Management discussion and Analysis

Industry trends and future brdictions

Top trends:

• Innovation is taking on a new character, that's about innovation at scale, velocity, and low cost.

• Living in the midst of innovation communities is "the new oxygen."

• We are in a period of reassessment, and redefinition, of our organizations' core and sustainable capabilities for the 3rd Platform era.

• Massive reconfigurations of value chains - in the IT industry and in every other industry - are under way.

• Digital transformation is changing business models - including revenue models.

• Declining PC usage and increasing mobile device adoption is driving a "mobile first" world.

• Digital transformation and a proliferation of data are fundamentally changing the relationship between businesses and their customers.

• Digital disruption is changing the market context and competitive landscape of most industries.

• Work styles and the means to engage talent are becoming more agile in the digital world.

3rd Platform Datacenter

• Underneath the cloud and mobile foundation for the 3rd Platform, we will see massive investments in IT hardware and software for next-generation datacenters.

• Datacenter growth will accelerate its shift toward cloud SPs (versus enterprise). By 2016, over 50% of raw compute capacity and 70% of raw storage capacity installed worldwide will be in cloud, mobile, and big data-optimized hyperscHe datacenters.

• Cloud service providers will drive a new renaissance in hardware innovation.

• By 2020, IDC brdicts that nearly half of all server units shipped will be based on custom design specifications, driven by the customer (mostly SPs) rather than server OEMs.

• Vendor consolidation will continue across the server, storage, software, and networking silos.

• The door will open wider for ODM/OEM strategic partnerships and M&A.

Big Data

• Rich media analytics will emerge as the key driver for BDA technology investment.

• Data as a Service (DaaS) will become a strategic supply chain for cloud platform and analytics players (including industry platforms).

• Enterprises will increase their investment in Big Data over the next three years.

• IoT will be the next critical focus for data/analytics services.

• Investment in big data over the next three years will outstrip past investment in information management.

• Big data is changing traditional business boundaries and enabling non-traditional providers to move into their industry.

• Companies see risk of becoming irrelevant and/or uncompetitive if they do not embrace big data.

• Business leaders see the monetization of data potentially becoming as valuable as existing products and services.

Cloud

• SaaS & cloud-based business application services revenue is forecasted to be at $32.8B in 2016.

• Global SaaS software revenues are forecasted to reach $106B in 2016, increasing 21% over projected 2015 spending levels.

• SaaS revenue is expected to increase to $132.57 in 2020, attaining a CAGR of 9.14%.

• IDC brdicts that by 2016, there will be an 11% shift of IT budget away from traditional in-house IT delivery, towards various versions of cloud computing as a new delivery model.

• By 2018, IDC forecasts that public cloud spending will more than double to $127.5 billion.

• By 2016, over 80% of enterprises globally will be using IaaS, with investments in private cloud computing, showing the greater growth.

• The SaaS Supply Chain Management (SCM) market is brdicted to a $4.4B market by 2018, attaining a 19% CAGR from 2014 to 2018.

• Enterprise cloud subscription revenues are forecasted to reach $67B by 2018, attaining a CAGR of 17.3% in the forecast period.

• By 2018, more than 60% of enterprises will have at least half of their infrastructure on cloud-based platforms.

Sources:

1. Technology Vision 2015 by Accenture

2. Top 10 Strategic Predictions for 2015 and Beyond- Gartner

3. EY Megatrends report 2015

4. 2015 KPMG technology industry outlook survey

5. Big & Fast Data: The Rise of Insight-Driven Business by EMC2 and Capgemini

6. Forbes and Forrester reports

7. IDC Predictions 2015: Accelerating Innovation - and Growth - on the 3rd Platform

Strengths

Stable leadership team

Our focus on partnership based revenue

Geographical exp ansion

Depth of offerings

Investment in trainings

Talent pool

Quality of process execution

Opportunities

• Increased acceptance of new technologies

• Market demand of big data and cloud

• By 2018, SaaS will be the most highly deployed global cloud service

• Few companies operate in the domain of convergence of big data and cloud

• India as a mid - tapped market

Threats

• Increase in number of IT companies

• Change in economic, political and legal frameworks

• Ability to keep pace with change in technology dynamics

• Volatility in currencies

a. Paid up share capital

Paid up share capital of the Company stands at 1*196.31 Mn constituting 19,631,015 shares. There was no change in the paid up capital from brvious year.

b. Reserves and Surplus

Reserves and Surplus have increased from Rs. 62.46 in FY 2013-14 to Rs. 92.95 Mn in FY 2014-15, because of increase in consolidated profit from Rs. 11.08 Mn in FY 2013-14 to Rs. 31.24 Mn during FY 2014-15.

c. Goodwill

Consequent to the merger of its erstwhile wholly owned subsidiary Cambridge Technology India Private Limited (CTIPL), the Company decided to amortize goodwill over a period of 5 years. After amortizing Rs. 24.43 Mn of goodwill, there stands Rs.97.71 Mn standing in the books as on 31st March, 2015.

d. Fixed Assets

Net fixed assets have gone up from Rs. 8.30 in FY 2013-14 to Rs. 56.00 Mn in the current financial year under review, an increase of Rs. 47.70 Mn. Significant transactions in fixed assets are as below:

1) Tangible Assets: Additions to computers and software of Rs. 4.26 Mn in addition to Rs. 3.56 Mn of leasehold improvements.

Intangible Assets: The assignment rights the Company bought to the tune of Rs. 46.69 Mn as of 31st March, 2015. These rights will give Company access to intellectual property rights and rights to own potentially big projects.

e. Debtors

Receivables exceeding more than 6 months have decreased from Rs. 1.75 Mn in FY 2013-14 to Rs. 0.84 Mn due to better collection practices adopted by the Company during the current financial year under review. Remaining debtors are also considered good and realizable. Debtors of less than 6 months old have decreased from ' 107.88 Mn ) in FY 2013-14 to Rs. 76.75 Mn in FY 2014-15.

f. Loans & Advances

Long term loans and advances increased from Rs. 24.55 Mn in FY 2013-14 to Rs. 29.38 Mn including Rs. 21.77 Mn of fixed deposits with Bank for securing BGs. Short term loans and advances have gone up marginally Rs.2.44 Mn from Rs. 2.36 Mn in FY 2013-14, to Rs. 4.79 Mn during the current year under review.

g. Current Liabilities

Current Liabilities have gone up marginally from Rs. 50.12 Mn from FY 2013-14 to Rs.54.69 Mn as on 31st March, 2015. The increase is majorly attributable to creating an incremental provisions of ~ 11.01 Mn to support growing operations. Trade payables have been paid almost entirely resulting in a reduction from Rs. 19.62 Mn in FY 2013-14 to '0.37 Mn during the financial year under review.

Note : Since the corporate structure has changed in January 2015, all figures are not comparable. The Consolidated P&L figures for FY 2015 include the revenues and expenses of a wholly owned subsidiary Cambridge Technology Inc., USA from 1st January, 2015 onwards.

a. Income from Operations

Operating revenue has increased by 28% from Rs.251.72 Mn in FY 2013-14 to Rs.322.56 Mn in FY 2014-15. This is because of incremental revenue from newly created subsidiary Cambridge Technology Inc (CTI) in USA.

b. Expenditure

i. Employee Cost

Employee cost including salaries, bonus, and other staff welfare expenses have gone up by 11.34% from Rs.170.67 Mn in FY 2013-14 to Rs. 190.02 Mn during the current financial year.

ii. Contract Employee Cost

There was a marginal increase in the contract employee cost by from Rs. 4.32 Mn in FY 2013-14 to Rs. 6.47 Mn in FY 2014-15. Executing projects with contract employees will give company flexibility to align resources with exact requirements.

iii. General and Administrative Expenses

General and administrative expenses have gone up by 73.13%, from Rs. 23.74 Mn in the brvious year to Rs.41.10 Mn in the current year. The increase is mainly attributable to increasing in travelling expenses with increased business traction, increase in computer hire charges and increased office maintenance costs.

c. Debrciation

There was a reduction in debrciation expenses from Rs. 7.12 Mn to Rs.6.44 Mn in the current financial year, because of changing debrciation as per new Schedule II of the Companies Act, 2013, which mandates providing debrciation as per useful lives of the Company.

d. Other Income

Other income has increase by Rs.4.20 Mn in 2014-15 to Rs.10.24 Mn in the current period under review, contributed substantially by tax credits in erstwhile wholly owned subsidiary CTIPL to the extent of Rs.5.3 Mn, exchange fluctuation gains of Rs.2.96 Mn and interest income from bank deposits of Rs. 1.98 Mn.

e. Interest and Finance charges

There were no interest and finance costs as the Company was a debt free company at the end of the financial year under review.

f. Profit After Tax

The bottom line has increased from a profit of 1*11.08 Mn in FY 2013-14 to a profit ofRs. 31.24 Mn during the current year, which is an increment of about 182%, because of increase in revenue and controlling associated costs.

Review of Standalone Balance Sheet in millions)

a. Paid up share capital

Paid up share capital of the Company stands at Rs. 196.31 Mn constituting 19,631,015 shares. There was no change in the paid up capital from brvious year.

b. Reserves and Surplus

Reserves and Surplus has increased by Rs. 117.24 Mn in from a negative Rs.42.17 Mn in the financial year 2013­14 to Rs.75.07 Mn during the financial year under review. This was possible for better operating profits of the company and for accounting treatment of investments in erstwhile wholly owned subsidiary CTIPL.

c. Goodwill

This goodwill has arisen because of merger of wholly owned subsidiary. This year an amount of Rs. 24.43 Mn was amortized and rest Rs. 97.71 Mn will be amortized over the next 4 financial years.

d. Non-current Investments

During the year under review your Company made investments of its wholly owned subsidiary Cambridge Technology Inc. USA to the extent of Rs. 59.92 Mn. The Company had had an investment in CTIPL to the value of 1*135.49 Mn as of 31st March 2014. This investment has been transferred to goodwill account and proposed to amortize over the next 5 years including amortization of Rs.24.43 Mn during the financial year under review, upon receipt of merger order with the holding company.

e. Short term provisions

Short term provisions dropped by 0.25 Mn from 19.72 Mn in FY 2013-14 as against 19.49 Mn in current financial year. Included in the Rs.19.49 Mn of current year provisions are provision for employee benefits of Rs. 7.89 Mn, provision for statutory dues of 1*1.64 Mn, and expense provisioning of Rs. 3.70 Mn.

f. Fixed Assets

Gross fixed assets of Rs. 131.12 Mn were added during the year under review. Additions include Rs. 3.5 Mn of leasehold improvements, Rs. 1.04 Mn of computers, and Rs. 3.2 Mn of software licenses.

g. Debtors

Receivables exceeding more than 6 months 0.84 Mn and balance 61.17 Mn trade receivables are outstanding for less than 6 months. During the year the receivables have been reduce to Rs. 62.00 Mn from Rs. 101.26 Mn in FY 2013-14. With better working capital management.

h. Other current assets

Other current assets include Rs. 25.39 Mn of TDS receivable arising due to merger of its wholly owned subsidiary Cambridge Technology India Private Limited (CTIPL).

Review of Standalone Profit & Loss Account (Rs. in millions)

a. Income from Operations

Income from operations had went up by 28.11% to Rs. 258.98 Mn in the current period from Rs. 202.15 Mn in the brvious year. For this financial year, Company billed revenue to our sole foreign subsidiary Cambridge Technology Inc., erstwhile subsidiary smartShift Technologies Inc., and small portion domestic clients consequent upon merger of CTIPL with the Company.

b. Other income

Other income has increase by Rs.3.73 Mn in 2014-15 to Rs.10.24 Mn in the current period under review, contributed substantially by tax credits in erstwhile wholly owned subsidiary CTIPL to the extent of Rs.5.3 Mn, exchange fluctuation gains of Rs.2.96 Mn and interest income from bank deposits of Rs. 1.98 Mn.

c. Expenditure

i. Employee Cost

Employee costs have increased by 27.11% for the year ended 31st March, 2015 which stood at Rs. 161.42 Mn as against Rs. 126.99 Mn a year ago. Incremental employee cost because of new recruitments and high wage brssure because of attrition in the software industry. Every effort is being made to reduce employee costs under control.

ii. Sub-contracting fees

The sub-contracting fees has increased by 32.53% from Rs. 1.19 Mn to Rs. 1.59 Mn in financial year under review. This is in continuation with Company's efforts to rationalize project execution with best mix of contract and full time employee and rationalize costs and increase profitability.

iii. General and Administrative Expenses

General and administrative expenses have increased by 34.77% during FY 2014-15, from that of brvious financial year to Rs. 66.11 Mn. Included under this head are power & fuel Rs. 3.46 Mn (Rs.4.38 Mn), rent Rs. 18.25 Mn (Rs. 19.75 Mn), software license cost Rs.7.34 Mn (Rs.0.31), consultancy charges Rs. 5.00 Mn (Rs. 3.23 Mn), office maintenance Rs. 6.65 Mn (Rs.4.77 Mn), and travelling Rs. 7.35 Mn (Rs. 5.21 Mn).

d. Debrciation

There was a marginal decrease in debrciation from Rs. 6.87 Mn in FY 2013-14 to Rs.6.44 Mn in FY 2014-15. A debrciation of about Rs. 1 Mn on computers, Rs.0.75 Mn on leasehold improvements, and Rs. 4.15 Mn on software licenses was provided during the year under review.

e. Other Income

The other income during the FY 2014-15 was Rs.10.24 Mn, whereas the same was Rs. 6.51 Mn in FY 2013-14. The Increase is majorly explained by other Misc Income was 5.30 Mn and got increased by 4.15 Mn in FY 2014-15, whereas the same was 1.16 Mn in FY 2013-14 and decrease in exchange fluctuation gain of Rs. 2.96 Mn versus Rs. 4.06 Mn in the brvious year. There also bank interest of Rs. 0.69 Mn increased in the current year.

f. Amortization of goodwill

Consequent to the merger of its erstwhile wholly owned subsidiary Cambridge Technology India Private Limited (CTIPL), the Company decided to amortize goodwill over a period of 5 years. After amortizing Rs. 24.43 Mn of goodwill, there stands Rs. 97.71 Mn standing in the books as on 31st March, 2015.

g. Income Tax Expense

During the year under review Company did not create any provision for income tax and utilized deferred taxes to the extent of Rs.2.04 Mn, because of accumulated losses from erstwhile wholly owned subsidiary smartShiftgroup Limited, Mauritius, standing in the books .

h. Profit After Tax

There has been a decrease in profitability from a net profit of Rs. 17.92 Mn in brvious financial year to Rs. 12.86 Mn for the period under review, mainly for the amortization of goodwill the net profit for the year ending 31st March, 2015 would have been Rs. 37.29 Mn, an increase of more than 100% over brvious year net profit.

Internal Control systems and their adequacy:

CTE's Board and management team monitor and make enhancements to the company's systems for internal control and risk management on an ongoing basis. The company's efforts towards this go beyond what is mandatorily required, with active monitoring and review to ensure adequacy of control systems and to identify potential risks as well as recommend or implement measures to mitigate them.

CTE's internal control system is adequate considering the nature, size and complexity of its business. The company's internal control systems provide, among other things, reasonable assurance of recording the transactions of its operations in all material respects and of providing protection against significant misuse or loss of company assets. These also enable the company to adhere to procedures, guidelines, and regulations as applicable in a transparent manner.

Company's internal control systems are supplemented by an internal audit program and periodic reviews by the management. CTE has appointed an independent audit firm as its Internal Auditors, and the Audit Committee reviews its findings and recommendations at periodic intervals.

Material developments in Human Resources/Industrial Relations front, including number of people employed

Our employees are our most important and valuable assets. As of 31st March, 2015, CTE and its subsidiaries had employed approximately 184 employees. The key elements that define our culture include professional working environment, training and development, and compensation.