[Schedule V Regulation 34(3) of SEBI (LODR) Regulations, 2015]
Introduction
Management Discussion and Analysis mainly comprise of the statements
which, inter-alia, involve predictions based on perceptions and may, therefore, be prone
to uncertainties. It is the sum total of the Company?s expectations, beliefs,
estimates and projections which are forward looking within the meaning of applicable laws
and regulations.
The actual results could differ materially from those expressed herein
specifically or impliedly.
OVERVIEW OF INDIAN ECONOMY FY 2022-23
Financial year 2023 began on a mixed note. On the positive side, after
wreaking havoc for almost two years, the impact of the COVID-19 pandemic on lives and
livelihoods started receding. This was aided by a mass immunisation programme and the
advent of a less virulent variant called omicron. However, the flip side was the impact of
infla -tionary trends, supply chain disruptions emanating from China, and the start of the
Russia-Ukraine conflict impacting commodity prices.
In FY2023, the Indian economy faced multiple challenges. The
country?s retail inflation indicator, -flation (CPI) inched above the RBI?s
tolerance range in January 2022. It remained above the target range for almost twelve
months before retracting within the upper tolerance of 6% in November 2022. Rising
international crude prices coupled with domestic weather conditions like excessive heat
and unseasonal rains kept food prices high, fuelling retail inflation.The Government cut
excise and customs duties and restricted exports to cool off inflation. The RBI, like
other central banks, raised the monetary policy rates and reduced excess systemic
liquidity. Major areas of concern for the economy were elevated commodity prices leading
to a depreciation of the Indian rupee, higher retail inflation (both core and food
inflation)leading to the RBI raising interest rates and rationalising systemic liquidity,
and a rising current account deficit (CAD).
However, despite these critical challenges, India emerged as the
fastest growing major economy in the world. The second advance estimate of national income
released by the central statistics office (CSO) on 28 February 2023 ex -pects real GDP
growth in FY2023 to be 7.0%.
Table 1: Real GDP and GVA and growth, India
|
FY 2020 |
FY 2021 |
FY 2022 |
FY 2023 |
|
(2nd RE) |
(2nd RE) |
(1st RE) |
(2nd AE) |
| Real GDP (H in trillion) |
145.2 |
136.9 |
149.3 |
159.7 |
| Real GVA (H in trillion) |
132.2 |
126.8 |
138.0 |
147.1 |
| Real GDP growth |
3.7% |
(5.7%) |
9.1% |
7.0% |
| Real GVA growth |
3.8% |
(4.1%) |
8.8% |
6.6% |
Source: Government of India, Central Statistics Office (CSO). AE
denotes Advance estimate, and RE denotes re -vised estimate.
Chart A depicts India?s real GDP growth over the same period by
quarters for the last four financial years.
The quarterly trend of GDP growth in FY2023 pegs the year-on-year
growth of 5.1% in Q4 FY2023, 4.4% in Q3 FY2023, 6.3% in Q2 FY2023 and 13.2% in Q1 FY2023.
Private consumption showed some signs of slowdown. A weaker trend in government final
consumption expenditure is understandable as the spend on welfare schemes has moderated in
comparison to what was spend during the pandemic. Government led capital expenditure has
continued to be an important driver of the economy with gross fixed capital formation
(GFCF) expected to contribute to 34.0% of the GDP in FY2023 versus 32.7% of the GDP in
FY2022.
The current account deficit (CAD) widened in FY2023 on account of (i)
rising commodity prices, (ii) appreciation of the
US dollar and (iii) a slowdown in economic growth and world trade owing
to aggressive and synchronised monetary policy tightening across the world. For the first
three quarters of FY2023, the CAD stood at 2.7% of GDP.
Consumer price inflation (CPI) remained at elevated levels during the
year. Though it dropped from 7.79% in April 2022 to 5.72% in December 2022, it again rose
to 6.52% in January 2023 before dropping to 5.66% in March 2023.
In May 2022, the RBI increased the policy repo rate by 40 basis points
(bps); and thereafter continued to increase policy repo rates by 50 bps in June 2022,
August 2022 and September 2022. This was followed by smaller increases of 35 bps in
December 2022 and 25 bps in February 2023. The cumulative increase in FY2023 was 250 bps.
This was preceded by the introduction of the Standing Deposit Facility (SDF) at a rate 40
bps higher than the fixed rate reverse repo. Thus, the effective rate hike during the year
has been 290 bps.
At its Monetary Policy Committee (MPC) meeting held in April 2023, the
RBI unanimously decided to keep the policy rates unchanged with an emphatic statement that
the pause was only for this meeting and the MPC would not hesitate to take further action
as may be required in future. The MPC also decided to remain focused on withdrawal of
accommodation which was favoured by five out of six members.
Chart B below depicts the movement of consumer price index (CPI),
wholesale price index (WPI) and the repo rate since Dec 2021 over the respective month.
Non-food credit growth of the scheduled commercial banks was 15.9% as
on 24 February 2023 over 25 February 2022 against 9.2% for the same period in the previous
year. This credit growth was largely driven by services industry and personal loans which
recorded a growth of 20.7% and 20.4% respectively as on 24 February 2023 versus 6.2% and
12.5% for the same period in the previous year.
Credit to industry registered a growth of 7.0% in February 2023 over
the previous year against 6.7% in February 2022. Credit to large industry rose by 5%
versus 0.9% a year ago; to medium industries it was 13.5% as against 53.8%; to micro and
small industries it was a growth of 13.2% in February 2023 as against 24.0% a year ago.
The previous year had seen substantial support to micro and small
industries which had been impacted by the pandemic.
Fortnightly data released by the RBI on 05 April 2023 reflected
non-food credit growth of the scheduled commercial banks remained strong at 15.4% as on 24
March 2023.
The Government of India announced a growth oriented and expansionary
budget for the FY2024. It has tried to strike balance between fiscal consolidation and
growth by continuing its focus on capital expenditure and creating fiscal space for that
by curtailing revenue expenditure. It has set a target of reducing the central
government?s fiscal deficit to 5.9% of the GDP in FY2024 from 6.4% (revised estimate
or RE) in FY2023, while using the infrastructure capex tool to support the economy. The
Government has budgeted for H 10 trillion towards capital expenditure for FY2024, an
increase of 33% year-on-year.
On balance, we believe that the Indian economy has weathered the
external shocks reasonably well. The proof of it is that the country has emerged as the
fastest growing major economy in the world.
The calendar year 2023 began on a promising note with improved supply
conditions, resilient economic activity, and some degree of stability in financial
markets. In just a few weeks of March 2023 the sentiment changed as fresh headwinds
emerged from the banking sector turmoil in some advanced economies. Bank failures in the
USA and Switzerland with their contagion risks came to the forefront. However, the banking
and non-banking financial services sector in India remained healthy and evolved in an
orderly manner. The general expectation is that India?s GDP for FY2024 would record a
growth in excess of 6%. Of course, much depends on a normal rainfall in the coming year.
The risk of monsoon falling below normal levels (after four consecutive years of normal
rainfall) remains a wildcard and could hit agricultural production and impact food prices.
a) INDUSTRY STRUCTURE AND DEVELOPMENTS
NBFCs have become important constituents of India?s financial
sector and have been recording higher credit growth than scheduled commercial banks (SCBs)
over the past few years. NBFCs continue to leverage their superior understanding of
regional dynamics and customised products and services to expedite financial inclusion in
India. Lower transaction costs, innovative products, quick decision making, customer
orientation and prompt service standards have typically differentiated NBFCs from banks.
Considering the reach and expanse of NBFCs, these are well-suited to bridge the financing
gap in a large country like India. Systemically important NBFCs have demonstrated agility,
innovation and frugality to provide formal financial services to millions of Indians. The
growing importance of NBFCs is reflected in the consistent rise of their credit as a
proportion to GDP as well as in relation to credit extended by SCBs to the NBFC sector.
Chart C depicts the growth of NBFCs and credit to NBFCs (% of GDP) over
the last decade.
This is an enviable track record despite the business models of the
NBFCs being severely tested by four large external events in the last few years, namely,
(i) demonetisation, (ii) GST implementation, (iii) failure of few large NBFCs, and (iv)
the pandemic. The fact that many NBFCs have managed to overcome these stresses testimon
their resilience and agility. withoutsignificantimpact financial position isa
In recent years as the impact of the second COVID-19 wave waned and the
third wave turned out to be short- lived, the NBFC sector regained momentum, cushioned by
proactive policy measures announced by the RBI and the Government. The economic survey has
observed that credit extended by NBFCs is picking up momentum, with the aggregate
outstanding amount at H 31.5 trillion as on September 2022. NBFCs continued to deploy the
largest quantum of credit to the industrial sector, followed by retail, services, and
agriculture. Loans to the services sector (share in outstanding credit being 14.7%) and
personal loans (share of 29.5%) registered a double digit growth.
Given the increasing importance of NBFCs, the RBI, in the last few
years, has increased its regulatory oversight over the sector. Multiple guidelines such as
(i) vigil over asset-liability management practices, (ii) maintaining liquidity ratios,
(iii) increased reporting requirements, and (iv) scale-based regulation, have led to NBFCs
adopting practices in line with banks. The regulatory vigil is based on four key
cornerstones of: (i) responsible financial innovation, (ii) accountable conduct, (iii)
responsible governance, and (iv) centrality of the customer. We believe that NBFCs with
superior capital adequacy, better margins, frugal cost management, prudent risk management
and those incorporating above four key cornerstones in their business models will continue
to deliver sustainable growth in the foreseeable future.
b) OPPORTUNITIES & THREATS
• Growing working population and expanding middle class and poor
class are expected to remain the key demand drivers.
India is the fifth-largest automobile market globally by 2025, 4
million EVs is expected to be sold each year and 10 million by 2030.
• We look forward to seeing a strong track record in disbursing
income-generating EV Loans worth UNR 5000 Crore in the next five years.
India electric vehicle market size to hit USD 113.99 billion by 2029 at
a CAGR of 66.52% during the forecast period. The market is growing incredibly well due to
the adoption of electric micro-mobility vehicles worldwide.
c) SEGMENT-WISE PERFORMANCE
The Company has only one line of business, i.e., Financing and
Investment Activities during the year under review, hence no segment wise information is
required. The Company has no activity outside India. Therefore, there is no geographical
segment.
d) OUTLOOK
The NBFCs are being recognised as being vital for the growth of Indian
economy. NBFCs are here to stay and play an importantrole financialinclusion . As
India?s economy grows, the requirement economicgrowthand for credit will rise more
than proportionately. We need both Banks and NBFCs to rise to the occasion and power the
economy with free flowing credit lines. NBFCs with robust business models, strong
liquidity mechanisms and governance & risk management standards are poised to reap the
benefit of the market NBFCs that are well prepared with their business continuity and
contingency plans can quickly bounce back in the post COVID-19 era. With proper planning
and strategic initiatives, NBFCs can limit and overcome the impact of this disruption. As
we step into the next financial year, we have been hit by the second and it is uncertain
what impact it would leave on the economy and the performance of the various sectors.
We would take every step into the coming year cautiously. Protecting
the portfolio, ensuring safety of our employees, containing cost and improving efficiency
would be our key focus areas for the coming months till the environment becomes clear.
e) RISKS & CONCERNS
The Company?s Board of Directors has overall responsibility for
the establishment and oversight of the Company risk management framework. Company is
exposed to specific risks that are particular to its business and the environment within
which it operates including economic cycle, market risk, interest rate risk, liquidity
risk, regulatory & compliance risk and credit risks. Managing risk effectively also
helps in achieving the desired outcome, while fixingresponsibility and accountability. The
Company is especially focused on improving sensitivity to assessment of risks and
improving methods of computation of risk weights.
f) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has appointed M/s J Mandal & Co., Chartered
Accountants, an outside agency as its Internal
Auditors, who conduct internal audit for various activities. The
Company has developed adequate internal control system commensurate to its size and
business. Personnel of the Internal Auditor conduct periodic audits in all the areas to
ensure that the Company?s control mechanism is properly followed and all statutory
requirements are duly complied with. The reports of Internal Auditors are submitted to the
Audit Committee which further reviews the adequacy of Internal Control System.
g) DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATING
PERFORMANCE
The operating performance of the Company has been discussed in the
Directors Report under the head financial summary and state of Company affairs/operations.
The Profit/(Loss) Before Tax for the year 2022-23 was Rs.
1,079.12 lakhs as against 1,267.90 lakhs in the year 2021-22. This has
been a down fall in the year for your Company due to increase in business operations by
which operational cost has increased. Your directors are expecting to maintain the good
performance of the Company in coming years as the company has expended its business in the
current financial year.
The Company has a judicious balanced portfolio of Debt and Equity which
has given good returns during the year. The Portfolio is constantly reviewed and adjusted
as per market trends and expectations.
h) MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS
FRONT, INCLUDING
NUMBER OF PEOPLE EMPLOYED
The Company attaches importance to the dignity of employee irrespective
of position and highly values the cultural diversities of employees. Human Resource is
valued as an extremely important and strategic resource and your Company believes in
employee empowerment across the entire organization in order to achieve organizational
effectiveness. As on March 31, 2023, the Company had 241 employees.
i) LONG TERM AND SHORT TERM STARTERGY
Your Company is continuously reviewing the evolving situation in the
light of COVID-19 and playing a responsible role in minimising the adverse impact of the
pandemic on its businesses and the stakeholders? interests. Company continued to
focus on sustainability of performance with steady margins, stable asset quality and
focused growth by increasing the proportion of our existing good profile customer.
Your Company will continue to allocate its capital between Equity and
Debt. Management will evaluate and select investments based on high quality governance,
sustainability and strength of the investee company?s balance sheets. j)
SIGNIFICANT CHANGES IN FINANCIAL RATIOS
During the year, the significant changes in the financial ratios of the
Company, which are 25% or more as compared to the previous year are summarized below:-
| Financial Ratios |
FY 2022-23 |
FY 2021-22 |
Change |
Reason for Change |
|
|
|
in % |
|
| Debtors Turnover |
Not Applicable |
Not Applica- |
- |
- |
| Ratio |
|
ble |
|
|
| Inventory Turnover |
Not Applicable |
Not Applica- |
- |
- |
| (RM) |
|
ble |
|
|
| Interest Coverage Ratio |
3.24 |
88.39 |
(96.33)% |
Decreased mainly due to increase in debt raised during the
current year. |
| Current Ratio |
Not Applicable |
Not Applica- |
- |
- |
|
|
ble |
|
|
| Debt equity Ratio |
1.47 |
- |
- |
Improved due to borrowings raised during the year. |
| Operating Profit Margin (%) |
0.52 |
0.84 |
(38.44)% |
On account of high operating expenses due to expansion of
business in EV segment. |
| Net Profit margin (%) |
0.23 |
0.71 |
(67.64)% |
On account of high operating expenses due to expansion of
business in EV segment. |
| Return on Net worth (%) |
5.28% |
10.71% |
(50.68)% |
On account of high operating expenses due to expansion of
business in EV segment. |
k) CAUTIONARY STATEMENT
Estimates and expectations stated in this Management Discussion and
Analysis may be "forward-looking statement" within the meaning of applicable
laws and regulations. Actual results may differ materially from those expressed or
implied.
|
For and on behalf of the Board |
|
Mufin Green Finance Limited |
|
Manoj Kumar Bhatt |
| Place: New Delhi |
Chairman |
| Dated: 29.08.2023 |
DIN: 09452843 |
+91-9892691696
