muthoot capital services ltd Management discussions

Report

OVERVIEW

The Management of Muthoot Capital Services Limited is pleased to present this years Management Discussion and Analysis Report, which elucidates the actions taken by the Company to move closer to its vision. It illustrates the strategic objectives and efforts invested in a bid to achieve long-term objectives. The management commits itself, to creating value and this section analyzes the processes and procedures implemented to get optimum results.

The MD&A Report provides a comprehensive look into the organizations performance in light of the macroeconomic landscape. Through interpreted financial ratios and economic indicators, investors would gain insight into the views of management. These may be associated with some risks and uncertainties such as those involved in the Companys development, alterations in regulatory law, economic climate and other incidental business elements.

This section also outlines future goals and the strategies for upcoming projects.

GLOBAL ECONOMY : FACING ROUGH ROADS

As indicated in the ‘World-Economic-Outlook-April-2023 by International Monetary Fund, the Global Economy is headed towards a ‘Rocky Recovery. It suggests that growth shall fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024.

Advanced economies are anticipated to witness a particularly sharp deceleration, going from 2.7 percent growth in 2022 to 1.3 percent in 2023. In view of financial market uncertainty, global output will probably slide to about 2.5 percent in 2023 and advanced economies could experience less than 1 percent growth rate. On price level, while the baseline outlook implies that general in ation should fade from 8.7 percent this year to 7.0 percent by 2023 due to lower commodity prices, underlying in ation is estimated to go down at a milder pace. We should anticipate that most countries would not reach their targeted in ation rates earlier than 2025.

The World Banks Global Outlook report highlights that, even though there was a revision of estimates for many countries due to better-than-expected results at the start of 2023, overall growth in emerging market and developing economies is likely to be constrained by tightening financial conditions and subdued external demand. While in ation has been prevalent as of late, it is set to decline as demand lessens and commodity prices moderate, provided that long-term price expectations remain steady.

Globally, growth could be weaker than expected if banking sector stress becomes more ubiquitous or if in ation pressures cause more stringent monetary policy. In the long run, the potential growth slowdown has been made worse by the pandemic and the Russian invasion of Ukraine as well as a major tightening of global financial markets. All of this can worsen prospects and heighten risks in the near term.

The current predicament has presented a variety of policy issues that need to be addressed. A reexamination of international financial regulation is essential in the wake of recent banking crises. Moreover, international collaboration is necessary in order to hasten the shift to clean energy, reduce climate change, and provide assistance to those nations which are in debt dif culty.

KPMGs Global Economic Outlook for the first half of 2023 states that macroeconomic conditions are "treading cautiously amidst risks". The report outlines that sharp falls in in ation will likely leave behind some of the recent challenges for the global economy. Central banks are approaching the end of the tightening cycle partly as a response to rising tensions in financial markets. Easing supply chain pressures and resilient labor markets will support recovery but uncertainty about the outlook is on the rise.

Concerning banking, the report highlights that many central banks remained vigilant early this year. Fueled by in ation created from the re-opening of economies after Covid-19 restraints and Ukraines commodity shock, fears abounded that, such price rises could be entrenched in in ation expectations, subsequently affecting rms pricing tactics and employees wage aspirations. To add to the unease, tight economic situations in some countries pushed core in ation (not including food and energy) to remain obstinate while price rises became commonplace across economies.

The report offers some optimism in terms of potential growth this year, mostly due to the successful relaxation of regulations in China from December last year. Furthermore, shipping costs are decreasing and the pressure on the global supply chain has been alleviated, which could help reduce in ationary pressures and allow more supplies to reach us. Although overall global trade is still struggling, we can anticipate it to gain some strength as the world opens back up again and economic activity starts to recover; however long-term geopolitical troubles might throw a spanner in the works.

Consumer con dence in China and Europe has seen some increase recently, although it is still low overall. This could result in potential deployment of products and services once a greater amount of trust is restored.

INDIAN ECONOMY: SHOWING RESILIENCE

The April 2023 India economic outlook from Deloitte Insights envisions a strong investment recovery in the nation, and though global contingencies may lower growth this year, 6.5% expansion is anticipated over the medium term.

The World Bank has expressed concerns that the current global economic decline may lead to a period of stagnation. Nonetheless, several market analysts are convinced that this decade could be Indias to seize. To support their view, new data from India indicates that, in spite of worldwide uncertainties, the country is performing better than expected. Estimates from the International Monetary Fund further af rm this theory, with projected growth at 5.9% by 2023 24 and an average of 6.1% over the next ve years.

The report predicts a bright future for the Indian economy due to an anticipated increase in investment which will spur long-term development. Growth is likely to pick up in the coming year as investments lead to higher job opportunities, incomes, productivity, demand and exports, with favorable demographic factors helping to sustain this momentum over the medium term.

It appears that the world has emerged from the shadow of the pandemic, having managed to adapt to it. Nevertheless, geopolitical tensions, supply chain restructuring, in ation around the globe, and tough monetary policy stances will put a damper on expectations.

India recently launched GDP gures for Q3 of FY2022 23, along with updates to the past three years numerals. Data reveals India fared better than initially anticipated as growth stoked up tensions from FY 2022 23 ( gure 1). Revisions to GDP for FY 2020 21 climbed by 0.77 percentage points, suggesting the recession was not as severe as previously thought. In addition, growth in FY 2021 22 was increased from 8.7% to 9.1%, a sign of vigorous jump-back. This uptick was mainly a result of greater-than-forecasted improvement in manufacturing and construction sectors.

RESERVE BANK OF INDIA: INDICATING POSITIVITY AHEAD

The Reserve Bank of India has indicated in its annual report for 2022-23 that Indias growth trajectory is expected to remain strong during FY2024, coupled with easing in ationary pressure. Monetary policy actions are centered around withdrawing stimulus measures so that in ation maintains the targeted rate while providing support for economic expansion.

It can be inferred from the report that soft global commodity and food prices, a healthy rabi crop outlook, sustained vigour in contact-intensive services, and the governments investment in capacity building alongside double-digit credit growth will facilitate an estimated GDP growth of 6.5 per cent for FY2024. This is due to decreased pressure on consumer spending caused by high in ation and improved optimism among businesses and customers.

Nevertheless, slower global expansion, ongoing geopolitical disputes and potential spikes of market turmoil if new stressors arise in the international financial system could bring growth to a halt.

The risk to in ation has lessened as global commodity and food costs have dropped, and the impact of high input costs from last year has declined.

Consumer price-based in ation decreased to 4.7 per cent in April 2023, which is the lowest it has been in 18 months. The numbers are also within the RBIs target range of 2-6 per cent, making it two months in a row that this has been the case.

The report stated that the cumulative rise in the policy repo rate of 250 bps last year will guide the downward pressure on prices, alongside measures to address short-term demand-supply gap caused by food and energy shocks.

The exchange rate is steady and the rainfall forecast for this year appears normal, which suggests that in ation rates should decline over 2023-24. It is anticipated that headline in ation will reach an average of 5.2 per cent, lower than last years 6.7 average.

Monetary policy shall remain focused on the withdrawal of accommodation to ensure that in ation progressively aligns with the target while supporting growth.

Indian banks and non-banking financial intermediaries must retain their soundness and resilience while stress testing for new potential shocks. It is vital that capital buffers and liquidity positions are regularly assessed and built up.

The RBI has indicated that it is looking to extend the current pilots of CBDC-Retail and CBDC-Wholesale throughout this financial year, by including distinctive use cases and features. Additionally, it intends to widen the pilot in CBDC-Retail across numerous locations with an additional set of participating banks.

NON-BANKING FINANCE COMPANIES (NBFC) SECTOR: CONTRIBUTING TO A REBOUND

NBFCs have a distinct advantage in their enhanced knowledge of regional dynamics, efficient collection systems, and bespoke services while pushing for further financial inclusion in India. Their lower transaction costs, rapid decision-making, focus on customer service, and immediate access to services are the distinguishing features of NBFCs compared to banks. The wide reach and local presence of this sector has provided them with the capability to be exible, creative, and a step ahead in offering formal monetary services to those who are under-banked or those not serviced elsewhere.

According to ICRA, a 12-14% growth in NBFC Retail AUM is expected for FY24. This increase is mainly attributed to the unsecured segments of personal credit and micro nance. In comparison to the estimated growth earlier, this marks a resounding rebound from FY2023. ICRA has emphasised that "The intensi ed competition from banks in traditional asset segments has prompted entities to increasingly target these unsecured segments." Vehicle nance segment, accounting for about 40% of the NBFC retail book, will probably grow at a comparatively slower rate. In FY2023, LAP and SME loans witnessed significant growth whereas the gold loan segment encountered dif culties due to ampli ed competition from banks.

Although asset quality appears set to remain better, thereby causing provisions to be unwound and credit costs down, it is likely that margins face pressure during FY24 resulting in net profit moderately descending from 2.5-2.7% estimated in FY2023 to 2.4-2.6%. The sectors adequate capitalisation and its internal profit generation should suf ciently back near-medium term expansion which has been additionally bolstered by the switch towards long-term sources such as term loans and debentures along with considerable securitization volumes

AUTO INDUSTRY OVERVIEW : BRAVING THE ODDS

The car industry is expected to grow worldwide during the next few years, in spite of the economic instability. This is mainly due to an increased penetration in emerging markets, rising preference for electric cars and Chinas easing of limitations set due to Covid-19. Furthermore, constant production levels and a demand backlog can reduce some of the effects caused by the cost-of-living crisis and supply chain issues, which have been impacting sales and production.

Business reports have revealed that Indian auto industry experienced several dif culties in the past few years, particularly when Covid-19 emerged. During FY2023, which was the first year of recovery since then, headwinds kept appearing such as the Russia-Ukraine con ict, a substantial rise in crude oil prices and long-term global semiconductor shortages. Nonetheless, there have been signs of progress and recovery despite these hurdles.

Passenger vehicles

Retail sales in the passenger vehicle segment witnessed a 23 percent surge to approximately 36 lakh units in FY2022, led by the SUV segment. This could be ascribed to healthy replacement demand, relatively stable semiconductor supplies, and pre-buying ahead of the second phase of BS-VI emission norms implementation on April 1, 2023. In the upcoming financial year, owing to robust demand and diminished chip shortages, growth in this segment will mostly be powered by SUVs. Additionally, a few budgetary announcements are expected to lend further impetus to the sectors development.

The Indian Semiconductor Mission that has been allocated Rs 3,000 crore will also help bring down its reliance on imports. Moreover, with tech-enabled features gaining currency in passenger vehicles, it is likely to benefit from such missions the most. Besides this, upward revision of the income tax slabs might increase disposable income among middle class families, thus driving demand for entry-level cars and two-wheelers.

Electric vehicles

The Indian government is actively pushing for greater electric mobility and has implemented stricter emission norms. This means we can anticipate more EVs on our roads by 2023. Budget 2023 also provided an extension of customs duty exemptions to capital goods and machinery imports for manufacturing lithium-ion batteries, which are essential components used in EVs. The global impetus on supply chain diversi cation, enhancement of Tier 2 and 3 domestic supplier base, as well as Make in India schemes such as the Production Linked Incentive (PLI) and Faster Adoption and Manufacturing of Hybrid and Electric vehicles (FAME), further contribute towards the EV momentum.

Two-wheelers

According to a report, the domestic two wheelers enjoyed a 17% growth- although remaining at 9-year low of 15.86 million units for FY 23. Pre-Covid sales in 2018-19 were 21.18 million units, indicating that there is still much ground to make up for.

Comparatively, the domestic two-wheeler sector has had lesser success than passenger cars when it comes to output. The entry-level commuter segment saw a decrease in demand due to increases in on-road prices for its models, which have risen noticeably over the years. It has experienced a negative CAGR of 6.97%. Retail continues to remain weak since the demand for cheaper CC models has yet to pick up. A 50% price increase for the entry-level segment over the past three years has also had an impact on industry sentiment. Looking ahead, experts suggest that the market will experience recovery in FY24 with the hope that next 2-3 years will feature positive per capita income growth along with moderate in ation.

Three-wheelers

In FY 23, the sale of three-wheelers surged by 84%, with electric rickshaws seeing a 119% increase. FADA believes that the growth of this segment is partly attributed to consumer nancing, alternative fuel availability and governmental subsidies.

COMPANY PERFORMANCE: REGAINING MOMENTUM

The previous year i.e FY 22 was a challenging year for the Company due to several factors. The automotive industry suffered and global geopolitical tensions only exacerbated the situation. NPAs climbed to unprecedented heights, impacting the Companys annual results.

In light of above, the Company in FY 23 seized the opportunity provided by recovering markets at home and abroad and achieved a remarkable turnaround. This is evidenced by the commendable profit of Rs. 7793 lakhs. This is a reflection of the fact that the Company has is regaining momentum.

Focused approach

One of the key strengths of the Company is its focus on core business. The Company anticipates success by deploying effective growth strategies to promote its current and future product offerings. Consumer durables, 2-wheeler nancing, top up loans and corporate loans have been specified for this purpose.

The policies of the Company are adjusted to reach the desired goals in view of any probable eventualities. To achieve the desired objectives, the team will strive hard to identify where demand exists and compensate for any de cient supply.

This strategy has allowed the company to raise disbursement numbers within Two-Wheeler Loan segment despite subdued two-wheeler sales by concentrating on expanding penetration among sub-dealers and multi-brand outlets. Geographically too, the portfolio is well spread out over 20 states. Moving ahead, the Company will strive for a well-diversi ed mix of retail, consumer, and commercial business while also focusing on long term pro tability through a combination of cross selling products to existing customers and building a sustainable commercial vertical. Finally its key target population remains mid income self-employed people from semi-urban and rural regions.

Strengthened technology

The Company has scaled up its digital initiatives across the value chain and leveraging its existing physical presence to reduce overall costs and improve pro tability.

The use of digital technology has revolutionized the way customers nd, navigate, purchase and interact with products and brands. Because of this, most operations are completed using apps or NACH. This transformation has led to a marked increase in our digital sources and collections, which has been a major benefit for us as well as our customers. Our mobile-based loan approval process also offers a swift response time, meaning information is more readily available from any location at any time. Not only does this improve the customer experience but it also aids in improving the Companys reputation by enabling efficient operations in remote areas. To ensure regulatory compliance across all channels, we apply risk and compliance procedures. Last but not least, analytics are integral to optimizing the user experience and further boosting our brand image.

The Company has also utilized technology to boost engagement with channel partners and customers alike. AI, machine learning, and analytics are being applied to various products in order to boost customer lifetime value on the underwriting and collections end.

Improved Collections

The Company introduced pioneering solutions with the help of technology and analytics to enhance the effectiveness and ef ciency of debt collection. Strategies-based methods were employed, while data-driven actions were implemented to control the number of overdue accounts. Arti cial intelligence was also utilized for reducing credit losses. Additionally, customers and debt collectors were divided into segments in accordance with local areas, in order to optimize the distribution of debt collection services.

The collection teams have been investing significantly in urging customers to make electronic payments via payment gateways, which has also contributed to improvement in recoveries.

Steadfast Financial Discipline

The Company has kept strong ties with its financial partners in order to guarantee availability of adequate credit for company functions. Investors/lenders have been receptive even during dif cult times, displaying their trust in us. Furthermore, efforts are being made to reduce operational costs and properly monitor credit transactions to minimize chances of fraud/default and related losses.

Quality based credit underwriting

The Company has been diligent in maintaining the quality of its portfolio through expanded prudent choice of customers. This prevents delinquencies which is evident in our reduced NPAs during FY 23.

Vigilant fraud detection and prevention

The Company has implemented several risk mitigation strategies to combat potential fraud. An alert system is in place at the customer, dealer, and employee level, as well as a fraud detection algorithm for enterprise operation. In addition, fraud identi cation techniques have been put into effect to prevent fraudulent activities from taking place.

FINANCIAL PERFORMANCE OF THE COMPANY

Financials for the last 5 years at a glance

(Rs in Lakhs)

Financial year ended 31st March	2019	2020	2021	2022	2023
Operating Results
Disbursements	2135 05	1788 10	750 34	1147 10	1318 28
Total Revenue	518 60	586 80	505 04	411 30	444 62
Pro t Before Tax (PBT)	132 89	93 47	69 50	-215 70	108 80
Pro t After Tax (PAT)	86 26	60 18	52 19	-161 94	78 68
Assets
Fixed Assets (including assets leased out)	1 94	3 51	2 81	196	213
Investments	19 60	16 43	16 35	2,740	4,554
Deferred tax asset	32 45	27 11	21 44	9,978	9,240
Net stock on hypothecation	2110 33	2211 40	1749 11	1505 61	1516 56
Other loans (including interest accrued)	365 96	216 29	122 50	91 40	164 14
Other assets	109 70	438 50	647 39	37237	61457
Total Assets	2639 98	2913 24	2559 60	2098 52	2435 34
Liabilities
Equity	16 45	16 45	16 45	1645	1645
Reserves and Surplus	430 75	490 93	543 12	39488	47281
Borrowings (including interest accrued)	2125 90	2354 73	1947 00	162468	189127
Other liabilities	66 88	51 13	53 03	62 51	54 81
Total Liabilities	2639 98	2913 24	2559 60	2098 52	2435 34
Key Indicators
Earnings Per Share (in Rs)	52.4	36.8	30.29	-98.47	47.84
Book Value Per Share (in Rs)	271.9	308.4	3 40.2	250.1	297.46
CRAR (%)	20.9	24.90	31.8	21.57	27.92
GNPA (%)	4.50	6.90	12.1	25.53%	20.55
NNPA (%)	2.70	4.0	6.2	5.70%	2.58

Financial Performance

The Companys Assets under Management (AUM) primarily comprise vehicle loans, of which two-wheelers constitute the major portion. The Company also has a wholesale loan book, which, as on March 31, 2023, was 8% of the total book. Overall AUM as on March 31, 2023 was Rs 2102,36 lakhs (including assigned loan of Rs 4,38 lakhs), as against Rs 2087,77 lakhs (including assigned loan of Rs 6,68 lakhs) at the end of the previous year. The disbursements for the year ended March 31, 2023, were Rs 1318,28 lakhs as against Rs 1145,40 lakhs for the year ended March 31, 2022.

The Companys income comprises both income from vehicle financing and corporate loans. The Company has earned an income of Rs 444,20 lakhs in the current year, compared to Rs 410,83 lakhs in the previous year. During the year, our expenses decreased by 46%. It comprises of various components, of which nance costs constitute the major portion, totaling at Rs 14,815 lakhs, followed by other expenses of Rs 112,58 lakhs (including Rs 1,249 lakhs as impairment on financial instruments), employee costs of Rs 74,44 lakhs, and depreciation and amortisation of Rs 65 lakhs.

	Year Ended			(Rs in Lakhs)
Financial Snapshot	March 31, 2023	March 31, 2022	% Growth	Reasons for Variance
Disbursement (all Loans)	1318 28	1145 40	15%	Higher disbursements on account of post-covid trend as shown by the two wheeler industry in FY 22-23
AUM at the end of the period (own book) [2]	2097 98	2081 09	1%	The overall AUM grown by 1% as the repayments on account of higher recoveries from NPA, the tenor of product.
Average AUM (own-book excluding interest ac- crued) [3]	2,09,765	2033 48	3%	The average AUM has increased on account of recovery from Post-covid scenario in last two FYs.
Total Debt [4]	189127	1624 68	16%	The liquidity has been well maintained throughout the financial year , company has also gone for structured transactions like NCDs and MLDs.
Net worth [5]	48925	41134	19%	The net-worth has increased due to profit and well as restatement of previous year due to change in accounting policy which also has contributed Rs 2359 lakhs.
Revenue [6]	44462	411 30	8%	Higher Disbursement contributed to the increase in Fee whereas the increase in average Aum with minimum NPA on the post-covid portfolio we can see a decent jump in interest income as well.
Finance Ex- penses [7]	14,815	149 92	(1%)	During the year, the Company has been able to reduce nance cost because of increasing the fund mix which ultimately helped in reducing cost.

	Year Ended			(Rs in Lakhs)
Financial Snapshot	March 31, 2023	March 31, 2022	% Growth	Reasons for Variance
Net Interest Income (NII) [8] =[6]-[7]	296 47	261 38	13%
Operating Expenses [9]	175 18	152 73	(13%)	The overall opex has got a blend of fresh hiring i.e increase in employe benefit and increase in incentives for the targets achievement in business as well collections.
Loan Loss & Provisions [10]	12 49	324 36	(96%)	Due to the stupendous recovery shown by the company, there was no need to provide any extra provision throughout the year. Hence, we can see a substantial dip.
Pro t Before Tax [11]	108 80	(215 70)	(150%)	The company , after having a one-off loss in the previous FY has again gone back to the road to recovery. With Higher disbursement and excellent collection we have been able to achieve the desired pro ts
Pro t After Tax [12]	78 68	(161 94)	(148%)	The company , after having a one-off loss in the previous FY has again gone back to the road to recovery. With Higher disbursement and excellent collection we have been able to achieve the desired pro ts
			Ratios
Total OPEX to NII [13] = [9] / [8]	59.1%	58.4%		As result of increase in Collection expense and Salary cost without a proportionate increase in revenue has resulted in OPEX to NII.
Loan loss to average AUM [14] = [10] / [3]	0.60	15.95		Due to the stupendous recovery shown by the company, there was no need to provide any extra provision throughout the year. Therefore, the ratio has declined.
Return on average AUM [15] =[12] / [3]	3. 71	(7. 96)		The company , after having a one-off loss in the previous FY has again gone back to the road to recovery. With Higher disbursement and excellent collection we have been able to achieve the desired pro ts
Interest Cov- erage Ratio [16] = [11] + [7] / [7]	1.73	(0.44)		The company , after having a one-off loss in the previous FY has again gone back to the road to recovery. With Higher disbursement and excellent collection we have been able to achieve the desired pro ts
Current Ratio	0.77	0.97
Debt-Equity Ratio [17] = [4] / [5]	3.87	3.96		The improved Pro tability has caused a reduction in the leverage.
Operating Pro t Margin/ Net Interest Margin on loan book [18] = [8] / [3]	14.1%	12.9%		The operating profits margins have seen the upward trend due to reduction of nance cost and reversal of provision.
Net Pro t Margin [19] = [12] / [6]	17.69%	(39.3%)		The company , after having a one-off loss in the previous FY has again gone back to the road to recovery. With Higher disbursement and excellent collection we have been able to achieve the desired pro ts
Return on (Average) Net Worth	17.3%	(33.3%)		The company , after having a one-off loss in the previous FY has again gone back to the road to recovery. With Higher disbursement and excellent collection we have been able to achieve the desired pro ts
Earnings Per Share (in Rs)	47.84	(98.47)		The company , after having a one-off loss in the previous FY has again gone back to the road to recovery. With Higher disbursement and excellent collection we have been able to achieve the desired pro ts

Capital Adequacy Ratio (CRAR)

As on March 31, 2023, the CRAR is 27.92% of the aggregate risk weighted assets on the Balance Sheet, which is comfortably above the regulatory minimum of 15%. Of the CRAR,27.92% is from Tier - 1 capital only.

a) Borrowing Profile (excluding interest accrued)

	March 31, 2023		March 31, 2022
Particulars	Amount in Lakhs	% of Total	Amount in Lakhs	% of Total
Loan from Bank/FI	1096,43	58.0%	1108,59	68.5%
Subordinated Debts	8,23	0.4%	29,68	1.8%
Non-Convertible Debentures/Market Linked
Debentures	260,00	13.8%	150,02	9.3%
Public Deposit/ICD	35,68	2.0%	58,97	3.6%
Securitization	480,36	25.4%	265,56	16.4%
Others	6,78	0.4%	5,08	0.3%
Total	1887 48	100%	1617 90	100%

The Companys total external borrowings (excluding interest accrued) increased to Rs 1889,20 lakhs as of March 31, 2023 from Rs 1617,90 lakhs as of March 31, 2022, an increase by 16.8%.

The overall borrowing costs have increased to 9.1% during the year. The Company explored different avenues to raise funds in meeting its disbursement requirement during the year. The company has done securitization transactions of Rs 626,59 lakhs (net of MRR) in FY 23 apart from Rs 315,15 lakhs which was sourced through Banks/OFI as Working Capital limits. Over the last 5-6 years there has been substantial increase in funds raised through Direct Assignment and Securitization. The Company has collected total amount of Rs 3608,87 lakhs through securitization and assignment transactions. Also the Company has issued Market Linked Debentures worth Rs 175,00 lakhs and NCD amounting to Rs 35,00 lakhs during the year. This will help the company substantially in getting funds into business and growing the loan book amidst the economic conditions prevailing in the country, which has restricted flow of funds into several sectors.The Companys total external borrowings (excluding interest accrued) increased to Rs 1889,20 lakhs as of March 31, 2023, from Rs 1617,90 lakhs as of March 31, 2022, an increase of 16.8%.

b) Assets under Management

The own-book AUM as on March 31, 2023 stood at Rs 2097,97 lakhs (i.e., Rs 2102,36 lakhs less assigned portfolio of Rs 4,38 lakhs) against own-book AUM of Rs 2081,08 lakhs (i.e., Rs 2087,77 lakhs less assigned portfolio of Rs 6,68 lakhs) as on March 31, 2023. The Companys AUM has shown remarkable growth before FY 20 but saw a dip in FY 21 and FY 22 due to the prevailing conditions which restricted the growth. The Company is now slowly picking up and maintaining its growth momentum in the years to follow.

Today, the Company has presence for auto loan financing in 20 States. The geographical distribution of hypothecation loans (including securitized portfolio) is as given below:

Zone	Active clients	Regular	NPA	% of NPA	Zone wise %
EAST	69,775	18,607.12	7,205.78	27.92%	16.54%
NORTH	96,276	31,841.59	8,384.39	20.84%	19.25%
SOUTH	2,67,656	85,835.83	22,799.48	20.99%	52.34%
WEST	35,718	8,463.05	5,169.66	37.92%	11.87%
TOTAL	4,69,425	1,44,747.59	43,559.31	23.13%	100.00%

The Companys extensive reach of distribution, through its own team, Co-lending, its marketing agents, its franchisees and above all the 3500+ branches of agship company of the Group, Muthoot FinCorp Limited, has enabled it to service its 5 lakh+ live customer base with ease. The Company has further diversi ed its portfolio of vehicle financing and also moved to the used-car space, aside from exploring other channels of distribution and maintaining a nominal proportion of corporate loan book.

The disbursements of hypothecation auto loans shown a positive trend this year on account of a downtrend in the 2W volumes, as stated earlier. The disbursements of hypothecation auto loans, along with number of loans, over the last 5 years is given in the chart below: c) Cost & Pro tability Analysis

The Cost and Pro tability analysis shows that the Company has earned profit with improvement in collection and increase in disbursement. The nance expenses were higher than what was required in view of the Company having to draw additional funds than what was required to meet sanction norms and also maintain liquidity and thereby incurred higher nance costs. The Company has higher Opex due to increase in collection cost and employee benefit expenses. The Company has not provided any extra provision during the year for ECL as there is improvement in collection resulted in maintain an NNPA of 2.58%.

The reason for all these have been the substantial slowdown in the economy over the last couple of years due to COVID-19 and impact of the same.

d) Spread Analysis

The Company has been able to maintain its gross and net spread at reasonable levels:

Particulars	March, 2023		March, 2022
Daily Average Loan Book Size
(Rs in Lakhs, excluding interest accrued)	2097	65	2033	48
Income from Operations	444 62	21.9%	411 31	20.2%
Direct expense (including interest, brokerage, dealer/MFL incentive, eld investigation charges)	168 09	8.3%	173 08	8.5%
Gross Spread	276 53	13.6%	238 22	11.7%
Personnel Expenses	74 44	3.7%	69 66	3.4%
OPEX (including depreciation etc.)	73 19	3.6%	59 92	2.9%
Total Expenses	147 61	7.3%	129 57	6.4%
Pre-Provision Pro ts	128 92	6.3%	108 65	5.3%
Loan Loss and provisions	12 50	0.6%	324 36	16.0%
Net Spread (before tax)	116 43	5.7%	(215 71)	(10.6%)

e) Opportunities & Threats

The overall economic recovery presents a notable chance to capitalize on the growth experienced by the Company in FY 23. We believe that demand for two-wheelers is poised to increase shortly, thus making way for financing companies. With diversi ed new products, the Company aims to build on its existing customer base while taking advantage of its MUTHOOT PAPPACHAN or MUTHOOT BLUE brand and dealer relationships. RBIs outlook of keeping an accommodative stance with regards to economic stimulation is likely to have a positive result on NBFCs growth prospects. There is immense potential for market expansion as NBFCs are often seen as single-stop nanciers provided they have sufficient funds.

Nevertheless, there are a few risks including weaker financial status, tighter regulation due to incidents of mismanagement, and liquidity crisis at certain times which can hinder their progress. Moreover, banks and other NBFCs offer stiff competition to this industry with diminishing entry barriers offering customers more options. Nevertheless, the Company manages to differentiate itself through customer services, digitization, and product features and strives to maintain this throughout.

RISKS & CONCERNS a) Credit Risk:

Credit risk is basically the risk of loss due to failure of a borrower/counterpart to meet the contractual obligation of repaying his debt. The risk could be on account of some erroneous sourcing done by the Company or because the customer might be facing some issues which does not permit him to make the repayment even if he actually wanted to.

Measures:

Before sanctioning loans, the Company performs a thorough background check of the potential customers, so as to avoid any chances of fraud and default. The checks include eld investigation, credit checks and tele-veri cation. The Company is contemplating the development of score-based models based on the data base that is generated over the last 10 years or so to determine the eligibility for loan sanctions for mitigating these risks.

b) Economic Risk:

The Companys performance would be hindered by any further slowdown of the economy, as it would lead to a slump in the auto sector as well as NBFC lending.

Measures:

The Company has devised continuity plans and strategies to mitigate the risks that might arise due to economic slowdown.

c) Regulatory Risk:

Risk potential on account of changes in laws, regulations or interpretations that causes business losses.

Measures:

The Companys operations would be affected by any changes in the regulatory environment. The legal and compliance team, in collaboration with external legal advisors keep themselves abreast and updated on the applicable laws and regulations and take any necessary actions as and when required.

d) Product Risk

The risk posed when the Competitors catch up with the product development. We have operations in the used car and two wheeler nancing.

Measures:

The Company has been expanding its operations across various parts in the country. We have also begun operations in the used car and two-wheeler nancing. Also, the Company owns a wholesale loan book, wherein we lend to other NBFCs engaged in SME lending, micro nance, three-wheeler, CV financing and personal loan, thus reducing the product concentration risk.

e) Technology Risk:

Information technology risk seeks to establish a strict information security structure to prevent data loss and cyber security threats.

Measures:

To counter the risks related to information technology, the Company is contemplating a major revamp of its Technology platform. The Company is in the process of nalizing with a pioneer for both its hardware and software requirements. The Company adopts a pro-active approach wherein things beyond the immediate future is looked into to ensure that the threats from the web is countered with no chances of fraud or manipulation.

f) Operational Risk:

Operational risks are those which arise as a result of incompetent or failed internal processes, people and systems or from external events.

Measures:

The constant skill development and training programs form the core of the employees training programmes. To ensure better control over the transactions, processes and regulatory compliance the Company has standard operating procedures in place.

CORPORATE GOVERNANCE

Good corporate governance is essential for Muthoot Capital, to increase enterprise value in a sustainable way. The Company has a long history of fair, open and ethical practices, founded on the core Group values of Trust, Value, Precision and Commitment to Customers. To ensure good governance, the Board and its Committees have implemented effective policies and procedures that are regularly reviewed. Boasting experts in the banking industry and well-informed Board members, the Company efficiently carries out its fiduciary responsibilities to all stakeholders. The Internal Corporate Governance guidelines comply with RBI Directions for NBFCs so as to bring about best practices and transparency in business operation

INVESTMENT PROPOSITION

The organization is heading towards long-term sustainability prioritizing customer satisfaction and value addition for the stakeholders. Given the unhindered availability of inputs, the two-wheeler segment appears to be poised significant growth, despite an abysmally low performance this year.

The southern states still appears to possess enough space for market penetration. The Company is planning strategies to expand its presence across the country in a robust manner . The Groups Flagship Company, Muthoot FinCorp with its expanding infrastructure, is expected to lead to lower entry costs for the company in new locations. The large network of branches of Muthoot FinCorp will aid in expanding rapidly with minimal operational costs. Ultimately, the decision will reap multiple benefits in medium to long-term basis.

The used four-wheeler segment is very different from the two-wheeler. In the used four-wheeler segment, the Company has been in operation in 20 centers and looks forward to increasing its penetration along with the 2W segment. With proper channels, better distribution networks and efficient teams in place, this segment would lead to higher growth and pro tability in the longer term. Our digital technology and analytics would ensure quicker processing of accurate data to con rm the correctness in the sourcing and speedy completion of disbursement. This would ensure that the operational costs would be kept minimal.

The Company has diverse options for funding purposes and the con dence of the investors/lenders remains untethered. We are eager to build new partnerships with the lenders and preserve their trust under all circumstances. Raising funds at reasonable rates will not be a challenge, thanks to the government stimulus packages and RBI initiatives. The skilled workforce and proper sourcing and collection infrastructure will only improve our chances of growth and make our goals achievable.

INTERNAL CONTROL SYSTEMS & ADEQUACY

A secure and effective internal control helps in eliminating the risk of asset loss, protecting sensitive information, verifying the accuracy of important data within the stipulated time and conducting operations in a legal manner.

The Company has an in-house audit team which collaborates with an outsourced concurrent audit team. The former is responsible for monitoring all financial transactions/operations/security on a constant basis while ensuring accuracy of data and compliance with the regulations. Any deviations in these tasks are relayed directly to the Management.

The concurrent audit report is reviewed by the reputed internal auditors, M/s. BDO India LLP, a popular and digni ed rm of Chartered Accountant professionals. The Internal Auditors monitor the systems and business operations of the Company. Any weaknesses in the system, non-compliance with the regulations and any suggestions for improved performance are reported by the Internal Auditors.

The Statutory Auditors review the Internal Audit Report while conducting audit functions to verify that there are no transactions which fall out of the regulatory stipulations and which are against the interests of the Company. The Internal Audit Report and the quarterly Compliance Report are reviewed by the Audit Committee and they also ensure that the observations in the report were addressed in the right time and manner by the Management. The Audit Committee also reviews an Action Taken Report (ATR) which lists down the points requiring correction and the relevant action needed.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCE

The Human Resource division of the Company is one of its most important assets as it is crucial in developing, reinforcing and changing the culture of an organization. For better business success and enhanced workforce management, the HR plays a vital role. With proven professionals spearheading the growth of the HR department in your Company, the employees are aligned with the Companys goals and objectives.

The Company understands that the ef ciency of its employees will directly lead to the pro tability of the organisation. There is a reduction in workforce from 1891 in 2022 to 1694 in 2023. We have successfully maintained a low-cost strategy for manpower and enabled professional partnerships on a variable cost basis.

The Company prioritizes the well-being of its workforce and hence keeps a safe, sanitized and motivated working environment during the pandemic outbreak. The Company had organized skill upgradation training programs aimed at up-skilling the employees to help utilize their potential in the best possible manner. Since all these factors contribute heavily to productivity, the Company ensures that the enthusiasm levels of the employees are high in all the of ces.

The Company offers salaries and incentives which are of industry standards to appropriately reward the efforts of the employees, help them form a shining career and continue retaining talent. We strive to create growth opportunities for the employees and recognize their achievements.

EMPLOYEE ENGAGEMENT

The Company continues to maintain its commitment towards ensuring a motivating and uplifting environment which ensures the focus and engagement of its workforce. To boost the morale of the employees, we consistently take initiatives which help in developing skills and promote team building. It is proven that motivated employees perform exceedingly well and feel valued as a part of the Company. We are dedicated to continue our efforts in the direction of making the Company a desirable working organization where everyone is pushed towards excellence and appreciated for their efforts.

CAUTIONARY STATEMENT

The statements made in this report describes the Companys objectives and projections which may be forward looking statements within the meaning of applicable laws and regulations and should be read in conjunction with the financial statements included herein and the notes thereto. Important developments that could affect the Companys operations include a downtrend in the industry - global or domestic or both, significant changes in the political and economic environment in India or abroad, tax laws, litigation, labour relations, exchange rate fluctuations, interest and other factors. The actual result might differ materially from those expressed or implied. 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.

	For and on behalf of the Board of Directors
	Sd/-
	Thomas John Muthoot
Kochi	Chairman
August 08,2023	DIN: 00011618