authum investment infrastructure ltd Management discussions

Global economy

Overview: The global economic growth was estimated at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic effect). The relatively slow global growth of 2022 was marked by the Russian invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher interest rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve.

The challenges of 2022 translated into moderated spending, disrupted trade and increased energy costs. Global inflation was 8.7% in 2022, among the highest in decades. US consumer prices increased about 6.5% in 2022, the highest in four decades. The Federal Reserve raised its benchmark interest rate to its highest in 15 years. The result is that the world ended in 2022 concerned that the following year would be slower.

The global equities, bonds, and crypto assets reported an aggregated value drawdown of USD26 trillion from peak, equivalent to 26% of the global gross domestic product (GDP). In 2022, there was a concurrently unique decline in bond and equity markets; 2022 was the only year when the S&P 500 and 10-year US treasuries delivered negative returns of more than 10%.

Gross FDI inflows equity, reinvested earnings and other capital declined 8.4% to $55.3 billion in April-December. The decline was even sharper in the case of FDI inflows as equity: these fell 15% to $36.75 billion between April and December 2022. Global trade expanded by 2.7% in 2022 (expected to slow to 1.7% in 2023).

The S&P GSCI TR(Global benchmark for commodity performance) fell from a peak of 4,319.55 in June 2022 to 3495.76 in December 2022. There was a decline in crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea realisations. Brent crude oil dropped from a peak of around

USD 120 per barrel in June 2022 to USD 80 per barrel at the end of the calendar year following the enhanced availability of low-cost Russian oil.

Regional growth (%)	2022	2021
World output	3.2	6.1
Advanced economies	2.5	5
Emerging and developing	3.8	6.3
economies

Performance of major economies

United States: Reported GDP growth of 2.1% compared to 5.9% in 2021 China: GDP growth was 3% in 2022 compared to 8.1% in 2021 United Kingdom: GDP grew by 4.1% in 2022 compared to 7.6% in 2021 Japan: GDP grew 1.7% in 2022 compared to 1.6% in 2021

Germany: GDP grew 1.8% compared to 2.6% in 2021

[Source: PWC report, EY report, IMF data, OECD data]

Outlook

The global economy is expected to grow 2.8% in 2023, influenced by the ongoing Russia-Ukraine conflict. Concurrently, global inflation is projected to fall marginally to 7%. Despite these challenges, there are positive elements within the global economic landscape. The largest economies like China, the US, the European Union, India, Japan, the UK, and South Korea are not in a recession. Approximately 70% of the global economy demonstrates resilience, with no major financial distress observed in large emerging economies. The energy shock in Europe did not result in a recession, and significant developments, including Chinas departure from its strict zero-Covid policy and the resolution of the European energy crisis, fostered optimism for an improved global trade performance. Despite high inflation, the US economy demonstrated robust consumer demand in 2022. Driven by these positive factors, global inflation is likely to be still relatively high at 4.9% in 2024. Interestingly, even as the global economy is projected to grow less than 3% for the next five years, India and China are projected to account for half the global growth (Source: IMF).

Indian economy

Overview: Even as the global conflict remained geographically distant from India, ripples comprised increased oil import bills, inflation, cautious government and a sluggish equity market. Indias economy grew at 7.2% in FY 2022-23. India emerged as the second fastest-growing G20 economy in FY 2022-23. India overtook UK to become the fifth-largest global economy. India surpassed China to become the worlds most populous nation (Source: IMF, World Bank)

Growth of the Indian economy

	FY 20	FY 21	FY 22	FY23
Real GDP	3.7	-6.6%	8.7	7.2
growth(%)

Growth of the Indian economy quarter by quarter, FY 2022-23

	Q1FY23	Q2FY23	Q3FY23	Q4FY23
Real GDP	13.1	6.3	4.4	6.1
growth (%)

(Source: Budget FY24; Economy Projections, RBI projections)

India reported 8% higher rainfall over the long-period average in 2022. Due to unseasonal rains, Indias wheat harvest was expected to fall to around 102 million metric tons (MMT) in 2022-23 from 107 MMT in the preceding year. Rice production at 132 million metric tons (MMT) was almost at par with the previous year. Pulses acreage grew to 31 million hectares from 28 million hectares. Due to a renewed focus, oilseeds area increased 7.31% from 102.36 lakh hectares in 2021-22 to 109.84 lakh hectares in 2022-23. Indias auto industry grew 21% in FY23; passenger vehicle (UVs, cars and vans) retail sales touched a record 3.9 million units in FY23, crossing 3.2 million units in FY19. The commercial vehicles segment grew 33%. Two-wheeler sales fell to a seven-year low; the three-wheeler category grew

84%.

Till the end of Q3FY23, total gross non-performing assets al. (NPAs) of the banking system fell to 4.5% from 6.5% a year ago. Gross NPA for FY23 was expected to be 4.2% and a further drop is predicted to 3.8% in FY2023-24. As Indias domestic demand remained steady amidst a global slowdown, import growth in FY23 was estimated at 16.5% to $714 billion as against $613 billion in FY22. Indias merchandise exports were up 6% to $447 billion in FY23. Indias total exports (merchandise and services) in FY23 grew 14 percent to a record of $775 billion in FY23 and is expected to touch $900 billion in FY24. Till Q3 FY23, Indias current account deficit, a crucial indicator of the of payments position, decreased to $18.2 billion, or 2.2% of GDP.Indiasfiscaldeficit in nominal terms at ~ Rs 17.55 lakh crore and 6.4% of GDP for the year ending March 31, 2023. (Source: Ministry of Trade & Commerce) Indias headline foreign direct investment (FDI) numbers rose from US$74.01 billion in 2021 to a record $84.8 billion in 2021-22, a 14% Y-o-Y increase, till Q3FY23. India recorded a robust $36.75 billion of FD

I. In 2022-23, the government was estimated to have addressed 77% of its disinvestment target (Rs 50,000 crore against a target of Rs 65,000 crore). Indias foreign exchange reserves, which had witnessed three consecutive years of growth, experienced a decline of approximately $70 billion in 2022, primarily influenced by rising inflation and interest rates. Starting from $606.47 billion on April 1, 2022, reserves decreased to $578.44 billion by March 31, 2023. The Indian currency also weakened during this period, with the exchange rate weakening from Rs. 75.91 to a US dollar to Rs. 82.34byMarch31,2023,driven l year (Source: IMF). deficit byastrongerdollarandincreasingcurrentaccount Despite these factors, India continued to attract investable capital.

The countrys retail inflation, measured by the consumer price index (CPI), eased to 5.66% in March 2023. Inflation data on the Wholesale Price Index, WPI (calculates the overall price of goods before retail) eased to 1.3% during the period. In 2022, CPI hit its highest of 7.79% in April; WPI reached its highest of 15.88% in May 2022. By the close of the year under review, inflation had begun trending down and in April 2023 declined below 5%, its lowest in months. Indias total industrial output for FY23, as measured by the Index of Industrial Production or IIP, grew 5.1% year-on-year as against a growth of 11.4 percent in 2021-22. India moved up in the Ease of Doing Business (EoDB) rankings from 100th in 2017 to 63rd in 2022. As of March 2023, Indias unemployment rate was 7.8 percent.

In 2022-23, total receipts (other than borrowings) were estimated at 6.5% higher than the Budget estimates. Tax-

GDP ratio was estimated to have improved by 11.1 percent Y-o-Y in RE 2022-23.

The total gross collection for FY23 was Rs 18.10 lakh crore, an average of Rs 1.51 lakh a month and up 22% from FY22, Indias monthly goods and services tax (GST) collections hit the second highest ever in March 2023 to Rs. 1.6 lakh crore. For 2022 23, the government collected Rs 16.61 lakh crore in direct taxes, according to data from the Finance Ministry. This amount was 17.6 percent more than what was collected intheprevious Per capita income almost doubled in nine years to Rs 172,000 during the year under review, a rise of 15.8 percent over the previous year. Indias GDP per capita was 2,320 USD (March 2023), close to the magic figure of $2500 when consumption spikes across countries. Despite headline inflation, private consumption in India witnessed continued momentum and was estimated to have grown 7.3 percent in 2022-23. Outlook: There are green shoots of economic revival, marked by an increase in rural growth during the last quarter and countrysbalance appreciable decline in consumer price index inflation to less than 5 percent in April 2023. India is expected to grow around 6-6.5 percent (as per various sources) in FY2024, catalysed in no small measure by the governments 35% capital expenditure growth by the government. The growth could also be driven by broad-based credit expansion, better capacity utilisation and improving trade deficit. Headline and core inflation could trend down. Private sector investments could revive. What provides optimism is that even as the global structural shifts are creating a wider berth for Indias exports, the country is making its largest infrastructure investment. This unprecedented investment is expected to translate into a robust building block that, going ahead, moderates logistics costs, facilitates a quicker transfer of products and empowers the country to become increasingly competitive. This can benefit Indias exports in general, benefiting several sectors. The construction of national highways in 2022-23 was 10,993 kilometres; the

Ministry of Road Transport and Highways awarded highway contractsof12,375km thelast The global landscape favours India: Europe is moving towards a probable recession, the US economy is slowing, Chinas GDP growth forecast of 4.4% is less than Indias GDP estimate of 6.8% and America and Europe are experiencing its highest inflation in 40 years.

Indias production-linked incentive appears to catalyse the downstream sectors. Inflation is steady. India is at the cusp of making significant investments in renewable energy and other sectors and emerging as a suitable industrial supplement to China. India is poised to outpace Germany and

Japan and emerge as the third-largest economy by the end of the decade. The outlook for private business investment remains positive despite an increase in interest rates. India is less exposed to Chinese economic weakness, with much less direct trade with China than many Asian peers.

Broad-based credit growth, improving capacity utilisation, governments thrust on capital spending and infrastructure should bolster investment activity. According to our surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook. The downside risks are protracted geopolitical tensions, tightening global financial conditions, and slowing external demand.

Union Budget FY 2023-24 provisions

The Budget 2022-23 sought to lay the foundation for the future of the Indian economy by raising capital investment outlay by 33% to Rs. 10 lakh crores, equivalent to 3.3% of GDP and almost three times the 2019-20 outlay, through various projects like PM Gatishakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition and Climate Action, as well as Financing of Investments. An outlay of Rs. 5.94 lakh crore was made to the Ministry of Defence (13.18% of the total Budget outlay). An announcement of nearly Rs. 20,000 crores was made for the PM Gati Shakti National Master Plan to catalyse the infrastructure sector. An outlay of Rs. 1.97 lakh crore was announced for Production Linked Incentive schemes across 13 sectors. The Indian government intends to accelerate road construction in FY24 by 16-21% to 12,000-12,500 km. The overall road construction project pipeline remains robust at 55,000 km across various execution stages. These realities indicate that a structural shift is underway that could strengthen Indias positioning as a long-term provider of manufactured products and its emergence as a credible global supplier of goods and services

Indian financial services sector overview

India enjoys a diversified financial sector undergoing rapid expansion withregardstorobustgrowthofexistingfinancial services companies and new entities entering the market.

The sector includes commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The sector is dominated by the commercial banks accounting for more than 64% of the total assets.

Indias insurance industry is a crucial component of the countrys financial sector. insurance companies reached US$ 40.1 billion in FY 22. In FY 2022-23 (until May 2022), the total first year premium of non-life insurance sector reached Rs 36,680.89 crore. As of October 2022, total AUM managed by the mutual fund industry stood at Rs 39.50 trillion and the total number of accounts stood at 139.1 million.

Moreover, Bombay Stock Exchange (BSE) is expected to establish a joint venture with Ebix Inc to build a robust insurance distribution network in the country through a new distribution exchange platform. The number of companies listed on the National Stock Exchange of India Ltd. (NSE) enhanced from 135 in 1995 to 2,012 by FY 2022. In FY22, US$ 14.55 billion was raised across 127 initial public offerings (IPOs). (Source: IBEF)

Outlook

Indias financial services industry experienced huge growth in the past few years and the momentum is expected to prevail. Indias private wealth management industry has large growth headroom as the country is expected to have

6.11 lakh high net worth individuals by 2025, leading India to be the fourth largest private wealth market globally by

2028. Indias insurance market is pegged to reach US$ 250 billion by 2025, adding additional life insurance premiums of US$ 78 from 2020-30.

The Association of Mutual Funds in India (AMFI) is expected to report a nearly five-fold growth in asset under management to reach Rs. 95 lakh crore and more than three times growth in investor accounts to 130 million by 2025. Indias fintech space is expected to further drive the growth in various segments. Indias mobile wallet industry is expected to grow at CAGR of 150% to reach US$ 4.4 billion by 2022, while mobile wallet transactions is expected to touch Rs 32 trillion during the same period. According to Goldman Sachs, investors have been investing in Indias stock market, which is expected to reach >US$ 5 trillion, surpassing UK to become the fifth largest stock market globally by 2024. (Source: IBEF)

Indian non-banking financial sector overview

The non-banking financial companies (NBFCs) form a crucial part of Indias financial substantial growth over the years with the size of assets becoming almost 13% of Indias gross domestic product. According to Fitch Ratings, improving credit growth, reduced asset-quality risks are expected to be the characteristics of the Indian non-banking FY 2022-23. This is expected to strengthen the performance of the non-banking financial companies amidst a broadening economic recovery, although certain segments are expected to remain vulnerable on account of higher than expected inflation.

According to a report by Crif High Mark, non-banking finance companies and micro finance institutions accounted for 35.1% of the outstanding loans as of September 2022, surpassing banks which held a 34.8% stake. The NBFCs and MFIs have a greater contribution to the society as around 47% of their loans are in the smaller ticket sizes of between Rs 30,000 to Rs 50,000 while the same for bank was 35.9%. In 2022, RBI issued more than 27 regulatory updates specificto Thetotalfirst-yearpremiumoflife the NBFC sector, a significant number of regulatory updates to create a highly fluid compliance universe. There are over 9000 registered NBFCs in

India that provide credit services to the underserved sections of the economy. These organisations are playing an instrumental role in deepening credit to the underbanked and unbanked sections of the society. The industry witnessed great success in the vehicle, housing and micro credit services.

(Source: Economic Times)

Indian housing finance sector overview

The housing finance sector is expected to grow at a compound annual growth rate (CAGR) of 20.58% between FY 2022 FY 2027 period. Growing urbanization and affordable mortgage rates are the two major factors fueling the growth of the market. In 2021, the affordable housing segment consists 90% of the market in terms of volume and about 60% based on value. Millennials and young borrowers with high disposable incomes and need for urban accommodation are potential consumers for home loans, accounting for 27% of borrowers. According to ICRA, housing finance companies clocked a 15% year-on-year growth in their on-book portfolio in Q1 FY23. On-book portfolio of all the housing finance companies stood at Rs 12.7 lakh crore at the end of June 2022 compared to Rs 11 lakh crore a year ago. The growth was fueled by the healthy demand in the industry and the growing level of economic activity while retaining growth and asset quality estimates for FY23. The assets under management finance (AUM) of housing companies are expected to grow 10-12% in FY 2022-23 compared to 8% in FY 2021-22 mainly attributed by home loans. Structural factors driving end-user housing demand remain intact in FY 2022-23 despite the impact of growing real estate prices and interest rates. The collection efficiency for NBFCs and HFCs remained healthy in the range of 97-101 per cent at the beginning of FY2023. Tightening of pool selection criteria by the investors for securitized pools and strengthening of prevailing credit appraisal processes and parameters by the lenders following the emergence of COVID also had a positive bearing on the overall collection efficiency. Housing finance companies are expected witness a portfolio growth of 9-11 per cent in FY 2022-23. The loan portfolio of housing anticipated to enhance by 12% in FY 2022-23 due to steady growth in disbursements, improving real estate sector and macro-economic environment.

HFCs witnessed a higher growth rate in loan disbursal compared to banks, a trend that will prevail in the future. Housing finance rate at 11% on year, 7% growth rate reported by the banks. The growth in the housing finance sector in FY 22 grew at 9% driven largely by the prime segment. Indias home loan market, valued at about Rs 24 lakh crore is expected to double in the next five years, with mortgage to GDP ratio commensurately from 11%. (Source: Business Standard, Business Insider, Financial Express)

Affordable housing finance sector

Sales in the affordable housing segment have faced challenges in 2022 as high-end and mid-segment housing gained share owing to lower-priced units, indicating some impact of deteriorating affordability in the price-sensitive segment. According to Knight Frank India, the shares of sales for units below Rs 50 lakh category declined from 42% in July-December 2021 to 35% in July-December 2022. The growth in share of sales in the Rs 50 lakh to Rs 1 crore segment also remained moderate with a 200 basis points growth from 35% in the second half of 2021 to 37% in July to December, 2022.

Housing prices in some of Indias mega cities reported double-digit growth in the past one year. Firming up of prices in Tier-II and Tier-III are witnessing most of the action with the advent of the remote working culture. As geo-political uncertainty keeps pushing prices of construction materials, no relief is in sight as for as price moderation in the near future is concerned. Fresh disbursal witnessed a maximum YoY growth in tier-III and below districts in FY22 over FY19, as per the report. Amongst the top 20 tier-III districts, maximum numbers of districts are from Punjab and Karnataka. Among the tier-IV districts, Uttar Pradesh tops the list of six districts amongst the top 20 with maximum growth in fresh disbursal in FY22 compared to FY19. The number of female borrowers in new disbursementsgrewsignificantly in FY22 in tier-III and IV districts. Among the top 20 districts with highest share of female borrowers in fresh home loan disbursal in FY 22, six districts are from Chhattisgarh, three from Gujarat and Haryana each. These districts have on an average 49% female share in total population. (Source: the hindu business line)

Drivers of the affordable housing

Growing population: Indias population surpassed China in 2023 and is expected to reach 1.51 billion by 2030. Population growth is expected to catalyze the demand of

Indian real estate segment.

Rapid urbanisation: Indias urban population is expected to stand at 675 million (accounting for 43.2% of the countrys population) by 2035. This is expected to lead to a rise in housing demand accordingly. (Source: the hindu.com) companies is Housing shortage: As per the technical study conducted by Ministry of Housing and Urban Poverty Alleviation, the urban housing shortage in India is estimated at ~19 mn in 2022. This gap is expected to further widen to an estimated 38 million homes by 2030 mainly on account of the growing population and increased urbanization. companies registered a double-digit growth Budgetary allocation: The Union budget 2023-24 allocated a significant increase in funds for urban development with Rs 76,432 crore allocated under the Ministry of Housing and Urban Affairs compared to the Rs 42,965 crore allotted in 2018-2019, reporting a 77% increase over the past 5 years. Mortgage under-penetration: As of 2022, Indias mortgage penetration stands at 13 per cent of the GDP much lower compared to other Asian economies ranging from 20-30%. However, with the increase in demand of housing industry, it is expected that India would be able to double its home loans up to USD 600 billion by 2027.

Demographics: About 66 per cent of Indias population is below 35 years of age which presents an opportunity of high disbursement of home loans. Over the years, India has been witnessing an uptake in the number of households being shifted towards the concept of a nuclear family.

Smooth regulations: Following the implementation of RERA, Indias rank in dealing with construction permits improved from 52 to 27. RERA played a crucial role in increasing the ease of doing business in the real estate sector by promoting transparency and buyer-friendliness across the entire process.

(Source: IBEF, The Wire, Statista, Financial Express, Business Standard, Economic Times, Business World, The Hindu business line, Hindustan Times, Construction World)

Company overview

Authum Investment & Infrastructure Limited started its journey in 1982. The Company is listed on Bombay Stock

Exchange Limited and Calcutta Stock Exchange Limited. It is a registered NBFC engaged in the business of investment in shares and securities and also finance activities to achieve the goal of increasing shareholder value.

Financial review

Revenues: Total consolidated revenue from operations in

FY 2022-23 was Rs. 374.22 Crores, compared to Rs. 907.28 crores in FY 2021-22. crores, PAT: Profit compared to Rs. 668.74 crores in FY 2021-22.

Return on Capital employed: Return on Capital employed during FY 2022-23 stood at 8.41% as compared to 21.43% in FY 2021-22.

Current ratio: There is no change in current ratio in

FY 2022-23. Key numbers (Rs. in crores)

Particulars	2022-23	2021-22
Revenue from operations	377.36	907.28
EBIT	334.17	855.63
PAT	240.20	668.74
Return on capital employed	8.41	21.43
(%)
Current ratio (x)	0.66	0.66
Net profit margin (%)	64	74

 

Our risk management framework
Risk	Mitigation
Economic risk: Unfavourable macro-economic factors might hamper the companys performance.	Indias economy grew by 7.2% in FY 22-23; Authum recorded a 2.60% growth in assets under management and 59% degrowth in PAT
Underwriting risk: Inability to assess customer credibility might result in higher delinquencies	The Companys robust underwriting team has a well-defined customer evaluation standard, including experienced professionals such as Chartered Accountants
Employee risk: Higher attrition among experienced talent might hamper the growth of the company	The Companys long-term business strategy offers growth opportunities to its employees. Majority of the middle and senior level employees have a long-term relationship with the
Risk	Mitigation
Company Reputation risk: The Companys brand image might be affected due to its inability to address customer claims	The Company undertakes a comprehensive situation analysis to assess customer claims and is expected to take strict action against customer underservicing
Regulatory risk: Any kind of non-conformance in compliance and regulatory norms might lead to financial or reputational damage.	The Company invested in software to assess compliances to ensure that all responses are timely given by regulators.

Internal control systems and their adequacy

The internal audit system of the company has been regularly tracked and reformed to make sure that assets are protected, established regulations are complied with and pending issues are addressed on time. The audit committee reviews reports presented by the internal auditors on a routine basis. The committee records the observations of the auditors and takes corrective actions, if necessary. It maintains constant dialogue with statutory and internal auditors to ensure that internal control systems are operating effectively

Human resources and industrial relations

The Company considers that the value of the employees is the key to its success and is devoted to provide them skills which will enable them to seamlessly evolve with ongoing technological advancements.

The Companys permanent workforce stood at 17 as at 31^st March, 2023. During the year, the Company arranged training programmes in different areas such as technical skills, behavioural skills, business excellence, general management, advanced management, leadership skills, customer orientation, safety, values and code of conduct.

Cautionary statement

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward-looking statements within the meaning of applicable securities laws and regulations.