HB Stockholdings Ltd Management Discussions.

1) OPERATING RESULTS

During the year under review, the Company’s Total Revenue from operation is Rs. 1319.45 Lakhs as compared to Rs. 196.40 Lakhs in the previous year. The Company incurred total expenses amounted to Rs. 147.82 Lakhs as compared to Rs. 944.44 Lakhs during the previous year. Profit/(Loss) after tax stood at Rs. 1180.44 Lakhs as against Rs. (729.91) Lakhs in the previous year.

2) INDUSTRY STRUCTURE AND DEVELOPMENTS

Over the years, NBFCs’ have developed as a key segment in the Indian financing sector and has witnessed a faster growth than the credit growth of banks during the recent times. With respect to liabilities, NBFCs’ have become increasingly interconnected with the financial system and plays a vital role in the financial system and have been recording higher growth than scheduled commercial bank over the past few years.

The Covid-19 pandemic has impacted most countries, including India. This resulted in countries announcing lockdown and quarantine measures that sharply stalled economic activity. Several countries took unprecedented fiscal and monetary actions to help alleviate the impact of the crisis.

The Government of India had announced various measures to support the economy during this period. The Reserve Bank of India had also announced several measures to ease the financial system stress, including enhancing system liquidity, reducing interest rates, moratorium on loan repayments for borrowers, asset classification standstill benefit to overdue accounts where a moratorium had been granted amongst others to alleviate the economic stress induced by the pandemic. The main aims of these measures were to facilitate and incentivize credit flows, ease the financial stress and enable the formal functioning of the market.

Equity Market had a roller coaster ride in FY 2020-21. From the lows seen at the end of FY 2019-20 on account of Covid-19 induced lockdown, the markets started gradually recovering led by phase wise unlocking, various policy measures announced by governments, central banks and better-than-expected corporate earnings performance. The next booster dose for markets came with the approval of vaccines against Covid and this catapulted the market to reach new highs.

3) OPPORTUNITY AND THREATS

NBFCs with a robust business foundation and people proficiency could maintain healthy asset quality despite the turbulence. With the pandemic and the resultant crisis, the focus had shifted from growth to stability. The RBI and Government announced several measures to provide liquidity support and mitigate the disruptions caused by the pandemic. These measures were aimed at easing liquidity and improving asset quality. While near term credit demand is going to be driven by the economic impact of the virus and the lockdowns, as vaccinations pick up and economic activity normalises, the Company sees the Government policies leading to resumption of growth. The Company will continue to optimize costs wherever possible and to monitor and manage risks so as to keep expenses/ costs under control.

The Company continuously identifies and assesses potential threats. Increase in inflation, fiscal deficit and a poor monsoon can increase in interest rates and hurt equity inflows. A sharp tightening of interest rates will make developed economies more attractive on a risk-return basis and emerging economies may witness an increase in outflows by foreign institutional investors. Any stringent regulatory change or unfavorable policy change, which may have the ability to impact the Company’s growth prospect in short run.

4) FUTURE PROSPECTS AND OUTLOOK

The Company will continue to explore various options to strengthen its capital base and balance sheet to augment the long-term resources for meeting funds requirements of its business activities, the future growth opportunities, general corporate purposes and other purposes including effectively facing challenges of the uncertainties and disruptions caused by COVID-19 pandemic.

The pandemic continues to pose major challenge to the entire world including India. However, it appears that the countries have now learnt the technique of adapting to the new normal- the new way of life. The duration and severity of spread of second wave of pandemic, roll out of vaccines, the scale and effectiveness of implementation of the ongoing vaccination program and the efficacy of monetary and fiscal policy actions of Indian Government are the important factors to impacting the pace of economic recovery. India is among the few nations with the highest youth population, with a median age of 28 years. The domestic financial market is seen growing at a healthy pace owing to strong demand-side and supply-side drivers. Such a large share of the working population, expected growth of Indian economy, increasing urbanisation, and rising consumerism because of higher per capita incomes are some key drivers implying market growth potential for established financial service providers in India.

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 Company’s Issued and Subscribed Share Capital consists of Equity Share Capital only. The Paid-up Share Capital of the Company as at 31st March, 2021 stood at Rs. 7,13,76,650/- comprising of 7137665 Equity Shares of Rs. 10/- each.

b) Financial Assets and Non-Financial Assets: The Financial Assets and NonFinancial Assets for the year under review stood at Rs. 5755.53 Lakhs and Rs. 143.66 Lakhs respectively as against Rs. 3133.46 Lakhs and Rs. 185.12 Lakhs for the previous year.

c) Financial Liabilities and Non-Financial Liabilities: During the year under review, the Financial Liabilities and Non-Financial Liabilities stood at Rs. 367.86 Lakh and Rs. 114.50 Lakh respectively as against Rs. 83.12 Lakh and Rs. 114.26 Lakh during the previous year.

d) Key Financial Ratios (Standalone):

Particulars FY 2020-21 FY 2019-20 % Change over previous year Reason for change of more than 25% in Key Financial Ratios
1. Debtors Turnover Ratio N.A. N.A. N.A.
2. Inventory Turnover Ratio N.A. N.A. N.A.
3. Interest Coverage Ratio 40351.39 (169.47) 23910.79 Decrease in Finance Cost and increase in Operating Profit
4. Current Ratio 7.11 15.97 55.46 Increase in Current Liabilities
5. Debt Equity Ratio 0.00 0.014 66.73 Decrease in debts and increase in Equity Funds
6. Operating Profit Margin (%) 89.07 (337.73) 126.37 Increase in Revenue from Operation and Operating Profit
7. Net Profit Margin (%) 89.08 (339.99) 126.20 Increase in Revenue from Operation and Net Profit
8. Return on Net- Worth (%) 21.79 (23.41) 193.09 Increase in Net profit and Net Worth

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 "Management’s Discussion and Analysis" describing the Company’s 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 Company’s operations include interest rates and changes in the Government regulations, tax regimes, economic developments and other factors such as litigation etc.