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Mastek Directors Report, Mastek Reports by Directors

Mastek

BSE: 523704  |  NSE: MASTEK  |  ISIN: INE759A01021  |  Computers - Software

Explore Mastek connections « Jun 06
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
Source : Religare Technova

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