MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the Company's financial statements included herein and the notes thereto. The financial statements have been brpared in compliance with the requirements of the Companies Act, 1956 and Generally Accepted Accounting Principles (GAAP) in India. The Company's management accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably brsent the Company's state of affairs and profits for the year. Investors are cautioned that this discussion contains forward-looking statements that involve risks and uncertainties. When used in this discussion, words like 'will, 'shall, 'anticipate, 'believe, 'estimate, 'intend' and 'expect' and other similar exbrssions as they relate to the Company or its business are intended to identify such forward-looking statements. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Actual results, performances or achievements could differ materially from those exbrssed or implied in such statements. Factors that could cause or contribute to such differences include those described under the heading 'Risk factors' in the Company's prospectus filed with the Securities and Exchange Board of India (SEBI) as well as factors discussed elsewhere in this report. Readers are cautioned not to place undue reliance on the forward-looking statements as they speak only as of their dates.

Information provided in this Management Discussion and Analysis (MD&A) pertains to Firstsource Solutions Limited and its subsidiaries (the Company) on a consolidated basis, unless otherwise stated.

Global Economic Outlook

Uncertainty has dominated the global economy over the last year. Global economic recovery was slow and growth is expected to remain tepid in the near future. The global economy grew by 3.1 per cent in CY2015 and is projected to accelerate by 3.4 per cent in CY2016 and 3.6 per cent in CY2017. The U.S. economy is expected to grow at 2.6 per cent for both CY2016 and CY2017, down 0.2 percentage points in both years from an earlier forecast in October 2015. An acceleration of the U.S. output is seen dimming as dollar strength weighs on manufacturing and lower oil prices curtail energy investment. Russia is expected to lose 1 per cent of GDP in CY2016 instead of 0.6 per cent, and slowdown due to Western sanctions and low oil prices, going forward. According to IMF reports, GDP of other CIS states are expected to decline over the next two years. However, the CIS GDP is  projected to marginally grow to 1.7 per cent in 2017. Besides, European economies are expected to advance slowly but surely, with a chance of a slight slowdown this year. For China, the IMF's forecast stays unchanged at 6.3 per cent for 2016 and is expected to see its GDP grow at 6 per cent in 2017. For India, it is 7.5 per cent both in 2016 and 2017. Similar forecasts for Japan remain unchanged - 1 per cent in 2016 and 0.3 per cent in 2017. Soft consumer demand in the U.S. and Japan, weakness in emerging markets due to worries over plunging oil and commodity prices and capital outflows from China are the major reasons for revision in growth rates. Upcoming U.S. brsidential elections in November 2016 and Britain's referendum on its continuance in the EU weigh significantly on the political and economic outlook in the months ahead.

In the emerging markets, Brazil will stay mired in recession in 2016. With output projected to contract to 3.5 per cent, a 2.5 percentage-point downward shift from the brvious forecast, there will be essentially no growth in 2017. Additionally, being Latin America's largest economy it struggles with lower Chinese demand. Many emerging market economies are struggling amid reduced demand for oil and other commodities from China. Many commodity exporters, especially, low income nations that rely heavily on exporting oil are facing huge difficulties.

The World Bank projected that India will grow by a robust 7.8 per cent in 2016 and 7.9 per cent in the next two years. It also brdicted that India will be the world's fastest growing economy in the next three years and would outpace China.

With recent fall in oil prices, India remains the bright spot in the global economy as Chinese growth is brdicted to slow down further. Ongoing fiscal consolidation in India has reduced the central government's fiscal deficit to close to 4 per cent of the GDP (on a 12-month rolling basis), down from a peak of 7.6 per cent in 2009.

Therefore, only a few pockets of bright spots exist in an otherwise cautious global environment.

Industry Structure and Developments

The global economy - both developed and emerging countries experienced multiple headwinds. Economic growth stagnated, global terrorism spiked, inflationary brssures continued to build up, turbulence in currency and equity markets brvailed, commodity prices declined, and unemployment continued to rise.

At the same time, it was heartening to see the world using technology as a panacea to address ongoing challenges. The role of technology has also undergone a significant change; technology is no longer exclusive to the corporate sector. Consumers, leveraging mobile phones and 24*7 connectivity, are now the key influencers shaping technology spend. Governments have also begun to use technology as the platform for citizen outreach and G2C services. As a result, technology is emerging as the new unifying force, integral to all businesses, to all parts of businesses, to the government machinery and consumers. The importance of technology is borne by the fact that the technology component now has shifted from a cost centre to a capital asset, expected to deliver measurable returns. Globally, the cumulative capital investment in technology is estimated to have reached $ 6 trillion in 2014.

Worldwide IT and BPM spending is forecast to total $3.54 trillion. In 2016, a 0.6 per cent increase over 2015 spending of $3.52 trillion. In 2015, $216 billion was less spent on IT and BPO, compared to last year. Also, 2014 spending levels won't be surpassed until 2019. By 2019, spending is forecast to exceed $3.8 trillion.

According to the NASSCOM strategic Review 2016, Indian IT Services and BPM industry is expected to grow at 10-12per cent in FY2017 in constant currency terms. By 2020, India's IT-BPM sector is projected to reach $200-225 billion revenue and $350­400 billion by 2025. Digital technologies are expected to increase the addressable market for global technology services to $4 trillion by 2025. Over 80per cent of incremental expenditure over the next decade will be driven by digital technologies, such as cloud-based applications, big data analytics, mobile systems, social media, cybersecurity and integration services with legacy technology applications. Digital technologies will continue to drive the sector and reach 23per cent share by 2020.

NASSCOM expects traditional annuity expenditure to decline by 15-25 per cent between 2014 and 2020. By 2020, ~50 per cent of IT budgets will be for digital transformation initiatives. IT exports (FY2015: $108 billion, 76per cent share) will be driven by digital technologies. Among verticals, traditional and matured verticals like BFSI and manufacturing will continue to drive growth, while healthcare and retail are increasing SMAC adoption and among geographies - the U.S. will lead growth.

According to Market Research Store report, the Global BPM market is estimated at $4.65 billion in 2014 and is poised to reach $17.96 billion by 2022, growing at a CAGR of 18.4per cent during 2014-2022. The factors that are fuelling the market growth include increasing business dexterity, cost efficiency and return on investment from BPM suites.

According to NASSCOM, the Global BPM spend grew at 2.9 per cent in 2015, a CAGR (2010-2015) of 4.8 per cent to reach $186 billion. A significant percentage of this growth was led by the U.S. and EMEA markets, with a growth rate of 4.8 per cent and 4.3 per cent, respectively in 2015. While sectors like BFSI, manufacturing and telecom contributed significantly in absolute terms due to higher base (despite slower growth), emerging sectors, such as healthcare and retail were the main growth drivers. Similarly, in horizontal services, finance and accounting and procurement services recorded highest growth at 3.7 per cent and 9.1 per cent, respectively. Domain-specific services and big data analytics enabling business outcomes became the main differentiator among service providers.

India's share of the global $177 billion BPM sector stands at 38 per cent. Over the past five years, revenues from the sector grew 12 per cent annually to $26 billion. Nasscom claims BPM sector revenues are set to grow to $50 billion by the year 2020.

BPM is seeing higher adoption of process-centric delivery, BPaaS analytics and Robotic process automation tools. BPaaS models are expected to grow four times faster than those of traditional BPM services from 2014 to 2020. BPaaS market share to increase from the current 1-4 per cent to 4-5 per cent by 2025.

From Firstsource perspective, the Company is primarily into three key verticals of BFSI, healthcare and telecommunications and media (T&M). According to NASSCOM and IDC reports, the opportunity in these verticals continues to be high, more specifically, in the emerging verticals like healthcare. The total addressable market globally for outsourced BPM work in these verticals is shown in the chart above.

Segment-wise Outlook

Healthcare

Firstsource addresses two segments within the healthcare vertical, the Payer market rebrsented by the Insurance companies and the Provider market rebrsented by hospitals, physician groups in the U.S.

In 2016, the expectation is that the healthcare industry will continue through a period of dynamic change on many fronts. First, value based reimbursement ('VBR') will increase in brvalence, moving the industry toward a tipping point away from fee for service. Second, Payer mergers announced in 2015 will likely spur a new round of consolidations throughout the entire healthcare eco-system. This, coupled with the benefits of scale in Payer, Provider, supply chain and many other intermediary sectors will gain increasing importance, against the broader backdrop of efforts to lower healthcare costs. Third, the new consumer oriented healthcare system will become ready for prime time as a host of new delivery models, care coordination and consumer engagement technologies move from early stage to broader proliferation.

The shift from fee-for-service medical care to value-based healthcare, while progressing at varied speeds in different markets and industry sectors, carries profound implications for virtually all participants in the healthcare system. The outcome of the 2016 election is unlikely to reverse major trends, including increased consumerism, tighter alignment among providers across the healthcare continuum, and a further blurring of the lines between payers and providers. This will continue to drive more 'out of the box' and creative transactions within and across traditional industry sector designations. From a Provider perspective, looking at 2016, the biggest issue both worldwide and in the U.S. continues to be cost. All other trends stem from the cost factor, including access to care, advances in care (especially new drugs), accountable care/alternative payment models, and digital consumer engagement. Despite spending upwards of 18per cent of GDP on healthcare, comparative analyses consistently show the U.S. underperforms relative to other countries on most dimensions, such as efficiency, access, equity and outcomes. In addition, an estimated 34 million people in the U.S. still lack health insurance and therefore, access to care outside of emergency departments. Yet, regardless of political leanings, the Affordable Care Act (ACA) has eased the situation somewhat by driving market changes intended to encourage new ways of delivering and reimbursing care. Many organisations in the provider sector are tracking two additional factors that may greatly impact the healthcare ecosystem: the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and the Cadillac Tax. The Medicare Access Act establishes a new framework to pay doctors who treat Medicare patients, fills in a funding gap and extends a popular children's insurance program ("CHIP"). The Cadillac Tax is a bill which allows a two year delay of the 40 per cent excise tax on the high-cost employer sponsored health plans. It helps to finance the expansion of health coverage under the ACA and reduce excess healthcare spending by employees and employers.

While Congress recently delayed the Cadillac Tax — the excise tax on high-cost, employer-sponsored health coverage, w.e.f. January 1, 2019 — we will continue to see employers and health plans consider its impact on their offerings. The net impact is there, which will continue to be a growth and proliferation of high deductible plans and growth of private exchanges with a direct impact on health providers.

MACRA and the Cadillac Tax can accelerate the consolidation in the provider industry and the adoption of value-based payments.

Accountable care organisations, bundled payments and other reimbursement models are starting to address, both access and affordability. As a result, progress toward brventing emergency department visits and prolonged hospital stays are seen. Care is moving away from hospitals and into more accessible, less costly settings — even home, school and work.

To fully accomplish this shift, technology adoption will play a pivotal role. Mobile phones, web conferencing, apps and portals are just few examples of technologies that can help providers give patients the access and convenience they desire. Digital technologies will likely shape the healthcare landscape through tools that engage and empower consumers to take better care of themselves. Hence, reducing reliance on costliest and most acute healthcare resources.

Additionally, providers may also want to explore opportunities for consolidation — both vertically and horizontally — to better position themselves for inclusion in narrow networks. The 'go big or get out' mantra is getting louder; providers can look for ways to achieve scale, manage unit costs and build value-based care capabilities — even in markets where value-based care has not yet fully arrived.

The payer outsourcing sector is positioned to benefit from a number of key macro trends in 2016. These trends include escalating costs, widesbrad consolidation and regulatory complexity, changing business models, payer-provider convergence, and evolution of the patient-centric paradigm that is being fuelled by mobile computing, social media platforms and 'anytime-anywhere' information access. This combination of both disruptive and legacy factors is forcing payers to adopt new technologies, while also revamping their existing systems, processes and interfaces.

Legacy business process mangement (BPM) functions of claims adjudication, contact centres, and member processing are likely to show growth. The innovative and emerging administrative services — analytics, new plan design, claims modernisation and alternative payment services - are expected to grow significantly. This kind of spending by commercial insurers, government payers, ACOs and provider-sponsored plans is expected to lead to an increase in the payer outsourcing market from an estimated $5 billion in 2014 to an expected $8 billion in  2016.

According to Black Book Rankings, the hospital RCM outsourcing industry could reach $4.5 billion in services revenues by 2017. As hospitals and physician practices flock outsourcing vendors to better deal with business shifts encountered from reimbursement and payment reforms, accountable care participation, ICD-10 coding challenges, problem collections and declining margins, RCM outsourcing (particularly domestic RCM outsourcing) gears up for meteoric growth.

As providers contend with alternative payment models, the pace of outsourcing some of their revenue cycle management has increased. Presently, 83 per cent of hospitals outsource some accounts receivable and collections. Contract management and denial management are next with 58 per cent and 55 per cent, respectively. Besides, 68 per cent of physician groups with over ten practitioners now outsource some combination of collections and claims management.  Firstsource is uniquely positioned to garner this growth opportunity as it works for all the top 5 Payers and over 650 hospitals in the U.S.

Telecommunications and Media (T&M)

Global Customer Management Services (CMS) market in the telecom industry is expected to reach $26.6 billion in 2018 from $21.2 billion in 2014, growing at a CAGR of ~6 per cent during the same period. Although, North America will continue to account for the highest share in the market (~34per cent of the total market), but the next wave of growth will come from the APAC market, which is expected to grow at 8.3 per cent CAGR during the period 2014-18. The UK is expected to grow at 6.2 per cent CAGR during the period 2014-18 to reach at $2 billion in revenue  by 2018.

Need for increased quality across CSAT and NPS has been the top driver for telecom and other industry companies outsourcing CMS followed by cost reduction, technical support and reducing repeat calls.

Global analyst firm HfS research has brdicted that SMACA (Social, Mobility, Automation, Cloud, Analytics) solutions will drive growth in telecom operations services in the near future.

The market size of SMACA solutions in telecom operations is brsently about $200 million with the potential to reach $2.5 billion (25 per cent of the potential telecom operations market) in the next five years. Service providers with strong IT offerings are focusing more on mobility and cloud-based solutions, whereas pure-play BPM service providers are emphasising on analytics-based solutions. Automation is on the agenda of all telecom service providers while social media is an emerging  area.

The use of multiple capabilities with social media, customer contact strategies in the communications vertical is expected to increase in 2016. Against this backdrop, the largest percentage point increase is expected for full integration with other contact channels, followed by dedicated customer support forums/ communities.

The explosion of big data and analytics tools is brdicted to be the strongest trend to shape the customer interaction management industry over the next five years. The ability to understand the intricacies of individual transactions, as well as the context of customer behaviour over multiple contacts and channels is paramount.

In a global environment characterised by such rapid technology changes, intense competition and pricing brssures, it is critical for companies to focus on effective customer engagement, reduce churn and improve loyalty and advocacy. Technology developments proliferated a number of interaction channels with the consumers and now include self-help, web chat, video chat, social media and virtual-assistants apart from the traditional interaction channels of IVR, phone support, SMS, email and paper correspondence. Investing to deploy an effective Omni-channel framework reduces the overall cost to serve for telecom and media organisations. The focus will be on customer journeys across different channels, while orchestrating the customer experience across different channels in a seamless, integrated and consistent manner.

BFSI

Technavio's market research analyst brdicts the global outsourcing market in BFSI sector to grow at a CAGR over 6 per cent during 2016-2020. The need to conform to regulatory compliance is a key factor driving the growth of this market. The BFSI sector is witnessing massive regulatory changes, and oversight which has resulted in increased demand for regulatory compliance and transparency in this sector. The reduction in cycle time obtained by outsourcing is another factor driving the market growth. Outsourcing of business processes in the BFSI sector has enabled multinational financial institutions to reduce their turnaround time through the adoption of lean business process models

The global outsourcing market in the BFSI sector is highly fragmented due to the brsence of large and small players. The competition in this market is anticipated to intensify with more players entering the market space. Vendors in the market are constantly looking for ways to increase their market share through partnerships and strategic acquisitions. They are focusing on differentiating themselves by offering innovative, cost-effective and outcome-based solutions, such as business process as a service (BPaaS).

Commercial and regulatory brssures on banks have brought a new focus on costs. Financial firms are investing in technology to meet regulatory and compliance requirements, from anti-money laundering to consumer compensation and the settlement of mis-selling claims, driving demand for outsourcing services.

Banks are typically (among the most) impacted by economic cycles and have seen a lot of volatility over the last years. There has been significant brssure on banks to define and add new revenue streams, and to deliver an excellent customer experience at the lowest cost of ownership. As a result, they are looking for service providers or partners that can help them augment revenue streams while taking costs out without degradation of customer experience. Banks are now forced to consider strategic cost management in a bid to secure the future in turbulent markets, and as a result this has seen a lot of outsourcing activities that are expected to increase in the near future.

Moody's in its report, entitled 'Banking System Outlook: United Kingdom', has changed the outlook on the UK banking system, from negative to stable. This reflects the expectation that most UK banks will maintain solid financial fundamentals over the next 12-18 months, resulting from a favourable operating environment. Also, healthy economic growth in the UK will have a positive effect on the banks' operating conditions. Moody's expects UK GDP growth of 2.7 per cent in 2015 and 2.4 per cent in 2016.

The rating agency projects that UK banks' funding and liquidity levels will remain strong as banks benefit from stable retail deposit bases. It expects new long-term wholesale funding issues to replace borrowings from the Bank of England's Funding for Lending scheme, and contribute to the build-up of loss-absorbing capital layers.

Moody's believes that banks will be able to increase their margins benefiting from increases in interest rates that would not be fully passed on to customers but notes that the UK lenders will likely face stronger competition, especially in the mortgage market as well as for deposits as the Funding for Lending scheme runs off.

Areas such as credit operations in the commercial lending business; once considered core to a bank's operations are being considered for outsourcing to achieve cost savings while delivering superior lender and borrower experience. Process transformation through automation, workflow tools for seamless processing, analytics are driving changes in the SME lending services landscape helping banks gain marketshare and improve sbrads. The Company's recent trancation in this space is a testimony to changing trends in this segment. These outsourcing white-spaces offer immense potential and benefits for both clients and service providers to capitalise on such emerging opportunities.

The emergence of new technology, especially related to payments, is believed to be contributing to dis/intermediation of banks. Mobile is fast becoming the brferred interface to the world with developments of e-channels. Non-financial institutions are now competing for share of wallet, and financial institutions are forging partnerships with niche tech firms.

According to National Association of Homebuilders (NAHB), Mortgage interest rates are expected to rise in 2016 and 2017 as the Federal Reserve acts on the long-expected effort to increase the short-term federal funds rate. Nonetheless, NAHB expects the average 30-year fixed rate mortgage to rise above 4.50 per cent for 2016 and continue to increase in 2017. While this will have some negative impact on home buyers, the most significant constraint for prospective home buyers in recent years has been the challenge of accumulating a down payment. This hurdle is one of the key reasons why the first-time home buyer share of new and existing home sales has been below historical levels for several years, and why multi-family construction growth has led the way over the past few years. However, with continued job and wage growth, NAHB expects new single-family construction and sales to improve in 2016.

Mortgage BPM stands out as the largest sub-market within the banking BPM space. Everest research group estimates the mortgage BPM industry to be circa $1.3 Billion currently which grew at a CAGR of 11-12 per cent in the last couple of years and estimates similar growth rates in the future. Originations accounted for a higher share of the market in terms of revenue, however, servicing is growing at a faster pace. Regulatory concerns, among other factors, prompted financial institutions to increase their outsourcing leverage. As regulatory bodies continue to increase their oversight on mortgage activities of banks, role of BPM services has been increasing in the mortgage landscape. This, coupled with newer entrants in the space (for instance, small banks), is also causing a spike in the demand for mortgage BPM services. Buyers are now looking towards service providers to deliver more than just cost savings. Tools to ensure compliance and brvent banks from faltering in the future are increasingly gaining prominence. Factors, such as emerging new entrants, expanded regulations, and adoption of analytics and automation tools, are likely to impact the outsourcing potential of the market. However, service providers still need to prove their capabilities to buyers (especially first-time buyers) before widesbrad adoption can be witnessed. With progressively changing landscape, service providers will be required to make the right set of investments to stay competitive. Additionally, buyers need to identify the providers who understand their unique business challenges and can help mitigate them.

Third-party debt collection in the US is a 13.7-billion-dollar industry. It employs more than 130,000 workers. These numbers have been relatively stable over the past two years. However, the number of debt collection firms has been declining as a result of industry consolidation. According to ACA International (The Association of Credit and Collection Professionals), there were 6,171 collection companies in 2005, which declined to 4,615 in 2013. Industry analysis estimates that financial services debt generates the largest single share of revenue, 34.5 per cent, to third-party debt collectors

Credit card debt is the fourth largest source of consumer indebtedness and the second largest that is generally unsecured (Student loans are the first). Credit card debt is a major driver of overall debt collection activity and revenue. At any given point, the potential market for new credit card debt collection can be sized by examining the rate of credit card delinquency and charge-offs.

As far as the credit card industry is concerned, delinquency rates continue to be at historic lows. As of the second quarter of 2015, the '30+' delinquency rate — which rebrsents the share of outstanding credit card balances at least 30 days delinquent — was 2.1 per cent across all commercial banks. That is its lowest level since the Federal Reserve began tracking this metric in 1991. The net credit card charge-off rate for all commercial banks (i.e. annualised charge-offs as a share of outstanding balances) was 2.89 per cent, lowest rate since 1985. Given that this picture reflects a decline from an all-time high of 10.77 per cent just five years ago, there may still be a substantial stock of credit card debt subject to collection — even as the flow of new debt into the collection system has declined.

The continued improvement in the economy overall — and in the job market in particular - is one key driver for the decline in delinquency and charge-off rates. Other contributing factors may include tighter lending criteria put in place in the wake of the recession, as well as the closure of riskier accounts in the downturn.

Company's Operations

The Company services its clients through its global operations capabilities, both onshore and offshore. The Company has 45 operations centres across India (20), the US (16), the UK (6), the Philippines (2) and Sri Lanka (1) supported by a robust and scalable infrastructure network that can be tailored to meet its clients' needs. This gives the Company proximity to its clients and access to a global talent pool. The Company's Right-shoring model uses locations most appropriate for delivering services, and provides the best mix of skills and infrastructure to its clients.

The Company has grown from 2,188 full-time employees as of March 31, 2003 to 23,886 as of March 31, 2016, Company's employee distrubution inclued India (14,051), the US (4,078), the UK (4,212) the Philippines (945) and Sri Lanka (600).

Business Strategy at d Com petitive Strengths

Focus on Customer Management, Banking, Mortgage and  Healthcare segments

Over the last three years, the Company has been focusing on expanding its footprint in the customer management and healthcare segments. It believes that there is significant potential in these two business segments and being focused on these segments will enable the Company to use its resources effectively to leverage the growth opportunities. The customer management segment focuses on the BFSI, T&M and Helthcare verticals globally, which provides significant growth opportunities considering the shifts that are currently underway in the respective industries.

The Company is bringing together the vertical domain expertise and the horizontal customer management expertise to provide industry oriented solutions to clients, especially in the Banking industry. The lift-out deal with a large UK retail bank in commercial lending space and the managed services engagements in the life and pensions segment are some of the significant interventions in this direction. Through the lift-out deal, the Company has acquired expertise in the higher value niche credit operations services within the Banking segment of commercial lending. These specialised domain intensive services will help the Company move forward in its transformative journey to become a higher value services player, provide additional service lines for growth and enable to bring together elements of process transformation, workflow and digital tools.

The acquisition of ISGN Solutions in the US mortgage industry marks the entry of the Company in a new market segment, thereby enabling it to expand its mortgage services portfolio across the US and UK markets. Basis various industry reports, the Company expects the overall mortgage origination market to grow in the coming years which will generate additional engines of growth for the Company. These end-to end services across the mortgage value chain require extensive industry and domain knowledge, coupled with differentiating innovative services which position the Company favourably into the higher value segments.

Unique value proposition for the healthcare industry

The Company works with both the Payer and Provider segments of the U.S. healthcare industry and its depth of services, marquee clients, scale, reach and operational capabilities in the healthcare industry gives it a competitive edge among BPM players. It is one of the few players who straddle across both the segments of this Industry. The partnerships and alliances forged with companies like EBIX, Gaffey Healthcare, DCS Global, JDA Global, have helped the Company to become a full services provider in the Payer industry and complete end-to-end RCM services provider to the hospital segment. Focus on innovative solutions by developing 'Arrowheads' for creating value for the client

During FY2016, the Company enhanced its Business  Transformation Offerings (BTO).

Under the BTO framework, the Company continues to:

• Create Transformation Solutions through a combination of Robotic Process Automation, Workflow technologies, Digital and Analytics based brdictive models Over the last couple of years, the Company has made significant strides in creating productised "arrowheads" which help clients address the market shifts in their respective industries. Combining workflow tools and robotic automation methods help to streamline client processes, eliminate redundant and repetitive tasks delivering significant productivity benefits to clients as well as improve business outcomes. This is particularly relevant in back office processes across industries but more relevant in the banking and healthcare sector.

Analytics based brdictive models help to brdict consumer interaction behaviour, their Net Promoter Scores (NPS), and churn brdictive models which is a direct correlation metric to consumer loyalty to our clients' brand and product. Using consumer demographic data, customer interaction journeys across multiple channels (digital, voice, chat, email etc.), and transaction history, the Company has created analytical models to brdict future interaction behaviour patterns of consumers. These models help to maximise revenue potential and reduce churn thereby delivering superior business outcomes to the clients. Analytics will continue to be a significant investment area for the Company going forward.

Strengthen domain expertise and develop deep industry knowledge by building strong Centres of Excellence (CoEs), aided by forging technology partnerships The Company has proven and differentiated horizontal capabilities in its current business portfolio. These capabilities include customer management, collections and transaction processing. The Company has created dedicated CoEs for these three horizontals and continues to expand these capabilities across its target industry verticals. The significant expansion of customer management services into the healthcare segment has helped the Company become a full services provider to the healthcare insurance industry in the U.S. The Company continues to invest heavily in building industry and domain knowledge and establishing knowledge management systems for effective dissemination. It has set up an incubation cell within the organisation, which looks to incubate transformative solutions through associations with start-up ecosystems, in-house ideas and established organisations. Besides, it will continue to strengthen the CoEs by forging strong technology partnerships with niche product and platform organisations, which will enable the Company to propose niche bundled offerings to its customers.

Enhancing business value through Productisation Globally, there is significant shift in consumer behaviour across industries. These changing consumer brferences, aided by the demographic shift in consumer segments, rapid technological advancements, social media proliferation, and speed to market are necessitating an urgent need to interact with consumers through an effective omnichannel strategy. Proliferation of data across mediums and effective mining of the data to obtain meaningful insights is critical to create differentiation to survive and gain market share. Productisation at Firstsource is the process of creating a differentiated offering with a sustainable and reusable framework that adds business value to the client's business using a combination of transformative process, technology and analytics.

Firstsource has an imbrssive product portfolio comprising of productised solutions in Customer Interaction Analytics (First Customer Intelligence), Web Chat (First Chat), Process Automation (First Smartomation), Workforce Management (First WF Suite), Complaints Management (First Resolve) and First Digital. In the healthcare provider segment, Firstsource has a Revenue Cycle Management product suite, comprising MRES, MPAT and MBOS, which has generated traction in the healthcare business. In the last year, the Company created two specific arrowheads for the customer management vertical, which combines process transformation, technology and analytics to improve NPS, reduce churn and increase sales through the service channel.

Productisation of services is made possible through inventive technology partnerships, innovative product ideas along with a sound branding and go-to-market strategy. These help to generate significant value to the Company's clients.

Retain and consolidate relationships with clients

In FY2016, approximately 97 per cent of the Company's revenue came from existing customers. Continuous innovation and provision of value-added services continue to help the Company retain and improve its wallet share with customers. Delivering superior services through robust account plans is a key focus area for the Company to deepen its relationships with clients.

The Company works with several 'Fortune 500' and 'FTSE 100' companies in the US, the UK and India. Its client base also includes over 650 hospitals in the US. Many of these relationships have strengthened over time as the Company gets ongoing work from these clients and gains a greater share of their BPM outsourcing budget.

Talent management, leadership development and creating a culture that fosters performance

Being a people business, human capital is a core asset to the Company. It has taken various initiatives to improve and strengthen the performance and talent management framework of the organisation, imbibing best-in-class processes and practices. The Company continues to identify, nurture talent to build robust succession plans and groom leaders for the future through a well-established framework.

Global operations footprint and diversified business model

The Company has 45 operations centres globally with 20 centres in India, 6 in the UK, 16 in the US, 2 in the Philippines and 1 in Sri Lanka. This global operations model helps the Company to provide a Right-Shore model to its customers, which helps it to mitigate any visa restrictions, anti-offshoring sentiments in the US and the UK. The Company generates 38.8 per cent, 37.3 per  cent, 23.7 per cent of its revenues from Healthcare, T&M and BFSI segments respectively, which enables revenue diversification to mitigate any industry specific recessionary trends.

Deleverage the balance sheet and continue to expand margins

The Company will continue to repay its debt obligations as per the agreed payment schedule with its lenders, reducing the existing debt on its balance sheet. It also expects to expand its margins by improving operating parameters and focusing on profitable segments of the business.

Outlook

To conclude, the Company operates in industry verticals and markets that offer significant growth potential. The long standing and growing client relationships coupled investments with transformation solutions places the Company in a strong position to demonstrate growth.

Human Resources

At Firstsource, the Human Resource team's goal is to help achieve the organisation's strategic goals through the targeted sourcing of talent supported by design of market competitive total compensation programmes. Finally, HR ensures high engagement and motivation levels to retain our employees to meet the needs of our customers. We do a benchmarking of best practices in the industry and are constantly looking at ways to engage with our employees better. There are defined set of levers that are used to drive engagement ranging from effective programmes for onboarding, benefit plans, learning and development, career and recognition - all designed to attain best in class employee retention.

Employee Engagement and Retention:

We strongly believe that Employee Engagement has a direct correlation with customer satisfaction. Our engagement initiatives all have a core focus of strong and clear communications at all levels.

We enable this communication through our Managers, HR business partners, intranet, our in-house magazine "the Source", email announcements and Notice boards . To facilitate this two-way communication, we employ various formal and informal channels of feedback solicited directly from our global family of employees. To understand the pulse of the employees, assess their attitude and beliefs about work environment, values and leadership, the Human Resources team rolled out Global Employee Satisfaction Survey (GES) across Firstsource offices. This survey brsented an opportunity to improve the two-way communication process and gave employees the chance to exbrss their opinions. With 86 per cent participation, the overall Engagement score was at 80 per cent. The GES showed our cultural strengths were immediate manager practices, effective relationship with team members/ colleagues and understanding of how employee's own job contributes to Firstsource's vision. Action planning is currently in progress with respective Operations and Support function Department Heads to strengthen this and other GES feedback.

Apart from the annual GES survey, various communication forums like Let's Talk session by Senior Leadership, Town Halls, skip level meetings and Pulse surveys serve as avenues for employees to provide feedback. We have an open door policy and employees are also encouraged to raise their grievance through a formal Grievance Management process. The Whistle blowing Policy and the Prevention of Sexual Harassment Committee provides not only employees, but also our vendors, suppliers and customers a secure platform to raise their grievance.

Fun and Celebration at work help in re-energizing our workforce. We conducted Health and Wellness initiatives like free Medical camps, health awareness sessions by Experts, Yoga & Zumba sessions, free healthy breakfast, holistic therapies and work life balance sessions for women employees. We have an Employee Assistance Programme which enables employees to reach out to counselors 24x7 in-person, on phone or through chat and seek assistance for issues pertaining to personal or professional life.

The Performance Management System at Firstsource is called ACE (an acronym for ACHIEVE, CHALLENGE AND ENABLE). Key objectives of ACE are, align goals across all levels of the company to improve employee effectiveness and to create a high performance culture. Firstsource's performance driven culture challenges every employee to scale up and grow. A wide range of competency enhancement opportunities, challenging assignments and rotation across units and countries helps employees in their career progression.

We have an inclusive environment where all the employees get equal opportunities to achieve. By motivating our employees with positive reinforcement through our Recognition and Training Programmes, we have been able to promote an overall standard of excellence for everyone to work toward.

Corporate Social Responsibility is an integral part of our culture and it provides our employees an opportunity to give back to the communities in which they live and work. The CSR initiatives undertaken this year include Payroll Giving Program, fundraising and donations to help victims of natural calamity, fundraising for NGOs that support cancer, heart association and Mental Health, Donation of books and other school supplies to under privileged children and donation of food and non-perishable items.

Learning and Development:

As an organization we nurture learning and ensure that there is continuous learning for all our employees. Apart from the learning that one has on the job, we constantly strive to provide the best in class training programs for our employees, so that they perform their job more efficiently.

Drawing inspiration from the 'University' approach to learning , the "Firstsource Academy" was designed based on the guiding principles of focusing on learning rather than training and vesting the ownership of self-development on the individuals. Training programs have been designed to equip employees with the competencies identified as a part of our 'Breakout' competency framework. Comprising of seasoned trainers, learning consultants and OD Specialists, the Academy engages with Managers from Operations and Support functions to deliver on its three dimensional approach to leadership and managerial capability building at the organization.

This year we introduced The BSc (Honors) Customer Contact Management degree, a unique program being offered to Firstsource employees as a part of the Firstsource Academy and Ulster University partnership. This program has been designed to equip participants with the specialized competencies required in the Business Process Management industry. The curriculum of this program includes the internal training programs offered by the Firstsource Academy along with online modules from the Ulster Business School.

Talent Management - "Future Leader's Initiative" :

Future Leaders' Initiative' is the ongoing Talent Management process to identify, develop, retain and leverage the key talent in the organisation, build a leadership pipeline and create the desired leadership culture. Through a structured talent review process, governed by Talent Steering Committee reporting into CEO, we are able to effectively manage the demand and supply side of talent. Our aim is to have succession readiness for all business critical roles and retention of talent in the organisation.

Business Partnership - Systems and Analytics:

A part of bringing value as a business partner is the support of real-time analytics and trends to help managers in achieving their client demands through their human resources. This year, Firstsource HR led successful implementation of SAP, Kronos and SmartHire (In-house Recruitment tool). These implementations bring Firstsource to being a "best in class" status and promote Global consistency.

Recognition & Awards:

• Received the award for "Best First Time Managers Development Program of Asia" at the Leadership Development Practices of Asia 2015.

• Declared the 4th Runners-Up for the corporate film on Diversity and Inclusion at the Mega Corporate Film Festival and Awards 2016 hosted by the Learning & Organizational Development (L&OD) Roundtable.

• Awarded the "Outsourced Contact Centre of the Year" at the Welsh Contact Centre Awards 2016 for the 2nd consecutive year in a row for the unmatched career development and training opportunities offered to the employees.

• Awarded to Firstsource Academy at the "National Human Resource Development (NHRD) Showcase 2015 for HR Best Practices" for its initiative on various offerings in learning and development within the organisation.

• Ranked #19 in Ulster Business in "Top 100 Companies" list in Northern Ireland

RISKS & CONCERNS, RISK MITIGATION

These have been discussed in details in the Risk Managment report in this annual report.

DISCUSSION ON FINANCIAL POSITION RELATING TO OPERATIONAL PERFORMANCE

Shareholders' funds

Share Capital. The authorized share capital of the Company is Rs.8,720.00 million with 872 million Equity shares of Rs.10 each. The paid up share capital as of March 31, 2016 stands at Rs.6,733.15 million compared to Rs.6,662.91 million as of March 31, 2015.

Long-term Borrowings

Secured long-term borrowings rebrsent Term Loan, External Commercial Borrowing and finance lease obligation. Unsecured long-term borrowings rebrsent loan from non-banking financial companies.

Secured long-term borrowings outstanding as of March 31, 2016 were Rs.4,189.86 million as compared to Rs.4,070.41 million as of March 31, 2015. The increase is a net impact of conversion of short term borrowing to long term offset by repayment of term loan & External Commercial Borrowings alongside exchange rate movement of Rs.231.82 million and increase in fiance lease obligation of Rs.10.38 million. Unsecured long term borrowings outstanding as of March 31, 2016 were Rs.79.79 million as compared to Rs.72.57 million as of March 31, 2015.

Deferred Tax liabilities

Deferred tax liabilities as of March 31, 2016 were Rs.272.20 million as compared to Rs.344.72 million as of March 31, 2015. This decrease is due to higher debrciation and amortization which was partially offset by business losses carried forward.

Long-term provisions

Long-term provisions rebrsent provision for gratuity and compensated absences payable to employees based on actuarial valuation done by an independent actuary. The decrease in long-term provisions from last year is due to decrease in provision for Compensated absences.

Short-term borrowings

Short-term borrowings as of March 31, 2016 were Rs.1,525.33 million as compared to Rs.3,160.30 million as of March 31, 2015. The movement is on account of conversion of Working Capital Demand Loan into Term Loan, repayment of export finance of Rs.422.27 million and availment of overdraft from bank of Rs.662.31 million including exchange rate movement to the extent of Rs.39.63 million.

Trade payables

Trade payables as of March 31, 2016 were Rs.890.70 million as compared to Rs.832.76 million as of March 31, 2015.

Other Current liabilities

Other Current liabilities as of March 31, 2016 were Rs.5,009.74 million as compared to Rs.4,564.58 million as of March 31, 2015. The increase in other current liabilities is primarily on account of increase in employee benefits payable and current maturities of Long term borrowings.

Short-term provisions

Short-term provisions rebrsent provision for compensated absence payable to employees based on actuarial valuation done by an independent actuary and provision for income tax in India and abroad.

Goodwill

Goodwill as of March 31, 2016 was Rs.24,692.41 million as compared to Rs.23,336.35 million as of March 31, 2015.

The increase in goodwill during the year was Rs.1,356.06 million. This increase was due to restatement of balance goodwill on non-integral foreign subsidiaries at year-end exchange rates.

Fixed Assets

The net block of tangible assets, intangible assets and capital work-in-progress amounting to Rs.1,406.62 million as of March 31, 2016 as compared to Rs.1,187.60 million as of March 31, 2015, resulted in a net increase of the assets to the extent of Rs.219.02 million. This is majorly due to net additions of Rs.872.86 million and upward exchange rate impact of Rs.8.12 million offset by debrciation charge for the year amounting to Rs.661.96 million.

Investments

The investments of the company rebrsent non-current investments of Rs.83.80 million and current investments of Rs. 767.74 million as on March 31, 2016 as compared to Rs.57.55 million and Rs. 676.11 Million respectively as on March 31, 2015.

Long-term loans and advances

Significant items of loans and advances include payment towards security deposits for various rental brmises, capital advances, brpaid expenses, lease rent receivables and advance income tax paid. The long-term loans and advances of the company as of March 31, 2016 were Rs.2,460.79 million compared to Rs.2,220.78 million as of March 31, 2015. This movement in the net amount is mainly due to increase in MAT Credit carried forward amounting to Rs.139.83 million, Unexpired Rebate to customer amounting to Rs.124.66 million and advance income tax and tax deducted at source amounting to Rs.74.39 million, offset by decrease in brpaid expenses amounting to Rs.101.24 million and lease rent receivables amounting to Rs.5.62 million.

Other non-current assets

The other non-current assets of the company as of March 31, 2016 were Rs.144.09 million as compared to Rs.27.02 million as of March 31, 2015. This increase is primarily on account of Advance paid towards acquisition of ISGN.

Trade receivables

Trade receivables amount to Rs.3,040.75 million (net of provision for doubtful debts amounting to Rs.115.64 million) as of March 31, 2016 as compared to Rs.2,889.51 million (net of provision for doubtful debts amounting to Rs.36.71 million) as of March 31, 2015. These debtors are considered good and realisable.

The need for provisions is assessed based on various factors including collectability of specific dues, risk perceptions of the industry in which the customer operates and general economic  factors which could affect the Company's ability to settle. Provisions are generally made for all debtors outstanding for more than 180 days as also for others, depending on the management's perception of the risk.

Debtors' days as of March 31, 2016 (calculated based on per-day sales in the year) were 34 days, as compared to 35 days as of March 31, 2015. The Company constantly focuses on reducing its receivables period by improving its collection efforts.

Cash and bank balances

Cash balance rebrsents balance in cash with the Company to meet its petty cash expenditures. The bank balances in India include both Rupee accounts and foreign currency accounts. The bank balances in overseas current accounts are maintained to meet the expenditure of the overseas subsidiaries and branches. The cash and bank balance as of March 31, 2016 was Rs.689.10 million as compared to Rs.802.29 million as of March 31, 2015.This decrease in cash was due to cash used in investing and financing activities mainly for debt service and towards capital expenditure.

Short-term loans and advances

Short-term loans and advances as of March 31, 2016 were Rs.662.16 million as compared to Rs.439.25 million as of March 31, 2015. The increase in short-term loans and advances was mainly on account of increase in brpaid expenses and other advances.

Other Current Assets

The other current assets of the Company as of March 31, 2016 were Rs.2,724.75 million as compared to Rs.2,628.91 million as of March 31, 2015. This increase is primarily due to unbilled receivables

Income

Income from services

Income from services increased by 5.7 per cent to Rs.31,746.92 million in fiscal 2016 from Rs.30,033.78 million in fiscal 2015. The company attributes this increase in its income from services to new business from existing clients and addition of few new clients. This growth was also supported by movement in currency during the fiscal year 2016 as compared to brvious fiscal year. The average exchange rate for consolidation of subsidiaries for USD and GBP in fiscal 2016 was Rs.65.41 per USD and Rs.98.60 per GBP as compared to Rs.61.11 per USD and Rs.98.53 per GBP in fiscal 2015.

Revenue from Operations

The Company's revenue from operations increased by 6.4 per cent to Rs.32,302.89 million in fiscal 2016 from Rs.30,346.52 million in fiscal 2015. On constant currency basis, neutralizing the impact of foreign exchange rate movements during the year, the company's revenue from operations improvedby 2.0 per cent in fiscal 2016 over fiscal 2015.

Consolidated Revenues by Geography

The Company serves clients mainly in North America (USA and Canada), UK and India. Clients from North America accounted for 54.5 per cent (fiscal 2015: 49.3 per cent), clients from the UK accounted for 37.4 per cent (fiscal 2015: 35.9 per cent) while clients in India accounted for 6.3 per cent (fiscal 2015: 8.2 per cent) of the income from services in fiscal 2016.

Consolidated Revenues by Industry

Healthcare, Telecommunications & Media and Banking, Financial Services and Insurance accounted for 38.8 per cent, 37.3 per cent and 23.7 per cent of income from services, respectively, in fiscal 2016 and 35.8 per cent, 42.5 per cent and 21.5 per cent of income from services respectively in fiscal 2015

Client Concentration

The following table shows the Company's client concentration by brsenting income from the top client and top five clients as a percentage of its income from services for the periods indicated

In fiscal 2016, the Company had top client accounting for 21.8 per cent of the income from services compared to top client accounting for 23.5 per cent of its income from services in fiscal  2015.

The Company derives a significant portion of its income from a limited number of large clients. In fiscal 2016, the Company had 12 clients contributing individually over Rs.500 million each in annual revenues as compared to 10 clients in fiscal 2015. In fiscal 2016 and 2015, income from the Company's five largest clients amounted to Rs.13,994.89 million and Rs.12,967.98 million respectively, accounting for 44.1 per cent and 43.2 per cent of its income from services respectively. Although the Company continues to increase and diversify its client base, it expects that a significant portion of its income will continue to be contributed by a limited number of large clients in the near future.

Other operating income

Other operating income / (expense) of Rs.555.97 million in fiscal 2016 pertains to operating income in the nature of grants received in relation to the Company's business in UK of Rs.54.15 million and exchange gain realised on debtors of Rs.475.83 million. Other operating income / (expense) of Rs.312.74 million in fiscal 2015 pertains to operating income in the nature of grants received in relation to the Company's business in UK of Rs.67.45 million and exchange gain realised on debtors of Rs.242.72 million.

Expenditure

Personnel costs

Personnel costs increased by 7.7 per cent to Rs.21,721.74 million in fiscal 2016 from Rs.20,171.50 million in fiscal 2015, although the number of employees decreased to 23,886 as of March 31, 2016 from 25,285 as of March 31, 2015. As on March 31, 2016,  9,835 employees were employed outside India as compared to 9,256 employees as at end of fiscal 2015. The increase in cost is attributed to increase in number of employees across the globe.

Operating costs

Operating costs for fiscal 2016 amounted to 20.2 per cent of the income for that period, as compared to 21.0 per cent of income in fiscal 2015. Operating costs increased to Rs.6,533.01 million in fiscal 2016 from Rs.6,367.40 million in fiscal 2015. This increase is attributed to contribution made towards CSR, computer software expenses, and Repairs and Maintenance expenses.

Operating EBITDA (Earnings before Interest, Tax and Debrciation)

As a result of the continuing operations, operating EBITDA increased by Rs.240.52 million to Rs.4,048.14 million in fiscal 2016 from Rs.3,807.62 million in fiscal 2015. Operating EBITDA in fiscal 2016 was at 12.5 per cent of income, same as compared to fiscal  2015.

Debrciation

Debrciation costs for fiscal 2016 amounted to 2.0 per cent of the income for that period, as compared to 2.4 per cent in fiscal 2015. Debrciation decreased year-on-year by 8.3 per cent to Rs.661.96 million in fiscal 2016 from Rs.721.82 million in fiscal 2015.

Operating EBIT (Earnings before Interest and Tax)

Operating Earnings before Interest and Tax (EBIT) increased by Rs.300.38 million to Rs.3,386.18 million in fiscal 2016 from Rs.3,085.80 million in fiscal 2015. Operating EBIT in fiscal 2016 amounted to 10.5 per cent compared to 10.2 per cent in fiscal 2015.

Finance charge

Finance charges for fiscal 2016 amounted to 1.6 per cent of income for that period, as compared to 2.3 per cent of income in fiscal 2015. Finance charges decreased by 26.2 per cent to Rs.524.38 million in fiscal 2016 from Rs.710.86 million in fiscal 2015, primarily due to repayment of debt and exchange rate impact on payment of interest during the year.

Other income

Other income increasedto Rs.94.44 million in fiscal 2016 from Rs.65.23 million in fiscal 2015. The components of other income in fiscal 2016 were profit from the sale / redemption of current investments of Rs.55.29 million, gain on sale of fixed assets of Rs.4.11 million, interest income of Rs.18.69 million, other miscellaneous income of Rs.12.67 million and foreign exchange gain of Rs.3.68 million. The components of other income in fiscal 2015 were profit from the sale / redemption of current investments of Rs.29.96 million, gain on sale of fixed assets of Rs.4.75 million, interest income of Rs. 54.61 million, other miscellaneous income of Rs.1.66 million, offset by foreign exchange loss of Rs.25.75 million.

Profit before tax

Profit before tax increased by 21.1 per cent to Rs.2,956.24 million in fiscal 2016 from a profit before tax of Rs.2,440.17 million in fiscal 2015. Profit before tax in fiscal 2016 was 9.2 per cent of the income, as compared to 8.0 per cent of the income in fiscal 2015.

Provision for taxation

Provision for taxation increased by 216.7 per cent to Rs.302.17 million in fiscal 2016, from Rs.95.40 million in fiscal 2015. Income tax expense comprises of current tax, net change in the deferred tax assets and liabilities in the applicable fiscal period and minimum alternate tax credit entitlement.

Current tax expense comprises tax on income from operations in India and foreign tax jurisdictions. During the year, certain centers of the Company had the benefit of tax-holiday under Section 10AA under the Special Economic Zone scheme. Current tax expense amounted to Rs.581.91 million in fiscal 2016as compared to Rs.439.36 million in fiscal 2015.

There was a deferred tax credit of Rs.102.97 million in fiscal 2016compared to a deferred tax credit of Rs.8.76 million in fiscal  2015.

Minimum alternate tax for the ITeS industry became applicable effective fiscal 2009, resulting in the Company recording the same as part of the current tax expense and the credit entitlement has been disclosed separately. The Company has recorded minimum alternate tax credit entitlement of Rs.176.77 million in fiscal 2016 as compared to Rs.335.20 million in fiscal  2015.

Profit after tax before minority interest

As a result of the foregoing, profit after tax before minority interest increased to Rs.2,654.07 million for fiscal 2016 from profit after tax before minority interest of Rs.2,344.77 million in fiscal  2015.

Minority interest was Rs.4.38 million in fiscal 2016 as compared to Rs.1.59 million in fiscal 2015. This was due to operating profits in consolidation of Firstsource Dialog Solutions (Private) Limited.

Profit after tax

As a result of the foregoing, profit after tax increased by 13.1 per cent to Rs.2,649.69 million in fiscal 2016 from profit after tax of Rs.2,343.18 million in fiscal 2015. Profit after tax in fiscal 2016 was 8.2 per cent of the income, as compared to 7.7 per cent of the income in fiscal 2015.

Liquidity and Capital Resources

Cash Flows

The Company needs cash primarily to fund the technology and infrastructure requirements in its delivery centers, to fund its working capital needs, to pay interest and taxes, to fund acquisitions and for other general corporate purposes. The Company funds these capital requirements through variety of sources, including cash from operations, short and long-term lines of credit and issuances of share capital. As of March 31, 2016, the Company had cash and cash equivalents of Rs.685.76 million. This primarily rebrsents cash and balances with banks in India and abroad.

Operating Activities

Net cash generated from the Company's operating activities in fiscal 2016 amounted to Rs.2,997.27 million. This consisted of net profit after tax of Rs.2,649.69 million and a net upward adjustment of Rs.347.57 million relating to various non-cash items and non-operating items including debrciation of Rs.661.96 million; net increase in working capital of Rs.450.50 million; and income taxes paid of Rs.576.64 million. The working capital change was due to increase in trade receivables of Rs.66.35 million, increase in loans and advances by Rs.125.82 million and decrease in liabilities and provisions by Rs.258.33 million.

Net cash generated from the Company's operating activities in fiscal 2015 amounted to Rs.2,460.48 million. This consisted of net profit after tax of Rs.2,343.18 million and a net upward adjustment of Rs.117.30 million relating to various non-cash items and non-operating items including debrciation of Rs.721.82 million; net increase in working capital of Rs.1,048.22 million; and income taxes paid of Rs.510.37 million. The working capital change was due to decrease in trade receivables of Rs.42.15 million, increase in loans and advances by Rs.86.97 million and decrease in liabilities and provisions by Rs.1,003.40 million.

Investing Activities

In fiscal 2016, the Company invested Rs.1,036.88 million of cash into its investing activities. These investing activities primarily included capital expenditure of Rs.857.85 million, including fixed assets purchased and replaced in connection with the Company's delivery centers in the UK, US and India, and net purchase of money and debt market mutual funds amounting to Rs.61.39. During the year, company made advance payment of Rs.133.84 million towards ISGN acquisition

During the year, the Company received interests and dividends amounting to Rs.8.21 million and sold few fixed assets for Rs.8.85 million.

In fiscal 2015, the Company invested Rs.1,042.41 million of cash into its investing activities. These investing activities primarily included capital expenditure of Rs.462.56 million, including fixed assets purchased and replaced in connection with the Company's delivery centers in the UK, US and India, and net purchase of money and debt market mutual funds amounting to Rs.624.26 million. During the year, the Company received interests and dividends amounting to Rs.33.76 million and sold few fixed assets for Rs.10.65 million.

Financing Activities

In fiscal 2016, net cash used in financing activities amounted to Rs.2,074.44 million. This primarily comprised of net proceeds from secured loans, net of Rs.118.02 million, proceeds from unsecured loans, net of Rs.271.42 million and proceeds from issuance of equity shares of Rs.117.07 million. The company repaid WCDL amounting to Rs.1,875.01 million and paid interest of Rs.705.94 million.

In fiscal 2015, net cash used in financing activities amounted to Rs.2,464.49 million. This primarily comprised of proceeds from export finance of Rs.623.77 million and proceeds from issuance of equity shares of Rs.112.56 million. The company repaid secured loans amounting to Rs.2,756.68 million and paid interest of Rs.444.14 million.

Cash position

The Company funds its short-term working capital requirements through cash flow from operations, working capital overdraft facilities with commercial banks, medium-term borrowings from banks and other commercial financial institutions. As of March 31, 2016, the Company had cash and bank balances of Rs.685.76million as compared to Rs.799.81million as of March 31,  2015.

RISKS & CONCERNS, RISK MITIGATION

Risk management report describes various dimensions of enterprise wide risk management practices in the Company. Readers are cautioned that the risk related information outlined here is not exhaustive and is for information purposes only. This report contains forward-looking statements, about risks and uncertainties affecting our business objectives. Our business model is subject to uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Readers are requested to exercise their own judgment in assessing the risks associated with the Company and refer to the prospectus filed with the Securities and Exchange Board India (SEBI) as well as factors discussed elsewhere in this annual report.

Organisations are confronted with a blitzkrieg of risks in todays' dynamic world. To create value for our stake-holders requires a dynamic governance and risk management function in the ever-changing risk environment

The Company continues to emphasise and build on the need to have robust risk management culture and processes. It continuously strives to update the risk framework as per the changing business needs and objectives.

Governance Structure

Firstsource has dedicated governance teams engaged in Risk Management, Compliance, Legal, Internal Audit and Information Security Audits who work closely with the business operations and functional teams. Their mandate is to identify, assess, remediate and monitor the risks as per the br-defined policies and procedures. All teams are independent and reporting to Risk Committee with an overall guidance from the Board of Directors._

Our Risk Management Framework:

Firstsource's Risk Management framework is designed and implemented on the basis of recommendations of the 'Committee of Sponsoring Organisations' (globally known as the COSO Framework). This organisation was formed by the Treadway Commission that provides guidance and thought leadership on enterprise risk management, internal controls and fraud deterrence. Risk management at Firstsource seeks to minimise adverse impact of risks on key business objectives. It also enables the Company to leverage market opportunities effectively. There are linkages between risks and key business objectives in such a manner that several risks can impact the achievement of a business objective or one risk can impact achievement of several business objectives. These risks are continuously tracked with the help of Key Risk Indicators (KRI's), defined by the risk management team at the start of each financial year.

Risk Management Process

Your Company has defined a robust risk management process encompassing:

• Risk identification

• Risk assessment

• Risk response

• Monitoring & reporting

The risks are identified across the defined risk categories and monitoring levels, taking into consideration the business objectives. The stakeholders are at various levels, with clearly defined roles and responsibilities. They take up the response, remediation, monitoring, tracking, reporting and review at defined periodicities.  

Emerging Information Risks

The risk landscape in the current business environment is changing dynamically with the Cyber security, Fraud detection and brvention, Information security, Data Privacy & Business Continuity featuring prominently. The effectively mitigate these emerging risks; a focused strategy is brpared around Information risk management.