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AXISCADES Engineering Technologies Ltd.

BSE: 532395 Sector: IT
NSE: AXISCADES ISIN Code: INE555B01013
BSE 15:45 | 27 Mar 2018 AXISCADES Engineering Technologies Ltd
NSE 05:30 | 01 Jan 1970 AXISCADES Engineering Technologies Ltd
OPEN 139.55
PREVIOUS CLOSE 138.05
VOLUME 26271
52-Week high 228.00
52-Week low 107.50
P/E
Mkt Cap.(Rs cr) 538
Buy Price 0.00
Buy Qty 0.00
Sell Price 142.50
Sell Qty 4.00
OPEN 139.55
CLOSE 138.05
VOLUME 26271
52-Week high 228.00
52-Week low 107.50
P/E
Mkt Cap.(Rs cr) 538
Buy Price 0.00
Buy Qty 0.00
Sell Price 142.50
Sell Qty 4.00

AXISCADES Engineering Technologies Ltd. (AXISCADES) - Chairman Speech

Company chairman speech

Dear Stakeholders

2014-15 was a new beginning for your Company. With the new name ‘AXISCADESEngineering Technologies Limited’ in essence a uniform brand has been created thatbrings together two existing engineering companies – Axis IT&T and CadesDigitech. Both these companies had strong established credentials built over a couple ofdecades with their own business models core engineering competencies good marketpresence and strong client engagements.

The first stage of the business transformation was about integrating these two entitiesinto one cohesive organisation with uniform processes and systems. This exercise was aboutidentifying best practices and putting them together while re-engineering the organisationto meet the requirements of the future. This is being supplemented with continuousimprovement initiatives to instil operational efficiency as a key characteristic of the

DNA of the organisation. In addition we are driving to further utilise thecomplementary geography and industry focus of the two entities and leveraging theirrespective organisational strengths to scale up operations. The integrated organisationnow has consistency in terms of provision of value for customers and ‘go tomarket’ strategy. In the present global scenario for an engineering services companybased out of India like us the market opportunities are immense. There are severalestimates that give a sense of the numbers. The latest report by  NASSCOM titled‘Global ER&D: Reaching the Inflection

Point’ released on 26 May 2015 suggests that the annual spending on Engineeringand Research and Development (E&RD) will increase to around US$1.7 trillion. Out ofthis spend with a growth of around 7% per annum the offshore E&RD market isestimated to become US$ 100-110 billion by 2020 where India’s share is expected torise to around 32%. So for companies like AXISCADES the addressable market size foroutsourcing of engineering services will be around US$ 32-35 billion by 2020 and isestimated today to be around US$17 billion. For me these numbers are just indicative ofthe potential of the industry. Different agencies adopting alternate estimation models maycome up with other forecasts or estimates but the important thing is that the result willstill suggest a large opportunity.

Having been at the helm of some of the world largest technology driven enterprises onething I can vouch for is the need that global companies have of constantly innovating anddeveloping new products and services to remain competitive and drive growth even whenmarket conditions are not good. It is a well-known fact that companies react most in termsof improving operational efficiencies when demand conditions are challenging and financialperformance is under stress. In this light the recent global economic slowdown hasprompted companies to re-examine the way they do their E&RD spends. What is widelyevident is that many companies are continuously improving their E&RD operations andare increasingly considering offshoring of most of their engineering activities. Thus theopportunity for offshoring engineering services is increasing. At this juncture let metake a step back and look at where AXISCADES stands today as a Company.

To begin with let us look at the financial performance 2014-15.

As a consolidated entity total income has grown by 3% to Rs.3192.4 million. Howeverin terms of both profits and cash flows there have beensignificantimprovements.

With EBIDTA margin as a ratio to revenue increasing from 10.2% in 2013-14 to 13.6% in2014-15 EBIDTA in absolute terms increased by 37.2% to Rs.434.7 million in 2014-15.This improvement in profitability is particularly impressive because it has been achievedat a time when the Company’s fixed costs particularly employee costs have actuallyincreased with growing levels of hiring.

This growth in profitability is primarily due to two factors.

First the increased share of offshore servicing compared to onsite service deliveryincreased the share of more cost effective operations. Second with development ininternal capabilities a sizable portion of the services were executed in-house at thecost of external contractors. In-house service delivery is more cost effective. So on theground in terms of operations we have taken a small albeit strategically correct stepforward. The other positive has been the improvements in cash management - cash flow fromoperations increased by 89.1% to Rs.309.4 million in 2014-15.

Internally we are making the structural changes necessary to meet our goals. The salesteam has been strengthened and transformed from a Business Unit (BU) wise structure to anintegrated organisation including three layers – sales delivery and practice. Thisis bringing greater focus for the respective functions of sales and delivery. With theadded thrust on sales not only has the Company secured 5 new customers during 2014-15 butis also in advanced stage of discussions to secure some new deals for starting dedicatedoffshore development centres for a large industrial products company and in renewablesenergy. In terms of human resource we have strengthened our team. At the leadership levelwe have brought in senior professionals who have strong backgrounds of working in some ofthe world’s leading technology companies. In addition corporate governancestructures are being strengthened. Today it is around a year that I have taken fiduciaryresponsibilities for all shareholders as a non-executive Chairman of the Board ofDirectors. In this period the Board has been further strengthened with the inclusion ofcertain eminent people. In line with the regulatory requirement we have appointed a ladyindependent Director. Clearly the Company will be supervised by an independent andproactive Board of Directors.

We are primarily an engineering company and will chart out our growth path maintainingthis inherent characteristic. We have been servicing three verticals – AerospaceHeavy engineering Automobile and Industrial products and are strengthening ourcapabilities in these activities without over diversifying prematurely. It is important toappreciate that engineering is not just a technology play. It is about domainunderstanding which is very important to support the specific needs of a customer in agiven industry. There is a strong barrier to entry in this business and engagementstructures are very critical. If we can move successfully today the opportunity is longterm because some of our products have life spans which can stretch even over 3 decades.

There is immense scope in spreading across more industries and expanding beyond ourcore engineering capability which is mechanical and electrical to other domains likeelectronics etc. While we are committed to move in this direction we will treadcautiously. Our initial focus is on further strengthening the abilities in our establisheddomains to provide solutions to customers’ problems and establish a step in thedirection of becoming engineering partners who can co-create products.

In 2014-15 we have created the platform for launching into a strong growth path forAXISCADES. The opportunities are massive but we acknowledge that competition is alsostiff. We will move forward in a well calibrated manner where growth is achieved by bestmanaging risks. It is as much about identifying opportunities and developing long termcustomer relations as it is about putting the right people processes and systems inplace that will create an efficient scalable and agile enterprise.

While we focus on value creation for our shareholders we also aspire to become a goodcorporate citizen and are driven by the principle of giving back to society. During2014-15 we have created the framework for a structured Corporate Social Responsibility(CSR) initiative through a formal CSR policy. The core focus is on supporting social andeconomic inclusion and environment sustainability.

We have identified partners and started executing projects from May 2015. We willcontinue to strengthen this activity. I would like to take this opportunity to thank allour stakeholders including the shareholders partners vendors customers and creditorsfor their support. A special mention is due for all the employees whose tireless effortsis what is shaping the ability of the Company to deliver long term sustainable value. Theopportunities are immense and ‘we have miles to go before we sleep’. Lookforward to all your faith and belief in our vision as we set sail for the next stage ofour development path.

Dr. Vivek Mansingh.