DIRECTORS' REPORT TO THE MEMBERS, We are pleased to present the 5th Annual Report on our business and operations for the year ended 31st March 2016, of Intellect Design Arena Limited ("Company"). This is our second year of business operations. 2. Business Performance The consolidated revenue of the Company for the year ended March 31st, 2016 stood at Rs. 810,65.55 lakhs as against Rs. 608,74.95 Lakhs for the previous year. The consolidated Net Profit/(Loss) for the fiscal year ended March 31st, 2016 stood at Rs. (16,83.58) lakhs as against the previous year's Net Profit/(Loss) of Rs. (82,99.33) Lakhs. The Consolidated Reserves and Surplus as of 31st March 2016 stood at Rs. 568,65.71 Lakhs as against Rs. 569,10.57 Lakhs of the period as of March 31st, 2015. 3. Material Changes and Commitments Mr. Arun Shekhar Aran has been appointed as an additional director of the Company with effect from May 03rd, 2016, and who will be an Independent Director subject to the approval of shareholders in the ensuing Annual General Meeting of the Company. 4. Subsidiaries Details of Subsidiary Companies, Joint Ventures and Associate Companies, and their financial position. Your Company has 23 (11 direct, 2 JV and 10 step down) subsidiary companies and 2 Associate Companies for the financial year ended on March 31st, 2016. The information as required under the first proviso to sub-section (3) of Section 129 is given in Form AOC-1 in Annexure [1]. During the year M/s Intellect Payments Limited and M/s Intellect India Limited have been incorporated as direct subsidiaries of Intellect Design Arena Limited. 5. Cash & Cash Equivalents Your Company's has cash reserve of Rs. 1,15.25 Cr. The working capital with reference to DSO (Days of Sales Outstanding) was maintained around 146 days (including Billed as well Unbilled) during the year. 6. Share Capital The paid up Capital of the Company was increased to Rs.50.39 Crs through share allotments made against exercise of Options under the ASOP Schemes inherited as part of de-merger and stands at Rs. 5,03,89,31,20 comprising of 10,07,78,624 number of equity shares of Rs.5/- each as on March 31st, 2016 The information as required under the provisions of Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 read with Rule 12(9) of the Companies (Share Capital and Debentures) Rules, 2014, and also the information required under the Guidance note of ICAI, in relation to ESOPs are set out in the Annexure 2 to the Directors' Report. The Register of Members and Share Transfer books of the company will be closed with effect from 11th July, 2016 to 21st July, 2016 (both days inclusive). 7. Corporate Governance Your Company has been complying with the provisions of Corporate Governance as stipulated in Clause 49 of the Listing Agreement / Regulation 27 of the Listing Regulations. A separate report on Corporate Governance along with Auditors' certificate on compliance of the Corporate Governance norms as stipulated in Clause 49 of the Listing Agreement / Regulation 27 of the Listing Regulations and Management Discussion & Analysis forming part of this report are provided elsewhere in this Annual Report. During the year, the appointment and remuneration of Mr. Anil Kumar Verma was approved by you through a Special Resolution in the Annual General Meeting held on July 28th, 2015 and the Central Government approved his appointment vide its letters dated September 18th, 2015 and October 07th, 2015. With respect to other details as specified in Disclosures under Schedule V kindly refer to Table No. 2.7 of Report of the Corporate Governance. 8. Transfer to Investor Education and Protection Fund As required under the provisions of Section 205A and 205C and other applicable provisions of Companies Act, 1956 (the corresponding provisions in the Companies Act, 2013 have not been notified, and hence the earlier law is still applicable in respect of these provisions), dividends that remain unpaid/unclaimed for a period of seven years, are to be transferred to the account administered by the Central Government viz: Investor Protection and Education Fund ("IEPF"). Once the amounts that are due for refund are transferred to the IEPF, no claim shall lie in respect of those amounts against the Company. The Company had not declared any dividend so far, hence the above provisions are not applicable to our Company. 9. Conservation of energy, technology absorption, foreign exchange earnings and outgo The particulars as prescribed under Section 134(3)(m) of the Act, read with Rule 8 of the Companies (Accounts) Rules, 2014, are set out in the Annexure 3 to this Report. 10. Particulars of employees Since, the Annual Report is an abridged version information pursuant to the provisions of Rules 5(2) & 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is not enclosed along with this report. Any member who wish to obtain these details can refer to the detailed Annual Report posted on the Company's website or can write to the Company Secretary asking for details. 11. Directors' responsibility statement as required under Section 134 (5) of the Companies Act, 2013 Pursuant to the provisions of Section 134(3)(c) of the Companies Act, 2013 the Directors of your company confirm that: a) In the preparation of the Annual Accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; b) The Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit of the company for that period; c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. d) The Directors have prepared the Annual Accounts on a "going concern basis". e) The Board of Directors have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. f) The Board of Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. g) The Board of Directors have adopted policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Company's policies, 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 disclosures. 12. Board Meetings, Board of Directors, Key Managerial Personnel & Committees of Directors (a) Board Meetings: The Board of Directors of the Company met 7 times during the year 201516. The details of various Board Meetings are provided in the Corporate Governance Report. The gap intervening between two meetings of the board is as prescribed in the Companies Act, 2013 (hereinafter "the Act"). (b) Changes in Directors & Key Managerial Personnel There have been no changes in the Directors and Key Managerial Personnel during the Financial Year 2015-16. (c) Re-Appointment As per Article 34(1) of the Articles of Association of the Company, one third of the Directors are liable to retire by rotation at the Annual General Meeting of the Company. Mr. Anil Kumar Verma, Director is liable to retire by rotation. (d) Independent Directors The following independent directors who were appointed in the 3rd Annual General Meeting held on 17th September 2014 and in the EGM held on 9th October 2014 for a period of three (3) years, will continue to be on the Board till the conclusion of 6th Annual General Meeting to be held in the calendar year 2017. 1. Dr. Ashok Jhunjhunwala 2. Mr. V.Balaraman 3. Ms. Aruna Krishnamurthy Rao The Company has received necessary declarations from each Independent Director of the Company under Section 149(7) of the Act, that they meet the criteria of independence as laid down in Section 149(6) of the Act. (e) Details of remuneration to Directors: The information relating to remuneration of directors as required under Section 197(12) of the Act, is given in Annexure [4]. (f) Board Committees The Company has the following Committees of the Board: 1. Audit Committee 2. Nomination and Remuneration & Compensation committee 3. Stakeholders' Relationship committee 4. Corporate Social Responsibility committee 5. Risk Management Committee Sub-committees: 1. Share transfer Committee The composition of each of the above Committees, their respective role and responsibility is as detailed in the Report of Corporate Governance. The policy framed by the Remuneration and Compensation Committee under the provisions of Section 178(4) of the Act, is as below: (g) Remuneration policy The remuneration policy of the Company has been so structured in order to match the market trends of the IT industry. The Board in consultation with the Nomination and Remuneration & Compensation Committee decides the remuneration policy for Directors. The Company has made adequate disclosures to the members on the remuneration paid to Directors from time to time. Remuneration/ Commission payable to Directors is determined by the contributions made by the respective Directors for the growth of the Company. The Policy of the Company on Director's appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a Director and other matters as required under Section 178 sub-section 3 of the Companies Act, 2013 is available. There has been no change in the policy since the last fiscal year. We affirm that the remuneration paid to the Directors is as per the terms laid out in the nomination and remuneration policy of the Company. (h) Board Evaluation As required under the provisions of Section 134(3)(p) and Regulation 27 of the Listing Regulations, the Board has carried out an annual performance evaluation of its own performance, and the manner in which such performance evaluation was carried out is as under: The performance evaluation framework is in place and has been circulated to all the directors to seek their response on the evaluation of the entire Board and independent directors. The Nomination and Remuneration & Compensation Committee has carried out evaluation of director's performance. The criteria of evaluation is exercise of responsibilities in a bona fide manner in the interest of the Company, striving to attend meetings of the Board of Directors/ Committees of which he/she is a member/ general meetings, participating constructively and actively in the meetings of the Board /committees of the Board etc. (i) Vigil Mechanism The Company has established a whistle-blower policy and also established a mechanism for directors and employees to report their concerns. The details of the same is explained in the Corporate Governance Report. (j) Related Party Transactions All related party transactions that were entered into during the financial year were on an arm's length basis and were in the ordinary course of business. There are no other materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons which may have a potential conflict with the interest of the Company at large. The details of the related party transactions as required under Section 134(3)(h) r/w Rule 8 of the Companies (Accounts) Rules, 2014, is attached as Annexure [5]. 13. Auditors Financial Auditors: M/s. S.R. Batliboi & Associates LLP, Chennai, Chartered Accountants who are the Financial Auditors of the Company hold office as financial auditors until the conclusion of the 8th Annual General Meeting of the meeting to be held in the Calendar year 2019. Their appointment is subject to ratification by the members at the 5th Annual general meeting. Secretarial Audit: Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Secretarial Audit has been carried out by Mr. S Eshwar, Practising Company Secretary, and his report is annexed as Annexure [6]. 14. Fixed Deposits Our Company has not accepted any deposits during the financial year and as such, no amount of principal or interest was outstanding as on March 31, 2016. 15. Social Connect Ullas Trust - a journey of 18 years, thousands of students and one motto: Igniting young minds Since its inception in 1997, Ullas Trust has brought its employees together to connect with the larger community and work towards its empowerment. Thinking beyond 'financial aid', Ullas chose the unique path of influencing the aspiring student community during a crucial phase of their life - 'adolescence'. And thus began the quest for reaching out to the high school students in corporation, government and government-aided schools. Here, Ullas began to inspire students with the power of dreams, and encouraged them to dream, set goals, plan towards achieving them and celebrate success. In the last 18 years, tens of thousands of students have been touched by the magic of Ullas and many of them continue to celebrate their success with us today. 2015-16 has been a phenomenal year for Ullas Trust. We reached out to over 6,000 students through the SUMMIT programme and nearly 2,00,000 students through our Touch The Soil programme. This year, we also organised the first Ullas Confluence - an exclusive planning and ideation platform for our college-going youngsters - Talent Quest for India (TQI), towards furthering Ullas' initiatives in the rural schools. All of this inclusive of an upward surge in our social media activity, altogether made for an eventful year in Ullas Trust. SUMMIT Our weekend enrichment programme This academic year, Ullas Trust reached out to 6,128 students from 323 schools across India. The SUMMIT season began with the Ullas Entrance Examination (UEE). The UEE is the gateway test to identify meritorious students and induct them into Ullas for the weekend enrichment programme. This year, over 8,000 students who were poised to enter Class IX sat for the UEE, and 2,100 of them joined the fleet of Ullas Young Achievers. Along with the Class X, Class XI and Class XII students already in the Ullas fold, over 6,100 students participated in the four levels of intervention through SUMMIT (SUMMIT Level 1-4: Level 1 being Igniting Dreams, Level 2 - Planning and Prioritization, Level 3 - Influencing, and Level 4 - Persuasive Articulation). Especially in Pune, with an increased band of volunteers, expanded from one school to four schools, taking on additional students onto the Ullas bandwagon. TOUCH THE SOIL Our rural connect programme This academic year, Ullas Trust reached out to 191,140 students from 587 schools across 86 districts in 4 states. Touch The Soil programme is designed to deliver powerful tools to students that aid them in charting their dreams and mapping a plan to achieve them. This year, Ullas Trust embraced nearly two lakh students across the country through the Diary of Dreams workshop for Classes IX & XI, and the Planning workshop for Classes X & XII. 5,618 students were awarded merit scholarships from Ullas - 5 students from Class IX and 5 students from Class X were chosen from each school for this. HIGHER EDUCATION SCHOLARS Our mentees become mentors 168 Higher Education Scholars (HES) continue to participate actively in the SUMMIT and Touch The Soil programmes as mentors inspiring the next generation of young minds. This year, Ullas Trust inducted 73 HES volunteers - 28 of them from profession streams (like medicine, engineering, etc.) and 45 of them from the Arts & Science fields. A mentoring programme for 2nd year HES volunteers was also piloted this year, to compliment the SUMMIT programme. ECOSYSTEM PARTNERSHIPS Expanding our reach through a wider network Ullas Trust continues to expand its reach by working with compatible organizations across its chapters. Ullas joined hands with Talent Quest India (TQI) - a student volunteer body - to deliver SUMMIT Levels 1 & 2 to over 2,500 students in 14 schools across 10 districts of Tamil Nadu. About 170 students from 19 different colleges in these districts engaged with Class IX & X students, mentoring and inspiring them to hone their 'can do' spirit. The first Ullas Confluence was held in February 2016, to celebrate this young band of volunteers and mentors, who presented various plans for further scaling the Ullas movement. We continue our partnership with Vidyarambam Trust where the Akkas have delivered the SUMMIT programme to over 2,000 students from across 15 schools in 5 districts. A Career Counseling & Guidance programme was also conducted for Class XII students (involving their parents) in partnership with Career Placement Cell of SRM University, which was well-received by both parents and students. Further, in partnership with Design For Change (DFC), a One Week Challenge was thrown open to all of Ullas schools (urban and rural) to leverage the Design Thinking school of thought to address social causes and opportunities. ASSOCIATE ENGAGEMENT Our growing volunteer base This year, Ullas Trust was privileged to have over 1000 volunteers wearing the volunteer hat and come forward to ignite young minds. 210 teams in all went to rural areas to deliver the Touch The Soil programme. Ullas Immersion Programmes were conducted for new associates who were recruited through the FuEL (Future Emerging Leaders) programme. Volunteer appreciation events were also conducted to extend appreciation for all associates who passionately invest their time and energy to reap social returns with Ullas Trust. We have actively engaged via social media this year, taken inspiring stories forward through blogs and connected with associates via publications. While this definitely has been a fulfilling year for Ullas Trust, there are miles to go and much to celebrate. We aim to penetrate deeper into the rural districts right down to panchayat level, and continue to expand our reach through like-minded partners. In the forthcoming years, we look forward to increase the involvement of more number of youth to the cause of igniting young minds. 16) Audit Committee Recommendation During the year all the recommendations of the Audit Committee were accepted by the Board. The Composition of the Audit Committee is as described in the Corporate Governance Report. 17) Extract of Annual Return The details forming part of the extract of the Annual Return in Form MGT 9 is annexed herewith as Annexure [7]. 18) Significant & Material Orders passed by the Regulators or Courts During the Financial Year 2015-16, no order has been passed by any regulatory authorities or Courts. 19) Risk Management Policy Being a pioneer in the Intellectual property led Business in India, the company is continuously focussing and committing itself to have a Risk Management system suited for Product business. Towards this, the Board has formed a Risk Management Committee with majority of Directors, the Chief Financial Officer & the Chief Risk Officer as members of the Committee. The Committee works to mitigate any inherent risks faced by the Business and to meet the increasing demand of Customer's liability through different means within the overall framework listed below. Risk Management Framework Objective The Organization is subject to certain risks that affect our ability to operate, may disrupt our business model due to changes in competitive landscape, changes in Technology which may render our capabilities obsolete, and thus hamper our ability to serve our customers and protect assets. These risks could adversely affect Customer projects, Employees, Shareholders, liability to third party and risks to property among others. Controlling these risks through a formal process is necessary for the well being of the Organization and everyone involved with it. The organization's Risk policy identifies these risks on a continuous basis and proposes mitigation measures. Our risk policy aims to minimize adverse impact of these risks on Company's growth, Profit margins and People engagement besides Regulatory compliance. Risk Management has been made an integral part of the Organization by encouraging risk awareness among employees. Risk Management Framework The Audit Committee of the Board of Directors oversees the Risk Management process done by the Risk Committee under the overall direction of the Board of Directors. Risk Management Committee consists of the Board of Directors, CFO & the CRO. Risk Management Process Risk Management is a continuous and developing process which runs throughout the Organization's strategy and the implementation of that strategy. The Risk Management helps the organization to proactively manage uncertainties in the internal and external environment and to limit the negative impacts and benefit on the opportunities. Some of the Major risks and risk mitigation measures can be grouped in the following four categories Business Model Risk 1.1. Business Segment Concentration The company is specialized in BFSI space and could face the risk of concentration in a single space. However, this risk is mitigated to a large extent because the company has presence in all the 4 sub segments of BFSI namely Corporate Banking, Retail Banking, Capital Markets and Insurance. These 4 sub segments have different boom and bust cycle and therefore protect the company. The Company's foray into the Payments space through iPay will further reduce this risk as Payments business is fairly stable business with less impact on cyclicity. 1.2 Geographic Concentration Intellect is present across different Geographies which we internally classify as World I, World II, World III countries. World I is Rich countries, World II is Middle Income countries and World III is the Emerging world. The risk gets mitigated by being present in all the three worlds as the demand from these countries varies across segments and balances the cyclic nature of business. 1.3 Competition The company faces competition from large Multi-national companies, Local companies in the geography in which we operate and Indian Product companies. While many of these companies are established companies, the start ups may also disrupt our business. With a view to stay ahead of the competition, an analysis of these competitions in the 4 sub-segments and the 3 Worlds is done on a continuous basis. Another lever to mitigate this risk is the Investments made in R&D which helps us to remain ahead in the innovation curve. 2. Operational Risk 2.1 Recruitment The company operates in niche BFSI product space which requires people with specialized skill, as against mass recruitment that was followed in Services business. The Company minimizes the risk through in-depth in-house training, recruitment in top end Engineering colleges and B Schools. 2.2 Commercial Liability, Cyber & Crime The company has appointed a Global leader in Risk & Insurance advisory for advising on the risk and insurance coverage. To Safeguard against Liability arising in the event of any property damage, Bodily injury caused to any person - Commercial General liability insurance is taken To safeguard against privacy breach liability, cyber extortion, data theft-Cyber liability cover is taken 2.3 Risks from actions of Directors and Officers To safeguard against lawsuits brought against Directors & key officers who are in a decision - making position in the organization - Directors & Officers Liability Insurance cover is taken 2.4 Risks due to Fire hazards & Accident To protect the company's Assets (movable & immovable Assets) from the risk of Fire or perils, protection has been taken under Standard Fire and Special Perils Policy. 3. Financial Risk 3.1 Foreign Exchange The company earns a large portion of its income in foreign currencies and is exposed to risk of currency movements. To mitigate the risk, the company follows a 2 step strategy. As the first step, quotation in foreign currencies is restricted to few selected major currencies. Quotation in any other currency is highly controlled. The second leg of this strategy is to hedge the foreign earnings after subtracting the local expenses. 3.2 Larger Order to cash cycle and Liquidity Risk Our customer being large Banks and Financial Institutions the credit worthiness is in comfort even though the cycle is long. The percentage of bad debts is also minimal. Since the Products business has a long order to cash cycle, the company has identified liquidity Risk as an area to monitor. The Finance organization headed by the CFO monitors the liquidity position consisting of cash and near cash instruments on a continuous basis 4. Legal & Compliance Risks 4.1 New Country Entry Risk & Subsidiary Compliance Reporting For any new business opportunity in a new country, a Country risk assessment clearance from the CRO is a must. Country risk assessments at entry level and subsequent mitigation measures help in developing a robust knowledge platform and also to understand the local conditions and business culture at an early stage in the business process. For Subsidiary Compliance Reporting - a well structured framework has been instituted in Unmail, the Company's proprietary Enterprise Social Network. The respective Operational Directors ensure uploading of the Compliance reports (suitably customized for each Subsidiary) on a quarterly basis. This process enhances to control and improve statutory compliance in each jurisdiction. 4.2 Intellectual Property Protection Risk Difficulties in protecting out IP in some countries that are pivotal for generating revenues are mitigated by registration of the IP in countries that have safe IP protection laws. 4.3 Internal Financial Control (IFC) The company has to comply with additional controls enforced by Section 134 of the Companies Act 2013. This is to report on the Internal Financial Control in the Directors Report and also by the Statutory Auditors. To comply with this, the company appointed a reputed Chartered Accountant firm to assess the existing control environment and ensure that the requirements are complied. 4.4 Contractual Compliance Product development companies are exposed to legal risk arising from Infringement of IP right and Non performance of contractual obligation. The company has established a strong process to review and appraise all contracts. As a policy it restricts its obligation under each contract. The company has adequate Insurance to militate against risk of Errors and Omissions, Commercial General Liability. 21) Corporate Social Responsibility Company has formed Corporate Social Responsibility Committee on October 15th, 2014 and following are the members to the Committee :- a) Mr. Arun Jain - Chairman and Managing Director b) Ms. Aruna Rao - Director c) Dr. Ashok Jhunjhunwala - Director d) Mr. Anil Kumar Verma - Director e) Mr. V. Balaraman - Director The Company is undertaking its CSR activities through Ullas Trust which qualifies as CSR activity under Schedule VII (ii) of the Companies Act, 2013. Since, the Company is in initial phase and yet to start making profits, Company is not required to contribute towards Corporate Social Responsibility (CSR). However, as a responsible corporate citizen proposal is being made to shareholders seeking approval for contributions. Details of the policy and implementation of the CSR activities during the year are as provided under Annexure [8] 22) Disclosure as required under Section 22 of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 The Company has in place an Anti Sexual Harassment Policy in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The Internal Complaints Committee ("ICC") has been set up to redress the complaints received regarding sexual harassment. All employees are covered under this policy. The following is the summary of the complaints received and disposed off during the financial year 2015-16: a) No. of complaints received: NIL b) No. of complaints disposed NIL 23) Listing Fees The Company confirms that it has paid the annual listing fees for the year 2016-17 to both National Stock Exchange of India Limited and Bombay Stock Exchange Limited. 24) Acknowledgement Your Directors take this opportunity to express the gratitude to all investors, clients, vendors, bankers, Regulatory and Government authorities, Stock Exchanges and business associates for their cooperation, encouragement and continued support extended to the Company. Your Directors also wish to place on record their appreciation to the Associates for their continuing support and unstinting efforts in ensuring an excellent all round operational performance at all levels. By Order of the Board For Intellect Design Arena Limited Arun Jain Chairman and Managing Director Date : May 03rd, 2016 Place: Chennai |