including IT
services, BPM, software products, ER&D and hardware). eCommerce industry is growing
and is expected to see a 40% y-o-y growth to reach $110 Bn in FY2023, from $79 Bn in
FY2022.
Overall, the direct employment is expected to be nearly 5.4 Mn people,
which reflects a net addition of 290,000 people over FY2022. Digital revenue, at $73-77
Bn, is estimated to be 32-34% share of total industry revenue, a 16% annual growth.
Indian technology exports are likely to cross $190 Bn (incl. hardware),
a growth of 9.4% and an addition of $17 Bn over FY2022. ER&D at 11.1%, Software
products at 9.1%, BPM at 9.0% and IT services at 8.9%, are driving growth.
The Indian IT services revenue is expected to see a y-o-y growth of
8.3% in FY2023. Since FY2019 (pre-pandemic), the total revenue of IT services has grown
~1.4X.
Organizations are rethinking IT infrastructure priorities amidst
rapidly changing business needs. The demand remains strong for simplifying complex
structures and increasing speed across the entire enterprise technology stack.
Pre-pandemic, the spend on modernization was 15-20% of the digital contract value. In
FY2023, this has more than doubled to 35-40%.
The key driver for the growth of IT services in the last couple of
years has been IT Modernization, that includes Application Modernization, Cloud Migration,
and Platformization.
(SOURCE: Nasscom Strategic review 2023)
THREATS:
1. Adverse movement of foreign currencies could impact realizations and
margins.
2. Legislations/Measures enacted by External Countries Governments
would have an adverse impact on the IT Workforce and consequently on operations.
3. Attrition levels in the IT Sector, though they are showing a
tapering trend, albeit still remain a concern.
RISKS AND CONCERNS
The Company analyse the nature and extent of risks and consider their
likelihood of occurrence and impact; both on an inherent and residual basis, after taking
into account mitigating and compensating controls. This allows us to determine how we
should manage each risk in order to achieve our strategic objectives.
HOW WE MANAGE RISK
In managing risk we analyse the nature and extent of risks and consider
their likelihood and impact, both on an inherent and a residual basis, after taking
account of mitigating controls. This allows us to determine how we should manage each risk
in order to achieve our strategic objectives.
• Strategic risks reflect the potential for a significant
strategic action or a failure to react to developing trends in the market, to have a
financial impact on the economic value of our business.
• Commercial risks reflect the potential to enter into a critical
contract or commercial arrangement which may have an adverse impact on the business.
• Operational risks reflect the potential for the failure of a
critical process or procedure to have an adverse impact on the business.
OVERVIEW OF RISK MANAGEMENT PROCESS
| STRATEGIC RISKS |
|
| Risk |
Mitigating Actions |
| Failure to utilise and exploit technology enablement for
growth |
The rapidly changing nature and impact of technology means
that we need to respond to technology trends. Injecting technology enablement into our
services and products is core to our growth strategy as we continue to: |
|
• Develop innovative value adding customer solutions. |
|
• Utilise our skilled knowledgeable resources. |
|
• Review our existing services and products to ensure
that they meet our customers requirements. |
| Failure to secure new business from both new and existing
customers |
There are number of significant changes in the sectors we
operate in and the current economic environment results in pressure on our customers.
Failure to secure new business could slow down the growth of the business. Successfully
winning new business is managed by: |
|
• Ensuring utilisation of our technology capabilities
and competitive low cost offshore services. |
|
• Clearly defined offerings and sales strategies that
help us to attract customers. |
|
• Continual development of the unified sales strategy
which enables selling across business sectors. |
|
• Effective performance of sales team. |
| COMMERCIAL RISKS |
|
| Risk |
Mitigating Actions |
| We have a concentration of material contracts with customers
in key markets, which may have a significant impact on the Groups performance. |
Our commercial risks continue to be well managed through
legal review, delegated authorities and contract monitoring processes. |
|
We have a structured service management programme, with
dedicated account managers who work closely with our customers utilising performance
metrics in order to identify issues early and trigger corrective actions. |
| OPERATIONAL RISKS |
|
| Risk |
Mitigating Actions |
| Our reputation and ultimately our profitability are reliant
on successful implementation and delivery of new contracts. |
We ensure successful implementation in the following ways: |
|
• Detailed implementation and delivery plans with strong
management control and oversight. |
|
• Use of experienced employees with strong project,
change and people management skills in order to ensure successful implementation. |
|
• Standardised procedures in use for the implementation
and delivery of new contracts. |
| Our customers demand eficient processing and high levels of
service to help them achieve their objectives and protect their reputation. |
Failure to meet our customers expectations and contractual
commitments would have a significant impact upon our reputation and protability and could
result in unexpected and costly litigation. |
|
We consistently work towards ensuring that our service levels
are on target ensuring that we meet our customer requirements. |
|
Mitigating actions include: |
|
• Consistently ensuring that our service levels are on
target. |
|
• Optimising our cost of delivery through
standardisation and simplification. |
|
• Ongoing contract management. |
|
• Building on existing customer relations. |
| Continuing to retain our key personnel and recruit new
talented individuals is fundamental to our success. Our intellectual property is one of
our key assets. |
We have an established structure for employee performance and
development monitoring. |
|
• A clear recruitment strategy and graduate recruitment
and development programme attracts high-potential employees. |
|
• Significant investment in leadership training
programmes underpins our succession plans and develops our employees. |
| FINANCIAL RISKS |
|
| Risk |
Mitigating Actions |
| The Groups financial results may be subject to volatility
arising from movements in interest rates, foreign exchange rates, liquidity and changes in
taxation legislation, policy or tax rates |
We continue to manage our financial risks through our
established budgeting, forecasting and working capital and treasury controls. This reduces
the volatility of our financial results, giving the Board greater medium-term visibility |
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Compliance Certification from CEO and CFO provided in Annual Report
confirms the adequacy of our internal control system and procedures.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL
PERFORMANCE: A. OVERVIEW
The financial statements of the Company have been prepared in
accordance with the Indian Accounting Standards (Ind AS) and comply with the Accounting
Standards specified under Section 133 of the Companies Act, 2013, read with rule 7 of the
Companies (Accounts) Rules, 2014.
B. RESULTS OF OPERATIONS
1. Review of Operations
During the financial year ended March 31, 2023, the consolidated
revenue of the Company was Rs 17,442 Lakhs against Rs 17,427 Lakhs during the previous
year ended March 31, 2022. Other income of the Company for the current year was Rs 1,070
Lakhs against Rs. 857 Lakhs in the previous year.
The company has only one primary segment viz, Information Technology
(IT) services and accordingly the financials relate to this segment.
2. Performance
The table below summarizes the consolidated financial performance
during the year:
| Particulars |
For the Financial year ended March 31, 2023 |
For the Financial year ended March 31, 2022 |
| Total Income |
18,512 |
18,284 |
| Total Expenditure |
12,552 |
12,197 |
| Profit before Finance Costs, Depreciation and Tax |
6,031 |
6,194 |
| Depreciation & Amortization |
61 |
91 |
| Finance Costs |
10 |
16 |
| Profit / (Loss) before Tax |
5,960 |
6,087 |
| Income Tax (including deferred tax) |
1,470 |
830 |
| Net Profit / (Loss) after Tax |
4,490 |
5,257 |
| Other Comprehensive Income/(Expenditure) |
1,787 |
519 |
| Total Comprehensive Income/(Expenditure) |
6,277 |
5,776 |
| Earnings / (Loss) per share Rs. |
4.03 |
4.72 |
3. Geographic Profile
| Geography |
March 31, 2023 |
March 31, 2022 |
|
Revenue |
% |
Revenue |
% |
| Europe |
162 |
1% |
337 |
2% |
| USA |
13,974 |
80% |
11,012 |
63% |
| India |
1,181 |
7% |
1,153 |
7% |
| Singapore |
1,846 |
11% |
4,700 |
27% |
| Rest of the World |
279 |
2% |
225 |
1% |
| Total |
17,442 |
100% |
17,427 |
100% |
4. Capital Markets
The Capital Market Information relating to the companys shares such as
stock exchanges in which they are listed/traded, trading volume, stock price movements
etc., has been provided in the Report on Corporate Governance (under the heading
"General Shareholder Information") which forms part of the Annual Report
2022-2023.
5. Key Financial Ratios
The following are analytical ratios for the year ended March 31, 2023
and March 31, 2022
| Particulars |
|
Standalone |
Reason for variance beyond 25% |
|
March 31, 2023 |
March 31, 2022 |
Variance |
|
| Current ratio |
6.35 |
5.83 |
9% |
Current Assets / Current Liabilities |
| Debt-equity ratio |
0.00 |
0.01 |
-26% |
Total borrowings Including lease liabilities / Shareholders
equity |
| Debt service coverage ratio |
13.53 |
12.69 |
7% |
EBITDA / (Total Borrowings including lease liabilities +
Interest expense) |
| Return on equity ratio |
0.05 |
0.09 |
-40% |
Profit after tax / Average Shareholders equity Product
Revenue / Inventory |
| Inventory turnover ratio |
NA |
NA |
- |
|
| Trade receivable turnover ratio |
10.89 |
8.63 |
26% |
Total Revenue / Trade Receivables |
| Trade payable turnover ratio |
6.20 |
6.03 |
3% |
Total expenses excluding depreciation and finance cost /
Trade payables |
| Net capital turnover ratio |
0.20 |
0.24 |
-17% |
Total Revenue / (Current assets - current liabilities
excluding borrowings & lease liability) |
| Net profit ratio |
0.39 |
0.51 |
-24% |
Profit after tax / Total Revenue |
| Return on capital employed |
0.07 |
0.08 |
-22% |
Earnings before interest and tax / (Total assets - current
liabilities excluding borrowings & lease liability) |
| Return on investment |
0.07 |
0.09 |
-22% |
Earnings before interest and tax / (Total Borrowings
including lease liabilities + Shareholders Equity) |
Reason for variation beyond 25%
| Debt-equity ratio |
Mainly due to reduction in lease liability and increase in
shareholders equity on account of total Comprehensive Income for the period |
| Return on equity ratio |
Mainly due to lower profit for the period and increase in
average Shareholders equity |
| Trade receivable turnover ratio |
Change in ratio is due to movement in net debtors and
turnover balances in the current year |
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES AND EMPLOYEE RELATIONS
Developing Talent
Managing human resources effectively and efficiently plays a critical
role in ensuring that a satisfied, motivated work force delivers quality services. It also
plays an important role in increasing staff performance and productivity, enhancing an
organizations competitive advantage, and contributing directly to the organizational
goals. Satisfied, highly-motivated and loyal employees represent the basis of competitive
company. The growth of satisfaction is to be reflected in the increase of productivity,
improvement of the products quality or rendered services and higher number of
innovations.
The Company is highly employee oriented, and the focus is on the
development of employees.
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