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Mastek Ltd.

BSE:523704  |  NSE:MASTEKEQ  |  58888:mstk  |  IND:IT Consulting & Software - Small Cap  |  ISIN code:INE759A01021  |  SECT:IT Software

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You can view full text of the Director's Report for Mastek Ltd.
Director Report
Mar2016   Mar 2017

The Company does take necessary insurance or related cover in cases as necessary.

Dear Shareholders,

The Board of Directors has pleasure to forward the following Report for the year ended March 31, 2017.

1. FINANCIAL RESULTS- CONSOLIDATED RESULTS OF MASTEK LIMITED AND ITS SUBSIDIARIES

(Rs, in lakhs)

PARTICULARS

Year Ended March 31, 2017

Year Ended March 31, 2016

Revenue

Income from IT Services

55,942.19

52,526.65

Other operating revenue

303.50

166.58

Total Operating Revenue

56,245.69

52,693.23

Other Income

972.09

1,738.82

Total Revenue

57,217.78

54,432.05

Expenses

50,958.26

50,873.27

Depreciation and amortization expenses

1286.01

1,605.31

Finance costs

257.89

50.31

Exceptional items

(340.00)

(254.28)

Profit before tax

4,375.62

1,648.87

Tax expense

684.64

274.41

Profit after tax

3,690.98

1,374.46

Add: Profit brought forward from Previous Year

24,705.38

42,918.78

Profit available for appropriation

28,396.37

44,293.24

Adjustment & Pursuant to Scheme of Arrangement

-

(18,940.12)

Dividend

(232.92)

(577.07)

Dividend Distribution Tax

-

(70.66)

Transfer to General Reserves

-

-

Balance carried to Balance Sheet

28,163.44

24,705.38

FINANCIAL RESULTS- MASTEK LIMITED STANDALONE

(Rs, in lakhs)

PARTICULARS

Year Ended March 31, 2017

Year Ended March 31, 2016

Revenue

Income from IT Services

16,127.89

37,843.96

Other operating revenue

1,050.33

22.81

Total Operating Revenue

17,178.22

37,866.77

Other Income

1,126.40

1,647.49

Total Revenue

18,304.62

39,514.26

Expenses

14,146.70

35,633.73

Depreciation and amortization expenses

1,203.84

1,488.51

Finance costs

16.83

23.68

Exceptional items

(340.00)

(300.20)

Profit before tax

2,597.25

2,068.14

Tax expense

71.72

731.57

Profit after tax

2,525.53

1,336.57

Add: Profit brought forward from Previous Year

14,846.30

36,037.15

Profit available for appropriation

17,371.83

37,373.71

Adjustment & Pursuant to Scheme of Arrangement

-

(21,879.69)

Dividend

(232.92)

(577.07)

Dividend Distribution Tax

-

(70.66)

Transfer to General Reserves

-

-

Balance carried to Balance Sheet

17,138.91

14,846.30

2. OVERVIEW OF THE FINANCIAL PERFORMANCE

A. MASTEK OPERATIONS

On a consolidated basis, the Group registered total operating revenue of Rs, 56,246 lakhs for the year ended March 31, 2017 as compared to Rs, 52,693 lakhs for the year ended March 31, 2016 which is an increase of 6.7%. The Group registered a net profit of Rs, 3,691 lakhs in the year ended March 31, 2017 as compared to Rs, 1,374 lakhs in the year ended March 31, 2016, thereby registering an increase of 168.6%.

On a standalone basis, Mastek reported an operating income of Rs, 17,178 lakhs for the year ended March 31, 2017, as compared to Rs, 37,867 lakhs for the year ended March 31, 2016. The Company made a Net profit of Rs, 2,526 lakhs for the year ended March 31, 2017 as compared to Net Profit of Rs, 1,337 lakhs for the year ended March 31, 2016. Standalone revenue is reduced during the year as Company has revised its pricing policy effective April, 2016. Further details are included in Notes 42 of notes to the Accounts of Standalone Financials.

The Consolidated Financial Statements of the Company for the year ended March 31, 2017 are prepared in compliance with the applicable provisions of the Companies Act, 2013, Accounting Standards and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The said financial statements have been prepared on the basis of the audited financial statements of the Company and its subsidiaries which have been approved by their respective Board of Directors.

No material changes or commitments have occurred between the end of the Financial Year and the date of this Report which affect the financial statements of the Company in respect of the Financial Year.

Pursuant to the provisions of Section 136 of the Companies Act,

2013, the Standalone and Consolidated Financial Statements along with the Directors'' Report and Auditors'' Report thereon form part of this Annual Report. The Financial Statement of the Company are also available on the website of the Company and can be accessed at the weblink: http://www.mastek.com/financial-information.

B. BREAKUP OF THE OPERATING REVENUE BY REGIONS

Region

Year ended March 31, 2017

Year ended March 31, 2016

Rs, in lakhs

% of Revenue

Rs, in lakhs

% of Revenue

UK

47,504

84.4

50,370

95.6

North

America

5,615

10.0

-

-

(India/

Asia Pacific)

3,127

5.6

2,323

4.4

Total

Operating

Revenue

56,246

100.0

52,693

100.0

The U.K. operations clocked Revenues of Rs, 47,504 lakhs during the year 2016-17 as compared to Rs, 50,370 lakhs in the previous year, resulting in a decrease of (5.44%). This de-growth is due to depreciation of GBP vs INR. UK business grew by 1% on constant currency terms.

Mastek established its presence in the USA by acquisition of TAISTech LLC and Trans American Information Systems Inc. through Digility Inc. USA, a step-down subsidiary of Mastek Limited. The US operations clocked revenues of Rs, 5,615 lakhs for the period December 23, 2016 to March 31, 2017.

The share of total operating revenue of other region, i.e. India as a percentage of total operating revenue of the Group was 5.6%.

C. BREAKUP OF THE OPERATING REVENUE BY VERTICALS

Region

Year ended March 31, 2017

Year ended March 31, 2016

Rs, in lakhs

% of Revenue

Rs, in lakhs

% of Revenue

Government

23,547.07

41.9

29,151

55.2

Financial

Services

12,971.37

23.0

9,977

19.0

Retail

Services

12,175.14

21.7

7,115

13.5

IT & Other Services

7,552.11

13.4

6,450

12.3

Total

56,245.69

100

52,693

100

PROFITABILITY

During the Year ended March 31, 2017, the Group earned a profit of Rs, 3,691 lakhs as compared to Rs, 1,374 lakhs for the year ended March 31, 2016. The profits for the financial year ended 2016-17 witnessed growth on account of the following:

a. Operational Improvement and Cost Containment Initiatives across the Organization;

b. Conclusion of a challenging account in UK;

c. Focus on profitable growth across geographies.

D. UPDATE ON PROGRESS OF ACQUISITION

In December 20 16, Mastek Ltd entered into a share purchase agreement to acquire 100% stake in Trans American Information System Private Limited, India a Company engaged in IT Consulting and Software Services, for a fixed consideration of Rs, 1,187 lakhs. The Company has successfully completed all the closing formalities in relation to the share purchase agreement for acquisition of 100% equity shares of Trans American Information Systems Private Limited and consequently the said entity has become a wholly owned subsidiary of the Company with effect from December 23, 2016.

On December 23, 2016, Digility Inc., the step-down subsidiary of Mastek Limited in the USA successfully acquired 100% stake in Trans American Information Systems Inc., USA (TA USA) and TAISTech LLC, USA (TA LLC) companies engaged in IT Consulting and Software Services. The consideration for the acquisition comprises a fixed consideration of USD 12.25 million (Rs, 8,321 lakhs) plus a contingent consideration based on achievement of revenue and EBITDA targets over a period of 3 years, from the date of acquisition. Pursuant to acquisition, Trans American Information Systems Inc., USA (TA USA) and TAISTech LLC, USA (TA LLC) have now become wholly owned subsidiaries of Digility Inc., U.S. which is a wholly owned subsidiary of Mastek (UK) Limited, and consequently, they have become step down wholly owned overseas subsidiaries of the Company.

3. HIGHLIGHTS OF PERFORMANCE OF SUBSIDIARIES AND THEIR CONTRIBUTION TO OVERALL PERFORMANCE OF THE COMPANY

Your Company continues to be the Holding Company of Mastek (UK) Limited, which in turn has IndigoBlue Consulting Ltd, UK and Digility Inc. USA as its wholly owned subsidiaries.

During the year under review, your Company has acquired 100% stake of Trans American Information Systems Private Limited and subsequently it became a Wholly Owned Subsidiary of Mastek Limited.

Digility Inc. USA, the step down subsidiary of your Company has acquired TAISTech LLC, USA and Trans American Information Systems Inc. USA, which in turn have become wholly owned subsidiaries of Digility Inc. USA and consequently, they have also become step down wholly owned overseas subsidiaries of the Company.

Legal Practice Technologies Limited, UK (LPT) a Joint Venture between the Law Society, UK and Mastek (UK) Limited (Wholly Owned Subsidiary of Mastek Limited) was dissolved with effect from December 6, 2016 after complying with the legal process.

About Subsidiaries: - Mastek (UK) Ltd, a wholly owned subsidiary of Mastek Ltd,

is a provider of Software Solutions which enable customers to solve their complex, mission critical business problems with innovative solutions that sustain and grow their business in the UK market. Its total turnover for the year was Rs, 37,654.34 lakhs and its contribution to Mastek profitability is 45.03% during the year.

- IndigoBlue Consulting Ltd, a wholly owned subsidiary of Mastek (UK) Ltd, is a leading UK consultancy organization specializing in Agile programme and project management. Its total turnover for the year was Rs, 5,728.03 lakhs and its contribution to Mastek profitability is 0.76% during the year.

- Digility Inc., USA, a wholly owned subsidiary of Mastek (UK) Ltd, is a niche digital transformation services provider, which uses agile methodologies to service customers in the financial and retail sectors through the Agile Development, Data Warehouse, Business Intelligence and Testing Services DNA. Its total turnover for the year was Rs, 67.77 lakhs. Investment in Sales and Marketing along with delivery cost resulted in losses. Its contribution to Mastek profitability is (26.01%) during the year.

- TAISTech LLC, USA and Trans American Information Systems Inc. USA are the wholly owned subsidiaries of Digility Inc, uSa. TAISTech is a global digital services firm focused on implementing and maintaining the Oracle Commerce and Oracle Commerce Cloud applications, as well as integrating them with the full suite of Oracle Customer Experience Products. Its total turnover for the year was Rs, 7,110.16 and its contribution to Mastek profitability is 8.18% during the year.

- Trans American Information Systems Private Limited, India, a wholly owned subsidiary of Mastek Limited is a Company with deep routed capability in providing high skilled resources and end-to-end e-commerce services including strategy, creative design, implementation and managed services. having presence in India and supporting US Customers. Its total turnover for the year was Rs, 898.57 and its contribution to Mastek profitability is 4.14% during the year.

- Legal Practice Technologies Ltd UK, a Joint Venture between The Law Society, UK and Mastek (UK) Ltd. It was incorporated in 2014 under the laws of England. Legal Practice Technologies Limited, UK (LPT) a Joint Venture between the Law Society, UK and Mastek (UK) Limited (Wholly Owned Subsidiary of Mastek Limited) had made by an application for strike off of name under local laws and was dissolved with effect from December 6, 2016 after complying with the legal process.

Your Company has two direct subsidiaries, and four step down subsidiaries as at March 31, 2017 and the statement containing salient features of the financial statements of all the subsidiaries, in Form AOC-1 is annexed as Annexure 1.

4. INDUSTRY SCENARIO

According to NASSCOM strategic review 2017, Indian IT Services and BPM industry is expected to grow approximately by 8% in FY2017 to USD 154 billion from USD 143 billion in FY2016. By 2020, India''s IT-BPM sector is projected to reach USD 200-225 billion revenue and USD 350-400 billion by 2025. IT-BPM exports from India is

expected to reach USD 117 billion in FY2017. Driven by the adoption of digital technologies, the total addressable market for global IT-BPM is expected to increase to USD 4 trillion by 2025, a CAGR of 3.6% for the forecast period of 2015 - 2025. Over next decade, the industry''s mix of technologies and demands is expected to change significantly. Digital technologies will continue to drive the sector and reach 23%/>38% share by 2020/ 2025. IT-BPM firms are focusing significant resources towards developing their digital capabilities and reorganizing themselves to catch the digital opportunity. Market evolution and thrust to get along with the disruptive environment is likely to lead the way to a new face of IT-BPM industry.

According to Gartner''s latest report, worldwide IT spending is projected to total USD 3.46 trillion in CY2017, a 2.7% increase from Cy2016 spending of USD 3.37 trillion. By CY2018, spending is forecast to exceed USD 3.55 trillion. The growth is expected to be driven by increase in software and IT services revenue. The worldwide IT services revenue is forecast to grow at 4.2% in CY2017 and 4.7% in CY2018 aided by increase in clients spend in digital, business intelligent, automation and services optimization and innovation. Global revenue in the business intelligence (BI) and analytics software market is forecast to reach USD 18.3 billion in CY2017, an increase of 7.3% from CY2016. By the end of CY2020, the market is forecast to grow to USD 22.8 billion.

According to Gartner, Software market in India is forecast to total USD

5.8 billion in CY2017, a 12.8% increase from CY2016 estimates of USD 5.2 billion. The enterprise software marketplace is dynamic and ever-changing. The growth is being driven by trends like increasing adoption of Software as a Service (SaaS) and open source software (OSS), changing buying behaviours, Digital India initiative of the Indian government, mobility, influence of other emerging markets, cloud-based implementations and new consumption models.

BI and Data Analytics Trends:

Gartner has projected to witness a solid growth in the BI and Analytics spend in the coming year, with the New Zealand and Australian markets both forecast to see growth in excess of the global average as businesses seek accessibility, agility and deeper analytical insight. While the growth is expected to remain solid and is forecast to grow to USD 22.8 billion by CY2020, Gartner notes that the market is expected to decelerate from 63.6% growth in CY2015 to a projected 19% by CY2020. This reflects data and analytics becoming mainstream with growth in terms of seat expansion but revenue is expected to be dampened by pricing pressure.

According to Markets, global BI and Analytics Software market is expected to grow from USD 17.90 billion in CY2015 to USD 26.78 billion by CY2020, at a CAGR of 8.4%. In the current scenario, North America is expected to be the largest market on the basis of spending and adoption of Business Intelligence and Analytics Software Market.

In CY2017, experts opined that IT firms will increase their investments in cloud-capable, robust BI platforms that can handle multiple data management capabilities such as integration, storage, visualization, statistical and quantitative analysis, instead of multiple specialty tools.

IT Spending: Market Size

CY2017 is poised to be a rebound year in IT spending. Gartner has projected the worldwide IT spending to touch USD 3.46 trillion in Cy2017, an increase of 2.7% from CY2016 spending of USD 3.37 trillion. For CY2020 worldwide IT spending is forecasted to grow 2.9% amounting to USD 3.79 trillion. The worldwide IT services spend is forecast to grow 4.2% in CY2017. The Gartner in its report said that during the year under review some major trends have converged, including cloud, blockchain, digital business and artificial intelligence which should have pushed IT spending much higher than 2.7% growth. However, due to political uncertainty in global markets that was seen in 2016, headed by the two most mediatic ones: Brexit and the intention of the UK to leave the EU and Presidential elections

of the United States, has fostered a wait-and-see approach causing many businesses to forestall IT investments.

Gartner has forecasted that the IT spending in Europe, the Middle East and Africa (EMEA) will total USD 1.25 trillion in cY2017, an increase of 1.9% from CY2016 spending of USD 1.23 trillion. Spending is on rise in EMEA and the segments that will contribute most to overall IT spending growth in CY2017 are Software and IT services which will grow by 6.8% and 4.1% respectively in CY2017.

According to Gartner, Government of India is projected to spend $7.8 billion on information technology in CY2017, an increase of 9.5% over CY2016. Software segment spending is projected to grow 15.7% in CY2017 to reach USD 1 billion. IT services is expected to grow 14.6% in CY2017 to reach USD 2 billion, making it the largest segment within the IT spending category. The key vertical segments driving IT spending growth include the communications, media and services, banking and securities, manufacturing and utilities markets. CIOs in India are prioritizing digitalization and rivalling global top performers when it comes to their commitment to digital business. Gartner''s annual global survey of CIOs found that average IT budgets in India are expected to grow by 10.7% in CY2017, nearly five times faster than the overall global average of a 2.2% increase. Enterprises investing in digital platform such as cloud, mobility and big data are the key drivers of spending growth.

5. BUSINESS OUTLOOK

The year ended was in line with Company''s expectations, both from financial performance as well as the capability building for driving the growth of the organization. The management continued to remain focused on its core business across key verticals - Government, Retail and Financial Services.

The year also marked by acquisition of Trans American Information Systems Private Limited, Trans American Information Systems Inc., USA (TA USA) and TAISTech LLC, USA (TA LLC). Mastek has successfully completed the acquisition and now the acquired entities are in the process of getting integrated with it. This acquisition has created a platform for Mastek''s accelerated growth in the US market and will augment Mastek''s 2020 vision to be a global leader in digital transformation services. The acquisition has allowed Mastek to leverage its service delivery capabilities in US geography. The said event was in line with the corporate transformation strategy and the Company expects a lot of cross-sell, up-sell opportunities between the TAISTech customer base and the Mastek capabilities going forward. The Company will continue to invest in agile methodologies in line with its aspiration of being involved in large and complex transformation programs which will help its customers to leverage digital opportunities in agile manner. The Company sees significant traction in agile and digital transformation solutions and expects good growth momentum going forward.

Another key event that happened during the year was the appointment of Mr. John Owen as Group CEO to lead Mastek. Mr. Owen has a strong background in sales, marketing and running business in UK/ Europe. He will be handling all the operational business of Mastek across geographies. He is an ideal fit to take Mastek to the next level. From the geography perspective, UK continued to be the major contributor to revenue of Mastek. It contributed 84% of the total revenue for the year. With acquisition of TAISTech and organic revenues in Digility Inc., US operations contributed to 10% of the revenue for the year. Company expects to see good revenue growth in the US going forward. India business remained steady and was in line with Company''s expectation. The Company is selective in bidding for profitable business in the current financial year.

Our Retail business has started picking up the growth momentum and has added new logos this year. Company did multiple pilot programs with large retailers and expects some of these to result in larger engagements through the years. In the Banking & Financial Services vertical, Company is focusing on Wealth Management and Digital Banking space based on its successful engagement in this space.

Overall, the Company is geared up to make rapid progress in Digital Transformation space and accelerate its growth in US and UK markets. It is well poised to become a leader in agile and digital transformation solutions. The Company expects to have a predictable and profitable financial performance in the coming years.

6. DIVIDEND & RESERVES

The Board of Directors at its meeting held on October 18, 2016 approved payment of Interim Dividend of Re. 1 per Equity share. The Board of Directors are pleased to recommend the payment of a final dividend at the rate of Rs, 2.50/- per equity share (face value of Rs, 5/- each). Therefore, the total dividend for the year ended March 31, 2017 (including interim dividend of Rs, 1/- per share) stands at Rs, 3.50/- per share, involving a total outflow of Rs, 232.92 lakhs The dividend payout ratio is 70%. The Company had paid total dividend of Rs, 2.50/- per share for the year ended March 31, 2016.

The dividend, if approved, at the ensuing 35th Annual General Meeting (AGM), will be paid to those shareholders whose names appear on the Register of Members of the Company as of the end of the day on June

15, 2017, being the record date.

During the year, under review, no amount from profit was transferred to General Reserves.

7. PARTICULARS OF LOANS, GUARANTEE OR INVESTMENT UNDER SECTION 186

Details of Loans and Guarantees provided and Investments made are covered under provisions of Section 186 of the Companies Act, 2013 are given in detail in the notes to the financial statements.

Company has provided a Corporate guarantee for an amount of USD 12 mn. and also security/ charge/ mortgage over its Property at Pune as a Security for a term loan facility availed of an aggregate principal amount not exceeding USD 10 million from Axis Bank UK Ltd valid for a period of 5 (five) years for acquisition of 100% share-holding in two US based software services companies TAISTech LLC, USA and Trans American Information Systems Inc. USA by Digility Inc. a first level step-down subsidiary of Mastek Limited.

8. OTHER DISCLOSURES UNDER THE COMPANIES ACT, 2013

i) Extract of Annual Return:

Pursuant to section 92(3) of the Companies Act, 2013 (''the Act") and Rule 12(1) of the Companies (Management and Administration) Rules, 2014, extract of Annual Return is annexed as Annexure 2.

ii) Number of Board Meetings:

The Board of Directors met 8 (Eight) times during the financial year 2016-17. The details of the board meetings and the attendance of the Directors there at are provided in the Corporate Governance Report, appearing elsewhere as a separate section in this Annual Report.

iii) Change in Share Capital:

During the year, the Company allotted 3,80,259 Equity Shares of face value of Rs, 5/- each for a total nominal value of Rs, 19,01,295/under various ESOP Plans to the eligible employees of the Company, who exercised their vested Employee Stock Options. These Equity Shares rank pari passu in all respects with the existing Equity Shares of the Company.

As on March 31, 2017, the issued, subscribed and paid up share capital of your Company stood at Rs, 11,68,87,665/- comprising 2,33,77,533 Equity shares of Rs, 5/- each.

iv) Composition of Audit Committee:

Mastek has an Audit Committee that currently comprises of four Independent Directors and one Non-Executive Director. The

Chairman of the Audit Committee is an Independent Director. The Independent Directors are accomplished professionals from the corporate fields. The Chief Financial Officer of the Company attends the meetings on invitation. The Company Secretary is the Secretary of the Committee.

During the year ended March 31, 2017 the Committee met 4 (Four) times. The attendance of the members at the meetings is stated below:

Name of Members

Status

No. of Meetings attended

Mr. S. Sandilya

Chairman

4

Mr. Ashank Desai

Member

4

Mr. Atul Kanagat

Member

4

Ms. Priti Rao

Member

4

Mr. Sudhakar Ram (upto July 20, 2016)

Member

2

Mr. Keith Bogg

(Appointed w.e.f. January 17, 2017)

Member

NA

The other details of the Audit Committee are given in the Corporate Governance Report, appearing elsewhere as a separate section in this Annual report.

During the year all the recommendations of the Audit Committee were accepted by the Board.

v) Related Party Transactions:

All the Related Party Transactions are entered into on an arm''s length basis and are in compliance with the applicable provisions of the Companies Act, 2013 and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 (''Regulations''). There are no materially significant related party transactions made by the Company with Promoters, Directors or Key Managerial Personnel etc., which may have potential conflict with the interest of the Company at large.

All the Related Party Transactions are presented to the Audit Committee and Board for their approval on a quarterly basis. Omnibus approval is given by Audit Committee for the transactions which are foreseen and are repetitive in nature. A statement of all Related Party Transactions is presented before the Audit Committee and the Board on a quarterly basis, specifying the nature, value and terms and conditions of the transactions. The said transactions are approved by the Audit Committee as well as by the Board.

The approved Related Party Transactions Policy is available on the Company''s website http://www.mastek.com/corporate-governance.

In accordance with Section 134(3)(h) of the Companies Act , 2013 and Rule 8(2) of the Companies (Accounts) Rules, 2014, the particulars of contract or arrangement entered into by the Company with related parties referred to in Section 188(1) in FORM AOC-2 is annexed as Annexure 3.

vi) Changes in the Nature of Business:

There has been no change in the nature of business of the Company during the financial year ended March 31, 2017.

vii) Listing with Stock Exchanges:

Your Company is listed with The BSE Limited and National Stock Exchange of India Limited and the Company has paid the listing fees to each of the Exchanges.

viii) Compliance with Secretarial Standards on Board and Annual General Meeting:

The Company has complied with Secretarial Standards issued by the Institute of Company Secretaries of India on meetings of Board of Directors and General Meetings.

ix) Insurance:

The Company has sufficiently insured itself under various Insurance policies to mitigate risks arising from third party or customer claims, property, casualty, etc.

9. CREDIT RATING

The Company enjoys a good reputation for its sound financial management and the ability to meet its financial obligation. ICRA Limited, a reputed Rating Agency, has assigned [ICRA]A rating for fund based limits and [ICRA]A1 for non-fund based limits for the Working Capital facilitates granted to the Company by its Bankers.

10. MANAGEMENT OF RISKS OF FRAUD, CORRUPTION AND UNETHICAL BUSINESS PRACTICES

Whistle Blower Policy / Vigil Mechanism

In compliance with the requirement of the Companies Act, 2013 and Listing Regulations, the Company has established a Whistle Blower Policy / Vigil Mechanism Policy and the same is placed on the web site of the Company. viz www.mastek.com/corporate-governance.

The Company has a Vigil Mechanism for Directors and Employees to report their concerns about unethical behavior, actual or suspected fraud or violation of the Company''s Code of Conduct. The mechanism provides for adequate safeguards against victimization of Director(s) and Employee(s) who avail of the mechanism.

The employees of the Company are made aware of the said policy at the time of joining the Company.

11. INDUSTRY RECOGNITION

Mastek, either directly or through its clients, received multiple awards and accolades during the year including:

- Home Office Immigration Platforms Technologies (IPT) Portfolio won the prestigious ''Best Agile Project Award 2016''at the European Testing Awards.

- Digility Inc. recognized by CIOReview magazine as one of the 20 most promising Financial Services Technology Solutions Provider in 2016.

- Mastek UK, recognized as an ''Agile Disruptor'' in UK Public Sector by TechMarketView in FY2016.

12. DIRECTORS'' RESPONSIBILITY STATEMENT

Pursuant to the requirement of clause (c) of sub-section (3) of Section 134 of the Companies Act, 2013, your Directors confirm that:

To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134(3)(c) of the Companies Act, 2013:

(a) that in the preparation of the annual financial statements for the year ended March 31, 2017, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

(b) that such accounting policies as mentioned in Note 1 of the Notes to the Financial statements have been selected and applied consistently and judgments and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2017 and of the profit of the Company for the year ended on that date;

(c) that proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(d) that the annual financial statements have been prepared on a going concern basis;

(e) that proper internal financial controls to be followed by the Company have been laid down and that such internal financial controls are adequate and were operating effectively; and

(f) that proper systems have been devised to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

13. STATUTORY AUDITORS, THEIR REPORT AND NOTES TO FINANCIAL STATEMENTS

M/s. Price Waterhouse Chartered Accountants LLP, were appointed as statutory auditors of the Company at the 32nd Annual General Meeting (AGM) held on July 23, 2014 for a period of 3 years and accordingly they will hold office of the auditors up to the conclusion of the 35th AGM and hence, would retire at the conclusion of the forthcoming 35th AGM. As per second proviso to Section 139(2) of the Companies Act, 2013 (''the Act''), a transition period of three years from the commencement of the Act is provided to appoint a new auditor when the existing auditor''s firm has completed two terms of five consecutive years. The Audit Committee and the Board places on record its appreciation for the contributions of M/s. Price Waterhouse Chartered Accountants LLP, during their tenure as the Statutory Auditors of the Company. For the purpose of appointment of new Auditors, the Audit Committee along with the Management invited proposals from the reputed firms of Chartered Accountants and had detailed discussion with representatives of those firms. The Committee considered various parameters such as reputation of the firm, knowledge and experience of the partners, understanding of business, technical assessment of the Audit skills and the Audit fees and based on these detailed analysis, the Audit Committee recommended M/s. Walker Chandiok & Co. LLP, Chartered Accountants (Firm Registration No. 001076N/ N500013), Mumbai as the Company''s new Statutory Auditor.

Accordingly, as per the said requirements of the Companies Act, 2013, the Audit Committee and the Board of Directors at their meeting held on April 20, 2017 proposed the appointment of M/s. Walker Chandiok & Co. LLP, Chartered Accountants (Firm Registration No. 001076N/ N500013), as the Statutory Auditors of the Company, subject to the approval of the shareholder at the ensuing Annual General Meeting (AGM), for a period of 5 years, commencing from the conclusion of 35th AGM till the conclusion of the 40th AGM, subject to ratification by members every year, as may be applicable.

M/s. Walker Chandiok & Co. LLP, Chartered Accountants (Firm Registration No. 001076N/N500013), have consented to the said appointment, and confirmed that their appointment, if made, would be within the limits specified under Section 141(3)(g) of the Act. They have also confirmed that they are not disqualified to be appointed as statutory auditor in terms of the provisions of the proviso to Section 139(1), Section 141(2) and Section 141(3) of the Act and the provisions of the Companies (Audit and Auditors) Rules, 2014.

M/s. Walker Chandiok & Co LLP (FRN 001076N/N500013), Chartered Accountants (the Firm) is an independent Indian Limited Liability Partnership firm established in 1935 with its head office at L-41, Connaught Circus, New Delhi- 110001.

The firm provides audit, tax and advisory services through its 42 partners with 850 staff from its offices in 11 cities, namely New Delhi, Mumbai, Bengaluru, Chandigarh, Chennai, Gurgaon, Hyderabad, Kolkata, Kochi, Noida and Pune. The firm is registered with the Institute of Chartered Accountants of India (ICAI) as well as the PCAOB (US Public Company Accountancy Oversight Board).

Further, the report of the Statutory Auditors along with the notes is enclosed with the financial statements. The observations made in the Auditors'' Report are self-explanatory and does not contain any qualification. Therefore, it does not call for any further comments. Also the Auditors of the Company have not reported any fraud as specified under Section 143(12) of the Companies Act, 2013.

14. SECRETARIAL AUDIT

In terms of Section 204 of the Companies Act, 2013 and Rules made there under, Mr. V. Sundaram, Practising Company Secretary, Mumbai was appointed as Secretarial Auditors of the Company. The report of the Secretarial Auditors is annexed as Annexure 4 to this report. The report is self-explanatory and does not contain any qualification. Therefore, it does not call for any further comments.

15. HUMAN RESOURCES

Mastek Group deploys its intellectual capability to create and deliver Intellectual Property (IP)-led solutions that make a business impact for its global clients. For this, the key success enabler and most vital resource is world-class talent. Mastek Group continually undertakes measures to attract and retain such high quality talent.

As on March 31, 2017 Mastek Group had a total Head count of 1577. The Directors wish to place on record their appreciation for the contributions made by employees to the Company during the year under review at all levels.

The disclosure required under Section 197(12) of the Companies Act, 2013 read with the Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 as amended from time to time is annexed as Annexure 5 and forms part of this report.

16. EMPLOYEE STOCK OPTIONS

During the year under review Company had allotted 3,80,259 equity shares under Employee Stock Option Plans. The Board of Directors confirms that there is no material change in the ESOP Scheme and all the ESOP Schemes are in compliance with the SEBI Guidelines. The required disclosures in this regard are annexed as Annexure 6.

17. RISK MANAGEMENT POLICY

In terms of the requirement of the Companies Act, 2013, the Company has developed and implemented the Risk Management Policy and the Audit Committee and the Governance Committee of the Board reviews the risks and remedial measures taken on a quarterly basis.

The risks are identified and discussed at regular intervals. The various risks are categorized as High risk, Medium risk and Low risk and appropriate mitigation steps/measures are taken/initiated to mitigate the identified risks from time to time.

18. UPDATES ON BOARD OF DIRECTORS/KEY MANAGERIAL PERSONNEL (KMP) / MANAGEMENT

A brief profile of all the existing Directors has been given in the Corporate Governance report which forms part of the Annual Report.

A. Evaluation of the Board''s Performance

In compliance with Companies Act, 2013 and Listing Regulations, the Board of Directors has carried out an annual evaluation of its own performance, Board Committees, Individual Directors, Chairpersons, Managing Director and the CEO for the year under review. In respect of individual directors including the nonexecutive chairman and the managing director, their personal performance was carried out using a peer review process, facilitated by an outside subject matter expert with confidential processing of inputs, interpretation of findings followed by one-on-one meeting of the individual Directors, and concluding with an aggregate presentation to the entire board.

Board and Committee functioning was reviewed and evaluated on the basis of responses from directors, Committee Members, Managing Director and the CEO to structured questionnaires, covering various aspects of the composition and functioning of the Board and its Committees.

In a separate meeting of the Independent Directors, performance of non-independent directors, performance of the Board as a whole and performance of the Chairman were also evaluated, taking into account the views of executive directors and nonexecutive directors. The Directors were asked to provide their valuable feedback and suggestions about the overall functioning of the Board and its committees and its areas of improvement for a higher degree of engagement with the Management.

The Board expressed its satisfaction with the Evaluation results, which reflects the high degree of engagement of the Board and its committees with the Company and its Management. Based on the outcome of the evaluation and assessment cum feedback of the Directors, the Board and the Management have also agreed on various points which will be implemented over an agreed timeframe.

B. Induction and familiarization programme for Directors

The details of the induction and familiarization program for the Directors are given in the Corporate Governance Report.

C. Independent Directors

Mr. S. Sandilya, Ms. Priti Rao, Mr. Atul Kanagat and Mr. Keith Bogg have been the Independent Directors on the Board of your Company as at March 31, 2017.

The Shareholders at the Extra Ordinary General Meeting held on March 05, 2015 had approved the appointment of Mr. S. Sandilya, Ms. Priti Rao and Mr. Atul Kanagat as Independent Directors of the Company for a term of four (4) years from April 01, 2015 to March 31, 2019 and Mr. Keith Bogg was appointed as an Additional Director (Independent) for a period of 5 years with effect from January 17, 2017, subject to the approval of the shareholders at the ensuing Annual General Meeting.

The Company has received necessary declarations from each of the Independent Directors under section 149(7) of the Companies Act, 2013, that they meets the criteria of Independence laid down in section 149(6) of the Companies Act, 2013 and Regulation 25 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and also in the opinion of the Board and as confirmed by these Directors, they fulfill the conditions specified in section 149 of the Companies Act, 2013 and the Rules made there under about their status as Independent Directors of the Company.

D. Appointment of Director/KMP:

- The Board, based on the recommendation of the Nomination and Remuneration Committee, appointed Mr. Keith Bogg (DIN: 07658511) as an Additional Director (Independent) not liable to retire by rotation, for a period of five years effective January 17, 2017, subject to the approval from shareholders. The Board recommend the same for members approval.

- Mr. Sudhakar Ram, Managing Director and Group CEO was redesignated as the Vice Chairman and Managing Director with effect from November 01, 2016.

- Mr. Abhishek Singh was appointed as a Chief Financial Officer effective September 17, 2016 in place of Mr. Jamshed Jussawalla who retired on his attaining the age of superannuation on September 16, 2016.

E. Re-appointment of Mr. Sudhakar Ram as Vice Chairman & Managing Director:

The Board, based on the recommendation of the Nomination and Remuneration Committee, re-appointed Mr. Sudhakar Ram as Vice Chairman & Managing Director, whose current term expires on June 30, 2017 effective July 01, 2017 for a term of 3 years i.e. from July 1, 2017 to June 30, 2020, subject to the approval from shareholders. He is also the Promoter and Managing Director of Cashless Technologies India Private Limited, a Private Company, initially promoted by himself and also draws remuneration. The Board recommend the same for members approval.

F. Retirement by Rotation:

In accordance with the provisions of the Companies Act, 2013 and the Articles of Association of the Company, Mr. Sudhakar Ram retires by rotation at the forthcoming Annual General Meeting and being eligible, offers himself for reappointment. The Board recommend the same for members approval.

G. Management Update:

Mr. John Owen was appointed as a Group Chief Executive Officer (CEO) by Mastek with effect from November 01, 2016.

Mr. John Owen has held senior sales and marketing roles in organizations like Serco, HP and Nortel over the last 25 years. In his last job at Serco, Mr. Owen was the Sales and Marketing Director for UK and Europe with revenue responsibility for £2.6 bn and the relationship management of the UK Government -Serco''s largest customer. With his deep expertise in business development and his track record with the UK markets -especially the UK government market - Mr. Owen will be ideal to lead Mastek to the next level of growth. Mr. Owen''s appointment embodies Mastek''s commitment to the U.K.

The information relating to remuneration paid to directors as required, is given in the notes to Accounts.

H. Key Managerial Personnel:

Pursuant to the provisions of Section 2(51) and 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following are the Key Managerial personnel of the Company:

- Mr. Sudhakar Ram- Vice Chairman & Managing Director;

- Mr. Abhishek Singh- Chief Financial Officer;

- Mr. Dinesh Kalani- Company Secretary.

19. COMPANY''S POLICY ON APPOINTMENT AND REMUNERATION OF DIRECTORS AND SENIOR MANAGERIAL PERSONNEL

The Company has a policy on remuneration of Directors and Senior Management Employees. The policy is approved by the Nomination & Remuneration Committee and the Board. The policy covers:

I. Directors'' appointment and remuneration; and

2. Remuneration of Key Managerial Personnel and other senior employees.

Details on the same are given in the Corporate Governance Report. The policy is available at the website of the Company at www.mastek.com

20. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS

During the year under review, no significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status and the Company''s operations.

21. INTERNAL CONTROL SYSTEM

A strong internal control system is pervasive in the Company. The Company has documented a robust and comprehensive internal control system for all the major processes to ensure reliability of financial reporting.

22. INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Company has in place adequate internal financial controls commensurate with the size, scale and complexity of its operations. During the year, such controls were tested and no reportable material weakness in the design or operations were observed. The Company has policies and procedures in place for ensuring proper and efficient conduct of its business, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information.

The Company has adopted accounting policies which are in line with the Accounting Standards and the Act. These are in accordance with Generally Accepted Accounting Principles (GAAP) in India. Changes in policies, if required, are made in consultation with the Auditors and are approved by the Audit Committee.

The Company has a robust financial closure, certification mechanism for certifying adherence to various accounting policies, accounting hygiene and accuracy of provisions and other estimates.

23. INDIAN ACCOUNTING STANDARDS (IND AS) - IFRS CONVERGED STANDARDS

The Ministry of Corporate affairs vide its notification dated February 16, 2015 has notified the Companies (Indian Accounting Standards) Rules, 2015. In pursuance of this notification, the Company will adopt IND As with effect from April 01, 2017, with a transition date of April 01, 2016.

The Company has substantially completed the assessment of the impact of the change to IND AS on reported reserves and surplus and on the reported profit for the relevant periods. The Company has also completed the modification of accounting and reporting systems to facilitate the changes. The implementation of IND AS is a major change process for which the Company is well positioned to ensure a seamless transition on the back of early completion of impact assessment.

24. PUBLIC DEPOSITS

Your Company has not accepted any deposits from public in terms of Section 73 and/or 74 of the Companies Act, 2013.

25. MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis comprising an overview of the financial results, operations / performance and the future prospects of the Company forms part of this Annual Report.

26. DETAILS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

(a) Conservation of energy

The Company is entirely a services Company and thus essentially, a non-energy intensive organization. Additionally, the Company''s facilities are set up at locations chosen for adequate availability and supply of energy, regardless of power shortages recently witnessed across many markets.

(i)

the steps taken energy.

or impact on conservation of

(ii)

the steps taken by the Company for utilizing alternate sources of energy.

Not

Applicable

(iii)

the capital investment on energy conservation equipments.

(b) Technology absorption: Not Applicable

(i)

the efforts made towards technology absorption.

(ii)

the benefits derived like product improvement, cost reduction, product development or import substitution.

(iii)

in case of imported technology (imported during the last three years reckoned from the beginning of the financial year) -

Not

(a)

the details of technology imported;

Applicable

(b)

the year of import;

(c)

whether the technology been fully absorbed;

(d)

if not fully absorbed, areas where absorption has not taken place, and the reasons thereof;

(iv)

the expenditure incurred on Research and Development

(c) Foreign exchange earnings and outgo

Total Foreign Exchange used and earned by the Company is as follows

Rs, in lakhs

Particulars

Year Ended

Year Ended

March 31, 2017

March 31, 2016

Exchange used

794.66

22,722.21

Exchange Earned

12,749.01

35,490.75

27. CORPORATE GOVERNANCE

The Company has complied with Corporate Governance requirements under the Companies Act, 2013 and as per SEBI Listing Regulations. A separate section on Corporate Governance practices followed by the Company together with the Certificate from Mr. Soumitra Mujumdar, Practising Company Secretary, appearing elsewhere in this report, forms an integral part of this report.

28. CORPORATE SOCIAL RESPONSIBILITY

In compliance with the provisions of Section 135 of the Companies Act, 2013 the Board of Directors of the Company have formed a Corporate Social Responsibility (CSR) Committee. The committee met two times during the year and a detailed report about CSR activities undertaken during the year is annexed as Annexure 7. Pursuant to the recommendation of the CSR Committee, the Board has approved a CSR Policy and the same has been uploaded on the website of the Company www.mastek.com/corporate-governance. The contents of the policy are as follows:-

Mastek CSR programmes shall fall under the following categories:

1. Promoting education, enhancing skills of children, and development of children and women working in red-light areas. We are also involved in special education and employment-enhancing vocation skills especially among women, elderly and the differently abled, and livelihood enhancement projects.

2. Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making safe drinking water available.

3. Promoting gender equality and empowering women: Activities include setting up homes / hostels for women and orphans, old age homes and other such facilities for senior citizens, day care centres, and measures to reduce inequalities faced by socially and economically backward groups.

4. Protection and up gradation of environmental conditions: These include ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro-forestry, conservation of natural resources and maintaining the quality of soil, air and water.

5. Any other projects with the approval of the Board.

Corpus:

The corpus of the CSR policy includes:

- 2% of the average net profit of the preceding three years

- Any income arising there from

- Surplus arising out of the above activities

- Payroll contribution from the employees

- Fund-raising events

Mastek may pool its resources and CSR spending with other groups or associate companies on collaborative efforts that qualify as CSR spending.

Roles and Responsibilities:

- Decide CSR projects or programmes or activities to be taken up by the Company.

- Place before the board the CSR activities proposed to be taken up by the Company for approval each year.

- Oversee the progress of the initiatives rolled out under this policy.

- Define and monitor the budgets for carrying out the initiatives.

- Submit a report to the Board of Directors on all CSR activities during the financial year. This will be displayed on the Company''s website - www.mastek.com

- Monitor and review the implementation of the CSR policy. CSR Committee Composition:

The Chairperson of the Committee is Ms. Priti Rao, an Independent director. The other members are, Mr. Sudhakar Ram and Mr. Ashank Desai. The Company Secretary is the Secretary of the Committee.

As per provision of Section 135 of the Companies Act, 2013, the Company has to spend, in every financial year, at least 2% of the average net profits of the Company made during three immediately preceding financial years, pursuant to Corporate Social Responsibility policy.

During the financial year ended March 31, 2017 the Board approved a Budget of Rs, 110 lakhs. Based on the Average net profit of the Company for three immediately preceding financial years, the amount to be spent on CSR activities during the financial year

2016-17 was Rs, 96.57 lakhs which was arrived at based on the net profit of the Company for financial year 2013-14, 2014-15 and 2015-16. However a total sum of Rs, 129.92 lakhs was spent on Projects approved under Section 135 of the Companies Act, 2013 on CSR activities during the year.

The said expenditure is within the prescribed parameters and the Company is in compliance of the provisions of Section 135 of the Companies Act, 2013.

29. REGISTRAR AND SHARE TRANSFER AGENT

Based on certain allegations of fraud and malpractices in the conduct and operations, SEBI investigated the affairs of Sharepro Services (India) Private Limited (Sharepro).

Sharepro, has been the Registrar and Share Transfer agent of the Company for a long period. The SEBI vide its Order dated March 22, 2016 had directed all the clients of Sharepro to carry out/switchover their activities related to a registrar to an issue and share transfer agent and also for conducting a thorough audit of the records and systems of Sharepro with respect to dividends paid and transfer of securities to determine whether dividends have been paid to actual/beneficial holders and whether securities have been properly transferred for past 10 years as per the provisions of law.

Accordingly, in these behalf, the Company had appointed a reputed firm of Chartered Accountants to carry out an Audit of Dividend payout and Share Transfer effected by Sharepro for past 10 years in accordance with the directions of SEBI Order. Based on the Audit Report, no irregularities or violations with respect to transfer of securities of the Company and the dividend pay-out over a period of past 10 (ten) years were reported.

Subsequently, in pursuance of the advisory issued by SEBI and in order to protect the interest of the Shareholders, the Company had appointed M/s. Karvy Computershare Private Limited as the Registrar and Share Transfer agent, effective April 04, 2016.

30. TRANSFER OF UNCLAIMED DIVIDEND AMOUNTS TO INVESTOR EDUCATION AND PROTECTION FUND

Your Company has transferred a sum of Rs, 12,60,133/- during the financial year 2016-17 to Investor Education and Protection Fund (IEPF), established by Central Government in compliance with section 125 of the Companies Act, 2013. The said amounts represent unclaimed Dividends which were lying with the Company for a period of 7 (seven) years from their respective due dates of initial payment.

Pursuant to the provisions of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, the Company has already filed the necessary form and uploaded the details of unpaid / unclaimed amounts lying with the Company, as on the date of last AGM (i.e. July 25, 2016), with the Ministry of Corporate Affairs.

31. DISCLOSURE AS PER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013:

Your Company has zero tolerance towards any action on the part of any employee which may fall under the ambit of ''Sexual Harassment'' at workplace, and is fully committed to uphold and maintain the dignity of every women employee working in the Company. The Company''s Policy provides for protection against sexual harassment of women employees at workplace and for prevention and redressal of such complaints. During the year, Company received one complaint which is under investigation by the Committee.

Awareness programmes were conducted across the Company to sensitize the employees to uphold the dignity of their colleagues at workplace, particularly with respect to prevention of sexual harassment.

32. ACKNOWLEDGEMENT

Your Directors place on record their appreciation for employees at all levels, who have contributed to the growth and performance of your Company.

Your Directors also thank the clients, vendors, bankers, shareholders and advisers of the Company for their continued support.

Your Directors also thank the Central and State Governments, and other statutory authorities for their continued support.

For and on behalf of the Board

Sudhakar Ram S. Sandilya

Vice Chairman & Managing Director

Non-Executive Chairman and Independent Director

Date: April 20, 2017

Place: Mumbai

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