Industry Outlook

As per NASSCOM, Indian IT services have grown by 12%, with IT services and software products maintaining a double digit growth due to higher adoption of SMAC (Social, Mobile, Analytics, and Cloud Services) and IoT (Internet of Things).

Also, the brsence of a single government has boosted the confidence of the industry in 'Digital India' and 'Make in India' with the domestic market accounting to two-thirds of the revenue addition in FY 16.

The fusion of humans and machines is the next big thing for the information and communications technology industries, which will impact almost all industry verticals.

Business Analysis

Our operations are classified into two business segments, i.e. Software Development & Services and Systems Integration & Support.

Software Development and Services

This business segment grew by 29% from Rs.781.85 crores in the brvious year to Rs. 1008.17 crores in FY16. The segment profit increased by 47% from Rs. 176.33 crores in the brvious year to Rs.259.66 crores during FY16.

As per NASSCOM, Indian IT exports are expected to grow by 10-12% and Engineering R&D and product development to grow at 12.6% in FY 17.

As technologies, industries and markets converge, each intersection brsents both challenges and opportunities for companies to innovate and deliver new and enhanced products and services. New services are also emerging from the increasing connectedness of people and devices.

This brsents us with an unique opportunity to leverage our technology capabilities, user centric design and creative experience, and position ourselves as a complete solutions and service provider.

The software development and services segment consists of three distinct business divisions:

Embedded Product Design

The Embedded Product Design (EPD) division provides technology consulting, new product design, development, and testing services for the broadcast, consumer electronics, healthcare, telecom and transportation industries.

Transportation

We offer electronics, software development and system design services for the automotive and aerospace industry.

Software content in cars is increasing, especially in areas such as in-vehicle infotainment, active safety systems, telematics, electric and hybrid powertrains.

We are leveraging our cross-technology expertise in multimedia, imaging, connectivity technologies, and well-established processes for automotive software development, to support both car manufacturers and system suppliers in product development and engineering. We are also working with some leading aerospace OEMs and suppliers for avionics and electronics design.

We are also working on emerging requirements for mass transportation and urban mobility solutions for smart cities of the future.

Apart from active participation in leading consortiums and technology standards bodies related to the automotive industry, we participated in leading trade shows and events such as the VDI-ELIV Congress in Baden Baden - Germany, showcasing our automotive technology development capabilities and solutions for safety, comfort and infotainment.

Broadcast and Communications

We address the complete product development lifecycle from R&D, new product development and testing to maintenance engineering for Broadcast, Consumer Electronics and Communications.

We engage with leading Broadcast and Communications service providers across the world for the development of value-added applications, and help them reduce engineering costs associated with development and deployment through cost-effective offshore services. Increasingly, major operators are bundling voice, video and data services and providing consumers with a converged triple play service, thereby blurring the lines between a conventional telecom operator and a Pay TV service provider. Emerging technologies such as IoT (Internet of Things) and Analytics are creating new opportunities to drive operational efficiency, reduce costs, deliver new services to consumers and enable new streams of revenues for operators and product manufacturers.

We are investing in developing capability to support customers in these new technologies and help them in their digital transformation journey.

We continue to participate in leading international industry events and standards bodies, to strengthen our leadership position and keep abreast of technology trends in concerned industry sectors. Tata Elxsi was featured with a keynote session titled 'New Disruptors - the Internet of Things revolution' at the International Broadcasting Convention (IBC), the leading event for the broadcasting and communications industry, in Amsterdam in September 2015.

Industrial Design (ID)

The Industrial Design division helps customers develop endearing brands and products by using design and technology as a strategic tool for business success.

This division services a broad spectrum of industries including automotive, consumer electronics, retail & consumer goods and healthcare.

We have worked for leading Metro projects in India, including the Chennai & Kochi Metro to enhance the passenger experience in the use of the metro services, right from design of signage systems to branding, coach interiors and station aesthetics.

Products designed by us have been awarded the I Mark, which signify good design not only in terms of form and aesthetic appeal, but also in terms of product quality, functionality, safety, sustainability, usability and social responsibility.

We participated in the 'Make in India Week', which aimed to showcase the potential of design, innovation and sustainability across India's manufacturing sectors in the coming decade. This event also showcased products with the I Mark to the international community.

We conducted an annual design event 'Connect D' in order to promote design thinking amongst the next generation of designers and help them create new connected experiences. The event is intended to engage with students and help them to think critically about the latest technology and its implications for the brsent and future. The 4th edition of the contest received an overwhelming response from design students from across the country, which concluded in June 2015.

Visual Computing Labs (VCL)

VCL provides high-end content and 3D Animation services, addressing content development for feature films, television, advertising commercials and custom corporate content.

VCL has been awarded with FICCI BAF 2016 for the 'Best VFX in a Commercial' in the Afterlife Series. Our work for feature films, including 'Neerja' which was released in February 2016, has won much apbrciation and critical acclaim.

Systems Integration and Support

During the year under review, our Systems Integration & Support segment reported a turnover of Rs.67.03 crores and profit of Rs.6.72 crores.

We implement and integrate complete systems and solutions for High-Performance Computing, CAD/CAM/CAE/PLM, Broadcast, Virtual Reality, Storage, and Disaster Recovery. We also provide Professional Services for maintenance and support of IT infrastructure in India and overseas.

We continue to focus on increasing the share of software sales and support services in this segment, for improved margins.

Threats, concerns and risks

According to NASSCOM, despite the political uncertainty across major economies of the world, currency fluctuations and changing nature of the business, the industry has still sustained a double digit growth and may continue to do so with the emergence of new technologies such as internet of things, analytics, and social media.

Our revenues are well distributed amongst various currencies and geographies, thereby reducing the impact from any single geography or currency to some extent.

Protectionist government policies in key markets such as the US and Europe may create barriers in on-site deployment of India-based talent. Economic uncertainty aggravated by plunging oil prices, plummeting Chinese markets hurt the Indian IT sector.

We are focusing on maximizing offshore execution of projects and having a brsence in multiple industries to mitigate the impact of such policies and risks caused by the cyclical nature of any one industry segment

Internal Control Systems and their adequacy

We believe that internal control and risk management are necessary brrequisites of the principle of governance. Our Management is committed to ensuring an effective internal control environment, commensurate with the size and complexity of the business, which provides assurance on the efficiency of operations and security of assets. We have an effective internal control system, which is assessed and strengthened with new/revised standard operating procedures and which ensures that all our assets are safeguarded and protected against any losses.

We have co-sourced the internal audit function. We have entrusted quarterly internal audits to a reputed Audit firm -Ernst & Young. In addition, the in-house internal audit team also regularly carries out audits of specific processes. Their annual audit plans are approved by the Audit Committee of the Board. Based on the internal audit reports, process owners undertake corrective actions in their respective areas and thereby strengthen the controls. Internal Audit Reports along with corrective actions are discussed with the Management and are reviewed by the Audit Committee of the Board, which also reviews the adequacy and effectiveness of our internal controls.

Human Resources

As a technology-led design company we continue to attract and retain top talent. Leadership training, Performance management, Talent development, Employee engagement and Succession planning form the bedrock of our strategy. Benchmarking, Recognizing contributions, Improving Customer experience, and Keeping pace with changes are the pillars of our value system and help create an atmosphere of oneness and collaboration. Our employees are highly motivated and we develop the necessary capabilities and behaviours so that employees can deliver greater value to our customers and become trusted advisors. Our recent initiates of br-connecting with colleges before we hire freshers' are helping us to attract the best minds across campuses. Our total headcount including consultants was 4452 as of March 31, 2016.

Quality initiatives

We have instituted very strong quality processes in the execution of our software development projects, and implemented robust information security management processes to assure our global customer base of the required level of confidentiality and protection of data and information. We have also been assessed and certified organization wide for industry-specific standards such as ISO 9001:2008 and ISO 27001:2013. Additionally, for Medical Engineering BU we have ISO 13485:2012 certification and for Transportation BU we have Automotive SPICE OML5 certification.