Adharshila Capital Services Ltd Management Discussions

BACKGROUND

Adharshila Capital Services Limited (ACSL) is a Non-Banking Finance Company ("NBFC"), holding a Certificate of Registration from the Reserve Bank of India ("RBI"). The ACSL is non deposit accepting NBFC engaged in financial services. The ACSL is an entity of Uttam Group. The Company has its registered office in Delhi and Corporate office at Noida.

GLOBAL ECONOMY

In the third year of a global pandemic, the financial services industry appears to be acclimating to a new reality. Many temporary measures put in place are now poised to become permanent, and a new industry structure is emerging. In this years Global Outlook for Banking and Financial Markets (BFM), the BFM subject-matter experts in the IBM Industry Academy and the global industry leadership team reflected on their experience with clients over the last 12 months and their expectations for the coming year.

Banks credit exposure to NBFCs fluctuated around Rs 9 lakh crore-mark for the better part of FY22 and crossed Rs 10 lakh crore threshold in December 2021. And from there, it continued its upward trajectory and crossed Rs 10.5 lakh crore in March 2022 as capital market rates hardened and NBFCs turned to avail comparatively cheaper bank loans.

"The reduction in stressed assets, along with improved collection efficiencies mark a recovery in the asset quality of NBFC-MFIs, supported by economic revival, limited impact of the omicron variant, and acclimatization to the post pandemic new normal".

INDIAN ECONOMY

The ongoing pandemic has forced all sub-sectors within the banking and financial services industry to innovate. The true potential kicked off with digital transformation. Today, every Indian owns a smartphone and can digitally apply for a loan, complete e-KYC, open a bank account, order food, groceries and other essentials.

The Indian financial sector currently comprises several segments: commercial banks, new-age fintech startups, non-banking financial companies (NBFCs), co-operatives, pension funds, mutual funds, small and medium financial entities and recently established payment banks. These varied financial services provide solutions to a wide range of customers based on their requirements and accessibility. These customers can be individuals, public organizations or private enterprises.

NBFCs are also proving crucial for small and medium enterprises (SMEs), which are the backbone of the Indian economy. Due to their diverse and broader client base, NBFC credit growth is comparatively more significant than traditional banks and lending institutions.

INDUSTRIAL STRUCTURE AND DEVELOPMENTS

Non-Banking Finance Companies (NBFCs) play an important role in promoting inclusive growth in the country, by catering to the diverse financial needs of various categories. Further, NBFCs often take lead role in providing innovative financial services to Micro, Small, and Medium Enterprises (MSMEs) most suitable to their business requirements. NBFCs are engaged in maturity transformation and core banking functions. The operations carried out by the NBFCs merely aid threat to growing market thereby leading to the economic development respectively.

In the present scenario of financial situation, there is a huge need for NBFC as the banks alone cannot sufficiently fulfill the needs of the society. There is a wide range of services provided by NBFCs such as providing loans, investments, equipment finance, hire-purchase finance, housing finance, and various other things.

In the present economic system, Non-Banking Financial Companies are playing a significant role in providing accessible and affordable financial services. The NBFCs are becoming a vital player in financial inclusions indirectly boosting the economy. These companies majorly focus on the business of loans, acquisition of shares, stocks, bonds, debentures and securities allotted by the government, local authority or by other market securities.

OPPORTUNITIES AND THREATS:

The NBFC sector in India is large with significant growth potential and has consistently created value for its shareholders. It is true that the difference between commercial banks and NBFCs is getting increasingly blurred as NBFCs are today present in almost all the segments of financial sector save cheque issuance and clearing facility. NBFCs are now recognized as complementary to the banking system capable of absorbing shocks and spreading risks at times of financial distress. The Reserve Bank of India (RBI) also recognizes them as an integral part of the financial system and is trying to improve the credibility of the entire sector. New opportunities like home equity, credit cards, personal finance, etc, are expected to take NBFCs to a new level. Growth in all these segments is sustainable at a higher rate than before given the low penetration and changing demography in the country.

NBFCs are present where the risk is higher (and hence the returns), reach is required (strong last-mile network), recovery has to be the focus area, loan-ticket size is small, appraisal & disbursement has to be speedy and flexibility in terms of loan size and tenor is required.

As the Companys main motive is to provide financing facilities within the Group, Company is not having internal or external threat. But still the service offerings by NBFCs are almost the same as Banks. Thus there is a low level of service differentiation. The Company needs to diversification in work to adopt the constant changes in regulations and competitive landscape.

FINANCIAL PERFORMANCE:

During the year under review, the company has incurred a loss after tax of Rs. 6,945 /- as against the Profit of Rs. 1,75,694/- in the previous year.

RESOURCES AND LIQUIDITY:

During the Financial Year 2021-22, no fund has been raised by Adharshila Capital Services Limited (ACSL) from market by way of public deposits. There were no allotment of shares / debentures or other securities have been made during the financial year.

REVIEW OF OPERATIONS OF THE COMPANY:

Adharshila Capital Services Limited (ACSL) has invested Rs. 36,52,23,028/- in the Securities of other body corporates as on March 31, 2022. Adharshila Capital Services Limited (ACSL) aims at better returns by a good asset quality and asset mix to achieve good returns.

OUTLOOK

NBFCs have played a critical role as a key contributor to the economy by providing a fillip to infrastructure, employment generation, wealth creation and access to financial services for the rural and weaker sections of society. The health and success of the NBFC sector has far-reaching implications on the inclusive development of the economy, financial inclusion of diverse population segments, capital formation and eventually the growth in GDP.

NBFCs are now reaching out to Tier-2, Tier-3 and Tier-4 markets, distributing the loan across several customer touch-points. Furthermore, they are also building a connected channel experience, that provides an omni-channel, seamless experience with 24/7 sales and service. The ACSL explore the opportunities available in the market and other financial areas. With the consumer of today evolving and accessing digital media like never before, NBFCs have embarked on new and better ways to engage with the customer.

RISK MANAGEMENT

Risk is present in any industry and differs only in terms of the level in which it obtains across industries. Hence, risk management is undertaken by the industry concerned by putting in place the right mechanism to mitigate risk if not eliminate risk. The Board has a committee with the name "Risk Management Committee" as per the requirement of Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Risk Management Committee is responsible for monitoring and reviewing of the risk and taking steps to mitigate the same.

Due to the nature of the business and the concerned fast changing business scenario, volatile condition of Stock Market, Adharshila Capital Services Limited (ACSL) is exposed to specific risks including interest rate volatility, economic cycle and market risk and risk arising from change of laws/regulations. With proper operational systems in place, the Company successfully manages these risks which also help in achieving the desired outcome.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has an adequate system of internal controls for business processes, operations, financial reporting, fraud control, and compliance with applicable laws and regulations, among others. These internal control and systems are devised as part of the principles of good governance; and are accordingly implemented within the framework of proper check and balances. Your Company ensures that a reasonably effective internal control framework operates throughout the organization, which provides assurance about safeguarding the assets, reliability of financial and operational information, compliance with applicable statues, execution of transactions as per the authorization and compliance with the internal policies of the Company.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT

The Companys Human Resources philosophy is to establishes human relations at all levels in the organization and helps in the maximum development of personnel abilities so that they may feel satisfied with their work. Adharshila Capital Services Limited (ACSL) endeavors to offer favourable workplace of a best in class standard. To ensure that an effective and the right resource are selected, your Company endeavors to strengthen its hiring mechanism. The Company values human development as one of the cardinal principle in the growth of the Company.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

Ratios are used to make a holistic assessment of financial performance of the entity, and also help evaluating the entitys performance vis-a-vis its peers within the industry. The NBFC sector is growing rapidly with borrowings comprising the largest source of funding. The financial performance of NBFC-D and NBFC-ND- SI sector has shown a consistent year-to-year growth in the financial ratios over the last few years.

The key financial ratios of the company for F.Y. 2021-22 have shown improvements due to increase in the revenue of the company while the liability has decreased during the year in concern. The Company has no Non-Performing Assets (NPA), hence ratios related to NPAs are not applicable. The significant changes in the other applicable key financial ratios are as follows:

Name of Ratios	F.Y. 2021-22	F.Y. 2020-21	Change(%)	Reasons for change
Current Ratio	10.84	7.34	47.68%	Decrease in current liabilities and Increase in current assets
Debt Equity Ratio	0.003	0.006	0.00%	Slightly Change During the Y ear
Net Profit Margin	-0.0025	0.0823	(103.03)%	Decrease in profit

CHANGE IN RETURN ON NET WORTH AS COMPARED TO PREVIOUS YEAR

Return on Net Worth (RONW) is a measure of profitability of a company expressed in percentage. Return on Net Worth for the financial year 2021-22 is -0.02% while the Return on Net Worth for the financial year 2020-21 is 0.09%. The downward in Return on Net Worth is mainly due to the decrease in revenue of the company while the shareholders equity has remained the same. The company is making continuous effort to make optimum utilization of the shareholders fund and perform better in the time to come.

CAUTIONARY STATEMENT

Statements made in this Management Discussion and Analysis (MDA) Report may contain certain forwardlooking statements based on our projections and assumptions on the Companys present and future business strategies.