HOV Services Ltd Management Discussions

ANNEXURE TO THE DIRECTORS REPORT

HOV Services Limited ("HOVS" or the "Company") operates as a hybrid between an investment and a diversified services company. The Companys business encompasses majority of Software and IT Enabled Services and the prevailing trend would further enforce the importance of outsourcing, as companies will be compelled towards curtailing cost without sacrificing on quality.

The following discussion and analysis on financial performance of the Company for the year under reporting is based on the audited financial statements prepared in accordance with Ind-AS.

TOTAL INCOME Revenue from operations:

Revenue from operations aggregated to Rs. 1,612.36 Lakhs compared to Rs. 1205.51 lakhs previous year. The increase of Rs. 406.85 lakhs, representing a 34% increase in the revenue over previous year.

Other income:

Other income on consolidated basis were at Rs. 172.39 Lakhs in the current year compared to Rs. 381.41 Lakhs in the previous year. The decrease of Rs. 209.02 lakhs compared to last year is mainly on account of dividend income received on investment of Rs. 186.97 lakhs during the previous year.

Total Income:

Total income amount to Rs. 1,784.75 Lakhs for the year ended on March 31, 2024.

EXPENSES

Employee Benefit Expenses:

Employee Benefit Expenses were at Rs. 1,193.45 Lakhs for current year compared to Rs. 815.90 Lakhs in the previous year. The net increase in employee benefit expenses is Rs. 377.55 Lakhs compared to last year. The number of Company employees increase from 183 as on March 31, 2023 to 405 as on March 31, 2024.

Total expenses:

Total expenses were at Rs. 1419 Lakhs for year ended March 31, 2024 compared to Rs. 1042 Lakhs for the year ended March 31, 2023. The net increase in total expenses is Rs. 377 Lakhs compared to last year.

Exceptional items:

Exceptional items amounting to Rs. 207 lakhs in standalone financial results represents reversal of provision made towards receivable from a subsidiary on repayment being made by the said subsidiary.

Discontinued Operations:

On consolidated basis the net profit from discontinued operations is Rs. 3.77 Lakhs for the current year and were at Rs. 8.61 Lakhs for the previous year.

Profit After Tax:

Profit after tax on standalone basis is Rs. 472.04 Lakhs for the year ended March 31, 2024 and were at Rs. 261.35 Lakhs for the year ended March 31, 2023.

Profit after tax on consolidated basis is Rs. 268.62 Lakhs for the year ended March 31, 2024 and were at Rs. 456.93 Lakhs for the year ended March 31, 2023.

Total Comprehensive Income / (Loss) For the Year:

On standalone basis, total comprehensive income is Rs. 460.84 Lakhs for the year ended March 31, 2024 and were at Rs. 258.23 Lakhs for the year ended March 31, 2023.

On consolidated basis, other comprehensive income /(Loss) stood at Rs. 28.81 Lakhs for the year ended March 31, 2024 and were at Rs. (808.67) Lakhs for the year ended March 31, 2023.

EARNINGS PER SHARE

Basic and diluted EPS (before exceptional item) on standalone basis is Rs.. 2.10 per share for the year ended on March 31, 2024 and was Rs. 2.08 for the year ended on March 31, 2023.

On Consolidated basis, Basic and diluted EPS (from continued and discontinued operations) is at Rs. 2.13 per share for the year ended on March 31, 2024 and was Rs. 3.63 for the year ended on March 31, 2023.

Other Investments:

In consolidated financial statements the fair value of other investment as on March 31, 2024 is Rs. 481.02 lakhs compared to March 31, 2023 is Rs. 699.79 Lakhs. In consolidated financial statements, the said investment is considered as equity instrument designated as Fair Value through Other Comprehensive Income (FVOCI), however, is not to be reclassified to profit and loss subsequently and accordingly, the change in fair value has been recognised net off deferred tax liability in Other Comprehensive Income.

Trade Receivables:

Trade Receivables including unbilled revenue as at March 31, 2024 amounted to Rs. 827.82 Lakhs as compared to Rs. 609.73 lakhs as at end of previous year on March 31, 2023.

Cash and cash equivalents

On a standalone basis, as at March 31, 2024 the company had cash and cash equivalents of Rs. 435.03 lakhs as compared to Rs. 250.14 as at March 31, 2023. The cash and cash equivalents increased by Rs. 184.89 lakhs during the current year.

On a consolidated basis, as at March 31, 2024 the company had cash and cash equivalents of Rs. 439.24 lakhs as compared to Rs. 485.25 as at March 31, 2023.

Equity Share Capital

12594972 Equity Shares of Rs. 10 each fully paid up amounting to Rs. 1,259.90 lakhs.

Other Equity

On a standalone basis, as at March 31, 2024 other equity stood at Rs. 1,507.79 lakhs as compared to Rs. 1046.94 as at March 31, 2023.

On a consolidated basis, as at March 31, 2024 other equity stood at Rs. 1024.72 lakhs as compared to Rs. 999.47 as at March 31, 2023.

The movement in retained earnings was on account of profit earned during the current year.

On a standalone basis, other components of equity decreased due to remeasurement of the net defined benefit liability/asset.

On consolidated basis, other components of equity decreased due to fair value changes on investments and remeasurement of the net defined benefit liability/asset.

Total Current Liabilities:

On a standalone basis, as at March 31, 2024 total current liabilities stood at Rs. 245.70 lakhs as compared to Rs. 242.52 as at March 31, 2023.

On a consolidated basis, as at March 31, 2024 total current liabilities stood at Rs. 1,214.35 lakhs as compared to Rs. 1,402.89 as at March 31, 2023.

Total Current Assets:

On a standalone basis, as at March 31, 2024 total current assets stood at Rs. 1,977.10 lakhs as compared to Rs. 1,151.54 as at March 31, 2023.

On a consolidated basis, as at March 31, 2024 total current assets stood at Rs. 1,981.31 lakhs as compared to Rs. 1,563.79 as at March 31, 2023.

Human Resources & Prevention of Sexual Harassment

During the year the Company maintained cordial relationship with the employees at all levels and provides and environment free of sexual harassment and discrimination on the basis of gender. The Human Resource is important asset of the Company. The training and developments needs of the employees is been addressed on continues basis with time to time internal programmes. The Company has constituted Internal Complaints Committee pursuant to the Section 4 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 for protection against sexual harassment of women at work place. During the year there were no complaints of such manner.

Internal Control Systems and their adequacy

The Company has a well-defined internal control system with adequate checks and balances at all levels. The mandate goes beyond financial transactions to even review all other functions of various departments, viz Purchase, Sales and Operations, Payroll, HR and others as mandated by the Audit Committee. The Companys Internal Control framework is commensurate with the size and the nature of its operations. The Company has appointed reputed external firm of Chartered Accountants to oversee and carry out internal audits of its activities. The conduct of internal audit is aimed towards the review of internal controls and risks, accounting and finance, and human resources, and as per scope decided by the Audit Committee.

The audit procedure is based on an internal audit plan, which is reviewed each year in consultation with the Statutory Auditors and approved by the Audit Committee. The Audit Committee based on need basis review the audit plan on half yearly period. The Internal Auditor periodically do testing of the internal controls and monitors the effectiveness of internal controls and provide assurance of the adequacy and effectiveness of the internal controls to the Audit Committee and Board of Directors. The Audit Committee reviews the reports submitted by the Internal Auditors and seeks views of the Statutory Auditors on the adequacy of internal control system in quarterly meetings.

Risks and its mitigation

Risk Management, being ongoing process to identify, monitor assess the risk and taking adequate steps to mitigate the negative effect at an acceptable level. The main objective of risk management is to minimize the impact of potential risk on organization. The Company has an appropriate risk management framework comprising risk governance structure and defined risk management processes. The Audit Committee oversight the area of financial risks and controls.

The Management has identified the following key risks considering the operations relating to the businesses of the

Company and continuously monitor and review to mitigate the key risks in manner stated herein below:-

a) Covid-19 Pandemic risk: - The business operations got impacted on account of restriction measures implemented by local and central government authorities to implement social distancing norms and to prevent spread of Covid-19 Pandemic. The demand-supply across all segments all over the worlds economies got disrupted and might affect Companys earning in medium term. The overall impact of CoVID-19 on the businesses of the Company may vary depending on future conditions and socio-economic factors and measures taken at the Government levels and hence cannot be predicted at this time of juncture. The Companys customer are mostly long term costumers and therefore does not foresee any immediate impact on the revenues, however depending upon the uncertainties associated with Covid-19 the Management monitors its impact on continuous basis.

b) Business model related risk: - The revenue of the Company is based on cost plus mark up for contracts with customers. The wage cost is major risks which may not be acceptable to customers due to change in minimum wages requirements. This could expose the Company to risks like price pressure, excessive dependency on select customers. In order to mitigate the risk, Management of the Company in continues endeavour keep appraised its customers about any change in cost factors well in advance.

c) Foreign currency fluctuation risk: - A substantial part of Revenue accrues in US Dollars and expenditure of the Company are incurred in the Indian Rupees. Therefore, there is risk exposure due to adverse fluctuation of exchange rate between the US Dollar and the Indian Rupees. In order to mitigate the risk, the Management constantly review and tracks foreign currency movements closely.

d) Financial risk: - The surplus funds of the Company are invested in fixed deposits with banks which is averse to risk related to volatility of interest rate. To mitigate the risk of interest, rate the Management closely tracks movement of rate change with banks.

e) Credit risk: - It is exposed to risk of delay in collection from customers and to mitigate such risk pre-defined credit period is mentioned in contract entered and regular follow up process for receiving overdue invoice payments from customers.

f) Operational risk: - The Company is exposed to risks of operational performance on account of costs. If the performance is lower than expected from the operators, it could have impact on profitability. So to mitigate such risks the Company had proper MIS in place. The rising inflation and salaries along with high attrition is a threat. This is planned to be offset with increased productivity and increased use of technology to reduce the dependence on manpower.

g) Investment risk: - The Company through its wholly owned subsidiary HOVS LLC holds investments in quoted shares. The Company is exposed to the risk of value of investment getting effected due to performance of the investee company and related market risks. To mitigate such risk, the Management of the Company keeps constant liaison with investee company and the Board of the Company is being kept informed about necessary information on timely basis.

h) Information Technology risk: - The evolving technologies through challenges. The business operations are mostly dependent on systems involving computers/ servers which are prone to hacking due to advancement in technology. In order to mitigate the hacking risk, appropriate anti-hacking multi layered systems are installed, education of all employees at all levels and periodic strengthening of IT security.

i) Legal, Compliance risk: - There is a risk on account of dynamic legal environment. Understanding regulations and statutory compliance is vital to mitigate such risk. The Management had created a robust compliance framework and at times takes help from professional firms in order to ensure compliance.

j) Social Media risk: - Being listed entity, the Company is exposed to risks of any inappropriate discloser made by any employee in social media. In order to mitigate such risk, the employees and Management including board members strictly adheres to the code of "Fair Disclosure Code" of the Company.

k) Business Continuity and Disaster Recovery risk:- To ensure continued delivery of services to customers irrespective of any disturbances the Company has implemented strong systems and processes across different locations so as to enabling it to take appropriate measures in respect of disaster recovery and business continuity.

l) Inflation risk: - The rising inflation and salaries along with high attrition among employees is a risk. The impact of this is hard to manage and to the extent possible, the Management uses technology, automation, incentives and good work environment to reduce its impact.

m) Cyber Security risk: - It possess risk for business in all aspects, right from phishing emails; vulnerable to hacking of IT systems; and clicking on links or downloading documents that turn out to be malware. Key steps to mitigate such risk is educating employees to aware of unwanted mails, implementation of antivirus software and proper patch management along with strong monitoring from IT Department on continues basis.

Significant Financial Ratios

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor

Sr. No. Particulars	Numerator	Denominator	FY 202324	FY 202223	Variance (in %)	Detail explanation for change (where the change is 25% or more as compared to the immediately previous financial year)
(a) Current Ratio	Total of Current Assets	Total of Current liabilities	1.63	1.11	46.8	Due to Increase in financial assets as cash generation from operating activities during the year and increase in trade.
(b) Debt Service Coverage Ratio	Profit/(Loss) before tax from continuing operations	Debt Service (Current Borrowings+ Interest payable)	NA	NA		Due to closer of loan during last year. Repayment is done as per the terms.
(c) Return on Equity Ratio	Profit/(Loss) after tax	Total Equity	0.12	0.20	(40.0)	Due to additional dividend income received on investment during the year Nil.
(d) Trade Receivables Turnover Ratio	Revenue from Operations	Average Trade Receivables	2.24	2.13	5.2
(e) Trade Payable Turnover Ratio	Purchase of services and other expenses	Average trade payable	15.02	11.91	26.1	Due to increase in employee cost corresponding to increase in turnover during the current year.
(f) Net Capital Turnover Ratio	Revenue from Operations	Working capital	2.10	7.49	(72.0)	Due to increase in working capital as stated above and increase in turnover, net capital turnover ration gone down in current year.
(g) Net Profit Ratio	Net profit after tax	Revenue from Operations	0.16	0.37	(56.8)	Net profit increased last year mainly due to receipt of dividend income on investment which was nil during the year.
(h) Return on Capital Employed	Profit/(Loss) before interest and tax	Capital employed (total assets less current liabilities)	0.16	0.24	(33.3)	Due to decrease in profit during the year compared to last year due to dividend income last year.
(i) Return on Investment	Dividend Income	Cost of Investments	-	0.27	(100.0)	Dividend received during the last year on investment and nil in current year.

Opportunities, Outlook & Threats

Your Company being positive to capture opportunities in growing emerging markets. The landscape of information technology has been continuously evolving and one has to keep pace with the changing trend in order to excel and tap significant growth opportunities. With Management having strong domain knowledge and experience of leading business venture in technology space, the Company is well placed in building next generation technology, partnerships with the worlds technology leaders and has set up very well for the future.