Management Discussion and Analysis In addition to historical information, this Annual Report contains certain forward looking statements subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward looking statements. Factors that might cause the difference include, but are not limited to, those discussed in the Management Discussion and Analysis of financial performance and elsewhere in this report. Readers are cautioned not to place undue reliance on these forward looking statements, which reflect management's analysis as of the date hereof. ECONOMIC OUTLOOK As per the IMF's 2015 World Economic Outlook update: Emerging and developing economies, which account for nearly 70% of global growth, continue to decelerate. Many of the issues that adversely affected global growth in 2015 - slowdown in China and other emerging markets, sharp declines in commodity prices and financial market volatility - are likely to continue to exert downward brssure on growth in 2016. Progress in structural reforms, which is key to longer-term sustainable growth, remains slow in many countries.The projected pickup in growth in the next two years—despite the ongoing slowdown in China—primarily reflects forecasts of a gradual improvement of growth rates in countries currently in economic distress, notably Brazil, Russia, and some countries in the Middle East, though even this projected partial recovery could be troubled by new economic or political shocks. • Global growth is projected at 3.4% in 2016 and 3.6% in 2017; • New projections indicate growth in advanced economies will be 0.1% lower in both 2016 and 2017, and even much lower for emerging and developing economies; • Emerging markets are forecasted to grow by 4.3% and 4.7% in 2016 and 2017, respectively, 0.2% lower than the brvious projection. In advanced economies, a modest and uneven recovery is expected to continue, with a gradual further narrowing of output gaps. Prospects of a gradual increase in policy interest rates in the United States, as well as bouts of financial volatility amid concerns about emerging market growth prospects, have contributed to tighter external financial conditions, declining capital flows, and further currency debrciations in many emerging market economies. In the United States, domestic demand remains solid, as housing and labour markets have strengthened. India and the rest of emerging Asia are generally projected to continue growing at a robust pace. GDP growth in the Asia-Pacific region is forecast at 5.3% in both 2016 and 2017. IMF, in its regional economic outlook for Asia and Pacific, retained India's growth projections at 7.5 % for 2016 and 2017. As per the European Economic Guide, the outlook for growth in 2016 now looks feebler and more uncertain following the sharp falls in European equity markets, particularly of banking shares, since the start of the year. While the Euro area recovery is gaining traction, growth is low compared to historical norms and is widely divergent among the 19 members of the currency bloc. The Consumer Price Index (0.3% year-over-year) and core inflation (1% year-over-year) remain well below the European Central Bank's (ECB) target. Unemployment remains elevated in many Euro area nations. In spite of the ECB's aggressive expansionary monetary policies, loans to the private sector continue to be extremely low and are especially so in some troubled peripheral Euro area economies. Doubts about Euro area nations' ability to manage the recent influx of a large number of refugees adds an additional layer of uncertainty to the outlook. Despite aggressive monetary and fiscal stimulus, growth in Japan has been low and uneven. Japan's exports have fallen sharply in spite of a weaker yen, while stagnant wage gains dampen consumer spending. Unfavourable demographics and government debt, the largest in the world, are also likely to weigh negatively on future growth. Growth in emerging markets, excluding China, is likely to be restrained in the short term. For many emerging market economies, China is the largest trade partner and source of growth. The slowdown in China is likely to brsent significant challenges to growth elsewhere. Low returns in US fixed income markets, due to several rounds of accommodative monetary policy by the Federal Reserve, led to capital flow into emerging market assets. The recent increase in interest rates in the U.S. is currently reducing capital flows and is causing volatility in global financial markets, particularly in emerging markets. NASSCOM, the trade association of the Indian Information Technology and Business Process Management industry, projected a 10-12% for the Indian software services segment for the financial year 2017, lagging the 12-14% growth forecast it had made for the current financial year. A volatile global economy and currency fluctuations, especially the weakening of the rupee against the US dollar, continued to impact India's information technology and business process management (BPM) services segments. NASSCOM stated that going forward, revenue growth alone may not be an adequate indicator of the growing capability and capacity of India's technology industry. Factors such as investment, valuations, digital solutions portfolio and impact would also need to be considered in assessing industry performance and contribution to the economy. According to Gartner, India will continue to be the fastest growing IT market for the second year in succession and will continue growing to total USD 85.28 billion by the end of 2019. Software, which accounts for nearly 7% of IT revenue in India, will grow 11.9% as a segment, but within this segment, enterprise application software will be the fastest growing sub-segment in 2016, with revenue forecast to grow 15.4% over 2015. Communication services will continue to account for the largest share of IT spend in India and will account for 39.6% of revenue in 2016, however, this will also be the slowest growing segment with a 1.4% increase in revenue in 2016. IT outsourcing trends that will drive the industry in 2016 Deloitte reports that the rise of enterprise Internet of Things (IoT) is landing at the centre of enterprise applications in everything from industrial equipment and supply chain management to retail shopping experiences. This will drive increased demand for network infrastructure, sensors, software applications, and all technologies needed to operate IoT applications, including data analytics. A tipping point has been reached wherein cognitive computing, big data analytics, cloud computing and the rapidly growing IoT are transforming businesses around the globe. Promising advancements in materials, software, fabrication techniques and machine design are likely to lead to an expansion in enterprise applications for additive manufacturing (3D printing). Companies across the entire IT services landscape are changing how they deliver their offerings, shifting toward more flexible consumption business models that allow customers the flexibility to consume and pay for products and services based on need and usage. IDCs' Top Ten 2016 IT Market Predictions By 2017: 1. Over 50% of organizations' IT spending will be for third-platform technologies (cloud, mobile, social business, and Big Data analytics), solutions and services, rising to over 60% by 2020. By the end of 2017: 2. Two-thirds of the CEOs of global 2000 enterprises will have digital transformation at the centre of their corporate strategy. By 2018: 3. At least half of IT spending will be cloud-based, reaching 60% of all IT infrastructure and 60-70% of all software, services, and technology spending by 2020. 4. Enterprises pursuing digital transformation strategies will more than double software development capabilities; two-thirds of their coders will focus on strategic digital transformation apps and services. 5. Enterprises with digital transformation strategies will expand external data sources by at least three- to five-fold and delivery of data to the market by 100-fold or more. 6. There will be 22 billion Internet of Things devices installed, driving the development of over 200,000 new IoT apps and services. 7. Over 50% of developer teams will embed cognitive services in their apps (vs. 1% today), providing US enterprises with over USD 60 billion annual savings by 2020. 8. Over 50% of enterprises will create and/or partner with industry cloud platforms to distribute their own innovations and source others. 9. 80% of B2C and 60% of B2B enterprises will overhaul their "digital front door" to support 1,000 to 10,000 times more customers and customer touch points. By 2020: 10. More than 30% of the IT vendors will not exist as we know them today, requiring realignment of brferred vendor relationships. According to KPMG, tech trends—from automation and analytics to digital and the IoT—will continue to influence outsourcing business models. In KPMG's 2015 Technology Industry Outlook Survey, mobile technology is ranked as the biggest driver of company revenue over the next 24 months. Industry and opinion leaders have identified the following major trends in IT outsourcing for FY 2016: Security takes centre stage: Security risk is poised to increase as telematics and the IoT becomes more brvalent in consumer and commercial products. In 2016, more enterprises will opt for specialized security vendors with security-as-a-service capabilities that can protect data no matter where it resides. As-a-service outsourcing model: Traditional commercial models from pricing to contract durations will be replaced by "As-a-Service" solutions, meeting an increasing buyer expectation that flexibility is at the core of the service provider proposition. End-to-end process delivery becomes standard: Business services teams will be able to design/drive/enhance end-to-end global business processes across multiple technologies, including mobile/IoT/Software as a Service (SaaS), all supported by a mature global delivery model. Cloud integration expertise turns into a margin multiplier for service providers: Developing expertise internally and recruiting experts in cloud-based integration will lead to greater margins on deals throughout the year. Enterprises will use this factor to br-qualify resellers before engaging with them as it's essential to the build-out of their IT strategies. Market outlook by industry for 2016 Electronic Design, Semiconductor and Storage With world economic growth having a major impact on the electronics industry, the indications imply that there will be a slowdown in the electronics market with growth likely to be flat for 2016. According to the Electronic Components Supply Network (ECSN), the continued slowdown, particularly in the Asia-Pacific market, has meant that the whole supply network remains overstocked and it will take some time for manufacturers to adjust their production levels. Despite the forecasts and brdictions of flat growth for 2016, the situation remains very volatile. Periods of low growth where there is no overriding trend are more difficult to brdict. Therefore the brdictions for the electronics industry in 2016 could show a small fall or a small rise. Despite the fact that low growth is being brdicted in the electronics industry for 2016, the growing area of the IoT will have a positive impact. With brdictions of billions of connected devices being in operation in the next few years, this provides a major opportunity for the electronics industry as a whole. Much of the production will go to Asia, but there will undoubtedly be a large amount of equipment development and system development in Europe and the US. One trend that was mentioned by a number of distributors is that of 'reshoring'. In brvious years, the manufacture of many products from Europe and the US had been produced offshore in Asia. With costs in Asia increasing, and many companies seeing the full cost of offshore manufacturing, this trend is reducing and many companies are seeking different areas to manufacture offshore, or even bringing manufacturing of some products to within the same country. Eastern Europe is being seen as an increasingly favourable area for manufacturing, although for low volumes, much more production is being undertaken in-country. As a result of all of these factors, it is anticipated that 2016 will be flat with little growth. However, 2017 and 2018 are likely to show improved growth, both within the UK, Europe and beyond. According to Gartner analysts, weakening demand for such devices as PCs and smartphones, coupled with the continued strength of the US dollar and bloated inventory, took its toll on the global semiconductor market in 2015 and promises to slow spending on equipment by chip manufacturers this year. In 2016, semiconductor vendors will begin pulling back on what they'll spend on equipment, and the worldwide capital spending in the space will fall 4.7% over 2015, to USD 59.4 billion. As per KPMG, while executives remain positive about the semiconductor industry's prospects, overall optimism declined this year in response to falling average selling prices and higher development and manufacturing costs. As per this year's Global Semiconductor Outlook, China is viewed as a rising centre of semiconductor influence, as well as the industry's most attractive growth market and rapid M&A activity is reshaping the semiconductor landscape at an unbrcedented rate. Microprocessors, sensors, and memory remained the leading sectors expected to provide growth opportunities in 2016, reflecting consistent demand among enterprise and consumer customers for storage and memory. From a storage products perspective, the study concluded that spending will increase the most on public cloud and all-flash arrays, while spending on traditional SAN and NAS products will be more muted. The largest spending declines will be on tape products. According to Gartner, the storage market is projected to reach USD 307 million in 2016, a 3% increase from 2015. Storage modernization and consolidation, backup and recovery, and disaster recovery are some of the key drivers to this market, and they are likely to remain relevant drivers over the forecast period through 2019. In 2016, data centre modernization will continue to be a key driver for infrastructure spending in India. As per Global Industry Analysts (GIA), while data storage remains an indispensable IT need, the growing magnitude of the importance of this very basic IT function can be put into perspective by the fact that information is currently multiplying at a rate of over 65% each year, and the total data generated worldwide is projected to reach over 3 million petabytes by the year 2020. As companies seek to overcome data storage performance limits, significant opportunities are evident for storage technologies like NAS devices. Smart Energy and Wireless Deloitte reports that the telecom sector continues to be at the epicentre for growth, innovation, and disruption for virtually any industry. Mobile devices and related broadband connectivity continue to be more and more embedded in the fabric of society today and they are key in driving the momentum around some key trends such as video streaming, IoT, and mobile payments. The number of 'connected things' continues to grow as mobile and 'smart' device utilization and connectivity continues to expand—which will ultimately shape and define the IoT space. As per Gartner, smart cities alone will use 1.6 billion connected things in 2016. Smart commercial buildings will be the highest user of IoT until 2017, after which smart homes will take the lead with just over 1 billion connected things in 2018. Smart homes will rebrsent 21% of total IoT use in smart cities in 2016, and will record the highest increase over the next five years. Device and wireless standards will be embedded in more devices. Homes will move from being interconnected to information-and smart-enabled. According to Deloitte, a large upcoming wave of change for the telecommunications sector will be the emergence of fifth generation mobile networks (5G). While the technology is still several years away from achieving mass market coverage, what it promises—more speed, greater efficiency, and less latency— will be essential to supporting connected things in the future, especially self-driving cars. 2016 is likely to see heavy momentum toward implementation of this next generation of wireless network technology, which should move from lab to field trials. The findings show that there was a nearly four-fold increase in the use of mPayments technology from 2014 to 2015. More handsets are being equipped with 'Near Field Communication' chips, retailers are upgrading payment systems in response to regulatory brssures and consumer demand, and businesses of all types, from gas stations to coffee shops, are implementing point-of-sale technology that allows customers to pay using mobile devices. Given these trends, mPayments will finally become a payment method of choice for many consumers in 2016. Healthcare and Medical Devices As per industry analysts, global medical device production value is forecasted to record strong growth of almost 6% in 2016, and reach approximately USD 315 billion.The demand for medical devices seems to be on a hike, and consumers are eager to use wireless wearable medical devices to keep an eye on their health on-the-go. The industry has met its next growth engine - Mobile Health (mHealth). While mHealth certainly has application for industrialized nations, the field has emerged in recent years as largely an application for developing countries, stemming from the rapid rise of mobile phone penetration in low-income nations. The global mHealth market was an estimated USD 10.5 billion in 2014 and is expected to grow 33.5% annually between 2015 and 2020. Asia-Pacific is considered as an emerging medical device technologies market owing to advancements in technology and health care infrastructure. While Japan, China and India are the fastest growing economy, South American countries like Brazil and Mexico are the regions that have significant potential for growth due to developing medical infrastructure, and high disposable income. As per industry analysts, technology continues to empower the healthcare industry with tools and services that offer convenience, access to care, and cost transparency. Telemedicine services, which provide a convenient, lower-cost option for non-emergency medical care, are expected to grow 40% over the next five years. According to a PricewaterhouseCoopers (PWC) poll, 56% of consumers believe that using wearable technology will extend their average life expectancy by at least 10 years. USD 2.8 billion was spent on wearable technology in 2014, and that figure is expected to reach USD 8.3 billion by 2019. While most use trackers to monitor weight, physical activity and cholesterol, there is expected to be an increase in wearables that do everything from monitoring UV exposure to detecting seizures in patients with epilepsy. As demand for access to primary care continues to grow, a spike in old-school house calls is expected. Life Sciences According to Deloitte, pharma spending growth should match health spending growth at an average of 4.3% during 20152019, and global pharma sales should reach USD 1.4 trillion by 2019. Biotech drugs (vaccines, biologics) continue to gain traction in the life sciences sector. Biotech drug sales were an estimated USD 289 billion in 2014 and are projected to grow to USD 445 billion by 2019. Deloitte stresses that although economic woes are stunting pharma sales growth in certain regions, long-term prospects outweigh near-term challenges. During 2015-2019, both global health spending and pharma sales are expected to see positive growth, driven by population aging and expansion and the rollout of improved health insurance and services, particularly in developing markets. An important clinical development that is driving business model transformation is personalized care. Scientific advances can provide optimal value when targeted to particular consumers. Widesbrad adoption of personalized/brcision care will likely be made possible through investments in offerings that integrate drugs and devices with low-cost diagnostics, disease management programs, and clinical decision support. Government The US Government administration indicates that its IT spending is growing at a slower rate than in the past, and that more agencies are using provisioned services like the cloud. The administration's cybersecurity plan will push agencies to evaluate their vulnerable IT infrastructure. One of the biggest opportunities for the channel in the public sector is within local government. In the UK, there are more than 400 local councils, all of which are looking to become more efficient-which means the opportunity for IT providers can be massive. The data suggests that cloud is becoming an increasing priority for local councils. Every analyst is expecting the Digital India initiative of the Indian government to drive IT spending in 2016. The Digital India initiative, MyGov citizen portal, the Self-Employment and Talent Utilization (SETU) program for startups and smart cities initiatives are some examples that the Indian government is serious about leveraging information technology for effective governance. Smart Cities Gartner, Inc. estimates that 1.6 billion connected things will be used by smart cities in 2016, an increase of 39% from 2015. Smart commercial buildings will be the highest user of IoT until 2017, after which smart homes will take the lead with just over 1 billion connected things in 2018. The business applications that are fuelling the growth of IoT in commercial buildings are handled through building information management systems that drive operations management, especially around energy efficiency and user-centric service environments. In 2016, commercial security cameras and webcams, as well as indoor LEDs, will drive total growth, rebrsenting 24% of the IoT market for smart cities. As per KPMG, top IT investment areas in 2016 include business intelligence/big data, legacy systems enhancement/upgrades and SaaS. Big data will rule and cloud investments serve as a means to enhance legacy systems. Top capabilities required for undertaking 2016 initiatives include business intelligence/harnessing big data, smart/innovative management practices and the ability to find and attract talent globally. Big Data/Analytics International Institute for Analytics (IIA) brdicts that computing will become increasingly microservice-enabled, where everything - including analytics - will be connected via an API. International Data Corporation (IDC) brdicts that by 2020, 50% of all business analytics software will include brscriptive analytics built on cognitive computing functionality and that cognitive services will be embedded in new apps. Embedded data analytics will provide U.S. enterprises USD 60-plus billion in annual savings by 2020. Forrester says that in 2016, machine learning will begin to replace manual data wrangling and data governance dirty work, and vendors will market these solutions as a way to make data ingestion, brparation, and discovery quicker. Through 2020, according to IDC, spending on self-service visual discovery and data brparation tools will grow 2.5 times faster than traditional IT-controlled tools for similar functionality. By 2020, IDC brdicts that data monetization efforts will result in enterprises increasing the marketplace's consumption of their own data by 100-fold or more. Also by 2020, the amount of data that is worth analysing will double. Forrester declares that 'all companies are in the data business now'. IDC brdicts that by 2020, organizations able to analyse all relevant data and deliver actionable information will achieve an extra USD 430 billion in productivity benefits over their less analytically-oriented peers. IDC has a modest and specific brdiction, forecasting the market for big data technology and services to grow at a 23.1% compounded annual growth rate, reaching USD 48.6 billion in 2019. The larger market for business analytics software and business intelligence solutions, which now includes the new disciplines of data science and cognitive computing, is at least five times larger. But a much larger market, which may indeed approach a trillion dollar sometime in the not-distance future, includes the revenues companies in any industry will generate from 'monetizing' their data and algorithms. OPPORTUNITIES AND THREATS - Long-standing client relationships: Mindteck has had repeated business from Fortune 50-1000 clients since its establishment in 1991. A few of our clients have been engaging our services for over a decade now, including one with a dedicated ODC which has been growing year-on-year. - Niche Skills and Domain Expertise: Mindteck possesses deep domain expertise in storage, medical devices, analytical instruments, smart energy, wireless development and integration, allowing us to provide thought leadership and partnership for client's success. - Continued Global Expansion: We recently opened offices in Mumbai, the Philippines, as well as in the US states of Ohio and Missouri to serve our clients locally. - Diverse Client Base: For twenty five years, we have been providing exceptional engineering value to Fortune 50 companies, start-ups, leading universities and government entities around the globe. Our niche expertise in embedded systems and enterprise applications is complemented by dedicated Centres of Excellence in wireless design, smart energy, storage testing, medical devices and life sciences. - Global Delivery Teams: Mindteck's global delivery capabilities provide clients with the right expertise to deliver quality solutions. We have our offshore delivery centres in Bengaluru, Kolkata, in India and onshore delivery in Singapore and the US. - R&D and Centres of Excellence: We have our own set of IPs, skills and expertise to tap the market in growth-oriented segments. Our Centres of Excellence uses the best practices around specific domains and offer our clients faster time-to-market with reduced costs. - Cross-selling of our full Portfolio: Increased collaboration between our delivery units and sales team has led to increased opportunities to cross-sell our services within our 'blue chip' client base. - Competition: Mindteck continues to face new competition in the marketplace from offshore providers. The strength of our long-standing client relationships, depth of our expertise, and strong track record has allowed us to minimize the impact. RISKS AND CONCERNS - Economic Uncertainties: As per recent economic forecasts, global economic uncertainty is still high as global demand remains weak. Despite all of these uncertainties, Mindteck has retained its footing across all geographies owing to its mindful approach, and delivering knowledge that matters -- with increasingly better client experiences overall. - Political Uncertainities: The Brexit debate is clouding the outlook for the Eurozone, while elections in many countries—including in the United States—are fostering political uncertainty. - Reshoring: A recent Deloitte outsourcing study states 16% of outsourced offshore work is reshored annually. This is potentially 16% of a USD 300 billion market. As overseas markets are becoming volatile, and the cost of labour in foreign countries is rising steadily, outsourcing agreements proved to be less flexible when customers wanted to change the way how work is done or selectively move work back onshore to take advantage of new processing models and technologies like cloud and SaaS. - Bill Rate Pressure: With the new trends in outsourcing, customers often tend to conduct multiple rounds of negotiation to reduce their costs. This is likely to reduce the bill rates and reduce the profit margins Mindteck earns. Increased competition, coupled with different business models, are being offered and devised to suit a variety of client needs. - Skills shortage, raising talent costs: Shortage of skills in the market often delays staffing for new projects. Mindteck reduces this risk by partnering with smaller companies who can provide the required staffing at short notice. We also have our own Mindteck Academy for both internal and external workforce development. Externally, the Academy offers unique online and classroom IT training designed to build opportunities for learning, hiring and economic growth in the communities we serve. Our new Transition Care service, another innovative service offering from Mindteck, leverages the experience and expertise of seasoned IT professionals who have been displaced. It also provides a way for our clients to protect their brand reputation when faced with having to conduct employee layoffs. - High Attrition Rate: High demand for skilled employees in the market increases the attrition rate. Mindteck strives to counteract these challenges by continually focusing on providing a good work environment and culture. As an answer to this, we have an innovative endeavour under our WE CARE umbrella—Consultant Care, which helps retain valuable IT talent and avoid project disruption. - Selling, General and Administrative Cost Containment (SG&A): It is imperative to not allow SG&A costs to grow proportionally. Efforts to reengineer internal processes and revamp internal systems have increased the productivity and helped contain costs. Improvements to customer relationship management, time and expense reporting, asset management, as well as job posting and recruiting processes, have been implemented. DISCUSSION ON FINANCIAL PERFORMANCE Business During the year under review your Company recorded consolidated revenue of Rs. 3,116.30 million as against Rs. 3,191.48 million in the brvious year. Of the revenues that were recorded, 68% is attributed to the US and the rest to Europe and Asia. Mindteck's net profit for the year stood at Rs. 259.27 million, as against Rs. 191.96 million in the corresponding brvious year, an increase of 35.07%. At an operating margin level, Mindteck recorded EBITDA (Including other income) of Rs. 229.24 million this fiscal year as against Rs. 300.76 million last year. Share Capital Mindteck has an issued share capital base of 25,173,101 equity shares of Rs 10/- face value. All the shares are fully paid up. In addition, 102,878 equity shares are reserved for allotment to certain allottees as at March 31, 2016, in relation to discharge of consideration for the acquisition of Chendle Holdings Ltd., one of the Company's wholly owned subsidiaries. The allotment has been pending owing to the non-availability of Permanent Account Number (PAN) for these shareholders. Of the total issued capital, an aggregate of 10,969,944 equity shares have been issued for consideration other than cash. These allotments are connected to the M&A deals completed by the Company in FY 2008. Further, issued capital also includes 416,000 equity shares allotted to the Mindteck Employee Welfare Trust (MEWT). The trust was set up with the objective of transferring its holding in Mindteck (India) Ltd. to deserving employees, by way of share-based compensation. Consequent to ESOP schemes issued by the Company in 2005, 2008 and 2014, the allotted shares continue to be held by the MEWT. Owing to the consolidation of the Trust's accounts with that of Mindteck, the number of shares and corresponding capital and share Premium held by the Trust are deducted from the issued share capital and securities brmium accounts of Consolidated Financial Statements. During the year, 157,800 options have been granted to employees under the Mindteck Employees Stock Option Scheme 2005 and 10,500 options have been granted to employees under the Mindteck Employees Stock Option Scheme 2008. No options were granted to employees under the Mindteck Employees Stock Option Scheme 2014. Reserves and Surplus Mindteck has retained a balance of Rs 623.20 million in the Statement of Profit and Loss as at March 31, 2016, after appropriation of dividend - Rs 29.88 million which is subject to the shareholders' approval. Shareholders' funds, excluding capital reserves, increased from Rs. 1,548.52 million in FY 2015 to Rs. 1,806.11 million in FY 2016. Non-Current Liabilities Non-current liabilities include term loan, rental deposit, rent equalization reserve and provision for employee benefits. The non-current liabilities, increased from Rs. 48.65 million in FY 2015 to Rs. 55.95 million in FY 2016. The increase is mainly due to provision made for employee benefits. Current Liabilities Current liabilities include current portion of a term loan, trade payables, provision for employee benefits, provision for tax, provision for proposed dividend and other current liabilities. The current liabilities decreased from Rs. 508.25 million in FY 2015 to Rs. 364.35 million in FY 2016. Trade payables decreased from Rs 206.52 million in FY 2015 to Rs 163.08 million in FY 2016. Other current liabilities comprise unearned income, unpaid dividend, statutory liabilities, such as PF, TDS etc, and payroll payables amounting to Rs. 109.34 million as at March 31, 2016 compared to Rs. 110.91 as at March 31, 2015. Short-term provision for employee benefits, taxation and proposed dividend and tax thereon stood at Rs 91.93 million as at March 31, 2016 compared to Rs 190.82 million as at March 31, 2015. The reduction is mainly due to write-back of tax provisions pertaining to the US subsidiary. (Refer to consolidated notes 3.11) Non-Current Assets Non-current assets include fixed assets, deferred tax asset (net), long-term loans and advances and other non-current assets. Mindteck invested Rs. 10.46 million in fixed assets during the fiscal year, which primarily relates to Computer Equipment and Computer software in India and the US. Deferred tax assets or liability arises while distributing the tax expense over a period of time that the tax profits and book profits differ on account of varying treatment of deductible items of expenses in the respective books and varying debrciation methodologies in the tax books and financial statements. These are called temporary timing differences. Deferred tax assets are also generally recognized in respect of brought forward tax losses from earlier years to the extent they are eligible for set off against likely tax profits from operations. In accordance with governing accounting standards on recognition of deferred tax asset/liability, the Company has recognized only such portion of deferred tax impact that results from temporary timing differences. Long-term loans and advances comprise security deposits, advance tax and tax deducted at source and service tax input credit totaling to Rs. 127.27 million as at March 31, 2016 compared to Rs. 142.16 million as at March 31, 2015. The decrease is due to the reduction in Service tax liability used to set off against the input credit, being classified as short term. Other non-current assets comprised of fixed deposits with a bank against which it has lien for the guarantees issued amounting to Rs. 3.02 million as at March 31, 2016. Current Assets Current assets include trade receivables, cash and bank balances, short-term loans and advances and other current assets. Mindteck's accounts receivables as at March 31, 2016 amounts to Rs. 579.96 million, rebrsenting about 68 days of sales. All debts doubtful of recovery have been provided for in the financial statements. Cash and Bank balances amounted to Rs. 505.41 million compared to Rs. 343.94 million in the brvious year which includes both rupee and foreign currency accounts. Short term loans and advances include security deposits, service tax input credit, VAT credit, employee and supplier advances. The balance as at March 31, 2016 stood at Rs. 24.79 million compared to Rs. 27.37 million as at March 31, 2015. Other current assets include unbilled revenue, claimable expenses, brpaid expenses and accrued interest. The balance as at March 31, 2016 stood at Rs. 150.67 million. Investments Mindteck (India) Ltd. has six wholly-owned subsidiaries and three step-down subsidiaries as at March 31, 2016. The nature of operations of these subsidiaries is as follows: • Mindteck, Inc., US - Operating company • Mindteck Singapore Pte. Ltd, Singapore - Operating company • Mindteck (UK) Ltd. - Operating company • Mindteck Middle East Ltd., S.P.C.- Operating company • Mindteck Software Malaysia SDN BHD - Operating company • Mindteck Germany GmbH - Selling and marketing company (step-down subsidiary) • Mindteck Netherlands BV - Selling and marketing company (step-down subsidiary) • Mindteck Solutions Philippines Inc.- Operating company (step-down subsidiary) • Chendle Holdings Ltd - Investment arm, holding stock in Mindteck, Inc., US RESULTS OF OPERATION Income Revenues from software services registered a negative growth of 2.36% in FY16. The Company recorded Rs. 3,116.30 million in FY16 as against Rs. 3,191.48 million in FY15. The items of other income include rental income from own property, net foreign exchange gain, interest income from deposits, provision no longer required written back and other miscellaneous items. Expenses Employee benefit expenses and cost of technical sub-contractors for the FY16 stood at Rs. 2,554.96 million as against Rs. 2,559,75 million in FY15. Manpower expense increased to 82% of revenue compared to 80% last year. Finance cost in FY16 was Rs 3.24 million as compared to Rs. 3.10 million in FY15. There is a marginal increase compared to the brvious year. Other expenses of FY16 amounted to Rs. 354.51 million compared to Rs. 340.05 million last year. The Company has contributed Rs. 27.50 Lakhs towards Corporate Social Responsibility during the FY16. During the year, the Company implemented several cost rationalization measures to reduce the expense base. Mindteck will continue to focus on cost-effective measures to further productivity and increase efficiency in the operations. Negative tax expense for the year amounting to Rs. 51.46 million (net) is the aggregate of current tax liability in all tax jurisdictions in which Company operates. Tax provision in India is based on the normal tax computation in accordance with the brvailing tax laws. Negative tax for the year is mainly due to reversal of tax provisions amounting to Rs. 1 1 5,128,357 relating to Net Operating Losses (NOL) pertaining to Mindteck, Inc., a subsidiary company, due to expiry of the Statute of Limitations. The provision also includes current tax liability for the double taxation avoidance and agreement (DTAA) in the US to the extent the same is not recoverable from India Tax Authorities under the DTAA. Operating Profit and Net Profit EBITDA for the year amounted to Rs. 229.24 million as against Rs. 300.76 million the brvious year. Net Profit is Rs. 259.27 million in FY16, at about 8.32% of software revenue, as against Rs. 191.96 million in FY15, at about 6.01% of software revenue. HUMAN RESOURCE MANAGEMENT Human Resources is focused on ensuring that the Company is a performance-driven environment where innovation and creativity is encouraged, performance is recognized and employees are developed and motivated to realize their potential. We encourage employees to ask questions, share successes and lessons learned, propagate and cross-fertilize ideas. This both empowers employees and enhancing in the knowledge assets of the Company. During FY 2015-16, several new activities were initiated: IdeaFest-Dare to Dream Challenge - geared to spur innovation from our top-notch employees. The first Challenge in September was so successful that we will be conducting this spirited event quarterly. This has proven to be a good employee engagement activity, as well as good incubator for innovating and building IPs in our areas of expertise. Knowledge Sharing Program (KSP) - instituted to foster knowledge and generate camaraderie amongst sales and delivery teams. Project Management Program (PMP) training - conducted to ensure that all Delivery Managers are PMP-certified. Employee Well-being Programs - conducted throughout the year, included: - Health check-ups - Dental and Eye Check-up Camp - Yoga and Meditation Session Annual Day Celebration - global gathering to celebrate Mindteck's longevity and success. Long Service Awards were among the several recognition activities. Attrition Rate: Mindteck annualized attrition rate for 2015-16 was 25% as against the Industry standards, which vary between 25-30%. |