Management Discussion and Analysis Report

HOV Services Limited (“HOVS” or the “Company”) operates as a hybrid between an investment company and a diversified services corporation. The Company’s business encompasses a) Software and IT Enabled Services and b) Environment Protection Solutions. The Company believes that this operational structure is fundamental to our value proposition for our future success.

SourceHOV Holdings Inc., (“SourceHOV”) a company in which our wholly owned subsidiary in the United States, HOVS LLC, holds investments, is a one of the global leaders in financial transaction solutions and services, healthcare services and administration of claims. SourceHOV with direct sales and operations in 14 countries serves over 3,000 customers in 55 countries. The company, with over 15,000 dedicated employees, is strategically positioned to leverage its global brsence in Americas, Europe, Asia, Pacific and Middle East and North Africa.

Our second company, HOV Environment Solutions Private Limited (“HOV ESPL”) has been involved in building artificial reefs to reduce erosion of beaches, thereby providing erosion protection solutions.

Revenues – standalone

Our total revenue in current year on a standalone basis increased to Rs 148.41 million from Rs. 133.61 million in the brvious year, at a increased rate of 11.07%. Our software export revenues aggregated to Rs 135.06 million, from Rs 125.45 million in the brvious year.

Revenues – consolidated

Our total revenue in current year on a consolidated basis decreased to Rs 162.67 million from Rs 169.75 million in the brvious year, a decrease by 4.17% . Our software export revenues aggregated to Rs 151.51 million, from Rs 164.04 million in the brvious year.

Profits – standalone

Employee Benefit Expenses were at Rs 102.16 million for year ended March 31, 2016 and were at Rs 100.64 million for the year ended March 31, 2015. Other expenses were at Rs 24.39 million for year ended March 31, 2016 and were at Rs 33.33 million for the year ended March 31, 2015.

The EBITDA amounted to Rs 21.86 million as against Rs (0.35) million in the brvious year.

The Profit/(Loss) after tax was Rs 13.92 million, as against Rs (2.93) million in the brvious year.

Profits – consolidated

Employee Benefit Expenses were at Rs 104.45 million for year ended March 31, 2016 and were at Rs 104.21 million for the year ended March 31, 2015.

Other expenses were at Rs 44.19 million for year ended March 31, 2016 and were at Rs 77.90 million for the year ended March 31, 2015.

The EBITDA amounted to Rs 14.03 million as against Rs (12.36) million in the brvious year. The (Loss) after tax before minority interest and share of (Loss) from Associate is Rs (6.18) million, as against Rs (24.81) million in the brvious year. Share of (Loss) from an associate is Rs 2,750.19 million for current year as against Rs (1533.11) million in the brvious year.

Our Net Profit/ (Loss) in current year on a consolidated basis amounted to Rs. (2,756.37) million, as against Rs. (1553.22) million in the brvious year.

Capital Reserve

Our capital reserve on a consolidated basis amounted to Rs 7268.17 million, as against Rs 6811.45 million in the brvious year.

Segment-wise performance

During the year the Software and IT Enabled business on consolidated basis fairly scaled with turnover of Rs 134.98 million and Environment Solutions Business with revenue of Rs. 16.53 million crore. Environment business have long gestation period and will take 5-7 years of period to scale up on project revenues and profitability.

Our Investment

Pursuant to shareholders’ approval on November 4, 2014, SourceHOV Holdings Inc.

(“SourceHOV”), a company in which HOVS LLC, wholly owned US subsidiary of HOV Services Limited, holds an investment, completed the merger with BancTec Group LLC. Post-merger the equity ownership of HOVS LLC in SourceHOV increased from 26.1% to 44.8%. The fair value of HOVS LLC investment on November 4, 2014 in SourceHOV has been valued at US$ 95 million (Rs. 58,337.60 lakhs) at the time of aforesaid merger. Accordingly, additional Capital Reserve of Rs 58,240.26 lakhs was recognized being the fair value of investment in the associate over the carrying value of investment. The Company has done the impairment test during the financial year 2015-16 under Accounting Standard 28 “Impairment of Assets” for the investment and there is no impairment to the Investment Value.

HOVS LLC’s share of loss before merger for the period from January 1, 2014 till October 31, 2014 is Rs. 15,013.91 lakhs and the loss post-merger from November 1, 2014 till December 31, 2014 is Rs 317.30 lakhs aggregating to the loss of Rs. 15,331.20 lakhs which has been consolidated as loss of associates in the brvious year. For current year’s consolidation, audited financial statements of SourceHOV covering calendar year ended December 31, 2015 have been used. As per Equity method of Accounting as brscribed by Accounting Standard 23 “Accounting for Investments in Associates” share of loss of the associate of Rs 27,501.87 lakhs have been consolidated in the financial statements. The said loss of the associate is mainly on account of amortization of Goodwill and intangible asset recorded at the time of merger. Due to adjustment of aforesaid loss the Carrying value of the investment accordingly is reduced from Rs. 56,288.66 lakhs to Rs. 32,280.62 lakhs.

Human Resources

The Human Resource is important asset of the Company. For growth of employees Company organizes training sessions, various other programs to boost the morale of employees and apbrciate them time to time for their performance. Management communicates with employees on regular basis through various modes and including internal portal. The Company has maintained cordial relationship with the employees. There were 274 employees at the peak during the year.

The Internal Complaints Committee had been constituted pursuant to the Section 4 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 for protection against sexual harassment of women at work place.

Internal Control Systems and their adequacy

The Company has established adequate internal control systems with checks and balances observed at all levels, covering not only, financial transactions but other department functions as well. The internal control framework essentially based on various policies, procedures and process of different functional departments of the Company to achieve efficiency and effectiveness in operations and compliance with laws and regulations. The internal controls for various processes are adequately and periodically tested by Internal Auditor.

The Internal audit team functions vigilantly on a continuous basis and monitors the effectiveness of internal controls and provides assurance of the adequacy and effectiveness of the internal controls to the Audit Committee and Board of Directors. The system of certification of the effectiveness and deficiencies of internal controls is in place and the same has been placed before the Audit Committee.

Risks and Concerns

The risk management framework includes identifications of element of risk, if any which in the opinion of the management need mitigation.

The following are some of the key risks relating to the businesses of the Company, as identified by the management:

a) Business model related risk:- The revenue of the Company is based on cost plus mark up for contracts with customers. The wage cost is major risks which may not be acceptable to customers due to change in minimum wages requirements. In order to mitigate the risks management of the Company in continues endeavour keep appraised its customers about any change in cost factors well in advance.

b) Foreign currency fluctuation risk:- Revenue accrues in US Dollars and its expenditure is incurred in the Indian Rupees. Therefore, there is risk exposure due to adverse fluctuation of exchange rate between the US Dollar and the Indian Rupees. In order to mitigate the risk the management tracks foreign currency movements closely.

c) Financial risk :-The surplus funds of the Company are invested in fixed deposits with banks which is averse to risk related to volatility of interest rate. To mitigate the risk of interest rate the management closely tracks movement of rate change with banks.

d) Credit risk:- It is exposed to risk of delay in collection and to mitigate such risk br-defined credit period is mentioned in contract entered and the same is followed for receiving payments from customers.

e) Operational risk:- The Company is exposed to risks of operational performance on account of costs. If the performance is lower than expected from the operators, it could have impact on profitability. So to mitigate such risks the Company had proper MIS in place.

f) Investment risk:- The Company through its wholly owned subsidiary HOVS LLC holds investments of 44.8% in SourceHOV Holdings Inc. The Company is exposed to the risk of value of investment getting effected due to performance of the investee company. To mitigate such risk the management of the Company keeps constant liaison with investee company and the Board of the Company is been kept informed about necessary information on timely basis.

g) Information Technology risk:- The business operations are mostly dependent on systems involving computers/ servers which are prone to hacking due to advancement in technology.

In order to mitigate the hacking risk, appropriate anti-hacking multi layered systems are installed.

h) Legal, Compliance risk:- There is a risk on account of inadvertent non-compliance with laws and in order to mitigate such risk the management had created a robust compliance framework for respective functional areas.

i) Social Media risk:-Being listed entity, the Company is exposed to risks of any inappropriate discloser made by any employee in social media. In order to mitigate such risk the employees and management including board members strictly adheres to the code of “Fair Disclosure Code” of the Company.

j) Business Continuity and Disaster Recovery risk:- To ensure continued delivery of services to customers irrespective of any disturbances the Company has implemented strong systems and processes across different locations so as to enabling it to take appropriate measures in respect of disaster recovery and business continuity.

k) The rising inflation and salaries along with high attrition among employees is a risk. The impact of this is hard to manage and to the extent possible, the management uses technology, automation, incentives and good work environment to reduce its impact.

l) In our environment business, the projects are often complex, face unknown hurdles, require substantial cash infusion to complete and typically the gestation period for such projects are around 5-7 years. All the efforts are taken to continually revisit the scope and objects of the project undertaken.

Opportunities, Outlook & Threats

With recovery of developed economies like US and Europe where budgets for IT & ITES have increased enabling more contract been awarded, we look forward to capture those opportunities.

We are also positive to capture opportunities in growing emerging markets for environment projects.

Company’s management has strong domain knowledge and experience of successful leading business ventures in emerging sector. Our key strategy is to identify new opportunities that have the potential for growth.

There is huge competition in industry, large number of players are available to provide IT & ITES related services at very competitive rates.