Nahar Capital & Financial Services Ltd Management Discussions

Industry Structure and Developments

The Company is registered with the Reserve Bank of India as a Non-Banking Financial Company - Investment and Credit Company (NBFC-ICC). As per Reserve Bank of India (Non-Banking Financial Company- Scale Based Regulation) Directions, 2023, the Company is classified as NBFC - Base Layer (NBFC-BL). Your Company is mainly doing investment activities with long term perspective as well as doing trading and Lending activities. Further, the Company is also doing real estate activities for higher yields.

The role played by NBFCs in Indian financial sector has been rapidly growing and their share in the credit portfolio has significantly gone up. The Non-Banking Financial Companies (NBFCs) sector in India has undergone remarkable growth and emerged as critical pillars of financial support for a significant segment of the population, including Small and Medium Enterprises (SMEs) and those historically underserved by traditional banking institutions and fostered opportunities for selfemployment. Also, the space as a whole, has witnessed notable transformations ever since its emergence, with segments such as housing finance, microfinance and consumer finance contributing to its expansion. The growth is driven by various factors, such as a rising middle class, enhanced financial inclusion and positive policy interventions. The sector has also shown resilience in terms of sound capital position, improved asset quality, adequate provisioning and higher profitability. However, challenges persist. Pressure on banks credit-deposit ratios raises concerns about NBFCs ability to secure funds. Enhanced regulatory supervision will lead to higher compliance costs, though necessary for stability.

Economic Overview

The Indian economy has continued to showcase a robust and resilient growth story driven by perseverance, ingenuity, and vision and demonstrated a remarkable ability to bounce back and convert challenges into opportunities while striving to achieve strong, sustainable, balanced, and inclusive growth. Notably, Indias GDP expanded at 8.2 per cent in real terms in FY24 against an advance estimate of 7.6 per cent aided by a greater than expected expansion of 7.8 per cent in the fourth quarter, according to the provisional estimates of GDP growth released by the National Statistical Office (NSO). Strong domestic demand for consumption and investment, along with Governments continued emphasis on capital expenditure are seen as among the key drivers for the GDP growth.

On a global front too, India is a member of a number of important international organizations, including the United Nations, the World Trade Organization, SAARC and India marked its arrival as a key consensus builder on the global stage by hosting a G20 Presidency. This, along with an increasing share of Indias GDP in global GDP, reflects the growing importance of the country in the global economic landscape.

India is a large and complex economy that faces many challenges and opportunities in its quest for growth and development. The main challenges to the growth trajectory are geo-political risks, food inflation triggered by heatwaves and climate risks, poverty and income inequality, infrastructure deficit, rising non-fuel commodity input prices of corporates and job creation for a rising population. However, Government has launched support schemes such as the ECLGS, Production Linked Incentive (PLI) and FAME 2 Schemes etc. which have helped in improved profit margins to the critical sectors. The Indian economy exhibits robust fundamental policies by Reserve Bank of India (RBI), which plays a key role in removing social and economic obstacles and maintaining stability through its adept monetary policy framework. Recent regulatory reforms, including the introduction of a risk-based supervision framework by the RBI, aim to enhance the stability and sustainability of the NBFC sector. Additionally, the Government of India has launched various initiatives to encourage the NBFCs to lend to priority sectors, including the small business segment. Initiatives such as the account aggregator framework, Co-lending partnerships with banks, the Pradhan Mantri Mudra Yojana (PMMY), the Emergency Credit Line Guarantee Scheme (ECLGS), digital platforms for payments, taxation, and trading marketplaces have made it easier and more convenient for NBFCs to lend.

Opportunities and Threats

Your Company identifies profitable investment opportunities in the entire financial market segments and also in real estate segment, diversify its revenue stream and scale up its operations in a prudent manner, while maintaining adequate risk management systems and profitability. Your Company is exploring other investment options including investing directly in debt securities, GSEC, SDL as well as in Credit Opportunity Funds for better profitability. Your Company foresees and is cautious of all the economic and financial threats globally as well as domestically, 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. Your company is more cautious in investing i.e. by increasing fund allocations to safer and high rated securities, REITS, INVITS, AIFs, Next Generation PE and VC funds, Digital Disruptive Technology Funds etc. and also focuses on new business/Startup Investment opportunities. In current volatile global scenario and fast changing consumer behaviours, your Company is investing in longer duration debt securities/funds and latest investment opportunities compatible with new technologies like Electric Vehicles (EVs), Artificial Intelligence (AI), 5-6G Networking, Cloud Computing etc. Your Company has built a strong diversified investment base and continues to mitigate any adverse impact of any uncertainty in the short term but is well-positioned to benefit from the financial markets momentum, economic rebound expected over the next few years.

Future Outlook

India is expected to remain one of the fastest growing economies in the World with the IMF projected the growth for Indian economy for the FY 2024-25 at 7 per cent as per its latest World Economic Outlook update July 2024 due to surge in private consumption, especially in rural area, highlighting the resilience and potential of the Indian economy. The Reserve Bank of India, in its June Monetary Policy, has raised its real GDP growth forecast for the FY 2024-25 to 7.2 percent driven by resurgence in private consumption, robust investment, and a rebound in exports. Moreover, the Government of India in its Union Budget 2024-25 announced series of measures towards Viksit Bharat by providing increased support for the poor, women, youth and farmers with boosted spending and job creation along with a higher allocation to existing ongoing growth schemes.

Indian equity market is poised to demonstrate an optimistic but volatile outlook in the coming periods due to continuing domestic investments, stable but collision government and reasonable Foreign Institutional Investor inflows. In an era of an increasingly integrated global economy, Indias growth outlook also depends on the spillover effects of global developments and not just its domestic performance. Increased geo-economic fragmentation and the slowdown of hyper-globalisation are likely to result in further friend shoring and onshoring, which are already having repercussions on global trade and, subsequently, on global growth. The Government took targeted measures under the Make in India initiative to bolster domestic manufacturing and promote selfreliance across various industries.

The Company will strive to do the financial business, focused on delivering consistent and superior returns to the companys shareholders and at the same time maintaining the high levels of safety. On real estate front, the Company is looking for opportunities and will further explore and invest in new projects to upsurge its lease/rental income in the coming periods. Your Company has recognized its role as a corporate citizen and continuously endeavors to adopt the best practices and the highest standards of corporate governance. We look forward to the future with renewed optimism as your Company will continuously focus on its resources, strengths and strategies to achieve its vision keeping the above strategic intent in mind.

Risks and Concerns

The Company recognizes that risk is an integral and unavoidable component of business and it is committed to manage the risk in a proactive and effective manner. Being an investment company, the business of the Company is exposed to several risks viz; market risk, global risk, regulatory risk, credit risk, liquidity risk, operational risk, competition risk, interest rate risk, cyber security risk etc. which can affect the returns on Companys investments and financial business in unexpected way. Presently, different and next generation investment opportunities are prevalent, which are highly remunerative if we utilize expertise and experience of professional and specialized fund managers.

Considering the Companys nature of its business, it is essentially exposed to the volatility associated with financial markets. However, with the investments being well-diversified among various financial market instruments like mutual funds (both debt and equity), bonds/debentures, REITS, AIFs, Invits, VC/PE funds and equity shares (both listed and unlisted) as well as in Credit Opportunity Funds, the risk is well managed. The Companys balanced approach to portfolio management and its continuous review has enabled it to get early warning signals because of corrective measures taken by company from time to time. The Company uses information technology extensively in its operations and invest through professionals for ensuring effective information. Sustained efforts to strengthen the risk framework and portfolio quality have yielded consistently better outcomes for the Company.

As part of the Risk Management framework, the Company has also constituted the Risk Management Committee comprising of three Non-Executive Directors to monitor risk tolerance limits, review and analyze risk exposure related to specific issues and provides oversight of risk across the organization.

The Risk Management Committee met four times during the financial year under review. The Company is having Risk Management Policy and Fair Practice Code to strengthens the investment decisions and also for better risk management.

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 as well as procedures. Further, the statutory auditors of the Company have verified the systems and processes and confirmed that the internal financial controls system over financial reporting is operating effectively.

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 Accountant as Internal Auditor of the Company to test the adequacy and effectiveness of Internal Control Systems and Information Security framework, laid down by the management and to suggest improvement in the systems. They also identify and address technology and IT-related security issues commensurate with the nature and complexities of its operations. During the year, Companys Internal Controls and Information Security Network were tested and no reportable weakness in the system was observed.

The companys Internal Financial Control System commensurate with the nature of its business and the size of its operations. In order to further strengthen the internal control system and to automate the various processes of the business, company is making use of SAP S4 HANA application, which is based on SAP HANA database. It keeps all the data in cloud memory which results in data processing that is magnitude faster than that of disk based system, allowing for advanced, real time analytics. The Asset Liability Management (ALM) Policy concerned with the effective risk management in various Portfolios is also framed by the Company.

Apart from this, an Audit Committee consisting of three Non-Executive Directors has been constituted. All the significant audit observations and follow up actions thereon are taken care of by the Audit Committee.

The Committee oversees the adequacy of Internal Control. The Audit Committee met four times during the financial year under review. The Company has also established a Vigil Mechanism as per Section 177(9) of Companies Act, 2013 read with Rule 7 of the Companies (Meeting of Board and its Powers) Rules, 2014.

Segment wise Financial/Operational Performance

We would like to inform you that as per Ind-AS 108 Operating Segments, Companys activities can be classified under two segments namely; Investment/Financial Activities and Real Estate Segment. During the year, the Company achieved a total income of Rs. 5606.03 Lakhs with a profit before tax of Rs. 4642.36 Lakhs. The segment wise detailed performance has already been discussed in the Directors Report under the column Financial Review.

Your Company continued to reward shareholders with regular dividends. The Board of Directors, considering the growth and profitability of the Company, has proposed a dividend of Rs. 1.50/- per equity share (i.e. 30%) for the year ending March 31,2024.

Human Resources/Industrial Relations

The Company recognizes people as its most valuable asset and it has built an open, transparent and meritocratic culture to nurture this asset. The Company is of firm belief that the Human Resources are the driving force that propels a Company towards progress and success. The Company has a team of able and experienced professionals to look after the affairs of the Company. The total employees strength of the Company was 20 as on 31^st March 2024.

Key Financial Ratios

The Company has identified the following ratios as applicable key financial ratios:-

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.