MANAGEMENT'S DISCUSSION AND ANALYSIS

Economic Environment and Industry outlook

Worldwide IT spending is projected to total $ 3.7 trillion in 2013, a 2 percent increase from 2012 spending of $ 3.6 trillion, according to Gartner. Global growth is projected to strengthen from 3 percent in 2013 to 3.6 percent in 2014 and 3.9 percent in 2015, broadly unchanged from October 2013 outlook. In advanced economies, growth is expected to increase to about 2% percent in 2014-2015, an improvement of about 1 percent point compared with 2013.

Global activity has broadly strengthened and is expected to improve further in 2014-15, with much of the impetus coming from advanced economies. Inflation in these economies, however, has undershot projections, reflecting still-large output gaps and recent commodity price declines. Activity in many emerging market economies has disappointed in a less favorable external financial environment, although they continue to contribute more than two-thirds of global growth. Their output growth is expected to be lifted by stronger exports to advanced economies. In this setting, downside risks identified in brvious World Economic Outlook reports have diminished somewhat. There are three caveats: emerging market risks have increased, there are risks to activity from lower-than-expected inflation in advanced economies, and geopolitical risks have resurfaced. Overall, the balance of risks, while improved, remains on the downside.

IT leaders convey a tone of cautious optimism as we look forward to 2014. Hot IT trends, such as Big Data, mobility and cloud are front and center in IT leaders' minds. Meanwhile, factors, such as slow economic growth, healthcare reform and global turmoil, while still of concern, are no longer pushing implementation decisions to the sidelines. Increase in global technology spending and opportunities created through adoption of disruptive technologies are expected to propel growth in FY2014. With the governmental policies directly impacting the revenue estimate, the software industry is closely following the policy moves which will herald the future outlook of the sector and help in strengthening the IT eco-system in India.

The Indian IT-BPM industry has demonstrated resilience and agility in the past year. Technology has today become an integral enabler for growth across all sectors and the industry is continuously evolving and innovating to emerge as a strategic partner to its customers. India's IT-BPM industry, with revenues estimated to reach USD 118 billion in 2014 and an overall growth of 13 per cent, continues to be a major driver of the country's GDP. With a 55 per cent share of the global sourcing market, the sector has also helped the nation to maintain its position as a leading offshoring destination. Over the years, the industry has remained a net hirer, adding 1.66 lakh jobs in 2014 alone and strengthening India's credentials as a hub of sought after, advanced and cutting-edge skills. the industry will continue to address a global sourcing market that is currently growing at twice the rate of global IT-BPM spend (pegged at USD 2 trillion at the end of 2013). While IT-BPM exports are expected to grow by 13-15 per cent and the domestic market revenues by 9-12 per cent in 2015, the overall revenues of the industry are set to reach USD 130 billion.

The global Infrastructure Outsourcing (IO) market—measured at ~US$165 billion in 2013—is experiencing unbrcedented disruption as new information technology models leave enterprises and service providers alike searching for solid strategic direction. Though cloud services tend to capture the majority of the headlines, a real disruption is brewing due to the still nascent concept of software-defined infrastructure. Enterprise buyers and service providers will need to rethink their infrastructure consumption models, which, in turn, will impact people, processes, and technology. An interesting challenge will be the "deskilling" and "upskilling" of people. A third major shift in the industry is the rise of Service Integration and Management (SIAM) services as buyers seek partners to manage and mitigate the delivery risks of employing multiple service providers within the infrastructure portfolio. -

2014 Outlook

Industry exports expected to reach USD 84-87 bn - growth rate of 12-14 per cent. Domestic revenues to grow by 13-15 per cent and will reach INR 1180-1200. SMAC (Social media, Mobility, Analytics, and Cloud) technologies will fuel more growth. Future of IT industry will be a complete blend of services, products, solutions and platforms.The goal of the sector in 2015 will be to help clients go digital, understand and acquire new customers and help them grow their businesses.

Our Company; Our readiness for the change:

Allied Digital has always remained ahead of the curve as far as changing trends in and paradigm shifts in the industry is concerned. Our advanced brdiction on the growth of infrastructure management services has enabled us to lead this domain from the front while our competitors are still struggling to build this capability today. Similarly, we spotted many more changes ahead of time and the strategies that we have put together will continue to help us stay ahead of the curve.

Our geographic market: With 144 locations sbrad across India and 52 locations in US and further expanded our brsence in UK, we are well poised to service all kinds of client segments. Not many organizations can scale to this level easily, which is essential for infrastructure services business. Besides, we have diversified into newer territories and are aggressively building our capabilities in South East Asia, Australia and European markets.

Ourclientsegment: We are industry segment agnostic and our core strategy is to remain 'customer-centric'. Our client base cuts across a wide range of industries/sectors and categories and includes both large enterprises to small and medium sized businesses. Our focus is to enhance our client relationships and create value by strengthening our delivery capabilities and augmenting our dedicated account management best practices. This has made us ready for the future and an extremely strong force to compete in the marketplace.

Technology and infrastructure: We truly believe that the investments that we have made in the last few years to build world class infrastructure and expertise in the space of Network Operating Center (NOC), Security Operating Centre (SOC) and Cloud are going to put us ahead of our competition. We have a world-class facility at Rancho (USA) to assemble, test and deploy machines in large quantities. Similarly our enhanced capacity at our Global Command Center (NOC and SOC) can take on the additional businesses, which we expect in the space of Remote Infrastructure Management Services (RIMS) and Managed Security Services (MSS). We have already demonstrated our cutting-edge Mobility Solutions to one of the leading players in the industry ad it has been extremely well received and deployed. The mass adoption of cloud, virtualization, mobility etc. will place our organization in a much positive and profitable position in the near future.

factors that may affect results of the operation

General economic conditions: General economic slowdown may compel our clients to postpone their decisions to acquire newer technology and reduce their IT operations cost. In turn such scenario may affect our revenue and profitability.

Foreign currency fluctuation: Primarily our foreign currency earnings are in US dollars. The exchange rate between the Indian rupee and US dollar has fluctuated significantly in recent past and the same may continue fluctuating in future. Currency fluctuation some time may turn out highly unfavorable to us and may adversely affect our revenue and gross margins.

We are not technology originator: Our Enterprise Computing Team gives various technology solutions to customer. These solutions are usually conceived using building blocks of different range of IT products namely computing, storage, networking, security and software products. Very often this range of IT products belongs to difference OEMs and functioning of final solutions highly depends on integration of all products.

Pricing Pressure: The Indian IT market (domestic) has been viewed as a highly emerging market compared to other markets, hence it has become a focused market for several large Indian IT firms & various global IT giants. Though the Company is comfortably placed because of it's rich experience and vast geographical brsence in the market place. But highly competitive scenario creates pricing brssure on the Company, which may affect its gross margin in the long run.

Human Resources: Our services business is a highly Human resource intensive. An increased demand of IT professionals may result in increased attrition which may affect our business in the short term

Discussion On Results Of Operations

The financial statements are brpared in compliance with the Companies Act, 1956 and generally accepted accounting principles in India.

Total income:

The Total Operating Income of the Company has decreased from Rs. 23,625.54 Lacs in F.Y. 2012-13 to Rs. 14,938.06 Lacs in F.Y. 2013-14 showing a y-o-y decline of 37%. The company during the year underwent a restructuring of its business focusing on core profitable business and letting go of non-profitable business. This along with the competitive environment impacted the performance of the company. The key segments of our business namely 'Infrastructure Management based Solutions' and 'Enterprise Computing based Solutions' contributed 30% and 70% to revenues respectively in F.Y. 2013-14.

Cost Of Sales:

The Company's cost of sales is brdominantly related to its 'Enterprise Computing based Solutions' business & mainly consist of procurement of hardware, software and other related cost for execution of solutions orders. A portion of the same also contributes to the Company's 'Management based Solutions' business whereby Company consumes spares, software tools & utilities etc. for its combrhensive services contracts. The cost of sales for the year ended March 2014 was 61% of the Operational income as compared to 74% during last fiscal. The reason for decline in cost of sales is mainly because of increased pricing brssure whereby selling prices needs to be frequently compromised due to highly competitive business scenario.

Employee Costs:

The employee cost declined on a Y-o-Y basis by 7%. However as a percentage of sales it went up from 11% in FY2012-13 to 18% in FY2013-2014 due to efforts of the company to control costs.

In terms of absolute numbers it appears that employee cost during the year has reduced as compared to the last fiscal year. However, the employee cost as a percentage of operational income has increased/decreased as compared to FY 2013 - 14 due to increase in employee cost for inflation. However during the year Company has adopted all possible measures to keep its employee cost under control and reduced it wherever possible. This reduction is not visible in terms of percentage as the same was wiped out by the increase in employee cost in other areas where it was not controllable.

Interest And Finance Charges:

Interest and finance charges for the current year were Rs. 1,437.98 Lacs as compared to Rs. 1,355.92 Lacs during last fiscal. Increased working capital requirement and increase in cost of borrowings have attributed to increase in interest cost during the year.

Debrciation:

Debrciation & Amortization for the Current Year was Rs. 2,325.24 Lacs as compared to Rs. 2,132.41 Lacs for the financial year 2012 - 13. The increase is mainly attributable to increased 'capital expenditure' for additional capacity creation during the period under review.

Earnings Before Interest Debrciation, Taxes & Amortisation (Ebidta):

EBIDTA of the Company has increased from Rs. 3,387.97 Lacs in 2012 - 13 to 4,696.92 Lacs in 2013 - 14. The EBIDTA as a percentage of total Income has increased to 26% in FY 2013-14 from 14% in FY 2012-13. The increase in EBIDTA level is mainly due to decrease in 'Cost of Sale'.

Mat Credit Entitlement:

Current year the Company had carried MAT credit entitlement of Rs. 23.67Lacs. Last year the Company not avail the credit of this entitlement.

Loan:

Secured loan as at March 31st, 2014 was Rs. 9,379.67 Lacs (brvious year: Rs. 9,284.64 Lacs). This increase was on account of bank borrowings to meet the working capital requirement of the Company.

Deferred Tax Liability:

The Company has provided a Deferred Tax Liability of Rs. 1,479.54 Lacs (Previous Year: Rs. 2,021.83 Lacs). The provision was mainly on account of excess debrciation under the IT Act as compared to debrciation under the Companies Act.

Fixed Assets:

During the year the Company has capitalized Rs. 1,702.33 Lacs in its Gross Block of assets (Rs. 3,636.20 Lacs for fiscal year 2013). Capital Work in Progress pending capitalization as on March 31st, 2014 was Rs. 3,769.10 Lacs. The major heads under which fixed assets were acquired during the year are for 'Intangible Assets.

Increase in debtors ageing is mainly due to increased credit period demanded and enjoyed by most of the large customers. Considering the increase in the rate of interest on working capital loans, increase in debtors ageing is adversely affecting the profitability of the Company. The Company's customer profile consists of large and blue chip corporates and hence these customers go by their corporate payment terms which Company has to accept to acquire new business and new customers. Due to constrained liquidity scenario at customers' end, in many transactions 'delivery to cash cycle' gets prolonged even beyond the agreed 'payment terms'. However the Company has been taking measures to improve the payment terms with existing customers and improve its delivery to cash cycle to bring overall receivables position down.

The Company has generated cash from operating activities of Rs. 1,117.69 Lacs (Previous Year: Rs. 2,900.70 Lacs). During the year Company has paid taxes of Rs. 318.00 Lacs (Previous Year.Rs. 576.44 Lacs). However Company had carried a MAT credit entitlement in the current financial year. During the year, the Company has added assets worth Rs. 1,702.33 Lacs into its gross block. This was mainly financed by liquidating investments in various mutual funds. As at March 31st, 2014 the cash and cash equivalent was Rs. 1,419.12 Lacs (brvious year : Rs. 1,056.97 Lacs).

HUMAN RESOURCES:

The company's HR has been focusing to strengthen the brsent initiatives (ERA) to maintain continuity while also strive to bring in a new dynamism, value based initiatives and speed to make the company more stronger with excellent value add for all our employees at large. It is in this very spirit that we renewed our identity in the form of our new logo ; refreshed our Newsletter to serve the changing times with erudite; We recognized the need and launched 'Younify' a full-fledged employee engagement website which has brought a vibrant force in the system ; We architected entire employee information on SAP HR & through the newly created Learning centre the company has imparted knowledge across technical competencies to a large number of employees of the Company.

The company's HR endeavor this year would be to bring in the concept of "Shared Leadership" approach and build a climate of best HR practices as we move forward this year .For an organization like ours, which thrives on technology and manpower, the process to appoint the new leadership team, which is both dynamic and sensitive towards the requirements of the employees and stakeholders, has far reaching and strategic consequences. Keeping this in mind, we followed a consultative process to evolve many options and then deliberated on the strengths of each before arriving at a final view of the new leadership team.

The company seek all stakeholders' support and cooperation in helping the Company further enriching employee value enhancement proposition for the year ahead thereby building a stronger, bigger and better employee base , based on the principles of 'Caring, Sharing and Leading'.

Cautionary Statement

Certain statements made in the Management Discussion and Analysis Report relating to the Company's objectives, projections, outlook, expectations, estimates and others may constitute 'forward looking statements' within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections and so on whether exbrss or implied. Several factors could make significant difference to the Company's operations. These include climatic conditions and economic conditions affecting demand and supply government regulations and taxation natural calamities and so on over which the Company does not have any direct control.