Central Depository Services (India) Ltd Management Discussions.

INDIAN ECONOMY

Over the period FY 2014-15 to FY 2018-19, India has witnessed close to 7.3% GDP growth, which is the highest amongst the major world economies. The growth was achieved in an environment of low inflation, improved current account balance and notable reduction in the fiscal deficit-to-GDP ratio, making the growth more creditable.

Various reforms undertaken by the Government of India have led to increase in Indias ranking in the World Banks Ease of Doing Business Index from 100 in 2017 to 77 in 2018. As a result of the continued efforts by the Government, India has improved its ranking by 53 positions in last two years and 65 positions in last four years.

According to the World Banks report, Indias GDP is forecast to grow by 7.3% in FY 2018-19 and 7.5% thereafter, in line with June forecasts. Private consumption is projected to remain robust and investment growth is expected to continue as the benefits of recent policy reforms begin to materialise and credit rebounds. Recent policy reforms have helped India improve the business environment, ease of inflow of foreign direct investment and improve credit behaviour.

(Source: IMF, CSO, World Bank.)

INDUSTRY STRUCTURE AND DEVELOPMENTS

Indian Capital markets

In Capital market, business enterprises or government entities raise long term funds by issuing equity or debt securities. Securities market facilitates transfer of surplus resources from those with idle resources to others who have a productive need for them. Securities markets provide channels for allocation of savings to investments and thereby decouple these two activities. As a result, the savers and investors are not constrained by their individual abilities, but by the economys abilities to invest and save respectively, which inevitably enhances savings and investment in the economy. This market has two inter-dependent and inseparable segments; the primary (new issues) and secondary (stock) markets. The primary market is concerned with the floatation of new issues of shares or bonds.

The firms issue new securities to raise funds for investment/expansion plans or to reduce any obligations. The types of issues in the primary market include: an initial public offer (IPO); follow- on public offer (FPO); a rights offer where securities are offered to existing shareholders; preferential issue/bonus issue/qualified institutional buyer placement; or a composite issue (comprising a mixture of a rights and public offer, or an offer for sale).

The secondary market is to facilitate dealing in existing securities. This market provides both liquidity and marketability to such securities. It implies that it is a market where a security can be bought or sold at small transaction cost. Spot market, futures market and options market are also a part of the secondary market. During FY 2018-19, the S&P BSE Sensex opened at 33,030 and hit a high of 38,989 on 29th August 2018 and thereafter closed at 38,672 on March 29, 2019. During same period Nifty opened at 10,151 and hit a high of 11,760 on 28th August 2018 and thereafter closed at 11,623 on March 29, 2019. As per Prime Database, 42 public issues have raised 36,405 crores in FY 2018-19 as compared to 81 public issues mobilizing 98,984 crores in FY 2017-18.

Depository Industry in India

Depository is an institution registered with SEBI for holding custody of securities in electronic form and facilitates transfer based on the instructions from the account holders. With growth in Indian Capital market, it became difficult to handle the growing volume of paper. This caused problems like delay in transfers, long settlement period, high levels of failed trade and bad deliveries, high- risk exposure etc. To remove these bottlenecks, The Depositories Act was legislated in August 1996. Subsequently three years later in 1999, Central Depository Services (India) Limited (CDSL) was established following the implementation of compulsory trading in dematerialised securities for all investors.

In terms of market share of demat accounts, CDSL has experienced a growth in market share from 40% in FY 2013-14 to 48% in FY 2018-19.

The presence of depositories supports the Capital market growth in a variety of ways including substantial reduction in bad deliveries, enhanced liquidity of securities, reduction in transaction cost, eliminates problems relating to change of address of investors, transmission etc, makes faster disbursement of non-cash corporate benefits like rights, bonus, etc. possible, faster settlement cycle, no stamp duty on transfer of shares.

Factors driving growth of depositories

Business of depositories grows in direct proportion to growth in Capital markets. The past three-to- four years have witnessed a steady structural shift of savings from physical assets such as real-estate and gold into financial assets. The prevailing positive real interest rates should enable this trend to continue. Within financial assets, the allocation towards equities has been increasing steadily due to the relatively low base; given the retail investor has traditionally been under-invested in equities.

Equity market: In the financial market segment, the BSE Sensex has increased from 22,386 in FY 2013-14 to 35,749 in FY2018-19. In the business segment, Indias ranking in World Banks EODB rankings has improved from 142nd in 2014 to 77th in 2019. Whereas, inflation has come down from 9.4% in FY 2013-14 to 4.8% in FY 2018-19. Indias stock market is 7th biggest in the world with market-cap of $2.1 trillion. According to the IMF, India is a bright spot in the global ecosystem and Indias growth is looking very lucrative in the coming years. Indias growth has surpassed many emerging and developing economies. Recent IMF data suggests that India is the fastest growing economy in the world and this trend will continue in 2019 and 2020 also. Further, NITI Aayog expects India to grow at 9-10% by 2022-23 which would raise the size of the economy in real terms from USD2.7 trillion in 2017-18 to nearly USD4 trillion by 2022-23.

Initial Public Offerings: According to Prime

Database, total equity Capital raised during FY 2018-19 was 36,405 crores as against 98,984 crores raised during FY 2017-18. After a slowdown in the FY 2018-19, analysts expect the tide to turn in the FY 2019-20, as the bulls have returned to Dalal Street on prospects of improvement in economic fundamentals. An increase in risk appetite among investors is now a big driving force for the companies looking to hit Dalal Street with initial public offerings (IPOs). The IPO pipeline has been very strong. Some 65 companies are said to be sitting with Sebi approvals and another 8 awaiting it.

Increase in trading volumes and retail participation: CDSL has experienced a substantial growth in the number of companies admitted in demat from 541 in FY 1999-00 to 13,104 in FY 2018-19, a growth of 21% CAGR. The active participation of retail investors was demonstrated with the increase in the turnover of shares traded on the BSE rising from 5.21 lakh crores in FY 201314, to 7.76 lakh crore in FY 2018-19, while trading on the NSE increased from 28.08 lakh crore in FY 2013-14, to 79.48 lakh crore in FY 2018-19.

BUSINESS OVERVIEW

CDSL was initially promoted by BSE Ltd, which had thereafter divested its stake to leading banks. CDSL received the certificate of commencement of business from SEBI in February, 1999. All leading stock exchanges like the BSE Ltd, National Stock Exchange (NSE) and Metropolitan Stock Exchange of India (MSEI) have established connectivity with CDSL. The Company strives to provide convenient, dependable and secure depository services at affordable cost to all market participants.

The Companys subsidiary, CDSL Ventures Limited (CVL) is registered with SEBI and a KYC Registration Agency (KRA) for investors in the Capital markets including the mutual fund industry.

CDSL through its subsidiary, CDSL Insurance Repository Limited, has arrangements with several life insurance companies and eighteen general insurance companies for holding insurance policies in electronic form and seamlessly enables the policy holders to undertake changes, modifications and revisions to insurance policies.

CDSLs subsidiary, CDSL Commodity Repository Limited (CCRL), was setup to establish and run a Commodity Repository on the lines of a Securities Depository. In this regard, Warehousing Development and Regulatory Authority (WDRA) has shortlisted CCRL as one of the two Repositories for undertaking the Commodity Repository activity.

Clientele

CDSLs clientele can be broadly classified into six main categories namely:

• Depository Participants (DPs): An investor opens an account through the agent of depository known as Depository Participant. After opening the account, the investor can convert the physical shares issued by issuers companies into electronic mode through the DP. An investor can transfer securities from his account to any account by submitting the delivery instruction slip to the DP.

• Issuer companies: A wide range of securities including equity shares, preference shares, mutual fund units, debt instruments, government securities, etc. are available for dematerialization in CDSL. CDSL enables issuer companies to credit securities including non-cash corporate benefits to a shareholders or applicants demat account.

• Capital market intermediaries: CVL is SEBI registered KRA which offers KYC services to investors in Indian Capital markets.

• Insurance Companies: Through its subsidiary, CDSL Insurance Repository Limited, the Company offers facilities for holding of insurance policies in electronic form.

• Through its subsidiary, CDSL Commodity Repository Limited, the Company offers facilities for holding and transacting of warehouse receipts in electronic form.

• Others: CDSL offers other online services such as e-voting, e-Locker, National Academic Depository (NAD), easi (Electronic Access to Security Information), easiest (Electronic Access to Securities Information and Execution of Secured Transaction) and mobile application (Myeasi, m-Voting).

MEDIUM-TERM AND LONG-TERM STRATEGY OF THE COMPANY:

Continue to focus on developing new DPs relationships and leveraging our existing DP network

We will continue to build on our existing DP relationships and leverage their extensive network all over India to take our offering to new investors. We will aim to strengthen our virtual DP network under which the broker only needs to submit his Power of Attorney ("PoA") and is no longer required to contact the DP and authorise each and every trade.

We also aim to strategically expanding our network of DPs and service centres to reach potential investors. We will evaluate each opportunity on the basis of several factors including expected investment and financial returns, catchment area served and current levels of depository services available in the area. We currently expect that a significant portion of our new DP relationships will include DPs present in tier II and tier III cities due to relatively lower scale of DP services currently available in these cities.

Continue to introduce new offerings and scale up recently started businesses

We endeavour to provide our investors with a comprehensive range of services at competitive prices and to maintain optimal service standards. In order to maintain and enhance our competitive position, we will continue to offer our services at low prices achieved through our low operational costs driven by operational efficiency, high economies of scale and innovative service implementation. We plan to further improve our operating efficiency through:

• Offering single demat account to our investors which will hold all financial assets including fixed deposits across regulators (SEBI, RBI, IRDAI, PFRDA, etc). subject to all regulatory approvals;

• Enhancement of a centralised billing system to increase automation and move towards migration of all payments receivables through electronic channel (Internet banking, NEFT, RTGS, etc);

• Enabling electronic submission and receipt of documents by DPs and other intermediaries;

• Focus on eliminating all paper based processes and workflows to become a fully digital organization;

• Improve customer experience by enhancing self-service channels for efficiently and effectively serving routine requirements; and

• Develop more and more API based services in collaboration with our Depository participants to facilitate seamless interoperability and straight through processing with their systems.

We will continue to diversify our product and service offerings depending on investors needs. We believe a continuous review of our services according to our evolving understanding of investor preferences and market behaviour will

help us better cater to our investors needs, enhance their user experience and maximise our account volumes and revenues.

Continue to invest and upgrade our IT infrastructure and systems leading to Enhancement of operational efficiency and service quality

We believe that maintaining and improving our technology is critical to our business. We intend to regularly allocate optimal resources towards upgrading our IT infrastructure and systems, with the goal of improving market efficiency and transparency, enhancing user access and providing flexibility for future business growth and market needs.

We prioritize the improvement in our cyber-security framework and information security management systems. We were identified as a National Critical Information Infrastructure by National Critical Information Infrastructure Protection Centre and we will prioritise further improvements in our cyber-security framework and ISMS in the future.

Our Standing Committee on Technology (formerly IT Strategy committee) consists of external IT experts and professionals advises our board in relation to improving and maintaining our IT infrastructure on an ongoing basis. We also plan to invest further in our IT and data management systems to improve productivity and time savings thereby increasing our operating efficiency.

Targeting and focusing on Unlisted and Private Limited Companies

In our country, there are a large number of unlisted public and private limited companies who have not dematerialized their securities as yet. Ministry of Corporate Affairs has issued

Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 which inter alia mandates an unlisted public Company to issue securities only in dematerialised form. The said rules also mandates transfer of securities in dematerialised form. We intend to pursue with these companies and get their securities admitted in our Company. We will also explain benefits of demat to private limited companies and try to get their securities admitted in our Company. This has dual benefits of increase in Issuer Charges as well as opening of more number of Corporate Promoter Demat accounts.

Continue investor education initiatives to foster a rise in the number of potential new investors and deepening of the Indian securities market

We intend to continue to focus on financial inclusion through retail participation. We believe investor education is a significant key to achieving financial inclusion in the Indian securities market. We have conducted over 450 investor awareness programs in FY 2018-19, allowing investors across geographies, professions and age groups to come together and learn about the advantages of holding securities in dematerialised form and the investment opportunities available to them.

We plan to, and have initiated steps to, further these programs by targeting the general public in tier-2 and tier-3 cities in India to introduce and explain the benefits of investing in securities. We are and will continue to work with various regional newspapers to attract a large number of potential new investors to these events, where we intend to distribute informative booklets in English, Hindi and other regional languages.

Long-term metrics as per Companys long term strategy for measurement of progress:

Developing new DPs relationship & Leveraging our existing DP network. We aim to strategically expand our network of DPs and service centres to reach potential investors. We will evaluate each opportunity on the basis of several factors including expected investment and financial returns, catchment area served and current levels of depository services available in the area.
Introduce new offerings and scale up recently started businesses. We will continue to diversify our product and service offerings depending on investors needs. We believe a continuous review of our services according to our evolving understanding of investor preferences and market behaviour will help us better cater to our investors needs, enhance their user experience and maximise our account volumes and revenues.
Upgrade our IT infrastructure and systems. We also plan to invest further in our IT and data management systems to improve productivity and time savings thereby increasing our operating efficiency.
T argeting Unlisted and Private Limited Companies. We will explain benefits of demat to unlisted public and private limited companies and endeavour to get their securities admitted in our Company. This has dual benefits of increase in Issuer Charges as well as opening of more number of Corporate Promoter Demat accounts.
Investor Education Initiatives We plan to, and have initiated steps to, further these programs by targeting the general public in tier-2 and tier-3 cities in India to introduce and explain the benefits of investing in securities. We plan to conduct approximately 450 programs in financial year 2019-20.

PRODUCT-WISE PERFORMANCE Revenue streams

The Company offers services to several sub-sectors of the Indian securities and financial services market including Capital Markets, Mutual Funds and Insurance companies. The Company has high stability of operating income from the fixed annual charges collected from the registered Issuer companies and transaction-based fees collected from Depository Participants. The Company offers dematerialisation for a wide spectrum of securities including equity shares, preference shares and bonds of public (listed and unlisted) and private companies, units of mutual funds, government securities, commercial papers and certificates of deposits. The Company also charges account maintenance charges to corporate account holders and monthly maintenance charges to clearing members for maintenance of settlement accounts.

Other consistent revenue-generating services offered by the Company include e-voting and e-notice services to the registered companies enabling their shareholders to receive notices in electronic form and to allow shareholders to cast their votes electronically, remotely or at the meeting venue.

Depository Participant Network:

The Company is the leading securities depository in India by incremental growth of Beneficial Owner (BO) accounts of over 77.76 lakhs from FY 201516 to FY 2018-19. Further, the total number of registered Depository Participants (DPs) is 597 at the end of FY 2018-19. As on March 31, 2019 CDSL had over 17.3 million investor accounts (excluding closed accounts).

The Company has a wide network of DPs, who act as points of service. CDSL had 597 registered

DPs with over 19,400 service centres across India. The DPs are spread across 29 states and 7 union territories.

As on March 31, 2019, CDSL had over 36,203 crores securities representing a total value of 20,79,693 crores.

OPPORTUNITIES

Growth Drivers

Buoyant markets

The evolution of Indian Capital markets has made it one of the most preferred investment destination for domestic as well as overseas investors. The steps taken by Central Government, confidence in growth potential and business environment, stable political climate are some of the favourable factors. As per latest World Bank report, Indias GDP has grown at 7.3 per cent in 2018-19. This is expected to further climb up to 7.5 per cent in the next two financial years. In India, the growth has accelerated, driven by an upswing in consumption and investment growth. However, rising interest rates and currency volatility are weighing on activity. The World Bank said that in the financial year 2018-19, Indias growth accelerated to an estimated 7.3 per cent from 6.7 per cent the previous year. This was because the economic activity continued to recover with strong domestic demand. "While investment continued to strengthen amid the GST harmonization and a rebound of credit growth, consumption remained the major contributor to growth." Indias growth outlook is still robust. India is still the fastest growing major economy as compared to other developing countries.

Increase in Capital market participation by retail investors

After conceding its position as the fastest growing major economy to China for a year in 2018, India is likely to reclaim the position in 2019. In all likelihood, India is going to register higher growth rate than other major emerging market economies in the next decade. Indias demographic dividend, growth in per capita income and savings, along with government initiatives will give a boost to retail participation in the Capital markets. India also has the largest population of youth population with more than 50% of current population below the age of 25 and over 65% below the age of 35. This youth and larger working class with higher rate of savings are expected to start investing in Capital markets which augurs well for depositories.

THREATS Monsoon risk:

According to CRISIL India Outlook FY20 report, they expect fourth consecutive year of normal monsoon. In the past 15 years, they have seen two such periods of four consecutive normal rainfall years - 2005 to 2008 and 2010 to 2013 - that yielded healthy average agriculture growth of 3.6% and 5.5%, respectively. The National Oceanic Atmospheric Administration of United States (US) is, however, forecasting an El Nino event in 2019. The country has faced two consecutive El Nino events in 2014 and 2015 with agriculture GDP growth dropping to near zero. With farmer incomes dropping, a weak rainfall, if manifests, could add to the rural pain.

Political risk:

If the general elections this year were to yield a fractured mandate and derail/delay the process of reforms, the implications on sentiments, investments and growth could be adverse.

Oil prices:

According to CRISIL, in the base case, global crude oil prices are expected to soften to settle around $60-65 average per barrel in fiscal 2020 compared with $68-72 average per barrel in fiscal 2019 as overall global demand slows. However, some price pressure could be felt in response to the recently announced supply cuts by the Organisation of Petroleum Exporting Countries (OPEC). If oil prices were to spike and stay high through the fiscal, Indias manufacturers could face input price pressures. And with consumption seeing only a gradual revival, pass-through of these higher costs on to prices would be difficult therefore squeezing margins.

Much weaker global outlook:

For now, the deceleration in global growth is gradual. However, if the slowdown is much faster and deeper than is being currently expected, global demand and trade growth could severely slow down, thereby creating adverse consequences for our exports.

OUTLOOK

Globally, financial markets continue to remain buoyant with expectations of tariff war resolution as well as end of tightening by US Fed. These two actions, remains a critical event for outlook on global economic growth. The crude oil prices on the other hand have resumed uptrend during theQ1CY19 and a decisive move would be known

once US announces the decision regarding whether it will extend the temporary waiver of embargo on Iranian oil. Crude oil prices remain a critical monitorable for India as oil above 65$- 70$ range starts impacting both fiscal and current account deficits as well as currency.

The domestic equity markets joined the global rally with a good up move led by a sharp improvement in market sentiments. The change in the market sentiments is a combination of strong FPI inflows, comfort of attractive valuations post sharp correction in small and mid-cap stocks, as well as favourable election outcome expectation. RBI too is expected to remain on growth supportive mode partly by reducing rates and partly by removing some PSU banks from the PCA framework.

While the near-term volatility in Indian equity markets are driven by sentiments associated with elections and hence difficult to anticipate, the medium to long term, growth prospects for India remains strong and equity markets offer investors an opportunity to participate in the economic growth. Indian investors should remain focussed on this opportunity that is offered by Indias growth story.

According to Prime Database, Over the past six to nine months, the IPO pipeline has been very strong. Some 65 companies are said to be sitting with Sebi approvals and another eight awaiting it, as we have seen in the past, this pipeline may quickly vanish if the volatility and negative sentiment continues.

VALUE ADDED SERVICE OFFERINGS

The Company has ventured into value added businesses in the form of GST Suvidha provider, the national academic depository and e-sign. These offerings are expected to increase revenues in a gradual manner. In addition, the Company is looking to add newer services to contribute to the future growth. Single demat account for all financial assets where an investor can access all the details of their investments on a common platform if implemented will result in improved prospects. This is envisaged as a one-stop account for all financial investments including pension funds, fixed deposits, life insurance policies, etc.

INFORMATION TECHNOLOGY

CDSL has deployed state-of-the-art IT systems with global accreditation. The Companys core depository system is based on a centralised architecture which helps to provide real-time updated information to users. The system can

be accessed over the internet and the intranet though a secure channel using multi-factor user authentication. The Company has deployed state-of-the-art server hardware, enterprise flash storages and highly resilient network infrastructure.

CDSL has been certified for ISO27001 for its Information Security Management System. It protects information throughout the life span, from its initial creation to its final disposal. CDSL infrastructure has multiple back-up levels which includes a redundant fail-over cluster and a seamless switchover to the Disaster Recovery System (DRS). The DRS is located at a different seismic zone. The Company has been awarded ISO 22301:2012 certification for its Business Continuity Management System.

FINANCIAL PERFORMANCE (Standalone)

(The Company clocked Operational Revenue of 15234.12 lakhs in FY 2018-19 as against 15083.17 lakhs in FY 2017-18, up 1%. Other Income increased by 29% to 3612.88 lakhs in FY 2018-19 as against 2803.95 in FY 2017-18 due to appreciation in value of investments. CDSLs main costs are Employee Wages and Benefits, Computer Technology Related Expenses which are largely fixed in nature. Total expenditure in FY 2018-19 stood at 7881.05 lakhs against 7248.98 in FY 2017-18, up 9% as compared to the previous year. Other Expense declined marginally by 0.06% as compared to previous year. EBITDA improved to 11791.46 lakhs in FY 2018-19 as against 11284.56 lakhs in FY 201718. PAT improved to 8437.73 lakhs, up 9% over the previous year. The Net Worth of the Company stood at 54253 lakhs as on March 31, 2019 as compared to 50225 lakhs as on March 31, 2018. The Cash Generated from operations stood at 9823.42 lakhs during FY19. There is net cash generated from Operating Activities of 7308.54 lakhs as on March 31, 2019.)

FINANCIAL PERFORMANCE (Consolidated)

Revenue from operations includes transaction charges, account maintenance charges and settlement charges paid by DPs and annual fees, corporate action charges and e-voting charges paid by companies and KYC charges paid by intermediaries. The Company clocked Operational Revenue of 19465.19 lakhs in FY 2018-19 as against 18768.82 lakhs in FY 2017-18, up 4%. As compared to the previous year Annual Issuer Charges increased by 21%, Transaction Charges decreased by 11%, IPO Corporate Action Charges

decreased by 33% and Online Data Charges that is income from KYC increased by 9%. The modest increase in revenues is attributable to volatile financial market conditions with drop in stock prices of several mid- cap and small cap stocks negatively impacting investor sentiment and reduction in the number of companies coming out with IPOs/FPOs.

Other Income increased by 29% to 4919.38 lakhs in FY 2018-19 as against 3798.77 lakhs in FY 2017-18 due to appreciation in value of investments.

CDSLs main costs are Employee Wages and Benefits, Computer Technology Related Expenses which are largely fixed in nature. Total expenditure

in FY 2018-19 stood at 9563.84 lakhs against 8425.81 in FY 2017-18, up 14% as compared to the previous year. Other Expense is up 10% as compared to previous year.

EBITDA improved to 15812.26 lakhs in FY 201819 as against 14836.34 lakhs in FY 2017-18. PAT improved to 11482.66 lakhs, up 11% over the previous year.

The Net Worth of the Company stood at 70943 lakhs as on March 31, 2019 as compared to 61470 lakhs as on March 31, 2018. The Cash Generated from operations stood at 11904.92 lakhs during FY19. There is net cash from Operating Activities of 8543.63 lakhs as on March 31, 2019.

Name of the entity in the Group

For the year ended March 31, 2019

For the year ended March 31, 2018

Share in profit or loss

As % of Consolidated net Profit and Loss Amount ( Lakhs) As % of Consolidated net Profit and Loss Amount ( Lakhs)
Parent Company- Central Depository Services (India) Limited 73% 8,437.73 74% 7,653.63
CDSL Ventures Limited 24% 2,733.29 24% 2,494.01
CDSL Insurance Repository Limited 2% 199.31 1% 78.57
CDSL Commodity Repository Limited 1% 112.30 1% 91.62
Non-controlling Interest in subsidiary 1% 131.21 - 46.00
Total 100% 11,613.84 100% 10,363.83

RISKS AND CONCERNS

The Companys securities depository business competes closely with its competitor for DPs, investor accounts and number of instruments on its systems.

The Companys inability to effectively manage its growing DP network or any disruptions in its supply or distribution infrastructure may have an adverse effect on its business, results of operations and financial condition.

Bulk of the accounts are presently being opened by the online account opening mechanism, which primarily depends on the Aadhaar number and online feed from the UIDAI. Any changes to the mode of exchange of information from / to UIDAI enforced due to regulatory directions from UIDAI, could adversely impact account opening.

Any interruptions or malfunctions in the operation of the Companys IT systems could damage its reputation and cause loss for the business.

If there is a shift in consumer preferences away from investing and trading in securities to other products and services, it could significantly reduce demand for the Companys services and adversely affect its business, financial condition and results of operations.

Fraud due to unauthorized transfer of securities or service deficiency could result in losses. Further,

if account data disseminated by the Company contains undetected errors, this could have a material adverse effect on its business, financial condition or results of operations.

Broad market trends, economic and market conditions and other factors beyond the Companys control could significantly reduce demand for its services and harm its business, financial condition and results of operations.

Insufficient systems capacity and systems failures could materially and adversely affect the Companys business.

The Company must adapt to significant and rapid technological changes in the industry in order to compete successfully.

The Company works in a tightly regulated environment hence any changes brought about due to changes in the processes and procedure to be followed due to issuance of instructions by the regulator could slow down its growth trajectory.

RISK MANAGEMENT

Strict internal processes and controls enable the Company to effectively manage the business risks it encounters on daily basis. The Companys risk management framework includes risk management policy as devised by the Risk Management Committee (RMC). The Committee monitors and identifies risks at regular intervals to improve standard operating procedures and to set appropriate risk limits and controls. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and business activities, with any new activity or deviation from existing procedure referred to the RMC. The Companys risk management system covers various aspects of the business. The Company also has in place a special contingency insurance policy to cover risks associated with depository operations which covers the Company and registered DPs.

The Company also ensures that its clients comply with applicable regulatory provisions. The Company conducts regular inspections of both DPs and RTAs and provides compliance training across the country for DPs. In addition to the bi-annual internal audits, the Company has made it mandatory for all registered DPs to appoint independent chartered accountant firms to conduct concurrent audits of risk prone areas.

Internal Financial Control Systems and Their Adequacy:

Internal financial controls means the policies

and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business, including adherence to Companys policies, safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

The Company had already developed and implemented a framework for ensuring internal controls over financial reporting. This framework includes entity level policies, process and operating level standard operating procedures.

Some significant features of our Internal Financial Control System are:

1) Adequate documentation and maintenance of the records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

2) The policies and procedures are designed to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statement in accordance with generally accepted accounting principles and Indian Accounting Standards (IAS), and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and director of the Company and

3) Company has aligned its current systems with the requirement of the Companies Act ,2013 on the lines of the globally accepted risk based framework as issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, so as to provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effects of the financial statement

During the year, such internal controls over financial reporting were tested by management, internal auditors and statutory auditors. No reportable material weakness in design and effectiveness was observed.

Material developments in Human Resources / Industrial Relations front, including number of people employed.

There were no material developments in Human Resources front during the financial year 2018-19. 22 employees were hired and

14 employees left the Company during the financial year 2018-19. There were 213 employees on the payrolls of the Company as on 31st March, 2019.

Change in key financial ratios

Sr. Ratios FY 2018-19 FY 2017-18 % Change
(i) Debtors Turnover 10.17 9.95 2.21%
(ii) Inventory Turnover N.A. N.A. N.A.
(iii) Interest Coverage Ratio N.A. N.A. N.A.
(iv) Current Ratio 2.86 3.05 (6.22%)
(v) Debt Equity Ratio N.A. N.A. N.A.
(vi) Operating Profit Margin (%) 60.78% 62.66% (3.00)
(vii) Net Profit Margin (%) 46.55% 45.72% 1.81%
(viii) Sector-specific equivalent ratios, as applicable. - - -

There are no significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios.

Change in Return on Net-worth (RONW) as compared to the immediately previous financial year

Ratio FY 2018-19 FY 2017-18
RONW 16.99% 17.23%

The RONW is marginally down due to lower incremental growth in the Profit as compared to the growth in the Net-Worth.

Disclaimer

Statements in the Annual Report, including those which relate to Management Discussion and Analysis, describing the Companys objectives, projections, estimates and expectations, may constitute ‘forward looking statements within the meaning of applicable laws and regulations. Although the expectations are based on reasonable assumptions, the actual results might differ.

Or

Statements made in this Management Discussion and Analysis Report may contain certain forward-looking statements based on various assumptions on the Companys present and future business strategies and the environment in which it operates. Actual results may differ substantially or materially from those expressed or implied due to risk and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India and abroad, volatility in interest rates and in the securities market, new regulations and Government policies that may impact the Companys businesses as well as the ability to implement its strategies. The information contained herein is as of the date referenced and the Company does not undertake any obligation to update these statements. The Company has obtained all market data and other information from sources believed to be reliable or its internal estimates, although its accuracy or completeness cannot be guaranteed.

For and on behalf of the Board
Bontha Prasada Rao Rajender Mohan Malla
Directors Directors
(DIN:01705080) (DIN: 00136657)
Place : Mumbai
Date : 3rd May, 2019