Intrasoft Technologies Ltd Management Discussions

GLOBAL ECONOMY OVERVIEW AND OUTLOOK

Weak spots in the global economy include housing, bank lending and the industrial sector. However, this is more than offset by strength in other sectors, most notably in service-sector activities and visible in labor markets. Incoming data for the first half of 2023 have therefore exceeded expectations, leading to upward revisions to the full year forecast for 2023 for many economies. However, despite being past their peak, inflationary pressures are only abating very moderately, prompting continued tight monetary policy conditions. This environment weighs against interest rate cuts by many monetary authorities. The expectation is therefore still for slowing growth in the second half of 2023 and the first half of 2024.

Global real GDP is forecasted to grow by 2.6 percent in 2023, down from 3.3 percent in 2022. Most of the weakness is concentrated in Europe, Latin America, and the US. Asian economies are expected to drive most of global growth in 2023, as they benefit from ongoing reopening dynamics and less intense inflationary pressures compared to other regions. Global GDP growth is expected to slow further to 2.4 percent in 2024, largely driven by flat growth for the US.

The 10-year economic outlook signals a prolonged period of disruptions and uncertainties for businesses, but there are also opportunities. Global growth will return to its slowing trajectory with mature markets making smaller contributions to global GDP over the next decade. Nonetheless, there are still opportunities for firms to invest in both mature markets—given their wealth and need for innovation to compensate for shrinking labor forces—and emerging markets—given their need for both physical and digital infrastructure to support their sizable and young labor forces. Keys to ensuring growth over the longer term include developing new lines of business; strengthening corporate culture; embracing digital transformation and automation; recruiting for talent with new skills not currently represented in the company; and maximizing the hybrid work model where it makes sense. (Source: The Conference Board)

US ECONOMY OVERVIEW AND OUTLOOK

Meanwhile, business investment continued to cool in Q1 as high interest rates and concerns about the future weighed on companies. These trends will likely worsen under the weight of high interest rates and weakening consumer demand. Additionally, commercial and industrial lending by banks continues to slow in the wake of the US banking crisis. Residential investment, which is highly sensitive to Fed policy, has already contracted significantly as interest rates have climbed. We dont expect a recovery in this sector until rates begin to fall next year.

Government spending represented one of the few positive growth drivers for 2023 as federal non-defense spending benefited from outlays associated with infrastructure investment legislation passed in 2021 and 2022. However, reductions in discretionary outlays ($1.5 Trillion over 10 years) detailed in the Fiscal Responsibility Act (which averted the debt ceiling crisis) will limit overall government spending and act as a drag on growth later this year and early next. (Source: The conference Board)

GLOBAL RETAIL AND E-COMMERCE OVERVIEW

eCommerce sales for businesses have been steadily increasing for years, and with the migration of virtually all transactions to digital due to the COVID Pandemic, worldwide sales through ecommerce sales channels such as websites and online marketplaces increased overall in 2020.

RETAIL B2C ECOMMERCE

Retail consumer goods ecommerce is by far the most dynamic and leading of the two consumer focuses. It had an 18% share of the total global retail sales for 2020, and is forecast to have over a 1% annual growth rate, achieving a nearly 22% share of total global retail sales by 2024.

We can see worldwide retail ecommerce sales figures jump from 2019 to 2020, illustrating some of the Impact of the COVID Pandemic on eCommerce sales where pandemic lockdowns gave virtual purchases a boost. This forecast also signals continued, steady 8% growth for all worldwide retail ecommerce sectors sales through 2024 as we see illustrated broken down by retail sector in the chart below.

INDUSTRIAL, MANUFACTURING, AND SERVICES B2B ECOMMERCE

The B2B ecommerce sectors follows the trends and business adaptations of B2C, because people bring their learned consumer preferences and apply those two scenarios in their professional lives, such as being employed as a purchasing agent for B2B transactions. There is strong growth forecast for all B2B sectors due to the ongoing COVID Pandemic restrictions, in addition to consumer adaptation to the initially necessary - but now preferred - online interface in business purchases.

We see B2B ecommerce gross merchandise value growing at a similarly steady rate through 2019 as to mirror its retail B2C counterpart. Asia leading the regions for gross merchandise value of B2B ecommerce sales, followed by North America, Rest of the World, and the European Region. (Source: International Trade Administration)

US RETAIL AND ECOMMERCE INDUSTRY

Overall ecommerce sales in the U.S. from domestic retailers were $1.03 trillion in 2022, up 7.7% year over year. However, the Top 1000 retailers grew their overall ecommerce sales slower at 5.1%, dragged down by top players like Amazon.com Inc., which struggled internationally. That Top 1000 ecommerce growth was a significant slowdown after the pandemic drove 42.6% higher online sales in 2020 and 17.4% in 2021. Still, a long-term look at Top 1000 retailers ecommerce growth since the pandemic puts it ahead of where it was in 2019. The compound annual growth rate of ecommerce sales for the three years since the pandemic began was 20.7%, above the 17.8% rate that Top 1000 retailers grew at in 2019.

RETAILER DEMOGRAPHICS Multichannel vs. Online-only Retailers

Both web-only and brick-and-mortar retailers are well-represented in the ranks of the Top 1000 online retailers in North America. Although more than four in 10 — 42.8% — are web-based merchants, more than two in 10 — 20.8% — are store-based chains. Nearly a third — 32.8% — of the Top 1000 are consumer brand manufacturers, while just a few dozen are direct marketers. (Source: Digital Commerce 360)

BUSINESS PERFORMANCE, 2022-2023

The strides we have made in recent years to build a truly differentiated, partner-centered service offering, punctuated by a balanced, multi- category portfolio, positions us well to navigate in any environment. Our focus on strengthening our solution through investments, in making our technology robust and scalable over the last few years, has enabled us to deliver our services in a seamless and efficient manner to our brand partners unhindered by the supply chain and COVID challenges. Near-term macro challenges like supply chain congestion and goods- related inflation have started easing, resulting in increased demand in the online ecosystem, driving benefit for our brand partners from our E-Commerce Platform.

Were also taking new actions to drive efficiencies and optimizing our operations to drive continued growth. Looking ahead, we remain laser- focused on delivering the best of our services to our partners and customers, and continuing to invest in our long-term, sustainable growth. Our team remains committed to adding newer brands during the coming years. We have strong visibility within the current pipeline, which will provide us with an opportunity to drive incremental value.

FINANCIAL OVERVIEW

The Companys consolidated Profit and Loss Account for the year ended 31 March 2023 is provided below:

Consolidated Statement of Profit and Loss for the year ended March 2023

Amount (Rs in lacs)

1 1	2022-23	2021-22
Revenue from Operations	45,694.04	42,166.01
Cost of Goods Sold (incl. Shipping)	34,461.67	32,090.54
Gross Profit	11,232.37	10,075.47
Sales & Marketing Expenses	6,066.63	5,686.80
Employee Benefit Expenses	2,273.87	1,882.39
General & Administration Expenses	1,332.77	1,244.82
Earnings from Operations	1,559.10	1,261.46
Other Income (Net)	466.94	478.37
Earnings Before Interest, Tax, Depreciation & Amortisation	2,026.04	1,739.83
Depreciation & Amortisation	110.32	137.55
Earnings Before Interest & Tax	1,915.72	1,602.28
Finance Costs	807.53	352.05
Profit Before Tax (PBT)	1,108.19	1,250.23
Tax Expense	266.99	-32.05
Profit After Tax (PAT)	841.20	1,282.28

Ratio Analysis:

For ratio analysis on a standalone basis please refer to note no. 33 of standalone financial statement.

RISK MANAGEMENT

1. Continuous upgradation of Technology

The Companys operations are driven by technology, and therefore our failure to innovate, adapt or respond effectively to the rapidly changing technology and market needs, could impede our ability to function efficiently.

Mitigation:

The Company pro-actively invests in technology upgradation and improvement to strengthen its value proposition to brand partners, adapt to the dynamic market requirements and maintain its competitive advantage.

2. Festive season demand

The US festive season falls in the third quarter of our financial year, leading to greater e-commerce revenue in the quarter vis-a-vis other quarters. In the event of any operational bottlenecks or infrastructure constraints, we may not be able to take advantage of the festive demand.

Mitigation:

The Companys backbone is its proprietary technology, which enables the Company to efficiently service the demand spike in the third quarter of the fiscal. This allows the Company to scale in line with the increased festive season demand.

3. The continuing effect of the COVID-19 pandemic and its unprecedented nature.

While the pandemics effects have subsided as consumers got vaccinated, the emergence of new variants has not stopped. COVID-19 cases could increase at any time and if any of the variants emerging in the future pose serious health risks, it could impact our operations.

Mitigation:

The Companys employees have adapted to new processes and protocols to serve brand partners. The teams, both in India and the US, will continue to work remotely across the foreseeable future, and are well equipped to do so as our technology scales on the cloud. We will continue to monitor the impact of the pandemic, if any, and take necessary steps to ensure smooth business functioning.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Our integral and robust internal control system ensures efficient utilisation and conservation of resources, compliance with policies, procedures and statutory requirements. The Company has developed well-documented regulations and guidelines for authorisation and approvals. Internal audit is a crucial backbone of the internal control systems and it is conducted on a regular basis to check and authenticate that all systems and processes are in compliance with the relevant guidelines and appropriate in safeguarding the assets from unauthorized use or losses. An Audit Committee of the Board evaluates the existing internal control systems, ensures compliance and takes corrective measures as and when required. The management also regularly reviews all vital processes and control systems which strengthens the organisation. The emphasis on internal controls is imposed across all units, departments, functions and processes. All the measures are undertaken to ensure that the controls implemented are both adequate and equivalent with the size and nature of our operations

HUMAN RESOURCES

The Company believes that its intrinsic strength lies in dedicated and motivated employees. The Company provides competitive compensations, an amiable work environment and acknowledges employee performance through a planned reward and recognition programme. The Company aims to create a workplace where every person can achieve his or her true potential. The Company encourages individuals to go beyond the scope of their work, undertake voluntary projects that enable them to learn and devise innovative ideas. The Group employed 84 individuals as of 31 March 2023.