Management's discussion and analysis Technology trends in the financial services industry Banks the world over are facing sweeping changes and are having to deal with disruptive trends. They face uncertain and weak economies in many regions; they have new and non-traditional competitors using innovative technology threatening to take their business away; digitization is catching the imagination of a new generation of customers; and their regulatory environment is getting more demanding. The Technology environment today offers more choices than ever before. The Cloud is already proving to be a great leveller by dramatically reducing deployment cost and complexity. Technology advances in the area of big data have the potential to unlock the latent value of the vast storehouse of data that banks own. We analyze these trends and what banks the world over are doing to navigate through these interesting and rapidly changing times. Banks are custodian to very large amounts of data generated every day. However, in the past their focus was on transaction processing and therefore the data has been fragmented and maintained in silos. In the midst of all the rapid changes within their industry across the world, banks find it difficult to effectively integrate data that did not provide a holistic view of their own business, leave alone their customers. Even though they were in possession of vast and invaluable amounts of data on each customer, the bedrock of a business - the customer and the customer experience - traditionally took a back seat. But banks are having to change fast. In a world where financial products and their pricing, reviews and delivery are available at an instant on mobile devices, banks can no more take their customers or their business for granted. Add to this the changing demographic profile of their customers - millennials, who use technology in radically different ways from brvious generations. These customers are accustomed to receiving information where it matters and in an instant. When their bank is unable to deliver the experience they are looking for, this mass segment is likely to move on. In the last couple of years, the banks have been under scrutiny by the regulators, and have been ended up paying billions of dollars in fines and penalties. Banks are spending more money, energy and time to keep pace and align to the regulations, both current and evolving. It is against this backdrop that banks are now being forced to rethink their technology strategies. The focus is no more on how much information banks possess of their customers, but how intelligently and creatively they can utilize this data to reduce operational expenses, improve wallet share, grow by seizing cross-sell opportunities, comply with every changing laws and regulations, and, most importantly, deliver a highly engaging customer experience. Smart banks today are marrying big data and digital technologies to create a unique experience for their customers. The analytics improve the ability to mine the customer data to create relevant offerings while at the same time reducing the risk and cost of reaching the customer. From being positioned as supporting multiple channels, banks are shifting focus to delivering channel agnostic digital experiences that are insight-driven. As the mobile revolution ushers in a new way of thinking, traditional banks are stepping up to offer the complete range of banking products and services. The main goals of the banks are to service customers better, reduce operational costs, increase revenue streams and provide the convenience of "anywhere, anytime, any device" banking. Digital remains a significant area of focus for us as our products enable progressive transformation to help banks create a strong digital brsence. With the Millennial customer demanding banks are connected with the digital ecosystem, banks needs to reorient themselves to a "customer in" approach that builds sustainable information driven and value centric relationship as opposed to the typical "product out" approach. The second major area of disruption we are seeing is the potential of the "Cloud". With the need to commit a large upfront investment eliminated, Cloud offers access to a level playing field for small players to compete effectively with large banks. Even large banks are increasingly adopting Cloud based deployment to better manage their investments. Oracle is a leading provider of Cloud based services including Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS). Cloud IT models in banking and financial services have seen rapid adoption. The strategic relationship we have with our customers enables us to provide a significant number of deployment options to them, ranging from SaaS deployment for the Oracle Financial Services Lending and Leasing, Oracle FLEXCUBE on Managed Cloud Services or as a Business Process Service from a certified partner. Islamic banking is another area where both conventional and pure play Islamic banks are enhancing their portfolio to offer Shariah-compliant products and services. Oracle FLEXCUBE for Islamic banking platform is market-leading in its ability to offer both conventional and Islamic banking services in a highly flexible, transparent and regulator-compliant manner. Oracle FLEXCUBE Investor Services is an important asset in our product portfolio. We have several marquee customers across the world already, and see the recent trends such as the 'Asian Funds Passport' as opportunities that will help us expand our footprint further. Moreover, in economically thriving regions of the world the appetite for wealth management solutions and mutual funds is steadily growing. Business overview Oracle Financial Services Software Limited, majority owned by Oracle, is a world leader in providing IT solutions to the financial services industry. With its experience of delivering value based IT solutions to global financial institutions, Oracle Financial Services Software understands the specific challenges that financial institutions face: the need for building customer intimacy and competitive advantage through cost-effective solutions while, simultaneously, adhering to the stringent demands of a dynamic regulatory environment. Our mission is to enable financial institutions to excel through the effective use of information technology. Our dedicated research and development centres excel in innovation by producing world class products that strive to be ahead of the market. We offer financial institutions the world's most combrhensive and contemporary banking applications and a technology footprint that addresses their complex IT and business requirements. Together with Oracle, we offer a combrhensive suite of offerings encompassing retail, corporate, and investment banking, funds, cash management, trade, treasury, payments, lending, private wealth management, asset management, compliance, enterprise risk and business analytics, among others. With a process-driven approach for service-oriented architecture (SOA) deployments, we offer banks the combined benefits of interoperability, extensibility, and standardization. We have a robust cloud offering for our products. We also offer best-of-breed functionality for financial institutions that need to operate flexibly and competitively and respond rapidly to market dynamics in a fiercely challenging business environment. We have two major business segments the products business (comprising product licensing, consulting and support) and consulting services (comprising IT application and technology services). We also have a smaller business segment that offers business process outsourcing services to financial institutions. These segments are described in detail below: Products The suite of solutions delivering Digital Experience, Digital Engagement and Data Management Oracle Financial Services Software Limited, majority owned by Oracle, is a world leader in providing IT solutions to the financial services industry. With its experience of delivering value based IT solutions to global financial institutions, Oracle Financial Services Software understands the specific challenges that financial institutions face: the need for building customer intimacy and competitive advantage through cost-effective solutions while, simultaneously, adhering to the stringent demands of a dynamic regulatory environment. Oracle Banking Platform is a combrhensive suite of business applications for large global banks. Oracle Banking Platform is designed to help banks respond strategically to today's business challenges and progressively transform their business models and processes, driving productivity improvements across both front and back offices, and reducing operating costs. The solution supports banks as they grow their businesses through new distribution strategies, including multi-brand or white labeling, to tap new markets and enterprise product origination supporting multi-product and packages to drive an increased customer-to-product ratio. Oracle Banking Platform is designed as a native service-oriented architecture (SOA) platform, helping banks implement key enterprise services, deliver on customer centricity, enrich channel capability, drive process improvement and tie it in with their existing applications and technology landscape. Through br-integrated enterprise applications and the underlying Oracle technology stack, the solution can also help to reduce in-house integration and testing efforts, ultimately, reducing IT costs and improving time-to-market. Oracle Banking Platform provides a combrhensive suite of applications that makes the replacement of core systems viable for large banks, enabling strategic choices as well as providing a high level of flexibility and value. Oracle FLEXCUBE is a complete banking product suite for consumer, corporate, investment, private wealth management, consumer lending, asset management and investor servicing, including payments. Oracle FLEXCUBE enables banks to standardize operations across multiple countries, transform their local operations as well as address niche business models like mobile banking, direct banking and Shariah-compliant banking. Financial institutions use Oracle FLEXCUBE to respond faster to market dynamics, define and track processes, while ensuring compliance. Oracle FLEXCUBE has received the certification for SWIFT Certified Application Payments Label 2014. The SWIFT Certified Application - Payments label focuses on the certification of core banking or payments applications that enable the initiation, generation, processing, and settlement of interbank payments. This label is awarded to business applications that adhere to a specific set of criteria linked to the support of SWIFT messages, SWIFT connectivity, and SWIFT functionality. The latest release of Oracle FLEXCUBE enables banks to comply with FATCA phase II, with capabilities to flag customers and track financial transactions for FATCA compliance. It further builds on the product's deep corporate banking capability with new features that allow banks to modernize their corporate banking capabilities with support for virtual accounts, corporate credit cards, corporate-to-bank connectivity, and advanced payment features. Corporate customers have easy modes of payment through physical instruments (such as checks, demand draft, and pay order), can get payment advice and balance movement reports, and can authorize transactions on the move from mobile and tablet devices. The platform also supports end-to-end servicing capabilities backed by improved functionality across retail bills, lending, deposits, current and savings accounts, treasury, and payment operations. The solution now also includes a credit appraisal management system to help streamline credit approval and sanction processes. The latest release also delivers enhanced business process management capabilities enabled by Oracle FLEXCUBE Universal Banking Process Framework Base. The framework has work-list applications; tools for scoring, evaluation, and auto-decisioning; process enablers; integration adaptors; and factory-shipped process flows that help banks quickly create and maintain processes that can reduce time to market for new products, increase process automation, and improve operational efficiency. Oracle FLEXCUBE Direct Banking enables bank to provide a superior digital channel banking experience to its customers. The solution supports seamless flow of information over a user-friendly interface with relevant add-ons like context based service offers, and vide range of relevant information. It also enables banks to deliver a more engaging and context-specific communications based on high-fidelity financial insight and transaction-specific triggers and alerts. Leveraging the mobile technology the solution also supports P2P payment capabilities using email id, mobile no or social media contacts. The solution enables a "customer in" approach to build sustainable, information driven and value centric relationship with the customer as opposed to the typical product out approach currently followed. Bank's customers can access banking services using a wide range of devices across multiple operating systems and form factors. The solution provides personal financial management capabilities, which help bank's customers better manage their finances through improved spend analysis, budget management, goal-based savings accounts, and people-like-me comparison. Oracle FLEXCUBE Enterprise Limits and Collateral Management offers a single source for managing exposure across a business portfolio. It enables centralized collateral management, limits definition, tracking and exposure measurement for effective exposure management and resource utilization. Oracle FLEXCUBE Private Banking is a combrhensive solution for private banking. It gives wealth managers a unified view and analyzes of their customers' wealth across asset classes, and provides the added benefits of performance tracking and improved customer relationship management. The application is a combrhensive, customer centric solution that offers a wealth management portal, a customer interaction tool, and portfolio management capabilities - all of which can be integrated with the existing core banking solutions used by a bank. Oracle Financial Services Lending and Leasing Cloud combines the power of Oracle's combrhensive, industry-leading lending and leasing solution with the simplicity, elasticity and security of Oracle Cloud and empowering lending institutions to grow and improve profitability of their core lending business. The solutions support the complete consumer lending operations and life cycle processing, from origination to servicing and collections- delivering accurate, actionable information from a single data source to help lending institutions make faster and more-informed decisions about loans, reduce risk, effectively manage the loan lifecycle, and manage delinquencies and losses. With an intuitive interface, navigation and context based account and customer sessions help to boost user productivity. Oracle FLEXCUBE Investor Servicing is a process enabled transfer agency and investor servicing solution. It helps financial institutions to manage the complete fund lifecycle and reduce operational costs through process automation across fund structures, intermediary hierarchies and investors. The ISO 20022 compliant Oracle FLEXCUBE Investor Servicing ensures enhanced STP processing through support for a wide variety of SWIFTNet Fund messages. With a combrhensive business rules engine for products - hedge funds, mutual funds and investment linked products and fee structures, Oracle FLEXCUBE Investor Servicing allows fund management companies to configure and launch new products rapidly. Oracle Financial Services Analytical Applications are a complete and fully integrated portfolio of analytical solutions covering enterprise risk, performance management, regulatory compliance and customer insight. They are built upon a shared analytical infrastructure consisting of a unified financial services data model, shared analytical computations and the industry leading Oracle Business Intelligence platform. The suite of applications contains combrhensive set of point solutions that can be integrated to give a holistic view across all analytical applications. Financial institutions need an integrated approach that combines a diverse set of compliance and risk solutions to help them address not only brsent regulatory needs, but also emerging and future risk and regulatory requirements. The framework is rules driven, and readily adapts to change. Unlike other hard coded solutions, Oracle Financial Services Analytical Applications provide both brbuilt rules, br-configured quantitative modeling techniques, pattern matching algorithms, highly configurable UI as well as the capability to add and modify them without technical intervention. This flexibility allows financial institutions to easily create custom rules / techniques / UI for their own analytical requirements and to cost effectively address ever changing compliance regulations. Any rule / technique / UI can be viewed and audited for its underlying definition to enable supervisory oversight. In addition to br-configured computing solutions for Risk and Regulatory Compliance, Oracle Financial Services Analytical Applications provide ability to generate highly formatted templates for regulatory reporting submission and e-filing. The enterprise modeling capability allows financial institutions to use a variety of third party quantitative modeling languages, including Oracle R Enterprise and Open R to meet the institution's modeling needs. The framework also provides capability to access data sources other than the relational database, including structured and unstructured data hosted on HDFS - thus providing massively parallel computing architecture and reducing processing time. Services Oracle Financial Services PrimeSourcing We offer an end-to-end consulting partnership, providing combrhensive business and technology solutions that enable financial services enterprises to improve process efficiencies; optimize costs; meet risk and compliance requirements; define IT architecture; and, manage the transformation process. Consulting services are offered in the areas of Digital Transformation, Payments, Analytics, Risk and Compliance, IT architecture, Business process improvement. PrimeSourcing value based offerings: With a singular focus on the financial services segment, PrimeSourcing has proven domain expertise across Capital Markets, Private Banking, Wealth Management, Corporate Banking, Payments, Retail Banking & Risk and Compliance. PrimeSourcing's service offerings cut across all the domains keeping the specific needs of each sector in perspective. PrimeSourcing's Value based offerings are designed to provide specialized solutions for Banking & Financial Services in areas such as Cloud Adoption, Customer Experience, Business Process Management, Enterprise Integration, Business Intelligence, Big Data Analytics, Reporting, Quality Assurance and enabling financial institutions to address their unique needs and leverage technology innovations. PrimeSourcing Consulting services: PrimeSourcing offers end-to-end consulting services in the areas of Business & IT consulting and process improvement and transformation, SOA Strategy & Governance, IT Architecture Planning, Product Evaluation & Selection, IT Portfolio Assessment, Program Management, IT architecture and Governance, Quality Consulting. PrimeSourcing Application services: PrimeSourcing provides combrhensive customized IT solutions for banking, securities and insurance those encompass the complete lifecycle of an IT application asset from conceptualization to creation and maintenance. This includes the expertise around specialized practice lines like payments, trade finance, business intelligence, CRM, Oracle Technology and Applications and testing; services include ADM Services, Testing, System Integration, implementation and Migration. Oracle Product Related services: PrimeSourcing with its extensive knowledge on Oracle Product line also offers Oracle Product related offerings to help customers make the most out of Oracle investments they have made. Our experts help in Process consulting, Application integration, Reporting & Upgrade support across Banking Applications, Risk & Analytical Applications and Enterprise Applications. PrimeSourcing Technology services: PrimeSourcing offers expertise in conceptualization, design, evaluation, implementation and management of IT infrastructure for financial institutions under two service lines. First line is of Technology Management Services, covering Data Management, Mainframe Services, Application Deployment, Monitoring & Management and Risk & Security Assessment. Oracle Business Process Outsourcing services (BPO) Oracle Business Process Outsourcing services ('BPO') offering excels in providing cost effective and high quality BPO services ranging from complex back-office work to contact centre services for the banking, capital markets, insurance and asset management domains. This combrhensive ecosystem of BPO services is backed by a mature process and consulting framework. The BPO offerings are ISO 9001 certified for quality management and ISO 27001 certified for information security management. Outlook Your company is focused on providing technology to the global banking and financial services industry. Through its R&D initiatives, it continually invests in its offerings in order to maintain its leadership position in the market. The portfolio of your company's offerings strives to deliver the relevant solutions to clients, while protecting their investments for the future. The world of banking and finance is fast changing, as explained in other sections of this report. On the heels of the trends sweeping the industry, your company sees significant opportunities arising for the near and far terms. At every point in the lifecycle of a financial transaction - even a potential transaction - your company's offerings help banks deliver to their clients strategic advice, relevant pricing and other information, instant updates across channels, and, overall, a superior transaction experience. From a bank's point of view, your company's technology solutions enable better services, sharper customer insight, relevant information for quicker and better decisions, while enabling operational efficiency and helping in regulatory compliance. The Company is well placed to address these opportunities through its combrhensive and modern technology solutions together with world class portfolio of services. Internal control systems and their adequacy Oracle Financial Services Software group has in place adequate systems for internal control and documented procedures covering all financial and operating functions. These systems are designed to provide reasonable assurance with regard to maintaining proper accounting controls, monitoring economy and efficiency of operations, protecting assets from unauthorized use or losses, and ensuring reliability of financial and operational information. The Group continuously strives to align all its processes and controls with global best practices. Analysis of our Consolidated Financial Results The following discussion is based on our audited consolidated financial statements, which have been brpared in conformity with accounting principles generally accepted in India and complying in all material respects with the Accounting Standards notified under the section 133 of the Companies Act, 2013 (the 'Act'), read together with paragraph 7 of the Companies (Accounts) Rules 2014. The consolidated financial statements are consolidated for Oracle Financial Services Software Group that includes Oracle Financial Services Software Limited ("the Company"), its subsidiaries and associate company (together referred to as "OFSS Group" as described in Note 1 to the consolidated financial statements) ("the Group") as at March 31, 2015. You should read the following discussion of our financial condition and results of operations together with the detailed consolidated Indian GAAP financial statements and the notes to those statements. Our fiscal year ends on March 31 of each year. Our total revenues in fiscal 2015 were Rs. 39,049.05 million, rebrsenting an increase of 4% from Rs. 37,413.21 million in fiscal 2014. Income from operations in fiscal 2015 was Rs. 14,827.03, rebrsenting an increase of 12% from Rs. 13,277.13 million in fiscal 2014. The profit for the year in fiscal 2015 was Rs. 11,923.20 million, as against Rs. 13,593.19 million in fiscal 2014. Our profit margin is at 31% and 36% for the fiscal years 2015 and 2014 respectively. We define profit margins for a particular period as the ratio of profit to total revenues from operations during such period. Products revenues As of March 31, 2015, our product revenues were Rs. 31,814.78 million, an increase of 10% from Rs. 29,001.49 million during the fiscal year ended March 31, 2014. Product revenues rebrsented 81% and 77% of total revenues for fiscal years ended 2015 and 2014, respectively. Our product revenues comprise license fees, professional fees for implementation and enhancement services and annual maintenance contract (Post Contract Support - PCS) fees for our products. License fee Our standard licensing arrangements for products provide the bank a right to use the product up to a limit on number of users or sites or such other usage metric upon the payment of a license fee. The license fee is a function of a variety of quantitative and qualitative factors, including the number of copies sold, the number of users supported, the number and combination of the modules sold and the number of sites and geographical locations supported. The licenses are perpetual, non-exclusive, personal, non-transferable and royalty free. Consulting fee Along with licenses for our products, our customers can also optionally avail consulting services related to the implementation of products at their sites, integration with other systems or enhancements to address their specific requirements. The customer is typically charged a service fee on either a fixed price basis or a time and material basis based on the professional efforts incurred and associated out of pocket expenses. Annual maintenance contract (PCS) fees Customers typically sign an Annual Maintenance Contract with us under which, we provide technical support, maintenance, problem resolution and upgrades for the licensed products. These support agreements typically cover a period of 12 months. The revenues generated from license fees and consulting services rendered by us depends on factors such as the number of new customers added, milestones achieved, implementation time, etc. Therefore, such revenues typically vary from year to year. The annual maintenance contracts generate steady revenues and would grow to the extent that new customers are entering a support agreement. Operating expenses The operating expenses of our product business segment consist of costs attributable to the implementation, enhancement, maintenance and research and development, of our products. These costs primarily consist of compensation expenses for employees, project related travel expenses, professional fees paid to vendors, the cost of application software for internal use, selling and marketing expenses (including commissions payable to our partners), research and development expenses, product advertising and marketing expenses and allocated overhead expenses associated with support functions such as human resources, finance, facilities and infrastructure, IT, and debrciation and amortization. We recognize these expenses as incurred. Research and development costs are expensed as incurred. Software product development costs are expensed as incurred unless technical feasibility of project is established, future economic benefits are probable, the Group has an intention and ability to complete and use or sell the software and the cost can be measured reliably. Software product development costs incurred subsequent to the achievement of technological feasibility are not material and are expensed as incurred. Services revenues Our services revenues rebrsented 16% and 20% of our total revenues for the fiscal year ended March 31, 2015 and March 31, 2014. Our services revenues were Rs. 6,192.38 million in the fiscal year ended March 31, 2015, rebrsenting a decrease of 16% from Rs. 7,398.28 million in the fiscal year ended March 31, 2014. The contracts relating to our services business are either time or material contracts or fixed price contracts. The percentage of total services revenues from time and material contracts was 73% in fiscal 2015 and 72% in fiscal 2014, with the remainder of our services revenues attributable to fixed price contracts. We render services through offshore centres located in India, onsite teams operating at our customers' brmises and our on-site centres located in other parts of the world. Offshore services revenues consists of revenues from work conducted at our centres in India and for Indian customers at their locations. Onsite revenues consist of work conducted at customer brmises outside India and our centres outside India. The composition of our onsite and offshore revenues is determined by the project lifecycle. Typically, the work involving the design of new systems or relating to a system rollout would be conducted onsite, while the core software development, maintenance and support activity may be conducted offshore. We received 40% and 41% of our services revenues from onsite work and 60% and 59% from offshore work during the fiscal years 2015 and 2014 respectively. Operating expenses The operating expenses of our services business segment consist of costs attributable to the compensation expenses for employees, project related travel expenses, professional fees paid to vendors, the cost of application software for internal use, selling and marketing expenses, marketing expenses and allocated overhead expenses associated with support functions such as human resources, finance, facilities and infrastructure, IT, and debrciation and amortization. We recognize these costs as incurred. Business Process Outsourcing (BPO) services revenues Our BPO services revenues rebrsented 3% of our total revenues for both the fiscal years ended March 31, 2015 and 2014. Our BPO services revenues were Rs. 1,041.89 million in the fiscal year ended March 31, 2015, an increase of 3% from Rs. 1,013.44 million in the fiscal year ended March 31, 2014. Operating expenses The operating expenses for BPO Services consist primarily of compensation expenses for our employees, travel expenses, professional fees paid to vendors, facilities related expenses, corporate overheads and debrciation. We recognize these costs as incurred. Customer concentration Our business depends on our relationships with a large number of customers. Our revenue from our top ten customers, as a percentage of our total revenues is at 37% for fiscal 2015 as against 40% for fiscal year 2014. The top ten customers in our services business contributed 67% of the total services revenues, and the top ten customers in our products business, contributed 39% of the total products revenues during fiscal 2015. It may be pertinent to note that the constituents of the customers forming part of the top 10% list could vary from year to year, especially in our Products business. Trade receivables Trade receivables as of fiscal March 31, 2015 and 2014 were Rs. 6,016.21 million and Rs. 6,807.44 million respectively. Our days sales outstanding (which is the ratio of sundry debtors to total sales in a particular year multiplied by 365) for fiscal 2015 and 2014 were approximately 51 and 66 respectively. The Group periodically reviews its trade receivables outstanding as well as the ageing, quality of the trade receivables, customer relationship and the history of the client. Foreign currency and treasury operations A substantial portion of our revenues is generated in foreign currencies while a majority of our expenses are incurred in Indian Rupees (INR), with the remaining expenses are incurred in US Dollars (USD), Euro (EUR), Australian Dollars (AUD), British Pounds (GBP), and other foreign currencies where our operations are there. Our philosophy for treasury operations is conservative and we invest surplus funds brdominantly in time deposits with well-known and highly rated Indian and foreign banks. We have extensive internal controls over asset management; including cash management operations, credit management and debt collection. We maintain funds mainly in USD, EUR, GBP, JPY, SGD and CNY currencies in bank accounts or in deposits based on comparative exchange rates, interest rates and currency requirements. The Group books forward covers from time to time in line with its treasury management philosophy. Comparison of fiscal 2015 with fiscal 2014 Revenues from operations Our total revenues in the fiscal year ended March 31, 2015 were Rs. 39,049.05 million, an increase of 4% over our total revenues of Rs. 37,413.21 million in the fiscal year ended March 31, 2014. The increase in revenues was primarily attributable to an increase in the revenues from our products business. Products revenues Our products revenues in the fiscal year ended March 31, 2015 were Rs. 31,814.78 million, an increase of 10% over our products revenues of Rs. 29,001.49 million in the fiscal year ended March 31, 2014 on the strength of large customer wins in JAPAC and EMEA. The revenues from license fees comprised 15% of the revenues, implementation and customization fees comprised 57% and Annual Maintenance Contracts comprised 29% of the revenues for the fiscal 2015. Services revenues Our services revenues rebrsented 16% and 20% of our total revenues for the fiscal year ended March 31, 2015 and March 31, 2014. Our services revenues were Rs. 6,192.38 million in the fiscal year ended March 31, 2015, a decrease of 16% from Rs. 7,398.28 million in the fiscal year ended March 31, 2014. Revenues from time and material contracts comprised 73% of the services revenues and fixed price contracts comprised 27% for the fiscal 2015. Business Process Outsourcing (BPO) revenues Our revenues from BPO services in the fiscal year ended March 31, 2015 were Rs. 1,041.89 million, increase of 3% over our revenues from BPO services of Rs. 1,013.44 million in the fiscal year ended March 31, 2014. Other income, net Our other income in the fiscal year ended March 31, 2015, was Rs. 3,481.34 million, as compared to Rs. 6,736.48 million in the fiscal year ended March 31, 2014. The lower interest income on Bank deposits of Rs. 1,052.62 million on account of lower surplus cash balance along with lower interest rates and net increase in foreign exchange loss of Rs. 2,314.84 million have primarily attributed to overall decrease of Rs. 3,255.14 million in other income. Foreign currency and treasury operations A substantial portion of our revenues is generated in foreign currencies while a majority of our expenses are incurred in Indian Rupees (INR), with the remaining expenses are incurred in US Dollars (USD), Euro (EUR), Australian Dollars (AUD), British Pounds (GBP), and other foreign currencies where our operations are there. Our philosophy for treasury operations is conservative and we invest surplus funds brdominantly in time deposits with well-known and highly rated Indian and foreign banks. We have extensive internal controls over asset management; including cash management operations, credit management and debt collection. We maintain funds mainly in USD, EUR, GBP, JPY, SGD and CNY currencies in bank accounts or in deposits based on comparative exchange rates, interest rates and currency requirements. The Group books forward covers from time to time in line with its treasury management philosophy. Comparison of fiscal 2015 with fiscal 2014 Revenues from operations Our total revenues in the fiscal year ended March 31, 2015 were Rs. 39,049.05 million, an increase of 4% over our total revenues of Rs. 37,413.21 million in the fiscal year ended March 31, 2014. The increase in revenues was primarily attributable to an increase in the revenues from our products business. Products revenues Our products revenues in the fiscal year ended March 31, 2015 were Rs. 31,814.78 million, an increase of 10% over our products revenues of Rs. 29,001.49 million in the fiscal year ended March 31, 2014 on the strength of large customer wins in JAPAC and EMEA. The revenues from license fees comprised 15% of the revenues, implementation and customization fees comprised 57% and Annual Maintenance Contracts comprised 29% of the revenues for the fiscal 2015. Services revenues Our services revenues rebrsented 16% and 20% of our total revenues for the fiscal year ended March 31, 2015 and March 31, 2014. Our services revenues were Rs. 6,192.38 million in the fiscal year ended March 31, 2015, a decrease of 16% from Rs. 7,398.28 million in the fiscal year ended March 31, 2014. Revenues from time and material contracts comprised 73% of the services revenues and fixed price contracts comprised 27% for the fiscal 2015. Business Process Outsourcing (BPO) revenues Our revenues from BPO services in the fiscal year ended March 31, 2015 were Rs. 1,041.89 million, increase of 3% over our revenues from BPO services of Rs. 1,013.44 million in the fiscal year ended March 31, 2014. Other income, net Our other income in the fiscal year ended March 31, 2015, was Rs. 3,481.34 million, as compared to Rs. 6,736.48 million in the fiscal year ended March 31, 2014. The lower interest income on Bank deposits of Rs. 1,052.62 million on account of lower surplus cash balance along with lower interest rates and net increase in foreign exchange loss of Rs. 2,314.84 million have primarily attributed to overall decrease of Rs. 3,255.14 million in other income. Expenses Employee costs Our employee costs increased by 0.4% to Rs. 18,479.02 million in the fiscal year ended March 31, 2015 from Rs. 18,404.78 million in the fiscal year ended March 31, 2014. Employee costs relate to salaries and bonuses paid to employees. Travel related Expenses (Net of recoveries) Our travel related expenditure decreased by 4% to Rs. 1,343.44 million in the fiscal year ended March 31, 2015 from Rs. 1,405.81 million in the fiscal year ended March 31, 2014. The overall travel expenses rebrsents 3% and 4% of revenue from operations for the fiscal year ended March 31, 2015 and March 31, 2014 respectively. Professional fees Our professional fees related expenditure decreased by 5% to Rs. 1,718.66 million in the fiscal year ended March 31, 2015 from Rs. 1,818.33 million in the fiscal year ended March 31, 2014. The overall professional fees rebrsents 4% and 5% of revenue from operations for the year ended March 31, 2015 and March 31, 2014 respectively. Professional fees include services hired from external consultants for various projects. Other expenses Our other expenditure increased by 12% to Rs. 1,999.98 million in the fiscal year ended March 31, 2015 from Rs. 1,790.44 million in the fiscal year ended March 31, 2014. The other expenses rebrsent 4% and 5% of revenue from operations for the years ended March 31, 2015 and 2014 respectively. Other expenses primarily consist of Corporate Social Responsibility expenditure, various facilities costs, application software, communication and other miscellaneous expenses. Debrciation and amortization Our Debrciation and amortization charge for the year was Rs. 680.92 million and Rs. 716.72 million for the year ended March 31, 2015 and March 31, 2014 respectively rebrsenting 2% of revenues from operations for both the years ended March 31, 2015 and 2014. Exceptional item There are no exceptional items reported during the years ended March 31, 2015 and March 31, 2014. Income taxes Our provision for income taxes in the fiscal year ended March 31, 2015 was Rs. 6,385.17 million, a decrease of 1% over our provision for income taxes of Rs. 6,420.42 million in the fiscal year ended March 31, 2014. Our effective tax rate was 35% in the fiscal year ended March 31, 2015 compared to 32% in the fiscal year ended March 31, 2014. Income taxes also include foreign taxes rebrsenting income taxes payable overseas by us in various countries. Profit for the year As a result of the foregoing factors, net profit has decreased by 12% to Rs. 11,923.20 million in fiscal 2015 from Rs. 13,593.19 million in fiscal 2014. Our net profit margin has reduced to 31% for the fiscal year 2015 as against 36% in the fiscal year 2014. We define net profit margins for a particular period as the ratio of profit for the year to revenue from operations during such period. Liquidity and capital resources Our capital requirement relate primarily to financing the growth of our business. We have historically financed the majority of our working capital, capital expenditure and other requirements through our operating cash flow. During fiscal 2015 and 2014, we generated cash from operations of Rs. 10,603.91 million and Rs. 6,732.12 million respectively. We are a zero debt company. We expect that our primary financing requirements in the future will be capital expenditure and working capital requirements in connection with the expansion of our business. We believe that the cash generated from operations will be sufficient to satisfy our currently foreseeable capital expenditure and working capital requirements. Human capital We recruit graduates from leading engineering and management institutions. We also hire functional experts from the financial services industry. The blend of functional knowledge and technical expertise, coupled with in-house training and real—life, experiences in working with financial institutions make our employees unique. We enjoy cordial relationships with our employees and endeavor to give them an excellent, professionally rewarding and enriching work environment. We operate an effective performance management system, with a focus on employee development. This measures key result areas, competencies and training requirements ensuring all-round employee development. Our employee headcount at the end of the fiscal year ended March 2015 was 8,928 as compared to the employee headcount as on March 2014 at 9,220. Risks and concerns Our primary market risk exposures are due to the following: - Foreign exchange rate fluctuations - Fluctuations in interest rates. As of March 31, 2015, we had Cash and Bank Balances of Rs. 35,638.25 million out of which Rs. 29,759.76 million was in interest bearing bank deposits. Consequently, we face an exposure on account of fluctuation in interest rates. These funds were mainly invested in bank deposits of longer maturity (more than 90 days, but, under 360 days). A substantial portion of our revenues is generated in foreign currencies while a majority of our expenses are incurred in Indian Rupees and the balance in US Dollars, British Pounds, Chinese Yuan, Singapore Dollars, Euro and other currencies. Our functional currency for Indian operations and consolidated financials is the Indian Rupee. We expect that the majority of our revenues will continue to be generated in foreign currencies for the foreseeable future and a significant portion of our expenses, including personnel costs and capital and operating expenditure, to continue to be incurred in Indian Rupees. In addition, we face normal business risks such as global competition and country risks pertaining to countries that we operate in. Analysis of our Unconsolidated Financial Results The following discussion is based on our audited unconsolidated financial statements, which have been brpared in conformity with accounting principles generally accepted in India and complying in all material respects with the Accounting Standards notified under section 133 of the Companies Act, 2013 (the 'Act'), read together with paragraph 7 of the Companies (Accounts) Rules 2014. You should read the following discussion of our financial condition and results of operations together with the detailed unconsolidated Indian GAAP financial statements and the notes to those statements. Our fiscal year ends on March 31 of each year. Our total revenues in fiscal 2015 were Rs. 33,410.95 million, rebrsenting an increase of 6% from Rs. 31,594.68 million in fiscal 2014. Income from operations in fiscal 2015 were Rs. 12,377.30, rebrsenting an increase of 12% from Rs. 11,098.89 million in fiscal 2014. The net income in fiscal 2015 was Rs. 10,580.20 million, against Rs. 11,483.62 million in fiscal 2014. Our net income margin in fiscal 2015 is at 32% as against 36% in fiscal 2014. We define income margins for a particular period as the ratio of profit for the year to revenue from operations during such period. Products business Products revenues As of March 31, 2015, our product revenues were Rs. 27,084.10 million, an increase of 11% from Rs. 24,426.47 million during the fiscal year ended March 31, 2014. Product revenues rebrsented 81% and 77% of total revenues for fiscal years ended 2015 and 2014 respectively. Our products revenues comprises of license fees, professional fees for implementation and enhancement services and annual maintenance contract (Post Contract Support - PCS) fees for our products. License fee Our standard licensing arrangements for products provide the bank a right to use the product up to a limit on number of users or sites or such other usage metric upon the payment of a license fee. The license fee is a function of a variety of quantitative and qualitative factors, including the number of copies sold, the number of users supported, the number and combination of the modules sold and the number of sites and geographical locations supported. The licenses are perpetual, non-exclusive, personal, non transferable and royalty free. Consulting fee Along with licenses for our products, our customers can also optionally avail consulting services related to the implementation of products at their sites, integration with other systems or enhancements to address their specific requirements. The customer is typically charged a service fee on either a fixed price basis or a time and material basis based on the professional efforts incurred and associated out of pocket expenses. Annual maintenance contract (PCS) fees Customers typically sign an Annual Maintenance Contract with us under which, we provides technical support, maintenance, problem resolution and upgrades for the licensed products. These support agreements generally cover a period of 12 months. The revenues generated from license fees and consulting services rendered by us depend on factors such as the number of new customers added, milestones achieved, implementation time, etc. Therefore, such revenues typically vary from year to year. The annual maintenance contracts generate steady revenues and would grow to the extent that new customers are entering into a support agreement. Operating expenses The operating expenses of our product business segment consist of costs attributable to the implementation, enhancement, maintenance and research and development of our products. These costs primarily consist of compensation expenses for employees, project related travel expenses, professional fees paid to vendors, the cost of application software for internal use, selling and marketing expenses (including commission payable to our partners) , research and development expenses, product advertising and marketing expenses and allocated overhead expenses associated with support functions such as human resources, finance, facilities and infrastructure expenses, IT and debrciation and amortization. We recognize these expenses as incurred. Research and development costs are expensed as incurred. Software product development costs are expensed as incurred unless technical feasibility of project is established, future economic benefits are probable, the Group has an intention and ability to complete and use or sell the software and the cost can be measured reliably. Software product development costs incurred subsequent to the achievement of technological feasibility are not material and are expensed as incurred. Services revenues Our services revenues rebrsented 19% and 23% of our total revenues for the fiscal year ended March 31, 2015 and 2014 respectively. Our services revenues were Rs. 6,326.85 million in the fiscal year ended March 31, 2015 and Rs. 7,168.21 million in the fiscal year ended March 31, 2014. The contracts relating to our services business are either time or material contracts or fixed price contracts. The percentage of total services revenues from time and material contracts was 76% in fiscal 2015 and 74% in fiscal 2014, with the remainder of our services revenues attributable to fixed price contracts. We render services through offshore centres located in India, onsite teams operating at our customers' brmises and our on-site centres located in other parts of the world. Offshore services revenues consists of revenues from work conducted at our centres in India and for Indian customers at their locations. Onsite revenues consist of work conducted at customer brmises outside India and our centres outside India. The composition of our onsite and offshore revenues is determined by the project lifecycle. Typically, the work involving the design of new systems or relating to a system rollout would be conducted onsite, while the core software development, maintenance and support activity may be conducted offshore. We received 42% our services revenues from onsite work and 58% from offshore work during the fiscal years 2015 as against 43%and 57% respectively in the fiscal year 2014. Operating expenses The operating expenses of our services business segment consist of costs attributable to the compensation expenses for employees, project related travel expenses, professional fees paid to vendors, the cost of application software for internal use, selling and marketing expenses, marketing expenses and allocated overhead expenses associated with support functions such as human resources, finance, facilities and infrastructure, IT, and debrciation and amortization. We recognize these costs as incurred. Customer concentration Our business depends on our relationships with a large number of customers. Our revenues from our top ten customers, as a percentage of our total revenues are at 38% and 40% for fiscal 2015 and 2014 respectively. The top ten customers in our services business contributed 70% of the total services revenues and the top ten customers in our products business, contributed 40% of the total products revenues during fiscal 2015. It may be pertinent to note that the constituents of the customers forming part of the top 10% list could vary from year to year, especially in our Products business. Trade receivables Trade receivables as of fiscal March 31, 2015 and 2014 were Rs. 6,910.80 million and Rs. 11,569.95 million respectively. Our days sales outstanding (which is the ratio of Trade receivables to total revenue from operations in a particular year multiplied by 365) for fiscal 2015 and 2014 were approximately 76 and 134 respectively. The Company periodically reviews its trade receivables outstanding as well as the aging, quality of the trade receivables, customer relationship and history of the client. The following table rebrsents the ageing of our trade receivables: Foreign currency and treasury operations A substantial portion of our revenues is generated in foreign currencies while a majority of our expenses are incurred in Indian Rupees (INR), with the remaining expenses are incurred in various currencies mainly in US Dollars (USD), Euro (EUR), Australian Dollars (AUD), British Pounds (GBP) and other foreign currencies where our operations are there. Our philosophy for treasury operations is conservative and we invest surplus funds brdominantly in time deposits with well-known and highly rated Indian and foreign banks. We have extensive internal controls over asset management, including cash management operations, credit management and debt collection. We maintain funds mainly in USD, EUR, GBP, and INR currencies in bank accounts or in deposits based on comparative exchange rates, interest rates and currency requirements. The Group books forward covers from time to time in line with its treasury management philosophy. Comparison of fiscal 2015 with fiscal 2014 Revenues from operations Our total revenues from operations in the fiscal year ended March 31, 2015, were Rs. 33,410.95 million, an increase of 6% over our total revenues of Rs. 31,594.68 million in the fiscal year ended March 31, 2014. The increase in revenues was primarily attributable to an increase in the revenues from our products business. Products revenues Our products revenues in the fiscal year ended March 31, 2015, stood at Rs. 27,084.10 million, an increase of 11% over our products revenues of Rs. 24,426.47 million in the fiscal year ended March 31, 2014 on the strength of large customer wins in JAPAC and USA. The revenues from license fees comprised 14% of the revenues, implementation and customization fees comprised 59%, and Annual Maintenance Contracts comprised 27% of the revenues for the fiscal 2015. Services revenues Our services revenues rebrsented 19% and 23% of our total revenues in the fiscal year 2015 and 2014. Our services revenues were Rs. 6,326.85 million in the fiscal year ended March 31, 2015. Revenues from time and material contracts comprised 76% of services revenues and fixed price contracts comprised 24% for the fiscal 2015. Other income, net Our other income in the fiscal year ended March 31, 2015, was Rs. 3,758.99 million, as compared to Rs. 6,209.16 million in the fiscal year ended March 31, 2014. The lower interest income on Bank deposits of Rs. 1,066.99 million on account of lower surplus cash balance along with lower interest rates and net increase in foreign exchange loss of Rs. 1,367.67 million have primarily attributed to overall decrease of Rs. 2,450.17 million in other income. Expenses Employee costs Our employee costs increased by 1% to Rs. 15,973.70 million in the fiscal year ended March 31, 2015 from Rs. 15,762.32 million in the fiscal year ended March 31, 2014. Employee costs relate to salaries and bonuses paid to employees in India and at overseas. Travel related expenses (net of recoveries) Our travel related expenditure reduced by 3% to Rs. 1,073.84 million in the fiscal year ended March 31, 2015 from Rs. 1,112.61 million in the fiscal year ended March 31, 2014. The overall travel expenses rebrsents 3% and 4% of Revenue from operations for the year ended March 31, 2015 and 2014 respectively. Professional fees Our professional fees related expenditure was Rs. 1,867.07 million in the fiscal year ended March 31, 2015 as against Rs. 1,708.12 million in the fiscal year ended March 31, 2014. The overall professional fees rebrsent around 6% and 5% of Revenue from operations for the year ended March 31, 2015 and 2014 respectively. Professional fees include services hired from subsidiaries and that from external consultants for various projects. Other expenses Our other expenditure increased by 17% to Rs. 1,484.67 million in the fiscal year ended March 31, 2015 from Rs. 1,269.28 million in the fiscal year ended March 31, 2014. The other expenses rebrsent 4% of Revenue from operations for the year ended March 31, 2015 and 2014. Other expenses primarily consist of Corporate Social Responsibility expenditure, various facilities costs, application software, communication and other miscellaneous expenses. Debrciation and amortization Our Debrciation and amortization charge for the year was Rs. 634.37 million and Rs. 643.46 million for the year ended March 31, 2015 and 2014 respectively rebrsenting 2% of revenues from operations. Income taxes Our provision for income tax in the fiscal year ended March 31, 2015, was Rs. 5,556.09 million as against Rs. 5,824.43 million in the fiscal year ended March 31, 2014. Our effective tax rate was 34% for both the fiscal years ended March 31, 2015 and March 31, 2014. Income taxes also include foreign taxes rebrsenting income taxes payable overseas by the Company in various countries. Profit for the year As a result of the foregoing factors, net profit for the year ended March 31, 2015 is Rs. 10,580.20 million as against Rs. 11,483.62 million during the year ended March 31, 2014. Our net profit margin was 32% for the fiscal year 2015 as against 36% in the fiscal year 2014. We define net profit margins for a particular period as the ratio of net profit for the year to revenue from operations during such period. Liquidity and capital resources Our capital requirement relate primarily to financing the growth of our business. We have historically financed the majority of our working capital, capital expenditure and other requirements through our operating cash flow. During fiscal 2015 and 2014 we generated cash from operations of Rs. 9,743.53 million and Rs. 6,277.72 million respectively. We are a zero debt company. We expect that our primary financing requirements in the future will be capital expenditure and working capital requirements in connection with the expansion of our business. We believe that the cash generated from operations will be sufficient to satisfy our currently foreseeable capital expenditure and working capital requirements. Human capital We recruit graduates from leading engineering and management institutions. We also hire functional experts from the banking industry. The blend of functional knowledge and technical expertise, coupled with in-house training and real life, experiences in working with financial institutions make our employees unique. We enjoy cordial relationships with our employees and endeavor to give them an excellent, professionally rewarding and enriching work environment. We operate an effective performance management system, with a focus on employee development. This measures key result areas, competencies and training requirements ensuring all-round employee development. Our employee headcount at the end of the fiscal year ended March 2015 was 7,151 as compared to the employee headcount as on March 2014 at 7,306. Risks and concerns Our primary market risk exposures are due to the following: - Foreign exchange rate fluctuations - Fluctuations in interest rates As of March 31, 2015, we had Cash and Bank Balances of Rs. 30,154.06 million, out of which Rs. 29,245.14 million was in interest bearing bank deposits. Consequently, we face an exposure on account of fluctuation in interest rates. These funds were mainly invested in bank deposits of longer maturity (more than 90 days and under 360 days). A substantial portion of our revenues is generated in foreign currencies, while a majority of our expenses are incurred in Indian Rupees and the balance in US Dollars, Australian Dollars, British Pound, Euro and other currencies. Our functional currency for Indian operations is the Indian Rupee. We expect that the majority of our revenues will continue to be generated in foreign currencies for the foreseeable future and a significant portion of our expenses, including personnel costs and capital and operating expenditure, to continue to be incurred in Indian Rupees. In addition, we face normal business risks such as global competition and country risks pertaining to countries that we operate in. |