OVERVIEW
Xchanging Solutions Limited (the Company), incorporated on February 1,2002, is an Information Technology (IT) services provider with operations in India and an international presence through subsidiaries in USA and Singapore.
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
The technology industry flourished during the early pandemic years as Companies accelerated their digital transformation efforts. But the industry has hit several speed bumps over the past two years. High inflation, elevated interest rates, and considerable macroeconomic and global uncertainties contributed to a softening of consumer spending, lower product demand, falling market capitalizations, and workforce reductions in 2022. Headwinds continued into 2023, with slight weakening of global tech spending and rising layoffs. But there are now glimmers of hope that a tech comeback may be imminent: Economists have lowered their assessments of recession risk, and analysts are optimistic that the tech sector could return to modest growth in 2024.
The global IT services industry continues to be a highly fragmented one, with even the largest provider having a mid-single digit market share. Unmet revenue expectations have ushered in a new wave of pragmatism where maintaining a healthy profit margin has become pivotal for corporations due to the uncertain macro outlook. Organizations taking a more rational approach are simply shifting the emphasis of ongoing IT projects toward cost control, efficiencies and automation while curtailing IT initiatives with longer RoIs. Global technology spending on Enterprise software and IT services was close to the US$2.3 trillion mark in calendar year 2023, with IT services growing at 6.1% YoY to US$1.4 trillion.
SOURCE: Nasscom, World Economic Outlook, IMF, April 2024 and Deloitte 2024 technology industry outlook OPPORTUNITIES
Nasscom Annual Enterprise & Tech Services CXO Survey 2024 indicates stronger growth momentum for calendar year 2024 with under-stressed sectors of BFSI, telecom, media and entertainment and hi-tech leading digital spending. Gen AI remains a key priority for over 95% of the organisations over the next 6-12 months. For technology providers, financial year 2025 growth expectations look stronger as 79% of the providers expect higher growth compared to last year.
With global and economic uncertainties continuing into 2024, the strategies/recommendations are expected to be focused by the IT segment. But its likely time to refocus on innovation and growth as well.
Angling for a comeback, with help from cloud, AI, and cybersecurity. Enterprise spending on software and IT services particularly artificial intelligence, cloud computing, and cybersecurity technologyis expected to enable the most growth in the tech market over the coming year.
Striking a balance between globalization and self-reliance. The worldwide, interconnected nature of the tech industry heightens the risk of disruptions from geopolitical unrest, supply chain volatility, raw material shortages, and new regulations and policies. Tech Companies to diversify their supply chains and manufacturing and development locations, spreading operations among trusted regions. As governments refine trade policies, tech companies should be agile in adapting their strategies.
Setting the stage for growth with generative AI. The next year is expected to be transitional for generative AI, with tech companies experimenting and finding applications that can drive efficiency and productivity. As generative AI investment and experimentation accelerate in the coming months, the legal and regulatory landscape may evolve rapidly, setting the stage for greater adoption in the second half of 2024 and into 2025.
Reckoning with regulations for the tech industry. Governments around the world are evaluating the impacts that massive tech platforms and social networks have on businesses and consumers. A global minimum tax aims to close loopholes and push corporations to pay more, while new credits and incentives are designed to spur sustainable growth and job creation. With strong collaboration between business, legal, accounting, and finance teams, tech companies can elevate compliance efforts into competitive advantages.
SOURCE: Deloitte 2024 technology industry outlook THREATS:
Cybersecurity threats in the digital world are becoming more prevalent, necessitating a prompt and forceful reaction. There is also a growth in social engineering assaults that try to trick staff members into compromising security. Robust cyber defence techniques are required to counter these threats.
Recent geopolitical crises underscore the risks of over-relying on tech talent in any one location. Companies should consider expanding their workforce in secure regions and taking care that pivotal functions and roles are distributed. They should also look to onshore or self-source critical components and operations to reduce their risks from global disruptions.
Advances in artificial intelligence, notably the emergence of large language models and of generative pretrained transformers, have considerable challenges around data privacy and content use. Another misgiving of AI is that the rapid adoption of generative AI may expose organizations to new attack surfaces and techniques.
Legislations/Measures enacted by External Countries Governments would have an adverse impact on the IT Workforce and consequently on operations. In the coming months, regulations in the European Union and the United States will likely take effect, pushing tech companies to prioritize data protection, harm reduction, the ethical use of AI, and commitment to sustainability goals.
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 COMMERCIAL RISKS Risk We have a concentration of material contracts with customers in key markets, which may have a significant impact on the Groups performance. |
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 dened offerings and sales strategies that help us to attract customers. Continual development of the unfied sales strategy which enables selling across business sectors. Effective performance of sales team. |
Mitigating Actions | |
Our commercial risks continue to be well managed through legal review, delegated authorities and contract monitoring processes. | |
OPERATIONAL RISKS Risk Our reputation and ultimately our profitability are reliant on successful |
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. |
Mitigating Actions | |
We ensure successful implementation in the following ways: | |
implementation and delivery of new contracts. |
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. | |
Our customers demand efficient processing and high levels of service to help them achieve their objectives and protect their reputation. |
Standardised procedures in use for the implementation and delivery of new contracts. |
Failure to meet our customers expectations and contractual commitments would have a significant impact upon our reputation and profitability 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. | |
Continuing to retain our key personnel and recruit new talented individuals are fundamental to our success. Our intellectual property |
Building on existing customer relations. |
We have an established structure for employee performance and development monitoring. | |
is one of our key assets. |
A clear recruitment strategy and graduate recruitment and development programme attracts high-potential |
FINANCIAL RISKS |
|
Risk |
|
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 |
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 31,2024, the consolidated revenue of the Company was Rs 17,442 lakhs against Rs 17,442 Lakhs during the previous year ended March 31,2023. Other income of the Company for the current year was Rs 2,183 Lakhs against Rs 1,070 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:
(Rs. in lakhs)
Particulars |
For the Financial year ended March 31, 2024 | For the Financial year ended March 31, 2023 |
Total Income |
19,625 | 18,512 |
Total Expenditure |
13,007 | 12,552 |
Profit before Finance Costs, Depreciation and Tax |
6,859 | 6,031 |
Depreciation & Amortization |
54 | 61 |
Finance Costs |
187 | 10 |
Profit / (Loss) before Tax |
6,618 | 5,960 |
Income Tax (including deferred tax) |
5,248 | 1,470 |
Net Profit / (Loss) after Tax |
1,370 | 4,490 |
Other Comprehensive Income/(Expenditure) |
-177 | 1,787 |
Total Comprehensive Income/(Expenditure) |
1,193 | 6,277 |
Earnings / (Loss) per share Rs. |
1.23 | 4.03 |
3. Geographic Profile
(Rs. in lakhs)
Geography |
March 31, 2024 |
March 31, 2023 |
||
Revenue | % | Revenue | % | |
Europe | 287 | 1% | 162 | 1% |
USA | 14,053 | 81% | 13,974 | 80% |
India | 1,209 | 7% | 1,181 | 7% |
Singapore | 1,786 | 10% | 1,846 | 11% |
Rest of the World | 107 | 1% | 279 | 2% |
Total |
17,442 | 100% | 17,442 | 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 2023-2024.
5. Key Financial Ratios
The following are analytical ratios for the year ended March 31,2024 and March 31,2023
Particulars |
Standalone |
||
March 31, 2024 | March 31, 2023 | Variance | |
Current ratio |
7.48 | 6.35 | 18% |
Debt-equity ratio |
0.003 | 0.005 | -33% |
Debt service coverage ratio |
370.58 | 13.53 | 2638% |
Return on equity ratio |
1.23 | 0.05 | 2198% |
Debtor turnover ratio |
8.96 | 10.89 | -18% |
Trade payable turnover ratio |
4.27 | 6.20 | -31% |
Net capital turnover ratio |
0.16 | 0.20 | -22% |
Net profit margin (%) |
995% | 39% | 2481% |
Return on capital employed |
1.29 | 0.07 | 1855% |
Return on investment |
1.29 | 0.07 | 1835% |
Interest Coverage Ratio |
4,071 | 189 | 2055% |
Operating Profit Margin (%) |
24% | 25% | -5% |
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. |
Debt service coverage ratio |
Mainly due to higher EBITDA for the period due to exceptional items Rs. 30,965 Lakhs, dividend income from subsidiary Rs. 6,868 Lakhs and reduction in lease liability. |
Return on equity ratio |
Mainly due to higher profit for the period due to exceptional items net of tax Rs. 27,522 Lakhs, dividend income from subsidiary Rs. 6,868 Lakhs and increase in average Shareholders equity. |
Trade payable turnover ratio |
Mainly due to reduction in total expenses and increase in trade payable. |
Net profit margin (%) |
Mainly due to higher profit for the period due to exceptional items net of tax Rs. 27,522 Lakhs, dividend income from subsidiary Rs. 6,868 Lakhs and reduction in revenue. |
Return on capital employed |
Mainly due to higher earnings before interest & tax due to exceptional items Rs. 30,965 Lakhs, dividend income from subsidiary Rs. 6,868 Lakhs and increase in capital employed. |
Return on investment |
Mainly due to higher earnings before interest & tax due to exceptional items Rs. 30,965 Lakhs, dividend income from subsidiary Rs. 6,868 Lakhs, increase in shareholders equity and reduction in lease liability |
Interest Coverage Ratio |
Mainly due to higher earnings before interest & tax due to exceptional items Rs. 30,965 Lakhs, dividend income from subsidiary Rs. 6,868 Lakhs |
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.
Employee Diversity
The Company believes in promoting and nurturing work environment which is conducive to the development and growth of an individual employee, by employing the best HR practices such as performance management, reward and recognition policy, leadership development program, open work culture and effective employee communication.
The Company committed to embedding a culture of diversity and inclusion across the Group. This includes ensuring opportunity for all and embraces the positive effect that the diverse workforce brings.
The Company does not tolerate any form of discrimination, and the employment policies and practices focus on ensuring that all the employment processes are free from unlawful discrimination on any grounds.
Xchanging Solutions Limited has a total of 104 employees on its rolls as of March 31,2024.
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