isf ltd Management discussions

Global Economy

India entered FY2023 amidst uncertain macroeconomic environment the threat posed by the Omicron coronavirus subtype quickly subsided but at the same time geopolitical conflicts arose between Russia and Ukraine. In addition to that, China decision to continue lockdown in its cities due to the increasing number of Covid cases had a detrimental impact on the global supply chain. This led to significant increase in oil and food prices which in turn lead to rise in inflation across the global economies.

Global GDP growth in 2023 is projected to be 2.7%, the lowest annual rate since the global financial crisis, with the exception of the 2020 pandemic period. A modest improvement to 2.9% is foreseen for 2024. Annual OECD GDP growth is projected to be below trend in both 2023 and 2024, although it will gradually pick up through 2024 as inflation moderates and real incomes strengthen.

The World Bank halved its previous 2024 US growth forecast to 0.8 percent, and cut Chinas forecast by 0.4 percentage point to 4.6 percent.

The International Monetary Fund (IMF) has raised its growth forecast for the global economy to 3 percent in 2023. About 93 per cent of advanced economies are projected to have lower growth in 2023, and growth in 2024 among this group of economies is projected to remain at 1.4 per cent. The institution said in emerging markets and developing economies, the growth outlook was broadly stable for 2023 and 2024, although with notable shifts across regions.

In most economies, the priority remains achieving sustained disinflation while ensuring financial stability. Therefore, central banks should remain focused on restoring price stability and strengthen financial supervision and risk monitoring. Should market strains materialize, countries should provide liquidity promptly while mitigating the possibility of moral hazard. They should also build fiscal buffers, with the composition of fiscal adjustment ensuring targeted support for the most vulnerable. Improvements to the supply side of the economy would facilitate fiscal consolidation and a smoother decline of inflation toward target levels.

Indian Economy

The Indian economy demonstrated an exceptional performance during FY 2022-23, positioning itself as one of the fastest-growing economies.

The Asian Development Bank (ADB) projects growth in Indias gross domestic product (GDP) to moderate to 6.4% in fiscal year (FY) 2023 ending on 31 March 2024 and rise to 6.7% in FY2024, driven by private consumption and private investment on the back of government policies to improve transport infrastructure, logistics, and the business ecosystem.

IMF raises Indias 2023 GDP growth forecast to 6.1%. The world economic situation of India, the largest economy in the south Asian region expanded by 5.08 percent in 2023 and 6.7 percent in 2024 supported by resilient domestic demand.

The union budget 2023-24 proposes to spend Rs 45,03,097 crore in the financial year. Out of the total expenditure, revenue expenditure is estimated to be Rs 35,02,136 crore (1.2% increase from revised estimates of 2022-23). Interest expenditure is 41% of revenue receipts. Capital expenditure is estimated to be Rs,.10,00,961 crore, a 37.4% increase from revised estimates of 2022-23. The increase in capital expenditure is driven by higher outlay on transport infrastructure and capital loans to states. Revenue deficit in 2023-24 is targeted at 2.9% of GDP, which is lower than the revised revenue deficit of 4.1% in 2022-23. Fiscal deficit in 2023-24 is targeted at 5.9% of GDP, lower than the revised fiscal deficit of 6.4% in 2022-23.

The Reserve Bank of India (RBI) has raised its benchmark repo rate by 250 basis points (bps) since May last year and economists expect it to leave the rate unchanged for the rest of 2023 as it waits to see the impact of earlier hikes.

The Reserve Bank of Indias (RBI) Monetary Policy Committee (MPC)decided to leave the repo rate unchanged at 6.5%. Inflation is likely to exceed the central banks upper target limit of 6% until early Current Year 2023, but it may gradually decrease once higher interest rates are implemented.

Further support to economic growth will come from the expansion of public digital platforms and path-breaking measures such as PM GatiShakti, the National Logistics Policy, and the Production-Linked Incentive schemes to boost manufacturing output.

Private Consumption as a percentage of GDP stood at 58.4 per cent in Q2 of FY23, the highest among the second quarters of all the years since 2013-14, supported by a rebound in contact-intensive services such as trade, hotel and transport, which registered sequential growth of 16 per cent in real terms in Q2 of FY23 compared to the previous quarter.

The Indian economy expanded 6.1% year-on-year in Q1 2023, higher than an upwardly revised 4.5% in Q4 2022 and well above market forecasts of 5%. The expansion was mainly boosted by private consumption, services exports and manufacturing amid easing input cost pressures. Also, services have emerged as a major driver, comprising more than half of GDP. Private spending rose at a faster 2.8% (vs 2.2% in Q4 2022), public expenditure rebounded (2.3% vs -0.6%), GFCF rose faster (8.9% vs 8%), stocks recovered (5.9% vs -0.1%), and exports (11.9% vs 11.1%) increased way more than imports (4.9% vs 10.7%). On the production side, the manufacturing sector grew for the first time in three quarters (4.5% vs -1.4%) and faster increases were recorded for the farm sector (5.5% vs 4.7%), construction (10.4% vs 8.3%), financial and real estate (7.1% vs 5.7%), and public administration (3.1% vs 2%). GDP Growth for the 2022-23 fiscal year was revised higher to 7.2% from 7%

The most important and the fastest growing sector of Indian economy are services. Trade, hotels, transport and communication; financing, insurance, real estate and business services and community, social and personal services account for more than 60 percent of GDP. Agriculture, forestry and fishing constitute around 12 percent of the output, but employs more than 50 percent of the labor force. Manufacturing accounts for 15 percent of GDP, construction for another 8 percent and mining, quarrying, electricity, gas and water supply for the remaining 5 percent.

Growth is inclusive when it creates jobs. Both official and unofficial sources confirm that employment levels have risen in the current financial year. The Periodic Labour Force Survey (PLFS) shows that the urban unemployment rate for people aged 15 years and above declined from 9.8 per cent in the quarter ending September 2021 to 7.2 per cent one year later (quarter ending September 2022). This is accompanied by an improvement in the labour force participation rate (LFPR) as well, confirming the emergence of the economy out of the pandemic induced slowdown early in FY23. Job creation appears to have moved into a higher orbit with the initial surge in exports, a strong release of the “pent-up” demand, and a swift rollout of the capex. Since export growth is plateauing and the “pent-up” release of demand will have a finite life, it is essential that capex continues to grow to facilitate employment in the economy, at least until such time the global economy rebounds and, through the export channel, provides an additional window to India for job creation. Thankfully, the private sector has all the necessary pre-conditions lined up to step up to the plate and do the capex heavy lifting. Their internal resource generation is good, capacity utilisation is high, and the demand outlook continues to improve. Capital markets are willing to finance new investments, as are financial institutions.

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.

Enterprises in the services and infrastructure sectors exhibit rising optimism about the overall business situation with higher selling prices anticipated to drive profit margin improvement. Investment activity exhibited buoyancy on the back of the Governments thrust on infrastructure spending, high-capacity utilisation, and revival in corporate investment in certain key sectors.

Industry Overview

Non-Banking Financial Corporations (NBFCs) have emerged as the primary source of financing for a vast section of the population including small and medium-scale enterprises as well as the economically unserved and underserved individuals. They are financial institutions that provide a wide range of banking services like loans, credit facilities, investments, and other financial products. NBFCs have played a significant role in the Indian economys growth story, especially in the rural and semi-urban areas. NBFCs are increasingly focusing on digitization including the usage of chatbots to improve customer service, providing digital solutions, and increasing partnerships with fintechs. With the help of tools such as eKYC (Electronic Know Your Customer), e-signature, and Aadhaar-based verification, NBFCs have furthered the process of financial inclusion among the diverse Indian population. However, certain pitfalls stand in the way of the NBFC sector. Credit extended by NBFCs is picking up momentum, with the aggregate outstanding amount at 31.5 lakh crore as of September 2022. NBFCs continued to deploy the largest quantum of credit from their balance sheets to the industrial sector, followed by retail, services, and agriculture. Loans to the services sector (share in outstanding credit being 14.7 per cent) and personal loans (share of 29.5 per cent) registered a robust double-digit growth. After the pandemic decline, 2023 has brought growth for the NBFCs. It has demonstrated an innovative and resilient streak over the years which includes adapting efficiently even during the COVID-19 pandemic to avoid the revolving credit landscape. The market share of NBFCs has increased in the last few years with Asset Under Management (AUM) accounting for as much as 18% of the overall credit on March 2019, up from 12% in March 2008. A few challenges over the past three years lowered their share to 16% in fiscal 2022, with banks making bigger growth strides. The increase in NBFCs AUM from US$ 44.02 billion (Rs. 3.6 lakh crore) in March 2008 to almost US$ 330.21 billion (Rs. 27 lakh crore) in March 2022, and is expected to increase further, indicates the importance of the sector to overall credit delivery in the economy.

Micro, Small and Medium Enterprises (MSME)

MSME sector is the backbone of Indias development story, and it has a been major driver in the countrys rise as the worlds fifth largest economy. From employing millions of people to exporting billions of Make in India products, MSMEs have significantly lifted their role in Indian economy over the past decades. And now they are going to play a major role in helping India score more wins from the current makeover in global supply chain networks and accomplish her desire in ‘Aatmanirbhar Bharat or an economically self-reliant country. Overall MSME revenue is expected to reach 1.36 times of the pre-pandemic (fiscal 2020) level in fiscal 2024. Margins are expected to be under pressure this fiscal but will cross pre-pandemic level in fiscal 2024. In long term, the segment will continue to offer attractive business opportunities for financiers. However, the challenge lies in spotting the sectors and clusters that have recovered fast since pandemic and are likely to offer the desired risk-adjusted returns. And that entails tracking the performance and riskiness of sectors and clusters on a timely basis. Non-banking financing companies (NBFCs) have been another major driver in pushing more credit to the MSME sector, especially in the vast unbanked pockets of the country. In addition to building a wide network of distribution channels, they have embraced digitalization of processes, leveraged technology for data analytics and adopted unconventional credit underwriting practices to meet the requirements of the small businesses. Compared to banks, they have been more agile and have introduced personalized products and offerings based on the risk profiles and demands of different segments of the sector. NBFCs are also striking partnerships with fintech players, banks and alternative lenders to extend credit and bundled products for businesses. While the banks still dominate the flow of term loans to the sector, NBFCs have taken a lead in providing unsecured loans.

Source:https://www.crisil.com/en/home/our-analysis/reports/2023/03/crisil-research-sme-report-2023.html Source: https://assets.kpmg.com/content/dam/kpmg/in/pdf/2022/11/role-of-nbfcs-and-hfcs-in-driving-sustainable-gdp-growth-in-india.pdf

Digital Lending

Digitization of the lending process brings a number of powerful benefits for banks, including better decisions, improved customer experience, and significant cost savings. It is also a complex and challenging project. Digital lending opportunity is expected to grow at 17 per cent over the next few years creating massive business opportunity for the financial institutions, attributable to the increase in account aggregator model adoption, bureau coverage, data availability, fintech collaborations, higher government support and increasing internet penetration. While the digital lending ecosystem is evolving and banks are increasingly adopting innovative approaches in digital processes, NBFCs are playing at the forefront of partnered digital lending.

Source: https://assets.kpmg.com/content/dam/kpmg/in/pdf/2022/11/role-of-nbfcs-and-hfcs-in-driving-sustainable-gdp-growth-in-india.pdf

Vehicle

The Indian commercial vehicle (CV) industry has recovered post the COVID-19 pandemic. According to the RBI, vehicle loans from banks have witnessed an impressive 137%. In F.Y. 2022-23, commercial vehicles witnessed the second-highest domestic sales growth in India. As per SIAM, the sales of overall Commercial Vehicles increased from 7,16,566 units in FY 2021-22 to 9,62,468 units in FY 2022-23, representing 34% substantial growth rate. Furthermore, the sales of Medium and Heavy Commercial Vehicles (MHCVs) increased from 2,40,577 units in FY 2021-22 to 3,59,003 units in FY 2022-23 indicating a growth of ~50%. Additionally, Light Commercial Vehicles increased from 4,75,989 units in FY 2021-22 to 6,03,465 units in FY-2022-23 indicating a growth of 27%. MHCVs market share poised to grow further, driven by increased activity in the construction and infrastructure sectors, while truck utilization reached an all-time high of 90%. LCVs growth levels have been increased due to rural consumption and e-commerce. In F.Y. 2022-23, the CV industry in India is expected to witness positive volume growth of 22-24%, driven by positive demand drivers from multiple industries and growing freight movements. In FY 2022-23, domestic sales of Personal Vehicles exhibited significant growth, primarily due to the improvement in sentiments and the ease in the supply of semi-conductors. This growth reflects a strong recovery after the pandemic-induced disruption, which adversely affected sales in FY 2021-22. Car sales for fleet operations, including those to app-based cab aggregators such as Ola and Uber, nearly doubled last fiscal and are expected to significantly outpace overall industry growth to get closer to the pre-pandemic peak this year.

The industry estimates that 137,000 vehicles were sold to fleet operators in the last financial year, a growth of 95%

Source:https://economictimes.indiatimes.com//industry/auto/auto-news/car-sales-on-fleet-street-accelerate-95-infy23/articleshow/100085686.cms?utm_source=contentofinterest&utm_medium=text&utm_c ampaign=cppst

Source:https://bfsi.economictimes.indiatimes.com/news/banking/vehicle-loan-growth-outpaces-home-loans-as-consumers-prioritise-cars-suvs-over-houses/101348063

Company Overview

The Company is a prominent NBFC in the retail finance industry in India. ISF Limited focuses on solving the MSME funding Challenges across spectrum. The Company satisfy the clients business expansion requirements, capital needs, diversification in another associated line of business, and seasonal stocking to seek the benefit of season sales. ISF Limited has been on financing vehicles both commercial and for personal use We cater for all your needs New Cars, Used Cars, New Two Wheelers, Used Two Wheelers & both New and Used Commercial Vehicles Along with the flexible tenure for loan payment, company also assures quick processing by instant online application procedure and minimal paperwork. Funding to the customers is decided on certain eligibility criteria. The regulatory framework for NBFCs to introduce scale- based regulation came into effect from October 01, 2022. Under the new framework, NBFCs are placed in one of the four layers viz., Base Layer (BL), Middle Layer (ML), Upper Layer (UL) and a possible Top Layer (TL) based on their size, activity, and perceived risks. The new framework tightens regulatory oversight of the sector with stringent norms for NBFCs. The Company has been classified as Base Layer under Scale Based Regulatory Framework for NBFCs.

SWOT Analysis

Strengths:

1. Understanding customers approach;

2. Better services to individual as well as corporate customers;

3. Easy and simplified sanction procedure and disbursement;

4. Flexible operation & ability to innovate;

5. Experienced senior management team;

6. Strong relationships with other NBFCs, institutions and investors;

7. Smoothly and easily catering the need of Customer via our loan products inclusive of Term Loan, MSME Loan, Vehicle Loans, Loan Against Property (LAP), School Loan.

Weakness:

1. Weakness in urban markets due to disparities in public perception

2. Strong and dynamic competitors

3. Business and growth are directly linked with the GDP growth of the country.

Opportunities:

Opportunities in home equity, personal finance, personal investment, etc. Collaboration with Banks. Securitizing to collect funds to generate asset growth No entry barriers or low entry barriers

Threats:

1. Competition from captive finance companies, small banks, FinTechs and new entrants.

2. Inadequate availability of bank finance and an upsurge in borrowing costs.

3. External risks associated with liquidity stress, political uncertainties, fiscal slippage concerns, etc.

4. Increasing competition from global and local competitors in terms of product development and technology innovations, leaving very thin margins of error.

5. Regulatory and compliance-related changes in the sector affecting NBFCs.

6. Growing commoditization of financial products remains the toughest challenge for the Company.

Internal control systems and their adequacy

The Company has carried out the internal audit in-house and has ensure that recording and reporting are adequate and proper, the internal controls exist in the system and that sufficient measures are taken to update the internal control system. The system also ensures that all transaction is appropriately authorized, recorded and reported. Exercises for safeguarding assets and protection against unauthorised use are undertaken from time to time. The Companys audit Committee reviewed the internal control system. All efforts are being made to make the internal control systems more effective. All these measures are continuously reviewed by the management and as and when necessary, improvements are affected.

Discussion on financial performance with respect to operational performance

The total revenue from operations of your Company for the year ended March 31, 2023 stood at Rs. 165.86 Lakh as against Rs. 163.50 Lakh for the year ended March 31, 2022. The Company has earned a profit (after tax) of Rs. 0.72 Lakh for the Year ended March 31, 2023 as compared to Rs. 58.92 Lakh for the year ended March 31, 2022. The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013 and Generally Accepted Accounting Principles in India.

Future Strategy

The Board has determined the subsequent medium-term and long-term strategies to accomplish its corporate objectives within the upcoming 3-5 years: 1.Conduct periodic evaluations of pandemic risks, Business Continuity plan, and liquidity management. 2.Strengthen the leadership position in corporate financing. 3.Concentrate efforts on digital initiatives to efficiently cater to customers and educate them on the digital payment of EMIs. 4.Uphold customer loyalty through cultivating strong relationships and ensuring customer satisfaction. 5.Employ data analytics in loan disbursement and recovery procedures. 6.Enhance the loan portfolios quality.

Cautionary Statement

Statements made in this Management Discussion and Analysis Report may contain certain forward-looking statements based on various assumptions on the Companys present and future business strategies and the environment in which it operates. Actual results may differ substantially or materially from those expressed or implied due to risk and uncertainties. These risks and uncertainties include national and global effect of economic conditions, political conditions, volatility in interest rates, changes in regulations and policies impacting Companys businesses and other related factors. The information contained herein is as referred. The Company does not undertake any obligation to update these statements. The Company has obtained the data and information referred here from sources believed to be reliable or from its internal estimates, the accuracy or completeness of which cannot be guaranteed.

For and behalf of ISF Limited
Date: 24.08.2023	SD/-	SD/-
Place: New Delhi	Vishal Dang	Hargovind Sachdev
	Whole Time Director	Director
	DIN: 07971525	DIN: 08105319