financial risk management of it companies

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[Financial Risk Management]

A Report

Of

Financial Risk Management

Submitted by:

Harsh C. Desai

08BS0001144

[By: Harsh Desai] Page 1


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A Report

Of

Financial Risk Management

Submitted by:

Harsh C. Desai

08BS0001144

Submitted to:

submitted to:Mr. Rajesh Narang Prof.

Padma Srinivasan



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Head-Legal& Co. Secretary

Faculty



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ACKNOWLEDGEMENT:

I feel a deep sense of gratitude in thanking all those who helped me to carry out the

internship to its eventual fruition.

I would like to take this opportunity to extend my sincere gratitude to Mr.Rajesh

Narang, Aztecsoftware, Bangalore, for providing me with an opportunity to

conduct a project study in his esteemed organization.

I would like to express my most sincere gratitude to my Faculty Guide Prof.

Padma Srinivisan, Faculty, IBS-Bangalore for the constant guidance,

encouragement and motivation she extended for the project study.

I also extend my gratitude to my parents, well-wishers and all those who have helped

me in some way or the other in the completion of this project.

Harsh C. Desai

08BS0001144



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DECLARATION

I declare that the project entitled FINACIAL RISK MANAGEMNT conducted at

AZTECSOFTWARE is a record of independent analysis work carried out by me during the

academic year 2008-10 under the guidance of my faculty guide Prof. Padma Srinivasan of

ICFAI Business School, Bangalore, and my project guide Mr. Rajesh S. Narang, Aztechsoft Pvt

Ltd.

I also declare that this project is the result of my effort and has not been submitted to any other

University or Institution for the award of any degree, or personal favor whatsoever. All the

details and analysis provided in the report hold true to the best of my knowledge.

Place: Bangalore HARSH C. DESAI

Date: 14th May, 2009 08BS0001144

IBS, BANGALORE



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Table of ContentsACKNOWLEDGEMENT:.................................................................................................3

DECLARATION.............................................................................................................4

Summary.......................................................................................................................7

Introduction:..................................................................................................... ..........8

Brief idea of the sector:..................................................................................................8

Analysis of Research Papers:............................................................................................10

Paper 1: Financial Risk Management in volatile global market................................................10

Paper 2: Place of Risk Management in financial institutions...................................................11

Paper 3: Enterprise Risk Management..............................................................................14

Paper 4: Risk Management Challenges in Rural Financial Market -- Blending Risk Management

Innovation with Rural Finance.......................................................................................17

Paper 5: Corporation Risk Management............................................................................18

Paper 6: Risk in Financial Reporting................................................................................20

Paper 7: Risk Management in Agriculture Sector of U.S........................................................22

Paper 8: OECD Tax Intermediaries Study..........................................................................25

Risk Management.......................................................................................................25

Paper 9: Risk management in the age of structured products: Lessons learned for improving risk

intelligence...............................................................................................................27

Paper 10: The Big and The Small....................................................................................30

Quarterly Analysis of TCS:...........................................................................................33

Q4 2006-07.......................................................................................................... .....33

Q1 2007-08.......................................................................................................... .....34

Analysis of Q2 2008:...................................................................................................36

Analysis of Q3 2007-08...............................................................................................38

Analysis of Quarter 4 2007-08.......................................................................................39

Analysis of the Q1 of 2008-09.......................................................................................41

Analysis of Quarter 2 of FY 2008-09...............................................................................43

Analysis of Q3 2008-09...............................................................................................45

Quarterly analysis of Patni Computers:................................................................................47

Analysis of Q1 (Jan-March)..........................................................................................47

Analysis of Q2 2007 (April-June)...................................................................................48



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Analysis of Q3 2007(July-September)..............................................................................50

Analysis of Q4 2007 (October-November)........................................................................52

Analysis of Q1 2008 (Jan-March)...................................................................................53

Analysis of Q2 2008 (April-June)...................................................................................55

Analysis of Q3 2008 (July-Sep)......................................................................................56

Analysis of Q4 2008 (Oct-Dec)......................................................................................58

Quarterly Analysis of Wipro:............................................................................................60

Analysis of Q4 FY 2007:..............................................................................................60

Analysis of Q1 FY 2008...............................................................................................61

Analysis of Q2 FY 08..................................................................................................62

Analysis of Q3 of FY 2008............................................................................................63

Analysis of Q4 FY 2008...............................................................................................64

Analysis of Q1 FY 2009...............................................................................................65

Analysis of Q2 FY 2009...............................................................................................66

Analysis of Q3 of FY 2008-09.......................................................................................67

Quarterly Analysis of Infosys:...........................................................................................68

Quarterly Analysis of Satyam............................................................................................70

Quarterly Analysis of Sasken............................................................................................72

Conclusion:............................................................................................................ ......74

Merger and acquisition:...................................................................................................76

Merger of Kale and Cognosys:.......................................................................................76

Merger of Ford and Jaguar:...........................................................................................78

References:..................................................................................................................80



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Summary

In this report analysis of 10 research papers on risk management has

been done to get an idea about the different kind of risks faced by the

various companies and the different ways they took to mitigate the risk.

In this report analysis of eight quarters of the companies has also been

done. Analysis has been done on the basis of revenue, cost of revenue,

gross profit, selling marketing and administrative expenses, operating

income, profit before tax, profit after tax and net income.

In this analysis changes in factor on quarter on quarter basis and year on

year basis has been shown and all the factors are also compared with

revenue of the respective quarter. On the basis of this financial risk

faced by companies has been evaluated and the different process and

steps of companies has been shown in this report.

Analysis of two mergers and acquisition is also done in this report, to

see which kind of strategies a company should have used and what

should be avoided.

Thus, this report gives an insight of risk faced by companies at differentpoint of time and ways to mitigate the same.



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Introduction:

Brief idea of the sector:

The Indian software exports have grown in spectacular fashion. Its success has, for the most part,

been a combination of resource endowments, a mixture of benign neglect and active

encouragement from a normally intrusive government, and good timing. The bulk of the Indiansoftware exports have consisted of fairly mundane services such as low level programming and

maintenance. The marked reliance on access to low cost human capital has prompted

considerable skepticism about the ability of the Indian software industry to sustain its

performance, given the rapid growth in the demand for engineers and the relatively inelastic

supply of engineers. This paper reports on the results of research on the Indian software industry.

We use a variety of sources, including a questionnaire survey of Indian software firms, and field

visits and interviews with industry participants, observers, and US based clients. Although,

maintaining the current rate of growth will pose a number of challenges, these challenges are not

insurmountable. Not only can the available pool of human capital be expanded by tapping and

training the very large pool of English-speaking college graduates, the leading Indian firms aremaking strong efforts to move up the value chain by acquiring better software project

management capability and deeper knowledge of business domains, and reducing costs and

improving quality by developing superior methodologies and tools. Moreover, the greatest

impact of the software industry on the Indian economy may well be indirect, in its role as an

exemplar of the new business organizational form and as an inspiration to other entrepreneurs. In

terms of Indian rupees, the compound annual growth rate (CAGR) for Indias software export

revenues over the past five years has, according to NASSCOMs statistics, been as high as 62.3

percent, compared to 46.8 percent of CAGR for its domestic market revenue during the same

period. With lack of significant domestic demand, growth in Indian software industries has been

spurred mainly by the growth in export market demand.



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Analysis of Research Papers:

Paper 1: Financial Risk Management in volatile global

market

Authors: Francis X. Diebold

Anthony M. Santomero

Publisher: Wharton

Summary:

This research paper was written after the global financial crisis of 1997. The crisis was started

from Malaysia and it affected Asian financial market which lead to collapse of Russian and

South Americas market.

As we know that all industries are correlated with each other. The crisis in one industry causes

crisis in whole market. It is also observed that the correlation across market seem to increase

dramatically in crisis.

This crisis was very much exaggerated by press and politicians. The crisis was not sudden to all

over world. If we give close look, Asian market collapse more than 40% in fourth quarter of

1997 while Latin American market collapse by same in early 1998.

The presumed culprit for crisis was Long Term Capital Management. It was said that hedge

funds unleashed a speculative attack on regional currencies and national states. However,

according to data hedge funds were not dealing with pools of capital large enough to effectively

disrupt an entire nation. It was in fact small businessmen and local citizenry caused the crisis

through significant and consistent withdrawals from national currency. In the end lack of

confidence led to currency flight.

Because of this, the state of the financial sector in Malaysia, Thailand, Indonesia, Russia and

Mexico clearly indicated that these financial systems were on verge to collapse.

As almost all the countries are linked with each other through trade. The crisis spread to all the

countries. Higher the trade link between the countries lesser the time for crisis to be spread.



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To deal with such crisis firms should improve their risk management system. Risk exposure must

be identified, measured and managed. To do this risk managers must have the ability to

understand global positions and the exposures inherent in them. This requires sophisticated

computer systems linking global positions and updating exposure. Risk manager should be able

to understand underlying volatility and correlation exhibited in current market data.

However, it is not possible to eliminate risk but through usage of risk management firm is able to

minimize risk and damages through it.

Analysis:

From this research paper we can figure out the importance of the risk management. If firm has

good risk management system than it can minimize the risk. Risk manager should be smart

enough to sense and judge the risk factor from current data.

Currently we are facing kind of same situation in the market. This time also crisis spread across

the countries through trade linkage between countries. From Indias perspective we can say that

the situation was very much exaggerated by press and politicians. Firms can dilute its risk by

diversifying its portfolio. E.g. as per the Barack Obamas statement IT sector is going to lose

business from US companies. So IT companies can create new software which makes US

companies self dependant. And the software should be such that it requires updating every year.

Thus they can maintain their business.

Paper 2: Place of Risk Management in financial institutions

Authors: George S. Oldfield

Anthony M. Santomero

Publisher: Wharton

Purpose: To address two issues

1) To define appropriate role played by institutions in the financial sector

2) Focuses on the role of risk management that use their own balance-sheets to provide

financial products.

Key objective: To explain when risks are better transferred to the purchaser of the asset issued

or created by the financial institution and when the risks of these financial products are best

absorbed by firm itself.

Four distinct rationales for volatility of financial performance:



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Managerial self interest

Tax effect

The cost of financial distress

Capital market imperfection

Risk mitigation approach:

There are three generic types of risk mitigation:

Risk can by eliminated or avoided by simple business process

Risk can be transferred to other participants

Risk can be actively managed as firm level

1) Risk can be eliminated or avoided through understanding standards, hedges or asset-

liability matches, diversification, reinsurance or syndication and due diligence

investigation. Through this firm takes only optimal quantity of particular kind of risk.

2) Risk can be transferred through buying and selling of financial instruments. Firm can sell

assets with risks which has no clear competitive advantage in managing. Firm can

concentrate on risks which has competitive advantage.

3) Firm can act as an agent for others who cannot hedge /trade, it can protect proprietary

knowledge, avoid moral hazards.

Types of financial services:

Origination: it involves locating, evaluating and creating new financial claim issuedby

institutions clients

Distribution: It is the act of raising funds by selling newly originated products to customers.

Servicing: It involves collecting payment due from issuers and paying the collected funds to

claimants.

Packaging: it involves collection of individual financial assets into pools and possibly the

decomposition of the cash flow from such assets again into different types of financial.

Market making: It is an activity involving the buying and selling of identical financial

instruments by a dealer.

Risks involved in providing financial services:

These risks can be majorly classified in five types. They are as follows:



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1) Systematic risk: Systematic risk is the risk of asset value change associated with

systematic factors. As such it can be hedge but cannot diversify completely away. It is

also known as undiversified risk.

2) Credit risk: Credit risk arises from non-performance by a debtor. It may arise from either

an inability or unwillingness to perform pre-committed contract manner.

3) Counterparty risk: Counterparty risk comes from non-performance of trading partner.

The non-performance may arise from counterpartys refusal to perform a task or from

some other political or legal constraint.

4) Operational risk: Operational risk is associated with the problems of accurately

processing settling and taking or making delivery on trade in exchange of cash.

5) Legal risks: New statutes, court opinions and regulations can put formerly well

established transactions into contention even when all parties have previously performed

adequately and are fully able to perform in the future.

All financial institutions face these risks to some extent. Thus, active risk management has a

place in most of the financial firms.

Firms must establish a set of procedures to control risk. For each risk category firm employs a

four step procedure to measure and firm level exposure.

Following are four steps:

Standards and reports Position Limits and Rules

Investment guidelines or strategies

Incentive contracts and compensation

Standard and reports:Firm sets standards of how much risk should firm take and which kind of risk firm can take to

control the risk factor and maximize the profit.

Firm evaluates standards through reports. Reports need not be quarterly or half yearly reports as

the time duration is quite long between these reports. Firm makes internal report on weekly or

daily basis to get exact idea.

Position Limits and Rules:This step is to concentrate on systematic risks. E.g. financial institution sets limits to give loan to

customers based on their credibility to minimize the risk of default.

Investment guidelines:[By: Harsh Desai] Page 14


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Guidelines offer firm level advice as to the appropriate level of active management. Given the

state of the market and the willingness of senior management to absorb risks implied by the

aggregate portfolio.

Incentive schemes:To the extent that management can enter into incentive compatible contracts with line managers

and make compensation related to the risks borne by these individuals, the need for elaborate

and costly control is lessened.

Paper 3: Enterprise Risk Management

Author: Stephen P. DArcy

Definition: According to the Casualty Actuarial Society,

The process by which organizations in all industries asses, control, exploit,

finance and monitor risks from all sources for purpose of increasing the

organizations short and long term value to its stake holders.

A common thread of enterprise risk management is that the overall risks of organization are

managed in aggregate rather than independently.

The initial focus of risk management was on what is now termed as hazard risks. It has its own

terminology and techniques to deal with risks. After a long time financial risks began to beaddressed. Gradually it also developed its own terminology and techniques to deal with financial

risks.

Generally both the managers of respected area report to a common position. The different and

separate approaches to deal with risk created a problem the tolerance for risk applied in each

area could be vastly different between hazard risks and financial risks. These discrepancies

provided the impetus for developing a common terminology and common techniques for dealing

with risks. In addition, this common approach could then be applied to other risks, such as

operational and strategic risks. This common approach to deal with all risks that a firm faces is at

the heart of enterprise risk management.

Initially risk was categorized in two type i.e. pure risks and speculative risks.

Pure risks are those in which there is either loss or no loss. Either something bad happens or it

does not. E.g. owning house, house can be demolished by fire or earthquake or can be infested

by insects. If none of these, or other, unfavorable developments occur, than there is no loss.



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In Speculative risks there is possibility of gain. E.g. investment in stocks may give good returns

if value of stocks goes up or it can give loss if value of stock goes down.

Initially focus was given on hazard risks only. Hazard risks can be avoided by implementing

proper measures which avoid such kind of incident or firm can also take insurance to cover the

risk. The focus was on given on financial risk as the financial market was very much stable at

that point of time. Interest rates were fixed and rates was not fluctuates. Foreign exchange rates

were also stable.

In 1972 major developed countries ended the Bretton Woods agreement which had kept

exchange rates stable for almost three decades. The result of ending the Bretton Woods

agreement was to introduce instability in exchange rates. Also during 1970s oil prices began to

rise because OPEC countries decided to reduce production of oil. This led to volatility in foreign

exchange rates, prices and interest rates. In the result of this financial risks become an important

concern for institutions.

Many companies loose several million dollars due to failure to follow common risk management

practices, such as not having transactions verified by an independent authority, etc.

As the financial risk and hazard risks are different, new concepts and terminologies introduced

for financial risks. One of this concept is VaR i.e. Value-at-Risk. The value of VaR indicates the

loss that the firm would expect to have occurred over selected time interval the selected

percentage of the time.

In hazard risk management, risks are frequently independent of each other. While in financialrisk management, risk is based on the correlation between different financial transactions.

The risks are different, the terminology is different and the measures of risks are different. This

makes the task of coordinating the firms overall exposure to risks more difficult. In addition to

desiring common approach to hazard and financial risks, these decision makers have also

envisioned incorporating other forms of risk, including strategic and operational, in same

approach. It is this vision which that has led to the creation of enterprise risk management.

For enterprise risk management, traditional risk managers have to learn following things:1) They need to learn terminology of finance and financial risk management.

2) They need to learn about VaR.

3) Knowledge of portfolio theory as a method for dealing with correlated risks is also

critical.

4) Simulation and modeling are also important aspect of enterprise risk management.



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Since enterprise risk management involves so many different aspects of an organizations

operations and integrates a wide verity of different types of risks, no one person can have

expertise necessary to handle this entire role. In most of the cases team approach is used, with

the team drawing on the skills and expertise of number of different areas. Team leader needs to

have basic understanding of all the steps involved in the entire process and methodology used by

each area.

The steps for enterprise risk management:

Identify risk on an enterprise basis

Measure it

Formulate strategies and tactics to limit or leverage it

Execute those strategies and tactics Monitor process



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Certain systematic shocks, in particular weather, affect all farmer activities, not only one crop. Insever draught all rural economic portfolios suffer, the herder who has some land, the dentist who

is also wheat farmer.

A survey by World Bank and Indian Coffee Board shows that out of surveyed 500 coffee farmers420 intercrop coffee with pepper and 229 with paddy. All of these crops are subject to monsoonrisk.

The combination of price and weather index into revenue index might be right choice for coffeefarming areas, where the lack of cash income from coffee affects the areas economies.

Such kind of innovative techniques should be used by financial institutions in rural financemarket which is beneficial for both the parties.

Paper 5: Corporation Risk Management

In a corporate setting, the familiar division of risks into market, credit and operational risksbreaks down

Of these, credit risk poses the least challenges. To the extent that corporations take credit risk(some take a lot; others take little), new and traditional techniques of credit risk management areeasily adapted.

Operational risks include model risk or back office error or fraud. Corporations have beenaddressing these risks with internal audit, facility management and legal department.Corporations also face risks that are similar to operational risks nut are unique to their ownbusiness lines. E.g. an airline is exposed to risks due to weather, equipment failure, andterrorism. These kinds of risks are not faced by any other business firms. In corporate riskmanagement these kinds of risks are called as operations risks.

In corporate risk management there are new categories of risks which are as follows:

1) Market risk

2) Business risk3) Credit risk4) Operations risk

Corporations do face some market risks, such as commodity price risk or foreign exchange risk.These are usually dwarfed by business risks. In a nutshell, the challenge of corporate riskmanagement is the management of business risk.

Business risk can be addressed by two forms:



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Those that treat business risks as market risks, so that technique of FRM directly applied. Those that address business risks from book value standpoint, modifying or adapting

techniques of FRM and ALM as appropriate.

Economic value:

The first form technique is called as economic value. In this technique if market value of assetexists, than that market value is economic value of asset and if market value does not exist thanintrinsic value becomes economic value of asset. This is the approach employed with economicvalue added analysis. Standard techniques of financial risk management such as Value-at-Riskare also applied.

This economic approach to managing business risk is applicable if most of a firm's balance sheetcan be marked to market. Economic values then only need to be assigned to a few items in orderfor techniques of FRM to be applied firm wide.

Book value:

The second approach to addressing business risks starts by defining risks that are meaningful inthe context of book value accounting.

Most typical of these are:

Earnings risk: This is risk due to uncertainty of future earnings. Cash flow risks: This is risk due to uncertainty of future cash flows.

Techniques for managing earnings risk and cash flow risk draw heavily on techniques of ALM especially scenario analysis and simulation analysis. They also adapt techniques of FRM. In thisscenario Value-at-Risk becomes Earnings-at-Risk and Cash flow-at-Risk.

Though these two approaches of business risk management seem different but they cancomplement each other.



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Paper 6: Risk in Financial Reporting

Author: Cloudio Borio & Kostas Tsatsaronis

Analysis:

An important component of information system of an economy is financial reporting, throughwhich an enterprise conveys information to external users, often identified with its actual andpotential claimants. It stands to reason, therefore, that financial reporting should provide a good

sense of the impact of risks and uncertainties on measures of valuation, income and cash flows.

Risk and Ideal Information Set:

Company should provide information which gives idea about the financial performance of the

firm and which helps investors to make decisions. The information which required to the

investors can be classified in following categories:

First moment information

Risk information

Measurement error information

First moment information:

This information describes income, the balance-sheet and cash flows at appoint in time. By these

information from result of a part transactions we forecast the future. In historical cost

accounting, much of this information is of a contemporaneous or backward-looking nature.

However, even according to this valuation principle, it would inevitably include forward-looking

elements too, whenever the valuation of an item is based on expectations about the future.

Risk information:

Risk information is fundamentally forward looking. Risk management is designed to capture the

prospective range of outcomes or statically dispersion for the variables interest as measured at a

particular point in time. For estimation, methods like probability distribution, Value-at-Risk or

Cash-flow-at-Risk are used.

Measurement error method:



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This information designates the margin of error or uncertainty that surrounds the measurement of

the variables of interest, including those that quantity risk. This information needs when firm is

forecasting as future cannot be predicted with 100% surety. The margin of error, in turn, can

derive from two sources. There may be intrinsic uncertainty about the measure, arising from

imperfect modeling of the variable what one may call model error.

How does current reporting practice compare with this ideal bench mark?

First moment information:

First moment information comprehensively articulated and codified through accounting

standards. These standards define the various variables of interest and link between them within

quantified framework. This system has gradually grown since the birth of the accounting

profession. This is the type of information with which much of the current efforts to developinternationally accepted financial reporting standards are primarily concerned.

Risk information:

It is of more recent era and has not developed as much. It is only since late 1980s or early 1990s

that firms have started to disclose specific quantitative risk information about aspect of their

financial activities, largely under the prodding of prudential supervisors and central banks.

Measurement error information:

It is even less developed, although, significant improvement have been made or proposed more

recently. Initially firms provide estimation of first moment and risk measure information as if

there is no uncertainty attached to them. Recently firms provide estimated forecast with

underlying assumptions made by the firm. Even firms give comparison of previously forecasted

reports and actual outcome. But it is very unsystematic.

Risk and gap between accounting and economic valuations:

The definition of asset and liabilities may not necessarily include all the cash flows that

the firm considers when making decisions. In fact they are more restrictive.

Even if the asset and liability meets relevant accounting definition, it might not meet the

standards for recognition on the balance-sheet. Failure to recognize internally generated

intangibles is a clear case in a point.

Even the absence of previous two types of wedge between economic and reporting value

a gap may arise from the use of different valuation principles for different items in the

balance sheet.



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Reported earnings follow the rules and principles of accounting. The results do not

always create measures consistent with underlying economics. However, corporate

managements performance is generally measured by accounting income, not

underlying economics. Risk management strategies are therefore directed at accounting

rather than economic performance. This quote from Enrons internal risk management

manual in all probability overstates the primacy of accounting over sound risk

management.

Accounting information must be logical, since otherwise the information provided would be

unnecessary and would in no way provide useful signals to outsiders. And this brings down

companys credibility.

Paper 7: Risk Management in Agriculture Sector of U.S.

Farm Bill 07 Risk Management

Agricultural risks are generally classified into five categories. They are as follows:1) Price risk.2) Production risk.

3) Income risk.4) Financial risk.5) Institutional risk.

Price Risk: Because agricultural prices are mainly determined in global markets, unanticipatedchanges in global demand or supply of a commodity can lead to unexpected changes in theprices received by farmers for their products.

Production Risk: Production risk is usually associated with inability to plant or harvest acreageor changes in crop yields or animal production due to environmental variables such as weather,pests, or disease.

Income Risk: Income risk can be caused by unexpected changes in production or pricesreceived by producers as well as by swings in prices producers pay for inputs such as fuel,fertilizer, or electricity.

Financial Risk: Farm financial cash flows and net worth can be seriously affected by access toand the cost of debt and by the value of capital, which all can be affected by changes in interestrates and other factors, thus creating financial risk.



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Institutional Risk: Federal and State governments can change laws or regulations producerscount on, such as environmental and tax laws or changes in farm commodity programs, creating

institutional risks.Options for managing risk:

Avoid or limit potential risks. Mitigate the effects of unavoidable risks. Enable recovery from the effects of risk events to ensure the continued sustainability of

the farming operation.

Individual producers can manage price, production, income and financial risks by followingways:

Adopting better crop variety.

Adopting other technologies.

Conserving resources.

Altering the financial structure of farm.

Using insurance.

Forward pricing.

Using off farm earnings

Though all the options were not available to individual producers, E.g. if weather condition issuitable for only two types of crops than producer can produce maximum two types of crops in ayear. Farming is not the principal occupations of farmers. There is not a single risk managementstrategy and that will be best suited for every farmer.

Appropriate Level of Risk Reduction for Federal Programs

The Federal government does not try to eliminate risk for most types of businesses becausedoing so would result in overinvestment in risky behavior and causes decisions and resourcesused that would that would be inconstant with market incentives.

However, risk management tools may be inadequately provided by the private sector, and insuch cases federal action may be appropriate.

Private Sectors Approaches to Agricultural Risk Management are as follows:

Diversifying the enterprise. Integrating vertically. Engaging in production & marketing contracts. Joining cooperative. Hedging in future markets & future option contracts. Maintaining financial reserves.



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Working off the farm.

Federal programs that help producers in managing risks can sometimes complement theseprivate sector approaches.

Federal Government Approaches to Agricultural Risk Management:

Payments for commodity programs. Largely direct payments. Counter-cynical payments. Marketing assistance loan benefits. Payment for conservation programs.

Conservation reserve program. Environmental quality incentive program.

Conservation security program.

Direct Payments:

The quantity of a crop eligible for a direct payment is 85 percent of the crops base acreage (aproducers historical acreage) times the direct payment yield per acre (a historical yield). Thedirect payment for each commodity is the direct payment quantity times the direct 5 paymentrate, which is set by the 2002 Farm Bill for the 2002-07 crops. Because they are based on a fixedquantity and payment rate, direct payments are decoupled from production and are consideredminimally production and trade distorting. Producers are free to plant most crops on base

acreage, with some limitations on planting fruits, vegetables and wild rice, or can elect to leavebase acres idle and still receive direct payments. Under the 2002 Farm Bill, direct payments aresubject to a $40,000 per person payment limitation.

Counter-Cyclical Payments:The quantity of a crop eligible for a counter-cyclical payment is 85 percent of the crops baseacreage times the counter-cyclical payment yield (a historical yield) times the counter-cyclicalpayment rate. The counter-cyclical payment rate is based on a statutory target price for eachcommodity, and the counter-cyclical payment rate increases when the commoditys season-average farm price falls, reaching a maximum when the farm price is at or below, thecommoditys statutory loan rate. Counter-cyclical payments are subject to $65,000 limit.

Marketing Assistance Loans:Farmers are eligible for marketing assistance loans when they harvest the eligible commodities.To participate, farmers decide how much of their current years production they want a loan onand pledge that amount as collateral. It has 9-month maturity and accrues interest. Under themarketing assistance loan program are limited to $75,000 per person.



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Crop Insurance and Ad Hoc Disaster Assistance:Under the Federal crop insurance program, insurance companies approved by the Risk

Management Agency (RMA) market and manage the delivery of crop insurance policies toproducers. The Federal government provides reinsurance and administrative and operatingexpense reimbursement to the companies and premium subsidies to producers. Crop insuranceprovides coverage for a loss in yield or a loss in revenue (yield and price) for over 350commodities in all 50 States and Puerto Rico.

Paper 8: OECD Tax Intermediaries Study

Risk Management

Why Risk Management is Important?

The fundamental function of a revenue body is to collect the tax that is due. From the perspective ofrevenue bodies, however, the changing environment presents particular challenges, for example itcan provide greater opportunities for the implementation of tax minimization arrangements,including those which may lead to unintended and unexpected tax revenue consequences.

The study team takes the view that risk management is essential if this goal is to be achieved. Riskmanagement involves assessing the risk profile of taxpayers (risk assessment) and then allocatingresources to reflect the risk profiles (risk-led resource allocation). Risk Assessment:

It involves revenue bodies identifying, analyzing and prioritizing the risks presented bytaxpayers that might otherwise prevent them from achieving their function of collecting theright amount of tax1. The result of risk assessment is a risk profile for each taxpayer. A riskprofile might reflect the behavior of taxpayers over a number of years. One step in generatinga risk profile may be calculating an effective tax rate.

Risk-led resource allocation: It involves a revenue body using the risk profiles to makeinformed, evidence-based, decisions about: which risks to treat; the best mix and sequencingof strategies (from help to enforcement); and how to allocate resources to the areas that are

likely to benefit from more attention.

By being better at risk assessment, revenue bodies can more effectively distinguish areas thatrepresent high risk from areas that represent low or negligible risk, and respond and influenceaccordingly. That is a benefit to the revenue body.However, risk management will also result in benefits to many taxpayers. For example, whiletaxpayers who demonstrate high-risk characteristics can expect to attract greater scrutiny and



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enforcement attention, taxpayers who behave transparently and who do not have higher risk taxissues can reasonably expect support and lower compliance costs.

Different dimensions to risk profile of each taxpayer

The taxpayers commercial structure, size and activities: For larger corporate taxpayers withextensive business activities even those that are not especially complex the range of taxissues that could arise is very large. Any one or more of these issues could represent apotential tax risk.

The quality of the taxpayers people, processes and accounting systems: If taxpayers haveinternal governance, systems and processes that are not adequate for the task of gatheringand handling the data needed to comply with tax obligations to the necessary standard, therewill be problems.

The taxpayers behavior: This relates to the choices each taxpayer makes about what theyshare with revenue bodies and when. Taxpayers who do not disclose uncertainty about theirtax issues when (or before) filing their tax returns, or who do not co-operate with revenuebodies reasonable enquiries, are likely to be seen as high risk.

The extent of agreement over interpretation of the law: If there is disagreement ininterpretation of law between taxpayer and revenue bodies than one can disagree with it butit must be resolved through litigation.

Tax intermediaries:

Tax intermediaries impact on their clients:

Tax intermediaries play a vital role in all tax systems. They are expert in tax field and they giveadvice to their clients regarding tax payment. They can be divided in to two categories, i.e. taxadvisers and financial institutions.

Tax advisers:

In many ways, the impact of tax advisers is to increase their clients compliance with their taxobligations and hence to reduce the risks the clients represent from revenue bodies perspective. Theimpact tax advisers have is largely positive and is consequently one of the reasons why they are veryimportant players in the tax system. By supporting and influencing one tax adviser, a revenue bodycan support and influence the behavior of many taxpayers. Tax adviser can create risk for revenuebodies through following two ways:

design, identify or provide favorable opinions on tax planning options leading to unintendedand unexpected tax revenue consequences; and/or

act as advocates for their clients where there is disagreement over the interpretation of thelaw.

Financial institutions:



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worldwide basis. Over time, it became clear that these rules are inadequate for new innovativeand structured financial credit products. Major global banks amended Basel-I in 1996 and

adopted new tools based on Value-at-Risk, which rely on statistical techniques. Inherently, VaRis not a predictive tool it cannot foretell catastrophe from so-called stress or tail events, as it isusually based on historical data, which creates an overly sanguine picture in prolonged boomperiods.

Basel II was the product of extensive discussions by members of the Basel Committee onBanking Supervision; various consultative papers and proposals were released, culminating inthe revised framework introduced in June 2004, which has it been subsequently revised andamended.Basel II introduced more sophisticated measurements for credit risk capital and alsoaccommodated more complex products, such as securitized transactions.

Basel II was subject to individual country regulator adoption timetables, it was not fully rolledout globally at the time of the credit crisis; Basel II was not in effect in the U.S., for example.Due to the U.S. system of bifurcated regulation of 1) banks and 2) investment banks andsecurities firms, the Securities and Exchange Commission (SEC) introduced in 2004 its owncapital adequacy rules specifically for large securities firms and investment banks; these areknown as Consolidated Supervisory Entity (CSE) rules and are generally similar to those ofBasel II.

Risk methodology:

Risk measurement methodologies for trading products were heavily focused on VaR, especiallyfor market risks and related techniques for counterparty credit risks. Generally risks were

measured using separate methodologies and risk engines for different types of risks, e.g.,market risk or credit risk. Some risk measurement methodologies required simplifying factors intheir risk estimation, rather than a full revaluation of the individual positions.Also, across any given firm, multiple risk management systems oftenoperated independently, whether for different types of risk or for differenttrading desk units; this meant that those responsible for risk managementhad to manually cobble together an aggregated picture of enterprise risk. Asa result, the risks for complex products were not always captured or fullyestimated, and it was often not possible to get an overall view of theexposures they posed to the firm.The modeling of the underlying collateral of complex credit products, such as

collateralized debt obligations or CDOs, often did not fully address factorslike correlations in the underlying collateral, the impacts of a potential rise indefaults, or changes in expected recovery values. More than one institutionassumed these risks were fully captured when, in fact, they were not.Many of the structured credit products were considered as trading asset butthey carries risk which combines fundamental risk and market risk as well.Too often, it seemed, risk management responsibility for these products fellbetween the market and credit risk functions this lack of coordination[By: Harsh Desai] Page 29


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New products Enhanced policies and procedures for new product approvals arenecessary to determine that the new products can be properly valued, evaluated for risk,

accounted for, and processed in the firms systems. Given that a firms existingtechnology is inherently challenged to capture new product risks, it makes sense toestablish clear limits, including notional limits that mitigate the possibility of irreparableharm if things go wrong.

Revisiting the need for improved transparency and disclosure:The firm should demonstrate clear intent to provide transparency and appropriatedisclosure to all constituencies.The risk-related information relevant to key decisions, including current and potentialexposures, stress scenario results, correlations, concentrations and contingent exposuresand funding requirements, should be conveyed to senior management and authorizedbodies like the management risk committee and board risk committee on a timely basis

and in an understandable format.

Paper 10: The Big and The Small

Analysis:

Both economic and finance research attempts to accurately measure this risk and determine theappropriate response of the firm to such risk. In general, the economics literature focuses on thestrategic response of the firm to exchange rate risk, while the finance literature focuses onsecurities and hedging techniques that firms use to lay off exchange rate risk. Exchange raterisks are just one type of financial risks facing many different firms. This paper discusses boththe economic consequences and financial practices of financial risk management; specifically,what are the best practices in financial risk management and can these practices be put in placefor both large and small firms.Firms take insurance to cover the losses from natural disaster, fire, burglary etc. Financial riskmanagement is a different process - the processes in place for a firm to control for the loss ofadverse price movements, such as the change in foreign currency values, commodity prices, orinterest rates. These risks have also been called Marketing risks.Many firms face significant costs in the case of financial distress such as bankruptcy liquidation,legal fees, and loan covenants. Minimizing exposure to financial distress therefore reduces the

expected cost of financial distress and therefore increases the value of the firm.If managers are risk averse and their wealth and compensation is primarily driven by the value ofthe firm, hedging is appropriate. Froot, Scharfstein, and Stein (1993) present a slightly differentmodel that finds that a less than full hedge may be the optimal hedge position for the firm.There exist practical costs that arise from the risk of doing business and these costs can bereduced by hedging and other risk mitigation processes. These costs are faced by both large andsmall companies but big firms have many ways to mitigate the risk:

Finance in different currencies or different maturities,



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Hedge using derivatives like futures and options, and

Diversify by purchasing goods and services around the world.

This wide variety of risk management options is not available to small firms. Specifically, bytheir nature, small firms are unable to diversify. Small firms can raise external capital from localbanks only. They cannot invest in foreign market as their creditworthiness is not known in thatmarket. Small firms cannot diversify their operations too. Smaller firms normally have fewsuppliers of goods and services. Small firms do not have logistic capabilities to purchase goodsor services from many vendors.Thus, the small firm is not diversified in either its business or financial operations. The onlyfinancial risk management practice available to all small firms is the strategy of taking specificfinancial positions that offset the risk of loss in the firms business and financial operations.Hedging is the process of making an investment to reduce the risk of adverse price movementsin any particular business asset or cash flow from operations. Normally, a hedge consists of

protecting this position with a related security, such as an option or futures contract.

Derivatives: Options and futures derive their value from other financial assets. Such assets arecalled derivatives. A derivative is any financial contract whose value is dependent upon the valueof some underlying asset.Businesses both large and small have seen the problems that reckless use of derivatives cancause. In the early 1990s Procter and Gamble Corporation lost over $100 million throughspeculative use of interest rate derivatives. Both very large and medium sized firms haveincurred large losses from the improper use of derivatives; the small firm could never survivesuch a loss. Small should invest in derivatives only if the firm is to be profitable, it must exploitthe valuable opportunities it faces. This in no doubt involves risk. Firms, therefore, should avoidrisks that are not profitable so that it can take on the risks that are. Derivatives can be used forthis purpose, but the firm must have a strong process in place to assure it is actually hedging, andnot speculating.

Empirical Findings:This studies shows that the firm size and the use of derivatives are positively correlated. Thereasons why small firms are not choosing derivatives are:

Derivative use is often seen as a sophisticated process that requires an advancedacademic degree, usually in mathematics. This is more likely to be true when the firmfaces many risk exposures: currency values, commodity prices, interest rates, etc.

The costs of deciding upon and setting derivative positions may be high. These costs

include both monetary investments in advisor and broker fees and the time managementmust devote to the process.

Smaller firms are unlikely to have the managerial resources available to devote to the process.Large corporations often employ a full-time risk manager to identify and analyze possible lossexposures.



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Risk Management Programs for Small Businesses: Small businesses can benefit frominstituting a risk management program. Properly executed and controlled, this program should

include the use of derivative instruments. There are two main points for coming to thisconclusion:

1) The small firm is the potentially at the greatest risk; the small firm cannot employ therisk management practice of diversification. Without diversification, derivatives arelikely to be the only risk management tool available. Unfortunately, the evidenceindicates that few small firms employ this tool.

2) The small firm can institute a risk management program that addresses specific exposure,thereby avoiding the derivative debacles. To do this, small firms should strict programsas large firms follows.

Any risk management program should include the following four steps:

A strategic decision for managing financial price risk must exist. As always, financialoperations should support business operations, not the other way around.

The full economic exposure must be identified. After identifying a market price risk suchas foreign currencies or interest rates, the firm must identify if there are any naturaloffsetting positions in its operations. In this manner, the firm is using the benefit ofdiversification if it exists.

Only derivatives that match the risk exposure should be used. The company must chose aspecific derivative instrument to manage a specific type of risk.

Speculation in derivatives should never take place within the firm. The firm monitors itsderivative positions frequently and measure risks accurately. Monitoring by an outsideentity such as the firms bank and its auditors is helpful. Further controls, such as settingspecific time frames for hedge positions, can also help the firm avoid losses in derivativemarkets.

Both large and small firms face financial risks: the risk that commodity market prices, foreigncurrency values, and interest rates will vary over time. Larger firms are at a distinct advantage inthis process in that they have naturally offsetting positions in their vast operations that mitigatefinancial risks. The only definitive tool for financial risk management available to small businessis the financial derivative.By following the sound practices in place at many large firms, small

businesses can achieve greater success through financial risk management. Financial riskmanagement provides the small business with the opportunity to shed risks that are beyond itscontrol so that the firm can pursue risks that are within their control.

Quarterly Analysis of TCS:



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Q4 2006-07

Revenue Analysis:

Revenue in this quarter was grown by 5.88% than that of previous quarter. The top client

contributed 6.6% of the revenue. Top 5 clients contributed 18.5%. Top 10 clients contribution

was 28.4% of the revenue.

If we go by market wise contribution to the revenue, North America was the major contributor

by contributing 51.1% of the revenue. U.K. contributed 20.5% of the revenue. Indias

contribution to the revenue was 9.4%. Continental Europe contributed 8.5% of the revenue.

Contribution of Asia Pacific region was 4.9%. Ibero Americas contribution to the revenue was4.2%. MEA contributed 1.4% in the revenue.

If we see the contribution by business line, the maximum revenue was generated by BFSI sector.

This sector contributed 41.3% of the revenue. Telecom sectors contribution was 17.6% of the

revenue. Manufacturing sector contributed 15.1% of the revenue. 7.9% revenue was generated

by retail & distribution sector. Life science and health care sector contributed 4.7% of the

revenue. Contribution of transportation sector was 3.2% of the revenue. Energy and utility sector

contributed 2.3% of the revenue. 7.9% of the revenue was generated by other sectors.

All the key clients in BFSI, Telecom and Retail sector are steadily growing. The growth in

manufacturing is driven by TCS adaptive manufacturing solution, SCM and ERP consolidation.Cost of revenue: Cost of revenue was increased by 4.08% compared to previous quarter. It is

54.69% of the revenue.

Gross Profit:

Gross profit was increased by 8.14% from the previous quarter. It is 45.31% of the revenue.

SG&A Expenses:

Increase in SG&A expenses was 14.13% compared to previous quarters SG&A expenses. It is

19.72% of the revenue. The main reason for increase is increase in depreciation and travel

expenses.

Operating Income:

Increase in operating income was 3.95% compare to sequential quarter. It is 25.59% of therevenue.

Income before tax:



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Income before tax was more by 8.46% compared to previous quarter. Income before tax is27.33% of revenue.

Income after tax:

Income after tax of the company is increased by 6.49% compare to previous quarter. It is 23.09%of the revenue.

Net Income:

Net income of the company was increased by 6.16% from previous quarter. It is 22.78% of therevenue.

Q1 2007-08

Revenue Analysis:

Revenue growth was 8% quarter on quarter if we see the figures in US dollars but he we take the

amount in Indian currency than the growth is just of 1.09%. It was because of change in the

change in rate of rupee to dollar. In last quarter the conversion rate was 43.47 Rs. per US dollar

while in this quarter the conversion rate is 40.71 Rs. per US dollar.

Revenue generated from the top client was 6.8% of the total revenue. Contribution was 0.2%higher compare to last quarter. Contribution from top 5 clients was 19.0%. Top 10 clients

contributed 29.3% of the total revenue.

Market wise contribution: North America contributed 51.3% in revenue. Contribution from UK

was 20.7% of the revenue. India contributed 9.0% in the revenue. Continental Europe

contributed 8.6% of the revenue. Contribution of Asia Pacific market was 5.0%. Ibero Americas

contribution in the revenue was 3.8%. MEA contributed 1.6% in the revenue.

If we see the contribution from different domains, BFSI sector had contributed 43.1%, Telecom

sectors contribution was 17.1% of the revenue. Contribution from manufacturing sector was

12.4%. Retail and distribution sector has contributed 8.0% in the revenue. Life science andHealthcare sectors contribution was 6.1%. Contribution from transportation sector was 2.8%.

Energy and utilities sector has contributed 2.4% in the revenue. Other sectors contribution was

8.1%.

Cost of revenue:



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Cost of revenue was higher by 10.32% in terms of USD. In terms of INR it was higher by

3.32%. In terms of revenue it was 55.89% of the revenue.

Gross Profit:

In terms of USD gross profit was higher by 5.09% than that of previous quarter. But in terms of

INR the growth was negative by 1.58%. Gross profit was 44.11% of the revenue.

SG&A Expenses:

SG&A expenses were up by 15.25% than that of previous quarter in terms of USD. In terms of

INR it was up by 7.92%. It was 21.05% of the revenue.

Operating Income:

Operating income was rose negatively by 2.73% in terms of USD. It was gone down by 8.91%

than that of previous quarter. It was 23.06% of the revenue.

Profit before Taxes:

PBT was up by 2.57% than that of previous quarter in terms of USD. It was grown negatively by

3.94% in terms of INR. It was 25.97% of the revenue.

Profit after Tax:

PAT was higher by 7.76% compared to previous quarter in terms of USD. In terms of INR it was

up by 0.92% only. It was 23.04% of the revenue.

Net Income:

Net income was up by 7.39% compared to previous quarter in terms of USD. In terms of INR it

was up by just 1.09% of the previous quarter. Net income was 22.77% of the revenue.

Analysis of Q2 2008:

Revenue analysis:



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Revenue was up by 10.75% in terms USD than that of previous quarter. In terms of INR

revenue was up by 8.4% compare to previous quarter. Again the difference is because of the

change in the conversion rate of rupee to dollar in this quarter amount converted at the rate of

39.843 Rs per USD.

Classification by the region: In this quarter North America contributed 52.2% of the total

revenue. UK contributed 19.9% in the revenue. Continental Europe contributed 8.4% in the

revenue. Contribution from India was 8.2%. Asia Pacific region contributed 5.2% in the revenue.

Ibero Americas contribution was 4.2% in the revenue. MEA contributed 1.9% in the revenue.

Classification of revenue by Domain: In this quarter BFSI sector contributed 43.3% in the total

revenue. Telecom sectors contribution in the revenue was 17.8%. Contribution from

manufacturing sector was 12.7% in the revenue. Retail & distribution sector contributed 7.6% in

the revenue. Life science and Health care sectors contribution was 5.6% in the revenue.

Contribution from transportation sector was 4.4%, which had contributed just 2.8% in previous

quarter. It was because of significant addition of clients in this sector. Energy & utilities sector

had contributed 2.5% in the revenue. Other sectors contribution was 6.1% in revenue compare

to 8.1% in previous quarter.

Cost of revenue:

Cost of revenue went up by 9.30%, in terms of USD, than that of previous quarter. In terms of

INR it went up 8.23%. It was 55.15% of the revenue.

Gross profit:

Gross profit went up by 12.60% compare to previous quarter in terms of USD. In terms INR

gross profit went up by 10.20% than that of previous quarter. Gross profit was 44.85% of the

revenue.

SG&A Expenses:

SG& A expenses were gone up by 10.59%, in terms of USD, than that of previous quarter. It

increased by 8.23% compare to previous quarter in terms of INR. Company spent 21.02% of the

revenue in SG&A expenses.

Operating income:



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Operating income of the quarter rose by 14.44% compare to previous quarter in terms of USD.

In terms of INR operating income went up by 12.00% than that of previous quarter. Operating

income was 23.83% of the revenue.

Profit before tax:

In terms of USD profit before tax was gone up by 9.95% than that of last quarter. It rose by

7.60% in comparison with previous quarter in terms of INR. It was 25.79% of the revenue.

Profit after tax:

Profit after tax was increased by 6.57% compare to Q1 2007-08 in terms of USD. In terms of

INR, PAT increased by 4.30% than that of previous quarter. Compare to revenue it was 22.19%.

Net Income:

Net income went up by 7.47%, in terms of USD, in this quarter compare to previous quarter. In

terms of INR it gone up by 5.18% compare to sequential quarter. It is 22.12% of revenue.



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Analysis of Q3 2007-08

Revenue analysis:

Revenue in this quarter was grown by 6.18% from the previous quarter in terms of U.S. Dollars.

Revenue, in terms of INR, was grown up by 5.04% from previous quarter. In this quarter the

conversion the conversion rate was 39.415 Rs. per U. S. Dollar.

If we see the revenue by region wise, the major contributor was North America. This region had

contributed 49.5% in the revenue though the contribution was reduced by 2.7% compare to

previous quarter. Even the second largest contributor i.e. UK also contributed 0.5% less than theprevious quarter. It has contributed 19.4% in the revenue. Continental Europe contributed 9.8%,

1.8% higher than the previous quarter. India contributed 9.4%, India has also contributed 1.2%

more than the previous quarter. Asia Pacific region contributed 5.5% in the revenue. Ibero

America contributed 4.7% in the revenue, 0.5% more than that of previous quarter. MEA

contributed 1.7% of the revenue.

Contribution Domain wise: BFSI sector has contributed 44.00% in the total revenue. Telecom

sector has contributed 17.5% in revenue. Manufacturing sector has contributed 12.5% in the

revenue. Retail & Distribution sector has contributed 7.2% in the revenue. Life science &

healthcare sectors contribution was 5.3% in the revenue. 4.7% of the revenue was contributedby Transportation sector. Energy &utilities sector has contributed 3.1% in the revenue. Other

sectors contribution was 5.7% in the revenue.

Cost of revenue:

Cost of revenue went up by 5.17% than that of previous quarter in terms of USD. In terms of

INR cost of revenue went up by 4.04%. It was 54.63% of the revenue. The major increase in

expenditure was on equipment and software. The expense on this increased by 41.17% than that

of previous quarter. Another major increase was on communication. The expenditure was

increased by 23.15%.

Gross profit:

Gross profit was rise by 7.42% compare to previous quarter in terms of USD. In terms of INR it

rose by 6.27%than that of previous quarter. It was 45.37% of the revenue.

SG&A Expenses:



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SG&A expenses were increased by 7.19% compare to previous quarter in terms of USD. In

terms of INR it was grown by 6.00% than that of previous quarter. It was 21.21% of the revenue.

The major expense was made on employees. Out of total S G & A expenses employee cost is

11.84%.

Operating income:

Operating income in this quarter went up by 7.65%compare to previous quarter. In terms of INR

operating income was gone up by 6.50% than that of previous quarter. It was 24.16% of the

revenue.

Profit before tax:

Profit before tax was gone up by 6.76% compare to sequential quarter in terms of USD. In termsof the INR it went up by 5.62% compare to last quarter. In compare to revenue it was 25.93%.

Profit after tax:

Profit after tax was went up by 8.40% compare to previous quarter in terms of USD. In terms of

INR it went up by 7.21% than that of previous quarter. It was 22.64% of the revenue made by

the company.

Net income:

Net income in this quarter was gone up by 7.88% from the previous quarter in terms of USD. In

terms of INR it went up by 6.72% than that of previous quarter. In compare to revenue it was22.46%.

Analysis of Quarter 4 2007-08

Revenue analysis:

Revenue of the company was grown by 1.11% only than that of previous quarter in terms of

USD. In terms of INR revenue was grown by 2.88% compare to previous quarter. In this quarterthe conversion made at the rate of 40.105 Rs. per USD.

Contribution of different region to the revenue: Company earned 50.4% of the revenue from the

North America. UK region has contributed 19.40% of the revenue. Contribution in the revenue

from continental Europe was 9.7%. 9.2% of the revenue generated from the Indian region. Asia

Pacific region had contributed 5.1% in the revenue. Ibero Americas contribution was 4.8% of

the revenue. MEA had contributed 1.4%.



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Contribution of different sector in the revenue: BFSI sector has contributed 43.8% in the revenue

of the company. Revenue generated from telecom sector was 17.3%. Company generated

13.00% revenue from the manufacturing sector. Contribution of retail and distribution sector in

the revenue was 8.2%. Life science and health care sectors contribution to revenue was 5.1%.

Revenue generated from transportation sector was 4.1%. Energy and utilities sector had

contributed 2.8% in the revenue. Other sectors contributed 5.7 in the revenue.

Cost of revenue:

Cost of revenue of the company went up by 2.19% than that of previous quarter in terms of

USD. In terms of INR it went up by 3.98% compare to previous quarter. It was 55.21% of the

revenue. In this quarter travel expense reduced by 48.05% compare to sequential quarter. While

the expense on rent increased by 43.11%.

Gross profit:

Gross profit of the firm was reduced by 0.18% than that of previous quarter in terms of USD. In

terms of INR it went up by 1.56% compare to previous quarter. Compare to revenue it was

45.14% of it.

SG&A Expenses:

SG&A expenses went up by 4.80% from the sequential quarter in terms USD. In terms of INR

SG&A expenses went up by 6.63%. It was 21.98% of the revenue earned by the firm.

Operating income:

Operating income of the firm grown negatively by 4.53% compare to previous quarter in terms

of USD. In terms of INR it came down by 2.89% than that of previous quarter. It was 22.81% of

the revenue.

Profit before tax:

Profit before tax in this quarter, in terms of USD, came down by 6.07% compare to last quarter.

In terms of INR it went down by 4.43% from previous quarter. It was 24.09% of the revenue.

Profit after tax:

Profit after tax of the company dropped by 7.03% from the last quarter in terms of USD. In

terms of INR it went down by 5.41%. In compare to revenue it was 20.83%

Net income:



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Net income of the company was also come down by 7.25% than that of previous quarter in terms

of USD. In terms of INR it came down by 5.63% compare to last quarter. It was 20.61% of the

revenue.

In this quarter the growth was impacted due to ramp up delays in some BFSI client accounts and

few others on account of delay in their IT budgets finalization for the financial year 2007-08.

And because of this the revenue came down as well as cost of revenue also went up so gross

profit of the firm came down. SG&A expenses also increased in this quarter so operating income

was come down. Other income was also low compare to last quarter so income before taxes

came down and because of that net income was also low.

Analysis of the Q1 of 2008-09

Revenue analysis:

Revenue of the firm went up by just 0.53% from the previous quarter in terms of USD. In terms

INR it went up by 5.19% from the previous quarter. The conversion rate was 42.03 Rs. per

dollar.

Contribution to revenue (region wise): Company earned 51.1% of the revenue from the North

America. UK region contributed 19.5% of the revenue. Continental Europes contribution in the

revenue was 10.1%. Contribution from India in the revenue was 8.7%. Asia Pacific market hascontributed 4.9% in the revenue. Revenue earned from Ibero America was 4.1% of the total

revenue. MEA contributed 1.6% in the revenue.

Contribution to revenue (sector wise): Company earned its maximum revenue from the BFSI

sector. Company earned 42.5% of the revenue from this sector. Telecom sector got the 15.5% of

the revenue. Revenue from the manufacturing sector was 10.7% of the total revenue. Retail and

distribution sector had contributed 8.6% in the revenue. 7.0% revenue generated by the Hi-Tech

technology sector. Life science & healthcare sectors contribution in the revenue was 5.3%.

Company generated 4.3% of its revenue from travel and hospitality sector. 2.9% revenue was

earned from energy and utilities sector. Media and entertainment sectors contribution was 1.7%.Contribution from other sectors was 1.5% of the total revenue.

Cost of revenue:

Cost of revenue of the company went up by 4.99%, in terms of USD, compare to previous

quarter. In terms INR cost of revenue went up by 10.66%than that of previous quarter. It was



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57.95% of the revenue. Travel expenses were increased by 115.85% compare to last quarter.

Expense on depreciation was reduced by 32.20%.

Gross profit:

Gross profit of the company was reduced by 5.03% than the previous quarter in terms of USD.

In terms of INR it was increase by 0.22% compare to previous quarter. It was 42.05% of

revenue.

SG&A expenses:

SG&A expenses were reduced by 9.23%, in terms of USD, than sequential quarter. In terms of

INR SG&A expenses were reduced by 4.37% than that of previous quarter. It was 22.16% of the

revenue.

Operating Income:

Operating income of the company went down by 0.59% compare to last quarter in terms of

USD. It was gone up by 4.78%, in terms of INR, than that of previous quarter. It was 22.06% of

the revenue.

Profit before tax:

Profit before tax of the company was gone down by 6.52% from previous quarters profit before

tax in terms of USD. In terms of INR profit before tax went down by 1.37% than that of

previous quarter. It was 22.58% of the revenue.

Profit after tax:

Profit after tax of the company was lowered by 6.29% compare to sequential quarter in terms of

USD. It was low by 1.25%, in terms of INR, than that of previous quarter. It was 19.54% of the

revenue.

Net income:

In term of net income of the company lowered by 6.03% compare to previous quarter in terms of

USD. It was grown negatively by 0.97%, in terms of INR, to the last quarter. It was 19.39% of

the revenue.



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Analysis of Quarter 2 of FY 2008-09

Revenue analysis:

Revenue of the company was gone up by3.21% in this quarter in terms of USD than that of

previous quarters. It was up by 8.47%, in terms of INR, compare to previous quarter. The rate at

which dollar converted into rupees for this quarter was 44.18 rupees per dollar.

Contribution to the revenue (region wise): the North America region contributed 49.7% of the

revenue. UK region contributed 20.2% in the revenue. Company earned 10.5% of the revenue

from the Continental Europe region. India contributed 7.8% in the revenue. Asia Pacific region

contributed 5.3% of the revenue. Ibero Americas contribution to the revenue was 4.7%. MEA

region had contributed 1.8% in the revenue.

Contribution to the revenue (sector wise): BFSI sector has contributed 41.9% in the revenue.

Company has generated 15.3% of the revenue from telecom sector. Manufacturing sector has

contributed 11.0% in the revenue. 9.0% revenue has been gained by retail and distribution sector.

Hi-Tech technology has contributed 6.9% of the revenue. Company got 4.8% of the revenue

from life science and healthcare sector. 4.6% of the revenue was generated by travel and

hospitality sector. Energy and utilities has contributed 3.0% in the revenue. Media and

entertainment sectors contribution was 1.7% other sectors contribution in the revenue was1.8%.

Cost of revenue:

Cost revenue of the company went down by 3.39% than that of previous quarter in terms of

USD. In terms of INR it was gone up by 1.63% than that of previous quarter. It was 54.49% of

the revenue. Expense on travelling was reduced by 19.99% than that of previous quarter.

Depreciation was increased by 21.25% compare to sequential quarter.

Gross Profit:

Gross profit of the firm was increased by 12.32%, in terms of USDS, from previous quartersgross profit. It was gone up by 17.89%, in terms of INR, than that of previous quarter. It was


SG&A expenses:

SG&A expenses went up by 11.51% from the previous quarter in terms of USD. It was increased

by 16.55%, in terms of INR, compare to previous quarter. In compare to revenue it was 45.71%.



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Operating income:

Operating income of the firm was increased by 13.06% from the sequential quarter in terms ofUSD. In terms of INR it rose by 19.09% than that of previous quarter. It was 24.23% of the

revenue.

Profit before taxes:

Profit before taxes were decrease by 0.87%, in terms of USD, compare to last quarter. It was

increase by 4.04% from previous quarter in terms of INR. With compare to revenue it was

21.67% of that.

Profit after tax:

Profit after tax of the company shown negative growth of 2.68% compare to last quarter in terms

of USD. It was increased by 1.85%, in terms of INR, from the previous quarter. It was 18.37% of

the revenue.

Net income:

Net income of the company went down by 3.37% from the previous quarter in terms of USD. In

terms of INR it was gone up by 1.43% than that of Q1 2008-09. Net income was 18.15% of the

revenue of the company.



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Analysis of Q3 2008-09

Revenue Analysis:

Revenue of the firm went down by 5.78% compare to sequential quarter in terms of USD. While

in terms of INR it increased by 4.65% than that of previous quarter. The conversion rate was

49.07 rupees per dollar.

Contribution to the revenue (region wise): North America contributed 52.2% in the revenue.

Company earned 18.5% from UK. 10.7% of the revenue was contributed by Continental Europe.

Indias contribution to the revenue was 6.8%. Ibero America has contributed 5.1% in therevenue. Asia Pacific market had generated 5.0% of the total revenue. MEAs contribution was


Contribution to the revenue (sector wise): company earned 41.9% of its revenue from BFSI

sector. Telecom sector has generated 13.8% of the revenue. Retail and distribution sectors

contribution in the revenue was 11.2%. 10.6% of the revenue was earned from manufacturing

sector. Hi-Tech technology sector has contributed 6.7% in the revenue. Life science and

healthcare sector has contributed 5.2% in the revenue. Travel and hospitality sectors

contribution was 3.7% in the revenue. 2.6% of the revenue was gained by energy and utilities

sector. Media and entertainment sector has contributed 2.0% in the revenue. Other sectorscontribution in the revenue was 2.3%.

Cost of revenue:

Cost of revenue of the company gone down by 3.86% from previous quarter in terms of USD. It

was increase by 6.76%, in terms of INR, from the previous quarter. Cost of revenue was 55.39%

of the revenue.

Gross profit:

Gross profit of the firm was decreased by 8.05% than that of previous quarter, in terms of USD.

In terms of INR it increased by 2.15% compare to previous quarter. It was 44.61% of therevenue.

SG&A expenses:



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SG&A expenses went down by 13.27% from previous quarter in terms of USD. It was gone

down by 3.27%, in terms of INR, compare to last quarter. SG&A expenses were 19.85% of the

revenue.

Operating income:

Operating income of the company was 3.67% from the last quarter in terms of USD. In terms of

INR it went up by 6.96% from the sequential quarter. It was 24.76% of the revenue.

Profit before tax:

Profit before tax of the company reduced by 3.23% compare to previous quarter in terms of

USD. In terms of INR it was gone up by 7.36% than that of last quarter. It was 22.22% of the

revenue.

Profit after tax:

Profit after tax of the company grown negatively by 3.78% than that of previous quarter in terms

of INR profit after tax rose by 7.21% compare to previous quarter. It was 18.81% of the revenue.

Net income:

Net income for the quarter was reduced by 3.83% than that of previous quarter in terms of USD.

Net income in terms of INR increase by 7.21% compare to previous quarter. It was 18.58% of

the revenue.



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revaluation of advance foreign taxes and international tax liabilities resulted in a onetime foreign

exchange gain of US$ 1.1 million.

The quarter end rate for debtor revaluation was Rs. 43.47. At the end Q1 2007, company has

hedging contracts worth US$ 192.5 million in the range of Rs.43.86 to Rs. 46.85.

Operating income:

Operating income was higher at 19.4% at US$ 30.3 million (Rs. 1306.0 million) against 17.7%

or US$ 27.3 million (Rs. 1202.3 million) in Q4 2006. Operating income grew 70.4% on YoY

basis as compared to US$ 17.8 million (Rs. 791.0 million) in corresponding quarter of previ

financial risk management of it companies

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