Daga Leasing Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS

Economic & Business environment

On the backdrop of fragile global economic scenario the Indian economy in the year 2011-12 witnessed substantively pessimistic and lacklustre environment. Akin to this and especially due to huge uncertainties of the international financial markets impacted emerging market economies substantially including that of India. The year 2011-12 witnessed considerable slowdown in the growth. Estimated growth in GDP for FY 2011-12 decelerated sharply to around 6.9 per cent after two successive years of fairly robust growth of around 8 per cent plus.

During the year 2011-12, all the three sectors of the economy namely agriculture sector, industrial sector and the service sector slowed down considerably. The estimated growth in the agriculture sector decreased to around 2.5 per cent from around 7 per cent for previous year. Similarly, on account of weak IIP numbers; the Industrial growth slacked to a meagre 2.8 per cent as compared to 8.2 per cent for the previous year. However, during the same year, the service sector managed to sustain its growth rates helping to partially alleviate the negative impact of the poor growth performances of the agricultural and industrial sectors on the overall GDP growth.

Throughout the year 2011-12, the current account deficit remained range bound at around 3.9 per cent of GDP almost 45% up from the previous year’s level of 2.7 per cent whereas capital account remained in the range of around 3.5 per cent of GDP as compared to previous year’s 3.7 per cent. Also, there was a huge slowdown witnessed in the overall foreign institutional investor (FII) inflows into the country. During the year 2011-12, the overall net FII inflows reduced by around 36 per cent as compared to previous year. The cumulative FII net investment from November 1992 to March 31, 2012 stood at US $ 122.85 billion and the forex reserves of country marginally decreased by around 3 per cent from US$303 billion as on March 25, 2011 to US $ 294 billion at end of March 30, 2012.

In order to moderate the challenging situation and to provide impetus to the Indian financial markets series of steps in the form of raising of FII limits for investment in long-term infrastructure bonds, corporate bonds and government securities, raising limit on External Commercial Borrowings (ECB) for Indian corporates and permitting Qualified Foreign Investors (QFIs) to invest in India both directly and indirectly were taken. These steps have helped keep the overall investment climate in the country stable to some extent.

Further, during 2011-12 the Indian securities industry also experienced number of technological and regulatory developments. In addition, demand for new products and services, particularly new asset classes and need for faster and more cost efficient trade execution increased substantially.

Outlook

With the strong innate economic fundamentals, India continues to be the highly attractive destination for investment, globally. Indian economy is expected to sustain a growth rate of around 6.9 per cent in the year 2012 as compared to 3.5 per cent for the world economy. Further, the provisional estimates from RBI for the year 2012-13 indicate fiscal deficit of 5.1 per cent of the GDP; down from 5.9 per cent for the year 2011-12. Also, as a natural fall out of the fiscal consolidation the savings and capital formation within the economy would begin to rise rapidly. This would have a significantly positive impact on the capital markets. Additionally, various policy level steps enumerated above are also expected to fetch positive effect on the growth of the Indian Capital market.

Similarly, existing products and asset classes which would continue to evince interest, it is expected that there would be attraction towards new asset classes as well. New products and services, technological innovation, robust risk management system and strong regulatory framework would continue to be the key drivers for the securities market.

Risks and concerns

While the fundamentals of Indian Economy remain strong, the domestic capital market and especially the inflow of foreign funds are to a large extent susceptible to the developments in the global economy. Also, eurozone sovereign debt crisis and lurking fear over the recovery of US economy post sign of initial improvement could have adverse impact on the Indian capital market. However, with key policy changes and domestic growth expectations within the country these risks would be largely mitigated.

Internal control systems and their adequacy

The Company has well established internal control systems commensurate with the size and nature of its business and are adequate to ensure compliance with various internal processes and procedures as well as with various statutory and legal requirements. The Company has appointed reputed firms of Chartered Accountants to review the effectiveness of the internal control systems and submits its observations, if any to the Audit Committee of the Board for its review / recommendations.

Financials

The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956, including revised

Schedule VI, Generally Accepted Accounting Principles (GAAP) in India and as per the applicable Accounting Standards laid down by the Institute of Chartered Accountants of India. A well known and reputed firm of Chartered Accountants performs the audit and they have confirmed that our practices are as stringent and complete as internationally. Consolidated Financial statements have also been presented.

Financial performance (2011-12)

During the year 2011-12, the total revenue has increased by around 11% from Rs 1,378.47 crores for the year 2010-11 to Rs 1,533.87 crores for the year 2011-12.

The total expenditure for the year 2011-12 was Rs 567.19 crores as compared to Rs 519.16 crores for the year 2010-11, an increase of around 9% over the previous year.

The total Profit Before tax for the year 2011-12 was Rs 966.68 crores as against Rs 859.31 crores for the year 2010-11, an increase of around 12% over the previous year.

The total Provision for tax (including deferred tax, wealth tax) for the year 2011-12 was Rs 261.79 crores as against Rs 221.80 crores for the year 2010-11.

The total Profit after tax for the year 2011-12 was Rs 704.89 crores as against Rs 637.51crores for the year 2010-11, an increase of around 11% over the previous year.

Operating Revenues

Transaction charges

During the year, there was a modest decrease of around 3% in the income from Transaction charges from Rs 799.27 crores for the year 2010-11 to Rs 771.79 crores for the year 2011-12. The average daily turnover on the Exchange during the year 2011-12 was Rs 11,306 crores in Cash Market (CM segment) as against Rs 14,090 crores for the year 2010-11 indicating a decline of around 20%. In F&O segment the average daily turnover (billable) for the year 2011-12 was Rs 31,724 crores as against Rs 39,628 crores for the year 2010-11 indicating a decline of around 20%. Further effective August 22, 2011 transaction charges were introduced in the Currency Derivatives Segment. The average daily turnover (billable) for the period was Rs 12,025 crores.

Listing Fees

Revenue under this head of income increased by around 44% from Rs 23.24 crores for the year 2010-11 to Rs 33.37 crores for the year 2011-12. The Exchange as of March 31, 2012 had 1,608 listed companies. The total market capitalisation of these companies as of March 31, 2012 stood at around Rs 60 lakhs crores.

Book Building Fees

The total book building fees during the year 2011-12 decreased by around 63% from Rs 11.67 crores for the year 2010-11 to Rs 4.28 crores for the year 2011-12.

Interest & Other Investment income

In line with the overall increase in the interest rates in the economy, the during the year 2011-12, the total investment income increased from Rs 266.43 crores for the year 2010-11 to Rs 392.65 crores for the year 2011-12.

NSE’s Certification in Financial Markets (NCFM)

The income from NCFM activity stood at Rs 21.60 crores for the year 2011-12. Also, the total number of candidates taking examination during the year 2011-12 was around 1,75,000.

Other Operating Revenues

During the year 2011-12, the other operating revenues increased by around 33% from Rs 178.28 crores for the year 2010-11 to Rs 237.30 crores for the year 2011-12.

Other Income

During the year 2011-12, the other income decreased by around 6% from Rs 64.84 crores for the year 2010-11 to Rs 61.19 crores for the year 2011-12.

Expenditure

Other expenses

Other expenses for the year 2011-12 increased by around 44% from Rs 101.06 crores for the year 2010-11 to Rs 145.69 crores for the year 2011-12.

IT & Telecom expenses

Technology is the backbone of our business and also the key differentiator. The Exchange continued to invest in the state of the art technology in different areas of its business keeping clear focus on its cost efficiency. Accordingly, during the year, the total IT & Telecom expenses for the year 2011-12 increased by around 2% from Rs 141.69 crores for the year 2010-11 to Rs 144.95 crores for the year 2011-12.

Clearing & Settlement charges

National Securities and Clearing Corporation Limited (NSCCL), a wholly owned subsidiary of the Exchange, carries out the clearing and settlement of the trades executed in the CM, F&O and CD segments. Consequent to the decrease in income from transaction charges, the clearing & settlement charges for the year 2011-12 paid to NSCCL, decreased by around 3% from Rs 119.89 crores for the year 2010-11 to Rs 115.77 crores for the year 2011-12.

Employee cost

The Exchange recognises the value of its human capital deployed at all levels. To continue to provide best in class services to its members and other market participants it is essential for the Company to attract and retain the best talent available. In this direction, the Company continues to take various initiatives to follow HR best practices and also keeps benchmarking it with other forward looking organisations. During the year 2011-12, the Company has taken number of HR initiatives in the areas of employee developments and training, harnessing knowledge and skill levels as well as various staff welfare measures etc. During the year 2011-12, the total employee strength remained stable as compared to the year 2010-11 and the employee related expenses stood at Rs 71.35 crores which was Rs 64.43 crores for the year 2010-11. For the year 2011-12, the total employee cost as a percentage to total income was 4.7% and as a percentage of expenditure was 12.6% which is comparable to the industry standards.

Depreciation

Exchange continued to invest in technology in different areas of its business. Depreciation modestly decreased by around 3% from Rs 91.35 crores for the year 2010-11 to Rs 89.02 crores for the year 2011-12.

Financial Statement as on March 31, 2012

Share Capital

The total paid up capital of the Company as on March 31, 2012 is Rs 45 crores divided in to 4,50,00,000 equity shares of Rs 10 each.

Reserves & Surplus

The total Reserves & Surplus as on March 31, 2012 is Rs 3,433.86 crores comprising of Share Premium of Rs 40 crores, Investor Compensation reserves Rs 10 crores, staff welfare reserves of Rs 1.50 crores, General reserve of Rs 3,155 crores and balance in P&L A/c of Rs 227.36 crores.

Thus the total Net worth of the Company as on March 31, 2012 is Rs 3,478.86 crores and the book value is Rs 773.08 per share.

Deposits from members (Unsecured)

The total deposits from members as on March 31, 2012 stood at Rs 1,120.07 crores as against Rs 1,115.20 crores as on March 31, 2011.

Fixed Assets

Total Gross Block as on March 31, 2012 was Rs 937.56 crores. Total Accumulated depreciation up to March 31, 2012 was Rs 520.58 crores. Net fixed Assets (including Capital W.I.P) were Rs 432.47 crores. As part of the total investments in technology areas, during the year 2011-12 the total additions to fixed assets were Rs 59.69 crores mainly pertaining to the Trading systems, Computer system, telecom equipment’s and computer software. Total deletions at cost were at Rs 53.63 crores. These equipments had become obsolete and are fully depreciated.

Investments

The prudential policy of the Company permits to invest both long term and short term surplus funds in to deposits of highly rated banks, bonds issued by the Central / State governments, institutions and various corporates and into the debt oriented schemes of high performing mutual funds. As on March 31, 2012 the total non-current investments were Rs 322.08 crores as against Rs 283.77 crores as on March 31, 2011, increase of Rs 38.31 crores.

Current investments were Rs 687.68 crores as on March 31, 2012 as against Rs 375.26 crores as on March 31, 2011, increase of Rs 312.42 crores.

Other Non-Current and Current Assets

Total other assets (non-current and current) as on March 31, 2012 stood at Rs 3,834.46 crores comprising of interest accrued on investments and Fixed Deposits amounting to Rs 175.73 crores, Trade Receivables amounting to Rs 146.04 crores and cash and bank balances in current and Fixed Deposits and certificates of deposits amounting to Rs 3,452.64 crores and Loans advances of Rs 60.05 crores.

Other Non-Current and Current Liabilities

Total other liabilities (non-current and current) as on March 31, 2012 stood at Rs 670.41 crores mainly comprising of dues from subsidiary companies Rs 27.10 crores, security deposits as per listing agreement amounting to Rs 65.79 crores, Securities Transaction Tax of Rs 124.12 crores, provision for leave encashment of Rs 7.60 crores, proposed dividend of Rs 180.00 crores, corporate dividend tax of Rs 29.20 crores and other current liabilities amounting to Rs 236.60 crores.

Taxation

The total Provision for tax (including deferred tax, wealth tax) for the year 2011-12 was Rs 261.79 crores as against Rs 221.80 crores for the year 2010-11. Though the present Indian Corporate tax rate is 32.445% comprising of base rate and surcharge and cess, due to investments into various debt schemes of mutual funds the effective tax rate works out to 27.62%

Event occurring after the balance sheet date

There are no transactions of material nature that have occurred after March 31, 2012 which could have any impact on the financial performance of the Company for the year 2011-12.