ICRA Ltd Management Discussions.

(Annexure to the Directors Report)

A. Industry Structure and Developments

The conditions in the credit market in FY2019 remained challenging on the back of a steady rise in interest rates, amidst tight liquidity and investors increased risk aversion towards debt instruments issued by non-banking financial companies (NBFCs) as well as those not carrying very high investment grade ratings during H2 FY2019. Both these events led to corporate borrowers and the NBFCs to rely more on banks for their funding requirements as compared to the bond markets. While the investment activity continued to remain modest, working capital requirements were higher, driven by an increase in capacity utilisation across sectors and elevated commodity prices. The past year also witnessed a few large ticket resolutions of stressed assets for banks under the Insolvency and Bankruptcy Code (IBC) 2016, which led to some refinancing activities The challenges faced in FY2019 are likely to continue in the current year as well While bank credit growth is expected to pick up due to an increase in working capital requirements as well as slowing disbursements from the NBFCs, activities in the bond market may continue to be sluggish given the high yields and the overall risk aversion towards bonds that are not highly rated On the positive side, the Government of India has increased the allocation for recapitalisation of public sector banks (PSBs) by Rs. 41,000 crore to Rs. 1,06,000 crore for FY2019 and this is expected to strengthen the capital position of the PSBs and improve their ability to support credit growth. Independent credit evaluation (ICE) brought significant opportunities during FY2019. The revised RBI circular on resolution of stressed assets also mandates an ICE by rating agencies though the number of such assignments could come down since it is applicable only for exposures greater than 2000 crore, which turn into non-performing assets and need to be referred to the resolution process.

The liquidity issues that the NBFC sector was confronted with led to a significant rise in securitisation and direct assignment transactions, whereby the NBFCs sold their assets to banks through this route. Your Company continued to enhance its position in the structured finance rating segment by executing a record number of mandates in this segment. The activity in the structured finance market is likely to continue during FY2020 as it will remain one of the preferred ways for the NBFCs and housing finance companies (HFCs) to generate liquidity and meet their funding requirements. As per the recent Monetary Policy, the GDP growth is expected to rise by 6.9% in FY2020. In ICRAs view, given the subdued outlook for domestic consumption, exports and private investments, the GDP growth in FY2020 could be lower, at around 6.6%. Additionally, we are concerned that the recent surge in monsoons may do more harm than good and food inflation may harden in the coming months. Therefore, the CPI inflation trajectory may not allow for more than a 15-25 bps rate cut in the second half of the year, though the policy easing of 110 basis points since February 2019 is expected to support economic activity. The focus is now likely to shift to improving transmission to bank lending rates, with the systemic liquidity in considerable surplus. However, several constraints to a pickup in economic growth are unlikely to be removed by lower interest rates alone.

While the interest rate environment has eased mildly and liquidity conditions too have improved, large-scale borrowing programmes of the Central and state governments, coupled with continued risk aversion, continue to act as impediments in the transmission of the lower interest rates to market participants. The ability to borrow at competitive interest rates is, therefore, a challenge that most corporates, except the highly rated ones, will have to continue to grapple with. This may impact the issuance volumes of debt securities in domestic markets and the domestic issuers may find it cheaper to borrow overseas, given the liberalisation of external commercial borrowing rules for various sectors by the RBI. At the same time, the RBI and the SEBI guidelines reducing the over reliance on bank financing for incremental funding requirements could be a positive for the bond markets, though as stated earlier, we expect bank credit growth to continue to play a significant role in credit expansion. (An overview of the market for rating services, including discussions on the various segments that comprise this market, is presented in the section titled Review of Operations in the Directors Report.)

B. Opportunities and Threats

Opportunities

Opportunities in the ratings business are a function of the interplay of several factors and developments, some of which arise from the initiatives taken by us as a rating agency and our strengths, while the others emanate from the environment we operate in. The positive external likely driver is a gradual pick-up in the economy, assuming that the Government makes concerted efforts to address some of the structural issues affecting growth and private sector investments. This should, in turn, lead to expansion of bank credit post bank recapitalisation. While bond market growth was expected to get a fillip as both the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) have brought in regulations that require large corporates to increase reliance on financing through debt capital market debt, as stated earlier, the current risk aversion may continue to act as headwinds in the short term. It may be noted that SEBI has made it mandatory for large corporates (defined as one with borrowings of more than Rs 100 crore) to raise not less than 25% of their incremental borrowings from the debt capital markets, provided they have a long-term rating of AA or above. This will become mandatory from FY2020 onwards. Likewise, RBI guidelines require incremental financing for large bank exposures to be part-funded through the market route. In addition, rating requirement for Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (ReITs) are opportunities that are likely to grow further.

ICRA is well placed to benefit from the opportunities arising from each of the factors stated, given its competitive strengths and strategic initiatives. We believe that our competitive strength primarily includes the rich database and research support that our products and services draw upon; our proven ability to make product and service innovations; the demonstrated track record of our ratings; our experienced and strong management team and pool of high-quality employee talent and our close association with the Moodys Group.

Threats

The threats confronting our business have their foundation in such risks and concerns as are discussed in Section E of this report.

C. Segment-wise or Product-wise Performance

Details on the performance of the Companys operating activities are presented in the section titled Review of Operations in the Directors Report. Highlights of performance of subsidiaries and their contribution to the overall performance of the Company during 2018-19 are provided below.

I. ICRA Management Consulting Services Limited

ICRA Management Consulting Services Limited (IMaCS), a wholly-owned subsidiary of the Company, has a rich two-decade experience in providing consulting services and solutions, with a satisfied client base, spread across sectors and countries. We cover risk, finance and market functions in the domains of banking, fixed income, mutual funds, energy and programme management. IMaCS has successfully completed more than 3000 diversified consulting assignments across 45 countries.

During the year under review, IMaCS recorded a total revenue of Rs. 20.21 crore (previous year Rs. 23.63 crore) and posted an operating loss (without depreciation and other income) of Rs. 5.33 crore in the financial year 2018-19 (previous year Rs. 6.87 crore of operating loss) mainly due to (a) decline in revenue due to planned exit from certain sectors; (b) increase in provisions (including bad debts) and cost over-runs in legacy projects and (c) capacity building initiatives in focus sectors.

IMaCS offers its outsourcing & Programme Management services through its wholly-owned subsidiary, Pragati Development Consulting Services Limited.

II. ICRA Online Limited

ICRA Online Limited (ICRON), a wholly-owned subsidiary company of the Company, provides offerings in the segment of outsourced and information services. During the year under review, ICRON reported an improvement in performance, with operating revenue increasing by 24% over the previous fiscal to Rs. 75.65 crore and profit after tax (PAT) going up by 35% to Rs. 19.42 crore over the same horizon.

III. ICRA Lanka Limited

ICRA Lanka Limited (ICRA Lanka) a wholly-owned subsidiary of the Company, offers a wide range of rating services in the Sri Lankan market. During the year under review, ICRA Lanka was able to record a 14.35% growth in its operating revenue, driven primarily by new issuer and issue ratings, which increased by 79.72% and 29.75% respectively. ICRA Lanka was able to acquire a higher number of new clients compared to prior years resulting in the growth of new issuer ratings as observed. The surveillance income increased by a moderate 7.29%.

During the year under review, ICRA Lanka recorded a total revenue of Rs. 1.46 crore (previous year Rs. 1.29 crore).

IV. ICRA Nepal Limited

ICRA Nepal Limited (ICRA Nepal) a subsidiary of the Company, offers a wide range of rating services in the Nepalese market.

During the year under review, ICRA Nepal registered a 13% growth in revenue from operations, driven primarily by the introduction of borrower ratings in the market, which was introduced through the Monetary Policy, issued by the Central Bank of Nepal (Nepal Rastra Bank). The business growth was also supported by an increase in the debt market and surveillance fees. During the year under review, ICRA Nepal recorded a total revenue of Rs. 3.24 crore (previous year Rs. 2.78 crore). ICRA Nepal has declared a dividend and the amount towards dividend payable to the Company is Rs. 0.13 crore (previous year Rs. 0.10 crore).

(A brief financial detail in the Form AOC-1, as per Rule 5 of the Companies (Accounts) Rules, 2014, of the above mentioned subsidiary companies is annexed to the consolidated financial statements)

D. Outlook

The long-term outlook for the ratings business remains positive, given the large funding requirements which would have to be raised through a combination of bank loans and bonds. The regulatory nudge to have a certain part of the financing come through the bond route is also a positive though this move requires a significant improvement in the investor appetite. Your Company continues to take initiatives to retain its strong thought leadership and market position and is confident of meeting the challenges posed inevitably by the changing business requirements.

E. Risks and Concerns

Your Company is involved primarily in the business of providing rating and grading services. Any economic slowdown in India may impact the volume of bank credit or debt securities issued in the domestic capital markets, and hence, have an adverse impact on your companys business and revenues.

Your Companys services are dependent on the condition of the financial markets in India. Any increase in interest rates and credit spreads, foreign exchange fluctuations, defaults by significant issuers/borrowers, and other market and economic factors, both domestic and global, may negatively impact the issuance of credit-sensitive products and other financial services. A sustained period of volatility or weakness or downturn in the financial markets domestically or internationally could have a materially adverse effect on our business and financial results.

Specifically, the bank loan rating business could get impacted if there is a credit slowdown or a change in ratings related regulation resulting in transition to internal rating models for providing capital. The domestic debt capital market, on the other hand, is skewed towards higher-category credit-ratings. This may continue to constrain the volume of issuance in the Indian debt market, despite the regulatory allowance of partially credit-enhanced bonds. Currently, accessing overseas debt markets by certain Indian borrowers/issuers is regulated, and any change in the prevailing regulatory regime, liberalising access to overseas markets for the raising of debt funds, may adversely impact the issuance of debt instruments in the domestic market. Further, our market share or profitability may be affected by competition, which remains intense. In the event of our competitors coming up with newer products and services, better anticipating customer requirements using more sophisticated technology, and offering innovative solutions to our clients or offering more competitive prices, our market share is likely to be impacted, adversely affecting our results of operations and financial condition.

Additionally, our business is largely dependent on the recognition of our brand and our reputation. In this regard, prominent investment-grade defaults or multi-notch downgrades could negatively affect our reputation and, our position as a quality credit rating agency. This, in turn, may adversely affect our business, operations, and financial condition.

Separately, please also refer to the sections on ‘Update regarding certain ongoing matters and ‘Directors and Key Managerial Personnel of the report of the Board of Directors, for further details in relation to certain ongoing matters, including in relation to the adjudication proceeding initiated by SEBI against the Company in respect of the credit ratings assigned to one of the Companys customers and the customers subsidiaries.

Risk mitigation

• To mitigate business risks arising from changes in economic and market conditions and in regulations that influence the volume of debt issuance, your Company constantly monitors developments on these fronts and adjusts its business strategies accordingly.

• Your Company evaluates itself periodically against its peers to mitigate competition-related risks. To prevent brand dilution, your Company remains focused on maintaining the robustness of its ratings and gradings while at the same time promoting brand ICRA through seminars, and conferences, apart from the publication of research reports.

• The Company keeps a close watch on key regulatory developments to anticipate changes and their potential impact on its business.

• The Company, both unilaterally and through its participation in industry forums, responds to consultation papers and discussions initiated by the regulators, the Government and other policymakers on any key regulatory changes that can have an impact on its business.

(1) Liquidity Risk/Financial Risk

The extent of liquidity/financial risk is influenced by various factors such as maturity of liabilities and degree of reliance on secured sources of funding.

Risk mitigation

• The Company has remained debt-free ever since it was incorporated and has always sought to finance all its expansion and diversification plans with internal accruals.

• A sound liquidity position makes it possible for the Company to discharge all its payables within the stipulated time.

(2) Investment Risk

The Company has made, and may continue to make, investments in bonds, debentures, mutual funds, and other marketable securities, the returns on which would be impacted by changes in interest rates and volatility in the financial markets. Besides, the Company has made investments in subsidiaries, the return from which depends on their individual performance.

Risk mitigation

• The Company has set up an investment committee, which periodically reviews the performance of its investment portfolio.

• The Company makes provisions for diminution in the carrying value of investments if the diminution in the fair market value of any long-term investment is considered permanent, and regularly evaluates changes in the financial markets.

(3) Regulatory Non-Compliance Risk

Your Company complies with all the applicable laws, rules and regulations, and makes business decisions based on comprehensive advice provided both by its internal counsels and by acknowledged external counsels. The regulatory non-compliance risk arises because of changes in corporate laws, the SEBI credit rating regulations, accounting standards, tax laws, and/or any other applicable rules and regulations as may be amended from time to time. Your Company being a credit rating agency is required to comply with a new and tighter set of rules that has been mandated by SEBI in June 2019 while executing rating assignments and while maintaining the ratings under continuous surveillance. Given the increasing regulatory oversight, the impact of slippages in compliance could be high.

Risk mitigation

• The Company has put in place a comprehensive compliance framework to manage compliance-related issues. Compliance officers track regulatory and statutory requirements and notify changes to stakeholders periodically. Detailed checklists are available with the compliance officers to ensure compliance with the applicable legal and regulatory requirements.

• Compliance officers of the Company endeavour to keep themselves abreast of all amendments in the various applicable laws and regulations.

• The Company also makes provisions in the balance sheet when required and regularly evaluates the adequacy of such provisions for legal risks relating to past events.

• The Board of Directors is informed periodically about compliance with the various laws and rules in force.

• Regulatory and statutory audits are conducted to ensure compliance with the relevant provisions of the applicable laws and regulations.

• The Company obtains legal advisory services and seeks legal advice wherever necessary to avoid any non-compliance with the applicable laws, rules and regulations.

(4) Operational Risk/Technology Related Risk

The Company has to rely on clients/third parties for the adequacy and accuracy of information (relating to such clients), which may not always be independently verifiable. While we do have a systematic feedback method of gathering this information, even so, we depend largely on clients and third-party sources to obtain information relating to them. We may also rely on representations as to the accuracy and adequacy of the information obtained. The quality of the ratings that we assign is inherently dependent upon the accuracy of the information presented to us. If inaccurate or misleading facts are presented to us we run the risk of our ratings not being able to reflect the actual credit risk.

The Companys ability to conduct business may be adversely impacted with the increase in cyber-crime. This may in turn lead to financial loss, disruption or damage to the reputation of an organisation due to some sort of failure of its information technology systems. Lack of information security controls, both with respect to process and technology, may lead to breach of confidential data, data privacy and in turn cause loss in business.

With the complexity of our business increasing, sound information system controls are needed, and we have established these in our organisation.

Risk mitigation

• To mitigate such security risks, and thereby the losses arising due to such risks, the Company has established a formal Information security governance structure and strategy in place with defined roles and responsibilities for a consistent treatment and monitoring mechanism. The risk management approach has been followed to identify and address risk for people, processes and technology.

• To mitigate the risks, your Company has designed the Information Security Management System (ISMS) with various policies, procedures and guidelines in place to set the security controls for ICRA.

• The implementation is planned to mitigate all identified risks in a phase-wise manner to develop and implement stringent process and technological controls.

(5) Policy Risk

Material changes in the regulations that govern us or our businesses could affect the results of our operations. Most of the Companys revenues come from rating services, which are influenced by regulatory requirements. If there are changes in the regulatory requirements of compulsory rating for certain instruments or for certain investors to invest in rated instruments, or there are such changes in regulations that negatively impact the level of issuance of debt instruments in the domestic market, there may be a decrease in the demand for rating. This in turn may affect our business, revenues and financial condition.

(6) Political Risk

Political instability could adversely affect general economic conditions in India, which in turn could impact our financial results and prospects, as could adverse changes in specific laws and policies pertaining to banking and finance companies, foreign investment and other matters affecting investment in securities. Additionally, any adverse change in the economic liberalisation policies—a major factor encouraging private participation in infrastructure—could have a significant impact on infrastructure development, business and economic conditions in India, and this in turn may affect our financial results and prospects.

(7) Attrition Risk

Our business is critically dependent on the quality of our workforce. Failure to attract, retain and motivate key employees would impair the Companys ability to offer the right quality of service to clients. There is significant competition for management and other skilled persons in the financial services industry with our competitors and other financial services entities offering better compensation and incentives.

Risk mitigation

We are committed to provide the best possible work environment and facilities to employees at all levels. We provide a culture that promotes transparency and flexibility and is fulfilling and purposeful. Our work environment has helped to create an engaging workplace that enables individuals to realise their potential. We have aligned a gamut of leadership programmes to suit the different levels of learner groups. We continuously explore and create different avenues to nurture the leadership skills for our talent pool. While nurturing internal talent is given careful attention, we also balance our talent pool by recruiting the right talent from the market. This enables us to create a diverse talent pool.

We reward people fairly, equitably and consistently in accordance with their value to the organisation. Our reward management strategy adopts a ‘total reward approach which emphasises the importance of considering all aspects of reward as a coherent whole, integrated with other Human Resource (HR) initiatives designed to achieve the motivation, commitment, engagement and development of employees. Deserving employees, who demonstrate high performance and potential, are eligible to participate in the long-term/deferred incentive plan focused on retaining critical talent in the company. We continually benchmark the compensation with the industry and the competition it offers.

F. Internal Control Systems and their Adequacy

The Management is responsible for establishing and maintaining controls and procedures for the Company, following the review by the Audit Committee and the Board of Directors. Accordingly, the Management has designed such controls and procedures, or caused such controls and procedures to be designed under its supervision, as to ensure that material information relating to your Company, including its subsidiaries, is made known to the Management by others within those entities. It has also designed such internal control over financial reporting, or designed such internal control over financial reporting under its supervision, to provide reasonable assurance regarding the reliability of the financial statements. Your Companys statutory auditors have audited the financial statements and have issued a report on your Companys internal control over financial reporting as defined in Section 143 of the Companies Act, 2013 (the ‘Act). The said report is annexed to the independent auditors report.

(An overview of Internal Control Systems and their adequacy, is presented in the section titled Internal Control System and their Adequacy in the Directors Report.)

G. Discussion on Financial Performance with respect to Operational Performance

The key features of the Companys financial performance for the year ended March 31, 2019 are presented in the accompanying financial statements, which have been prepared in accordance with the Indian Accounting Standards (referred to as IndAS) as prescribed under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and other relevant provisions of the Act. The financial statements have been prepared on the historical cost basis and on an accrual basis, except for certain financial instruments, which are measured at fair value at the end of each reporting period. ICRAs Management accepts responsibility for the integrity and objectivity of these financial statements.

The financial information discussed in this section is derived from the Companys audited financial statements.

I. Results of operation

The financial performance of the Company is summarised as under:

(a) Incomes
(in Rs. crore)
Particulars 2017-18 2018-19 Growth (%)
Revenue from 222.13 230.14 4%
operations
Other income 50.74 44.53 (-)12%
Total Income 272.87 274.67 1%

In terms of business segments, the growth in operating revenue during 2018-19 was mainly due to growth in corporate, financial sectors and structured finance related ratings. Bank loan ratings business grew modestly during the period under review. Bank loan ratings accounted for 32% of the overall rating revenues for 2018-19 as compared to 31% for 2017-18. Other than rating of debt issuances and bank loans of existing issuers, the Company was able to add new issuers and borrowers to its list of rating clients during the year under review.

Other income

Other income primarily consists of dividend received from subsidiary companies, interest income on fixed deposits and investments, gain on financial assets carried at fair value through profit or loss, profit on sale of assets, and rental income. The Companys other income in the year 2018-19 decreased by 12% from the year-ago, which included the profit from the sale of certain real estate assets in the previous year.

(b) Expenses

(in Rs. crore)
Particulars 2017-18 2018-19 Growth (%)
Employee benefits expense 95.33 106.99 12%
Finance costs Depreciation and amortization 0.04 0.47 1075%
2.66 2.43 (-)9%
Other expenses 29.00 33.71 16%
Total expenses 127.03 143.60 13%

Employee benefits expenses increased 12% to Rs. 106.99 crore in 2018-19 from Rs. 95.33 crore in 2017-18. The increase in employee benefit expenses was mainly due to the increase in salaries and incentives including staff welfare expenses. Employee benefit expenses as a percentage of revenue from operations has increased during the period under review as compared with the previous fiscal.

Your Companys revenues from operations and profit after tax per employee decreased during 2018-19 as compared to 2017-18.

Depreciation and amortisation expenses decreased 9% during 2018-19 over the previous fiscal.

Other expenses increased by 16% during 2018-19 over the previous fiscal, mainly because of higher expenses towards legal and professional charges. The Companys contribution towards Corporate Social Responsibility (CSR) as prescribed under Section 135 of the Companies Act, 2013, for the financial year 2018-19 has increased from Rs. 1.82 crore to Rs. 2.24 crore. Other expenses as a percentage of total income increased during the period under review as compared with the previous fiscal.

Total expenses increased by 13% to Rs. 143.60 crore in 2018-19 from Rs. 127.03 crore in 2017-18.

II. Property, plant and equipment

Property, plant and equipment of the Company were as under:

(in Rs. crore)
Particulars As on March 31, 2018 As on March 31, 2019 Growth (%)
Buildings 7.22 6.67 (-)8%
Computers and data processing units 0.62 0.81 31%
Furniture and fittings 1.18 0.96 (-)19%
Office equipment 0.34 0.32 (-)6%
Electrical installation and equipment 0.53 0.38 (-)28%
Vehicle 0.53 0.30 (-)43%
Leasehold improvements 1.68 1.21 (-)28%
12.10 10.65 (-)12%

Your Company during 2018-19, added Rs. 1.41 crore to gross block, comprising Rs. 0.9 crore in computers and data processing units, Rs. 0.2 crore in furniture and fittings, Rs. 0.2 crore in office equipment, Rs. 0.06 crore in electrical installation and equipment and Rs. 0.01 crore in leasehold improvements. During the period under review, your Company deducted Rs. 0.5 crore from the gross block on the disposal of various assets.

III. Intangible assets

(in Rs. crore)
Particulars As on March 31, 2018 As on March 31, 2019 Growth (%)
Computer software 0.04 0.03 (-)33%
Intangible assets under development - 1.27 100%

Your Company has Rs. 1.27 crore of intangible assets under development as at March 31, 2019.

IV. Financial assets

Financial assets mainly consist of investments, loans, trade receivables, cash and cash equivalents and bank balances.

(a) Investments (current and non-current) Investment Profile

(in Rs. crore)
Particulars As on March 31, 2018 % of Total As on March 31, 2019 % of Total Growth (%)
Non-Current Investments:
(A) Investments in Equity Instruments
In Equity Shares of Subsidiaries and Others 42.47 12% 42.34 20% -
Less: Diminution due to change in carrying value of investments (14.97) 4% (14.97) 7% -
Sub Total (A) 27.50 7% 27.37 13% -
(B) Investments in Mutual Funds
In Other Plans 238.88 65% 103.58 50% (-)57%
Sub Total (B) 238.88 65% 104.02 50% (-)56%
(C) Total Non-Current Investments (A+B) 266.37 73% 130.94 63% (-)51%
Current Investments:
(D) Investment in Corporate Deposits 61.80 17% 77.48 37% 25%
(E) Investments in Mutual Funds
In Fixed Maturity Plans 36.92 10% - - (-)100%
Sub Total (E) 36.92 10% - - (-)100%
(F) Total Current Investments (D+E) 98.72 27% 77.48 37% (-)22%
Total Investments (C+F) 365.09 100% 208.42 100% (-)43%

The Company deploys its internal accruals and surplus funds primarily in mutual funds, fixed deposits and corporate deposits as per its investment policy approved by the Board of Directors. The Investment Committee decides from time to time the overall investment in each category, based on the market conditions. The Audit Committee reviews investments made by the Company along with applicable limits and current ratings of the instruments or/and counterparties. The decrease in total investment was mainly due to the deployment of internal accruals in fixed deposits.

(b) Loans, trade receivables, cash & cash equivalents and bank balances and other financial assets

(in Rs. crore)
Particulars As on March 31, 2018 As on March 31, 2019 Growth (%)
Non-current
(a) Loans 1.42 3.70 161%
(b) Other financial assets 34.98 24.91 (-)29%
Current
(c) Loans 0.76 0.29 (-)62%
(d) Trade receivables
Receivables 25.80 23.83 (-)8%
Allowances for doubtful receivables (4.07) (4.40) (-)8%
Net trade receivables 21.73 19.43 (-)11%
Trade receivables as % of operating income 10% 8%
(e) Cash & cash equivalents and bank balances 194.54 338.94 74%
(f) Other financial assets 15.17 19.34 27%

Non-current loans include security deposits, which were increased at the end of fiscal 2018-19.

Other non-current financial assets consist of bank deposits with maturity for more than 12 months from the reporting date.

Net trade receivables were Rs. 19.43 crore as on March 31, 2019 as against Rs. 21.73 crore as on March 31, 2018. The decrease in trade receivables was mainly due to higher recovery of debtors as compared to the previous year. Trade receivables as a percentage of operating income decreased from 10% during 2017-18 to 8% during 2018-19.

Cash & cash equivalents and bank balances as on March 31, 2019 was Rs. 338.94 crore as against 194.54 crore as on March 31, 2018. The cash and cash equivalents consist of Rs. 12.64 crore in current accounts and Rs. 0.02 crore as cash on hand. The other bank balance consists of Rs. 325.01 crore in deposit accounts with original maturity for more than three months but less than 12 months from the reporting date, Rs. 0.07 crore in unpaid dividend account and Rs. 1.20 crore earmarked against bank guarantees.

V. Equity

(a) Equity share capital

Your Company has only one class of equity shares having a par value of Rs. 10 each. The capital structure of the Company is as follows:

(in Rs. crore)
Particulars As on March 31, 2018 As on March 31, 2019
Authorised:
1,50,00,000 Equity Shares of Rs. 10 each 15.00 15.00
Issued, subscribed and fully paid up:
96,51,231 Equity Shares of Rs. 10 each (previous year 99,03,280 Equity Shares of Rs. 10 each) 9.90 9.65
9.90 9.65

During 2018-19 the Company extinguished 2,52,049 equity shares which were bought back during the financial year. Post extinguishment of all the equity shares under the buyback scheme, the issued, subscribed and paid-up capital stood at Rs. 9.65 crore divided into 96,51,231 equity shares of Rs. 10 each.

(b) Other equity

Other equity consists of capital reserve, capital redemption reserve, general reserve, securities premium, share based payment reserve and retained earnings. Other equity of the Company stood at Rs. 538.59 crore as on March 31, 2019 as against Rs. 560.95 crore as on March 31, 2018. The movement in other equity was mainly due to the buyback of equity shares for a total consideration of Rs. 85.39 crore during the year under review.

VI. Financial liabilities

(in Rs. crore)
Particulars As on March 31, 2018 As on March 31, 2019 Growth (%)
Non-current
(a) Other financial liabilities 2.19 1.49 (-)32%
Current
(a) Trade payables 3.39 4.77 41%
(b) Other financial liabilities 6.55 14.42 120%

Trade payables were higher as on March 31, 2019 as compared to previous year due to higher provision of expenses relating to legal and professional in the current financial year as compared to previous financial year.

Current other financial liabilities increased 120% at the end of fiscal year 2018-19, primarily because of increase in incentive payable under long-term and short-term incentives plans.

VII. Other liabilities

(in Rs. crore)
Particulars As on March 31, 2018 As on March 31, 2019 Growth (%)
Other non-current liabilities 0.03 0.00 -
Other current liabilities 58.82 54.63 (-)7%
Total other liabilities 58.85 54.63 (-)7%

Other non-current liabilities consist of deferred finance income and other current liabilities consisting of unearned revenue and advances received from customers. Total other current liabilities decreased by 7% as on March 31, 2019 as against March 31, 2018 mainly due to lower statutory dues and advances from clients.

VIII. Key financial ratios

Key financial ratios are provided in the table below.

Particulars As on March 31, 2018 As on March 31, 2019
Debtors turnover (no. of days) 38 32
Inventory turnover N.A. N.A.
Interest coverage ratio N.A. N.A.
Current ratio 3.71 4.82
Debt equity ratio N.A. N.A.
Operating profit margin (%) 44.0% 38.9%
Net profit margin (%) 36.8% 34.9%
Return on net worth (%) 17.6% 17.5%

N.A.: Not applicable

There is no significant change, i.e. change of 25% or more, as compared to the immediately previous financial year, in key financial ratios, except in current ratio. The significant increase in current ratio was mainly due to higher balances with banks in deposits accounts with original maturity less than twelve months.

H. Material Developments in Human Resources/Industrial Relations, including Number of People Employed

The Company, with total employee strength of 444 as of year-end 2018-19, continues to accord high priority to human resource development, with emphasis on improving skill, competence and knowledge through regular training and in-house/ external professional development programmes. Besides, the Company has a consultative and participative management style, and is committed to providing the best possible work environment and facilities to employees at all levels. As a result, the relation between the employees and the Management of your Company has remained harmonious till date.

On behalf of the Board of Directors
(Arun Duggal)
Chairman
DIN: 00024262
Place : Gurugram
Date : August 22, 2019