asrec india ltd Management discussions

ASREC (INDIA) LIMITED ANNUAL REPORT 2009-2010 MANAGEMENT DISCUSSION AND ANALYSIS 1. Acquisition of Non Performing Assets: Your Company has been very actively participating in various Bids/Auction processes conducted by various Banks and Financial Institutions as well as simultaneously discussing with all the Banks/Financial Institutions/other similar entities viz. State Finance Corporations, State Industrial Development Corporations, etc. for acquisition of their Non Performing Assets (NPAs) by the Company. The Members would be pleased to note that our efforts have borne good results as evident from notes under Para-1. During the year under review, your Company has acquired 179 NPAs having a book value of Rs. 30,273 lakhs from 5 Banks registering an increase of 261% over the previous year thereby increasing the aggregate book value of assets acquired upto March 31, 2010, to Rs. 75,550 lakhs. Thus, overall, the position of acquisition of NPAs by your Company since inception till date works out to 341 NPAs having aggregate book value of around Rs. 75,550 lakhs from 12 Banks/Financial Institutions. Particulars of acquisition of financial assets from various Banks & FIs as on 31st March, 2010: (Rs. in lakhs) Name Outstanding Principal % of Total of Assets acquired (Rs.) Amount 1. State Bank of Hyderabad 15500.90 20.52 2. Bank of India 14377.36 19.03 3. Allahabad Bank 13538.12 17.92 4. IFCI Ltd. 7075.69 9.37 5. United Bank of India 6350.13 8.41 6. UCO Bank 5086.17 6.73 7. State Bank of Bikaner & Jaipur 4256.82 5.63 8. State Bank of India 3203.53 4.24 9. State Bank of Mysore 2654.72 3.51 10. The Lakshmi Vilas Bank Ltd 2578.08 3.41 11. Bank of Baroda 490.95 0.65 12. Punjab & Sind Bank 438.46 0.58 Grand Total 75550.93 100.00 Industry-wise distribution of financial assets acquired: (Rs. in lakhs) Industry No. of Cases Outstanding % of Total Principal Amount (Rs.) Petrochemical 7 14689.01 19.44 Others 79 12038.59 15.93 Trading 77 6226.15 8.24 Textile 28 4508.00 5.97 Financial Services 8 4231.82 5.6 Food Industry 12 3793.59 5.02 Edible Oil 9 3343.46 4.43 Agro Products 9 3270.02 4.33 Electronics 11 2592.59 3.43 Iron & Steel 9 2580.87 3.42 Tea 7 2406.90 3.19 Leather 7 2375.78 3.14 Plastic 7 2333.78 3.09 Chemical 7 2173.39 2.88 Consumer Products 13 1715.32 2.27 Steel 7 1453.97 1.92 Auto & Ancillary 5 1005.02 1.33 Engineering 8 714.61 0.95 Aluminium 1 693.61 0.92 Non ferrous Metal 5 659.17 0.87 Pharmaceuticals 6 641.15 0.85 Construction 6 535.74 0.71 Hospitality 2 362.64 0.48 Cement 2 352.36 0.47 Entertainment 3 285.90 0.38 Jewellery 2 255.79 0.34 Adhesives 1 203.06 0.27 Animal Husbandry 7 108.64 0.14 Grand Total 341 75550.93 100.00 2. Resolution of Assets: During the year under review, your Company has successfully recovered an amount of Rs. 2825.24 Lakhs through resolution/recovery of 36 NPAs. The overall position of resolution/recovery by your Company since inception till date works out to Rs. 10405.43 Lakhs against the aggregate Acquisition / Benchmark Price of Rs. 6022.00 lakhs. 3. Rating of Security Receipts (SRs): As per the guidelines prescribed by the RBI, Fitch Ratings India Pvt Ltd, Rating Agency has carried out the Review Ratings for the respective Trusts as on December 31, 2009, as detailed below: Name of the Trust A B C 1. ASREC-SVC Superchem Ltd. Trust BOI NR2 NR3 (Downgraded) 2. ASREC-PS 01/06 Trust SBBJ NR3 NR2 (Upgraded) 3. ASREC-Shree Acids & Chemicals IFCI NR3 NR3 Ltd. Trust 4. ASREC-PS 04/06 Trust LVB NR2 NR2 5. ASREC-PS 06/06 Trust SBI, Chennai NR4 NR2 (Upgraded) 6. ASREC-S.M.Telesys 04/06 Trust SBBJ NR2 NR2 7. ASREC-PS 07/06 Trust SBOM NR1 NR1 8. ASREC-PS 01/2007-08 Trust UBI NR3 NR3 9. ASREC-PS 02/06 Trust SBH NR1 NR1 10. ASREC-PS 02/2007-08 Trust UCO Bank NR3 NR3 11. ASREC-PS 03/2007-08 Trust UCO Bank NR3 NR4 (Downgraded) 12. ASREC-PS 04/2007-08 Trust SBBJ NR3 NR3 13. ASREC-PS 05/2007-08 Trust UCO Bank NR2 NR4 (Downgraded) A = Acquired from B = Rating assigned by Fitch as on June 30,2009 C = Rating assigned by Fitch as on December 31, 2009 Fitch has also carried out Initial Ratings in respect of the following 4 Trusts (acquired in March 2009), as on December 31, 2009 as follows: Name of the Trust Acquired from Initial Rating assigned by Fitch 1. ASREC-PS 01/2008-09 Trust BOI NR3 2. ASREC-PS 02/2008-09 Trust UBI NR3 3. ASREC-PS 03/2008-09 Trust UBI NR3 4. ASREC-PS 04/2008-09 Trust Allahabad Bank NR3 Rating Scale: NR1 - Expected Recovery more than 150% of the Acquisition Price NR2 - Expected Recovery between 100% to 150% of the Acquisition Price NR3 - Expected Recovery between 75% to 100% of the Acquisition Price NR4 - Expected Recovery between 50% to 75% of the Acquisition Price NR5 - Expected Recovery between 25% to 50% of the Acquisition Price NR6 - Expected Recovery between 0% to 25% of the Acquisition Price 4. Net Asset Value: The Net Asset Value (N AV) of the Security Receipts (SRs) issued by the various Trusts set up by your Company are as follows: Trust Name Face Value NAV per SR per SR as on March 31, 2010 (Rs.) 1. ASREC - PS 01/06 Trust 1,00,000 87,500 2. ASREC - PS 02/06 Trust 1,00,000 1,00,000 3. ASREC - PS 04/06 Trust 1,00,000 1,00,000 4. ASREC - PS 06/06 Trust 1,00,000 62,500 5. ASREC - Shree Acids & Chemical Ltd Trust 1,00,000 87,500 6. ASREC - SM Telesys 04/06 Trust 1,00,000 100,000 7. ASREC - SVC Superchem Ltd Trust-Series I 1,00,000 87,500 8. ASREC - SVC Superchem Ltd Trust-Series II 1,00,000 87,500 9. ASREC-PS 01/2007-08 Trust 1,00,000 87,500 10. ASREC - PS 02/2007-08 Trust 1,00,000 87,500 11. ASREC - PS 03/2007-08 Trust 1,00,000 62,500 12. ASREC - PS 04/2007-08 Trust 1,00,000 87,500 13. ASREC - PS 05/2007-08 Trust 1,00,000 62,500 14. ASREC-PS 01/2008-09 Trust 1,00,000 87,500 15. ASREC - PS 02/2008-09 Trust 1,00,000 87,500 16. ASREC - PS 03/2008-09 Trust 1,00,000 87,500 17. ASREC - PS 04/2008-09 Trust 1,00,000 87,500 5. Future Outlook: The sub prime crises of the international financial system witnessed many entities getting consumed in the turmoil. The effects have been witnessed in the domestic market as well. The ARCs are playing a very important role in the current scenario. It is expected that gross NPAs of Indian banking system shall swell to around 5% of the advances given by banks and financial institutions by March 2011 resulting in new opportunities for SCs/RCs to increase their business. Further, the lessons from the current situation would lead to development of more speedy system and procedures for asset reconstruction. Asset Reconstruction Companies (ARC) are strategically structured to resolve the NPAs. ARCs aim to enhance recovery by shrinking resolution time, debt aggregation and dedicated resolution efforts, etc. ASREC is earning the confidence of the Financial system in the effective resolution of NPAs. With the growth in the NPA market, the volume and number of transactions and number of players have also grown. More and more sellers prefer cash deals as against through Security Receipts. This has put the obligation on ARCs to arrange for more resources. The rules and practices relating to this market are still evolving and are expected to settle down in near future leading to the emergence of a well established and healthy market.