intec capital ltd share price Management discussions


MANAGEMENT DISCUSSION AND ANALYSIS REPORT (MDAR)

INDIAN FINANCIAL SERVICES SECTOR OVERVIEW:

The Indian financial services sector is a vital component of the countrys economy, comprising a diverse range of players such as commercial banks, insurance companies, non-banking financial companies, pension funds, mutual funds and other smaller financial entities. The sector has been evolving over the years, coupled with changes and reforms by the Government and regulatory bodies to strengthen the industry, enhancing its growth prospects.

One of the key growth drivers for the sector has been the increasing focus on financial inclusion and providing better access to finance for the underbanked and underserved sections of the society. This has led to the emergence of digital banking, microfinance, and fintech collaborations that are disrupting traditional banking models.

Despite the uncertain global environment since early 2020, the Indian financial sector has remained stable and resilient. Furthermore, the Non-Banking Financial (NBFC) sector has played a crucial role in bridging the credit gap and supporting the growth of various sectors such as micro, small and medium enterprises (MSMEs), agriculture and affordable housing, among others.

INDUSTRY OVERVIEW AND FINANCING:

The financial institutions have a vital role in promoting stability and implementing regulatory measures to support households and businesses, especially amid economic crises. At present, the geopolitical conflicts have slowed down countries post-pandemic recoveries, hastening the normalization of monetary and fiscal policies.

In India, NBFCs have emerged as the principal institutions providing credit financing to the unorganized and underserved sectors. NBFCs have revolutionized the lending system in India by providing financial inclusion for those who lack easy access to credit. They offer a range of services, including MSME financing, home finance, microfinance, gold loans and other retail segments. On the back of digitalization and technology, NBFCs are further offering quick and convenient customer financing experience, especially for low-income and untapped segments of the creditworthy population. These companies have unlocked industrial opportunities by leveraging a hybrid model of physical and digital delivery.

Despite facing competition from banks in traditional segments, NBFCs have raised Rs. 700 Billion in equity over the past 3.5 years, improving their gearing levels.

With more robust balance sheets, lower leverage and steadily improving funding access, NBFCs are well- positioned to capitalise on credit demand. This could lead to an increase in Assets Under Management (AUM) by 13-14% in FY 2023-24, with a strategic focus on nontraditional segments such as unsecured loans, used vehicles and the MSME sector.

According to the Reserve Bank of India (RBI) data, outstanding bank credit to NBFCs has significantly increased from Rs. 3.68 Lac crore in 2017 to Rs. 13.20 Lac crore as of December 2022. NBFCs are expected to play a crucial role in financing Indias transition from the worlds fifth-largest to the third-largest economy by the end of this decade. The Government is also focusing on developing NBFCs with high emphasis on driving quality corporate governance across these entities. Following sluggish years amid liquidity stress, NBFCs have bounced back strongly with higher capital levels, reasonable stability in delinquency accounts, better asset quality and larger balance sheets. Stronger risk assessment frameworks, Government support such as debt moratorium and liquidity enhancement measures and broader economic revival have helped them tide through these challenges and pursue innovative strategies to meet evolving opportunities.

MICRO, SMALL AND MEDIUM ENTERPRISES (MSME):

The MSME sector in India plays a crucial role in providing employment opportunities and contributing significantly to the countrys GDP. The outbreak of the Covid-19 pandemic accelerated the adoption of digital technologies, resulting in increased efficiency and revenue for small business owners. However, the MSME sector is currently facing a credit gap from formal financial institutions, with only 15% of the total addressable market being served by them. This situation presents a promising opportunity for NBFCs to offer customised products and digital solutions to help the sector grow.

Regarded as the cornerstone of the Governments Make in India campaign, the Indian Governments numerous supportive measures aimed at creating a favorable environment for MSMEs will continue to propel a positive growth outlook. It is expected to lay strong emphasis on providing MSMEs with access to easy and secure funding to overcome credit-starvation and the hazards of credit fraud. The numerous Government initiatives supporting this positive outlook include tax exemptions, access to funding and expansion of financing, marketing and technology. Some other notable policies in this direction are the Pradhan Mantri MUDRA Yojana (PMMY), Special Credit Linked Capital Subsidy Scheme (SCLCSS), SAMBHAV and National MSME Policy.

NBFCs have played a significant role in boosting credit flow to MSMEs, especially in underbanked areas of the country. These companies have adopted innovative tools, unconventional risk modelling and personalised offerings to cater to the specific requirements of small businesses. Additionally, NBFCs have leveraged technology for data analytics and streamlined their processes for faster disbursement of credit.

Compared to banks, they have been more agile and introduced personalised products based on the risk profiles and demands of different segments of the sector. Furthermore, NBFCs have partnered with fintech players, banks and alternative lenders to extend credit and bundled products for businesses.

OUTLOOK:

As observed in FY 2022-23, the fundamentals of the countrys economy remained resilient despite the challenges felt by the global economy. India is further expected to witness a growth of 6.0% in FY 2023-24. RBI projects CPI inflation for Q1 - FY 2023-24 at 5.0% and for Q2 -FY 2023-24 at 5.4% on the assumption of a normal monsoon. Whereas on the inflationary front, it is anticipated that the rates would remain moderate somewhere between 5-6%, due to the Governments adherence to calibrated monetary policies.

The Governments continued focus on infrastructure development, coupled with rising private investment, is providing the necessary momentum for the countrys economy to flourish, backed by robust GST collections and forex reserves. The total gross collection for FY 2022-23 stands at Rs. 18.10 Lac crore with revenue increased by 22% that FY 2021-22. Way forward the GST collections would grow in the coming years and will be utilised in the economic development.

The forex reserve stood at USD 595.976 Billion in the first week of May 2023 marking second consecutive weekly rise in reserves. However, a high degree of synchronisation between Indias growth cycle with advanced countries urges to remain cautious about plausible hindrances. This could have a significant impact on Indias deepening trade and financial connections with advanced economies

OPPORTUNITIES AND THREAT:

Your Company is committed to addressing the changes boosted by its strengths in market position, agile execution capabilities, robust early warning systems and extensive use of analytics for risk mitigation and resource allocation. It will ensure to take advantage of the tailwinds that may emerge during the course of the year.

The stringent RBI and other regulatory norms governing the functioning of NBFC and certain government restrictions acts as hindrance in smooth functioning of NBFC.

SEGMENT-WISE OR PRODUCT-WISE

PERFORMANCE OF The COMPANY:

The Company operates in single segment, i.e. providing loans and finance in India. The revenue from operations from the aforesaid sector during the year was Rs. 824.52 Lacs

RISK MANAGEMENT:

The Company prioritises risk management to protect the interest of customers, colleagues, shareholders, and the Company while ensuring sustainable growth. Our risk management framework aligns with industry standards, and a strong control framework forms the foundation for effective risk management. The Risk Management Committee identifies major risk classes, including Credit, Market, legal and regulatory, operational, liquidity, interest rate, cyber security, information technology, strategic, and economic risks.

We address increasingly complex risks through our risk management system, which conducts risk analysis and implements preventive measures. Our risk-focussed culture is supported by standards, guidelines, processes, procedures, and controls. Policies are reviewed and approved by the Board and its Committees encompassing independent identification, assessment, and management of risk across business verticals.

Our philosophy is to ensure a sustainable and ethical business environment, reflected in our risk management practices.

Further, the company has always maintained strict credit norms and processes to ensure financial assistance is granted only to able borrowers.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has a well-defined organisational structure, documented policy guidelines, and a defined authority matrix that ensures efficiency of operations, compliance with internal policies and applicable laws and regulations, as well as protection of resources. The Company believes that a strong internal control system and processes play a critical role in the day-to-day operations of the Company.

To this end, the Company has put in place an effective internal control system to synchronise its business processes, operations, financial reporting, fraud control, and compliance with extant regulatory guidelines and compliance parameters. Strict internal control and systems are devised as a depiction of the principles of the highest standards of governance. The Company ensures that a standard and effective internal control framework operates throughout the organisation, providing assurance about safekeeping of the assets and execution of transactions as per the authorisation in compliance with the internal control policies of the Company.

The internal control system is supplemented by extensive internal audits, regular reviews by the management and standard policies and guidelines, which ensure reliability of financial and all other records. The Management periodically reviews the framework, efficacy, and operating effectiveness of the Internal Financial Controls of the Company.

The Internal Audit reports are periodically reviewed by the Audit Committee. The Company has, in material respect, an adequate internal financial control over financial reporting and such controls are operating effectively. Internal Audits are carried out to review the adequacy of the internal control systems, compliance with policies and procedures. Internal Audit areas are planned based on inherent risk assessment, risk score and other factors such as probability, impact, significance and strength of the control environment. Its adequacy is assessed, and the operating effectiveness was also tested. The Company has framed risk-based internal audit policy as part of its oversight function. The objective of risk-based internal audit review is to identify the key activities and controls in the business processes, review effectiveness of business processes and controls, assess the operating effectiveness of internal controls and provide recommendations for business process and internal control improvement.

DISCUSSION ON FINANCIAL PERFORMANCE:

Details of the Companys financial performance on standalone basis for the last two years is as follows:

(Amount in Lacs)
Year Total Revenue Profit/ Loss after Tax EPS
2021-22 1,094.67 359.10 1.96
2022-23 985.28 (2,663.69) (14.50)

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES /INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED:

Human resources are a valuable asset for any organization. The Company is committed to create an environment of constant learning and development, drive an effective and transparent performance culture and build a culture of appreciation & transparent communication. The Company is giving emphasis to upgrade the skills of its human resources. This is in keeping with its policy of enhancing the individuals growth potential within the framework of corporate goals. Total number of employees as on 31st March 2023 stood at 66.

DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS, ALONG WITH DETAILED EXPLANATIONS THEREFORE, INCLUDING:

Following are the details of significant changes in the key financial ratios as compared to the immediately previous financial year:

Particular F.Y. 2022 2023 F.Y. 2021 2022 Difference between FY % in change from the last FY Reason (if more than 25% change)
(i) Debtor Turnover NA NA NA NA NA
(ii) Inventory Turnover NA NA NA NA NA
(iii) Interest Coverage Ratio (117.82) (21.45) (96.37) 449% Due to increase in Impairment on financial instruments.
(iv) Current Ratio 0.47 1.17 (0.70) -60% Due to increase in current liabilities as compared to current asset.
(v) Debt Equity Ratio 1.08 0.75 0.33 44% Due to decrease in borrowings liability.
(vi) Operating Profit Margin (%) NA NA NA NA NA
(vii) Net Profit/Loss Margin (%) -270% 33% -303% -924% Due to increase in Impairment on financial instruments.

DETAILS OF ANY CHANGE IN RETURN ON NET WORTH

Particulars For the Financial year For the Financial year
2022-23 2021-22
Net worth:
Share Capital 1836.63 1836.63
Statutory reserve 1868.50 1868.50
Securities Premium 8843.84 8843.84
Surplus in P & L (7296.69) (7323.91)
Total Net worth 5252.28 5225.06
PAT (2663.69) 359.10
return on Net worth -50.71% 6.87%

CAUTIONARY STATEMENT

This report contains forward-looking statements extracted from reports of Government Authorities/ Bodies, Industry Associations etc. available on the public domain which may involve risks and uncertainties including, but not limited to, economic conditions, government policies, dependence on certain businesses and other factors. Actual results, performance or achievements could differ materially from those expressed or implied in such forward-looking statements. This report should be read in conjunction with the financial statements included herein and the notes thereto. The Company does not undertake to update these statements.