MANAGEMENT DISCUSSION AND ANALYSIS

Business Overview:

The completed integration of SQS India BFSI Limited within the SQS Group has delivered and will continue to deliver the expected advantage from scale and cross promotion. Additional revenue generated from within the group grew from 3% of total revenue in the brvious year to 11% in 2015-16. In addition, ongoing efforts to standardize and optimize operations across India will help improve efficiencies in the future years. SQS India BFSI Limited continues to focus on its core strength in BFSI domain, while leveraging the group’s size and brsence across Europe and US to win new business.

Revenues of SQS India BFSI Limited grew by an imbrssive 23% to Rs.2,642 Mn. for the year 2015-16 while Net Profi ts increased by 70% to Rs.369 Mn.

Highlights include:

A more even sbrad of revenue across quarters delivering a 23% year on year increase.

 A signifi cant improvement in collections brought down the days sales outstanding from over 90 to 62 days.

 Continuing revenues from the existing customer base contributed 82% of total revenue demonstrating the confidence of our customers in the quality of our offering.

 New customers, with growth potential, accounted for 18% of revenue.

 Onsite revenues increased from 55% to 62% but we see opportunities to migrate work to offshore enhancing profitability while sustaining high levels of quality and service.

Banking remains and will continue to be our dominant sector. Cards & Payments has shown strong growth and we see greater opportunities in insurance.

Revenue from European markets accounted for 51% of total revenue and significant customer gains in the Banking space in the Middle East and Egypt markets helped the region grow by 32% to Rs.484 Mn of our total revenue.

During the year, we crossed the 1000 mark for the first time in our history to end the year with 1076 employees. Focused skill enhancement initiatives to keep pace with changing technology and business needs as well and with the addition of employees, average was maintained at 50 hours of training per employee.

Advanced training programs in Agile Technology, Mobile Testing and automation tools are continuing. The Company continues to invest in building the skill sets and competencies to align with more complex business requirements.

The year under review can best be described as a year of good growth; investment in our people and laid out new foundations to build our competencies, our scale and future business developments.

Global Outlook & Trends in the Quality Assurance (QA) Industry:

Client requirements are growing beyond software testing to a more holistic testing of business processes requiring end-to-end QA specialists to take responsibility for application/product quality. At the same time application lifecycles are becoming shorter. An increasing number of releases, renewed focus on increasing capacity and quality should increase demand. We anticipate testing budgets rising in 2016 to meet these requirements.

Nelson Hall (a leading Outsourcing Research & Analysis firm) brdicts an 8-9% growth in software testing and quality services in 2016 as digital transformation drives growth in our industry. This is despite lower oil prices and lower GDP growth in China limiting overall IT industry growth to 2%. Some of the key trends shaping the Testing / QA industry of tomorrow include:

 Mobile: Mobile testing will continue to remain at the top of test automation trends, due to the remarkable shift in the adoption of mobile devices and technology in business. The need for QA expertise as well as state of the art mobile labs on demand will increase.

Digitization: Legacy modernization of software and hardware assets will result in considerable IT spend in the coming years. The functional and non-functional testing opportunities are tremendous as testing is mandatory whether the digitization strategy is make or buy. SQS has a definite advantage for customers brferring to partner with an independent QA Company that understands their business needs and offers much more than technical solutions.

Non Functional Testing: With ever increasing security and regulatory compliance requirements, demand for non-functional testing (performance, fail-over, security, accessibility and user experience (UX) testing) is expected to increase. Strong technical expertise and domain excellence makes SQS a trusted partner for these Customers.

Big Data & Analytics: Quality management for Big Data implementations will emerge with the rise of Big Data and Predictive Analytics. Devices, applications and networks generate a huge source of unstructured and broken data ultimately leading to faulty and costly decisions if quality management is missing.

 DevOps: DevOps is the concept of stronger collaboration between business, development and operations throughout the Software Development Life Cycle (SDLC) typically in combination with Agile / Lean methodologies. This helps in faster go to market and also in identifying and fi xing defects early on, which helps to save costs. SQS has well-defi ned offerings/methodologies in this area and we expect the demand for these services to increase in the future.

Internet of Things: This is a growing trend and experts brdict that approximately 50 billion objects will be connected to the internet which will use some sort of connectivity and sensors to react in the environment.

This will require repeated testing of these objects along with the data that will be generated on a continuous basis.

Independent QA Services: More customers are espousing this approach. The trend is more evident in US and Europe geographies. In India too banks and financial institutions are relying more on independent QA services rather than testing by the Product / application developer. The need for independent QA services in BFSI has become very critical, since any system failure or miss in business requirements could result in significant financial as well as reputation loss.

In line with these trends, customers are moving towards competency centers, automation, Agile methodologies and DevOps, to improve business agility and efficiency. We have been building on our traditional strength in managing Testing Centers of Excellence (TCoE’s) for global customers to meet revised testing objectives and will continue to respond to the new technology changes in the market.

Opportunities and risks:

We therefore foresee continuing growth in key markets, though the type of services we offer will change with new technologies, the on-going mobile revolution and digitalization. The addressable testing market has been valued at over $15 Bn (by Gartner a leading information technology research and advisory Company) with more evidence suggesting the increasing signifi cance of quality services for business critical end-to-end processes.

The domestic market in India is growing with more private and public sector players outsourcing QA. We already work with some of the largest BFSI institutions in India and are well positioned to benefi t from this trend.

While we see the opportunities for growth we recognize increased competition and increasing offshore salary costs are putting brssure in margins. In our market, clients are looking for fl exible pricing models and bespoke solutions. More managed services engagements and more off-shoring will help us manage margins and counter increased costs.

The drop and volatility in oil prices could have a negative impact on the Middle East markets which are highly depended on oil exports. We feel this could be offset by growth in other developed markets.

In summary, we see new opportunities and recognize economic realities in our evolving markets. We are investing for growth and brparing the Company to be more nimble in exploiting the opportunities and meeting the challenges.

Internal Controls Systems and their adequacy:

The CEO and CFO of the Company have provided a certificate, which forms part of this annual report, which confirms the adequacy of the internal control systems and procedures.