Aditya Birla Capital Ltd Management Discussions.

Aditya Birla Capital Limited (formerly known as Aditya Birla Financial Services Limited) is the holding company of all financial services businesses of the Aditya Birla Group.

Your Company has a significant presence spanning multiple sectors including non-banking financial company (NBFC), asset management, life insurance, health insurance, housing finance, private equity, general insurance broking, wealth management, broking, online personal finance management and pension fund management. Your

Company has also received a licence from the Reserve Bank of India (RBI) to set up an asset reconstruction company.

Your Companys subsidiaries have built significant scale in the sector in which they operate. In addition to the scale each business has built, the subsidiaries work closely together to maximise synergy benefits and cross-sell.

Your Companys diversified portfolio of products and services allows it to capture the broader Indian opportunities in financial services.

Includes lending book of NBFC and Housing Finance Businesses includes AUM of Life Insurance, Health Insurance, Private Equity and Quarterly average AUM of Asset Management Business 30n like-to-like basis, ABNL transferred its 51 % stake in Aditya Birla Sun Life Insurance (ABSLI) to ABCL with effect from 23rd March 201 7.

Previous year financials have been re-stated to make the performance comparable.

• Consolidated revenue, on a like-to-like1 basis, increased 21%, over the preceding year from Rs. 11,071 Crore to Rs. 13,428 Crore

• Consolidated earnings before tax (EBT), on a like-to- like1 basis, increased 35% over the preceding year, to Rs. 1,554 Crore from Rs. 1,150 Crore; adjusted for investments in our recently launched health insurance business, like-to-like EBT growth was 41% over the preceding year

• Net profit (before minority interest) on a like-to-like1 basis, grew by 30% year-on-year to Rs. 1,004 Crore from Rs. 775 Crore, reaching the Rs. 1000 Crore mark for the first time

• Net profit (after minority interest) on a like-to-like1 basis, grew by 44% year-on-year to Rs. 824 Crore from Rs. 573 Crore

• Lending book (Inch housing), rose by 32% year-on-year to reach Rs. 51,378 Crore

• Aggregate AUM2 has grown 24% year-on-year to Rs. 3,05,295 Crore

• Posted positive Net VNB margin at 4.3% for our life insurance business in FY 18, compared to negative 5.5% in previous year On like-to-like basis, ABNL transferred its 51 % stake in Aditya Birla Sun Life Insurance (ABSLI) to ABCL with effect from 23rd March 201 7. Previous year financials have been re-stated to make the performance comparable.

includes AUM of Life Insurance, Health Insurance, Private Equity and Quarterly average AUM of Asset Management Business

ABFL continued to deliver strong performance across multiple parameters. The net interest income grew 37% year-on-year to Rs. 1,715 Crore in FY 18. The earnings before tax reached a record of Rs. 1,109 Crore in FY 18. Return on average equity and return on average assets continued to be strong at 14.2% and 1.9% respectively. These return numbers are to some extent impacted by the investments being made in digital, branches and feet on street.

The growth in the loan book has been accompanied by strong credit appraisal and risk management practices. As on 31st March, 2018, ABFL had a Gross NPA ratio of 0.92% and a Net NPA ratio of 0.65% with a substantial part of the lending book comprising secured lending.

ABFL believes diversification is a key strategy for risk mitigation. While the assets are diversified across sectors, customer segments and products, on the liabilities side it has a diversified borrowings mix, resulting in a competitive cost of funds. Hence, the overall year-on-year cost of borrowing reduced from 8.60% to 7.83%. ABFL maintains an optimum leverage ratio below 6 times.

During FY 18, ABFLs revenue grew by 31% from Rs. 3,425 Crore to Rs. 4,480 Crore, driven by strong growth in the lending book. Its earnings before tax rose by 33% from Rs. 832 Crore to Rs. 1109 Crore. Net profit after tax grew by 25% from Rs. 585 Crore to Rs. 731 Crore. Net worth expanded year-on-year by 27% from Rs. 4,991 Crore to Rs. 6,321 Crore, due to capital infusion and internal accruals. The business has received a capital infusion of Rs. 600 Crore during FY 18. The assets under management under wealth segment grew by 10% year-on-year to Rs. 14,911 Crore as on 31st March, 2018.

KEY FINANCIALS ( Rs. Crore)
Key Performance Parameters FY 18 FY 17
Lending book 43,242 34,703
Revenue 4,480 3,425
Average yield1 11.1% 11.8%
Interest cost/Avg. Loan book 6.7% 7.4%
Net Interest Income1 4.4% 4.4%
Opex 539 372
Cost Income Ratio (%)2 30% 29%
Provision for Standard Assets 53 42
Provision for NPA (Incl. 95 59
contingency & Others provisions)
Earnings before tax 1,109 832
Net Profit after tax 731 585
Net worth 6,321 4,991

1 Including net processing fees income and excluding DCM and syndication fees

2 DSA commission is adjusted against DSA fees to calculate cost to income ratio

OUTLOOK

NBFCs have steadily expanded their share of total credit in the country. They have developed innovative and customised financial products and solutions that are delivered efficiently to fulfil customer aspirations.

The implementation of various government initiatives to improve financial inclusion will further support the growth of NBFCs. With private consumption growing at a robust pace and a visible upswing in investments, NBFCs are well positioned to maintain their growth trajectory.

ABFL, through its customised lending and financing solutions, is well equipped to partner a growing India. Leveraging an energised economy, the Company is executing its growth strategies. ABFL sees opportunity across the spectrum of its customers, from corporates and SMEs to retail and HNIs. Your Company sees opportunities to grow within each segments though it believes the SME opportunity is probably the largest. Besides, sustaining the asset quality, effective implementation of technology to enhance productivity and broad-basing the liability mix will remain key focus areas.

ADITYA BIRLA HOUSING FINANCE LIMITED (HOUSING FINANCE)

Aditya Birla Housing Finance Limited (ABHFL) is registered with the National Housing Bank as a housing finance company under the National Housing Bank (NHB) Act, 1987. ABHFL offers a comprehensive range of housing finance solutions, such as Home loans, Home Extension Loans, Plot & Home Construction Loans, Home Improvement Loans, Loans Against Property, Construction Financing, Commercial Property Purchase Loan and Property Advisory Services.

INDUSTRY OVERVIEW

Housing credit as a percentage of GDP in India has increased steadily from ~7% as on 31st March, 2007 to -9.7% as on 31st December, 2017. However, it continues to be significantly lower than developed markets at 63% in the US, 65% in the UK, and 18% in China. Therefore, there is significant headroom for growth over the medium term. Housing Finance Companies (HFCs) and NBFCs are likely to benefit from their focus on the housing finance market, their thrust on relatively high- growth segments like affordable housing and self-employed customers, and their service excellence. NBFCs (including HFCs) have grown their housing loan portfolio at 21% CAGR during FY 12 to FY 17, compared to 18% of banks and have improved their share in outstanding housing loans from 36% in FY 12 to 41% in FY 17 (Source: National Housing Board).

PERFORMANCE REVIEW

ABHFL, which commenced operations in October 2014, has rapidly grown its loan portfolio and turned profitable within 7 quarters of full operations. Its loan book doubled year-on-year from Rs. 4,136 Crore in FY 17 to Rs. 8,137 Crore in FY 18. The gross disbursement has doubled year-on-year from Rs. 2,802 Crore to Rs. 5,105 Crore in FY 18.

ABHFL reported its first full profitable year in FY 18. With expansion in the book size and operating efficiency, the cost to income ratio has reduced from 102% in FY 17 to 76% in FY 18. The business continues to focus on a balanced sourcing mix with direct sourcing contributing -45% in FY 18.

The Company continues to focus on diversification across products and geographies. It has forayed into the affordable housing segment in June 2017 which comprised 5% of the overall lending book as on 31st March 2018. It continues to scale affordable housing to tap the growth across Tier II, Tier III and Tier IV cities. ABHFL reported gross NPA ratio of 0.53%.

There has been a strong focus on building distribution capabilities and delivery infrastructure. The Companys footprint expanded to 51 branches with 2700+ channel partners as on March 2018. The total customer base has grown three times to 19,074, which led to a reduction in home loan ticket size from Rs. 45 Lakh in FY 17 to Rs. 27 Lakh in FY 18.

The net interest income has doubled year-on-year to Rs. 172 Crore in line with an increase in book size, while the net interest margin has been maintained at 3%. ABHFL reported its first full year of profitability, with earnings before tax at Rs. 24 Crore. The net worth has expanded from Rs. 367 Crore in FY 17 to Rs. 750 Crore in FY 18. A sum of Rs. 350 Crore was infused during the year to fund the loan book growth.

KEY FINANCIALS Crore)

Key Performance Parameters FY 18 FY 17
Lending book 8,137 4,136
Average yield 9.9% 10.7%
Interest cost/Avg. Loan book 6.9% 7.6%
Net Interest Income1 3.0% 3.2%
Revenue 615 315
Cost Income Ratio (%) 76% 102%
Provision for NPA 6 2
Provision for Standard Assets 17 12
Earnings before tax 24 (16)
Net profit after tax 33 (16)
Net worth 750 367
1 Net of DSA commission and excluding fees income

OUTLOOK

Long-term growth outlook for the housing finance sector remains favourable owing to the Government of Indias focus on ‘Housing for All by 2022 initiative, improved affordability and favourable demographics. Further, the ‘infrastructure status accorded to affordable housing projects is likely to improve supply. These factors coupled with the current low penetration levels are expected to boost growth in the housing segment.

ABHFL is aiming to build a scalable and profitable book through an optimal product-sourcing-customer mix. The thrust is on building a robust technology platform for customer acquisition, offering quality customer service for better retention and creating operating efficiencies for profitability.

Since 1994, Aditya Birla Sun Life AMC Limited (ABSLAMC) has been one of Indias leading fund managers. It caters to t diverse customer base through a wide variety of investment solutions focussed on regular income, wealth creation and tax savings, among others. ABSLAMC is Indias third largest mutual fund, based on domestic average assets under management (AAUM) as published by AMFI for the quarter ended March 2018.

INDUSTRY OVERVIEW

Indias mutual fund industry comprises 42 asset management companies. The dominance of Top 5 asset management companies continues with these companies, contributing to 57% of industrys AAUM (Source: Association of Mutual Funds in India, www.amfiindia.com ).

In the FY 18, the industry witnessed a 26% growth in AAUM AAUM grew from about Rs. 18,29,583 Crore in the quarter ended March 2017 to Rs. 23,05,212 Crore in the quarter ende March 2018.

The industrys equity assets rose by 61% from Rs. 5,85,310 Crors in the quarter ended March 2017 to Rs. 9,41,395 Crore in the quarter ended March 2018. The share of equity AAUM in total industry AAUM touched 41%.

PERFORMANCE REVIEW

ABSLAMC achieved the milestone of becoming Indias third largest mutual fund with a quarterly AAUM of Rs. 2,67,739 Crore for the quarter ended March 2018. It grew faster than the industry resulting in an improved 10.75% market share.

The domestic AAUM as on Q4 FY 18 of ABSLAMC expandec y-o-y by 27% to Rs. 2,47,529 Crore. The equity market share improved to an all-time high of 9.18% in Q4 FY 18 vis-a-vi: 8.53% in Q4 FY 17. Equity AAUM contributed 35% of total domestic AAUM in Q4 FY 18 as against 26% in Q4 FY 17

ABSLAMC has a strong focus on scaling up its customer base and higher margin assets. The SIP book size almost doubled to an all-time high of Rs. 844 Crore (excl. STP) with market share at 12.16%. The total number of folios has increased from 3.9 Million in March 2017 to 6.0 Million in March 2018, demonstrating the retail granularity of the business.

The contribution from beyond top 15 cities (B15 cities) grew year-on-year by 49% to Rs. 40,092 Crore, while the industry grew by 38% year-on-year. The market share in B15 cities touched an all-time high at 9.40% in March 2018 against 8.75% in March 2017.

The focus on alternative assets continues with portfolio management services (PMS) reaching Rs. 4,310-Crore mark in AUM in Mar 2018, growth of 35% over March 2017. The offshore AAUM stood at Rs. 14,927 Crore. Our total alternate asset AUM grew by 29% to Rs. 20,209 Crore in Q4 FY 18.

Led by strong growth in assets under management, ABSLAMC posted sound earnings growth. Revenues (fee income) grew by 29% to Rs. 1,249 Crore. The earnings before tax rose by 46% to Rs. 493 Crore. The net profit surged by 48% to Rs. 330 Crore.

KEY FINANCIALS ( Rs. Crore)
Key Performance Parameters FY 18 FY 17
Domestic Avg. AUM 2,47,529 1,95,049
Domestic Equity Avg. AUM 86,450 49,914
Revenue from Operations 1,249 968
Other Income 41 46
Total Income 1,290 1,014
Costs 797 677
Earnings before tax 493 337
Net profit after tax 330 223
SIP book size Market Share (%) 12.16% 11.01%

ABSLAMCs fund performance remained strong across multiple asset classes. It received various awards and recognition during the year, of which the following are noteworthy:

• Asia Asset Management Awards, 2018

• Best Fund House

• Outlook Money Awards - Fund House of the year

• Morningstar Awards 2018 - Best Fund House - Overall

OUTLOOK

An increase in awareness in general but more particularly in the smaller cities in the country ensures that retail expansion will continue to be strong. ABSLAMC will continue to focus on increasing higher margin AUM and expanding investor base. Growing contribution from beyond top 15 markets will remain a focus area, besides strengthening digital presence to help connect better with customers and distribution.

Aditya Birla Sun Life Insurance Company Limited (ABSLI) is a 51:49 joint venture between the Aditya Birla Group and Sun Life Financial Inc., Canadas leading international financial services organisation. ABSLI has contributed to the growth and development of the Indian life insurance industry and currently is one of Indias leading private life insurance companies.

INDUSTRY OVERVIEW

In the last decade, the total new business premium written by the industry grew at 10% CAGR. Private players have done well over the last 3-4 years. FY 17-18 saw a significant improvement in the performance of almost all life insurance players. The industry witnessed a 19% year-on-year growth in the individual new business premium. Group business, on the other hand registered 10% de-growth year-on-year and total new business registered 12% growth.

Both private sector players and Life Insurance Corporation of India (LIC) recorded healthy growth during the last year. While LIC achieved 13% growth in individual new business premium, private players registered 24% growth. Private players, on the back of strong growth, increased their market share in individual new business premium from 54% in FY 17 to 56% in FY 18.

The industry continues to focus on the quality of business and improve financial performance to drive long-term shareholder value. This can be seen through improving persistency ratios across cohorts, reducing surrender to AUM ratios, better opex management and lower complaints.

Protection products command higher margins compared to savings products and an increase in protection share can meaningfully boost margins. Top players have sharpened their focus on protection with a share of 8-10% (from 2-4% a few years back).

On the distribution mix, there has been a distinct shift with Bancassurance now emerging as the primary distribution channel with >50% share (21% in FY 10) among private sector insurers. This shift is primarily driven by the captive customer base of bank owned insurer and leveraging the wide-spread network of bank branches. Direct channel, led by online and other modes is also moving upward.

PERFORMANCE REVIEW

ABSLI recorded a gross premium income at Rs. 5,903 Crore, registering 3% growth over the previous year. While new business premium income was up by 5% at Rs. 2,663 Crore, individual business grew by 20% from Rs. 960 Crore in FY 17 to Rs. 1,152 Crore in FY 18.

ABSLI has maintained a balanced product mix with continued focus to improve protection share for higher margins, in FY 18, the share of protection has doubled from 2% to 5% in FY 17. The non-agency channel increased significantly from 23% in FY 17 to 32% in FY 18 in the individual distribution mix. ABSLI has tied up with HDFC Bank during the year with access to the banks non-branch channel. HDFC has provided access to its pan-India branches with effect from 1st April 2018, leading to a significant business potential in the coming years.

The quality of the business, along with cost optimisation remains a key focus area for ABSLI. The 13th month persistency ratio improved by 380 basis points to 75.2% and 25th month persistency ratio improved by 426 basis point to 64.4%. The operating expense ratio improved from 20.7% in FY 17 to 20.1% in FY 18.

The net profit grew year-on-year by 35% from Rs. 124 Crore to Rs. 166 Crore, led by robust growth in the first-year premium, coupled with expense improvement and product mix. No capital infusion has been done in the preceding eight years as the business is generating adequate internal accruals to fund its requirements.

KEY FINANCIALS ( Rs. CRORE)
Key Performance Parameters FY 18 FY 17
Individual First year Premium 1,152 960
Group First year Premium 1,511 1,574
Renewal Premium 3,240 3,190
Total Gross Premium 5,903 5,724
Revenue 6,375 6,041
Opex to Premium (Excl. Commission) 15.6% 16.3%
Opex to Premium (Incl. Commission) 20.1% 20.7%
Earnings before tax 166 124
Indian Embedded Value 4,281 3,810
Net VNB Margin 4.3% (5.5%)

The value of new business is one of the most important value metrics in the life insurance industry and measures profitability over the long term. In FY 18, ABSLI achieved a gross margin of 33% (PY: 29%), while the net VNB margin turned positive to 4.3% (PY: -5.5%). The embedded value increased year-on-year by 12% to Rs. 4,281 Crore from Rs. 3,810 Crore in FY 17. The Company has one of the best gross margins in the industry, owing to a balanced product mix. ABSLI continues to focus on increasing the value of new business through growth in protection business, improving customer retention and enhancing cost efficiency.

KEY FINANCIALS ( Rs. CRORE)
Key Performance
Parameters FY 17 Change
Indian Embedded Value 4,281 3,810 12.4%
Value of New Business 388 281 38.1%
Gross VNB Margin 32.9% 28.9% + 4%
Net VNB Margin 4.3% -5.5% 9.8%

OUTLOOK

The life insurance industry has been on a volatile journey with strong growth in FY 10 (pre-regulatory changes), a big period of consolidation between FY 10 and FY 15 (post regulatory changes) and finally growth stabilising and picking up on the back of higher financialisaton of savings. There is a favourable growth environment for the life insurance industry over the next 3-5 years, driven by demographics, low insurance penetration, improving macro-economic indicators, lower return on physical assets and opening up of new distribution channels.

ABSLI is well positioned to tap into the opportunities of the life insurance industry. ABSLI is expected to emerge stronger on the back of its wide distribution franchise, a successful multi-channel strategy, a long history of product innovations and operational efficiency.

ADITYA BIRLA HEALTH INSURANCE CO. LIMITED (HEALTH INSURANCE)

Aditya Birla Health Insurance Co. Limited (ABHICL) was incorporated in 2015 wherein Aditya Birla Capital Limited (ABCL) and MMI Strategic Investments (Pty) Ltd. hold 51% and 49% shares, respectively. ABHICL commenced its operations in October 2016 and is engaged in the business of health insurance. ABHICLs current product portfolio includes unique offerings such as chronic care and incentivised wellness.

INDUSTRY OVERVIEW

The health insurance industry has been consistent growth in recent years. It now constitutes around 28% of total nonlife insurance in FY 18 vis-a-vis -22% in FY 12. The health insurance industry registered a premium of Rs. 42,300 Crores in FY 18, which translates to 23%y-o-y growth.

Currently, there are 30 players operating in the health insurance industry and these can be broadly divided into three categories i.e. public-sector unit (PSU) insurers with 57% market share, private general insurers contributing 23% and standalone health insurance companies, which account for 20% of the market. Health insurance has three broad customer segments viz. group segment for corporates with around 46% market dominated by PSU insurers; retail segment with 45% market share that has witnessed relatively higher growth due to increased penetration in Tier II and Tier III cities and Government segment, which forms -9% of the market.

PERFORMANCE REVIEW

Aditya Birla Health Insurance (ABHI) has created a differentiated business model on the philosophy of health first by moving from traditional ‘buy and forget to ‘buy and engage. ABHI serves as an enabler and influencer of health of customers, in addition to fulfilling the traditional role of funding healthcare expenses. It emphasises on a holistic health approach, which goes beyond sickness funding to disease prevention and wellness management.

ABHI has completed its first full year of operations in FY 18; and has now covered over 1 million lives. In FY 18, ABHI created and activated capacities in all channels, which include 15,700+ agents across 59 branches, 5 bancassurance partnerships, 190+ brokers and the launch of direct tele-assisted and online channels. ABHI has broad-based its channel mix with sizeable GWP contribution from all channels.

ABHI has fortified its existing line of retail products in FY 18. To strengthen its customer value proposition and target new customer segments, it has introduced Retail Activ Assure in its indemnity offerings and Retail Activ Secure with fixed benefit offerings, providing coverage of personal accident, critical illness, cancer care and hospital cash benefits.

In terms of its service delivery model, ABHI has built a robust platform for providing seamless experience through the customer journey from sales to servicing. It has empanelled 4,200+ hospitals to enable cashless services across 540 cities.

In FY 18, ABHI underwrote a gross premium of Rs. 243 Crore compared to Rs. 54 Crore in FY 17. The retail business contributed -35% of the total gross written premium in FY 18, of which over 70% was issued through the digitally enabled mode. ABHI posted a net Rs. 189-Crore loss in FY 18 to fund new business growth and create distribution network.

OUTLOOK

The gradual shift towards the retail segment is expected to continue over the next few years. The positive outlook is led by growing awareness and perception of insurance needs, rising income levels, increasing incidence of chronic condition and rising medical costs.

Standalone health insurance players are expected to grow at a faster pace than the industry average in the coming years. Powered by a strong brand, established distribution capacities and robust servicing capabilities to manage scale, Aditya Birla Health Insurance is well positioned to capitalise on the growth opportunity.

Critical components of the differentiated business model in the form of multichannel distribution capacity, strong product portfolio, wide network reach, robust digitally-enabled servicing model are well positioned to drive the growth of ABHI.

ADITYA BIRLA INSURANCE BROKERS LIMITED (GENERAL INSURANCE BROKING)

Aditya Birla Insurance Brokers Limited (ABIBL) is a leading composite general insurance intermediary, licensed by the Insurance Regulatory and Development Authority of India (IRDA). The Company specialises in providing general insurance broking and risk-management solutions for corporate and individuals alike. The Company also offers reinsurance solutions to insurance companies; and has developed enduring relationships with Indian and global insurers operating in India and many other countries in South Asia, the Middle East and Southeast Asia.

INDUSTRY OVERVIEW

The gross premium underwritten by Indias non-life insurers has grown by 18% from Rs. 1,28,213 Crore to Rs. 1,50,712 Crore (Source: GIC Council). Motor insurance, health insurance and fire insurance segments attained premium growth of 18%, 22% and 13%, respectively; and remained the top 3 contributors to the non-life industry premium with about 39%, 25% and 7% share (Source: Gl Council, March 2018 analysis).

PERFORMANCE REVIEW

ABIBL has been consistently outperforming the industry and gaining market share. Its premium placement grew by 25% year-on-year from Rs. 2,580 Crore to Rs. 3,236 Crore, while industry premium grew by 18%. Premium placement growth was driven by 29% and 27% growth in motor insurance and fire insurance segments. Its market share in non-life industry premium enhanced from 2.01% to 2.15%.

ABIBLs revenue rose by 116% from Rs. 121 Crores to Rs. 261 Crores. This increase in revenue is on account of new Motor Insurance Service Provider (MISP) guidelines introduced by IRDAI with effect from 1st November, 2017 with brokerage at higher rate from insurance companies and subsequent pay-out of Distribution Fee (DF) to MISP. Despite impact on margins on account of regulations, ABIBL has maintained earnings before tax at Rs. 40.4 Crore. It has posted a net profit of Rs. 26 Crore.

OUTLOOK

The unique role of the broking channel is recognised by regulators, insurers and customers. The total General insurance (Gl) industry recorded a premium of Rs. 1.51 Lakh Crore in FY 18, an impressive 18% growth over FY 17. However, penetration and density have remained low, indicating the need to address challenges, which impede growth. The sheer size and growth potential due to lower penetration and growing economy ensures future growth opportunity.

ABIBL will continue to focus on expanding its customer base in a cost-effective manner to grow its business. Various initiatives have been implemented for the promotion and growth of motor insurance business; and emphasis is laid on enhancing corporate business by targeting large clients.

ADITYA BIRLA PE ADVISORS PRIVATE LIMITED (PRIVATE EQUITY)

Aditya Birla PE Advisors Private Limited (ABPE) (formerly known as Aditya Birla Capital Advisors Private Limited) provides financial advisory and management services with focus on managing venture capital funds and alternate investment funds. ABPE is currently appointed as an investment manager to two SEBI registered domestic venture capital funds, namely, Aditya Birla Private Equity - Fund I and Aditya Birla Private Equity - Sunrise Fund. ABPE focusses on growth investments in mid-market companies, with India as the investment destination.

INDUSTRY OVERVIEW

PE/VC investments in India amounted to $22 Billion in FY 18, registering the highest ever growth of -29% year-on-year. IT/ ITES and BFSI were the largest sources of investment, aggregating to more than 66% of entire deal value for the financial year. Fund raising by PE Funds also increased by -46% to $6.1 Billion in CY 2017 from $4.2 Billion in CY 2016. FY 18 witnessed increased investment activity from sovereign wealth funds and pension funds.

PERFORMANCE REVIEW

ABPE has a gross AUM of Rs. 1179 crores and is managing two sector agnostic funds, i.e. Aditya Birla Private Equity - Fund I, (providing growth capital to the established companies across sectors) and Aditya Birla Private Equity - Sunrise Fund (providing growth capital to emerging companies in sunrise sectors).

The Funds have made several profitable exits with 3 portfolio companies showing returns of 3x-4x and 7 companies registering returns of 1.5x-3x. Its Net AUM after exits is Rs. 325 crore. ABPE is currently focussing efforts towards creating exit opportunities to the balance investments of the Fund. It is also initiating dialogue with several domestic and global investors to invest in a new private equity fund.

During FY 18, ABPE reported revenue of Rs. 10 Crore.

OUTLOOK

India provides a large, addressable and underserved opportunity for private equity investments. India is characterised by both an enabling political environment and superior trends at a macroeconomic level and is widely thought of as one of the most attractive investment destinations in the world. India has a vibrant private equity market, which is on the cusp of sustained growth.

ADITYA BIRLA MONEY LIMITED (STOCK AND SECURITIES BROKING)

Aditya Birla Money Limited (ABML) is a broking and distribution player, offering equity and derivative trading through National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) and Currency Derivative on MCX-SX. It is registered as a Depository Participant with both National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) and provides commodity trading on Multi Commodity Exchange (MCX) and National Commodity and Derivatives Exchange (NCDEX) through its subsidiary. ABML launched Indias first end-to-end Aadhar-based paperless e-KYC platform for account opening and onboarding.

INDUSTRY OVERVIEW

During FY 18, daily cash market volumes was led by the domestic investors participation in the Indian equity market for both direct and mutual funds. What further strengthened the cash market volumes was the steady rise in the Systematic Investment Plan (SIP) book of the domestic equity mutual funds.

Daily derivatives turnover increased sharply due to a rise in the underlying prices of stocks/indices. Indian markets continue to be heavy on derivatives while light on cash trading, thereby suggesting higher speculative activity than investing activity. A higher share of lower yielding derivatives segment in the Indian stock market has been the key reason for earnings pressure for the broking industry over the years.

PERFORMANCE REVIEW

ABML continued to focus on the retail investor segment, cost reduction, technology and client acquisition.

ABML increased its total revenues from Rs. 131 Crore in FY 17 to Rs. 162 Crore in FY 18, led by higher broking income. PBT improved from Rs. 8 Crore in FY 17 to Rs. 13 Crore in FY 18.

OUTLOOK

The outlook for the industry is dependent upon multiple key factors such as domestic and global economic growth, buoyancy in primary markets, lack of alternative investment opportunities and technological up-gradation.

A broad-based macro-economic recovery will lead to improved corporate profits, thus supporting higher stock prices and positive equity market sentiments. While foreign institutional investor (FII) have sold lately, Indias structural long-term attractiveness will draw foreign investors.

ABML will continue to focus on technology, drive client acquisition, widen its business partner network, rationalise cost and provide efficient trading tools and value-added research advice to its clients. The overall strategic focus is to create product and service differentiators across all segments.

ADITYA BIRLA MYUNIVERSE LIMITED (ONLINE PERSONAL FINANCE)

Aditya Birla MyUniverse is Indias first integrated online personal finance management platform. MyUniverse helps customers get a complete, live picture of their finances by securely aggregating their online bank, credit card, mutual fund, stock, insurance and loan accounts.

MyUniverse analyses a customers financial profile and advises him/her on where to invest, what financial products to buy, and how to save. MyUniverse helps customers act on the advice through its online multi-product transaction platform.

The platform has benefitted 4.5 Million registered users, managing their personal finances. MyUniverse launched ZipSIP in February 2015, bringing Indias first completely paperless, instant SIP product to life. This allowed even non-KYC investors to start investing.

The platform is continuously enriching its offerings to meet the evolving financial aspirations of customers. It has upgraded its mutual fund, instant personal loan, housing loan, education loan, equity and credit card offerings.

In December 2014, International Finance Corporation (IFC) became a strategic financial investor in MyUniverse. During FY 18, the revenue grew from Rs. 11 Crore to Rs. 16 Crore.

HUMAN RESOURCE

At Aditya Birla Capital, the Companys biggest asset is its employees. The Company is committed in helping its people gain varied experiences, accomplish challenging assignments, learn continuously and build their careers.

Aditya Birla Capitals endeavour has been to create home grown leaders who focus on its customers needs aligned to its core values and operate with an ethical and governance mindset. A manpower base of over 14500 employees consists of a mix of people from diverse backgrounds, educational qualifications and wealth of experiences from various industries. Aditya Birla Capital also has a healthy gender diversity with 22% of its workforce comprising women. The talent management process at the Company is run through talent councils both at an apex and a business unit level. The learning and development interventions at Aditya Birla Capital is geared towards providing employees a platform for continuous learning opportunities and keeping them abreast with the latest developments both on a regulatory and business levels. Apart from classroom and on-the-job learning modules, employees are also provided opportunities for self-learning through a digital interface, which hosts a variety of content. Owing to the Companys constant employee engagement initiatives, it is counted among the best places to work.

RISK MANAGEMENT

Being into financial services business, your Company faces a host of risks across its businesses. It has adopted a 3-tier risk management framework comprising: 1) Oversight by function, 2) Risk oversight and 3) Audit & governance committees. To manage its credit risk efficiently, your Company follows a robust internal risk-rating mechanism and has implemented a centralised risk aggregation system. Strong underwriting, structuring and legal capabilities form the core of its credit risk management framework. Your Company further engages in credit delegation, approval structure and portfolio monitoring activities on a continuous basis. Its risk management framework across the businesses continuously monitors and fine-tunes its portfolio after a careful analysis of portfolio and attribution risks. Your Company has adopted robust business continuity and disaster recovery mechanisms to keep operational risks under check.

CAUTIONARY STATEMENT

Certain statements made in this Management Discussion and Analysis may not be based on historical information or facts and may be ‘forward looking statements within the meaning of applicable securities laws and regulations, including, but not limited to, those relating to general business plans & strategy of Aditya Birla Capital Limited (‘ABCL or ‘The Company), its future outlook & growth prospects, competition & regulatory environment and managements current views & assumptions which may not remain constant due to risks and uncertainties and hence actual results may differ materially from these forward-looking statements. This Management Discussion and Analysis does not constitute a prospectus, offering circular or offering memorandum or an offer to acquire any of the Companys equity shares or any other security and should not be considered as a recommendation that any investor should subscribe for or purchase any of the Companys shares. The Company, as such, makes no representation or warranty, express or implied, as to, and does not accept any responsibility or liability with respect to, the fairness, accuracy, completeness or correctness of any information or opinions contained herein. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events or otherwise. Unless otherwise stated in this Management Discussion and Analysis, the information contained herein is based on the management information and estimates. The financial figures have been rounded off to the nearest Rupee One Crore. For foreign exchange conversions, one USD is considered to be equal to Rs. 65. The events and developments upto 31st March 2018 have been covered in the Management Discussion and Analysis.