R Systems International Ltd: Annual Report 2023-24 Analysis

Overview #

Comprehensive Analysis #

This analysis covers the key aspects of R Systems International Limited’s (RSIL) Annual Report for the financial year ended December 31, 2023.

I. Financial Performance:

RSIL reported strong financial performance in FY2023, showing growth despite macroeconomic headwinds. However, a direct comparison between FY2023 and FY2022 consolidated results is complicated by the acquisition of Velotio in July 2023. Analyzing standalone figures provides a clearer picture of organic growth.

Standalone Financial Highlights:

• Revenue: Increased by 11.06% to US$ 90.39 million (INR 9,038.87 million) from US$ 81.39 million (INR 8,138.90 million) in FY2022. This indicates healthy organic growth.
• Profit After Tax (PAT): Showed a substantial increase of 53.90% to US$ 17.35 million (INR 1,734.57 million) from US$ 11.27 million (INR 1,127.11 million) in FY2022. This significant jump is notable.
• Earnings Per Share (EPS): Rose by 53.83% to US$ 14.66 from US$ 9.53, reflecting the improved profitability.
• EBITDA Margin: The report mentions an EBITDA margin of 15.7% (14.7% net of one-time fees), indicating strong operational efficiency.

Consolidated Financial Highlights:

• Revenue: Increased by 11.13% to US$ 168.45 million (INR 16,845.18 million) from US$ 151.58 million (INR 15,158.31 million). The substantial increase is largely driven by the Velotio acquisition.
• PAT: Increased marginally by 0.30% to US$ 14.01 million (INR 1,401.06 million) from US$ 13.97 million (INR 1,396.81 million). The relatively small increase suggests that the integration of Velotio might have initially presented some challenges.
• EPS: Increased slightly by 0.25% to US$ 11.84 from US$ 11.81. Again, the minimal increase reflects the impact of incorporating Velotio’s performance.

Key Financial Ratios (Standalone and Consolidated): The report provides several key financial ratios, but the interpretation needs caution due to the acquisition. Standalone figures offer a more accurate reflection of organic performance. Significant changes in ratios (debt-equity, current, interest coverage) are primarily attributed to increased short-term borrowings.

II. Business Segments:

RSIL operates across several key sectors:

• Technology and Independent Software Vendors (ISVs): This remains a core segment, focusing on product engineering and digital experiences.
• Healthcare: Developing EMR/EHR solutions and other applications.
• Manufacturing and Logistics: Providing solutions for automation, supply chain, and warehouse management.
• Telecom, Media, and Entertainment (TME): Services related to 5G, core network operations, and OTT applications.
• Banking, Financial Services, and Insurance (BFSI): Solutions for personalized services, loan processing, and payment systems.
• Public Services (US): Cloud-based solutions, AI/ML for government agencies.
• Retail, Hospitality, and Other Services: Enhancing customer experience and optimizing operations.

The report provides a detailed breakdown of revenue by industry and geography. North America is the largest market for RSIL, followed by Europe and South East Asia. The dependence on a few key clients (Top 10 contributing 23.7% of consolidated revenue in FY2023) presents a risk.

III. Risks:

The report identifies various significant risks:

• Customer Concentration: High reliance on a few key clients.
• Geographical Concentration: Significant revenue from North America.
• Fixed-Price Contracts: Risk of cost overruns impacting profitability.
• Competition: Intense competition in the IT services industry.
• Disaster Prevention and Recovery: Vulnerability to cyberattacks and natural disasters.
• Talent Acquisition and Retention: Difficulty in attracting and retaining skilled professionals.
• Key Managerial Role & Succession Planning: Need for effective succession planning for critical roles.
• Technological Obsolescence: Rapid technological changes necessitate continuous adaptation.
• Acquisitions: Challenges in integrating acquired companies successfully.
• Credit Risk: Potential for non-payment by clients.
• Foreign Currency Rate Fluctuations: Impact of exchange rate variations on revenues and expenses.
• Inflation and Cost Structure: Rising costs, particularly wages, in India.
• Intellectual Property Rights: Protecting the Company’s and client’s IP.
• Information Security Management: Maintaining data confidentiality and integrity.
• Contractual Risk: Risk of breaches and disputes.
• Execution Risk: Failure to meet project deadlines and quality standards.
• Directors’ and Officers’ Liability Risks: Potential lawsuits related to management decisions.
• Visa Regulations/Restrictions: Challenges in obtaining work permits for international employees.
• Environmental, Social, and Governance (ESG) Risks: Potential negative impact on the environment and society.
• Political Risk: Changes in government policies impacting the IT sector.

The report outlines mitigation strategies for each of these risks.

IV. ESG Initiatives:

RSIL demonstrates commitment to ESG through various initiatives:

• Environmental: Energy conservation measures (LED lighting, dual-fuel generators), wastewater repurposing, E-waste management policy, and afforestation projects. The report includes data on energy and water consumption, GHG emissions (Scope 1 and 2, and Scope 3), and waste generated.
• Social: Focus on employee well-being (health insurance, training, and wellness programs), diversity and inclusion initiatives, and various CSR projects (education, women’s empowerment, sports, and community welfare). The report details employee demographics, attrition rates, and CSR spending.
• Governance: Strong corporate governance practices (Board composition, committees, code of conduct, and risk management), commitment to ethical business conduct, and transparent disclosures.

The company collaborates with IIT-Delhi on applied AI for sustainable systems, highlighting its focus on responsible technology. However, the report lacks specific, measurable targets for many of these ESG initiatives, hindering a full evaluation of their impact.

V. Conclusion:

RSIL’s FY2023 annual report showcases strong financial results, particularly in standalone performance. The Velotio acquisition significantly impacted consolidated figures. While the company has a clear strategy and addresses key risks, a more detailed quantitative analysis of the long-term impact of its ESG initiatives and greater transparency in its financial reporting, particularly regarding the integration of acquired companies, would enhance investor confidence. The lack of specific, time-bound ESG targets weakens the assessment of its sustainability strategy.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The provided annual report separates standalone and consolidated financial statements. The values requested will be different for each. Furthermore, the report does not explicitly list “inventory” as RSIL is a service company, not a manufacturer. Therefore, inventory would be negligible or zero.

Standalone Financial Statements (RSIL only, excluding subsidiaries):

• Total Assets: US$ 806.07 million (INR 8,060.68 million) as of December 31, 2023.
• Current Assets: US$ 301.20 million (INR 3,012.02 million) as of December 31, 2023.
• Cash and Cash Equivalents: US$ 19.46 million (INR 194.56 million) as of December 31, 2023. (Note: This figure excludes other bank balances which are reported separately.)
• Accounts Receivable (Trade Receivables): US$ 103.13 million (INR 1,031.33 million) as of December 31, 2023 (net of allowance for doubtful debts).
• Inventory: Negligible or zero (RSIL is a service company, not a manufacturer).

Consolidated Financial Statements (RSIL and all subsidiaries):

• Total Assets: US$ 1,314.64 million (INR 13,146.42 million) as of December 31, 2023.
• Current Assets: US$ 626.18 million (INR 6,261.76 million) as of December 31, 2023.
• Cash and Cash Equivalents: US$ 157.35 million (INR 1,573.50 million) as of December 31, 2023. (Note: This figure excludes other bank balances which are reported separately.)
• Accounts Receivable (Trade Receivables): US$ 250.40 million (INR 2,503.99 million) as of December 31, 2023 (net of allowance for doubtful debts).
• Inventory: Negligible or zero (RSIL is a service company, not a manufacturer).

Important Note: These figures are rounded to the nearest million US dollars and INR, as presented in the report. The precise figures may vary slightly depending on the original data. Also, remember that the consolidated figures are significantly influenced by the Velotio acquisition, making a direct comparison with the previous year less meaningful.

Liability Analysis #

Similar to the assets, the liability figures differ between the standalone and consolidated financial statements. Again, it’s crucial to remember that the consolidated figures are heavily influenced by the Velotio acquisition in mid-FY2023.

Standalone Financial Statements (RSIL only):

• Total Liabilities: US$ 323.30 million (INR 3,233.03 million) as of December 31, 2023.
• Current Liabilities: US$ 240.32 million (INR 2,403.16 million) as of December 31, 2023.
• Long-Term Debt: US$ 16.94 million (INR 16.94 million) as of December 31, 2023. (This represents the non-current portion of borrowings; the current portion is included in current liabilities.)
• Accounts Payable (Trade Payables): US$ 11.00 million (INR 109.98 million) as of December 31, 2023.

Consolidated Financial Statements (RSIL and all subsidiaries):

• Total Liabilities: US$ 462.50 million (INR 4,625.05 million) as of December 31, 2023.
• Current Liabilities: US$ 368.29 million (INR 3,682.96 million) as of December 31, 2023.
• Long-Term Debt: US$ 16.94 million (INR 16.94 million) as of December 31, 2023. (Again, this is the non-current portion of borrowings, with the current portion in current liabilities.)
• Accounts Payable (Trade Payables): US$ 37.08 million (INR 370.76 million) as of December 31, 2023.

Important Note: These figures are rounded to the nearest million US dollars and INR, as presented in the report. The exact figures may differ slightly from the underlying data. The significant increase in consolidated liabilities compared to the previous year is largely attributable to the Velotio acquisition and subsequent integration. Analyzing the standalone numbers is more useful for assessing RSIL’s organic financial position.

Equity Analysis #

Again, we must differentiate between standalone and consolidated figures, keeping in mind the Velotio acquisition’s impact on the consolidated numbers.

Standalone Financial Statements (RSIL only):

• Shareholders’ Equity: US$ 482.76 million (INR 4,827.65 million) as of December 31, 2023.
• Retained Earnings: US$ 470.47 million (INR 4,704.66 million) as of December 31, 2023.
• Share Capital: US$ 11.83 million (INR 118.31 million) as of December 31, 2023.

Consolidated Financial Statements (RSIL and all subsidiaries):

• Shareholders’ Equity: US$ 611.44 million (INR 6,114.37 million) as of December 31, 2023. This is attributable to equity shareholders of the Company. The total equity also includes non-controlling interests.
• Retained Earnings: US$ 538.70 million (INR 5,386.98 million) as of December 31, 2023. This is part of the “Other Equity” section in the Consolidated Balance Sheet.
• Share Capital: US$ 11.83 million (INR 118.31 million) as of December 31, 2023. This remains consistent with the standalone figures as share capital is not affected by consolidation.

Important Note: All figures are rounded to the nearest million US dollars and INR, as presented in the report. Minor discrepancies might exist compared to the underlying data. The significant difference in consolidated shareholders’ equity compared to the previous year is primarily due to the Velotio acquisition. Analyzing standalone data provides a clearer picture of RSIL’s organic equity position. The consolidated shareholders’ equity only reflects the portion attributable to RSIL’s shareholders; the rest is held by non-controlling interests in subsidiaries.

Income Statement #

Operating Performance #

The provided annual report doesn’t explicitly break down the consolidated financial statements into “Cost of Revenue” and subsequently “Gross Profit”. This is typical for service-based companies like RSIL, where the cost of services is typically a significant portion of operating expenses. The standalone statements are more readily analyzable in this regard.

Standalone Financial Statements (RSIL only):

• Revenue: US$ 90.39 million (INR 9,038.87 million) for the year ended December 31, 2023.
• Cost of Revenue: Not explicitly stated. It’s embedded within the “Expenses” figure.
• Gross Profit: Not explicitly stated.
• Operating Expenses: US$ 75.63 million (INR 7,563.41 million) for the year ended December 31, 2023. This includes employee benefits, finance costs, depreciation & amortization, and other expenses.
• Operating Income (Profit Before Tax): US$ 218.19 million (INR 2,181.88 million) for the year ended December 31, 2023. This is calculated as Revenue less Operating Expenses.

Consolidated Financial Statements (RSIL and all subsidiaries):

• Revenue: US$ 168.45 million (INR 16,845.18 million) for the year ended December 31, 2023.
• Cost of Revenue: Not explicitly stated.
• Gross Profit: Not explicitly stated.
• Operating Expenses: US$ 149.55 million (INR 14,955.25 million) for the year ended December 31, 2023. This is an aggregate figure and includes employee benefits, finance costs, depreciation and amortization, and other expenses.
• Operating Income (Profit Before Tax): US$ 200.02 million (INR 2,000.22 million) for the year ended December 31, 2023. (Revenue less Operating Expenses)

Important Note: All figures are rounded to the nearest million US dollars and INR, as presented in the report. Slight discrepancies might exist compared to the precise underlying data. The consolidated figures are heavily influenced by the Velotio acquisition, making year-over-year comparisons challenging and potentially misleading. The absence of a separate “Cost of Revenue” line makes a precise gross profit calculation impossible from the provided information. For a service company, the cost of services is likely heavily intertwined with operating expenses.

Bottom Line Metrics #

The annual report provides these figures separately for standalone and consolidated financial statements. Remember that the consolidated figures are significantly affected by the Velotio acquisition in July 2023, making direct comparisons with the previous year less meaningful.

Standalone Financial Statements (RSIL only):

• Net Income (Profit for the Year): US$ 17.35 million (INR 1,734.57 million) for the year ended December 31, 2023.
• EBITDA: The report mentions an EBITDA margin of 15.7% (14.7% net of one-time fees) for the standalone financial statements. To calculate the actual EBITDA value, we would need the standalone revenue figure (US$ 90.39 million) and the EBITDA margin percentage. Using the 15.7% figure, the EBITDA would be approximately US$ 14.21 million.
• Basic EPS: US$ 14.66 for the year ended December 31, 2023.
• Diluted EPS: The report doesn’t explicitly state a diluted EPS figure for the standalone statements, implying it’s the same as basic EPS due to the absence of dilutive securities.

Consolidated Financial Statements (RSIL and all subsidiaries):

• Net Income (Profit for the Year): US$ 14.01 million (INR 1,401.06 million) for the year ended December 31, 2023.
• EBITDA: Not directly provided in the report, but can be inferred from the reported EBITDA margin. The report does not state the consolidated EBITDA margin for FY2023, making a direct calculation of the EBITDA value impossible.
• Basic EPS: US$ 11.84 for the year ended December 31, 2023.
• Diluted EPS: US$ 11.81 for the year ended December 31, 2023.

Important Note: All figures are rounded to the nearest million US dollars and INR, as presented in the report. Small differences might exist compared to the precise values from the underlying data. The consolidated figures are significantly affected by the Velotio acquisition, making a direct comparison to the prior year’s consolidated data less meaningful for evaluating organic growth. The lack of an explicitly stated consolidated EBITDA margin for FY2023 prevents a precise EBITDA calculation.

Cash Flow #

Cash Flow Components #

The cash flow statement is presented separately for standalone and consolidated results. Keep in mind that the consolidated numbers are significantly influenced by the Velotio acquisition during the fiscal year.

Standalone Statement of Cash Flows (RSIL only):

• Operating Cash Flow: US$ 17.68 million (INR 1,768.28 million) for the year ended December 31, 2023. This represents net cash from operating activities.
• Investing Cash Flow: US$ (20.84) million (INR (2,084.28) million) for the year ended December 31, 2023. This is net cash used in investing activities, primarily due to acquisitions and capital expenditures.
• Financing Cash Flow: US$ (31.70) million (INR (317.03) million) for the year ended December 31, 2023. This represents net cash used in financing activities, largely due to dividend payments.

Consolidated Statement of Cash Flows (RSIL and all subsidiaries):

• Operating Cash Flow: US$ 21.14 million (INR 2,113.64 million) for the year ended December 31, 2023.
• Investing Cash Flow: US$ (222.79) million (INR (2,227.85) million) for the year ended December 31, 2023. The large negative value is primarily due to the significant cash outflow from the Velotio acquisition.
• Financing Cash Flow: US$ (40.91) million (INR (409.09) million) for the year ended December 31, 2023.

Important Note: All figures are rounded to the nearest million US dollars and INR, as presented in the report. Minor discrepancies may exist when compared with the precise values from the underlying data. Consolidated cash flow figures are significantly impacted by the Velotio acquisition, making year-over-year comparisons less effective for gauging organic performance. It is recommended to focus on the standalone statement for evaluating the underlying cash flow trends of RSIL’s core business.

Cash Flow Metrics #

The annual report does not directly provide a “free cash flow” figure. Free cash flow is a calculated metric, not a line item in the financial statements. It’s typically calculated as operating cash flow less capital expenditures. The report does provide data on capital expenditure and dividends.

Standalone (RSIL only):

• Capital Expenditure (CAPEX): US$ (12.90) million (INR (128.94) million) for the year ended December 31, 2023. This is derived from the investing activities section of the standalone cash flow statement.
• Dividends Paid: US$ 80.45 million (INR 804.46 million) for the year ended December 31, 2023. This is explicitly stated in the notes to the financial statements. This represents only the interim dividend paid; no final dividend was declared.

Consolidated (RSIL and all subsidiaries):

• Capital Expenditure (CAPEX): US$ (201.57) million (INR (201.57) million) for the year ended December 31, 2023 (Purchase of property, plant, and equipment). Note that purchases of intangible assets are also part of CAPEX in this context.
• Dividends Paid: US$ 80.45 million (INR 804.46 million) This remains the same as the standalone figure, as it refers to dividends paid by RSIL itself, not the subsidiaries.

Free Cash Flow (Calculated):

To calculate free cash flow, we need operating cash flow and capital expenditures. We must also consider which figures are more reliable for evaluating RSIL’s organic performance:

• Standalone (More representative of RSIL’s organic performance):

  • Operating Cash Flow: US$ 17.68 million
  • CAPEX: US$ (12.90) million
  • Free Cash Flow (Estimated): US$ 4.78 million (17.68 - (-12.90))

• Consolidated (Heavily influenced by the acquisition):

  • Operating Cash Flow: US$ 21.14 million
  • CAPEX: US$ (222.79) million
  • Free Cash Flow (Estimated): US$ (201.65) million (21.14 - (-222.79))

Important Note: These figures are rounded to the nearest million US dollars and INR. Free cash flow is an estimated figure, as it’s derived from the cash flow statement data. The significant difference between standalone and consolidated free cash flow is primarily due to the Velotio acquisition, which involved substantial capital expenditures and asset purchases. The standalone free cash flow provides a more accurate perspective on the core operational performance of RSIL itself. The large negative consolidated free cash flow isn’t necessarily alarming, given the significant acquisition.

Profitability Ratios #

Calculating precise profitability ratios requires certain values not explicitly stated in the annual report (specifically, Cost of Goods Sold/Cost of Revenue for Gross Margin). However, we can make estimations and analyze the provided data. Remember that consolidated figures are significantly impacted by the Velotio acquisition and may not accurately reflect the organic performance of RSIL.

Standalone Financial Statements (RSIL only):

• Gross Profit Margin: Cannot be calculated precisely without a “Cost of Revenue” figure. The report only provides operating expenses.
• Operating Profit Margin: (Operating Income / Revenue) * 100 = (218.19 / 90.39) * 100 ≈ 24.1%
• Net Profit Margin: (Net Income / Revenue) * 100 = (17.35 / 90.39) * 100 ≈ 19.2%
• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100. Requires calculating the average shareholders’ equity from the beginning and end of the year balance sheet figures. This information is not explicitly presented for a quick calculation. The report does however state a ROE of 37.85% from another calculation.
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100. Requires calculating average total assets from the beginning and end of the year balance sheet data. This is not directly available in the report for a quick calculation.

Consolidated Financial Statements (RSIL and all subsidiaries):

• Gross Profit Margin: Cannot be calculated precisely without a “Cost of Revenue” figure; data isn’t provided in the report.
• Operating Profit Margin: (Operating Income / Revenue) * 100 = (200.02 / 168.45) * 100 ≈ 11.9%
• Net Profit Margin: (Net Income / Revenue) * 100 = (14.01 / 168.45) * 100 ≈ 8.3%
• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100. Requires calculating the average shareholders’ equity. This information is not explicitly provided in the report for a straightforward calculation. The report does however state a ROE of 24.22% from another calculation.
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100. Requires calculating average total assets. This is not directly available for a quick calculation.

Important Note: All figures are approximate and rounded to the nearest tenth of a percent. The absence of a “Cost of Revenue” breakdown prevents a direct Gross Profit Margin calculation. The consolidated ratios are significantly influenced by the Velotio acquisition and should be interpreted cautiously when comparing them to the prior year’s data. Standalone ratios provide a more reliable picture of RSIL’s core business performance. The discrepancies between the figures provided and the ones calculated here can be attributed to the rounding used in the annual report and the use of different averaging methods in the report itself.

Liquidity Ratios #

The annual report provides the necessary data to calculate liquidity ratios. However, remember to distinguish between standalone and consolidated results, and that the consolidated figures are strongly influenced by the Velotio acquisition. The quick ratio and cash ratio calculations require further detail not explicitly provided in the financial statements (e.g., precise values for inventories and prepaid expenses within current assets).

Standalone Financial Statements (RSIL only):

• Current Ratio: (Current Assets / Current Liabilities). Using the values from the standalone balance sheet: (301.20 / 240.32) ≈ 1.25
• Quick Ratio: (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities. Precise figures for inventories and prepaid expenses within current assets aren’t directly provided, making an exact calculation impossible. An approximation would require making assumptions about these values.
• Cash Ratio: (Cash and Cash Equivalents / Current Liabilities). Using the standalone balance sheet data: (19.46 / 240.32) ≈ 0.08

Consolidated Financial Statements (RSIL and all subsidiaries):

• Current Ratio: (Current Assets / Current Liabilities) = (626.18 / 3682.96) ≈ 1.70
• Quick Ratio: (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities. Requires assumptions about the unstated values for inventories and prepaid expenses to approximate.
• Cash Ratio: (Cash and Cash Equivalents / Current Liabilities) = (157.35 / 3682.96) ≈ 0.04

Important Considerations:

• Rounding: The above calculations use rounded figures from the financial statements (to the nearest million). Slight variations might occur with the precise, unrounded data.
• Acquisition Impact: The consolidated ratios are significantly affected by the Velotio acquisition. Direct comparison with the prior year’s consolidated data is less meaningful for assessing organic liquidity trends.
• Quick Ratio and Cash Ratio Limitations: The lack of precise inventory and prepaid expense figures prevents a precise calculation of the quick and cash ratios. Any calculation would need estimations, potentially affecting the accuracy.

The current ratio is a readily calculated and commonly understood metric; the standalone ratio suggests moderate liquidity, while the consolidated ratio indicates greater liquidity. However, for a more comprehensive understanding of RSIL’s core liquidity position, the standalone figures are more informative. The impact of the acquisition on the consolidated balance sheet makes interpreting liquidity changes complex.

Efficiency Ratios #

RSIL is a service company, not a manufacturer, so its inventory is negligible or nonexistent. Therefore, the inventory turnover ratio is not applicable. The other efficiency ratios require data not explicitly provided in a readily usable format (average values for assets and receivables need to be calculated from beginning and end-of-year balance sheet figures).

Standalone Financial Statements (RSIL only):

• Asset Turnover: (Revenue / Average Total Assets). To calculate this precisely, we need the total assets at the beginning of the fiscal year (not provided directly but can be inferred from the statement of changes in equity), and the ending total assets. An accurate calculation requires these values. The report provides a net capital turnover ratio that gives a somewhat related metric.
• Inventory Turnover: Not applicable (RSIL is a service company).
• Receivables Turnover: (Revenue / Average Accounts Receivable). Requires the accounts receivable balance at the beginning of the year (not explicitly stated) to calculate precisely. The report provides a receivables turnover ratio in days (55 days)

Consolidated Financial Statements (RSIL and all subsidiaries):

• Asset Turnover: (Revenue / Average Total Assets). Similar to the standalone case, we need the beginning-of-year total assets to calculate this precisely; it is not readily available. A related metric is provided, the net capital turnover ratio.
• Inventory Turnover: Not applicable (RSIL is a service company).
• Receivables Turnover: (Revenue / Average Accounts Receivable). The calculation requires the beginning-of-year accounts receivable balance (not given explicitly). The report does provide this ratio in days for the consolidated statements (55 days).

Important Note:

• Data Limitations: The annual report does not provide all the necessary data in a directly usable format for precise calculations of asset turnover and receivables turnover ratios. We would need the beginning-of-year balance sheet data for assets and accounts receivable to perform accurate computations.
• Averaging Methods: Different averaging methods (simple average vs. weighted average) can lead to slightly different results. The report doesn’t specify the method used.
• Acquisition Impact: Consolidated ratios are significantly influenced by the Velotio acquisition, making year-over-year comparisons challenging for assessing organic efficiency.

While the precise values for asset turnover and receivables turnover cannot be directly calculated from the provided data, the report offers related ratios (net capital turnover and receivables turnover in days). These offer a general sense of the company’s efficiency. Again, for a more accurate view of RSIL’s organic efficiency, it’s best to focus on the standalone figures once the missing data is obtained.

Leverage Ratios #

The annual report provides data to calculate leverage ratios. However, remember to distinguish between standalone and consolidated results. The consolidated figures are heavily influenced by the Velotio acquisition, potentially skewing the year-over-year comparisons. Also, note that the precise calculation may vary slightly depending on which specific debt and equity figures are used (e.g., whether to include or exclude current maturities of long-term debt).

Standalone Financial Statements (RSIL only):

• Debt-to-Equity Ratio: (Total Debt / Shareholders’ Equity). Using the rounded figures from the balance sheet: (571.48 + 16.94) / 4827.65 ≈ 0.12 (or 12%). This calculation uses the total lease liabilities and long-term debt. Note that the calculation in the report itself is slightly different.
• Debt-to-Assets Ratio: (Total Debt / Total Assets) = (571.48 + 16.94) / 8060.68 ≈ 0.07 (or 7%). Again, this uses total lease liabilities and long-term debt.
• Interest Coverage Ratio: (Earnings Before Interest and Taxes (EBIT) / Interest Expense). To calculate this precisely, we need the EBIT value. The standalone statement of profit and loss shows Profit Before Tax (PBT) but doesn’t directly present EBIT. It can be approximated, but any calculation is subject to that approximation.

Consolidated Financial Statements (RSIL and all subsidiaries):

• Debt-to-Equity Ratio: (Total Debt / Shareholders’ Equity) = (732.59 + 16.94) / 6114.37 ≈ 0.12 (or 12%). This uses total lease liabilities and long-term debt.
• Debt-to-Assets Ratio: (Total Debt / Total Assets) = (732.59 + 16.94) / 13146.42 ≈ 0.06 (or 6%). This calculation uses the total lease liabilities and long-term debt.
• Interest Coverage Ratio: (EBIT / Interest Expense). The consolidated statement of profit and loss doesn’t directly provide EBIT, requiring approximation for calculation.

Important Considerations:

• Rounding: The calculations above utilize rounded values from the financial statements, resulting in minor potential inaccuracies.
• Debt Inclusions: Different approaches to including current maturities of long-term debt in the total debt figure can affect the results. The report does not specify the method used consistently.
• EBIT Approximation: Estimating EBIT (Earnings Before Interest and Taxes) from the provided data introduces uncertainty into the Interest Coverage Ratio calculation.
• Acquisition Impact: The consolidated leverage ratios are significantly influenced by the Velotio acquisition, making direct comparisons with the prior year less insightful for assessing organic leverage changes.

The standalone leverage ratios suggest a relatively low level of debt. While the consolidated ratios are also low, interpreting changes in these ratios needs caution due to the acquisition. Analyzing standalone data yields a more focused assessment of RSIL’s fundamental leverage position without the acquisition’s effects. Further, a precise Interest Coverage Ratio would require a clarified EBIT value from the report.

Market Analysis #

Market Metrics #

The provided annual report does not contain information on market capitalization, P/E ratio, P/B ratio, dividend yield, or dividend payout ratio. These are market-based metrics that require stock price data and total outstanding shares, which are not included in the report itself. To calculate these, you would need to obtain the current market price of RSIL’s stock from a financial website (like Google Finance, Yahoo Finance, or Bloomberg) and use the number of outstanding shares reported in the annual report.

Here’s how these metrics are calculated:

• Market Capitalization (Market Cap): Current Market Price per Share * Number of Outstanding Shares
• Price-to-Earnings Ratio (P/E Ratio): Current Market Price per Share / Earnings Per Share (EPS)
• Price-to-Book Ratio (P/B Ratio): Current Market Price per Share / Book Value per Share (Book Value of Equity / Number of Outstanding Shares)
• Dividend Yield: (Annual Dividend per Share / Current Market Price per Share) * 100
• Dividend Payout Ratio: (Dividends Paid / Net Income) * 100

You can find the necessary data (number of outstanding shares and most recent share price) from reputable financial data providers to calculate these market-based metrics. The annual report itself only gives the declared dividend, not the market-implied ratios.

Business Analysis #

Segment Analysis #

The RSIL annual report provides some, but not all, of the information requested. Specifically, market share data is not included. Additionally, while revenue figures are given for business segments, the precise calculation of operating margins for each individual segment would require information not provided directly (e.g., a breakdown of operating expenses by segment). Also, note that the revenue figures for FY2023 are heavily influenced by the Velotio acquisition in July 2023.

Based on the information available in the report:

Business Segments (Consolidated):

Revenue Growth Rates and Operating Margins: Precise revenue growth rates for each segment are not explicitly provided. To calculate operating margins for each segment, a detailed breakdown of operating expenses by segment is needed, which is not offered in the annual report.

Geographic Presence: The report mentions that RSIL has a global presence with operations in North America, Europe, and Asia. However, a precise country-by-country breakdown isn’t provided for each segment. The revenue by geography is provided but not specifically broken down by segment in the annual report.

Market Share: The annual report does not contain data on market share for RSIL’s various business segments.

Important Note: The revenue figures are approximate, rounded to the nearest million US dollars from the consolidated figures. Growth rates and operating margins are estimates requiring further information from the annual report for accurate calculation. The significant impact of the Velotio acquisition makes comparing FY2023 numbers to FY2022 numbers less useful in assessing organic growth for many of these segments. The information for the Public Services and Retail segments are grouped with other services and hence detailed reporting has not been done. Therefore, more granular information would be needed for a comprehensive segment analysis.

Risk Management #

Risk Assessment #

The RSIL annual report outlines several key risk factors, but it doesn’t explicitly categorize them or provide numerical assessments of impact severity and likelihood (e.g., using a risk matrix). We can, however, categorize the risks based on their nature and analyze the described mitigation strategies. It is also important to consider that the report’s analysis was conducted prior to recent global economic and geopolitical events.

Categorized Key Risk Factors:

I. Financial Risks:

• Customer Concentration: Reliance on a small number of major clients.

  • Description: A significant portion of revenue comes from a limited number of customers. Loss of one or more major clients could severely impact revenue and profitability.
  • Impact Severity: High (potential for significant revenue loss)
  • Likelihood: Moderate (depends on client stability and RSIL’s ability to diversify)
  • Mitigation: Diversifying the client base, strengthening relationships with existing clients.
  • Trend: Likely to remain a concern unless RSIL successfully diversifies.

• Credit Risk: Risk of non-payment from clients.

  • Description: Delayed or non-payment by clients could negatively impact cash flow and profitability.
  • Impact Severity: Moderate to High (depends on the amount and concentration of receivables at risk)
  • Likelihood: Moderate (depends on client financial health and economic conditions)
  • Mitigation: Stronger credit policies, improved collection procedures.
  • Trend: Potentially increasing given economic uncertainties.

• Foreign Currency Fluctuations: Exposure to exchange rate variations.

  • Description: Fluctuations in exchange rates (primarily USD/INR) impact profitability, as a large portion of revenue is in USD while expenses are in INR.
  • Impact Severity: Moderate to High (depending on the magnitude of exchange rate swings)
  • Likelihood: High (exchange rates are inherently volatile).
  • Mitigation: Hedging strategies (forward contracts), diversifying revenue streams geographically.
  • Trend: Likely to remain a significant risk given global market dynamics.

• Interest Rate Risk: Exposure to changes in interest rates on debt.

  • Description: Changes in interest rates impact borrowing costs.
  • Impact Severity: Moderate (depends on the level of debt and interest rate sensitivity).
  • Likelihood: Moderate (depends on monetary policy and market conditions).
  • Mitigation: Managing debt levels, potentially shifting to fixed-rate financing.
  • Trend: Will depend on future monetary policy decisions.

II. Operational Risks:

• Technological Obsolescence: Rapid changes in technology require continuous adaptation.

  • Description: Failure to keep pace with technological advancements could lead to decreased competitiveness and reduced demand for services.
  • Impact Severity: High (potential for loss of market share)
  • Likelihood: High (technology is constantly evolving)
  • Mitigation: Continuous investment in R&D, training, and strategic partnerships.
  • Trend: Will remain a persistent challenge.

• Talent Acquisition and Retention: Difficulty in hiring and retaining skilled professionals.

  • Description: Competition for skilled IT professionals could lead to increased costs and higher attrition rates.
  • Impact Severity: High (impacts project delivery, costs, and overall performance)
  • Likelihood: High (competitive labor market).
  • Mitigation: Competitive compensation, employee development programs, and a strong company culture.
  • Trend: Likely to persist, requiring ongoing efforts.

• Execution Risk: Failure to meet project deadlines and quality standards.

  • Description: Inability to deliver projects on time and to the required quality could harm client relationships and reputation.
  • Impact Severity: High (potential for financial losses and reputational damage).
  • Likelihood: Moderate (depends on project management capabilities).
  • Mitigation: Robust project management processes, quality control measures.
  • Trend: Requires ongoing process improvements and monitoring.

• Contractual Risk: Potential for contract disputes and breaches.

  • Description: Disputes with clients or vendors over contract terms could lead to financial losses and legal costs.
  • Impact Severity: Moderate to High (depends on the nature and size of the dispute).
  • Likelihood: Moderate (depends on contract clarity and relationship management).
  • Mitigation: Thorough contract review and negotiation, proactive dispute resolution.
  • Trend: Will remain a consistent concern.

III. Strategic Risks:

• Customer Concentration: Already discussed under Financial Risks.

• Geographical Concentration: High revenue concentration in a few geographic regions.

  • Description: Dependence on specific regions (e.g., North America) increases vulnerability to regional economic downturns.
  • Impact Severity: High (potential for major revenue loss)
  • Likelihood: Moderate (depends on global economic conditions).
  • Mitigation: Geographic diversification strategies.
  • Trend: Requires ongoing efforts to expand into new markets.

• Acquisitions: Challenges integrating acquired companies.

  • Description: Difficulties in integrating acquired companies’ operations, technology, and personnel could disrupt the business.
  • Impact Severity: High (potential for financial losses and operational disruptions)
  • Likelihood: Moderate (depends on due diligence and integration planning).
  • Mitigation: Thorough due diligence, well-defined integration plans.
  • Trend: Will remain a risk with any future acquisitions.

• Political and Regulatory Risks: Changes in government policies and regulations.

  • Description: Shifts in government regulations, particularly immigration policies (especially in the US), could impact operations and profitability.
  • Impact Severity: High (potential for significant operational disruptions).
  • Likelihood: Moderate (depends on policy changes).
  • Mitigation: Monitoring regulatory changes, adapting business strategies.
  • Trend: Requires continuous monitoring and adaptation.

IV. Other Risks:

• Disaster Prevention and Recovery: Vulnerability to natural disasters and cyberattacks.
• Intellectual Property Rights: Protecting the company’s and clients’ intellectual property.
• Information Security Management: Maintaining data confidentiality and integrity.
• Directors’ and Officers’ Liability Risks: Potential lawsuits against the company’s leadership.

Overall: RSIL identifies a range of significant risks, many of which are common to the IT services industry. The company outlines mitigation strategies, but the lack of quantified risk assessment (likelihood and severity) makes a comprehensive evaluation difficult. The report should be viewed as a snapshot in time, and the ongoing evolution of the global landscape may impact the relevance and severity of these risks over time.

Strategic Overview #

Management Assessment #

RSIL’s management highlights several key strategies, competitive advantages, market conditions, challenges, and opportunities in the annual report. Here’s a summary:

I. Key Strategies:

• Focus on Digital Product Engineering: The core strategy centers around providing next-generation digital product engineering services and enterprise IT solutions, leveraging technologies like cloud, AI, ML, and automation.
• Industry Specialization: Concentrating on key verticals (ISVs, Healthcare, Manufacturing & Logistics, TME, BFSI, and Public Services) allows for deeper domain expertise and tailored solutions.
• Global Delivery Capability: Utilizing a network of global development centers to serve clients worldwide and offer flexible service delivery models.
• Strategic Acquisitions: Growing the business through acquisitions of companies with complementary capabilities (like Velotio).
• Customer-Centric Approach: Prioritizing client satisfaction and building long-term relationships.
• Investment in Emerging Technologies: Continuously investing in R&D to stay ahead of the curve in technologies like Generative AI.

II. Competitive Advantages:

• Digital Competencies: Strong expertise in cloud, AI/ML, automation, and data analytics.
• Industry Expertise: Deep domain knowledge in target verticals.
• Global Delivery Model: Flexible and cost-effective delivery capabilities.
• Long-Term Customer Relationships: Established relationships with marquee clients.
• Quality Certifications: CMMI Level 5, PCMM Level 5, ISO 9001:2015, and ISO 27001:2013 certifications.
• Strong Balance Sheet: Sufficient financial resources to support growth and investments.

III. Market Conditions:

• Uncertain Economic Landscape: Cautious spending by businesses amidst economic uncertainty.
• Robust IT Market Growth: The overall IT market continues to experience growth driven by digital transformation, cybersecurity, and AI.
• Generative AI Revolution: The emergence of Generative AI presents both significant disruptions and opportunities.
• Increased Demand for Digital Transformation: Businesses are accelerating their digital transformation journeys to improve efficiency and competitiveness.

IV. Challenges:

• Competition: Intense competition from other IT services companies globally.
• Talent Acquisition and Retention: Attracting and retaining skilled professionals in a competitive job market.
• Economic Slowdown: Potential impact on client spending and project budgets.
• Geopolitical Uncertainty: Potential for disruptions caused by global instability.
• Integrating Acquisitions: Successfully integrating acquired companies like Velotio.
• Managing Customer Concentration: Reducing reliance on a limited number of large clients.
• Technological Obsolescence: Keeping up with rapid technological advancements.

V. Opportunities:

• Growth in Digital Transformation Services: Meeting increased demand for digital solutions across various industries.
• Leveraging AI and ML: Integrating AI and ML capabilities into existing and new offerings.
• Expansion into New Markets: Growing presence in emerging markets.
• Providing Cloud Services: Capitalizing on the increasing adoption of cloud computing.
• Navigating the Generative AI Revolution: Developing and offering Gen AI solutions to clients.
• Strategic Partnerships: Collaborating with technology providers to expand service offerings.

In summary: RSIL’s management sees a positive outlook for the IT industry but recognizes several significant challenges. Their strategies focus on specialization, technological leadership, global reach, and strategic acquisitions to navigate these challenges and capitalize on the growth opportunities in the digital transformation space, particularly within the Generative AI domain. However, the success of these strategies hinges on effectively mitigating identified risks, particularly those related to customer and geographic concentration, talent acquisition, and integration of acquisitions.

ESG Ratings #

The provided annual report does not include ESG ratings from any external rating agencies. While the report details RSIL’s ESG initiatives, it does not present any scores or ratings from organizations like MSCI, Sustainalytics, Refinitiv, or others that provide such assessments. To find ESG ratings for R Systems International Limited, you would need to consult these independent rating agencies directly or use a financial data platform that aggregates ESG data.

ESG Initiatives #

RSIL’s annual report details various environmental, social, and governance (ESG) initiatives. However, it’s important to note that the report provides qualitative descriptions rather than comprehensive, quantified data for many of these areas. Specific sustainability goals and targets aren’t explicitly stated with measurable metrics and timelines.

I. Environmental Initiatives:

• Energy Conservation: The company is actively trying to conserve energy through initiatives such as:
  • Switching to energy-efficient LED lighting and power-saving equipment across its facilities.
  • Using energy-efficient compressors for air conditioning systems.
  • Transitioning from diesel generators to dual-fuel generators at one location.
• Water Conservation: At its Noida office, RSIL repurposes water from its reverse osmosis (RO) system for gardening and toilet flushes. It plans to monitor water discharge at company-owned premises in the future.
• Waste Management: The company has an E-waste management policy aligned with ISO 27001:2013 standards. It also reports on the amount of various types of waste generated (plastic, e-waste, used oil, etc.) and the amount disposed of via landfills. The company aims to enhance its waste management practices continuously.
• Afforestation: RSIL collaborates with Green Yatra for afforestation projects involving planting local native saplings.

II. Carbon Footprint:

The report provides data on greenhouse gas (GHG) emissions for Scope 1 and Scope 2, and makes an estimate for Scope 3 emissions for FY2023. However, this data isn’t compared to a prior year, making it difficult to gauge progress. The data provided is an estimate and no specific goals are stated.

III. Social Initiatives:

RSIL’s social initiatives are largely channeled through its Corporate Social Responsibility (CSR) programs, which focus on:

• Education: Supporting educational opportunities for underprivileged children and youth.
• Women’s Empowerment: Providing skill-building programs for women through initiatives such as sewing schools.
• Sports: Collaborating with sports academies to support young athletes, particularly girls.
• Community Welfare: Supporting organizations that aid orphans, children with special needs, and other vulnerable groups.

IV. Governance Practices:

The report highlights a number of governance practices, including:

• Board Composition: A diverse board with a mix of executive, non-executive, and independent directors, including a woman chairperson.
• Board Committees: Several committees (Audit, Nomination & Remuneration, Stakeholders’ Relationship, CSR, and Risk Management) oversee different aspects of the business.
• Code of Conduct: A formal code of conduct outlines ethical guidelines for directors and employees.
• Risk Management: A comprehensive risk management framework is in place for identifying, assessing, and mitigating various business risks.
• Compliance: Adherence to relevant laws, regulations, and industry best practices (including quality certifications).
• Whistleblower Policy: A mechanism for reporting ethical concerns and potential misconduct.
• Transparency: Providing detailed disclosures in the annual report.

V. Sustainability Goals:

The annual report does not explicitly define specific, measurable, achievable, relevant, and time-bound (SMART) sustainability goals. While the company mentions its commitment to sustainability and responsible business practices, it lacks numerical targets and timelines for its environmental and social initiatives. The collaboration with IIT Delhi on AI for sustainable systems suggests a long-term commitment to responsible technological innovation, but concrete goals within this area remain undefined.

Overall: RSIL’s annual report provides a good overview of its ESG initiatives, particularly in areas like social responsibility. However, the lack of quantified data and clearly defined, measurable sustainability goals limits a thorough assessment of its overall ESG performance and progress toward specific targets. More comprehensive reporting with key performance indicators (KPIs) and targets would greatly improve the transparency and evaluation of RSIL’s sustainability efforts.

Additional Information #

Operational Metrics #

The RSIL annual report provides some information on employee count but does not disclose its R&D expenditure as a separate line item in the financial statements. This is a notable omission, as R&D investment is a key indicator for a technology company like RSIL.

Employee Count:

As of December 31, 2023, RSIL had a total of 4,191 employees, including 548 sales and support personnel (this is from the consolidated figures). The report also provides a breakdown of permanent vs. non-permanent employees.

R&D Expenditure:

The report does not specify the amount spent on research and development (R&D) activities. This is a significant absence, making it difficult to assess RSIL’s commitment to innovation and technological advancement. The report mentions investments in R&D and innovation labs exploring cloud technologies, AI, and customer experience but doesn’t provide any monetary figures.

To obtain R&D expenditure data, you may need to consult other sources, such as:

• Future Annual Reports: RSIL might provide more detailed financial information in subsequent annual reports.
• Financial News and Analysis: Financial news articles or analyst reports may include estimates of R&D spending.
• Company Website: Sometimes companies disclose further financial information on their investor relations websites.

The lack of R&D expenditure data in the current annual report is a considerable limitation for comprehensively evaluating RSIL’s commitment to innovation.

Key Events #

The RSIL annual report highlights several significant events during the fiscal year 2023:

• Strategic Investment from Blackstone: The report mentions a strategic partnership with Blackstone, but details about the investment’s size or terms aren’t provided in the main text. It does however, state the acquisition of 51.93% of the company’s shareholding.
• Acquisition of Velotio Technologies: The most significant event was the acquisition of Velotio Technologies Private Limited in July 2023. This acquisition substantially increased RSIL’s size and capabilities in cloud, DevOps, data engineering, and other areas. Details on the purchase price (INR 2,693.74 million) and the integration process are described in the report.
• Acquisition of Scaleworx Technologies: Velotio, a subsidiary acquired during the year, acquired the remaining 60% stake in Scaleworx Technologies Private Limited on December 1, 2023, making it a wholly-owned subsidiary of Velotio and thus, a step-down subsidiary of RSIL.
• Dissolution of IBIZ Consultancy Services India: IBIZ Consultancy Services India Private Limited, a wholly-owned subsidiary, was dissolved during the year.
• Striking off of IBIZ Consulting Services Pte. Ltd.: This subsidiary, based in Singapore, was struck off the register of companies subsequent to the year-end.
• R Systems International Limited Management Incentive Plan 2023: Shareholders approved this plan to grant employee stock options and restricted stock units.
• Recognition as one of Dun & Bradstreet’s Top 500 Value Creators in India for 2023: This award highlights the company’s financial performance and value creation.
• Great Place to Work® Certification: The company received this certification across 10 countries, reflecting its commitment to employee well-being and a positive work environment.
• Establishment of a joint center for research and innovation in applied AI and Gen AI with IIT-Delhi: This collaboration underscores the company’s focus on technological innovation in the AI space.

These events significantly shaped RSIL’s operations and financial performance during FY2023. The Velotio acquisition, in particular, was transformative, influencing the consolidated financial results and creating both opportunities and challenges for the company.

Audit Information #

Auditor’s Opinion:

The independent auditor, Deloitte Haskins & Sells LLP, issued an unmodified (clean) opinion on both the standalone and consolidated financial statements of R Systems International Limited for the year ended December 31, 2023. This means the auditors found the financial statements to be presented fairly, in accordance with Indian Accounting Standards (Ind AS) and other generally accepted accounting principles in India. There were no material misstatements or significant qualifications in their opinion.

Key Accounting Policies:

The annual report details numerous accounting policies, but the key ones can be summarized as follows:

• Basis of Preparation: The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS) and follow the historical cost convention, except for certain financial instruments and employee benefits which are measured at fair value. The Indian Rupee (INR) is the functional and presentation currency.
• Property, Plant, and Equipment (PPE): PPE is recorded at cost less accumulated depreciation and impairment. Depreciation is calculated using the straight-line method over estimated useful lives.
• Intangible Assets: Acquired separately, intangible assets are recorded at cost less accumulated amortization and impairment. Amortization is also straight-line over estimated useful lives.
• Investment Property: Measured at cost, following the requirements of Ind AS 16.
• Financial Instruments: Initially measured at fair value. Subsequent measurement depends on the classification (amortized cost, fair value through other comprehensive income (FVTOCI), or fair value through profit or loss (FVTPL)). The effective interest method is used for debt instruments.
• Investment in Subsidiaries: Measured at cost.
• Impairment: The expected credit loss (ECL) model is used for financial assets. Non-financial assets are reviewed for impairment annually or when there are indications of impairment.
• Derivative Financial Instruments: Initially recognized at fair value. The gain or loss is recognized immediately in profit or loss unless the derivative is designated as a hedging instrument.
• Borrowing Costs: Directly attributable borrowing costs for qualifying assets are capitalized; others are expensed.
• Leases: Right-of-use assets and lease liabilities are recognized for most leases. Short-term and low-value leases are exempted.
• Revenue Recognition: Ind AS 115, “Revenue from Contracts with Customers,” is applied. Revenue is recognized when performance obligations are satisfied. The percentage-of-completion method is used for long-term fixed-price contracts, while time-and-material contracts recognize revenue as services are performed.
• Other Income: Includes interest, dividends, foreign exchange gains/losses, rental income, and gains on investments.
• Employee Benefits: Includes defined contribution and defined benefit plans. Actuarial valuations are used for defined benefit plans.
• Income Taxes: Includes current and deferred tax. Deferred tax reflects the impact of temporary differences between the tax bases of assets and liabilities and their carrying amounts.
• Segment Reporting: Segments are determined based on information provided to the Chief Operating Decision Maker.
• Business Combinations: Accounted for using the acquisition method.

These are the key accounting policies; the annual report provides much more detail on each policy and its application. The auditors’ unmodified opinion indicates that they found the application of these policies to be appropriate and compliant with Ind AS.