zensar technologies ltd share price Management discussions

<dhhead>Annexure C to the Board’s Report</dhhead>

Management Discussion and Analysis

Economy overview

Global economy

The world witnessed a remarkable recovery from pandemic during FY 2022-23. However, sticky inflation, geopolitical tensions and recent financial sector turmoil have impacted economic growth.

Global inflation is moderating and is projected decelerate from 8.8% in 2022 to 6.6% by end of and 4.3% in 2024 as per IMF World Economic Outlook, January 2023. This is expected to restore growth oriented monetary and fiscal stance in due course, resulting in more normalized global growth and outlook.

Review of key market economies

United States

Inflation and financial uncertainties resulted considerable slowdown in the economy, with growth rate at 2.1% 1 and unemployment rising above 5% in CY 2022. However, there is optimism for a rebound in CY 2023 and CY 2024, as inflation settles to 2% by end of CY 2023. 2

Euro area

The Eurozone economy is estimated to have grown 3.5% in CY 2022, slowing down from later part of the year. The region is expected to grow at 0.8% in CY 2023.

South Africa

South Africa GDP grew by ~2.5 % during CY 2022, which is expected to decline to ~1.4% per annum over the 2023-25 period. Inflation is expected to fall back within South African Reserve Banks target range of 3-6% in the latter half of CY 2023.

Indian economy

India’s economy demonstrated a fair degree of resilience to global headwinds in FY2022-23, remaining one of the fastest-growing major economies in the world, with GDP growth of~7.2% 3.

A conducive domestic policy environment and the Government’s focus on structural reforms have kept India’s economic activity robust despite the gloomy global outlook. A combination of rising disposable income, easy availability of credit and moderate increase in interest rates due to the stabilizing inflation trajectory thewill bode well for economic growth going forward.

Industry overview

Global technology industry to

The global technology sector continues to witness growth driven by digital transformation, advances in cloud computing, cyber security, automation, AI, ML and IoT.

According to Gartner, worldwide IT spending is expected to reach USD 4.6 trillion in 2023, marking a 5.5% increase from the previous year. While consumer purchasing power is being eroded by inflation, resulting in a decrease in device spending, enterprise IT spending is anticipated in to stay robust. a 4 Businesses are likely to increasingly rely GDP on technology to scale automated services, streamline supply chains, enhance cyber resilience, and achieve sustainability goals.

Indian technology industry

Indian technology industry is estimated to have touched USD 245 billion in FY2022-23, an increase of 8.4% from the previous financial year.5 India’s IT exports are estimated at USD 194 billion, growing at ~9.4% in reported currency and ~11.4% in constant currency terms. Domestic IT sector has grown ~4.9% y-o-y to reach USD 51 billion. The sector is estimated to have added 2.9 lakh people to the workforce in FY2022-23.

Accelerated innovation and transformation are being supported by various factors, including a rise in hybrid work modes, and reduced overhead expenses when compared to operations in Tier I cities. Digitalisation is also gaining momentum, with the technology industry seeing a 32-34% share of digital revenues in their total revenue mix and an estimated 2 million digitally competent professionals.

India has a robust digital infrastructure for telecom and is poised to benefit from the new 5G connections. With

1IMF World Economic Outlook, April 2023

2https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/global-economics-intelligence-executive-summary-february-2023 3https://pib.gov.in/PressReleseDetailm.aspx?PRID=1928682#:~:text=The%20growth%20in%20real%20GDP,growth%20rate%20of%2016.1%20percent 4https://www.gartner.com/en/newsroom/press-releases/2023-04-06-gartner-forecasts-worldwide-it-spending-to-grow-5-percent-in-2023 5NASSCOM report 2023 - Technology Sector in India investments in these sectors growing at a 31% CAGR, the country is set to benefit from increased opportunities owing to innovation from numerous start-ups.6

Key highlights of NASSCOM CEO Survey insights

Outcomes	Highlights I
Growth areas	Prominence of new-age technology
Emergence of new business models with the growing prominence of Indian start-ups from Tier II and Tier III cities.	The development of world-class digital products and the prominence of cloud ccmputing, Al, and ML.
Upskiling and reskiling	Continuous learning and development
Concentration on the development of key capabilities for both existing and new employees.	79% of leaders agree that retraining an existing employee is less expensive than hiring a replacement.
Cyber security. Cloud, and Al	Growing digital adoption
Top priority for the industry is to develop advanced digital solutions. ?	30%-85% of cyber security sales are generated by international clients, and 15%-16% are generated domestically (in India).
Digital transformations	Enhancing operational efficiency
In FY2022-23, the focus remained on digital transformation developing capacity and resilience, improving cost efficiency, and meeting process optimisation requirements. ?	World-class SaaS products are being developed. Also, there is greater emphasis on ER&D and the evolution of e-commerce platforms.
Embracing technology	Ensuring agility
Volatility and business resilience will coexist, but tosinesses and individuals can position themselves for success in the years to come by accepting the no-normal future and proactively adapting to it.	While adapting to new technological trends, it is essential to embrace change to ensure business agility.

 

 

Company overview

Zensar Technologies is a global IT services and solutions provider headquartered in Pune, India and following are the key services being offered:

Experience Advance Data engineering Application Foundation services engineering and analytics services services services

Experience Cloud strategy AI and ML Application Digital operations design and operating services management Digital workplace Experience model Automation Quality Digital security engineering Digital Visualisation and engineering Digital experience Brand, content engineering analytics Oracle services management and creative Cloud Data engineering Salesforce Digital transformation services infrastructure and operations SAP services

Further details are provided in the Integrated section of this Annual Report.

Operational overview

Despite the uncertainties in target markets, Europe region saw a constant currency growth of ~20% YoY, Africa grew by ~18.3% and US reported a ~6.5% YoY growth. This growth is a testament to strong relationships with our clients.

ERM Section

Introduction

To safeguard the organisation’s strategic and operational endeavours, Zensar has established a robust Enterprise Risk Management (ERM) program through which risks are assessed and managed at various levels in the organisation with a Top-down and Bottom-up approach covering the Enterprise, Business units, Geographies and Functions. The ERM program covers compliance with applicable government and regulatory requirements, and potential risk areas in various economic, social, and industrial environments Zensar operates in. The ERM framework encompasses the risks that the organisation is facing under different categories, such as Strategic, Operational/Cyber security, Financial, Compliance/Regulatory, and ESG, with each of these categories having internal/external dimensions. Systematic and proactive identification of risks and mitigations thereof enable effective and timely decision-making.

Key Components of ERM Framework

The Company has adopted an integrated ERM Framework that is being implemented across the organisation by the Chief Risk Officer and ERM team.

Approach and Methodology Risk Framework And Model

Risks related to market strategy, competition, differentiation, and existence of a viable market

Top Down Approach Market

Strategic Risks Risks related to customer acquisition strategies, retention and wallet share, concentration and ability to penetrate

Customer newer accounts and geographies

Preparation of

Comprehensive Risk List

Risk related to Emerging Technologies

Process and technology disruptions Technology Level Risks

Risk related to geography, Regulations, Compliances, Currency and Economy

Bottom Up Approach

External

Risk related to attracting resources in niche technologies, attrition and loss of knowledge

RiskClassi_ication

Strategic Operational/Cyber security Financial Compliance/Regulatory ESG

Approach and Methodology

Risk governance processes include identification, prioritisation, monitoring and reporting of risks identified at the various levels of organisation, business units, functions, and geographies. The Risk Governance model is regularly updated based on our interactions with internal and external sources, including experts in the risk advisory domain, to ensure that the model aligns with the achievement of strategic objectives of the organisation.

Risk Assessment

The Risks are calculated based on their impacts probabilities. Using a combination of Risk Impact from insignificant to catastrophic, and risk probability ranging from rare to almost certain, a Risk Score is which helps identify if the Risk Rating is Low, Medium, or High. The Risk scores are then used to arrive at a Risk Prioritisation matrix, which guides the allocation of time and resources towards risk mitigation.

Risk governance

A multi-level governance structure has been established by the Enterprise Risk Management (ERM) team, which ensures monitoring, reporting and mitigation of risks The ERM program is headed by the Chief Risk (CRO), who ensures that the function executes primary responsibilities of formulation and deployment of risk management policies and procedures. In terms of reporting, the function provides quarterly updates to the Risk Management Council and periodic updates the Board Risk Management Committee on risks which impact key business objectives, with an insight their mitigations. Also, ad-hoc updates may be provided in case of any emerging risks and change in external factors influencing risk assessment.

Enterprise Level Risk Register

The ERM function has defined and implemented detailed Risk Register with risks defined at Organisational, Business Unit, Functional and Regional levels, enables risk-based decision making and reviews by various stakeholders in the Risk management process. and

Risk Categories

Strategic: Risks arising out of strategy definition and successful execution of these strategies are covered in this category. For example, risks associated with the choice of the target markets, the Company’s market offerings and business models. Details of the Company’s strategy are described in other sections of the Integrated Annual Report.

Operational/Cyber security: Risks arising out of internal and external factors affecting policies, procedures, people, and systems, thereby impacting service delivery. . These also include potential risks arising out of breach of Company’s network and possible impact on its operations,its including risks of cyber attacks and data privacy breaches. Compliance/Regulatory: Risks arising from potential litigations, violations to laws, regulations, and major regulatory/geopolitical changes. Also includes into Reputational Risks, which are likely to affect brand or reputation due to non-ethical behaviours. Financial: Risks related to financial liquidity, currency fluctuation and capital management.

ESG: Risks related to business impact due to mismatch ina approach versus implementation of sustainability initiatives linked to climate changes, alignment with stakeholders, and regulatory reporting compliances.

Risk Management

Listed below are some of the key risks, anticipated impact, and mitigations:

Key Risk	Impact on Organisation	Mitigations
Risk of talent availability, attrition skilling and re- skilling	Unavailability of timely and requisite skilled talent hampers the organisations vision of meeting customer requirements. Delay in arresting this may impact the quality of customer services and subsequently the revenue stream.	? Accelerated Freshers program focused towards organic talent build * Experiential training framework focussed on faster deployment ? Fresher absorption enabling practices * Cross pollination and rotation
High dependency on certain key customers and sectors	With high dependency on limited number of clients, revenue growth may not be sustainable and a change in customers strategy would have a far- reaching impact on revenue, margin, and market share.	* Focussed approach for strategic account identification and planned growth momentum to address business concentration in limited accounts. Ensure revenue spread across customers with defined growth criteria.

 

 

Key Risk	Impact on Organisation	Mitigations
Inability to retain customers and expand business In existing portfolio	Loss of existing customers impacts the revenue of the company as well as creates reputational impact due to loss of long-term strategic relationships.	* Account level focus with Key Account Management design to identify business opportunities and regular review cadence. Awareness of customers Business and IT roadmap with agile digital transformation solution offerings to help Customers business growth.
Loss of business and reputation due to violation of data security and privacy (Cyber security)	Customer data security and privacy remains a major objective for Zensar. In addition to impact on business operations, violation or security breach could result in reputational damage, penalties, legal and financial liabilities.	* Ongoing implementation and maintenance of industry best practices, data security and data privacy management system. * Detailed programs for employee awareness across the organisation for Information Security and Data Privacy requirements. * Vulnerability Assessment and Penetration Testing in place for IT infrastructure and applications to strengthen overall cyber security posturing.
Risk of business obsolescence due to frequent changes In technology and business models	Rapidly evolving technologies and consumption patterns are giving rise to new business models, hence increasing the demand on the Companys agility to keep pace with the changing customer expectations. Failure to cope may result in loss of market share and impact business growth.	? Investment in building integrated competency model for emerging/ digital technologies through reskilling and external hiring. ? Building a strong partner ecosystem and making strategic acquisitions in the areas of new-generation technologies.

 

 

Risk of loss of revenue and market share due to damage to Companys reputation	Reputational risk due to ethical and behavioural issues, fraudulent activities, sexual misbehaviour/harassment especially by senior management, and misinterpretation of facts with malicious intent by external entities. Such reputational impact may result in business loss, losing customer trust, and negative impact on talent attraction index.	• Create awareness on ethical code of conduct and compliance requirements through communication and trainings across regions. * Mechanisms in place to address stakeholder concerns in case of unfortunate event and enable immediate corrective action to contain the damage.
Risk of regulatory non- compliance In absence of defined framework across geographies	The fast pace of change in the regu latory environment creates operation challenges, and failure to comply, may lead to penalties or revocation of permission to do business in a territory or geography.	* Deployment of global compliance program to monitor compliance and take necessary actions to mitigate risk with assistance from professional experts. ? Implementation of global compliance tool through which organisation level compliance is tracked

 

 

Key Risk	Impact on Organisation	Mitigations
Risk of business disruption due to natural and people-made disasters	Impact on operations of the Company business as well as Customer business. Customer technology spend may get affected due to adverse impact on business growth, and uncontrolled peaks in operational costs.	• Business Continuity Plan(s) in place for all major natural and people-made disasters, with well-defined roles and responsibilities, and periodic training protocols for identified associates. * Crisis Management framework in place for addressing natural/man- made risks, with well-defined roles and responsibilities including Regional Emergency Response teams.
		? Mechanism for post disaster support to affected associate(s), immediate plan for restoring any losses to physical and/ or intellectual property(ies).
Risk of non-adherence to Environmental, Social and Governance norms	Not able to attain required level of maturity in sustainable business practices and time bound positive impact on defined ESG goals in line with stakeholder expectations	? Defined long term ESG goals for the organisation ? Tracking progress against defined metrics ? Alignment with internal and external stakeholders for sustainability initiatives and long-term goals.

 

Geo Political risk

In view of current geo-political unrest in some regions, we are cognizant of the potential risks and the importance of customer service continuity. The Company delivery capabilities from not only India, but European countries, the United States, South Colombia, Canada and Mexico. Hence, it has flexibility to accommodate movement of work to remain compliant with applicable laws and sanctions regimes. The Company continues to monitor related legal, and matters to mitigate risk and to ensure business continuity.

Financial Section

Zensar’s consistent performance in a highly competitive environment reflects its ability to continuously create solutions to serve customer aspirations.

REVENUE

Revenue for the year ended March 31, 2023, is as under:

BY SEGMENTS

INR Million

SEGMENT	2022_23	2021_22
Digital and Application Services	39,445	35,415
Digital Foundation Services	9,037	7,023
Total	48,482	42,438

 

BY GEOGRAPHY

INR Million

Geography	2022_23	2021_22
United States of America has	34,273	29,910
Europe	8,718	7,581
Rest of the World	5,491	4,947
Total	48,482	42,438

 

OTHER INCOME

Other Income comprises dividends from mutual fund investments, interest on bank deposits, profit on sale of investments, net gain on financial assets mandatorily measured at fair value, interest on security deposit, net foreign exchange gain and loss on share buyback liability, etc. Other income during the current year was INR 1,028 million as against INR 1,377 million in the previous year.

SHARE CAPITAL

During the year, Company has allotted total 263,887 equity shares fully paid up of INR 2 each. Out of these, 2,500 equity shares were allotted under "2002 Employees Stock Option Scheme", 67,790 numbers of equity shares were allotted under "2006 Employees Stock Option Scheme" and 193,597 numbers of equity shares were allotted under "Employee Performance Award Unit Plan, 2016"

RESERVES AND SURPLUS

The Company’s Reserves and Surplus as on March 2023, were INR 28,531 million as against INR million in 2021-22.

The Company’s Other Reserves as on March 31, were INR 778 million as against INR 277 million in 2021-22.

NON_CURRENT BORROWINGS

As of March 31, 2023, Non-current (long-term) borrowings were Nil (Previous year: Nil). The portion of current maturities of long-term amounting to Nil (Previous year: Nil) which is within twelve months, is shown under Other financial Liabilities.

CURRENT BORROWINGS

As of March 31, 2023, Current borrowings (Short term) borrowings is Nil. Previous year ended March 31, 2022, it was Nil.

FIXED ASSETS

During the year there is an addition of INR 319 million in Gross Block of Tangible Fixed Assets and addition of INR 8 million in Gross Block of Intangible Assets.

RETURN ON CAPITAL EMPLOYED

The return on capital employed (ROCE) for the year 2022-23 is 24.7%.

DEBTORS

The position of outstanding debtors was:

INR Million

Particulars	As at March 31, 2023	As at March 31, 2022
Considered Good	7,298	7,967
Credit Impaired	233	230
Allowances for Credit loss	(233)	(230)
Total Receivables	7,298	7,967

 

CASH AND BANK BALANCES

31, The Cash and Bank Balances represent the Companys balances in banks in India and overseas. The Company also retains funds in the Exchange Earners Foreign Currency (EEFC) account in India, which is mainly used to meet the remittance requirements of the Companys branches and for travel purposes. The Company possessed cash and bank balances (India and overseas excluding unpaid dividend) of INR 4,744 million as on March 31, 2023.

OTHER CURRENT ASSETS loan

Other Current Assets of INR 1,238 million (Previous year: INR 1,825 million) consist mainly of unbilled revenue, prepaid expenses, advances to suppliers and statutory receivables as on March 31, 2023.

OTHER CURRENT FINANCIAL ASSETS

The Other Current Financial Assets comprise unbilled revenue, foreign exchange forward contracts and security deposits amounting to INR 2,859 million (Previous Year: INR 2,631 million) as on March 31, 2023.

OTHER CURRENT LIABILITIES

Other Current liabilities amounting to INR 1,828 million (PreviousyearINR1,211million)representmainlypayments due to unearned revenue, employee contributions towards provident and pension fund, statutory taxes.

TAX EXPENSE

The Companys income-tax expense is INR 1,165 million (Previous year INR 1,525 million).

CONTINGENT LIABILITIES

Contingent Liabilities have been disclosed in Note 31 in the "Consolidated Financial Statement - Notes to the Accounts".

Accounting principles consistently used in the preparation of financial statements are also consistently applied to record income and expenditure in individual segments.

KEY RATIOS

INR Million

Particulars	FY 2022_23	FY 2021_22	Reason for Deviation (if more than 25%)
Revenue	48,482	42,438	-
EBITDA	5,522	6,565	-
Operating Profit Margin	11.4%	15.5%	Increase in operating cost
Net Profit Margin	6.8%	9.9%	Increase in operating cost and decline in other income
Return on Net Worth	11.0%	15.5%	Decline in net profit
EPS (Basic)	14.5	18.4	-
EPS (Diluted)	14.4	18.3	-
Debtor Turnover Ratio	6.4	6.1	-
Interest coverage Ratio	16.9	17.3	-
Current ratio	2.7	2.7	-
Debt Equity Ratio	0.0	0.0	-

 

Human Resources (HR)

HR digitalisation

Zensar prioritises enhancing the capabilities dynamic workforce by investing in upskilling and cross skilling programs and digital initiatives. The solicits real-time feedback from its people to streamline workflows and ensure data accuracy. Additionally, offers multi-channel digital delivery for HR processes and includes wellness goals in its performance management process to prioritize associate well-being. To personalize the process, it leverages HR data analytics in key process designs to create digital offerings that cater to various associate cohorts.

Happiness framework and council

Every year, the Company creates a diverse ‘Happiness Global Council’ to review current programs and policies aimed at increasing happiness and engagement. initiatives undertaken in FY2022-23 included connections, LGBTQ+ insurance, gender sensitisation, and tech talent development. Pride and Purpose Appreciation Week were included as new celebrations Additionally, policies such as financial literacy for women, CHARM, and charity donations were implemented.

Diversity and Inclusion

Zensar is an equal-opportunity employer that diversity and has zero tolerance for harassment discrimination. The Company is a signatory of the UN Global Compact Network and sustainability principles. It has a global diversity inclusion council and a diversity and inclusion centre of excellence to promote relevant initiatives, such as 30% gender diversity target, gender sensitisation programs for managers, and a focus on non-discrimination in its all people processes. It also has programs for women -returning from career breaks, maternity leaves, and wellness initiatives, along with a ‘Womentoring’ program. it

Cautionary Statement

This document contains statements about expected future events and the financial and operating results of Zensar Technologies Limited that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that the assumptions, predictions, and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause The assumptions, actual future results, and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the and disclaimer and qualified in its entirety by the assumptions, . qualifications, and risk factors referred to, inter-alia, in the management’s discussion and analysis report hereunder.

For and on behalf of the Board of Directors and

Place: Mumbai H. V. Goenka andDated: May 11, 2023 Chairman