Quest Capital Markets Ltd Management Discussions

Overview

Non- banking finance companies (NBFCs) play an important role in an economy like India, as they provide credit facilities to individuals, small and medium-sized enterprises (SMEs), and other entities that may not have access to traditional banking services. They often cater to niche segments or specific industries that banks may overlook. BFCs contribute to financial inclusion by extending financial services to underserved and unbanked segments of the population. They often operate in rural and semi-urban areas where traditional banks may not have a strong presence. NBFCs facilitate trade finance activities such as bill discounting, factoring, and export financing. They provide financing solutions to businesses involved in domestic and international trade transactions. NBFCs are leveraging their superior understanding of regional dynamics and customized products and services to expedite financial inclusion in India. Systemically Important NBFCs have demonstrated agility, innovation and frugality to provide formal financial services to millions of Indians.

NBFCs showed an immense growth in lending through digital mode with around 60% of loans riding on the digital payment initiative undertaken through UPI based online payments as the digital lending getting traction, RBI has issued guidelines for digital lending in September, 2, 2022 which was made applicable the ‘existing customers availing fresh loans and to ‘new customers getting on boarded, from the date of this circular.

Over the years, India has emerged as one of the fastest-growing economies in the world and an attractive investment destination driven by economic reforms and a large consumption base.

We believe that NBFCs with superior capital adequacy, better margins, frugal cost management, prudent risk management and those incorporating above four key cornerstones in their business models will continue to deliver sustainable growth in the foreseeable future.

Opportunities and Threats

Indias economy is rapidly growing, and theres an increasing demand for financial services across various sectors such as consumer finance, housing finance, vehicle finance microfinance, etc. Embracing technological advancements like digital lending, online loan processing, and mobile banking can help NBFCs reach a wider audience and streamline operations. NBFCs can focus on niche segments or specialized services that traditional banks might overlook. This could include areas like peer-to-peer lending, equipment financing, or financing for small and medium enterprises (SMEs). As large NBFCs tap new segments, co-lending and partnerships with the emerging and mid-sized NBFCs will gain traction and the regulatory environment is evolving to accommodate the growth of NBFCs, providing them with opportunities for expansion and diversification under a supportive framework.

While regulatory support can be an opportunity, it also poses a threat. Any changes in regulations or compliance requirements can significantly impact NBFC operations, especially if they are not adequately prepared and do not institutionalize a robust compliance framework. In the recent past, Regulatory actions for consistent non- compliance has significant impact on business of the Companies like Pay TM or Kotak Mahindra Bank.

NBFCs rely heavily on borrowing to fund their operations. Any disruptions in the credit markets or a loss of investor confidence can lead to liquidity crunches, making it difficult for them to meet their obligations. The financial services sector in India is highly competitive, with both traditional banks and new fintech startups vying for market share. NBFCs need to differentiate themselves and offer unique value propositions to stay ahead. With the increasing digitization of financial services, NBFCs are vulnerable to cyber threats such as data breaches, hacking, and fraud. Protecting customer data and maintaining cybersecurity infrastructure is crucial to safeguarding their operations and reputation.

Outlook

Non- Banking Financial Companies (NBFCs) are set to announce robust results on the back of strong credit, Upcycle, higher disbursements and higher collections.

NBFCs 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 funding cost for certain quarters.

However, a rising interest Rate, regime would impact funding costs for incremental borrowing across capital market instruments

Business Segment Analysis

During the period under review, the Companys activities was majorly restricted to Capital Market, NBFC and related fields which specifically involve in trading and dealing in Securities and Mutual Funds.

Financial Results

The financial performance of the Company, for the year ended 31st March 2024 is summarized below:

Particulars	Year Ended 31st March 2024 (Rs. in Lakhs)	Year Ended 31st March 2023 (Rs. in Lakhs)
Profit Before Tax	2,607.55	2,376.72
Net Profit After Tax	2,015.17	1,886.28

Comment on current years performance

Revenue	Total Revenues of the Company has decreased in comparison to previous year as the Company do not have any sale of its inventory related to shares and securities in the current year
Operating Expenses	Operating & Administrative expense have decreased considerably in comparison to previous year.
Operating Profit	Due to declines in operating expenses and increase in interest and dividend income, operating Profits increased during the year by 9.71% from previous year.
Finance cost	Finance cost has reduced to negligible during the year
Net Profit	Net profits of the Company during the year have increased in comparison to previous year due to higher dividend and interest income.

Calculation and Explanation of Major Ratios

Particulars	Standalone
	31st March 2024	31st March 2023
Current Ratio (Total Current Assets/Current Liabilities) Reason for variance: Due to fixed deposit invested and short term debt mutual funds in Non- Current Investment	206.26	141.63
Operating Profit Margin (%) Operating profit/ Revenue from operations Reason for variance= Increase in dividend income and reduction in operating expenses	98.55%	74.03%
Net Profit Margin (%) Reason for variance= Increase in dividend income	76.17%	58.75
Capital to Risk weighted assets ration Reasons for variance : due to decrease in risks weighted assets	137.15%	104.91%

Note: Debt Equity Ratio and Interest Coverage ratio is not relevant as Company has zero debt as on 31st March, 2024.

Human Resources

We have believed that our people are our most important asset and our HR function always places a great emphasis on employee engagement, capability building, nurture talent, and focus on training and individual development. We have always been committed to create environment where all individuals are treated with respect and dignity and cultivating an atmosphere where individuals enjoy the right to work in professional environment to deliver their best results.

Internal Controls

The Company has a proper and adequate system of internal controls befitting its size to ensure that all its assets are safeguarded and protected against loss from unauthorized use and disposal and that all transactions are authorized and reported correctly.

The internal controls are supplemented by internal audits, reviewed by Audit Committee of Board of Directors. The internal control ensures that appropriate financial records are available for preparing financial statements and other data for showing a true and fair picture of the state of affairs of the Company.

For and on behalf of the Board

Quest Capital Markets Limited

Dated: 21st May, 2024

Mr. Sunil Bhandari

DIN: 00052161

Mr. Harish Toshniwal

DIN: 00060722

Place: Kolkata