MANAGEMENT DISCUSSION AND ANALYSIS

OVERVIEW OF THE INDUSTRY

India is the world's largest sourcing destination for the information technology (IT) industry, accounting for approximately 52% of the cross border software services. The industry employs over 3 million Indians and continues to contribute significantly to the social and economic transformation of the country.

The Indian Information Technology (IT) & IT-enabled Services (ITeS) industry is divided into three segments, IT services, Business Process Management, (BPM) and Software Products and Engineering Services. I. T. and ITeS are the single largest contributor to India's Services exports. India continues to consolidate its position as the global hub for the IT & ITeS industry, by developing capabilities around traditional and emerging markets, expanding delivery capabilities and increasing focus on high value services for product development and technology incubation. The new government's focus on technology-enabled growth through the 'Digital India' and 'Make in India' campaigns has significantly boosted overall market prospects and investor sentiment. Recognizing the need for greater penetration of IT Services domestically, the Survey notes that the Government's "Make in India" mission include IT and BPM among the 25 focus sectors.

The Economic Survey 2014-15 says the IT and ITeS sector continues to be one of the largest employers in the country, directly employing nearly 35 lakh people. IT-ITeS sector has generated revenues of US dollar 130 billion in 2014-15. This sector now contributes about 6.5% of India's GDP.

OVERVIEW OF THE BUSINESS

Datamatics' next-generation solutions and the services span across a section of industries including Banking & Finance, Healthcare, Insurance, Manufacturing, Market Research, Publishing, Retail and International Organizations. The Company is focused on delivering value through integrated solutions for data intensive business processes that help enterprises across the world overcome their business challenges. These solutions leverage innovations in technology, knowledge of business processes, and domain expertise to provide clients a competitive edge. Datamatics provides varied business processes that transcend F&A, Enterprise Document Management, Enterprise Content Management, Collaboration and Portals, BIDW & Analytics, Big Data, Application Development, Support & Testing, Engineering & Embedded solutions and Mobility. As a strategic partner, Datamatics helps its clients transform into a truly digital, data-driven enterprise and empowers them to take advantage of the digital revolution to innovate, differentiate and grow. Leveraging cutting-edge technology, Datamatics' solutions radically improve performance and reach of client enterprises; delivering accelerated time-to-market for new products and services, enhanced customer responsiveness, maximized productivity and efficiency in business processes, and lower total cost of ownership.

Datamatics is a trusted partner to several Fortune 500 Companies globally for managing their end-to-end Application Life Cycle and Business Critical Processes.

In FY 2014-15, the Company operating in the BPO and Software lines of businesses, generated revenues of Rs. 8,280 million.

OUTLOOK

The Indian IT & ITeS industry is expected to maintain a growth of 13-15% in FY2015-16 and to achieve revenue target of USD 225 billion by 2020 for which the industry needs to grow by about 13% on a Y-o-Y basis upto 2020. The 2020 vision of USD 225 billion will be driven by new business models, service lines and talent structures. Business models have been shifting from traditional labour-based onsite-offshore model to cloud-based and off-brmise solutions. These changing models will bring compelling business innovations with greater breadth and specialization across key verticals - BFSI, telecom, healthcare, social entrebrneurship etc. To sustain growth in the coming years, there will be greater focus on verticalization, operational excellence and expanding global delivery model.

Export revenues for FY2016 are expected to grow at 12 to 14 percent to $110-112 bn vs. about 10% last year. Domestic revenues are expected to grow at 15-17 percent to $45-50 billion during the year.

In the coming years, emerging technologies including SMAC and digitization will continue to fuel growth in the IT sector. The need to collaborate and connect will create further business opportunities for the IT industry. To achieve higher growth, the IT industry leaders will need to focus on innovation, developing industry specific solutions, flexible global delivery models and a focus on increased operational excellence. Inorganic growth is one component in our strategy. We shall continue to build partnerships with companies that can complement Datamatics' core offerings to offer better value to the customers. Mobility, Analytics and BPM are a few of the areas under consideration.

RISKS AND CONCERNS

Your Company recognizes that risk is an integral part of business and is committed to managing business risks in a proactive and efficient manner. Your Company periodically assesses risks in the internal and external environment, along with the cost of treating risks and incorporates risk treatment plans in its strategy, business and operational plans. Datamatics has a 'Risk Management Policy', to identify, evaluate, categorize and prioritize the risks, from its early stage and across the life cycle, develop and implement a risk mitigation plan to proactively reduce the potential impact of risk occurrence by providing adequate resources and monitoring continuously. Datamatics has always focused on risk mitigation, thereby strengthening its sustainability. Some of the key risks and risk mitigation strategies have been highlighted below:

Global Economic Risk

Datamatics' derived 89% of its revenues during FY2014-15 from the US, Europe and other countries. The changing economic conditions in these markets could enhance cost brssure on clients and thus may affect the Company adversely in a number

of ways. The Company may witness a reduction in prices, or the loss of key projects and customers, in turn affecting the financial performance. Datamatics mitigate global economic risk by focusing on new market segments, faster growth in geographies other than the US and Europe.

Employee Related Risks

Datamatics' business is dependent on the quality of the workforce. Failure to attract, retain and motivate key employees would impair the Company's ability to offer the right quality of service to the clients.

Datamatics manages employee related and attrition risks by following ways:

• Practices world class HR policies.

• Engaging skilled professionals at the right time across locations.

• Datamatics has strong in-house and external Training programs, providing the latest technology and soft skills interventions.

• Datamatics has a competitive remuneration structure and various employee friendly initiatives.

• The performance of employees is linked directly to quality of work delivered, customer satisfaction, increasing sales of the Company.

• Datamatics provides an opportunity to connect all of its employees through the Employee Connect initiative and surveys.

Business Continuity & Information Security

Datamatics maintains, develops and operates information for various customers. Any natural or man-made catastrophe may halt business activities and cause irreparable damage to the brand reputation of the Company. Similarly, the vital need for confidentiality and security of confidential data both belonging to clients as well as the Company itself also pose risks of leaks, loss or compromise of information.

Datamatics is ISO 27001 certified and complies with the Information Security related standards. Datamatics is committed to maintain an effective information security management system. This enables dissemination of information throughout the organization; sharing with its associates and its customers, as required for the business, while ensuring, its confidentiality, integrity and availability. Datamatics Information Security Policy and control mechanisms ensure that these risks are kept in control. The Information Security team assess and manage information security and data privacy and related risks by leveraging on People, Processes & Technology.

Additionally, our employees in Mumbai, Nashik, Bengaluru, Chennai and Puducherry have received cross functional training and serve as backup.

Competition risk

New competitors may enter the markets the Company operates in, or current competitors could decide to focus more on these

markets, and thereby intensify the competition. They could also offer new technologies or offer a different service models or offer similar services at reduced prices. Such developments could harm the Company's business and results of operations.

Datamatics manages to mitigate the competition risk by way of adopting following ways:

• Datamatics has been quick to respond to the changing competitive dynamics.

• Datamatics has deep domain knowledge, skilled professionals, delivery capabilities and are efficient sales force and relationship managers to help retain its competitive positioning amongst peers.

Legal & Regulatory Compliance Risk

Datamatics operates globally, in developed as well as developing countries with complex and varied requirements for legal and regulatory compliance and is continuously adding new geographies. There is thus a risk of non-compliance. Datamatics mitigates the Legal & Regulatory compliance risk by using the services of professional consultants to ensure compliance with domestic and overseas laws and regulations. The Company has established a strong process for legal review of all contracts and documentation.

Currency Risk

We derived 89% of our revenues in US dollars and other currencies. Adverse changes in foreign exchange rates can have a negative impact on the Company's financial performance. Datamatics manages this risk through appropriate hedging policy. The Company continues to constantly review the economic scenario and update strategies accordingly.

INTERNAL CONTROL SYSTEMS AND THEIR

ADEQUACY

Good governance, well defined systems and processes, a vigilant finance function and an independent internal audit function are the foundation of the internal control systems. These systems provide a reasonable assurance with respect to providing financial and operational information, complying with applicable statutes, safeguarding of assets of the Company and ensuring compliance with corporate policies. Your Company is committed to ensure that its operations are carried out within a well defined internal control framework. Datamatics's internal financial control systems are commensurate with its size and nature of operations of the Company.

The Company has appointed, M/s. BDO India LLP, Chartered Accountants, an internal auditor to carry out the internal audit, which commensurate with the size, nature, and complexity of its operations. During the year, the internal auditor has carried out their audit on the significant areas viz.,

1) Expenditures;

2) Document Management Solutions;

3) Revenue Assurance and Operations;

4) HR and Payroll Review;

5) Statutory Compliances - Direct Tax and Indirect Tax;

6) Compliances related to Foreign Exchange Management

Act, 1999 (FEMA) and

7) Compliance to Contract Labour (Regulation and Abolition) Act in the Company.

The Audit Committee periodically reviews the performance of the internal audit function. The Company's Audit committee, comprising of three independent directors, reviews adherence to the internal control systems, internal audit reports and legal compliances. The Audit Committee reviews internal audit reports submitted by the internal auditor. Suggestions for improvement are considered. This Committee reviews all quarterly, half yearly and yearly financial results of the Company and recommends them to the Board for approval.

a. Income:

Income from Operations

Income from operations increased from Rs. 7,338 million in the brvious year to Rs. 8,280 million in the current year, registering a growth of 12.8%, which is in line with the overall IT industry growth forecasts as projected by NASSCOM.

Other Income

Other income comprises of dividend from current and non-current investments, interest from Banks & Others and Profit on sale of current and non-current investments. Other income decreased to Rs. 67 million in the year under review from Rs. 73 million in the brvious year, as we invested funds into our business for expansion.

b. Expenditure

Operating expenses comprise of purchase of IT Products and Licenses, employee costs and other expenses. The total operating expenses increased from Rs. 6,435 million in the brvious year to Rs. 7,429 million in the current year, registering a growth of 15.43%. Operating expenses as a percentage to revenue has increased from 87.69% of revenue to 89.72% of revenue, a increase of 2% on the revenue.

Employee costs increased to Rs. 4,542 million in the year under review from Rs. 3,635 million in the brvious year, primarily due to increase in head count. Other Operating expenses increased to Rs. 2,887 million in the year under review from Rs. 2,800 million. Other Operating expenses have decreased from 38.15% of revenue to 34.86% of revenue, a decrease of 3.29% on revenue.

c. Debrciation

Debrciation charge has increased to Rs. 210 million in the year under review from Rs. 161 million in the brvious year. Pursuant to the notification of Schedule II to the Companies Act, 2013, with effect from April 1, 2014, the Company has revised the estimated useful life of relevant assets to align the useful life with those specified in Schedule II. Consequent to the change in the useful life of the assets, the debrciation expense for the year is higher by Rs. 45 million.

d. Income Tax Expenses

The Company's consolidated tax expense (including deferred taxes) decreased to Rs. 155 million in the year under review from Rs. 194 million in the brvious year.

e. Net Profit After Tax

Net Profit after Tax decreased to Rs. 485 million in the year under review from Rs. 581 million in the brvious year.

II. FINANCIAL CONDITION

The below mentioned financial condition gives an overview of the consolidated financial strength of the Company.

a. Share Capital

The Company has authorized capital (standalone) of Rs. 800 million as on March 31, 2015. The issued, subscribed and paid up capital Rs. 294 million which comprises of 58,949,337 equity share of Rs. 5 each. There is no increase in paid up equity share capital during the year.

b. Reserves & Surplus

The Reserves and Surplus of the Company increased to Rs. 3,521 million in the year under review from ^ 3,067 million in the brvious year.

c. Provisions

Long term provisions increased to Rs. 114 million as on March 31, 2015 from Rs. 101 million as on March 31, 2014, primarily due to increase in employee head count.

Short term provisions decreased to Rs. 80 million in the current year as compared to Rs. 180 million in brvious year, primarily due to interim dividend pay out made during the year.

d. Other Current Liabilities

Other current liabilities which comprise of unclaimed dividend, advance from customers, interest accrued but not due, statutory dues and other payables, increased to Rs. 237 million as on March 31, 2015 from ^ 102 million as on March 31, 2014, primarily due to the current maturity of External Commercial Borrowings of 118 million outstanding as on March 31, 2015.

e. Fixed Assets

The gross block of fixed assets as on March 31, 2015 was Rs. 3,679 million 3,523 million as on March 31, 2014) and the accumulated debrciation and amortization amounted to Rs. 1,297 million as on March 31, 2015 1,056 million as on March 31, 2014). Additions to fixed assets made during the year were Rs. 136 million comprising of buildings, leasehold improvements, computer equipments, furniture & fixtures, vehicles and computer software.

f. Loans and advances

Long term loans and advances increased to Rs. 294 million as on March 31, 2015 from Rs. 174 million as on March 31, 2014, due to security deposits, advance taxes and fair value of outstanding forward contracts.

Short term loans and advances increased to Rs. 294 million as on March 31, 2015 from Rs. 251 million as on March 31, 2014, due to security deposits, MAT credit and service tax receivable balances, and fair value of outstanding forward contracts maturing within one year.

g. Current Investments

Investment rebrsents surplus funds of the Company parked with mutual fund schemes that can be recalled at very short notice. Investment in mutual funds decreased to Rs. 570 million during the year under review from Rs. 614 million in the brvious year, due to investment of surplus funds in business during the year.

h. Trade Receivables

Debtors increased to Rs. 1,648 million as on March 31, 2015 from Rs. 1,519 million as on March 31, 2014. The Debtor outstanding days has reduced from 76 days in the brvious year to 73 days in the current year.

i. Cash and Bank Balances

The Cash and bank balances increased to Rs. 716 million as on March 31, 2015 from Rs. 473 million as on March 31, 2014.

HUMAN RESOURCES MANAGEMENT

Datamatics as a Company considers human resources as a strong function which supports the delivery and performance with its ability to maintain to a large extent its strength in attracting, developing, motivating and retaining talent. We believe that people are the most valuable asset of the Company as they contribute individually as well as collectively to the achievement of business objectives. Our Company's endeavor is to provide a work environment that encourages a positive attitude and superior performance. The key elements of your Company's human resource management strategy include a combrhensive approach to managing people and the workplace culture and environment. Effectively, HR supports employees at every step in their career which enables employees to grow professionally, contribute effectively and productively to the overall company direction and the accomplishment of the organization's goals and objectives.

The total global manpower strength of your Company is approximately 7,945 employees.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations may be 'forward-looking statements' within the meaning of applicable securities laws and regulations. Actual results could defer materially from those exbrssed or implied. Important factors that could influence the Company's operations include economic developments within the country, demand and supply conditions in the industry, changes in Government regulations, tax laws and other factors such as litigation.  Readers are advised to exercise their own judgment in assessing risks associated with the Company, inter-alia, in view of discussion on risk factors herein and disclosures in regulatory filings,as applicable