HB Stockholdings Ltd Management Discussions.

1) OPERATING RESULTS

During the year under review, the Companys Total Revenue is Rs. 214.69 Lakhs as compared to Rs. 348.22 Lakhs in the previous year. The Company incurred total expenses amounted to Rs. 944.05 as compared to Rs. 900.46 Lakhs during the previous year. Profit/(Loss) after tax stood at Rs. (729.91) Lakhs as against Rs. (573.77) Lakhs in the previous year.

2) INDUSTRY STRUCTURE 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 commercial banks, insurance companies, non-banking financial companies, cooperatives, pension funds, mutual funds and other smaller financial entities. The financial services sector is poised to grow eventually on the back of strong fundamentals, adequate liquidity in the economy, significant government and regulatory support, and the increasing pace of digital adoption.

In India, equity market also fell sharply in sync with global markets with the outbreak of COVID-19. The growth softened in 2019 as economic and regulatory uncertainty, together with concerns about the health of the non-banking financial sector, weighed on demand. There was a strong hope of recovery in the last quarter of 2019-20. However, the COVID-19 pandemic made this recovery extremely difficult in the near to medium term.

During the year, the government has taken several steps to lift growth, including a cut in corporate tax rates, setting up of a real estate fund for stressed housing projects and a national infrastructure pipeline. The Union Budget 2020 has focused on long-term policy direction, agricultural sector, education, infrastructure, healthcare, financial services, improving ease of doing business and better tax governance.

During 2019-20, the Reserve Bank undertook several measures to develop the financial markets further in terms of broadening the participation base in various segments of the markets, easing access and transaction norms, expanding the range of financial products, simplifying procedures and improving financial market infrastructure, while maintaining rigorous surveillance to ensure market integrity. The Reserve Banks liquidity management operations, in rupees and forex, were stepped up and unconventional instruments were also deployed to ensure adequate liquidity, the normal functioning of markets and the stability of the financial system in the face of the dislocation caused by COVID-19.

3) OPPORTUNITY AND THREATS

NBFCs have been playing a very important role both from macroeconomic prospective and the structure of the Indian Financial System. NBFCs are the perfect or even better alternatives to the conventional Banks for meeting various financial requirements of a business enterprise. They offer quick and efficient services without making one to go through the complex rigmarole of conventional banking formalities. However to survive and to constantly grow, NBFCs have to focus on their core strengths while improving on weaknesses. They will have to be very dynamic and constantly endeavor to search for new products and services in order to survive in this ever competitive financial market.

Although NBFC enjoy considerably lower regulatory overheads, they experience challenges in raising

debt, as all NBFCs cant accept public deposits and hence

- NBFCs rely heavily on Commercial Banks and promoters equity for growth.

- Due to high reliance on bank financing the costs of funds for NBFCs tends to be higher. As a result, NBFCs loans carry higher interest than those offered by banks.

4) FUTURE PROSPECTS AND OUTLOOK

With the worldwide outbreak of COVID-19, the global economy is staring at a recession of a magnitude never seen before in recent history. To counter the pandemic, countries across the globe has resorted to lockdowns, which has already brought the economy to a standstill. Continued lockdown due to COVID-19 can lead to a serious impact on the organisation, including a significant decline in profitability, liquidity concerns and others.

Outlook for the coming financial year continues to remain uncertain, with the COVID-19 situation evolving each day. Apart from agriculture, health care and related activities, most other sectors of the economy have been adversely impacted by the pandemic and are expected to show degrowth. The Companys present business operations are preponderantly that of an investment company, future of which largely depends upon financial and capital markets. The management is optimistic about the future outlook of the Company. The Company will expand its activities, consistent with its status as a NBFC.

RBI expects Indias GDP growth in 2021 to remain in the negative territory. India, like rest of the world, is in unchartered territory in the pandemic. The pandemic and the lockdown resulted in the stoppage and even collapse of several economic activities. Considering the pandemic-related economic slowdown, the next years fiscal deficit is expected to rise further. The economic disruption caused by the pandemic would result in demand and supply shocks, combined with large scale job losses, countering any recovery anticipated earlier in the year.

5) RISKS AND CONCERNS

The Company like any other Company is exposed to specific risks that are particular to its business and the environment within which it operates. The Company is exposed to the market risk (including liquidity risk) and also the factors that are associated with Capital market, which inter alia includes economic / business cycle, fluctuations in the stock prices in the market, besides the interest rate volatility and credit risk.

Risk Management Policy

The Company has implemented a systematic process to assist in the identification, assessment, treatment and monitoring of risks which provides the necessary tools and resources to management and staff to support the effective management of risks.

The Company is primarily engaged in investment in Securities viz. Equity Shares, Preference Shares, Mutual Funds etc. which involves macroeconomic risks, investee company specific risks, market wide liquidity risks and execution risks relating to the Company / its intermediaries.

(a) The macroeconomic risks, investee company specific risks are covered by investment decisions based on third party research and internal assessment.

(b) Market wide risks are assessed and managed by investment timing decisions.

(c) The execution risk is managed by dealing with reputed intermediaries and through own back office discipline re accounting and follow up of trades.

(d) All investment decisions are made after distinguishing among alternative courses of action with identification of expected risks.

The Company also faces credit default risks, concentration risk and industry specific risk while making Inter corporate loans to other body corporate. The Company performs the credit check on the prospective borrower considering various factors relating to the loan such as loan purpose, credit rating, and loan-to-value ratio and estimates the effect on yield (credit spread). The Company mitigates the concentration risk, industry specific risks by diversifying the borrower pool relating to different industries. The Company periodically monitors and reviews the financial condition, credit rating, debt to equity ratio to minimize the credit default risks associated with the borrowers.

The Company has established Internal Financial Control Systems to provide reasonable assurance regarding safeguarding of assets, maintenance of proper accounting records and the reliability of financial reporting.

The Company controls the operational risks associated with its business activities by way of prescribing / amending processes, imposing controls and defining roles and responsibilities. The Company assesses the effectiveness of its risk management plan through structured continuous improvement processes to ensure risks and controls are continually monitored and reviewed.

6) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has proper and adequate system of Internal Controls to ensure that all its assets are safeguarded and protected against loss from unauthorized use or disposition of assets and that the transactions are recorded and reported.

The Company ensures adherence to all Internal Control policies and procedures as well as compliance with all regulatory guidelines. The Internal Auditor monitors and evaluates the efficacy and adequacy of Internal Control Systems in the Company, its compliance with the operating systems, accounting procedures and policies. The Audit Committee reviews the internal controls at periodic intervals in close coordination with the Internal Auditors.

7) FINANCIAL PERFORMANCE

a) Share Capital: The Companys Issued and Subscribed Share Capital consists of Equity Share Capital only. The Paid-up Share Capital of the Company as at 31st March, 2020 stood at Rs. 7,13,76,650/- comprising of 7137665 Equity Shares of Rs. 10/- each.

a) Financial Assets and Non-Financial Assets: The Financial Assets and Non-Financial Assets for the year under review stood at Rs. 3,133.47 Lakhs and Rs. 185.12 Lakhs respectively as against Rs. 3,883.16 Lakhs and Rs. 184.98 Lakhs for the previous year.

b) Financial Liabilities and Non-Financial Liabilities: During the year under review, the Financial Liabilities and Non-Financial Liabilities stood at Rs. 83.12 Lakh and Rs. 114.26 Lakh respectively as against Rs. 99.45 Lakh and Rs. 113.82 Lakh during the previous year.

b) Key Financial Ratios (Standalone):

Particulars FY 2019-20 FY 2018-19 % change over previous year
1. Debtors Turnover Ratio N.A. N.A. -
2. Inventory Turnover Ratio N.A. N.A. -
3. Interest Coverage Ratio (169.47) (97.65) (73.55)
4. Current Ratio 15.97 18.21 12.29
5. Debt Equity Ratio 0.014 0.016 11.19
6. Operating Profit Margin (%) (337.73) (156.98) (115.14)
7. Net Profit Margin (%) (339.99) (164.77) (106.33)
8. Return on Net-Worth (%) (23.41) (14.91) (56.99)

Reason for change of more than 25% in Key Financial Ratios:

The change in Interest Coverage Ratio occurred due to decrease in finance cost and increase in Total Losses during the current financial year. The change in Operating Profit Margin, Net Profit Margin and Return on Net Worth has occurred due to decrease in Total Revenue and increase in Total Losses of the Company during the current financial year.

8) HUMAN RESOURCES

The Company has adequate human resources which is commensurate with the current volume of activity and is reviewed by the management periodically and the Company would induct competent personnel on increase / expansion of the activity.

9) CAUTIONARY STATEMENT

Statements in this “Managements Discussion and Analysis” describing the Companys objectives, projections, estimates, expectations or predictions may be “forward looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include interest rates and changes in the Government regulations, tax regimes, economic developments and other factors such as litigation etc.