MANAGEMENT DISCUSSION AND ANALYSIS

Overview:

Your company was Incorporated in Hyderabad, India in 1990. Your Company started with providing solutions based on Bar Coding, one of the oldest Automated Identification and Data Capture (AIDC) technologies. Since then, in the past two decades, it has been pioneering in introducing newer technologies and solutions in India based on Biometrics, RFID, POS, EAS, and Smart Cards etc. Today it has global brsence through subsidiaries in USA, Singapore, and Middle East. It is headquartered in Hyderabad, India.

Your company has always been at the forefront in most of the technologies under the AIDC umbrella and will strive to continue this for delivering improved value to the customers. This has been achieved by establishing strong relationship with technology giants who have given us access to futuristic technologies thereby giving us the competitive edge of introducing any new technology which is available for commercial use.

Our ability to keep ourselves abreast with the technological advances and provide innovative solutions to our clients; coupled with the experience and implementation skills, makes us our client's ideal partner in their growth story; which truly defines our success.

The management team has effectively leveraged the existing strengths and since 2001 the focus has moved from being a mere systems integrator to offering end to end solutions. Today, Bartronics is sbrading its wings across the globe to serve the growing demand for the quality services and reach out for the newer opportunities and markets.

Business Scenario

During the concluded financial year, the Indian GDP grew at 6.9%, as declared by the Finance Ministry. However, the manufacturing and services sector witnessed muted growth rate. Your company too faced challenging business environment which got reflected in the company's financial performance. Nevertheless, for the current financial year, government has taken initiatives to support the economy, and International Monetary Fund (IMF) has projected the growth rate of GDP at 7.5% and manufacturing and services sector is expected to contribute for this. Management believes that your company is well brpared to exploit every opportunity that is expected to come during this year.

Key Developments

Indian Operations:

The challenging business environment faced by the company last year prompted us to take critical & important decisions in order to protect interest of all the stakeholders of the company and one of those decisions was to consolidate the business around quality clients. We had to temporarily stop working with clients who were yet to clear our dues as the company has increased its focus on the realization of outstanding debtors. Although this has temporarily resulted in lower topline, the entire process will create an organization which will have strong base of quality customers and a scalable model on which company will ride into growth phase.

Financial Inclusion: Your Company has gained strong foothold in the government's priority area of Financial Inclusion. All the Banks that the company work with have acknowledged Company's strength in providing services backed with best of the technologies.

Global Delivery Center: Your Company, considering setting up a Global Delivery Center which will be rendering IT services of niche and focused technologies. Your company already has global brsence through offices in Singapore, Middle East etc. which will help GDC to grow at much faster rate compared to the market average.

Outstanding FCCBs:

Bartronics India Limited had issued Foreign Currency Convertible Bonds (FCCBs) for an aggregate sum of USD 50mn in January 2008. These bonds were due for redemption in February 2013. The company has appointed M/s Avista Advisory Group to assess all the options available with the company and finalize best suited approach in order to address the maturity. The options available with the company include restructuring the bonds i.e., rolling over the bonds for next five years or replacing the bonds with fresh bonds, or redeeming all the bonds at a mutually agreeable price. With these available options, the Company, along with M/s Avista Advisory Group has got in touch with the bondholders and has initiated discussions which are at advanced stages now. The company had filed a request for an extension of the maturity of the bonds to 4th May, 2014 with Reserve Bank of India which was granted vide letter dated 21st February, 2014. The company has applied for further extension of the maturity date with Reserve Bank of India (RBI) and the company is waiting to hear from RBI to move forward. The company is confident of addressing the maturity of Bonds shortly.

International Operations:

The company had started international operations in order to have access to vast opportunities which are being provided. These operations which faced extremely challenging times in recent past, is now showing first signs of good traction and the demand is expected to grow this year. Apart from scouting for newer geographies and penetrating deeper into existing ones last year, your company had also initiated process to establish a common platform across all the operations across the globe which will have knowledge base of implementing projects. This will be linked to the GDC which will enable seamless sharing of knowledge and experience within the operations while ensuring that the 'wheel is not invented twice' which is expected to reduce implementation time of the projects. These initiatives are aimed at enhancing user experience in process of adding more value to the customer.

Future Growth: Management has identified the following growth drivers:

A) Identification Solutions: With the consolidation of business around quality clients, your company expects to grow at a much faster rate after the period of consolidation

B) E-Governance & Smart Card Manufacturing: The company has emerged as a market leader in the Financial Inclusion space. Clearly, this gives the company with clear earnings visibility for next five years coupled with higher growth rate. Internationally too, this is gaining importance with many developing and developed countries embracing this as their national agenda. Your company is fully brpared to exploit any such opportunities.

C) International Operations: The current size of international operations will enable the enterprise to have a high growth rate once the business environment returns to normalcy. Also, the common knowledge sharing platform will enable your company to scout for newer geographies without compromising on the delivery quality which will eventually fuel the growth.

Human Capital

Your company believes that the value of any enterprise is only as good as its Human Capital. It is very important to have your human capital updated with the latest technologies. During the year, as the company faced challenging business atmosphere and fewer growth opportunities, the period, the management thought was apt to have its human capital undergo technology advancement training, process improvement training and general management training. Management is aware that these initiatives do not yield results immediately however these activities will surely help the company stay ahead of the curve.

Research and Development: It was a year when the company concentrated even more on its Research and Development activities and has applied for patents for various implementation processes/technologies. These appeals are currently under considerations and the management is hopeful that some of these applications will result into increase in the number of patents the company holds which currently stands at 14.

SWOT Analysis:

Strengths and Opportunities: Your Company's strength lies thoroughly in providing end to end solutions using most of the AIDC technologies. Apart from in-house Research and Development Center; your company has strong relationship with technology majors which help your company gain access to the latest of the technology which is available for commercial use. Your company being India's only and one of few companies in the world to provide End to End solutions has resulted in lions share for the company in the domestic market. Even in the Financial Inclusion space; your company has come out as a dominant player with the brstigious project getting implemented in 60000 villages through your company. However, technologies under AIDC are still in acceptance stage in the country which has lot of room for deeper penetration of existing markets and also expansion into newer markets/ geographies. These provide huge potential for your company. Financial Inclusion as an initiative of the Government of Indian and Reserve Bank of India are still in the early stages of the implementation in the country. It still needs to reach wider spectrum of citizens of India. Your company, already being a dominant player in this space identifies this as a potential growth opportunity. The projects won by the company are currently under implementation. Implementation cycle was divided into various stages and currently these have successfully entered transaction stage — the last phase after crossing testing stage successfully. Having entered this stage, the revenues generated by the company will be directly proportional to the number of transactions done by the citizen of respective villages. Management is aware that this is still early times and citizen may take some more time to be comfortable with the services offered. However, with time, as the volume of transactions increase, company will surely see healthy rise in its revenues.

Risks and Concerns:

1. Technology Obsolescence

Products and solutions offered by the AIDC industry are likely to be affected by technology redundancy and obsolescence. Rapid advancement in micro processor based technologies has brought about frequent design improvements in the AIDC hardware rendering existing products less efficient. The prices of standard solutions and hardware have also declined over the years. The company needs to scan and update its product offerings to remain in demand and be cost effective.

2. New capacity creation in Smart Cards manufacture

At brsent there are eight established manufacturers of Smart Cards, including Bartronics India Limited. With large avenues opening up in FI, E— Governance, Payment Systems and UIDAI, despite the entry barrier of high investment costs, new capacities and expansion of brsent capacities in smart cards may be expected. This would render the company open to severe price competition.

3. Lack of local production of Hardware:

The industry is mostly dependent on imported hardware. Price changes, currency fluctuations, technology adaptation issues, delays in deliveries could affect the business adversely. The company needs to diversify the supplier base and enter into long term price contracts to meet such contingencies.

4. Global Competition

Several foreign manufacturers and technology providers are eying the growing Indian AIDC potential for entry. In course of time, with their resources and access to latest technologies they may edge away local players. The company may have to consider business tie up with and equity investments in one or two global majors to secure its standing in the local markets.

Risk Mitigation:

The management of your company believes one of the best ways of risk mitigation is through diversification. Your company has diversified technology exposure thereby it has considerably reduced the risk of technology obsolesce. Your company has also entered into E-Governance space such as Financial Inclusion projects; thereby diversifying the services offered. After capturing most of the market share in the domestic market; your company has started providing solutions globally; thereby diversifying the geography of service provided. For the technology, your company has made significant investments towards self-reliance in technology setting up in- house centre of Excellence, besides one being contemplated in US. The company's smart card production facility is well balanced to produce cards for all major verticals concurrently. The company's Management Team is broad based, having strong technical, financial and administrative background and well experienced and capable of foreseeing and combating risk factors.

Discussion on financial performance with respect to operational performance:

Your Directors hereby report that the Company has achieved a turnover of Rs 17020.58 lakhs upto 31st March, 2015, consisting of Eighteen (18) months, as against the turnover of Rs. 21644.82 lakhs for the brvious year ended 30th September, 2013 consisting of Twelve (12) months.

Segment wise product wise performance of the company:

The activities of the Company relate to only one segment i.e., the business of providing Automatic Identification & Data Capture (AIDC) Solutions

Internal Control Systems:

Your Company has a formal Internal Audit Process whereby deficiencies in the Internal Control Systems are regularly analyzed and gaps identified. Quarterly Internal Audit Reports are brsented to the Internal Audit Committee of the Board of Directors and the reports are discussed with action plans.

As a result improvements in a number of areas were identified and implemented during the course of the year. Your Company has been able to take data-based decisions, in many cases due to the in-depth study done by the Internal Audit Teams.

CAUTIONARY STATEMENT:

Statements in the Board's Report and the Management Discussion & Analysis describing the Company's objectives, expectations or forecasts may be forward-looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those exbrssed in the statement. Important factors that could influence the Company's operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.