MANAGEMENT DISCUSSION AND ANALYSIS

Management's Discussion and Analysis (MD&A) of Consolidated Global Operations

(all references to consolidated performance, unless otherwise stated)

Competing on the strength of specialization

NIIT Technologies is an established IT solutions provider with a sharp focus on select industry verticals that include Travel & Transportation, Insurance, Banking & Financial Services, Manufacturing & Distribution, and Media. The Company has a highly differentiated position in these verticals with substantial domain knowledge and an array of intellectual property (IP) accumulated over several years, enabling it to compete on the strength of its specialization.

In addition to its strengths as a specialist in its verticals of focus, NIIT Technologies has also built robust capabilities across a wide range of practice lines including Application Development & Maintenance, Infrastructure Management Services (IMS), DevOps, Cloud Services, Testing, and Business Process Management. These capabilities complement and further fortify its operating profile, allowing it to successfully compete for and deliver on large and complex engagements globally.

Driven by its vision to be the first choice, the Company has a track-record of being an early adopter of new, disruptive technologies and business models, including Digital Services and Automation. This has, over the years, helped it maintain its leadership position in its industry verticals of focus and gain market recognition as an innovative, knowledge-led solutions provider.

Smart IT, Scale Digital: Enhancing capabilities in Automation, driving growth with Digital

The latest, and also the fastest growing, addition to the Company's offerings portfolio is Digital Services. In line with its track-record as an early mover, NIIT Technologies had made its foray into Digital Services a few years ago, developing multiple specific capabilities and engaging with clients to help them leverage digital technologies and create market-ready solutions with transformational benefits. The Company has been making necessary investments and implementing capability-building initiatives to stay ahead of the curve, nurturing an eco­system of partnerships concurrently with fostering an organizational culture that encourages and rewards innovation, creativity, and customer-centricity.

During the year under review, NIIT Technologies reinforced its Digital Services business by making a strategic investment in Incessant Technologies, acquiring a 51% stake in it. This in turn has yielded multiple benefits both strategically and operationally, and also enhanced the Company's brsence across the Digital Services value chain - Digital Experience, Digital Analytics, and Digital Integration. These offerings are aimed at enabling a holistic digital transformation for its clients.

In terms of Digital Experience, the Company's solutions are aimed at maximizing clients' customer, employee, and business partner assessments of experiences. The Digital Analytics offering builds upon the Company's business intelligence and data warehousing capabilities to provide brdictive and actionable analytics through the use of Big Data technologies as well as Data Integration and Data Visualisation tools. A key proprietary framework in this area is Digital Foresight® that has gained noticeable traction within the Insurance vertical in particular. Digital Integration is increasingly becoming a critical capability and is estimated to account for the largest share of Digital spend by customer organizations over the next few years. The Company's strategic investment in Incessant Technologies, which is a leader in agile delivery of enterprise iBPM solutions such as Pega systems and Appian, has helped it stay ahead of the pack in this area.

The Company has put together an Automation framework and embraced Robotic Process Automation (RPA) to drive efficiencies in its solutions. RPA is the application of technology (software robot) to interbrt existing applications for processing a transaction, handling data, triggering responses and communicating with other digital systems. The Company added to these capabilities during the year under review by partnering with UiPath, a software company specializing in RPA solutions to launch intelligent automation aimed at driving greater business benefits for its clients. The Company has also developed a proprietary framework Process GymSM to identify automation opportunities. Together with RPA, the Company will be able to deliver end-to-end solutions to its clients.

Delivering on corporate agenda: Review of operating and financial performance

(The Company's consolidated financials include the financials of NIIT Technologies Limited and its subsidiaries, including subsequent level companies after eliminating inter-company transactions.)

During the financial year under review (FY2016), NIIT Technologies made significant progress on its corporate agenda and priorities. This included improving its revenue mix (with greater contribution from international geographies), delivering growth in line with the industry, significantly expanding operating margins, strengthening its brsence in the high opportunity Digital Services space, and reducing debtors days resulting in better cash flows.

During FY2016, the Company recorded a 13.1% growth in revenues to Rs 26,824 million from Rs 23,725 million in the brceding year. Revenues from international markets grew faster, registering a growth of 17% during the year. The Digital Services business too witnessed rapid growth during the year and now contributes 15% of consolidated revenues. The Insurance and Banking & Financial Services verticals witnessed healthy growth during FY2016, growing 29% and jointly contributing 38% to consolidated revenues.The Company has also been able to maintain its strong market position in the Travel & Transportation vertical, which contributed 35% to overall revenues in FY2016, although growth in that vertical was relatively subdued on account of some large projects getting completed and going live during the year under review.

Revenue analysis

FY2016 has been a year of growth acceleration and margin expansion, characterized by a qualitative shift in revenue mix towards international geographies that in turn drove significant improvements in operating margins.

Earnings analysis

Operating (EBITDA) profit for the financial year under review stood at Rs. 4,733 million, an increase of 36.9% over the brceding year. Operating margins for FY2016 stood at 17.6%, rebrsenting an expansion of 308 basis points over FY2015. As a result, profits after taxes (PAT) more than doubled to Rs 2,800 million from Rs.1,141 million in the brvious year, an increase of 145%. EPS (basic) for the year stood at Rs 45.8.

Order intake and order book analysis

NIIT Technologies added significant new business during FY2016, adding new names to its client list even as it successfully increased its business with existing customers. The total number of new clients added during the year under review stood at 28; these included several multi-million dollar and multi-year deals in international markets. Among the large deals won by the Company was a £23 million contract from the UK communications regulator Ofcom, for managing its infrastructure & application systems and offer a customer-focused service to improve the users' experience of ICT services. The contract is over a six year period which includes an initial term of 4 years and extensions. The Company also bagged a new multi-year large transformational outsourcing engagement with an insurance client in Europe and acquired another multimillion dollar new insurance logo in the US.

This resulted in a total order intake of US$ 420 million over the course of the financial year, which in turn creates a strong foundation for growth in the next year (FY 2017). The order-book executable over the next 12 months stood at $301 million as on 31 March 2016, which is higher than $295 million a year ago.

Strong cash flow generation

During the year under review, the Company witnessed an uptrend in cash flow from operations and a rise in free cash flows, concurrent with business growth and better collections leading to reduced days sales outstanding (DSO) at 80 days as on 31 March 2016 from 93 days a year ago. Cash and cash equivalents increased from Rs 3,375 million a year ago to Rs 4,241 million as on 31 March 2016.

Global Digital Innovation Centre established in Hyderabad

As part of its ongoing initiatives for capability-building, the Company established a Digital Innovation Center (DIC) in March 2016, which will be driven by Incessant Technologies. This Centre, sbrad over 55,000 sqft in Q City, the most vibrant IT corridor in Hyderabad, will provide a global platform for research and technological development to tap new market opportunities for Digital Integration and serve as a hub for innovative thinking with state of the art IT infrastructure, Internet of Things (IoT) labs, digitally enabled training rooms, and world class video conferencing facilities to operate seamlessly in today's connected world.

Human resources

As on 31st March 2016, the Company had a total of 9,476 NIITians, as its employees are often referred to, up from8,494 a year ago. Attrition rate for FY2016 was 12.7%, a noticeable improvement from 15.8% in the brvious year. NIIT Technologies offers its employees a world class infrastructure, a harmonious work culture, competitive compensation, high quality training, and avenues for career development as well as the opportunity to work on exciting projects and new technologies. During the year under review, the Company was recognized as one of India's "50 Best IT-BPM Company to Work For in 2015" by the 'Great Place To Work® Institute'. Additionally, the Company has also been named among the "Top 5 large organizations" in the IT-BPM domain which include companies having over 5000 employees. The Company is a people centric organization with a rewards 6 recognition philosophy that focuses on fostering a culture of apbrciation, encouraging value creation, and promoting innovation at the workplace.

Outlook

Macro-economic data coming in from around the world, including the US, the UK, and the Eurozone indicates moderation amidst increased uncertainty. In the backdrop of this macroeconomic environment, the Company has been able to acquire new customers, win new large deals, and expand its deal pipeline on the back of its strategy to Focus and Differentiate, and capabilities in Digital Services. The Company expects continued growth in the Digital Services space as it capitalizes on the opportunities brsented and that in turn is likely to drive overall growth.

Related party transactions

Related Party transactions are defined as transactions of the Company with the Promoters, Directors or the Management, their subsidiaries or other related parties who may have a potential conflict with the interests of the Company at large. All transactions covered under related party transactions were regularly ratified and/or approved by the Board, the guiding principles being arm's length, fairness and transparency. The details of related party transactions are given in the Notes to Accounts section.

Risk and risk mitigation

The Company's operations and engagements are global in nature and thus its business, financials, and operating performance may be affected or impacted by a number of factors. Some such challenges and risks that would have to be addressed and/or managed, as well as the Company's approach towards mitigating them, are discussed below. This may not be an all-inclusive list of factors and neither is this necessarily in order of importance, and some brsently not known or deemed immaterial uncertainties could emerge in the future.

Execution risks: The Company pursues and has entered into multiple large and transformational engagements across geographies. Some such engagements are at times priced on a fixed-bid/fixed-price basis, and any inability to adhere to delivery schedules or quality could have an adverse impact. The Company does have a strong track record of undertaking and delivering complex programs, and has also made investments to strengthen its project/program management capabilities. It follows global standards of development, including an ISO 9001:2000 certification, assessment at Level 5 of SEI-CMMi frameworks and BS 7799 information security management certification.

Competition-related risk: The Company operates in the highly competitive global IT services and solutions market, against several Indian and foreign players brsent in many of its target markets. In addition to that, setting up offshore delivery centres in India by some global IT players, pose a challenge to the Company's efforts to attract and retain talent from a limited supply pool of skilled human resources in the country. The Company's differentiated business model, recognition in the market place as a competent solutions provider, domain specialization, IP assets, and long-standing relationships with several key clients have been enabling it to deliver growth in a highly competitive environment. The Company intends to stay the course in terms of following its strategy to Focus and Differentiate. It also has an active marketing program and has established relationships with various industry analyst firms worldwide, and frequently participates in or organizes IT conferences and industry-specific events attended by CIO's and executives of major corporations. The Company is also well-regarded for its people practices. These factors are expected to support the Company's efforts to maintain its competitive edge in the market.

Concentration risks: NIIT Technologies has a relatively diversified geographic and client mix, and the Company has been able to ensure that it does not become too dependent on any particular geography or client. North America, EMEA (Europe & Middle East), and Rest of the World (including Asia-Pacific and India) contributed 46%, 34%, and 20% of revenues respectively, during FY2016. The Company's also has a broadbased clientele, with the Top 10 customers contributing about 44% of FY2016 revenues.

Employee-related risks: Employee attrition and/ or constraints in the availability of skilled human resources could pose a challenge as the Company undertakes measures for continued business growth. NIIT Technologies has a healthy and harmonious work environment, and has initiated multiple steps aimed at strengthening its recruitment processes, aligning employees with organizational values and vision, and retention of the best talent. It also offers world class infrastructure, an excellent work culture, competitive salaries constantly benchmarked to the market, high quality training, avenues for career development and long term growth prospect in order to remain an employer of choice.

M&A execution risks: The Company has chosen organic and inorganic routes to grow exponentially in the future years, and in the process the Company may be exposed to risks such as increase in cost on account of staffing/ advisory fees, due diligence lapses and practical challenges in integration. NIIT Technologies follows a strategic approach in pursuance of its M & A activities and many of the risks are mitigated by restricting the choice of target companies by applying certain rigorous selection criteria as also by proper resourcing of the integration efforts. The Company also uses teams of experts for conducting due diligence, thereby reducing the risk of lapses.

Exchange rate risk: Given that the Company's revenues tend to be denominated in multiple currencies that include the US dollar, British pound sterling, and the Euro, fluctuations in foreign currency exchange rates could have an impact on the Company's performance. The functional currencies for the Company and its subsidiaries' operations are the respective currencies of the countries in which they operate. The Company actively books foreign exchange forward covers/ derivative options to hedge against foreign currency fluctuations related to its bills receivables and anticipated realisations from projected revenues. In accordance with its risk management policies and procedures, the Company uses derivative instruments such as foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and highly probable forecasted transactions. The derivatives that qualify for hedge accounting and designated as cash flow hedges are initially measured at fair value and are re-measured at a subsequent reporting date, with changes in the fair value of the derivatives (that is, gain or loss, net of tax impact) recognized directly in shareholders' funds under hedging reserve to the extent considered highly effective. Gain or loss on derivative instruments that either does not qualify for hedge accounting or not designated as cash flow hedges or designated cash flow hedges to the extent considered ineffective are recognized in the Statement of P&L. Hedge accounting is discontinued when the hedging instrument expires, sold, terminated, or exercised, or no longer qualifies for hedge accounting. The cumulative gain or loss on the hedging instrument recognized in shareholder's funds under hedging reserve is retained there until the forecasted transaction occurs, after which the same is adjusted against the related transaction. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in shareholder's fund is transferred to Statement of P&L in the same period.

Liquidity Risk: NIIT Technologies has a robust process for contract evaluation, multiple-vetting procedures,  and strong account management processes & systems for collection of receivables. It also shares long term relationships with many of its clients and monitors projects on a regular basis, tracking issues relating to cost escalations.

Investment portfolio related risks: NIIT Technologies is a profitable, cash-generating company. The Company, as a policy, does not brfer to invest its surplus cash in high risk assets such as equities or low liquidity assets like real estate. The primary area of risk for the Company's market exposures are related to the interest rate risk on its investment securities. To mitigate interest rate risk, all surplus funds are invested in appropriate avenues upon a review by the investment committee. All investment decisions are driven by certain guiding principles including the safety of investments, liquidity, and returns.

Obsolescence Risk: The Company operates in a highly dynamic industry, which is exposed to changes in technologies, software, products, method of services delivery, systems, processes, standards etc. The Company has had extensive experience through operations involving multiple aspects of technology like application development, maintenance of new and old applications, software application support, IT Infrastructure management, ERP implementations, managed services, remote infrastructure management, data center management, product sale, platform based services, BPO services, etc. The Company has always adapted to evolving market dynamics and new engagement models, and also has a track record of identifying relevant industry trends and staying ahead of the curve - its foray in emerging areas such as Digital Services and Automation reflects its ability to be market-ready with regard to any shifts in the business landscape.

("The Company" in the context of this report means NIIT Technologies Limited and/or its subsidiaries.)

Important note: Certain statements made in this report relating to the Company's objectives, projections, outlook, estimates, etc. may constitute 'forward looking statements' within the meaning of applicable laws and regulations. Actual results may differ from such estimates or projections etc., whether exbrssed or implied. Several factors including but not limited to climatic conditions and economic conditions affecting demand and supply, government regulations and taxation, natural calamities, etc., over which the Company does not have any direct control, could make significant difference to the Company's operations.