Morarka Finance Ltd Management Discussions

A) Global Economy

As per the Global Economic Prospects Report, January 2024, amid a barrage of shocks during the past four years, the global economy has proved to be surprisingly resilient. Major economies are emerging mostly unscathed after the fastest rise in interest rates in 40 years without the usual scars of steep unemployment rates or financialcrashes. Global inflation is being tamed without tipping the world into a recession.

Global growth is set to slow further this year amid tight monetary policy, restrictive financial conditions, and feeble global trade and investment. Downside risks include an escalation of the recent conflict in the Middle East, financial stress, persistent inflation, trade fragmentation, and climate-related disasters. Global cooperation is needed to provide debt relief, facilitate trade integration, tackle climate change, and alleviate food insecurity. Among emerging market and developing economies (EMDEs), commodity exporters continue to grapple with fiscal policy procyclicality and volatility.

Across all EMDEs, proper macroeconomic and structural policies, and well-functioning institutions, are critical to help boost investment and long-term prospects.

The forecasts in Global Economic Prospects imply that most economies—advanced as well as developing—are set to grow more slowly in 2024 and 2025 than they did in the decade before COVID19. Global growth is expected to slow for a third year in a row—to 2.4 percent—before ticking up to 2.7 percent in 2025. Those rates, however, would still be far below the 3.1 percent average of the 2010s. Per-capita investment growth in 2023 and 2024 is expected to average just 3.7 percent—barely half the average of the previous two decades. Without corrective action, global growth will remain well below potential for the remainder of the 2020s.

B) Global Outlook

The global economy remains remarkably resilient, with growth holding steady as inflation been eventful, starting with supply-chain disruptions in the aftermath of the pandemic, a Russian-initiated war on Ukraine that triggered a global energy and food crisis, and a considerable surge in inflation, followed by a globally synchronized monetary policy tightening. Yet, despite many gloomy predictions, the world avoided a recession, the banking system proved largely resilient, and major emerging market economies did not suffer sudden stops.

The report on World Economic Outlook, April 2024, forecasts Global growth, estimated at 3.2 percent in 2023, is projected to continue at the same pace in 2024 and 2025. According to the latest projections, growth for 2024 and 2025 will hold steady around 3.2 percent, with median headline inflation declining from 2.8 percent at the end of 2024 to 2.4 percent at the end of 2025.The projection for global growth in 2024 and 2025 is below the historical (2000–19) annual average of 3.8 percent, reflecting restrictive monetary policies and withdrawal of fiscal support, as well as low underlying productivity growth. Advanced economies are expected to see growth rise slightly, with the increase mainly reflecting a recovery in the euro area from low growth in 2023, whereas emerging market and developing economies are expected to experience stable growth through 2024 and 2025, with regional differences.

C) Domestic Outlook

The International Monetary Fund (IMF) in its latest outlook raised Indias growth projections for 2024 from 6.5 per cent to 6.8 per cent, with the country maintaining the fastest-growing status in emerging markets and developing economies. For the year 2025, the IMF maintained Indias growth rate at 6.5 per cent. It attributed robustness and strength in domestic demand and a rising working-age population behind its growth projections. cooling off from an average of 5.4% The IMFseesIndiasconsumerprice inflation in FY24, to 4.6% in FY25, and further to

4.2% in FY26.

(https://www.cnbctv18.com/economy/imf-raises-indias-fy25-growth-forecast-to-6-8-pegs-global-growth-at-3-2-in-2024-2025-19397578.htm) The Reserve Bank of India in its monthly bulletin, April 2024, stated that in India, conditions are shaping up for an extension of the trend upshift that took the average real GDP growth above 8 per cent during 2021-24. To achieve its developmental aspirations over the next three decades, the Indian economy must grow at a rate of 8-10 per annum over the next decade. So far, capital deepening is powering the step-up in the growth trajectory, led by sustained public investment, and supported by productivity improvements. More recently, a resurgence of private investment has become visible, according to the Asian Development Bank (ADB), which is shifting its investment strategy to expand space for private capital.

D) Finance & Capital Market

NBFCs have emerged as the crucial source of finance for a large segment of the population and economically unserved and underserved people. The sector has grown significantly, with a number of players with heterogeneous business models starting operations. The last few years have seen a transformation in the Indian financial services landscape.

The increasing penetration of neo-banking, digital authentication, rise of UPI and mobile phone usage as well as mobile internet has resulted in the modularisation of financial services, particularly credit.

As per the report ‘NBFCs in India: Growth and Stability put together by KPMG in India and CII which was launched at the 6^th CII NBFC Summit in Mumbai on 9^th February 2024, after a moderation in growth post the COVID-19 pandemic, NBFCs are back on track with an expected credit growth of 13–14 per cent during FY24. The industry is expected to continue to witness the emergence of newer NBFCs catering to specific customer segments. The COVID-19 pandemic and consequent acceleration in both adoption of technology and change in consumer habits, as well as increasing availability of data for credit decision-making, has made it possible to build an NBFC lending business without investing large sums to have brick-and-mortar presence on the ground. Overall, between FY23 and FY25, research shows NBFC credit will increase at a CAGR of 13–15 per cent.

NBFCs in India face a challenging yet transformative landscape. By exploring alternative funding sources and aligning strategies with regulatory measures, these financial entities can secure their future growth and resilience.

OPPORTUNITIES, THREATS AND STRATEGIES:

NBFCs have various ways to grow their business, including obtaining affordable loans from multilateral development banks and using blended financeinstruments to access concessional capital. Additionally, NBFCs can transform their operations by utilising digital tools and resources, which not only reduces their environmental impact but also improves governance and resource management. Overall, opportunities and sustainability are important drivers for growth in the NBFC sector and being innovative and ahead of the curve will lead to success in the market.

Risk is synonym with NBFCs which is inherent part of their business. Your Company is also subjected to various types of such risks. Your Company has identified these risks and guarded itself by adopting a range of strategies and measures to reduce the impact of such risks. Few risks listed are as follows:

1. Operational Risk

It arises when the flow of and controls over the operations of the company are lacking, which has adverse impact on of the company. The Company has placed internal controls to thecontinuityofbusiness,reputationandprofitability mitigate these risks.

2. Credit Risk

It is a risk of default or non-repayment of loan by a borrower which involves monetary loss to the company, both in terms of principal and interest. The Company does not have any loans so this is not applicable to our Company.

3. Business Risk

Morarka Finance being a NBFC is exposed to various external risks which have direct bearing on the sustainability and profitability of the Company. Foremost amongst them are Industry Risk and Competition Risk.

4. Regulatory Risk

It is the risk of change in laws and regulations materially impacting the business. The Company takes compliance very seriously & is strict in adherence to various statutory laws.

5. Human Capital Risk

Human capital risk is the gap between the goals of the organisation and the skills of its workforce. To mitigate this our company regularly provides training & awareness programmes to its employees.

6. Cybersecurity Risk

Cybersecurity risk is the probability of exposure or loss resulting from a cyber-attack or data breach on your organization. To deal with this our Company uses Internal servers & encryption so that data cannot be tampered with or accessed by any outsider.

Despite these risks & concerns, we believe NBFCs core strategic advantage comes from their years of building knowhow of borrower industries and behaviour, gathering regional insights and developing well-oiled distribution mechanisms iteratively over decades. Leveraging their agility, NBFCs also moved fast to adopt alternate data to better understand their customers and develop efficiencies in underwriting which has further enabled growth. Hence, it is even more critical for incumbent and new-to-market NBFCs to defineand implement a balanced strategy that meets table-stakes across essential, core capabilities and differentiates across high value-adding capabilities. The overall investment philosophy stems from our objective of delivering superior risk adjusted returns to investors over an extended time frame. The investment philosophy is rooted in a set of well-established but flexible extensively on fundamental research. It is our belief that overthetime,stockpriceswillreflecta business underlying intrinsic values and its long-term prospects. As a result, our near strategy is to arrive at a comprehensive understanding of a companys business including the nature of its interactions with customers, suppliers, competitors and regulators. While doing so our strategy is to rely on various earnings multiples besides analyzing private market value and appropriate regional and global comparisons. The basic principles that serve as the foundation for the above investment approach are managing risk, maintain a balanced outlook on the market and focus on the long term.

BUSINESS & OPERATIONAL OVERVIEW

The company,in current fiscal has made profits of of 631.59 lakhs as against profit 468.05 lakhs for the Previous year. The revenue from the dividend, rental income and management consultancy fees will be contributing regularly and steadily rather than dependence on volatile capital market revenue generation.

RISK MANAGEMENT:

Company has formulated a internal risk management framework which lays the procedure for risk assessment and mitigation. Company manages various risks like financial risk, operational risk, marketing risk, external risk and regulatory risks associated with the mortgage business. The criticalriskswhichcansignificantlyimpactprofitabilityand financial strength are credit risk, interest rate risk and liquidity risk.

INTERNAL CONTROL:

Your company has proper and adequate system of internal control in place to monitor persistently proper recording of the transactions as per the policies and procedures laid down by the company. The company ensures that the regulatory guidelines are duly complied with at all the levels. The internal audit reports are regularly monitored by the Audit Committee.

SEGMENT REPORTING:

The company is a Non-Banking Finance Company, its core business is financial business. Hence, there are no separate segments for reporting as per Accounting Standards issued by the Institute of Chartered Accountants of India.

HUMAN RESOURCE AND INDUSTRIAL RELATIONS:

For enhanced performance of any organization, it is important that its human resources are abreast of new developments and possess relevant skill sets. To realize this, the emphasis on training and development activities has been increased. Executives were nominated for various program and seminars at local and national levels by premier institutes.

CAUTIONARY STATEMENT:

The statements in above analysis, describing the companys projections, estimates, expectations and predictions may be ‘forward looking statements within the meaning of applicable security laws and regulations. The actual results may differ from those expressed or implied. The important factors that may impact the operations of the company may consist of economic developments - globally and locally, government regulations, tax regimes and other related factors.