MANAGEMENT'S DISCUSSION AND ANALYSIS ECONOMIC OVERVIEW GLOBAL ECONOMIC SCENARIO The International Monetary Fund expects world economy to grow at 3.5 and 3.7 percent in 2015-16, downward revisions of 0.3 percent relative to the October 2014 World Economic Outlook (WEO). The lower estimates mirrors the reappraise of forecasts in China, Russia, the euro area, and Japan besides weaker activity in some major oil exporters due to the sharp drop in oil prices. The economic growth in the United States is expected to transcend 3% during 2015-16 and has been revised to 3.6% aided by domestic demand that will be driven by the sharp fall in oil prices, moderate fiscal adjustment, and an accommodative monetary policy stance, despite the projected gradual rise in interest rates. However, the dollar surge is projected to reduce net exports. Although lower oil prices and quantitative easing support the Euro zone prospects, the IMF has lowered the economic growth to 1.2% for 2015 weighed by stagnation and inflation. The impact of Abenomics is yet to translate into positive economic growth prospect for Japan as it witnessed a technical recession in the third quarter of 2014. The IMF has revised downward the economic growth to 0.6% in 2015 however; it has indicated lower oil prices and yen debrciation to aid growth in 2015-16. For emerging market and developing economies, the IMF forecasts economic growth to remain broadly stable at 4.3% in 2015 and to rise to 4.7% in 2016-a weaker pace than forecast in the October 2014 WEO. Outlook The dwindling oil prices, fiscal adjustments and easing monetary stance are some of the growth drivers which will aid economic recovery however, the economic growth outlook is likely to get influenced by the fall out between Russia and Ukraine, and the geo-political tensions persisting in Syria and ethnic tensions in the Mid-East nations. Indian Economic Overview The resurgent Indian economy is leading the growth momentum among the Emerging economies driven by the robust GDP growth, improved FDI inflows and pro-growth economic reforms such as hike in FDI cap in defence and insurance, deregulation of diesel and petrol prices, Ordinance on Coal and Insurance Bill and telecom spectrum auction. The International Monetary Fund has raised its India GDP growth estimates for 2014-15 to 7.2% and 7.5% in 2015-16. The revised upward forecasts by the IMF from its earlier estimates of 6.3% and 6.5% for FY 2014-15 and 2015-16, reflect the new GDP methodology adopted by the Indian government. These projections however, are lower than the Indian government forecast of 7.4% growth rate in 2014-15 and 8-8.5% in 2015-16 as per the revised GDP calculation methodology. The buoyant FY 2015 growth estimate follows an upbeat 7.5% expansion estimated during the third quarter of October-December 2014. (Source: Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation). The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation, had revised its base year to 2011-12 and released revised annual estimate of National Income and other macroeconomic aggregates on 30th January 2015. The February trade deficit contracted to a 17-month low at USD 6.8 billion led by oil imports which reduced by more than 55% from the brvious month. Imports declined an annual 15.66% in February year-on-year to USD 28.39 billion. During the same period, Merchandise exports slumped 15.02% year-on-year to USD 21.54 billion. (Source: Government of India Ministry of Commerce & Industry Department of Commerce Economic Division) After a prolonged sluggish period the manufacturing sector in January 2015 witnessed a significant growth at 3.3%. During the period April-January 2014-15, the sector registered a growth of 1.7% compared to a contraction of 0.3% in the corresponding period of the brvious year. (Source: CSO) For the month of January 2015, IIP grew 2.6% as compared to 1.1% increase in January 2014. However, the growth in January is lower than the 3.2% registered in December 2014. IIP registered a growth of 2.5% for the cumulative period April-January 2014-15 as against feeble increase of 0.1% in the corresponding period of the brvious year. (Source: CSO) Meanwhile, Consumer Price Index (CPI), which measures retail inflation, registered a slight uptick of 4.95% in the urban areas and at 5.79% in the rural segment, to register a combined increase of 5.37% in February, marginally higher compared to 5.19% for January 2015. The food inflation stood at 6.79% in February 2015, a tad higher than January food inflation at 6.14%. (Source: CSO) Outlook The strong macro-economic factors such as lower twin deficits, that is, fiscal deficit and Current Account Deficit (CAD), falling oil prices and benign inflation have lent a renewed business confidence in the Indian economy. IT INDUSTRY OVERVIEW GLOBAL IT INDUSTRY Gartner in its IT Spending Forecast Summary, Q4 2014 Update estimates the US-dollar-valued worldwide IT spending in 2015 is forecast to grow by 2.4%, down from the 3.9% forecast in last quarter's update. Stripping out the impact of exchange rate movements, the corresponding constant-currency growth figure is 3.7%. The worldwide IT services market will exceed USD 980 billion in 2015, growing 3.9% in constant currency in 2015, or 2.5% in U.S. dollars. With outsourcing contributing more than half of market growth, the market will reach USD 1.1 trillion in 2018. Growth trends in the iT industry Emerging geographies and verticals, non-linear growth due to platforms, products and automation. Revival in demand for IT services from US and Europe. Increasing adoption of technology and telecom by consumers and focused government initiatives - leading to increased ICT adoption. High value client additions bigger than USD 1 million - the highest in the last 5 years, registering 13.5% growth. Emerging verticals (retail, healthcare, utilities) are driving growth above 14%. The SMAC (social, mobility, analytics, cloud) market is expected to grow to USD 225 billion by 2020. USD 1.6 billion is spent annually on training workforce and growing R&D spend. The National Optical Fibre Network (NOFN) is being laid down in phases to connect all the 250,000 grampanchayats in the country. Export Revenues (USD billion INDIAN IT INDUSTRY SCENARIO The Indian IT Services industry is expected to report a 12.6% export revenue growth in FY15E highlights Nasscom. The revival in demand for IT Services from the US and Europe to be the growth driver for the Indian IT Services industry in FY2015. The Indian IT-BPM industry is expected to maintain its positive momentum following the thrust provided by the Indian government in the form of Digital India and Smart Cities projects. The industry is likely to register 12.3% growth in FY 2015 in terms of export revenues led by renewal in demand from the US reckons Nasscom The Indian IT-BPM industry is expected to maintain its positive momentum following the thrust provided by the Indian government in the form of Digital India and Smart Cities projects. The industry is likely to register 12.3% growth in FY2015 in terms of export revenues led by renewal in demand from the US as per Nasscom. BUSINESSOVERVIEW Hexaware Technologies Limited (Hexaware) is a global provider of IT, BPO and consulting services that caters to industries spanning across Banking and Financial Services, Travel and Transportation, Manufacturing and Services, Healthcare and Insurance with revenue over USD 400 million. Hexaware focuses on delivering business results and leveraging technology solutions by specialising in Business Intelligence & Analytics, Enterprise Solutions, Quality Assurance and Testing Services, Remote Infrastructure Management Services and Business Process Services. The company emphasises on three-pronged strategy encompassing Passionate Employees, Innovative Services and Customer Delight in delivering meaningful technology solutions to its customers. Hexaware assists its clients ranging across North America, Europe and Asia Pacific attain a competitive advantage by co-developing innovative IT/Process capabilities delivered through flexible business models. The company's onsite/offshore delivery model provides significant cost savings. Its development centres are assessed at SEI CMMI-Level 5 DEV & SVC, ISO 9001:2008, ISO 20000:2011 and are also TickIT certified. These enable the company to provide high value, high quality deliverables to its clients and thereby establish long lasting relationships with them. 2014 Highlights New Wins 44 new clients added Human Capital Headcount stood at 10,016 at the end of 2014; up 1,162 YoY 614 fresh graduate engineers added in 2014; 53% of all net additions Attrition at the end of December 2014 remained low at 14.1% Performance highlights For FY2014, the company reported 8.9% revenue growth at USD 422.4 million and 13% to ` 25,817 million KEY ACHIEvEMENTS Large deal signed During last quarter of 2014, Hexaware has renewed a large deal with an existing client for over USD100 million. The relation provides opportunity to manage the key IT processes of the corporation. Investment in Technologies Proliferating mobile technology and onset of a new era of social business has empowered consumers with information and enriched them through networks that radically change expectations. This gets factored into our clients' requirements as well. Hexaware understands this as we integrate their enterprise operations with new software and technologies. • Innovation in Travel and Transportation (T&T): Our innovations extend our customers' operating parameters, delivering higher service productivity and optimising their costs. E-Freight kit We partnered with one of our clients, one of the largest airlines globally, to develop a cost-effective technology enabler for handling airway billing processes seamlessly. Earlier, this was paper based. Our new application, E-Freight kit, allows accurate, paperless and timely electronic information exchange for partners in air cargo supply chain. Digital MRO Suite Most Airlines and Maintenance-Repair-Overhaul (MRO) service providers use old legacy-based in-house MRO applications having outdated technologies. These old generation MRO applications take enormous time for data migration. Moreover, useful data on hard copy/PDF formats often lie scattered; these have to be converted to a digitised format or integrated and stored in one common location such as a data mart or data warehouse. Besides this, airlines and MRO service providers hold excess inventory (including wrong parts). Our Digital MRO Suite, incorporating mobility and augmented reality features, improves processes and achieves faster turnaround time in maintenance and parts tracking areas. • Innovation in Insurance: We provide combrhensive solutions in the Insurance sector— from assessing to planning and implementation to application development to maintenance support. iFraudEngine Insurers seek solutions which detect potential fraud at every phase of the product lifecycle, even at the quotation stage. This can lead to reduced brmiums and drive customer service giving insurance players a sustainable competitive advantage. Using this engine, companies can do actionable market intelligence and reporting, forecasting, early fraud identification and pattern detection, thus reducing underwriting. Insurance Policy Conversion Solution (iConvert+) We delivered a seamless data conversion application that allows a smooth data migration causing minimum disruption to business. The innovative iConvert+ suite is an advanced data migration engine built specifically for use in insurance data migration projects and also helps to partner de-duplication and address validation to enhance partner data quality. It also gives cost savings from a unified system, in addition to savings from reduced business downtime. • Innovation in Banking and financial Services: Onboarding solution Hexaware's Client On-Boarding Solution for Asset Manager by custodians for back office and mid office functions, which is a long and expensive exercise, aims to bring standardisation and reduces cost and time by following a repeatable process. AIM Toolkit Hexaware's AIM Toolkit is a combrhensive internal, regulatory and client reporting solution provides both br-built and ad-hoc reporting tools and dashboards for portfolio management, risk management and performance management. This will help investment managers make informed decisions utilising standard and self-service reports. Also, the one-screen data view will help CXOs in taking organisational level decisions. • Technology transformation though Business Analytics (BA/BI) Big Leap This application helps enterprises elevate their data management capabilities by successfully adopting Big Data technologies in ways that guarantee rapid value. It includes a lab setup with br-built adaptors for quick proof of concept for business value definition. Data Modernisation This application enables transition from heterogeneous/legacy applications driven by business process change, consolidation or M&A, performance considerations to a modern platform using data management best practices and innovative tools. It delivers low-cost, cloud-based managed service model for data migration, data quality services and reduces dependency on business users through Hexaware IP tools like HexaRule, Fuzzy Data Quality Kit, Business Glossary, DQ Dashboards. Dr. hadoop (ip/technology solution accelerator) This tool is a Hadoop Migration Solution Accelerator for efficiently transferring the data structure, data content between structured databases and Hadoop. It speeds up DW augmentation programmes by saving 60 to 70% effort. • Innovation in Quality Assurance and Testing DT Combrss Its Test automation utility to compare the source and target tables/ files to validate business rules for transformations in ETL, data migration projects. No tool investment required, accelerates the test execution cycle as it can compare a million records between the source and target databases in 10 min. HexaBi - Test Automated Reports content validation tool for br and post migration testing of reports. It entails significant effort reduction in reports comparison testing as compared to a manual comparison. HexaJaws An Cloud based cost effective performance test solution using JMeter and a Cloud service provider for portals (for e.g. ecommerce sites) that are highly user intensive. It significantly reduces the cost of performance testing as the capex cost. Infrastructure update During the year, we added two delivery centres onsite in the USA at Alpharetta, Georgia, and Herndon, Virginia, increasing our capacity by 240 seats and bringing us closer to the customer OPPORTUNITIES AND STRENGTHS OPPORTUNITIES Large Deals With the global economy recovering from the slowdown and developed economies registering economic growth, IT spending by corporates is increasing gradually. In order to focus on the core areas of business and strategy, global corporates are outsourcing their IT processes and requirements. How we leveraged the opportunity At Hexaware, we are capitalising on this emerging global trend. Over the years, we have been acknowledged as a differentiated IT services provider due to our ability to successfully win and execute high value and complex engagements from the existing clients. We have established ourselves as a major player in most of our focus areas and are confident of retaining our position as the brferred IT consulting partner for organisations globally. STRENGTHS Leaders in niche sectors Over the years, we have developed and demonstrated leadership and expertise in our focus areas. Our enterprise solution offerings combined with best of class enterprise integration skills are our key differentiators. The following are some of the niche sectors where we are the market leaders: Among the leading IT solution providers for the Airline industry Fast emerging among the top Indian IT services provider in Germany One of the global market leader in PeopleSoft services Developed innovative solutions in Capital Markets especially Asset Management Client orientation At Hexaware, we pride ourselves in maintaining long, robust relationships with clients. For these existing clients, we have the opportunity to introduce new innovation and focused services to increase portfolio of offerings and deepen our relationship with them. How we leveraged the opportunity Hexaware has a significant portion of its overall revenue coming from clients where the relationship extends to several years. If one were to look at our top10 clients, the average tenure of the relationships with these clients is greater than five years. Once we establish a relationship with a client, we expand to get a substantial share of the customer's wallet. Not surprisingly almost 96% of our revenues are contributed by our existing clients. To complement our hunting teams, we have experienced hunters with deep domain expertise, strong networks and a deep understanding of the market. We have a strong account mining team that works closely with our account management team to identify a client's problem areas, process bottlenecks and other issues where we can help achieve operational efficiencies. With many new large accounts coming for rebidding, we are optimistic about growth opportunities in the coming year. Strong domain knowledge One of our biggest competitive advantages is our deep insight and strong domain knowledge in the niche areas that we have been focusing. In order to continue our leadership position and continue moving up in the value chain we have been reinvesting in building our technical capabilities. We have created product Centre of Excellences that houses well defined framework, checklists and accelerators. Our employees have been dedicatedly working in this Centre of Excellences by leveraging modern tools and processes for developing solutions of tomorrow which will boost productivity and reduce project development time. Innovations in Delivery model The inherent dynamism of the IT industry means delivery models are constantly changing. These shifting delivery paradigms offer newer opportunities to provide greater innovations and enhanced services. How we leveraged the opportunity We believe that in our business, client satisfaction is of primary importance and have taken a number of initiatives to ensure better client service and ensure customer delight. All of our verticals and accounts have been empowered to take independent decisions to facilitate quick decision making. Each of our accounts have a dedicated account manager who has complete accountability and responsibility for that account. Further, the strong business understanding of our client facing team enables them to get quicker and deeper insights into client requirements. Our team has always been nimble footed and willing to go the extra mile to support our clients and ensure their success. Effective delivery models We have invested in building significant onsite delivery and consulting capability by locating our business practice leaders, account managers and top management team. This structure enables quicker decision-making and ease of access to customers. We have an enviable track record in building, operating and delivering solutions from very large offshore development centers (ODC). We offer a proven business model for customers looking to exploit delivery capabilities across the globe. Our models provide a framework for outsourcing large application and product management services and provide customers with economies of scope and scale OPPORTUNITIES Building a Sustainable growth model With the advent of technology, industry is changing rapidly. Obsolescence of existing technology is a reality that industries have to deal with and address very quickly. This creates opportunities to provide long term sustainable models to help improve efficiency and provide solutions that allow industries to remain up to date with latest technology trends. How we leveraged the opportunity Hexaware's leadership team works closely with client organisations to anticipate changes in the client's business and respond with strategies that enable them to capitalise on them. For example, during the year we partnered with Experitest to further enhance our mobile automation delivery capabilities to meet our client's needs. We provided our customers with SeeTest, a robust solution for end-to-end mobile application test automation. With SeeTest, we will be able to steer a client's mobile test automation requirements in the right direction with consultants who are available to translate a client's needs into an effective application test solution through in-house frameworks. With this partnership, we are well equipped to keep up with the dynamics of technology in mobile test automation, and extend our model to include additional mobility test imperatives like device-level performance testing as a by-product of test automation. In addition to this, we partnered with Oracle to launch Oracle's PeopleSoft Test Framework services, which will allow users to install, configure, implement and maintain PTF automation. Our PTF services allow customers to execute more tests with greater accuracy in a shorter time frame, and enable significantly reduced operational costs. With this offering, we are not only saving money for our clients by helping to eliminate unnecessary and redundant processes, but also enabling an enhanced time-to-market solution with Return on Investment (ROI) within just two test cycles. STRENGTHS Flexible As a mid-size vendor, we provide a great deal of flexibility in both the contractual and delivery models. This includes using innovative pricing and payment models that meet the unique expectations of our clients, optimising our SEI CMMI Level 5 processes to meet specific customer requirements. Our adaptable working relationships stretch from fixed time/ fixed fee/ time and material to the Shared Services model. Strong talent pool We believe that our employees are the leaders of tomorrow and we have been investing in them. We make our employees undergo several skill enhancement workshops and programmes in order to hone their skills. Our training structure ensures appropriate mix of domain and technical certification, soft skills training and cross cultural sensitization programmes. Further, in order to ensure that our onsite employees don't miss on their continuous skill enhancement, we have set up the eLearning platform HexaGuru+ which benefits onshore associates working at client locations to continuously learn and upgrade their skills and enhance service delivery. programme Risk Management We continue to monitor critical projects based on a criticality index derived from few identified parameters. A Steering Committee of senior executives in the Company holds regular meetings and continuously monitors the progress of such projects. We have established processes to identify and mitigate any risk during the transition process as well as when the relationship is stable. We will invoke such processes to ensure the overall risk or delays are minimised. RISK MANAGEMENT In the ever changing dynamic world where everything changes rapidly, businesses, in order to stay ahead, need to make certain projections for future growth. Usually the projections materially differ from the time projections are made and the time when decisions are taken. It is more evident in fast evolving space like IT, which is driven by people and where every output is unique and obsolescence is much faster. Hence, it becomes essential to identify the broad risk categories and provide mitigation measures to manage risks. At Hexaware, we have identified the risks under verticals like revenue concentration risks, financial risks and operational risks. We have formulated policies, procedures and strategies for managing risks which is affirmed by our global CEO and CFO, after consultation with all business units, functions and department heads. Improving employee motivation With a focus in improving motivation, the leaders communicated more frequently with the employees to discuss about the changes. Effective change management process was implemented to ensure that there was no ambiguity in the messaging and all the employees had a clear view of the future vision of the organisation. With the focus to align the employee career aspirations with the functional necessities arising out of the new business orientation and bridge the talent gap, we have focused on promoting talent from within; by not only encouraging but also brparing them to take the higher position when required. Many key positions were fulfilled by vertical and / or horizontal movements of deserving candidates from within, thus leading to increased employee motivation and morale. A Career Management System is being put in place to meet the career aspiration of the employees and to provide them with a growth path that is transparent and visible. Employee engagement As a part of the employee engagement programme, regular connect programmes such as skip and pulse meets, round table series with the senior management, Happy Hours, Open Houses were conducted and the feedback was shared with the management. Workshops HR conducted workshops and other activities under the banner of “HexaCare”. These workshops brought about awareness about health, safety and physical well-being of the employee. Some of the workshops that were conducted are listed below: Health related workshops Medical camps Hexaware Kids’ Day Yoga classes, stress management workshops Financial management Workshop for parents Employee welfare Funsters: Hexaware believes in Fun @ work. In order to propagate this belief, the employees make use of the platform called Funsters. They make an effort to make Hexaware a fun place to work keeping in line with the tagline “Back to Growth, Back to Fun”. Counselling Services: With brssure (both personal and professional) mounting on a daily basis, it is taking a toll on the lives of the employees. In order to help the employees deal with the stressful situations, Hexaware provides the services of an in-house counsellor. This ensures that the working environment is kept stress-free to the extent possible. Doctor-on-call: In order to maintain the physical wellbeing of the employees, your company has hired the services of the visiting doctor who is available twice a week in the campus. We also have tie-ups with hospitals to give medical services at discounted rates. Infirmary and Dormitory Facilities: We have a full-fledged infirmary with paramedic support. Separate dormitories for men and women employees are available for those who want to stay back after late night shifts and avoid midnight travel. Diversity At Hexaware, we take the widest possible view on diversity. We create an environment that is safe, secure, and inclusive. Your company believes in the diversity recognises, value, and affirm that social diversity contributes richness to the organization and enhances the quality of life for individuals and groups. Your company ensures that assignments and opportunities for advancement are accessible to everyone. Your company has always made substantial efforts in building an eco-system which contributes to the development and advancement of our women employees. The strength of the women workforce has steadily increased to above 2,800. This initiative for women is be one of the most impactful sets of development interventions, which company has opted both in terms of career growth and empowerment. W@H (Women @ Hexaware) Forum launched last year in all locations in India introduced a number of initiatives to fulfil the special needs of this group of workforce increasing their work place commitments including self-defence workshops for women employees. We have always made sincere, substantive and sustained efforts in building an eco-system which is conducive to the development and advancement of our women employees. They are encouraged to nurture their talent, by undergoing a mentorship programme under successful women leaders and thereby creating women business leaders, who, we believe will make an important contribution to business and the society at large. W@H (Women @Hexaware) Forum which was launched in 2013 in all locations in India, is very active in fulfilling the special needs of this group of workforce. Internal Control Systems At Hexaware, the Internal Control System is designed to brvent operational risks through a framework of internal controls and processes. Our internal control system ensures that all business transactions are recorded in a timely manner, the financial records are complete, resources are utilised effectively and our assets are safeguarded. We have developed robust policies, procedures, checks and balances to bring in discipline in day-to-day functions, for accurately and timely compilation of data. A mix of automated and manual controls is used to ensure proper brparation and reliability of accounting records. In addition, the Audit Committee has appointed KPMG as the Internal Auditors of the company. The internal audit ensures safeguarding the assets of the Company, review of operational efficiency, effectiveness of systems and processes and assessing the internal control strengths in all areas. Further, Internal Auditors findings are discussed with the process owners and suitable corrective actions are taken as per the directions of Audit Committee on an ongoing basis to improve efficiency in operation. Cautionary statements Statements in this Management Discussion and Analysis describing your Company’s objectives, projections, estimates and expectations, may be ‘forward looking statements’ and are within the meaning of the applicable laws and regulations. Actual results might differ substantially or materially from those exbrssed and implied. Important development that could affect your Company’s operations include a downtrend in the international market, fall in business confidence and climate and significant changes in political and economic environment, environment standards, tax laws, litigations and labor relations. For and on behalf of the Board of Directors Atul K. Nishar Chairman Date: April 2, 2015, Place: Mumbai |