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.

GLOBAL OVERVIEW:

The World Economic outlook Report of April 2024, from IMF describes the Global Economic situation as "Steady but Slow." It says as global Inflation descended fromits mid -2022 peak, economic activity has grown steadily. Growth in employement and Incomes have held steady, resulting increased consumption demand. The Unexpected growth in consumption is a residual effect of the Substantial savings by households during the pandemic.

Global growth, estimated at 3.2 percent in 2023, is projected to continue at the same pace in 2024 and 2025. Global headline inflation is expected to fall from an annual average of 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025.

ECONOMIC OVERVIEW:

India Continues to shine as a Bright spot. It is the Fifth- Largest economy in the world and is poised to retain its position as the worlds fastest growing major economy. Its GDP growth remained buoyant at 7.3% in FY 2023-24 as against 7.2% in FY2022-23 was supported by robust domestic demand, moderate inflation, a stable interest rate environment and strong foreign exchange reserves. The International Monetary Fund (IMF) commended Indias economic resilience, robust growth and notable progress in formalization and digital infrastructure.

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 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. The sectors resilience and ability to innovate have been tested during times of economic turmoil, such as the COVID-19 pandemic.

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 N-06.00576 dated October 17, 2003 and involved in the activities of Investment in shares as well as trading and financing activities.

FUTURE OUTLOOK:

The NBFC Sector in India has undergone remarkable growth, establishing itself as a significant player with in Countrys Financial Landscape. 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 2023-2024, 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. 3,60,99,821/- with a profit before tax of Rs. 3,49,32,696/-. 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 2024.

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:-

PBT/Total Income % 96.77 73.59 31.50

Financial Assets to Total Assets % 100 98.42 1.60

Financial Income/Total Income % 65.24 100 -34.76

Return on Net Worth % 3.47 141 145.91

Current Ratio % 25.69 23.53 -9.19

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 2023-2024.

ACCOUNTING TREATMENT:

The financial statements of the Company for financial year 2023-2024 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 p rovisions 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.