MANAGEMENT DISCUSSION AND ANALYSIS

I. INDUSTRY OVERVIEW

During FY 2015-16, the Indian IT-BPM sector is estimated to have garnered revenues of USD 143 billion, (excluding e-commerce) compared to USD 132 billion in the brvious year, as per the 2016 Strategic Review put out by the National Association of Software and Services Companies (NASSCOM). Exports were pegged at $ 108 billion, a rise of over 10%. Over the course of the year, the industry in India added around 200,000 people.

Given that overall technology spending around the world remained flat compared to the brvious year, India actually increased its share of the global sourcing pie to 56%. This is an important positive. From a geographical perspective, the US and UK were the main customer markets with a combined share of nearly 80%. Nevertheless, there is also growing demand from the Asia Pacific region, Latin America and Middle East & Africa, and they brsent interesting opportunities for the future.

The shift towards a digital future is inevitable. NASSCOM forecasts that 80% of incremental expenditure over the next decade could be driven by digital technologies such as platforms, cloud-based apps, big data analytics, mobile systems, social media and cyber security. There will also be huge demand for services needed to integrate these technologies with remaining legacy core technologies.

NASSCOM also forecast that digital technologies will have a 23% share of the IT-BPM sector by 2020, and 38% by 2025.

As an IT-BPM nation, India offers a significant value proposition because it is mostly digital ready: it has proven excellence in business delivery; it can tap into a base of close to 4 million employees and is home to the world's fastest growing digital hub, with a pool of digitally skilled employees estimated at over 250,000 with expertise across analytics, mobility and social & cloud based applications.

II. SEGMENT WISE PERFORMANCE Financial and Banking services

Like others in the industry, eClerx experienced decelerating growth in this area, prompted by a decline in global derivative trade volumes. Another trend visible this year was the renewed focus on automation and efficiency, especially the use of new technologies like robotics process automation. This technology allows configuring of computer software or a "robot" to capture and interbrt existing applications for processing a transaction, manipulating data, triggering responses and communicating with other digital systems. We are working closely with clients to broaden our service capabilities across new functions, and embed some of these new technologies in our legacy services to remain the most efficient provider.

Digital marketing

It was a stronger year for our digital business - we continued to grow our relationships with emerging clients at a rapid rate, while also piloting select new engagements with our larger strategic clients. Analytics services and digital production related services were two areas where we found the most traction with our clients. The acquisition of CLX Europe during the fiscal year has helped us expand our service offering to encompass a larger part of the digital lifecycle of our clients. With their strength in creating and managing content, we can now add upstream services to our existing offering of content publishing and ecommerce production.

All marketing, process and people-related integration with CLX was completed during the year in review and this has started bearing fruit: CLX has met most of the internal goals that were set for FY 2015-16. We also continue to invest heavily for the future - for example,

CLX has invested considerable effort in building the next generation of its proprietary digital asset management tool (FLUiiD4) - since integration, many more existing clients have been migrated to this platform.

Cable and Telecom

Our cable business was our fastest growing business during FY 2015-16. With a portfolio of industry leading cable clients, this business has more than trebled since our acquisition of Agilyst in 2012.

Customers have found great value in our unique end-to-end value proposition. This includes use of brdictive analysis, operational audits, and providing incisive feedback on how to make technicians more effective while improving the overall experience of cable subscribers.

Across each of these three main business areas, eClerx sees significant opportunities for growth in the future. Of course, we will also need to evolve our service offerings substantially to capture this potential, and are working hard towards this.

Infrastructure

In India, eClerx operates out of three cities, Mumbai and Pune in western India, and Chandigarh in north India. Mumbai has the largest office space, followed by Pune and Chandigarh. During the year in review, capacities were augmented in each of the three cities, and at the end of March 2016, the Company's India facilities had a total capacity of more than 8500 seats and the centers are functioning at approximately 85% capacity.

eCLerx also has four sales offices across three countries. The acquisition of CLX now provides delivery centers both in Europe and Asia, and clients across Italy, Germany and UK. CLX has an employee headcount of approximately 300 employees (110-140 each in Thailand and Italy and around 20 each in Germany and UK).

Harnessing lalent

We are focused on building organizational capabilities to ensure that we can exploit the potential of relevant technology-driven disruptions for our client markets. Specifically, we are putting emphasis on developing people-related capabilities in areas such as robotics process automation and analytics.

We already have a number of people in our technology team who are quite skilled in the development, training and usage of "bots". They are helping us drive adoption in select client processes to provide the simplification and efficiency benefits that this new technology offers.

Talent management in critical areas such as analytics is clearly a key focus area—we are working on building top tier talent both in the more quantitative skills related to data manipulation and modeling, as well as the more contextual skills around business insights and brdictive analytics.

Our regular human resources programs continue as before focusing on acquiring the best talent for our organization, and then providing the training support to impart the necessary skills. We do this using a combination of internal programs as well as by partnering with a number of special List partners and institutions who assist us in talent up gradation and cross-skilling.

OUTLOOK

The out Look for the client business environment remains Largely similar to FY 2015-16. eCLerx does not expect any dramatic alterations to the demand environment during FY 2016-17.

The medium to Long term brsents both challenges and opportunities. As a rapidly growing player in the IT-BPM arena, we are building competencies and making investments across five broad areas to sustain our growth journey.

First, we are developing strong value propositions along new service Lines. Second, wherever possible and necessary, we are reinventing and retuning conventional service Lines. Third, we are allocating more funding towards game-changing and disruptive technologies. Fourth, we are recalibrating our staffing and re-training needs. This is especially important in an environment where revenue growth is getting decoupled from headcount, and it is becoming possible for smaller and smarter teams to bring in greater revenue. Finally, we are continuously scanning the globe for partnerships and alliances with specialists, niche players and platforms to deveLop an ecosystem for digital solutions.

IV. OPPORTUNITIES, THREATS, RISK AND CONCERNS

Risk management is an integral part of our business. We have outlined the principal risks and uncertainties that could adversely impact the functioning of the Company through their effect on operating performance, financial performance, management performance and overall sustainability. These include, but are not Limited to:

Macro- The Company derived 96% of its

economic risk revenues during FY 2015-16 from US and Western Europe. Challenging business and economic conditions in these markets could enhance cost brssure on clients and thus may affect the Company adversely in a number of ways. The Company may witness a reduction in prices, or the Loss of key projects and customers, in turn affecting the financial performance.

Concentration The Company derived 57% of its total risk revenues during FY 2015-16 from its top five clients. While the concentration risk has reduced compared to the Last financial year, it is still high. The Company's profitability and revenues would be significantly affected in case of Loss of any of these clients or a significant downsizing of projects given to the Company by them.

Currency risk We derived around 74% of our revenues in US Dollars, 18% in Euros, and 8% in Sterling and other currencies. Adverse movements in foreign exchange rates on account of global, regional or Local events could have a negative impact on our financial performance.

Competition risk New competitors may enter the markets the Company operates in. Likewise,  current competitors could decide to focus more on these markets, and thereby intensify the competition. They could also offer new technologies or offer a different service model or offer similar services at reduced prices. Such developments could harm the Company's business and results of operations.

Integration risks The Company's recent or future acquisitions may pose challenges  including financial, technological and people integration risks, which if not managed adequately, could result in failure to achieve the strategic and financial objectives of the transaction.

Key People risk our business is critically dependent on the quality of our workforce. failure to attract, retain and motivate key employees would impair the company's ability to offer the right quality of service to clients.

 Business disruption or IT system failure risk

Business Disruption Following A Major Outage Event Or A Failure Of Our IT Systems Could Cause A Disruption In The Company's Services, Thereby Reducing Client Confidence.  

Legal and regulatory risk

Failure To Comply With Legal Or Regulatory Requirements Could Impact The Company's Reputation And Financial Position. Legislation In Certain Countries In Which We Operate May Restrict Companies In Those Countries From Outsourcing Work To Overseas Entities Like Us, Which Could Hamper Our Growth Prospects In Major Markets.

Technological Risk

 With Advancement Of Technology, Artificial Intelligence And Robotics, The

Work Volume For People-Skill Driven Services Might Decrease Or Reshape Significantly, And The Company Might Not Be Able To Transition To Newer Client demands quickly.

V. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company Has In Place An Adequate System Of Internal Controls Commensurate With The Nature Of Business And Size Of Its Operations. The System Is Designed To Adequately Ensure That Financial And Other Records Are Reliable For Preparing Financial Statements And For Maintaining Accountability Of Assets. The Company Has A Strong And Independent Internal Audit Function Which Carries Out Regular Internal Audits To Test The Design, Operations, Adequacy And Effectiveness Of Its Internal Control Processes And Also To Suggest Improvements And Upgrades To The Management.

The Audit Committee Reviews The Adequacy And Effectiveness Of The Company's Internal Control Environment And Monitors The Implementation of the recommendations.

CONSOLIDATED FINANCIAL PERFORMANCE

the financial statements of your company are  brpared in compliance with the companies act, 2013 and generally accepted accounting principles in India (Indian gap).

the group's consolidated financial statements have been brpared in accordance with the principles and procedures for the brparation and brsentation of consolidated accounts as set out in the accounting standard 21 on 'consolidated financial statements'.

the group has acquired the entire shareholding of cal Europe s.p.a a joint stock company based in Italy effective April 22, 2015. accordingly, the consolidated financial results for the year ended march 31, 2016 also include the results of clx Europe s.p.a for the period post acquisition and hence results are not comparative to that extent.

the following discussion and analysis should be read together with the consolidated Indian gaap financial statements of the company for the financial year ended march 31, 2016.

Income from operations

Income from operations increased to Rs.13,143.16 million in the year under review from Rs.9,421.20 million in the brvious year registering a growth of 39.51%.

Other income

Other income primarily comprises of foreign exchange gains / (loss), interest on bank deposits and dividend from debt oriented mutual funds. the total other income increased to Rs. 410.55 million in the year under review from Rs. 324.58 million in the brvious year.

foreign exchange gains increased to Rs. 311.15 million in the year under review from Rs. 115.45 million in the brvious year, these include transaction and translation gain of Rs. 322.66 million in current year and Rs. 2.66 million in brvious year and forward contract loss of Rs. 11.51 million against gain of Rs. 112.79 million.

Income from investments decreased to Rs. 87.00 million in the year under review from Rs. 208.08 million in the brvious year, primarily due to Lower investable surplus available post acquisition of CLX Europe S.P.A and reduction in yield.

b. Expenditure

Operating expenses comprises of employee costs and other general and administrative expenses. The total operating expenses increased to Rs. 8,281.96 million in the year under review from Rs. 6,266.22 million in the brvious year.

Employee costs increased to Rs. 5,682.05 million in the year under review from Rs. 4,398.09 million in the brvious year, primarily due to annual increment, an increase in the headcount and also currency impact.

Other expenses increased to Rs. 2,599.91 million in the year under review from Rs. 1,868.13 million in the brvious year. The increase was primarily due to:

• Increase in cost of technical sub-contractors by Rs.377.90 million due to costs from newly acquired subsidiary CLX Europe S.P.A and more short term consulting projects.

• Increase in rent by Rs. 110.23 million due to additional facilities taken in Pune and also new facilities taken in brvious year becoming fully operational.

• Increase in communication and electrical consumables by Rs. 92.24 million primarily due to costs from newly acquired subsidiary clx europe s.p.a and additional facilities taken in current year.

• Increase in travelling expenses by Rs. 74.34 million due to costs from newly acquired subsidiary CLX Europe S.P.A and also higher number of onsite visits to client Locations.

c. Debrciation

Debrciation charge has increased marginally to Rs. 507.04 million in the year under review from Rs. 500.22 million.

d. Income Tax Expense

The Company's consolidated tax expense (including deferred taxes) increased to Rs. 1,131.84 million in the year under review from Rs. 682.58 million in the brvious year which is proportionate to increase in profit before taxes.

The Company has deferred the recognition of cumulative MAT credit of Rs. 177.30 million as on March 31, 2016, which could be available for set off against future tax Liability under the provisions of the Income Tax Act, 1961 on account of uncertainty around the time frame within which income tax will be payable under the normal provisions against which the MAT credit can be utilized.

II. FINANCIAL CONDITION

a. Share Capital

The Company has an authorized capital of Rs. 500 million as on March 31, 2016. The issued, subscribed and paid up capital was Rs. 407.89 million of equity shares of Rs. 10 each in the year under review as compared to Rs. 303.51 million in the brvious year. The increase in paid up capital was due to issue of Bonus Equity Shares in the ratio of 1:3 and allotment of shares on exercise of employee stock options.

b. Reserves & Surplus

The reserves and surplus of the Company increased to Rs. 10,453.66 million in the year under review from Rs. 6,845.18 million in the brvious year.

c. Short-term and Long-term Provisions

Short term provisions decreased to Rs. 818.48 million as on March 31, 2016 from Rs. 1,837.81 million as on March 31, 2015 primarily due to Lower dividend provision in the year under review.

Long term provisions comprising of gratuity Liabilities increased marginally from Rs. 110.49 million in brvious year to Rs. 117.74 in the year under review.

d. Trade Payables

Trade payables, rebrsenting payables for purchase of goods and services increased to Rs. 138.33 million as on March 31, 2016 from Rs. 17.17 million as on March 31, 2015. The increase is primarily attributable to consolidation of newly acquired subsidiary CLX Europe S.P.A.

e. Other Current Liabilities

Other current Liabilities, which include bills raised in advance on clients and statutory dues increased to Rs. 499.59 million as on March 31, 2016 from Rs. 353.98 million as on March 31, 2015. The increase is primarily attributable to consolidation of newly acquired subsidiary CLX Europe S.P.A.

f. Fixed Assets

The Gross block of fixed assets as on March 31, 2016 was Rs. 5,425.09 million (Rs.3,223.48 million as on March 31, 2015) and cumulative debrciation amounted to Rs. 2,027.32 million (Rs.1,553.16 million as on March 31, 2015). Gross additions to fixed assets made during the year were Rs.2,167.16 million (Rs.613.08 million

during the brvious year) which includes Rs.128.49 million on addition of gross block of CLX Europe S.P.A and Rs.1,496.35 million on goodwill on acquisition of CLX Europe S.P.A.

g. Loans and Advances

• Long term Loans and advances decreased to Rs. 560.21 million as on March 31, 2016 from Rs. 650.22 million as on March 31, 2015 due to receipt of pending service tax refunds.

• Short term Loans and advances increased to Rs. 236.03 million as on March 31, 2016 from Rs. 151.16 million as on March 31, 2015. The increase is primarily attributable to consolidation of newly acquired subsidiary  CLX Europe S.P.A.

h. Current Investments

Investment rebrsents surplus funds of the Company parked with mutual fund schemes that can be recalled at very short notice.

The Company's treasury practices call for investing only in highly rated debt oriented mutual funds. Investment in mutual funds increased to Rs. 2,190.95 million during the year under review from Rs. 1,552.87 million in the brvious year due to investment of surplus cash generated from operations.

i. Trade Receivables

Debtors increased to Rs. 1,860.95 million as on March 31, 2016 from Rs. 1,261.39 million as on March 31, 2015 primarily on account of increase in Sales. These debts are considered good and realizable and hence no provision for doubtful debts have been made. 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 that could affect the customers ability to settle. The Company monitors trade receivables closely.

Cash and Bank Balance

The cash and bank balances increased to Rs. 3,268.35 million as on March 31, 2016 from Rs. 2,865.75 million as on March 31, 2015. Out of this, Rs. 1,128.80 million (Rs. 950.94 million as on March 31, 2015) was held in exchange earnings in foreign currency accounts in India and bank accounts of foreign subsidiaries. The remaining cash and bank balances mainly rebrsent bank balances in current and fixed deposit accounts.

Other Current Assets

Other Current Assets decreased to Rs. 1,116.46 million as on March 31, 2016 from Rs. 1,358.72 million as on March 31, 2015. The decrease is primarily on account of reduction in the amount of mark to market on forward contracts for foreign exchange hedges and reduction in unbilled revenues.

Deferred Tax (net)

The Company has a net deferred tax Liability of Rs. 6.86 million as at March 31, 2016 (net deferred tax asset Rs. 51.62 million as at March 31, 2015). The deferred tax assets pertained to Domestic Tariff Area units which have been reversed since the Company does not recognize MAT Credit due to Lack of reasonable certainty of time frame by when the Company will pay normal income tax in the future periods.

III. CASH FLOWS

The Company's cash flows from operating, investing and financing activities, as reflected in the consolidated statement of cash flow, is summarized in the table below.

The proceeds from equity shares are on account of allotment of shares on exercise of employee stock options.

The Company repaid Loan of Rs. 546.37 million on behalf of CLX Europe S.P.A. to their bankers on acquisition.

Dividend paid during the year under review comprise of dividend payout for brvious year ended March 31, 2015 approved by the shareholders at the Last Annual General Meeting.

IV. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS, INCLUDING NUMBER OF PEOPLE EMPLOYED

The Company believes that employees are the core of our success. A fundamental tenet of our management philosophy is to invest in our employees, and enable them to develop new skills and capabilities which benefit them as well as the Company.

The organization grew to 8,550 employees during FY 2015-16. To promote employee welfare, we organized camps for blood donation, organ donation, BMI and health check-up, eye check-up, and cord blood banking. These initiatives received an overwhelming response from employees across Locations.

This year again, the Company participated in the Great Place to Work® survey, scoring significantly higher than Last year. This affirms that we are heading in the right direction on our journey to become a work place where employees trust who they work for, take pride in what they do, and enjoy the company of the people they work with. In FY 2016-17, we will continue to Look for ways to best harness the potential of our resources through various people management interventions.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations may be 'forward-Looking statements'; within the meaning of applicable securities Laws and regulations. Actual results could defer materially from those exbrssed or implied. Important factors that could influence the Company's operations include economic developments within the country, demand and supply conditions in the industry, changes in Government regulations, tax Laws and other factors such as Litigation and Labor relations.

Readers are advised to exercise their own judgment in assessing risks associated with the Company, inter-aLia, in view of discussion on risk factors herein and disclosures in regulatory filings, as applicable.