Magellanic Cloud Ltd Management Discussions.


In 2015-16, the Indian economy emerged as one of the few large economies with an encouraging outlook. The factors contributing to this positive outlook were controlled inflation, rise in domestic demand, and increase in investments, decline in oil prices and the boost to reforms, among others. According to the IMF, India is set to become the world s fastest-growing major economy by 2016, ahead of China.

The economic fundamentals are showing healthy trends, which corroborates the expected growth in the economy. Inflation has been largely tamed. The investment cycle in India is showing positive growth and expenditure on consumption is increasing, although in a fluctuating trend. This growth is likely to be sustainable considering government s focus on industrial activities, infrastructure development and ease of doing business.

Budget 2016 is a good indicator of the government s intentions and plans. With the global economy fraught with uncertainties, it is commendable that the Indian Government is sticking to its fiscal deficit target while pursuing the growth agenda. Government targets to narrow the central fiscal deficit to 3.5% in 2016-17, after straight year even as an uncertain recovery continued in developed countries. The Eurozone s economic recovery continued although overall growth remained subdued. Solid domestic data continued to drive the recovery while the external sector dragged on the economy s performance.

The Japanese economy is struggling for growth against structural headwinds including a declining and aging population, weakening productivity, low return on capital, and high debt levels.


According to India Brand Equity Foundation, gross national savings in India are expected to reach $ 1,272 billion by the end of 2019. This in turn will trigger further savings and investments in Indian households, leading to their greater engagement.

Technology in financial services industry is getting dramatically transformed with several drivers responsible for the change. The willingness of consumers to use the technology for availing financial services is also a major facilitator of technological change.

In August 2015, the RBI granted licenses to 11 new payment banks. This marked a new revolution in the country s financial services sector. The move was to boost financial inclusion and up the ante of mobile revolution in the industry. The payment banking model will transform the way conventional banks approach customers. The risk to traditional banks right now is that the payment banks will track the entire transaction and customer engagement in parallel. Small and Medium Enterprises (SMEs) will have advantage going forward. SMEs play a major role in the development of economy and providing employment in developing countries. They contribute 33% of the Gross Domestic Product (GDP) in developing economies. As the barriers are being cleared, SME sector could experience substantial growth and offer expanded markets for financial services firms.


At South India Projects Limited (SIPL or the Company), we strongly believe in building a strong financial community. Our ethos and promise of true financial inclusion in the country makes us one of

India s prime NBFCs. We not only provide credit to people but also confidence who do not have access to organized financial services. We believe in providing loans not for consumption, but primarily for income generation. The economic slowdown had a significant bearing on the functioning and profitability of NBFCs in the medium term. But it has been estimated that in the long run there are vast opportunities for NBFCs. Hence, the Company is expecting to improve its performance and profitability in years to come.


During Financial Year 2015- 2016, your Company intends to grow its loan book, income and profits through the following initiatives:

1. Deepening reach in existing regions;

2. Continuing its key focus on under-penetrated markets and segments Strong asset growth supported by sound risk management framework;

3. Accessing low cost and diversified fund sources;

4. Optimizing operating costs and efficiency through process changes;

5. Mobilizing debt at attractive rates;

6. Transmitting cost efficiency and remaining competitive in pricing of products Improving recovery ratio and containing NPAs;

7. Leveraging technology to positively impact the working and customer experience.


At SIPL we provide financial services through simple processes and simple procedures in sanction and disbursement of credit as well as timely, friendly and flexible terms of repayment aligned to the unique features of its clientele. Easy and fast appraisal and disbursements make the Company the preferred choice for many of its customers Customer Insight.


Newer regulatory updates pose a constant challenge for smooth operations of the Company. With constant updates governing the functional aspects of financial institutions, there lie unseen challenges in the coming years. Focus on a particular market segment might affect the Company s portfolio & sustainability.


Business opportunities for finance companies are enormous as the new areas and segments are being explored. A larger segment of customers remain un-served by Banks and large sized Finance Companies. Your Company on its part is also well poised to seize new opportunities as they come. A rural middle income boom has led to rise in rural incomes. This has been fueled by increased support prices and welfare schemes initiated by the government. Per capita Gross Domestic Product has grown faster in India s rural areas than in its urban centers. New opportunities like home equity, personal finance, and a foray into factoring and bill payment for the rural hard-to-reach customer may take the Company to new scales of success.


India has one of the youngest populations in the world, and this means that there will be a large number of people seeking employment and livelihood. The aspirations in rural India are rising, and opportunities for those wanting to be entrepreneurs are increasing. Rural prosperity is also on the rise, fueled by increased support prices and welfare schemes initiated by the government. Per capita Gross Domestic

Product has grown faster in India s rural areas than in its urban centers.


The Government s "Make in India" initiative, which seeks to make India a manufacturing hub, will have a rub-off effect on the key sectors. It seeks to invite the world s top companies to explore investment possibilities in India. The central objective of the initiative is to take the economy to a sustainable high growth path and follow a new model of urbanization by the creation of various industrial corridors.


Increase in per capita income leads to creation of increasing wealth and positively impacts disposable incomes. This results in a significant investment multiplier effect on the Indian economy, further leading to increasing consumerism and wealth creation and positively impacting savings. Rising per capita income and stability in economic growth have played a role in increasing the pace of urbanization in the country. One of the notable factors behind the growth in the housing industry has been easy availability of finance. Availability of low interest rate finance has increased disbursement of loans among several financial players.


The major threat being faced by finance companies are regulatory changes, interest rates hiked by RBI, high inflation etc. The Company is also facing stiff competition from banks / financial institutions due to their ability to raise low cost funds which enables them to provide funds at much cheaper rate. Higher cost of funds might lead to reduced bottom line for the Company. Also, a lesser interest spread, or higher cost of lending might lead to customers turning away to cheaper source of funds. Asset quality deterioration may not only wipe the profits out of the Company but eat into its net worth. The Company must ensure it maintains minimal delinquency levels.


The Company does not have strong network & link at remote areas of villages. The Company has significant business presence in the state of West Bengal only. The Company does not have all India based network and establishments to reach out to large segment of people in the country in both semi-urban and rural areas whereas more than 90% of the unorganized sector has no link with banks and 60% of the rural consumers do not have bank accounts.


As a NBFC, your Company s growth and profitability are dependent on the functioning of Capital

Markets. The Company is exposed to several market risks like credit risk, liquidity risk and interest rate risk. The volatility of the capital markets in which your Company operates is also a major cause of concern to the Company. Risk is managed by using a set of credit norms and policies, as approved by the Board. SIPL has a structured and standardized process including customer selection criteria, comprehensive credit risk assessment, which encompasses analysis of relevant quantitative and qualitative information to ascertain the credit worthiness of the borrower.


Internal control systems and procedures in the Company are commensurate with the size and the nature of Company s business and are regularly reviewed and updated by incorporating changes in regulatory provisions in order to safeguard the assets and to ensure reliability of financial reporting.


The Company continues to give priority to its human assets. The Company provides a fair and equitable work environment to all its employees. The Company is continuously working to create and nurture an atmosphere which is highly motivated and result oriented.


During the year under review, your Company achieved revenue from operations of Rs. 73.57 Lakhs as against Rs. 186.92 Lakhs in the Previous Year and recorded Profit after Finance Cost, Depreciation and Taxation of Rs. 77.41 Lakhs as against Rs. 187.73 Lakhs in the Financial Year 2015-2016.

For and on behalf of the Board of Directors
Jagan Mohan Reddy Joseph Sudheer
Thumma Reddy Thumma
Director Director
[DIN: 06554945] [DIN: 07033919]
Place: Kolkata