comfort fincap ltd share price Management discussions

MACROECONOMIC OVERVIEW

Vanquishing through challenges in 2022, the global economy has positioned itself with better prospects in 2023 and ahead. Post COVID-19 pandemic along with a successful vaccination drive on a world-wide scale, short lived Omicron wave and the Russia - Ukraine war crisis, the resilience of global economy stood out by manoeuvring the challenges in the financial year 2022-23. Although, the global economy is gradually recovering from the series of disruptions, according to the International Monetary Fund, the forecast of global growth is to fall from 3.4% in 2022 to 3.0% in both 2023 and 2024. Global inflation remained uncomfortably high at 8.7% in 2022, as against 4.7% a year ago with inflation overshooting the target in an overwhelming majority of countries. However, amidst the disruptions and the tightening of monetary policy, certain economies are expected to exhibit resilience.

Indias economy registered a strong growth of 7.2% in 2022-23, the highest among major economies in the world, amidst a global turmoil following the war in Ukraine. The growth momentum remained steady, showcasing the underlying strength of Indias economy in recovering and revitalising growth drivers. Sound macroeconomic fundamentals, a resilient financial system reflected in healthy balance sheets of banks and NonBanking Financial Companies ("NBFCs"), and a deleveraged corporate sector imparted resilience to counter the adverse global spillovers.

Further, the Union Budget for financial year 2023-24 aimed at enhancing the nations positioning with increased capital expenditure to Rs. 10 lakh crores, marking an increment of 33% in capital outlay as compared to financial year 2022-23 in the financial sector of the Country. Digital payments continue to find wide acceptance. In 202223, they show increase of 76 per cent in transactions and 91 per cent in value. The government has given assurance that fiscal support for this digital public infrastructure will continue in 2023-24.

As aware of the fact that the NBFC sector in India has traversed highs and lows to reach where it is today. The scale of operations and diversity in financial intermediation are testimony to their adaptability and agility in transforming their business models, gauging needs of a growing economy and the evolving regulatory milieu. NBFCs complement banks in the credit intermediation process by offering diversified, tailor-made financial products through innovative service delivery mechanisms. Furthermore, they facilitate financial inclusion by providing credit to unbanked sections of the population. Over the period of time, NBFC sector also growing importance in the Indian financial system and is reflected in the consistent rise of NBFCs credit as a proportion to Gross Domestic Product ("GDP"). Supported by various policy initiatives, NBFCs could absorb the shocks of the pandemic. They built up financial soundness during the financial year 2022-23, marked by balance sheet consolidation, improvement in asset quality, augmented capital buffers and profitability. The pivotal role of NBFCs in driving sustainable fiscal growth is well recognized, given their last-mile connectivity and agile system. The sector has played a decisive role in accelerating last-mile funding and understanding the credit requirement of the Unbanked and Underserved. Aided by the governments thrust towards a digital economy, the sector has also undertaken significant digital transformation and invested heavily to become tech-agile institutions offering personalized products and services, ensuring faster credit disbursement.

FINANCIAL SERVICES INDUSTRY OVERVIEW AND DEVELOPMENTS

India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. The sector comprises of:

• Commercial banks

• Insurance companies

• Non-Banking Financial Companies

• Co-operatives, pension funds

• Mutual funds and

• Other smaller financial entities

The Government has initiated various policies and schemes that are favourable for the growth of the financial services sector.

The Government has been driving as well as supporting the digital revolution in banking, fintech and payment systems to increase efficiency and streamline processes, creating an indirect credit demand from banks and NBFCs.

NON-BANKING FINANCIAL COMPANIES (NBFCs)

With exposure towards banking as well as capital markets, NBFCs have emerged as an essential part of Indias financial ecosystem over the past two decades. Over the years, NBFCs have become an important source of credit for low-income households and businesses that do not have collateral or sufficient credit profile for bank credit. Through wide network of branches, digitalization and innovative solutions, they have grown their presence among MSMEs and consumers, especially for financing vehicles, housing and gold. They all have actively embraced technology and digital tools to bring down the transaction costs, speed up the loan disbursal process and leverage alternate data and practices to improve risk assessment and underwriting. Some of them have also grown larger in size than many banks and have been one of the

major stock outperformers.

With NBFCs constituting an increasingly important segment of the Indian financial system, the Reserve Bank of India plans to strengthen the analysis of transmission to lending rates and sectoral credit flows by expanding the coverage to include NBFCs in addition to banks in a phased manner.

The continuous improvement in asset quality is seen in the declining Gross Non-performing assets (GNPAs) ratio of NBFCs from the peak of 7.2 % recorded during the second wave of the pandemic (June 2021) to 5.9 % in September 2022, reaching close to the pre-pandemic level. Credit extended by NBFCs is picking up momentum, with the aggregate outstanding amount at Rs.31.5 lakh crore as of September 2022. NBFCs continued to deploy the largest quantum of credit from their balance sheets to the industrial sector, followed by retail, services, and agriculture.

ABOUT COMFORT FINCAP LIMITED BUSINESS OVERVIEW

The Company was originally incorporated as Parasnath Textiles Limited ("PTL") on November 12, 1982 under the Companies Act, 1956 in the State of West Bengal. Initially, the objects of the Company were to carry on the business of manufacturers and dealers in textiles, investment /trading in shares & securities. The Company was registered with Reserve Bank of India ("RBI") as a Non-Banking Financial Company ("NBFC) on September 15, 1998 being Registration No. 05.02895 and started NBFC business. Thereafter, the Companys name was changed from Parasnath Textiles Limited to Comfort Fincap Limited dated June 4^th, 2011.

The Comfort Fincap Limited (CFL or the Company) is a non-deposit taking Non-Banking Financial Company ("NBFC-ND") registered with the Reserve Bank of India (RBI) and is classified as an NBFC-Investment and Credit Company (NBFC-ICC). Our Company is primarily focused in providing inter corporate loans, personal loans, loans against shares & securities, loans against properties, trade financing, bills discounting, trading in shares & securities.The Company has positioned itself between the organized banking sector and local money lenders, offering the customers competitive, flexible and timely lending services.

PRODUCTS & SERVICES

Our Company offers financial services to commercial, industrial and financial clients with a one stop fin solution as follows:

LOAN AGAINST SECURITIES	MARGIN FUNDING	BILL DISCOUNTING	ESOP FINANCE
Your Company deals in loan against securities, where credit been provided against your securities like Equity Shares, Mutual Fund Units while still retaining ownership. By way of loan against securities, you can borrow capital by pledging your financial investments. This enables you to enjoy all corporate benefits accrued on your securities and still avail loan against them. Interest will be charged only on the actual amount and that too for the time it is utilized.	Margin Finance trading is granted against preapproved list of securities, subject to predefined haircut for margin. Through margin finance facility, investors can raise finance to purchase additional securities without selling their long-term investments. Under this facility, the investors need to either pay a part of the total purchase value or pledge his existing approved securities as margin, while the balance purchase value is being funded by NBFC. Margin Financing is thus known as ‘gearing of the investment portfolio.	Your Company offer bill discounting services by virtue of which we buythe bill (i.e. Bill of Exchange of Promissory Note) before it is due and credits the value of the bill after a discount charge to the customers account.~Bills that come under bill discounting are termed as ‘bills of exchange. Bill discounting feature can be used to avail loans up to approximately 90% of the raised invoices.	Individuals holding ESOPs from their employers & wanting to exercise their option can avail loan on competitive terms.

 

LOAN AGAINST PROPERTY/MORTGAGE LOAN	HOME IMPROVEMENT LOAN-	PROMOTER FUNDING-	IPO FINANCING
Loan Against Property allows you to cash in on your assets anytime you need to fulfill your dreams. At Comfort, we make sure that you get a quick loan against your property at affordable interest rates to help you chase your happiness without any worries.	A home is usually said to be a reflection of its owner. You can now spruce up your home and make renovation a milestone as memorable and enjoyable as home buying. With Comforts Home Improvement Loans, you can upgrade your existing home to a contemporary design and a more comfortable living space.	A facility provided to promoters of well- managed companies to raise funds against their stake in that operating company. These funds can be utilized for various needs like financing for business growth, Acquisitions and take-over financing. Any working capital requirement can also be availed by the promotors through Promoters Funding.	Initial Public Offer ("IPO") Financing is one of the most lucrative investment opportunities to leverage your funds in the primary markets. Our loans help corporative and high net worth individuals subscribe to the equity IPOs. All you have to do is invest the margin amount and well finance the balance application amount. The IPO financing loans are generally issued for the tenor of 10-15 days.

SWOT ANALYSIS

During financial year 2022-23, your Company addressed all the market challenges and focused on the strengths to come up with adapting new technology, protecting the balance sheet and strengthening the business franchise.

STRENGTH

WEAKNESS

OPPORTUNITY

THREATS

 

-Talent Management -Strong relationships with public, private banks, institutions and investors -Unambiguous and expansible organization structure -Diversification of financial services through innovation -Experienced senior management team

- Available in restricted geographies not PAN- India basis - Rising Interest Risk - Does not have aggressive advertisi ng strategies - Does not enjoy the first-mover advantages over other competitors

-Opportunities in home equity, personal finance, personal investment, etc. -Retention of customer base with a holistic association approach -Enhancing depth of microfinance by addressing disadvantaged groups Identification, Propa gation and use of Innovative Delivery Mechanisms

-Unfavourable changes in government policies and the regulatory environment -Uncertain economic and political environment -Dynamic Competition -Operational Challenges V J

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY:

• The Company believes that strong internal control system and processes play a critical role in the health of the Company. The Company is having an internal control system including suitable monitoring procedures commensurate with its size of operations;

• The Company has put in place an effective internal control system to synchronise its business processes, operations, financial reporting, fraud control, and compliance with extant regulatory guidelines and compliance parameters. Strict internal control and systems are devised as a depiction of the principles of the highest standards of governance;

• The internal control system is supplemented by Internal audits, regular reviews by the management and standard policies and guidelines which ensure reliability of financial and all other records;

• The Companys Internal Auditor performed regular reviews of business processes to assess the effectiveness of internal controls. Internal Audits were carried out to review the adequacy of the internal control systems, compliance with policies and procedures. The Internal Audit reports are periodically reviewed by the Audit Committee;

• Our Internal Auditor, M/s. AHSP & Co. LLP, Chartered Accountants, has certified that the Company maintains an adequate system of internal financial controls, evaluates and makes an assessment of its adequacy and effectiveness in a satisfactory manner which takes care of requirements under the Companies Act, 2013.

FINANCIAL PERFOMNACE

The summary of audited consolidated and standalone financial performance of the Company, for the financial year ended March 31, 2023 is summarized as under:

(Rs. in Lakh .Except EPS)

PARTICULARS	STANDALONE		CONSOLIDATED
	2022-2023	2021-2022	2022-2023	2021-2022
Revenue from Operations	1466.10	1,242.43	1466.10	1242.43
Other operating Income	7.19	7.78	7.19	7.78
T otal Revenue	1473.28	1250.21	1473.28	1250.21
Less: Total Expenditure	815.44	630.31	815.44	630.31
Profit before Tax	657.84	619.90	657.84	619.90
Les: Current Tax Expenses	168.75	146.51	168.75	146.51
Less: Deferred Tax	0.06	14.08	0.06	14.08
Less: Tax of earlier years	0.81	16.86	0.81	16.86
Profit for the year	488.23	442.44	488.22	442.40
Earnings Per Share (EPS) (Basic & Diluted)*	0.90	0.82	0.90	0.82

*Note: Subsequent to quarter ended March 31, 2023, the equity shares of the Company were splited/ sub-divided such that each equity share having face value of Rs. 10/- (Rupees Ten only)fully paid-up, was sub-divided into five (5) equity shares having face value of Rs. 2/-(Rupees Two only) each, fully paid-up with effect from May 05, 2023 (Record Date). Therefore, the Earnings Per Share (EPS) for the financial year ended March 31, 2023 and all comparative periods presented above have been restated to give effect of the share split.

During the year under review, your Companys total revenue from operations on consolidated basis increased to Rs. 1466.10 lakh as compared to Rs. 1,242.30 lakh in the previous financial year. The net profit increased to Rs.

488.22 lakh as compared to Rs. 442.40 lakh in the previous financial year.

During the year under review, your Companys total revenue from operations on standalone basis increased to Rs. 1466.10 lakh as compared to Rs. 1,242.43 lakh in the previous financial year. The net profit increased to Rs.

488.23 lakh as compared to Rs. 442.44 lakh in the previous financial year.

The Management continues to concentrate its efforts to increase the revenue of the Company by identifying new opportunities.

Details of Significant changes, if any, in the Key Financial Ratios, along with the detailed explanation forms part of the financial Statements. Return on Net worth of the Company has no change to 0.098 in the financial year 2022-23 as compared to the previous financial year.

HUMAN RESOURCES (HR)

• As a financial service provider, people are the greatest assets and core strength to the Companys. As of March 31, 2023, your Company employed 06 employees. The Company has consistently been agile and has improved its human resource practices to match up to the dynamic workplace. The Company has very cordial and harmonious relationship with its employees.

• The Nomination and Remuneration Committee periodically reviews career growth plan of senior management personnel possessing ability to build teams and nurture leaderships for future growth plans of the Company.

• We have adopted people practices that enable us to attract and retain talent in an increasingly competitive market and to foster a work culture that is always committed to providing the best opportunities to employees to realize their potential. We are committed as an equal opportunity employer and employee, follow nondiscrimination in all our practices.

RISKS & CONCERNS

Risk is an integral part of the business and almost every business decision requires the management to balance risk and reward. The ability to manage risks across geographies, products, asset classes, customer segments and functional departments is of paramount importance for the hindrance free growth of every organization. The Company is exposed to various risks such

as pandemic risk, credit risk, economic risk, interest rate risk, liquidity risk, technology risks, etc.

The Company is exposed to various risks such as pandemic risk, credit risk, economic risk, interest rate risk, liquidity risk, technology risks, etc. The Company has a Risk Management Framework that involves risk identification, risk assessment and risk mitigation planning. It also includes the implementation of a programme to continually measure and assess the effectiveness of existing safeguards in protecting onescritical assets. Thus, managing risks is not a one-time activity; its an ongoing process. It is also critical to recognize that certain business risks are unavoidable, and have to be dealt with as they arise. Your Company has directed its effort towards risk management. The Companys risk management policies are established to identify and analyse the risks faced by the Company, to set and monitor appropriate risk limits and controls, periodically review the changes in market conditions and reflect the changes in the policy accordingly. The key risks and mitigating actions are also placed before the Audit Committee of the Company.

A. Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk. Financial instruments affected by market risk include loans and borrowings and deposits.

• Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. This risk exists mainly on account of borrowings of the Company. However, all these borrowings are at fixed interest rate and hence the exposure to change in interest rate is insignificant.

• Foreign Currency Risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company is not exposed to significant foreign currency risk as at the respective reporting dates.

• Price Risk

The Company is mainly exposed to the price risk due to its investment in debt mutual funds. The price risk arises due to uncertainties about the future market values of these investments.

B. Credit Risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and other financial assets.

• Trade Receivables

Customer credit risk is managed by each business unit subject to the Companys established policy, procedures and control relating to customer credit risk management. An impairment analysis is performed at each reporting date on an individual basis for major trade receivables.

• Other Financial Assets

Credit risk from balances with banks and financial institutions is managed by the Company in accordance with the Companys policy. Investments of surplus funds are made only in highly marketable debt instruments with appropriate maturities to optimise the cash return on instruments while ensuring sufficient liquidity to meet its liabilities.

C. Excessive risk concentration

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Companys performance to developments affecting a particular industry. In order to avoid excessive concentrations of risk, the Companys policies and procedures include specific guidelines to focus on the maintenance of a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly.

D. Liquidity risk

Liquidity risk is the risk that the Company will face in meeting its obligations associated with its financial liabilities. The Companys approach in managing liquidity is to ensure that it will have sufficient funds to meet its liabilities when due without incurring unacceptable losses.

The Company maintained a cautious liquidity strategy, with a positive cash balance throughout the year ended 31^stMarch, 2023 and 31st March, 2022. Cash flow from operating activities provides the funds to service the financial liabilities on a day-to-day basis. The Company regularly monitors the rolling forecasts to ensure it has sufficient cash on an on-going basis to meet operational needs. Any short term surplus cash generated, over and above the amount required for working capital management and other operational requirements, is retained as cash and cash equivalents (to the extent required) and any excess is invested in interest bearing term deposits and other highly marketable debt investments with appropriate maturities to optimise the cash returns on investments while ensuring sufficient liquidity to meet its liabilities.

The Company manages its liquidity requirement by analysing the maturity pattern of Companys cash flows of financial assets and financial liabilities. The Companys objective is to maintain a balance between continuity of funding and flexibility. The Company invests its surplus funds in debt schemes of mutual funds, which carry low mark to market risks.

Other Risks

Due to rapid changes in the technologies, business dimensions and complexities, regulatory changes and environmental concerns, new and various types of risks have emerged. Financial firms are now increasingly focused on asset-liability risk. Asset-liability risk is a leveraged form of risk. So, in the era of fast changing global economy, multiplicity of legal compliances, cross border business transactions and to ensure the survival, viability and sustainability of business, the management of various types of risks have gained utmost importance

All such risks cannot be eradicated completely however can be controlled, mitigated and managed within the Company in order to balance risk and reward. Risk management is an important part of the Companys business strategy, and it is smoothly incorporated into all of the Companys activities. The aim of the Companys framework is to optimize the risk-return equation while also ensuring strict adherence to all current and upcoming laws, rules, and regulations that apply to all of the Companys business activities. Thus, managing risks is not a one-time activity; its an ongoing process. The Company strives to cultivate a strong and disciplined risk management culture across all of its business operations and at all levels of the organization.

The Companys senior management has the overall responsibility for establishing and governing the Companys risk management framework. The Company has constituted a core Management Committee, which is responsible for developing and monitoring the Companys risk management policies. The Companys risk management policies are established to identify and analyse the risks faced by the Company, to set and monitor appropriate risk limits and controls, periodically review the changes in market conditions and reflect the changes in the policy accordingly.

OUTLOOK

NBFCs have come a long way in terms of their scale and diversity of operations. They now play a critical role in financial intermediation and promoting inclusive growth by providing last-mile access of financial services to meet the diversified financial needs of less-banked customers. The sector has also seen advent of many nontraditional players leveraging technology to adopt tech-based innovative business models. The regulatory approach of the Reserve Bank of India has adapted to the increase in complexity of the entities within the NBFC sector as well as the growing significance of NBFCs within the financial sector. With the growth in size and interconnectedness, NBFCs have increasingly become systemically significant and the prudential regulations for NBFC sector have evolved to give greater focus to the theme of financial stability.Ensuring good corporate governance in NBFCs is at the core of any regulatory change. This is not an easy objective to meet, as good governance is essentially an aspirational achievement for an entity and it can seldom be founded only on regulatory prescriptions. A consumer of financial services provided by any regulated entity, whether a bank or NBFC, nurtures similar expectation of fair treatment and avenues for grievance redressal. A transparent and self- disciplining mechanism has to be imagined for the future where the changing business models and newer credit delivery mechanisms do not deviate from the objective of fair treatment of the customer.

The NBFC sector has become extremely diverse. The business model, customer profile and nature of financial products vary substantially depending on the category of the NBFC. The uniqueness of this sector lies in the inherent diversity of activities carried out by different NBFCs and thus, there can be no one-size-fits-all prescription in the regulatory approach for NBFCs. Perhaps a calibrated and graded regulatory framework proportionate to the systemic significance of entities concerned is the way forward.

DISCLOSURE OF ACCOUNTING TREATMENT

The Company has complied the prescribed accounting treatment while preparation of financial statements as per Accounting Standard, thus no disclosure is required to be made there under.

CAUTIONARY STATEMENT

Certain statements made in the Management Discussion and Analysis Report relating to the Companys objectives, projections, outlook, expectations, estimates and others may constitute forward looking statements, within the meaning of applicable laws and regulations. Actual results may differ from such expectations, whether expressed or implied. Several factors could make a significant difference to the Companys operations. These include climatic and economic conditions affecting demand and supply, government regulations and taxation, any epidemic or pandemic, natural calamities over which the Company may not have any direct/indirect control.

The management of the Company has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements reflect a true and fair manner, the state of affairs and profit / loss for the year. The narrative on our financial condition and result of operations should be read together with the notes to the financial statements included in the annual report. Important factors that could make a difference to the Companys operations include changes in Government regulations and tax regime, economic developments within India and abroad, financial markets, etc.