MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Pursuant to Clause 49 of the Listing Agreement with the stock exchanges, details of the Management discussion and analysis are given below:

Industry structure and development

The company continues to operate in the information security industry with primary focus on Public Key Technologies. The target and actual customer base comes largely from the banking and financial industry and the Certifying Authorities, followed by the government and defense segment.

During the year, there was a significant uptrend in banks and other financial institutions adopting PKI based solutions for their authentication needs. This has come about largely from the regulatory push for offering PKI as one of the authentication mechanisms, albeit not the sole mechanism. As such, it remains to be seen how much of this will be enthusiastically adopted by the end customers of the institutions offering this facility. The growth in PKI segment in the coming years shall be driven by such adoption

Adoption of better security mechanisms for e-Governance initiatives also has grown apace during the year and it appears that the trend will continue for some time to come. This segment is again not PKI specific and there has been significant push from the government to adopt simpler mechanisms like Aadhar for several of these interfaces. There has also been a push to adopt some hybrid systems that use a mixture of Aadhar and PKI. While these measures have the potential to increase the user base substantially, the overall spend on PKI will not see any significant growth from this segment

Therefore while the initial push for adoption will largely come from the regulatory initiatives, the real revenue growth in the PKI segment has to necessarily come from end-user acceptance.

The mobile transaction segment continued to grow at a brisk pace. We also see some increased awareness of the need for security in that segment. It took a long time for PC and the wired segment users to wake up to the threats -and it may take even longer for mobile users.

The phone has always been seen as a personal resource unlike the desktop PCs which were for the most part a shared resource. What takes time to sink in is the fact that once a device is connected to the network, it inherently becomes a shared device in the real sense.

However, once adoptions starts, the mobile segment will become the dominant PKI customer segment. We expect to see the impact of this in the next couple of years

Opportunities and Challenges

The digital certificate issuance segment saw a healthy growth during the year. The PKI based authentication also saw some growth but a real expansion of this segment may be sbrad out in the next year or two, contingent upon the enthusiasm of the end-customers. The mobile authentication segment also rebrsents a serious revenue opportunity here.

As in the earlier years, maintaining the highly skilled workforce continues to be a serious challenge

We also expect to see some serious challenges in increasing the marketing footprint both geographically and across customer segments. While our partner strategy offers significant help in access to customers, PKI still requires a lot of consultative selling and this needs a good amount of PKI experience which in turn puts a lot of brssure on the company's personnel. We are working out ways and means of meeting these challenges

Product-wise performance

The company acquired 141 new customers during the year most of them for desktop products and again most of them banks.

The total revenue was 101.51 million rupees. 70% of the revenue came from product related services and 27% from product licenses and the rest from resale of hardware.

Of the total service revenue 60% came from Pay-As-You-Go services, 12% from customization and implementation of products and the rest came from Annual Maintenance Contracts.

Of the product revenue, 39% came from Snorkel, 33% came from Certrix and 27% from AltaSigna and the rest from others.

Outlook

The overall outlook is positive. PKI having established itself as one of the more important authentication technologies with a reasonable amount of regulatory blessings in the country, the adoption and usage can only continue to grow. The rate of such growth shall depend on the rate of end-user adoption and enthusiasm.

The company continues to innovate within the space to ensure that it retains and grows its market share

Risks and Concerns

As before, adverse regulatory changes do pose one of the major risks.

The security space is constantly bombarded by newer and unverified technologies touted as alternatives to PKI. Usually such technologies tend to be easier to use and in the short term, less expensive. For example, sometime back grid cards and image based authentication gained a lot of mindshare among the customers. Such technologies tend to have a short, but sometimes robust run until the customers find that they are not what they were professed to be. Nevertheless, threat from such technologies does have a short term impact on the customer acquisition and the revenues of the company

As our products are used to protect transactions and sensitive customer data, the associated risks due to evolving cyber threats will always be a concern. However, this is partly mitigated by constantly reengineering the products in response to such threats.

Internal Control Systems

Internal control systems continued to function as effectively as in the past. Top management and the Board of Directors and the Committees thereof continue to be actively involved in ensuring that all controls work as intended.

Financial and Operations Performance

The overall financial performance was reasonably good, aided by the growth in PKI in the country.

The total expenditure during the year was Rupees 66.25 million against 56.30 million last year. This resulted in a PBT of 38.03 million as against 22.78 million last year, an increase of 66.93%. However, the tax provision had to be higher this year at 8.95 million instead of the last year's number of 1.69 million. This brought the net profit to 29.08 million as against 21.09 million last year, an increase of 37.90%. As the company has exhausted the accumulated losses, we will have to make allowances for the tax provisions from this year onwards.

The cost of manpower was higher this year at 47.52 million compared to 41.70 million last year. As in the years before, this is the biggest cost component for the company.

The interest cost was down at Rupees 0.06 million as against Rupees 0.08 million in the earlier year. The total finance cost for the year was 0.09 million compared to 0.17 million last year.

Research and Development

Much of the R & D efforts were focused on enhancing our product suite to fit increased feature demands from the existing as well as new customers. A significant amount of the efforts also went into extending our products into the mobile and other wireless spaces. Some of these efforts are close to market readiness and others are in late developmental stage.

We do not publish developmental data until the products or features are in a full state of readiness to protect the company's interests from competitive forces.

Human Resources Development

There were seventy one employees in the rolls of Odyssey as against sixty four at the end of last year.  The attrition levels were a little higher during the year as compared to the earlier years. The attrition largely happens within the first two to three years of employment. The company being into technology and product development, its employees tend to acquire a higher level of skill sets and technology insights compared to employees of the same years of experience in most service organizations. This makes them very attractive to larger IT services organizations which tend to offer them a higher remuneration and some employees find it difficult to resist the temptation. This, coupled with life-events like marriage that tends to happen around the same time, becomes a primary reason for employee losses.

While the company constantly takes measures to combat attrition, the fast-tracking of training and regular induction of bright people ensure that the core functions of the company are not unduly affected by attrition.