ECONOMIC OVERVIEW
Global Economy
The global economy was stifled in 2022 because of inflationary pressures, the
Russian-Ukrainian war and the resurgence of COVID-19 in China. Despite these headwinds,
strong growth was witnessed in the third quarter in numerous economies, including the
United States, Euro area and major emerging markets and developing economies. However,
growth has declined across many major economies.
The stronger growth in the second half of 2022 was attributed to domestic developments
such as higher-than-expected private consumption and investment, against a backdrop of
tighter labour markets and stronger-than-expected fiscal Support. Households spent more,
particularly on services, to satisfy pent-up demand. Business investment rose to meet
demand. On the supply side, easing bottlenecks and declining transportation costs reduced
pressures on input prices and allowed for a rebound in previously constrained sectors,
such as motor vehicles.
Signs are apparent that monetary policy tightening is starting to cool demand and
inflation, but the full impact is unlikely to be realised before 2024. Global headline
inflation appears to have peaked in the third quarter of 2022. Fuel prices and prices of
nonfuel commodities are declining, lowering headline inflation, notably in the United
States, Euro area and Latin America. Core inflation, however, remains well above
pre-pandemic levels in most economies.
Advanced economies, which witnessed a GDP growth of 2.7% in 2022, are expected to slow
down and grow at 1.2 % and 1.4%, respectively, in 2023 and 2024. On the other hand, growth
in emerging markets and developing nations is expected to strengthen progressively from
3.9% in 2022 to 4% growth in 2023 and 4.2% in 2024. The headline (consumer price index)
inflation rate is predicted to be lower in 84% of nations in 2023 than it was in 2022 and
economists anticipate that global inflation would drop from 8.8% in 2022 to 6.6% in 2023
and 4.3% in 2024.
Global GDP grew 3.2% in 2022 and is poised to hit 2.9% in 2023 and 3.1% in 2024
reflecting the rise in central bank rates to fight inflation and the war. The decline in
growth in 2023 from 2022 is driven by advanced economies. In emerging markets and
developing economies, growth bottomed out in 2022 and is expected to pick up, led by
China, with the full reopening in 2023. However, India is expected to maintain the tag of
fastest growing major economy over 2023 and 2024. The expected pick-up in 2024 in both
groups of economies reflects a gradual recovery from the effects of the war and subsiding
inflation.
Indian Economy
According to the provisional estimates by the National Statistics Office (NSO), in
FY2023, the GDP growth rate is projected at 7.2%, lower than the 9.1% witnessed in FY2022,
where pent-up demand boosted growth.
Retail inflation continuously moderated during FY2023 and is estimated by RBI to
average 5.1% in FY2024. On external front, FY2023 witnessed robust exports led by both
services and merchandise and a moderation in oil prices. This has aided the expectations
of a fall in the current account deficit in FY2023 and FY2024. A well balanced foreign
trade and expectations of stable capital inflows has also led to expectations of a stable
Indian Rupee in near future.
The easing of global inflationary pressure led by falling international commodity
prices and strong government measures are expected to aid economic growth in India.
Indias private non-financial sector debt has witnessed a steady decline since mid-2021,
along with an improvement in the quality of debt. In FY 2023- 24, the Indian economy is
expected to continue to be the fastest-growing economy in the World. The Indian GDP growth
is estimated at 6.9% in FY 2022-23 and 6.6% in FY 2023-24 by the World Bank.
Review of the financial services industry
Indias diversified financial sector is undergoing rapid expansion. The Indian
financial sector currently comprises several segments, including commercial banks, new-age
fintech start-ups, non-banking financial companies (NBFCs), co-operatives, insurance
companies, pension funds, mutual funds, small and medium financial entities and recently
established payment banks. Together, they provide solutions to a wide range of customers
based on their requirements and accessibility.
After the pandemic, the world economy underwent significant changes, including the
financial services industry. The sector witnessed unprecedented disruption, digital
proliferation and upending of business models. Customers now opt to manage their finances
from home and prefer online payments over cash.
1. Non-banking financial companies (NBFCs)
NBFCs play a significant role in financial inclusion in India by providing tailored
solutions to various individuals/groups needs who are excluded from banking services.
NBFCs operate in locations where banking services are unavailable partially/ completely,
providing last-mile connection to the unorganised sector of society. They also contribute
significantly to the state exchequer and are a significant source of capital for start-up
companies and the trade and commerce industry. NBFC activities include loans and advances,
the acquisition of shares, stock, bonds, debentures, or other comparable marketable
instruments, leasing, hire-purchase, insurance business, etc. NBFCs aid in fund
mobilisation by allocating funds that result in income regulation, thereby influencing
economic growth.
According to Crisil research, in FY2023, the assets under management (AUM) of NBFCs was
expected to grow between 8-10% aided by improvement in economic activity and strengthened
balance sheet buffers. The sector saw a slowdown Between FY2020 and FY2022 with a modest
2-4% AUM growth due to the Covid-19 pandemic. The vehicle finance segment, which
constitutes nearly half of the assets, is expected to act as a catalyst in FY2023, growing
at 11-13%, up from 3-4% in the previous two years. Strong demand from the infrastructure
sector as well as demand for fleet replacement and focus on last-mile connectivity will
buoy commercial vehicle sales while pent-up demand and new launches will drive car and
utility vehicle sales.
As lenders focus on higher-yield assets, unsecured loans, the second-largest segment at
about 20%, is likely to be the only segment to touch the pre-Covid era growth of 20-22%.
NBFC loan growth is also expected to come from other segments such as personal loans,
consumer durable loans, loans to SMEs, and property and gold loans. Consumer loans are
being supported by rising retail spending across consumer durables, travel and other
personal consumption activities, while business loans are expected to benefit from
macroeconomic tailwinds. Loan against property (LAP) and gold loan segments are also
expected to grow at 10-12%, supported by demand from small businesses and individuals.
NBFCs will continue to face competition from banks and higher interest rates will weigh
on their growth leading them to focus on higher yield segments. The wholesale finance
segment, which has seen multiple players exiting the market over the past few years, will
continue to lag with declining AUM. Higher-than-expected interest rates and inflation are
factors that will play a vital role in altering the dynamics of the industry.
2. Micro, small and medium enterprises (MSMEs)
The MSME sector, known as the backbone of the Indian economy, has been a significant
contributor to the expansion of entrepreneurial endeavours through business innovations.
The MSMEs are widening their domain across sectors of the economy, producing a diverse
range of products and services to meet the demands of domestic as well as global markets.
The sector is playing a crucial role by providing employment opportunities to over 110
million people at comparatively lower capital cost than large industries, as well as
through industrialisation of rural and backward areas, thereby reducing regional
imbalances and assuring more equitable distribution of national income and wealth.
Presently, 63 million MSMEs in India account for ~30% of GDP and have contributed to half
of Indias annual exports in 2022. The credit growth to the MSME sector was over 30.6% on
average from January to November 2022.
The sector is rapidly moving from offline to online mode and adopting technology to
improve its operations, increase efficiency and provide providing timely services to its
customers and clients. The use of cloud computing, artificial intelligence, machine
learning and block chain technology is enabling MSMEs to reach a wider customer base,
streamline their processes and reduce costs.
It is expected that 2023 will be a bright year for the MSME sector led by the promotion
and entry of fintech and other digital lending solutions in the sector, which will help
these businesses access formal channels for credit, further helping them eliminate all
operational bottlenecks to make them competitive globally. The rising penetration of the
internet and smartphones and affinity to online marketplaces is expected to boost growth
and movement towards the formalisation of this sector. According to Crisil, bank credit to
MSMEs will witness 16-18% growth during FY2023 and FY2024.
3. Affordable housing
Affordable housing is a crucial sub-segment in the housing and real estate sector. Real
estate prices are gradually rising led by the pent-up ready inventory and keenness of
potential homebuyers. Continuous support of the Indian government in the affordable real
estate sector is driving demand further. With the Credit-linked Subsidy Scheme, homebuyers
of the economically weaker sections are finding it easier to acquire a home. The Reserve
Bank of India (RBI) doubled the limit for individual housing loans offered by urban
cooperative banks (UCBs) and rural cooperative banks (RCBs) to improve credit flow for the
housing sector. Given the rise in housing prices, the revised limits will facilitate the
growth of the sector.
According to TechSci Research, the Indian affordable housing sector was valued at USD
1.8 Billion in 2022 and is expected to grow at ~19.8% CAGR during 2022-2028. The sector is
reaping the benefits that the government has placed on urban infrastructural development
and planning. The unwavering focus on infrastructure will indirectly drive real estate
growth in the future.
4. Construction finance
The Indian construction industry is the engine of the economy as it is responsible for
propelling the countrys overall development. In value terms, it was estimated at USD
738.5 Billion in 2022. The sector is witnessing good growth momentum supported by a sharp
increase in government capital expenditure, thus boosting economic growth and increasing
job creation. Increased focus on renewable energy needed in facilitating the transition of
the economy to low carbon intensity and reducing dependence on fossil fuel imports, will,
in turn, provide a boost to the construction sector. Further, a strong government focus on
transport, health, energy and housing infrastructure will aid the sector further.
Emerging trends that directly impact the dynamics of the construction industry include
a rise in the need for green construction to reduce carbon footprint, bridging lock-up
device systems to improve structure life, building information systems for efficient
building management, and using cutting-edge technologies. With an emphasis on rebuilding
infrastructure, sustainable buildings and smart cities, and an accelerated pace of
adoption of technological advancements, Indias construction industry is witnessing
massive growth. The Indian construction industry is forecast to register an annual average
growth of 6.2% from 2023 to 2026, supported by a strong pipeline of infrastructure
projects across various sectors. Various government programs such as Atmanirbhar Bharat,
which are expected to boost Domestic industries, and the Pradhan Mantri Gati Shakti
National Master Plan, which aims to drive economic growth through infrastructure
development, are also expected to attract investment to the construction industry in the
coming years.
5. Gold loans
India owns more than 14% of the worlds gold and Indias gold loan market is largely
underpenetrated at ~7%. As per World Gold Council, the share of jewellery in the consumer
gold demand has averaged 75% in the ten years between the years 2013 to 2022. In terms of
tonnage, Indian consumers bought more than 6,800 tonnes of gold in the same period or
approximately 700 tonnes annually. Households are estimated to hold between 24-25,000
tonnes of gold with just 4-5% of these gold holdings estimated to have been monetized.
This explains the scale of opportunity in the gold loan segment. Although the share of
organised sector has been rising, the unorganised sector comprising moneylenders and pawn
brokers still dominates the gold loan business with a share of nearly 65%. NBFCs, with
their dedicated gold loan branches offering quick turnaround time, systematic gold
valuation, and trustworthy safekeeping have become the preferred leading players in the
smaller ticket size segment (0.1-0.2 Million) of gold loans. Customers residing in rural
India are gradually switching to these NBFCs.
Increased digitalisation in the sector with the emergence of online and digital models
in the gold loan space by NBFCs and new-age fintech players that offer gold loans at the
customers doorsteps have opened up an untapped market among digitally enabled customers.
Gold loan NBFCs will continue to witness huge growth in the future as they are
well-equipped with digital adoption for quicker decision-making. Capturing new markets
coupled with lesser regulations provides them with a natural advantage over the
competition.
COMPANY BUSINESS OVERVIEW:
Arnold Holdings Limited is a public limited company incorporated in the year 1981
listed in Bombay Stock Exchange. It is a non-deposit taking NBFC, registered with the RBI
vide Registration No. B-13.02130 Ever since its incorporation the company engaged in
investment in shares and activity of non-banking finance company.
Our Company is primarily focused in providing inter corporate loans, personal loans,
loans against shares & securities, loans against properties, trade financing, bills
discounting, trading in shares & securities. Being an, NBFC our Company has positioned
itself between the organized banking sector and local money lenders, offering the
customers competitive, flexible and timely lending services.
Products & Services:
Our Company offers financial services to commercial, industrial and financial clients
with a one stop financial solution: -
• Trade Finance & Bill Discounting • Working capital loans• Loan
against property
• Margin funding and loan against approved securities• Capital market•
Corporate finance• Mortgage and loans
• Infrastructure finance 41
FINANCIAL PERFORMANCE:
During the fiscal Year 2023, the operational income of the Company stood at Rs.
16296.51 Lacs as compared to previous fiscal Year of Rs. 11867.26 Lacs. The company has
continued its lending activities and advances portfolio of the Company has been Rs.
8304.45 Lacs and the interest income of the Company have been stood at Rs. 2359.75 Lacs.
This fiscal Year Companys profits have been 380.81 Lacs as compared to Rs. 150.73 Lacs of
fiscal Year 2022.
Financial Highlights:
• Income from operation stood at Rs. 16296.51 Lacs for fiscal Year 2023. •
Profit before Taxes of fiscal Year 2023 was Rs. 502.30 Lacs. • Profit after Taxes of
fiscal Year 2023 was Rs. 380.81 Lacs. • Earnings per share for fiscal Year 2023 were
Rs.1.27 per share. • Net Worth of company stood at Rs.5770.21 Lacs as on March 31,
2023.
SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE
The company is operating as Non-Banking Financial Company and so does not have segment
wise performance. The performances are reflected in the balance sheet.
SWOT ANALYSIS:
Strengths:
An integrated financial services platform: We offer our clients an integrated
financial services platform by offering lending against demat shares, finance consultancy,
loan against immovable properties and allied products. Our integrated service platform
allows us to leverage relationships across the lines of businesses and our industry and
product knowledge by providing multi-channel delivery systems to our client base, thereby
increasing our ability to cross-sell our services.
Experienced Management: We believe that our senior management and our talented and
experienced Team are the principal reason for the growth of our Company. We believe that
the extensive experience and financial acumen of our management and staff facilitates us
with a significant competitive advantage.
Weakness:
Branding: Our Company is not a well-established brand among large NBFC players who
have access to larger financial resources.
Accessibility: We do not have branches so we are unable to explore the business
opportunities in other areas.
Regulatory restrictions: continuously evolving government regulations may impact
operations.
Uncertainty: Uncertain economic and political environment.
Opportunities:
Large Market: The players in the NBFC sector still have a lot of scope to cover
larger market and the rural markets are still untapped.
Desire for Status: With increased desire of individuals to improve their standard
of living, the NBFC industry is getting exposed to new category of client (individuals) in
a big way with large share of business coming from this segment apart from corporate
clients.
Digital Platform: Company has own Digital app "TRADOFINA" which provides
instant credit loans to personal and small business needs.
Threats:
Economic Downturn: If the economic downturn is prolonged it can reduce the
financing need of people due to shrinking business opportunities.
42
Private Banks: Private Banks are also working on the similar business model as the
NBFCs do, thereby giving a very strong competitions to the NBFCs.
RBI and Government restrictions: With more stringent norms governing the
functioning of NBFC and certain government restrictions act as a hindrance in smooth
functioning of NBFC.
FUTURE STRATEGY:
• Expansion of existing activities: Our Company intends to expand its
financial services by enhancing its focus on margin funding, loan against shares and
securities, loan against properties and corporate loan, bill discounting and working
capital loan.
• Differentiated Services: In the growing economy, the corporate clients
will be requiring funds for further expansions. Our Company would be providing all
diversified service portfolio under one umbrella to cater most of the customer needs and
demands.
• Brand recognition: We are in such a business where we are facing lot of
competition. Our Company is not a well-established brand among large NBFC players. We will
be making the necessary arrangements for our brand reorganization.
HUMAN RESOURCE
We recognise the paramount importance of our skilled workforce in our goal towards
sustainable growth. In this regard, we diligently endeavour to attract, retain, cultivate
and acknowledge talent within our organisation. Our primary objective is to establish a
secure, supportive, cooperative and salubrious work setting, which fosters both personal
and professional development for our employees.
Our people-centric team prioritises career advancement, ensuring that our work
environment remains open, flexible and dynamic. We facilitate the enhancement of knowledge
and skillsets through regular training and development initiatives for employees across
all levels of the organisation. By implementing various motivational programmes and
providing timely, appropriate rewards and recognitions, we maintain high levels of
employee motivation and satisfaction.
Furthermore, we undertake numerous programmes and initiatives to instil a robust sense
of business ethics and social responsibility within our workforce. Our ongoing efforts to
synchronise employee objectives with the Companys overarching goals foster a productive
work culture. In this manner, we integrate our employees into the broader vision of
generating positive social impact, further solidifying our commitment to sustainable
growth.
RISKS AND CONCERNS
As a NBFC, the Company is exposed to market risk, global risk, regulatory risk, credit
risk, liquidity risk, competition risk and interest rate risk etc. which can affect the
return on investments and financial business in unexpected way. Sustained efforts to
strengthen the risk framework and portfolio quality have yielded consistently better
outcomes for the Company. The level and degree of each risk varies depending upon the
nature of activity undertaken by them.The companys operations might be adversely impacted
due to incapacitation of sections of the global workforce, reduced productivity due to
employee stress. Demand for the companys product may be adversely affected not only in
industry segments directly impacted by the pandemic like hotels and hospitality, but
across other segments as well due to a sharp slowing down of the worlds major economies.
This is likely to affect the companys earnings in the short and medium term.
INTERNAL CONTROLS
Our strong internal control system enables the safeguarding of assets and the highest
level of productivity at all levels. We have set up an internal control framework in line
with the size and industry in which we operate. The internal control system, comprising
policies, procedures and well-defined risk and control matrices is automated. We comply
with the highest level of credit underwriting parameters, and requisite laws and
regulations led by a robust internal control framework that enhances the process of
financial reporting and transaction reporting. The Audit Committee conducts regular
internal audits to ensure compliance with the best practices. The internal auditors
periodically test the efficacy of our internal control systems. Our statutory auditors are
responsible for testing and ensuring strict control over financial reporting.
SIGNIFICANT CHANGES: a. Debtors turnover ratio stood at 392.14 in FY.23 as against
166.91 in FY.22. b. Inventory turnover ratio has stood at 9.04 in FY 23 as compared to
5.14 in FY 22. c. Interest Coverage Ratio has stood at 1.79 in FY 23 as compared to 1.35
in FY 22. d. Current Ratio has increased from 1.11 in FY. 22 to 7.02 in FY.23.
43 e. Debt Equity Ratio increased from 0.66 in FY.22 to 1.23 in FY.23. f. Operating
profit margin has decreased from 10.56% in FY.22 to 6.97% in FY.23. g. Whereas, net profit
margin increased from 1.95% in FY.22 to 2.34% in FY.23. h. Return on Capital Employed
stood at 7.22% in FY.23 as compared to 8.72% in FY.22.
CAUTIONARY:
The statements made in this report describe the Companys objectives and projections
that may be forward-looking statements within the meaning of applicable laws and
regulations. The actual result might differ materially from those expressed or implied
depending on the economic conditions, government policies and other incidental factors
which are beyond the control of the Company. The Company is not under any obligation to
publicly amend, modify or revise any forward-looking statements on the basis of any
subsequent developments, information or events.
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