Kovalam Investment & Trading Co. Ltd Management Discussions

OVERVIEW:

Kovalam Investment and Trading Company Limited is registered with the Reserve Bank of India ("RBI") as a Non-Deposit taking, Non-Banking Financial Company and is a Financial/Investment Company.

ECONOMIC OVERVIEW:

India is poised to lead the global economy once again, with the International Monetary Fund (IMF) projecting it to remain the fastest growing major economy over the next two years. According to the April 2025 edition of the IMFs World Economic Outlook, Indias economy is expected to grow by 6.2 per cent in 2025 and 6.3 per cent in 2026, maintaining a solid lead over global and regional peers. The IMF has also revised its growth estimates for other major global economies. Chinas GDP growth forecast for 2025 has been downgraded to 4.0 per cent, down from 4.6 per cent in the January 2025 edition of the World Economic Outlook. Similarly, the United States is expected to see a slowdown, with its growth revised downward by 90 basis points to 1.8 per cent. Despite these revisions, Indias robust growth trajectory continues to set it apart on the global stage.

In India, growth is projected to be solid at 6.5% in 2025-26. In 2024, agricultural growth hit a five-quarter high of 3.5%, driven by strong monsoons, healthy kharif harvests and with improved rabi sowing in the second quarter. Services exports also surged 12.8% year over year, reaching US$248 billion from April to November 2024. Indian manufacturing is moving up the value chain with electronics, engineering goods, and chemicals now make up 31% of exports, supported by contributions from micro, small, and medium enterprises and rising credit availability. In the monetary policy of April 2025 - RBI did a Repo Rate cut of 25 bps to 6%, changed its stance to accommodative. This provides confidence to the stakeholders on the economic and credit growth.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

Non-Banking Financial Institutions (NBFIs) are an important alternative channel of finance in Indias bank dominated financial sector. NBFCs supplement banks by providing the infrastructure to allocate surplus resources to individuals and companies. Additionally, NBFCs also introduces competition in the provision of financial services. While banks may offer a set of financial services as a packed deal, NBFCs unbundle and tailor these services to meet the needs of specific clients. NBFCs provide multiple alternatives to transform an economys savings into capital investment.

The Indian economy continues to show robust growth, with the RBI projecting a 6.5 per cent GDP growth rate. The overall credit growth for NBFCs is expected to moderate to 13-15% in FY25 and FY26, reflecting a shift away from the rapid expansion seen in the previous two fiscals. This economic resilience is paving the way for significant credit growth for NBFCs. NBFCs cater to the diverse needs of the borrowers in an efficient manner, considering geographical scope and understanding of various financial requirements of the borrowers. The last few years have transformed the Indian financial services landscape. The increasing penetration of neo-banking, digital authentication and the rise of UPI along with mobile banking has resulted in the modularization of financial services. The NBFC sector has benefited from this and has shown resilience with sound capital position, improved asset quality, adequate provisioning and higher profitability.

According to IBEF, rising incomes in India are driving the demand for financial services across income brackets. Further, there are over 10,244 fintechs operating currently, positioning India to become one of the largest digital markets, aided by the rapid expansion of mobile and internet.

The Non-Banking Financial Companies (NBFCs) sector plays a significant role in the Indian economy, providing credit to individuals, small and medium-sized enterprises, and rural areas, among others. NBFCs have emerged as a key segment in the financial sector, bridging the gap between banks and borrowers who are

underserved or excluded from traditional banking services. In recent years, the sector has witnessed significant growth, fuelled by a rise in demand for credit and the emergence of new players.

Pursuant to RBIs regulatory framework, your Company is a "Non- Banking Financial Company Non- Systemically Important (Non- public deposit taking company) (NBFCs-ND-NSI) registered under Reserve Bank of India ("RBI") vide registration number 14.00489 dated March 19, 1998 and involved in the activities of Investment in shares as well as financing activities.

FUTURE OUTLOOK:

The NBFC Sector in India has undergone remarkable growth, establishing itself as a significant player with in Countrys Financial Landscape. The retail assets, which are a significant portion of NBFC credit, are expected to grow at a slower pace of 16-18% CAGR in FY25-FY26, compared to the 23% CAGR seen in FY23-FY24. The Indian NBFC (Non-Banking Financial Company) industry is experiencing a period of moderated credit growth, shifting from a high of 17% in the previous two years to a projected 13-15% in FY25 and FY26, according to ICRA Ratings. While NBFCs continue to grow faster than Indias GDP, the growth rate is expected to slow down due to concerns about borrower overleveraging, especially in unsecured segments like microfinance, personal loans, and credit cards. NBFCs are set to announce robust results on the back of Strong credit, Upcycle, higher disbursement and higher Collections. NBFC would maintain loan growth of around 17% year on year basis in the next Fiscal year on back of higher demand for loan against property, Housing Loan, Vehicle Finance Loan and Personal Loan. The existing on balance Sheet Liquidity would help in maintaining the funding cost for certain quarters. The growth is expected to be driven by various factors like the increasing demand for credit, the governments initiatives to promote financial inclusion, and the rise of digitalization.

The Company also intends to continue focusing on diversifying its business into new avenues of Investment/financial deals with lower risk to earn reasonable returns and making its best efforts to utilize the available opportunities with caution and emerge as fully Integrated Financial Company.

RISK AND CONCERNS:

As a NBFC, the Company is exposed to market risk, global risk, regulatory risk, credit risk, liquidity risk, competition risk and interest rate risk etc. which can affect the return on investments and financial business in unexpected way. Sustained efforts to strengthen the risk framework and portfolio quality have yielded consistently better outcomes for the Company.

OPPORTUNITIES AND THREATS:

During the financial year 2024-2025, your Company changed the pattern of allocation of funds. Company also increased lending to known Business associates and Group Companies for safety and higher returns. Company is hopeful that revised allocation will help in better Asset Portfolio Management to get the better returns with safety.

Your Company foresees and is cautious of all the economic and financial threats while making new investments and also aware of the fact that change in Government policies and rate of interest revisions will affect the valuation of investments made by Company.

FINANCIAL/OPERATIONAL PERFORMANCE:

The Company achieved an income of Rs. 2,16,77,130/- with a profit before tax of Rs. 1,98,03,514/-. The detailed performance has already been discussed in the Directors Report under the column Financial Performance.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company is maintaining an efficient and effective system of Internal Financial Control for the facilitation of speedy and accurate compilation of financial statements. The Companys internal control system is designed to ensure operational efficiency, protection and conservation of resources, accuracy and promptness in financial reporting and compliance with laws and regulations and procedures. Pursuant to the provisions of Section 138 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, the Company has also appointed M/s. Piyush Singla & Associates, Chartered Accountants as an Internal Auditors of the Company. The Company has in place adequate internal financial control systems with reference to the Financial Statements. The Internal Audit Reports are discussed with the Management and are reviewed by the Audit Committee of the Board which also reviews the adequacy and effectiveness of the internal controls in the Company. During the year, Companys Internal Controls were tested and no reportable weakness in the system was observed.

HUMAN RESOURCES/INDUSTRIAL RELATIONS:

The Industrial Relations remained cordial throughout the year. The Company recognizes people as its most valuable asset and it has built an open, transparent and meritocratic culture to nurture this asset. The total permanent employees strength of the Company was 3 (three) as on 31st March 2025.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS:

As per SEBI (Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018, the Company is required to provide details of significant changes (change of 25% or more as compared to immediately previous financial year) in key financial ratios. Accordingly, the Company has identified the following ratios as key financial ratios:-

EXPLANATION FOR CHANGE OF 25% OR MORE IN KEY FINANCIAL RATIOS:

Due to Decrease in the value of Investments Return on net worth has increased during the financial year 2024-2025.

ACCOUNTING TREATMENT:

The financial statements of the Company for financial year 2024-2025 have been prepared in accordance with the applicable accounting principles in India and the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Companies Act, 2013 read with the rules made thereunder. The Company has followed accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 (the Act) and other relevant provisions of the Act.

The significant accounting policies which are consistently applied are set out in the notes to the financial statements.

CAUTIONARY STATEMENT:

Though the statement and views expressed in the above said report are on the basis of best judgment but the actual future results might differ from whatever is stated in the report.