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Mastek
BSE: 523704 | NSE: MASTEK | ISIN: INE759A01021 | Computers - Software
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| Directors Report | Year End : Jun '08 |
The Directors have immense pleasure in presenting the 26th Annual
Report and Audited Statement of Accounts of Mastek for the year ended
June 30, 2008.
1. FINANCIAL RESULTS - CONSOLIDATED RESULTS OF MASTEK LIMITED AND ITS
SUBSIDIARIES
Rs. in Mn.
Year Year
Ended Ended
June 30, June 30,
2008 2007
Income from
IT services 8,940 7,945
Other Income 222 159
Total Income 9,162 8,104
Expenses 7,341 6,626
Depreciation 325 299
Interest & Financial Charges 36 9
Profit Before 1,460 1,170
Tax
Provision for Tax 201 307
Profit after
Tax and before minority interest/share
in earnings of associate company/profit
on sale of joint venture 1,259 863
Minority interest - 43
Profit on Sale of Investment in Joint ventures
(net) - 273
Share of loss in associate company - 24
Profit after Tax 1,259 1,069
FINANCIAL RESULTS - MASTEK LIMITED
Rs. in Mn.
Year Year
Ended Ended
June 30, June 30,
2008 2007
Income 5,971 5,072
Profit before exceptional item and tax 1,066 657
Provision for tax 74 148
Profit on Sale of Investment
in Joint Ventures (Net) - 517
Profit After Tax 992 1,026
Add : Balance b/f from last year 1,570 1,047
Profit available for appropriation 2,562 2,073
Interim Dividend 100 85
Final Dividend 176 128
Corporate Dividend Tax 47 34
Transfer to General Reserve 248 256
Balance carried to Balance Sheet 1,991 1,570
2. RESULTS OF OPERATIONS
(A) Group Global Operations
Total income of the company on a consolidated basis stood at Rs. 9.16
billion in FY2008. After excluding the contributions of the erstwhile
joint venture with Deloitte Consulting (DC JV) in FY2007, your
companys revenues for FY2008 were 23% higher compared to Rs. 7.43
million in the preceding year.
Earnings before Interest, Depreciation, Tax and Amortisation (EBITDA)
increased by 36% to Rs. 1820 million. This growth was achieved despite
volatility in foreign currency exchange rates during most of the
financial year under review. The company has been able to increase its
EBITDA margin significantly to 17.9% in FY2008 from 16.1% in the
previous year. Much of this improvement was brought about through
increased productivity and operational efficiency during the course of
the year.
Driven by this margin expansion, Profit after Tax (PAT) increased by
46% in FY2008 to Rs. 1,259 million from Rs. 858 million in FY2007. Net
profit margins were better at 13.7% in FY2008 compared to 11.5% in
FY2007.
During the year under review, the UK operations contributed Rs. 5,691
million in revenues, amounting to 64% of overall consolidated revenues
for the year. Mastek enjoys a strong presence in this market and is
leveraging its status as one of the largest Indian IT players in the
UK to strenthen its pipeline in both insurance and Government verticals.
Mastek successfully entered into a new partnership with Thales UK for
an IP-led solution implementation for the UK Ministry of Defence.
The company is actively evaluating options of additional partnerships
with large systems integrators and service providers in the UK. The
company also revised its existing agreement with Capita Life & Pensions
and won a direct deal with one of UKs largest financial services
players Legal & General for the Elixir™ solution.
In the US, the company continued to chart a strong growth trajectory
during the year under review. Mastek, unlike most other players in the
Indian IT industry, has traditionally received a significant part of
its revenues from the European market, with the US business unit making
a relatively lesser contribution. Over the past couple of years, the
company has seen better traction in the US market.
During FY2008, Masteks US revenues increased over 54% from the
preceding year to Rs. 2,526 million. Near term growth in this market is
expected to be driven by progression in existing accounts and
contributions from the recently acquired VectorMastek and STGMastek.
In addition to the much larger European and US operations, Masteks
operations in the Asia-Pacific region including India, too continued to
contribute to overall performance. The company has also been able to
make initial headways in the Middle Eastern market. During FY 2008, the
companys German and Asia-Pacific (including India and Middle East)
operations contributed Rs. 723 million to overall consolidated
revenues, implying a growth of 38% over the preceding year.
(A more detailed discussion of the companys business model, strategy
and performance appears in the MANAGEMENTS DISCUSSION & ANALYSIS
section of this annual report.)
(B) Mastek Standalone Operations
On a stand-alone basis, Mastek registered a total income of Rs. 5.9
billion for FY 2008, an increase of 18% compared to Rs. 5 billion for
FY 2007. Profit after Tax grew by 146% to Rs. 992 million in FY2008
from Rs. 403 million in the preceding year.
(C) Board and Management & Sales Team Expansion
During FY2008, the company added Mr. Rajesh Mashruwala, a prominent
figure in the US IT industry, to its Board of Directors. Mr.
Mashruwala, with several years of experience in senior management roles
within the North American technology industry, brings significant
business and technology expertise to the company. The company also
expanded and strengthened its leadership and sales teams globally, with
some senior-level appointments during the year under review.
3. BUSINESS OUTLOOK
The companys past efforts and recent initiatives have begun to yield
results, as reflected in the noticeable growth in existing client
relationships, low attrition levels and a more attractive opportunity
pipeline. This trend is likely to continue and gain pace as the
company capitalizes upon unfolding opportunities during the subsequent
years. For FY2008, the company delivered a 34% growth (in dollar terms)
over FY2007 (after excluding contributions from the Deloitte JV).
Going forward, the company is expected to maintain a healthy growth
rate on the back of an encouraging sales pipeline, additional strategic
acquisitions and new partnerships.
4. LIQUIDITY AND CASH EQUIVALENTS
The company continues to maintain a reasonably high level of cash and
cash equivalents, which enables it to not only eliminate short and
medium-term liquidity risks but also scale up operations at a short
notice.
During the year, Mastek invested surplus funds in Liquid Schemes and
Fixed Maturity Plans of Mutual Funds and Fixed Deposits with leading
Banks. As of June 2008, the Cash and Cash Equivalents stood at Rs. 1.32
billion which amounted to two months of expenses and Rs. 48.68 per
share.
5. AUDITED ACCOUNTS OF SUBSIDIARY COMPANIES
In view of the approval granted by the Government of India, Ministry of
Company Affairs, New Delhi, vide its letter dated May 30, 2008, the
accounts of subsidiary companies are not attached to the audited
accounts of the Company. We, hereby, undertake that the audited annual
accounts of subsidiary companies shall be made available to the
investors at any point of time. Copies of the audited annual accounts
of subsidiary companies shall also be available for inspection by any
investor at the registered office of the Company.
6. ISSUE OF SHARE CAPITAL
During the year, The Company allotted 76115 equity shares of Rs. 5 each
to its eligible employees who exercised their options under Employee
Stock Option Plan.
7. BUY-BACK OF SHARES
The Board approved the Share Buy-back offer of the Company upto a sum
of Rs. 65 crores from the open market through stock exchanges at a
price not exceeding Rs. 750 per share, at its meeting held on October
11, 2007. Subsequently the said proposal was approved by the
shareholders by special resolution on November 27, • 2007.
The Company commenced the Share buy-back on May 20, 2008 and bought
back 16,60,095 shares of Rs. 5/- each at an average price of Rs. 391.54
per share aggregating toasum of Rs. 65 crores till July 17, 2008. The
entire quantum of the said brought back equity shares has been
extinguished.
8. DIVIDEND
At the Board Meeting held on July 23, 2008, the Board proposed a final
dividend of Rs. 10 per share. Resultantly, the total effective dividend
for the year 2007-08 is 200% compared to 150% for the year 2006-07.
9. DIRECTORS RESPONSIBILITY STATEMENT
The Board of Directors of the Company confirms:
i. that in the preparation of the annual accounts, the applicable
accounting standards have been followed and there has been no material
departure;
ii. that the selected accounting policies were applied consistently and
the Directors made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of
the company as on June 30, 2008, and of the profit of the company for
the year ended on that date;
iii. that proper and sufficient care has been taken for the maintenance
of adequate accounting records in accordance with the provisions of the
Companies Act, 1956, to safeguard the companys assets and prevent and
detect fraud and other irregularities;
iv. that the annual accounts have been prepared on a going concern
basis.
10. DIRECTORS
Mr. Ashank Desai and Mr. Ketan Mehta, Director of the Company, retire
by rotation and being eligible, offer themselves for re-appointment.
Mr. Rajesh Mashruwala, was appointed as Additional Director on October
10, 2007.
Mr. S. D. Kulkami and Mr. P. G. Kakodkar, Directors resigned during the
year.
11. AUDITORS
You are requested to appoint Auditors and fix their remuneration. The
retiring auditors, M/s. Price Waterhouse, are eligible for
re-appointment.
12. HUMAN RESOURCES
Mastek recognizes its human resources as one of its prime and critical
resources. This attained more focus & significance with increasing
exposure to the knowledge based processes. The year 2007-08 was a land
mark year from the point of view of further integration of human
resource processes and systems.
The Directors wish to place on record their appreciation for the
enthusiasm, sincerity and hard work of all the employees of the
company.
Information as per Section 217(2A) of the Companies Act, 1956, read
with the Companies (Particulars of Employees) Rules, 1975, forms part
of this report. However, as per the provisions of Section 219(1)(b)
(iv) of the Companies Act, the report and accounts, excluding the
Statement of Particulars under Section 217(2A), are being sent to all
members. Any member interested in obtaining a copy of the Statement of
Particulars may write to the Company at its Registered Office.
13. EMPLOYEE STOCK OPTIONS
Plan I
The Company established a plan in June 1999 for granting 150,000
options to the employees of the Company at an issue price of Rs. 320
per option representing one equity share of the Company. The scheme is
governed by the guidelines issued in 1996 by the Securities and
Exchange Board of India (SEBI) which did not specify the accounting
treatment.
Consequently, there is no compensation cost recognised. The Company
passed a special resolution at the Extraordinary General Meeting held
on April 18, 2000 to extend the plan to the employees of its
subsidiaries. Further, in view of the bonus shares of 1:1 allotted to
the shareholders of the Company in January, 2000, and also, in view of
the sub-division of the shares in the ratio 2:1 in November, 2000, the
Company passed a special resolution in October, 2000 giving effect to
the number of total options reserved as also the price of the options.
Subsequently, the total number of options reserved under the plan got
enhanced to 600,000 and the issue price got adjusted to Rs. 80 per
option, one option being equivalent to an equity share of Rs. 5 each.
In April, 2006, the Company issued Bonus Shares in the ratio of 1:1 and
the number of unvested and unexercised options and the price of the
said options have been adjusted accordingly.
Period for unexercised options has expired during the year consequent
to which the balance unexercised options have been cancelled.
Year Year
ended ended
June 30, June 30,
2008 2007
Opening Balance - 23,808
Granted during the year - -
Adjusted for the issue of bonus shares in ratio of - -
Exercised during the year - (9,714)
Cancelled during the year - (14,094)
Balance unexercised options - -
Plan II
The Company established a new scheme in 2002 for granting 700,000 stock
options to employees and each option representing one equity share of
the Company. The exercise price is as governed by the guidelines issued
by SEBI. The scheme is governed by the Employee Stock Option Scheme and
Employees Stock Purchase Guidelines issued in 1999 by SEBI. There is a
minimum period of twelve months for the first vesting from the date of
the grant of options.
The options are exercisable within two years of their vesting. As per
the SEBI guidelines issued in 1999, and as amended from time to time,
the excess of the market price of the underlying equity shares as of
the date of the grant of the option over the exercise price of the
option is to be recognized and amortized on a straight line basis over
the vesting period. The options granted during the year have been
granted at an exercise price which is equal to the market price of the
underlying equity shares. Consequently, there is no compensation cost
in the current year.
In April, 2006, the Company issued Bonus Shares in the ratio of 1:1 and
the number of unvested and unexercised options and the price of the
said options have been adjusted accordingly.
In accordance with the Guidelines, the Company has passed the necessary
special resolutions in January 2002 to approve the scheme and to extend
the plan to the employees of its subsidiaries.
Year ended Year ended
June 30, June 30,
2008 2007
Opening Balance 403,655 840,234
Granted during the year - -
Adjusted for the issue of bonus shares in
ratio of 1:1 - -
Exercised during the year (61,374) (284,842)
Cancelled during the year (91,702) (151,737)
Balance unexercised options 250,579 403,655
Plan III
The Company passed special resolutions at its Annual General Meeting
held on September 20, 2004 approving the allocation of 700,000 stock
options to the eligible employees of the Company and its subsidiaries.
The Company subsequently established a new scheme in 2004 for granting
700,000 stock options to the employees referred to above, each option
representing one equity share of the Company. The exercise price is as
governed by the guidelines issued by SEBI. The scheme is governed by
the Employee Stock Option Scheme and Employee Stock Purchase Guidelines
issued in 1999 by SEBI and as amended from time to time. The first
vesting of the stock options shall happen only on completion of one
year from the date of grant and the options are exercisable within two
years from the date of vesting.
As per the SEBI guidelines, the excess of market price of the
underlying equity shares as of the date of the grant of the options
over the exercise price of the option is to be recognized and amortised
on a straight line basis over the vesting period. The options granted
during the year have been granted at an exercise price which is equal
to the market price of the underlying equity shares. Consequently,
there is no compensation cost in the current year.
In April, 2006 the Company issued Bonus Shares in the ratio of 1:1 and
the number of unvested and unexercised options and the price of the
said options have been adjusted accordingly.
Year Year
ended ended
June 30, June 30,
2008 2007
Opening Balance 1,007,745 536,024
Granted during the year 347,500 587,040
Adjusted for the issue of bonus shares
in ratio of 1:1 - -
Exercised during the year (14,741) (31,991)
Cancelled during the year (269,466) (83,328)
Balance unexercised options 1,071,038 1,007,745
Plan IV
The Shareholders of the Company through Postal Ballot on August 9, 2007
approved the allocation of 1,000,000 stock options to the eligible
employees of the Company and its subsidiaries.
The Company subsequently established a new scheme in 2007 for granting
1,000,000 stock options to the employees referred to above, each option
representing one equity share of the Company. The exercise price is as
governed by the guidelines issued by SEBI. The scheme is governed by
the Employee Stock Option Scheme and Employee Stock Purchase Guidelines
issued in 1999 by SEBI and as amended from time to time.
The first vesting of the stock options shall happen only on completion
of one year from the date of grant and the options are exercisable
within two years from the date of vesting. As per the SEBI guidelines,
the excess of market price of the underlying equity shares as of the
date of the grant of the options over the exercise price of the option
is to be recognized and amortised on a straight line basis over the
vesting period.
The options granted during the year have been granted at an exercise
price which is equal to the market price of the underlying equity
shares. Consequently, there is no compensation cost in the current
year.
Year ended June 30, 2008
Opening Balance -
Granted during the year 463,676
Adjusted for the issue of bonus shares
in ratio of 1:1 -
Exercised during the year
Cancelled during the year (214,800)
Balance unexercised options 2,48,876
Disclosure required under SEBI (ESOSL ESPS),
Guidelines, 1999:
In order to enable the Company to continue with its ESOP, the Company
passed special resolutions through postal ballot in January,2002 for
issue of 7,00,000 stock options to its employees. At the Annual General
Meeting held on September20,2004, the Company passed special
resolutions to issue 7,00,000 stock options to its employees.
On August 9,2007, the shareholders of the Company approved the further
issue of 10,00,000 options to the employees.
(a) Options granted: Opening: 1,411,400
(b) Issued during the year: 811,176
(c) Pricing formula: Market Price as defined by SEBI
from time to time -
(d) Options vested: 609,731
(e) Options exercised: 76,115
(f) Total number of shares arising as a result of
exercise of options: 76,115
(g) Options lapsed: 575,968
(h) Variations of terms of options: NIL
(i) Money realized by exercise of options:
Rs. 1,29,41,176
(j) Total number of options in force: 15,70,493
(k) Employee-wise details of options granted to: NIL
(1) Senior managerial personnel: NIL
(2) Any other employee who receives a grant in any one year of option
amounting to 5% or more of option granted during that year: NIL
(3) Identified employees who were granted option, during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the Company at the time of grant: NIL
(I) Diluted EPS pursuant to issue of shares on exercise of option
calculated in accordance with Accounting Standard (AS) 20 is Rs. 34.71
(Before exceptional item) and Rs. 34.71 (After exceptional item).
The impact of this difference on profits and on EPS of the Company
(Rs. in lacs)
Profit After Tax (PAT) 9922.85
Less Additional employee
compensation based on fair Value 632.09
Adjusted PAT 9290.76
Adjusted EPS including extraordinary income 32.65
(m) Weighted-average exercise price and fair value of Stock Options
granted during the year:
Stock Weighted Weighted Closing
options average Average market
granted exercise fair value price at
on price BSE on
(in Rs.) the date of grant
(in Rs.)
July 19, 2007 352 323.40 352
August
22, 2007 259 258.05 259
October
11, 2007 317 319.85 317
March
25,2008 297 296.75 297
(n) Description of :
The Black Scholes the method option pricing and significant model was
assumptions developed for used during estimating fair the year to value
of traded estimate the options that fair value of.
Have no vesting the options, restrictions and are including the fully
transferable following Since Option pricing weighted models require
average use of substantive information:
Assumptions, changes therein can materially affect fair value of
options. The option pricing models do not necessarily provide a
reliable measure of fair value of options.
The main assumptions used in the black- Scholes option-pricing model
during the year were as follows.
Sr. Grant 119-Jul- 22-Aug- 11 -Oct- 25-03-
No. Date 07 07 07 08
1. Risk Free 6.90% 7.76% 7.69% 7.14
Interest 7.41% 7.85% 7.74% 7.46%
Rate
2. Expected 2-5 2-5 2-5 2-5
Life years years years years years
3. Expected 40.69% 41.55% 41.76% 44.88
Volatility 57.90% 57.94% 44.13% 58.19%
4. Dividend 1.32% 1.32% 1.32% 1.32%
Yield
14. ADDITIONAL INFORMATION RELATING TO CONSERVATION OF ENERGY,
TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO
Information under Section 217(1 )(e) of the Companies Act, 1956, read
with the Companies (Disclosure of Particulars in the Report of the
Board of Directors) Rules, 1968, forming part of the Directors Report
for the year ended June 30, 2008:
(a) Conservation of Energy
As a software company, energy costs constitute a small portion of the
total cost and there is not much scope for energy conservation. Form A
is not applicable for software industry.
(b) Technology Absorption Not Applicable
(c) Foreign Exchange Earnings and Outgo:
Total foreign exchange used and earned by the Company
(Rs. in Mn.)
30.6.2008 30.6.2007
Exchange used 2,415 2,273
Exchange earned 5,648 4,910
15. CORPORATE GOVERNANCE
Mastek follows best practices in Corporate Governance by benchmarking
them with the best in the world.
The report on corporate governance is included in the Corporate Social
Responsibility (CSR) section of this Annual Report.
16. ACKNOWLEDGEMENTS
The Directors would like to place on record their sincere appreciation
for the continued co-operation, guidance, support and assistance
provided by the SEEPZ Authorities, MIDC, Department of Electronics,
ICICI Bank, ING Vysya Bank Ltd. and other government departments and
authorities.
By the Order of the Board of Directors
Mumbai Sudhakar Ram
July 23, 2008 Chairman and Managing Director |
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| Source : Religare Technova | |
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