athena financial services ltd Management discussions

ATHENA FINANCIAL SERVICES LIMITED ANNUAL REPORT 2004-2005 MANAGEMENT DISCUSSION AND ANALYSIS Annexure - A The Company is engaged in finance business since 1990. The following Management Discussion and Analysis Report presents the Companys current strategy to face the challenges that are before the NBFC sector today and to consider ways of earning additional revenue by offering better services to the customers. The Industry : A number of nationalised and new age private sector banks have entered the retail loan sector and have started targeting the retail as well as various consumer loan sector leading to stiff competition in the NBFC industry today. This has lead to an increase in the cost of funds available to the NBFC industry. The new players have access to cheaper sources of funds and accordingly can lend at substantially lower rates than NBFCs. The two-wheeler market in India. has become highly competitive in the last 2-3 years with substantial increases in number of models introduced by two- wheeler companies. The introduction of new models at lower costs coupled with reduction in interest rates on new vehicles has prompted customers to opt for new vehicles resulting in a high level of default in recovery of hire purchase instalments which cover old models of two-wheelers. The introduction of newer models by almost every two-wheeler manufacturer has led to a substantial fall in the value of those second hand two- wheelers which are repossessed and sold, leading to much higher losses in such cases. The accompanying decline in the price of two-wheelers and changes in the spending habits of retail consumers has led to a sea change in market dynamics of the NBFC Industry. Opportunities, threats, risks and concerns : The change in the business environment has led to turbulent times for the NBFC sector. The aggressive entry of new age private sector banks, more and more nationalised banks entering the retail sector and targeting the retail as well as various consumer loan sector, the banks offering loans to retail consumers at much lower rates, various discount schemes and other promotional offers offered by various big finance companies are the various possible,threats. faced by your Company. Being an NBFC, the companys cost of funds is higher than the other competitors in similar line of business. Most of the new players are PSU banks, Big NBFCs and private banks. These new players have access to cheaper sources of funds and accordingly can lend at substantially lower rates than NBFCs like us. Continuous decrease in the lending rates would lead to lower margins in the business. Business Outlook and Overview : The Company has started distributing various retail finance products thereby widening the revenue stream. The Company also functions as service provider for insurance related activities and the said function is a natural extension and complementary for the Company. The Company is also envisaging that there shall be a huge demand for service providers in the retail finance industry and the Company in future shall look for such opportunities where it can leverage its experience and learning in retail finance specially in the areas of credit risk and back office support. Financial performance vis-a-vis Operational Performance : The Gross Income for the year under review is Rs. 17.07 crores as compared to Rs. 17.21 crores in the previous year. Your Company during the year has incurred a loss of Rs. 122.42 crores as compared to loss of Rs. 96.71 crores in the previous year. Out of the total income of Rs.17.07 crores, insurance income amounts to Rs.1.63 crores. During the year under review your Company has processed 110452 policies. Internal Control Systems and Cost : The Company presently has an adequate internal control system. The Company has also appointed an external firm of Chartered Accountants for a continuous internal audit of the affairs of the Company at its branches and the reports are sent to the Director of the Company. The Audit Committee of the Board also meets regularly and amongst its various functions ensures compliance of internal control systems and statutory compliance and reviews the internal audit procedures and all aspects forming part of the internal audit function including discussion with the internal auditors periodically about internal control systems, scope of audit including the observations of auditors and on all aspects of internal audit. Human Resource development : The company believes that human resources are the key resources for the success of any organisation. Thus the Company strives to create a culture of openness and empowerment amongst its employees and provide good career development. The Company is committed to the welfare of the employees and their families. Cautionary Statement : This report is based on Companys projections and contains estimates and expectations which could be `forward looking. This report is also based on estimates and perceptions on socio economic conditions, government policies etc. Actual results however might differ from expectations as the same depends upon many uncertainties.