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Blue Star Infotech Ltd. - (Amalgamated) is not traded on NSE in the last 5 days
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Blue Star Infotech Ltd. - (Amalgamated) is not traded on BSE in the last 5 days

Letter from the Chairman & Managing Director

Dear Shareholder,

As we look back, fiscal 2012 was a mixed year for Indian IT Services. While the overall global economy was sluggish and the benchmark BSE Sensex dropped 8%, the Indian IT–BPO industry grew by 14% to cross the USD 100 billion mark. NASSCOM, the trade association of the Indian IT and BPO industry, estimates that exports grew 16% in 2011 while domestic IT services grew 10%. Across the industry, capacity utilization stood at 78%.

Against this industry performance, your Company recorded a 37% jump in consolidated Income of Rs. 43.03 Crore for the quarter ended March 31, 2012 compared to Rs. 31.38 Crore for the same quarter of 2011. Consolidated Net Profit for the quarter stood at Rs. 1.56 Crore compared to a loss of Rs. 0.07 Crore for the same quarter of last year. Employee utilization increased to 79% for the fourth quarter of fiscal 2012 compared to 72% for the same quarter of fiscal 2011.

For the full year ended March 31, 2012, consolidated sales revenue stood at Rs. 126 Crore, an increase of 5% over Rs. 120 Crore registered for the year ending March 31, 2011, of which domestic income for the full year rose by 23% to Rs. 36.5 Crore, compared to Rs. 29.7 Crore in the previous year. However, consolidated Net Profit for the year fell to Rs. 3.6 Crore, from Rs. 8.4 Crore in fiscal 2011.

Business Environment

The year 2011–12 witnessed many global uncertainties and significant volatility in the IT industry. Many negative factors emerged which dampened the outlook for technology investments. Customers looked beyond cost savings, and expected vendors and partners to help them increase competitiveness and revenue, reduce time–to–market and fuel innovation. The role of technology and that of Technology service providers is thus becoming more and more transformative compared to merely supporting the business, and needs constant realignment to help customers address their evolving expectations.

We have responded by laying out a roadmap for our future which concentrates on the actions we are taking to strengthen our foundation and provide a platform for future growth and value creation. These actions aim to redesign our business model to achieve higher growth in a difficult environment, strengthen the sales and management teams, cater to changing customer demands, create differentiated offerings, and attain greater operational excellence.

Business Model Realignment and Growth

Our multi–pronged approach to increase revenue and profitability primarily revolves around increasing our focus on the U.S. market and increasing our onsite revenue ratio; continued focus on the Product Engineering and Travel & Hospitality sectors; incorporating a partner–led approach to expand our sales reach and solution offerings; focusing on mining our large global accounts; and identifying inorganic opportunities.

We have signed a global services agreement with SAS, the world leader in Business Analytics software, expanding our successful India–centric relationship with them. This, in addition to our global partnership with QlikView, a leader in user–driven Business Intelligence solutions, enables us to provide a comprehensive range of BI/Analytics solutions to our customers worldwide.

We entered into a strategic business relationship with a Travel & Hospitality industry veteran in the US for strengthening our sales in this key vertical. We have also tied up with a US–based consulting firm specialising in pricing optimisation and revenue management for the travel industry, for jointly offering analytics solutions and services to this sector. Our inorganic focus, wherein we explored a number of acquisition and partnership opportunities, has resulted in the formation of a joint venture, Blue7 Solutions LLC, in partnership with one of our long–standing Travel & Hospitality product customers, Trisept Technologies LLC. The JV will deliver a committed business of $12 million over a period of 3 years. In addition, the JV will also receive a number of benefits and subsidies from the State of Wisconsin.

On the delivery front, we have added a near–shore center in Milwaukee in the USA. This strengthens our capabilities on both Product Engineering as well as Travel & Hospitality, increases our ability to service US customers, and also allows us to provide an Integrated Global Delivery model incorporating an onsite/nearshore/offshore mix.

Infusing Leadership and Talent

Through the year, we inducted highly talented individuals in senior leadership positions. Ramkumar A, with prior experience at Accenture and Infosys, was appointed COO of our Company. Douglas G, our Chief Solutions Officer, has worked as CTO/Engineering Head at leading companies such as Sabre Airline Solutions and BMC Software, and will be leading our overall customer solutions strategy.

Our US sales organization was strengthened with the infusion of senior industry experts for Product Engineering and for Business Intelligence & Analytics.

We also inducted Keyuri S to take charge of our employee practices, and ensure that we have an environment that maximises employee productivity and engagement. She comes with rich experience in creating similar environments at several multinational companies.

Differentiated Offerings

From a pure service–centric model, we are thus transforming into a solution–led company incorporating a product–service mix and providing a range of delivery options that enables us to better differentiate ourselves.

During the year, we launched a number of solutions and accelerators. These include Business Intelligence solutions and tools built on SAS and QlikView for the Pharma, Manufacturing, Travel & Hospitality, and Utilities industries; online booking engine and supplier connectivity frameworks for Travel & Hospitality; ERP for HR–intensive organisations on the Microsoft Dynamics AX product; mobility solutions for the Apple iOS and Google Android platforms; and barcoding solutions for inventory and warehouse management.

We also launched an Independent Testing practice under the leadership of an experienced industry expert, who earlier had set up Testing and Validation Centres of Excellence for Infosys and Cognizant, and has a number of patents filed for model–based testing solutions.

Operational Excellence

Our goal here has been to reduce our operational overheads and generate further efficiencies. We have made significant progress on this front by rationalising the delivery team pyramid, optimising the support and mid–management layers, and increasing our working hours per month from 168 hours to 189 hours. Our utilisation went up by 7% and overall headcount reduced by 1% from previous year. Revenue per employee increased by 5%.

Our pyramid structure was made flatter with an increased thrust on the induction of fresh engineers and shrinkage of middle levels. Our efforts in increasing billability, creating solutions assets, and improving our bench profile also enabled us to make optimal use of our bench staff through the year.

In Conclusion

Our fourth quarter results indicate a positive trend. We remain cautiously optimistic for this new year. However, we do recognise that the business environment in 2012–13 will continue to pose challenges. Pricing pressures and higher taxes will create new pressures on our margins. This is corroborated by muted projections by industry experts NASSCOM has reduced its projection to around 11–14% sector growth for FY13. Gartner estimates only 3.1% growth in IT services for 2012. Our operational efficiency measures coupled with our solutioning–driven services will help provide a buffer.

It will be our endeavor to grow the revenue and beat the sector forecast while protecting the interests of our stakeholders – customers, shareholders and employees at all times. We thank you for your continued support.

Sincerely,

Suneel M Advani Chairman & Managing Director

Sunil Bhatia CEO & Managing Director

Place : Mumbai

Date : 3 May 2012

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