Gemstone Investments Ltd Management Discussions

Indian Economy overview:

Despite global economic headwinds such as trade uncertainties and geopolitical tensions, the Indian economy showcased strong resilience in FY 2025, with GDP expanding by 6.5%, and is projected to retain its position as the fastest-growing major economy worldwide. Growth was supported by substantial government investment in infrastructure, a strong rebound in rural demand, and sustained expansion in the services sector, particularly finance and real estate. The Reserve Bank of India?s accommodative monetary policy, including interest rate reductions, further stimulated investment and consumption. In addition, higher manufacturing output and resilient urban consumption reinforced momentum, even as global trade uncertainties persisted as external risks.

Looking ahead, the Indian economy is projected to grow between 6.3% and 6.8% in FY 2025-26, underpinned by structural reforms, rapid digital adoption, and rising consumer demand. Flagship initiatives such as Make in India and the Production-Linked Incentive (PLI) scheme continue to strengthen manufacturing, drawing significant investments into electronics, semiconductors, and renewable energy. Simultaneously, large-scale infrastructure projects across highways, ports, and smart cities are expected to drive economic activity and employment generation. With continued policy support, strategic investments, and resilient domestic drivers, India is well-positioned to sustain its growth trajectory and solidify its role as a leading global economic powerhouse.

NBFCs: An Industry Overview

Non-Banking Financial Companies (NBFCs) have become a strong force in expanding credit availability, particularly for communities that have traditionally been left out of the formal banking system. By blending technology with local understanding, NBFCs have designed innovative lending models and customized financial products that meet diverse borrower requirements. Their flexibility and customer-centric approach have positioned them not just as supplements to banks but also as catalysts in building a more inclusive financial ecosystem with broader opportunities.

Over the last decade, NBFCs have consistently grown faster than banks, with the trend becoming sharper in recent years. This highlights their increasing importance and resilience within the financial system. Going forward, their long-term sustainability will depend on strong governance, effective risk management, and fair customer practices.

The sector?s credit growth, which has often exceeded India?s nominal GDP growth, is expected to remain robust. NBFCs have grown substantially in scale, with their Assets Under Management (AUM) rising from less than 2 trillion in the early 2000s to about 43 trillion as of September 30, 2024. Between FY2019 and FY2024, NBFC credit expanded at an estimated Compound Annual Growth Rate (CAGR) of nearly 12 %, largely driven by the retail segment, which grew at around 18 %. In comparison, the non-retail book recorded a CAGR of about 9 % in the same period.

According to the RBI?s latest Financial Stability Report, NBFC credit growth eased to 16 % from 22.1 % in the previous year, mainly due to the high base effect and the additional risk weights imposed on consumer lending in November 2023. Asset quality has improved, with the Gross Non-Performing Assets (GNPA) ratio falling to 3.4 % in September 2024 from 4.6 % a year earlier, while the Net NPA (NNPA) ratio declined to 1.1 % from 1.5 %. However, the capital adequacy ratio dropped to 26.1 % from 27.6 %, largely because of business expansion and higher risk weight requirements.

Financial Performance:

For FY 2025, Gemstone witnessed a contraction in its financial performance compared to FY 2024. Revenue declined significantly by 41% to 124.55 lakhs from 210.52 lakhs in the previous year, indicating lower business activity and subdued lending growth. Net profit also moderated by 10%, reducing to 31.61 Lakhs from 35.17 lakhs, reflecting pressure on profitability despite cost controls. Earnings per share (EPS) stood at 0.04 against 0.05 last year, translating into a 20% decline. Overall, Gems Stone faced a challenging year marked by lower revenue traction and margin compression.

Key Ratios

Opportunities

NBFCs are well-positioned to benefit from rising credit demand, with growth of 16% year-on-year outpacing GDP. Strong momentum in retail lending segments such as consumer finance, MSMEs, and gold loans provides further scope for expansion. Digital transformation, driven by fintech partnerships and technology-enabled credit models, is enhancing efficiency and extending market outreach. Moreover, the government?s push for financial inclusion, particularly in semi-urban and rural areas, aligns well with Gems Stone?s potential strategy for deeper penetration.

Threats

Despite the strong growth drivers, NBFCs face notable challenges. Regulatory risks remain high, with the RBI tightening norms such as higher risk weights on consumer lending, which could pressure margins. Competition is intensifying as banks and larger NBFCs leverage stronger capital bases and wider distribution networks. Economic slowdowns could weaken repayment capacity and strain asset quality, while the sector?s high dependence on borrowings means rising funding costs may further compress margins.

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 for 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 Company?s 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.