I K F Finance Ltd Management Discussions

Review of Operations:

Your Companys performance for the year ended March 31, 2018 continues to be encouraging and has registered a growth of 7.84% in its Gross Receipts to Rs.135.70 Cr as against Rs. 125.83 Cr but the Net Profit was increased from Rs.16.86 Cr to Rs.19.16 Cr registering a growth of 13.60% for the corresponding previous year. During the year, the Loan Book has grown by 4.55% from Rs.690.56 Cr to Rs.722.01 Cr. The total assets managed by the Company, including Channel Business and receivables assigned/securitized stood at around Rs.1031 Cr as at March 31, 2018 as against Rs.839 Cr in the previous year thereby registering a growth of 22.88%.

Future Outlook:

The prospects of NBFC sector seems to be bright as doors to access MSME segment have opened up in view of slowdown of majority of the Banks, whose priorities have changed, in the light of increased Non Performing Assets, and the same is expected to continue for next 1-2 years.

Further, performance of the Automobile sector, where your company is having high stakes, has started improving after overcoming the adverse implications of demonetization and teething troubles in implementation of GST. The overall economic environment appears to be positive as majority of the economic agencies have forecasted the GDP growth of over 7.0%. However, FY 2019 is again going to be a challenging year, in the short to medium term, on the backdrop of increasing Oil prices and hardening of the Interest Rates.

Your Company continues to focus on Retail segment with focus on providing superior service to customers, lowering the cost of borrowings, maintaining the asset quality with enhanced operating efficiencies to sustain the growth and profitability. Your Company is confident of sustaining the growth and profitability as it has built strong relationship with the customers over the last two and half decades.

Risk Management & Credit Monitoring:

As risk is inevitable fallout of the lending business, your Company has to manage various risks like credit risk. Liquidity risk, interest rate risk, operational risk, market risk etc. The Audit Committee, Risk management Committee and the Asset Liability Management Committee review and monitor these risks at periodic intervals. Liquidity risk and interest rate risk arising out of maturity mismatch of assets and liabilities are managed through regular monitoring of the maturity profiles. The Company monitors ALM periodically to mitigate the liquidity risk. The Company also measures the interest rate risk by the duration gap method. Operational risks arising from inadequate or failed internal processes, people and systems or from external events are adequately addressed by the internal control systems and are continuously reviewed and monitored at regular intervals. Your Company is proactive in assessing the risk associated with its various loan products and has evolved a variety of Risk management and monitoring tools while dealing with a wide spectrum of retail customers. The Risk Management Policy of the Company encompasses various risk tools such as Credit, Operational, Market, Liquidity and Interest Rate Risk and has put in place appropriate mechanism to effectively mitigate the risk factors.

Corporate Governance:

The Company has got delisted with effect from 4th February, 2015, your directors are of an opinion that though Clause 49 of the Listing Agreement was not applicable to the Company, a detailed report on the Corporate Governance along with a declaration by the Managing Director with regard to code of conduct to be presented to the members of the Company as such a detailed report on Corporate Governance Report are attached as part of this report.

Economic Environment:

Indian economy continue to be one of the fastest growing economy amongst the world major economies as the GDP is estimated to have grown by 6.6% in FY 2018 and is expected to cross 7.0% in FY 2019. The growth is to be considered as satisfactory on the backdrop of two significant monitory events-demonetization and GST. The overall economic activity is expected to be back on track as the adverse implications of demonetization and teething troubles in implementation of GST are being moderated over the period of time.

The weakening Rupee against the dollar and spike in Crude prices are two major causes for concern as these could derail the estimates and expectations if continue to be so in the medium to long term.

Automotive Sector:

The overall automobile segment registered a growth of 14.78% with the overall growth of 19.94% in Commercial Vehicles, out of which Medium & Heavy Commercial Vehicles grew by 12.48% and Light Commercial Vehicles grew by 25.42% in April-March 2018 as compared to the same period last year. The sales of Passenger Vehicles grew by 7.89% and Three Wheelers grew by 24.19% in April-March 2018 over the same period last year.

Resource Mobilization:

Deposits:

The Company has not accepted any deposits during the year under review and it continues to be a Non-deposit taking Non Banking Financial Company in conformity the guidelines of the Reserve Bank of India and Companies (Acceptance of Deposits) Rules, 2014

Working Capital Limits:

During the year your company has decreased its Cash Credit Limits to Rs.422 Cr against Rs.425 from the Consortium of Eleven Banks led by Central Bank of India. Besides, your Company has mobilized Rs.40 Cr by way of Working Capital Demand Loan.

Term Loans:

Your Company has mobilized Term Loan of Rs.144 Cr from various Banks & NBFCs on multiple banking arrangement during the year under review in line with the Managements overall business plan to have a judicious mix of resources.

Commercial Paper:

During the year under review, your Company has mobilized short term funds by issue of Commercial Paper to the tune of Rs 70 Cr from two NBFCs (Rs.50 Cr from Mahindra & Mahindra Financial Services Limited and Rs.20 Cr from Unifi Capital (maturity value) and has closed by repaying Rs.6 Cr to Lifecell International Limited).

Non Convertible Debentures:

During the year under review, your Company has mobilized Rs.25 Cr from Sundaram Mutual Fund by issue of Secured Non Convertible Debentures (NCDs) and Rs 25 Cr from Reliance Unicorn Enterprises Private Limited by issuing Market Linked Non Convertible Debentures.

Tier II Capital/Sub Debt:

During the year under review, your Company has not raised any Tier- II Debt.

Securitization/Assignment of Loan Receivables:

During the year, your Company has Securitized loan receivables to the tune of Rs.71.47 Cr and has assigned loan receivables to the tune of Rs.240.79 Cr.

Borrowing Profile:

Total borrowings of the Company for the year under review stood at Rs.549 Cr (including Tier II Capital), of which borrowings from Banks constituted 50.81%, borrowings from Financial Institutions 1.35%, borrowings from NBFCs 9.30%, Commercial Paper 11.74%, Non Convertible Debentures 18.59% and Tier II Capital/Sub-Debt 8.20%. Your Company is continuously exploring all options to access low cost funds, mostly by way of Term Loans in the current financial year, to further expand the operations.

Business Associations/Tie-Ups:

Your Company has continued its association with HDFC Bank Limited (Channel Business Arrangement) during FY 2017-18 till June 30, 2017 and has discontinued the same since then.

Capital Adequacy:

The Capital to Risk Assets Ratio of your company is 32.35% as on 31.03.2018, well above the minimum of 15% prescribed by the Reserve Bank of India, of which Tier I Capital constituted 27.90% and Tier II constituted 4.45%.

Credit Rating:

During the year under review, Brickwork Ratings India (P) Ltd. has retained the Long Term Bank Loan rating "BWR A", and has retained "BWR A" rating for Subordinated Non Convertible Debentures and Secured NCDs, signifying adequate degree of safety regarding timely servicing of financial obligations with low credit risk. Credit Analysis and Research Limited (CARE) has retained the long term bank loan facilities and Non Convertible Debentures at "A-" signifying adequate degree of safety regarding timely payment of interest and principle and has retained the short term bank loan rating at "A2+" and has assigned "A2+" rating for Standalone Commercial Paper.

Human Resources:

Your Company treats its "human resources" as one of its most important assets. Your Company continuously invests in attraction, retention and development of talent on an ongoing basis. A number of programs that provide focused people attention are currently underway. Your Company thrust is on the promotion of talent internally through job rotation and job enlargement.

Awards and recognition:

The Company has not received any award during the Financial Year.

Cautionary Statement:

Statements in these reports describing companys projections statements, expectations and hopes are forward looking. Though, these expectations are based on reasonable assumption, the actual results might differ.