Natco Economicals Ltd Management Discussions

ECONOMIC OUTLOOK

India remains the fastest growing economy in the world-economic fundamentals are strong, and reform momentum continues. GST is on track for implementation in the second quarter of the fiscal year, and is expected to yield substantial growth dividends from higher efficiencies, and raise more revenues in the long term, according to a new World Bank report. While, agriculture growth delivered in 2016-2017, the report notes that investment growth remains subdued, partly because of banking sector stress. IMF projects India to grow at 7.7 per cent in 2018, estimating a significant increase against the backdrop of ongoing economic reforms. However Indias economy was slowing down in early FY17, until the favorable monsoon started lifting the economy, but the recovery was temporarily disrupted by the governments "demonetization" initiative. On November 8, 2016, the government demonetized 86 percent of Indias currency in circulation. Demonetization caused an immediate cash crunch, and activity in cash reliant sectors was affected. GDP growth slowed to 7.0 per cent year-on-year (y/y) during the third quarter of 2016-2017 from 7.3 percent in the first quarter. GDP growth in the fourth quarter of the previous financial year, 2016-17, has turned out to be below the expectation of most economic analysts. Indias economic growth slowed to 6.1% in the fourth quarter ending March 2017, compared with 7.1% in the previous quarter, as the governments note ban decision slowed activity in cash-dependent sectors.

COMPANY OVERVIEW AND PERFORMANCE

India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. However the November 2016 demonetisation hit micro finance companies very badly as loan repayments slowed down and defaults increased. On a year-on-year basis, break-up of the GVA data shows that all sectors, with the exception of agriculture and the public administration segment saw a sharp slowdown. Growth in the finance sector slowed to a mere 2.2 percent compared to 9 percent in the year-ago period.

The rating agency expects net interest margins for micro finance companies to decline to 80 to 100 basis points. Operating expenses are also likely to increase due to investments to be made on information technology and collections infrastructure by most players. Although your company is overcome to the fear of Bad and doubtful debts however cautious approach is demand in the current scenario. Clearly a business which has to manage its 80%costs with staff, occupancy costs cannot be viable unless there is 99% efficiency in collections.

OPPORTUNITIES & THREATS:

Any changes in the regulatory environment could affect the performance of the Company. The financial policies and the monetary policies are able to lead the growth of financial sector. The Indian banking sector has put digital transformation high on its agenda, especially after the demonetisation announcement. This pushed the industry to work quickly to enhance its customer facing platforms and invest in payment tools. Your Company also aims at using its technological advantage and an unique business model to reduce the cost of funds for the borrowers and earn a greater spread than its competitors.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has established its internal control system commensurate with the requirement of its size. The Company has proper and adequate system of internal controls to ensure that all its assets are safeguarded and protected against loss from unauthorized use or disposition of assets and that the transactions are recorded and reported. The Finance Department of the company is well staffed with experienced and qualified personnel who will play an important role in implementing and monitoring the internal control environment and compliance with statutory requirements.

The Internal Control Systems and the procedures have been repeatedly fine-tuned and improved upon in line with business changes. The Company has also established Standard Operating Procedures for all its functional areas. The internal controls and audit systems are being reviewed periodically by the management and Audit Committee and steps are taken as part of continuous improvement.

HUMAN RESOURCE:

The relationship with the employees continues to be cordial. The Company recognizes the importance and contribution of its employees for its growth and development and constantly endeavours to train nurture and groom its people The Company puts emphasis on attracting and retaining the right talent. The company places emphasis on training and development of employees at all levels and has introduced methods and practices for Human Resource Development.

CAUTIONARY STATEMENT:

The Management Discussion and Analysis have been included in consonance with the Code of Corporate Governance as approved by The Securities and Exchange Board of India (SEBI). Investors are cautioned that these discussions contain certain forward looking statements that involve risk and uncertainties including those risks which are inherent in the Companys growth and strategy. The company undertakes no obligation to publicly update or revise any of the opinions or forward looking statements expressed in this report consequent to new information or developments, events or otherwise. The operational performance and future outlook of the business has been reviewed by the management based on current resources and future development of the Company.