HSBC InvestDirect India Ltd Management Discussions

IL&FS INVESTSMART LIMITED ANNUAL REPORT 2008-2009 MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL RESULTS: Performance of your Company during the financial year 2008-09 is summarized below: (Rupees in Mn) Particulars For the year For the year ended 31.03.2009 ended 31.03.2008 Total Income 252.34 409.69 Profit/(Loss) Before Interest, Depreciation and Tax (101.62) 288.75 Interest and Finance Charges 0.03 33.77 Depreciation /Amortization 8.28 0.92 Profit/(Loss) before Tax (109.93) 254.06 Provision for Tax (including Current, Deferred and Fringe Benefit Tax) 42.15 98.25 Profit/(Loss) after Tax (152.08) 155.81 The consolidated financial performance of your Company along with its subsidiaries for the financial year 2008-09 is summarized below: Total Income 2,242.90 3,948.54 Profit/(Loss) Before Interest, Depreciation and Tax (400.21) 1,585.56 Interest and Finance Charges 372.71 580.79 Depreciation/Amortization 227.35 104.37 Profit/(Loss) before Tax (1,000.27) 900.40 Provision for Tax (including Current, Deferred and Fringe Benefit Tax) 89.87 358.73 Profit/(Loss) after Tax (1,090.14) 541.68 PERFORMANCE, DIVIDEND & APPROPRIATION: Company has completed its eleventh full year of operations on March 31, 2009. During the year under review, gross revenue on a consolidated basis decreased from Rs. 3,948.54 Mn in the previous year to Rs. 2,242.90 Mn. The Company suffered a loss of Rs. 1,090.14 Mn. as against profit of Rs. 541.68 Mn. in the previous year. In the absence of profits, directors are unable to recommend dividend for the financial year 2008-09. EQUITY SHARE CAPITAL: During the year under review, there was no change in the share capital of the Company. The underlying book value of the Company is Rs. 87.79 per share as on March 31, 2009 as compared to Rs. 103.46 as on March 31, 2008. CHANGE IN CONTROL OF THE COMPANY: Infrastructure Leasing & Financial Services Limited and E*TRADE Mauritius Limited, Mauritius the erstwhile promoters of the Company, holding 29.36% and 43.85% of the paid up capital of the Company, respectively, sold their entire stake in the Company to HSBC Securities and Capital Markets (India) Private Limited (HSCI) and HSBC Violet Investments (Mauritius) Limited (Violet) respectively on September 29, 2008. In terms of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, HSCI and Violet (collectively referred to as Acquirers) made an Open Offer to the remaining shareholders to acquire upto 200l0 of the paid up capital of the Company. The said Offer was further revised to 20.65%. After securing all the relevant regulatory approvals, the Acquirers completed all the formalities in connection with the acquisition of shares from the major shareholders and from the public under the Open Offer. Accordingly, HSCI holds 50.01 and Violet holds 43.85% of the paid up capital of the Company. In view of the above acquisition, the Company has become a member of the HSBC Group. To reflect the said change in control, it is proposed to change the name of the Company from IL&FS Investsmart Limited to HSBC InvestDirect (India) Limited and the relevant Resolution seeking the approval of the Members in this regard is forming part of the Notice. OPERATIONS, REPORT ON MANAGEMENT DISCUSSION & ANALYSIS AND OTHER MATTERS: During the financial year under review, the Company and its subsidiaries were involved in implementing the changes resulting from the change in the control of the Company. The Company is getting its processes aligned to the HSBC Group Standards. During the financial year 2008-09, your Company has focused on the following key initiatives: Technology: The focus of Technology was to strengthen the existing infrastructure for improved uptime and performance due to growth. Post the change of ownership, efforts were made to integrate the IT Systems and Processes with the HSBC Group Standards. The Customer information systems were integrated with the trading and back office systems, resulting in enhanced customer service. During the year under review, your Company implemented the Business Intelligence System, which has helped the business to make vital strategic decisions. Your Company, through its subsidiary, has in-house trading product empanelled with National Stock Exchange of India Limited and Bombay Stock Exchange Limited. The process of consolidation of online and offline trading platforms is under implementation. Human Resources (HR): There was a leadership change in HR in third quarter with the agenda of making your Company the best place to work. This led to implementation of best in class HR practices and processes for employees. Aspects around HR Internal controls and processes were audited and roadmaps set. Joining up Induction program was launched covering all employees on culturalisation of organization mission, vision and value systems along with education on Anti-Money Laundering and KYC compliances. The beginning of the calendar year 2009 saw a launch of revised Leave Policy with key focus around work-life balance. There has been a significant and positive transformation of the HR function over the last two quarters. These actions have led to increased employee engagement, strive for high performance culture, business partnering to drive lower attrition and meeting the right talent needs. Customer service/CRM: The Customer Service / CRM unit launched various programs of work during the financial year 2008-09 to facilitate quality service delivery for the customers. The centralized complaints handling unit was formalized and launched in July 2008. Besides ensuring a transparent and easily accessible channel for customers to log their requests, the unit has been active in ensuring prompt and effective resolution to customer queries. Toll free facilities for centralized customer service were also introduced for customers. Product Management Group (PMG): PMG comprises of cross-functional domain experts contributing towards product strategy & life cycle. It is integral in implementing product strategy and managing organizational priorities across business lines. It leads integration of product lines from sales, marketing, operations and technology. During the year, Trading Products, Pricing for Broking, Customer Information, Cost saving solutions, Business and Customer intelligence are some of the projects undertaken by PMG. It defines projects to grow revenue, improve service & increase operational efficiency. FUTURE OUTLOOK AND STRATEGIC OBJECTIVES, GOING FORWARD: The current financial year will go down as one of the most challenging years for the global economy. US sub prime crisis triggered unparalleled liquidity crisis bringing down credit growth to a standstill. Icons of financial markets collapsed. Global superpowers slipped into simultaneous recession. Contraction in retail sales, record job losses and contracting exports led to a slowdown in the global economy, faster than anticipated. In its latest report, International Monetary Fund brought down global GDP growth forecast from an estimated growth of 1.3% predicted in early January to -0.5% in mid April. Financial crisis evoked unprecedented global coordination with governments stepping up effort to revive growth, pumping hundreds of billions of dollars. Central banks slashed overnight interest rates and in some cases brought it down to multi year low in order to prevent their economies going into prolonged recession. India, which is partly dependent on external capital, also suffered impact of global recession and the liquidity crisis. The Indian economy appears to be more resilient to this global turmoil than other developed and developing economies. India stands apart because of its strong economic growth, strong government spending on infrastructure and domestic consumption. Headwinds seem to be easing. Inflation which peaked at close to 13% has since eased to near zero enabling aggressive cut in repo rate and reserve ratios which is likely to improve liquidity and bring down interest rates. Three stimulus packages, targeted at infrastructure space and boost in domestic spending is expected to start reflecting in second half for the financial year 2009-10 having a multiplier effect on the economy. Crude, the single biggest item in Indias import basket is down 65% from its peak. Domestic supplies are expected to build at a rapid pace thereby helping contain trade deficit. Moreover this year is expected to bring to closure the process of de-leveraging. Above measures could help in rerating of the Indian equity. The financial year 2009-10 is likely to be a challenging year for the financial services industry; the key challenges being. * Altering economic model. * Re-engineering of business practices. * Better deployment of available resources. CAUTIONARY STATEMENT: Certain statements in the Management Discussion and Analysis describing the Companys objectives, predictions may be forward-looking statements within the meaning of applicable laws and regulations. Actual results may vary significantly the forward-looking statements contained in this document due to various risks and uncertainties. These risks and zertainties include the effect of economic and political conditions in India, volatility in interest rates, new regulations and government policies that may impact the Companys business as well as its ability to implement the strategy. The Company does not undertake to update these statements.