Gemstone Investments Ltd Management Discussions

Indian Economic Overview: FY 2025-26

The Indian economy remained resilient in FY2025-26 despite an uncertain global environment marked by geopolitical tensions, trade disruptions and uneven global growth. Indias real GDP growth is estimated at 7.7% in FY2025-26, according to the First Advance Estimates, with domestic demand continuing to serve as the principal driver of economic activity. Private consumption and capital formation remained supportive, while the services sector continued to be a key contributor to growth. Manufacturing activity also strengthened during the year, while agriculture provided stability to the broader economy.

Indias growth continues to be supported by infrastructure investment, rising domestic consumption, digitalisation and ongoing structural reforms. Government initiatives focused on manufacturing, infrastructure development and strategic sectors which are strengthening domestic productive capacity and improving Indias competitiveness. The continued expansion of digital infrastructure and technology adoption is also creating new opportunities across financial services, healthcare, consumer technology and other emerging sectors.

Looking ahead, Indias growth outlook remains supported by strong domestic fundamentals, increasing investment, improving infrastructure and expanding consumer demand. While external risks including global trade fragmentation, geopolitical developments and volatility in international markets remain relevant, Indias relatively strong domestic demand provides an important buffer. With continued policy support and structural transformation, India remains well positioned to sustain its position among the worlds fastest-growing major economies.

NBFCs: An Industry Overview

Non-Banking Financial Companies (NBFCs) continue to play an important role in Indias financial ecosystem by expanding access to credit across retail, MSME, housing, vehicle finance, microfinance and other underserved segments. Their ability to combine technology, alternative credit assessment and specialised lending models enables them to address customer segments that may not always be adequately served by traditional banking institutions.

During FY2025-26, the sector continued to operate within a strengthening regulatory framework, with the Reserve Bank of India focusing on financial stability, governance, risk management and responsible credit growth. RBIs regulatory framework continues to differentiate NBFCs based on their size, activities and systemic importance, while strengthening prudential requirements and supervision.

The increasing adoption of digital lending, data-driven underwriting, automated credit assessment and digital customer journey is further transforming the NBFC industry. Technology-enabled NBFCs are increasingly able to reduce turnaround times, improve credit assessment and expand their reach beyond traditional branch-based models. At the same time, the sector remains focused on maintaining asset quality, managing funding costs and strengthening risk-management systems.

The outlook for NBFCs remains positive, supported by Indias expanding credit demand, formalisation of the economy, growing MSME activity, rising consumption and increased financial inclusion. However, funding costs, asset quality, regulatory compliance and responsible lending remain key considerations for sustainable growth. The RBI continues to monitor the sector closely, while recent regulatory developments demonstrate its emphasis on maintaining resilience and ensuring that credit expansion remains sustainable.

Financial Performance:

For FY2026, Gemstone Investments Limited recorded a significant improvement in business activity, with revenue increasing by 79.33% to ^223.37 lakhs from ^124.55 lakhs in FY2025. Profit Before Tax increased by 44.40% to ^66.27 lakhs, while Profit After Tax grew by 27.78% to ^40.39 lakhs, compared with ^31.61 lakhs in the previous year. Earnings per share also improved to ^0.054 from ^0.042, reflecting a 27.78% increase. However, the higher growth in operating expenses and finance costs resulted in a moderation in profitability, with the net profit margin declining from 25.38% to 18.08% and EBIT margin from approximately 37.55% to 33.11%.

Return on Capital Employed declined from 1.89% to 1.49%, while Return on Equity decreased from 1.28% to 1.09%. The current ratio also reduced substantially from 69.27x to 13.30x, primarily reflecting the increase in current liabilities and borrowings during FY2026. Overall, FY2026 represented a year of strong revenue expansion and improved absolute profitability, accompanied by margin compression and increased leverage.

Key Ratios:

Opportunities:

NBFCs remain well positioned to benefit from sustained demand for credit across retail, MSME, vehicle finance, housing and other underserved segments. The continued expansion of MSME credit, supported by increasing formalisation and government-backed credit initiatives, provides opportunities for NBFCs to broaden their lending portfolios and reach new customer segments.

Digital transformation is further creating opportunities through technology-enabled underwriting, digital onboarding, automated credit assessment and data-driven risk management. Partnerships with fintechs and digital platforms can help NBFCs improve operational efficiency, reduce turnaround time and expand geographical reach. With financial inclusion, rising digital adoption and increasing demand for customised credit solutions, NBFCs have significant scope to strengthen their market presence while maintaining prudent lending practices.

Threats:

Despite favourable growth prospects, NBFCs continue to face risks from regulatory changes, funding conditions and asset-quality pressures. The Reserve Bank of India continues to strengthen prudential regulation, supervision, governance and risk-management requirements, which may increase compliance costs and require greater capital and operational preparedness.

Intensifying competition from banks, fintech companies and larger NBFCs may place pressure on lending rates, customer acquisition and margins. Rising funding costs or reduced availability of wholesale funding could also affect profitability, particularly for NBFCs that rely significantly on external borrowings. Further, an economic slowdown, deterioration in borrower repayment capacity or concentration in vulnerable lending segments could lead to higher delinquencies and credit losses. Cybersecurity, fraud and data-privacy risks associated with increasing digitalisation also remain important operational challenges for the sector.

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY:

The Company has a well-defined internal control system designed to ensure adequate checks and balances for the safety of funds and securities. It provides proper authorization, accurate accounting records, effective control of operations, and compliance with applicable laws and regulations. Recognizing the role of technology in strengthening governance, the Company continuously upgrades its systems to improve efficiency and transparency at various levels. Furthermore, consistent efforts are made to enhance internal checks and controls in line with the Companys expanding scale of operations and anticipated growth.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS:

Gemstone, being a Non-Banking Financial Company (NBFC), operates in a business model that currently requires a lean workforce to manage its investment and lending activities efficiently. However, as the business scales and operations expand, the Company anticipates strengthening its human resources by hiring additional skilled professionals. The Company remains committed to maintaining cordial industrial relations and fostering a supportive work environment to drive future growth.