Sakthi Finance Ltd Management Discussions.

INDIAN ECONOMY

During the financial year 2020-21, the global and Indian economies experienced the impact of Covid-19 pandemic, which was both unprecedented and extensive. Emerging and developing economies like India, suffered heavily, while the health care infrastructure was severely stressed due to high prevalence of Covid-19 cases.

The pandemic impacted both formal and informal sectors of the Indian Economy. The Indian Economy experienced economic recession, for the first time, in four decades. The Gross Domestic Product ("GDP") contracted 24.4 per cent during the first quarter of financial year 2020-21. However, thanks to subsequent all-round improvements, the de-growth for the full financial year was limited to 7.3 per cent, as compared to 4.2 per cent growth in financial year 2019-20.

The International Monetary Fund ("IMF") has cut Indias GDP growth for the financial year 2021-22 to 9.5 per cent from the earlier projection of 12.50 per cent due to Covid-19 impact. The world economy, on the other hand, shrank by 4 per cent in 2020 and is expected to grow by 5.8 per cent in 2021.

COVID -19 PANDEMIC IMPACT

The financial year 2020-2021 started with outbreak of Covid-19 pandemic from March 2020 - July 2020. India and your Company was no exception to the outbreak of the pandemic. Your Companys operations, in relation to business disbursements and collections, were impacted to an extent and management of liquidity position was also challenging during that period.

The Reserve Bank of India ("RBI") had risen to the occasion and supported the Indian economy by announcing moratorium on loans up to May 2020, which was further extended up to August 2020 to lessen the burden of the borrowers.

The Government of India and RBI announced various measures and relaxations to ensure that sufficient liquidity is in the hands of the businessmen and borrowers so that the negative effect of the pandemic is mitigated to some extent. Our Company also adopted a policy of moratorium and extended the benefits to our customers so as to relieve the burden of debt servicing by them, as per the approved terms of Government of India and RBI.

OPPORTUNITIES AND THREATS

During the financial year 2020-21, the automobile industry recorded a decline of 6.1 per cent in domestic sales as against

20.3 per cent reduction during the financial year 2019-20. The main reasons for fall in demand are, the pandemic, rising cost of BS VI vehicles, lack of essential electronic components affecting production and difficulty in obtaining finance for purchase of vehicles etc.

However, since our Company is principally engaged in financing of pre-owned commercial vehicles, we are unlikely to be impacted much during the financial year 2021-22, especially if the monsoon were to be normal. But the advent of the second wave of the pandemic from April 2021 till date and the threat of the third wave, has made all projections difficult.

performance and financial review

During the financial year 2020-21, your company disbursed Hire Purchase Advances to the tune of Rs 528 crore as against Rs 671.32 crore in the previous financial year 2019-20, due to the lockdowns.

The total deposits held by the company as on 31st March 2021 stood at Rs 164.38 crore, as against Rs 184.82 crore on the last day of previous financial year.

The total income for the financial year 2020-21 was Rs 171.34 crore and the net profit after tax for the year was pegged at Rs 9.26 crore, being 17.19 per cent lower than previous year, mainly due to increase in borrowings. The company accounted for depreciation, amortization and impairment an amount of Rs 12.09 crore in the statement of profit and loss.

key financial ratios

The following are the Key Financial Ratios of the Company for the financial year 2020-21 as compared to the financial year 2019-20.

Ratios March 2021 (%) March 2020 (%)
Return on Net Worth 5.56 6.96
Capital to Risk Adjusted Ratio ("CRAR")
- Tier I Capital 13.05 12.88
- Tier II Capital 9.47 9.03
Net Interest Income / Average Total Assets 5.31 5.81
Profit before Tax / Average Tax Assets 1.03 1.21
Total Debt / Net Worth 6.29 6.30
Interest Coverage Ratio 1.12 1.14
Gross NPA / Average Total Assets 4.85 4.88
Net NPA / Average Total Assets 2.31 2.60

risks and concerns

Your Company, like any NBFC, is also subject to normal industry risks faced by NBFCs such as credit, market, interest and operational risks. Your company always takes pro-active and prudent risk management practices to mitigate these risks. These risk management policies are periodically reviewed by the Risk Management Committee and Audit Committee so that they are in line with your Companys strategic needs.

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

Your company has sound and adequate system of internal controls to monitor and regulate all the activities. Further, your company adheres strictly with all internal control policies and procedures and other regulatory requirements.

PROSPECTS

The second wave of the pandemic and the resultant lockdowns in the first half of financial year 2021-22 have badly affected all business parameters, across all business sectors, including your company.

The prospects for growth will depend on various factors. With the COVID-19 pandemic affecting the Indian economy under lockdown conditions, any improvement in business can take place only with the implementation of fiscal and regulatory support.

However, rural India has not been affected much by the pandemic. The expectation of normal monsoon during the year augurs well for the agricultural sector and will lead to increased commercial activities in rural areas.

The lockdowns implemented across four Southern States, both in the previous year and in the first quarter of current year, have created pent-up demand, which your company will try its best to capture in the second half of the current year.

Further, your companys focus is on financing of pre-owned Commercial Vehicles. Hence by increasing its presence in our operational areas with larger network of branches, your Company will increase its business operations and profitability in the coming years.

With the continuing support from our loyal customer base, we were able to mobilize NCDs for Rs 198 crores as against a public issue of Rs 100 crores, being the base issue size, during July, this year.

HUMAN RESOURCES DEVELOPMENT

For the financial year ended 2020-21, your Company had a very harmonious and cordial relationship with all its employees. There were 511 permanent employees on the rolls of the company as on 31st March 2021. The human resources policy of the Company aims to establish and build a strong performance-oriented and competency-driven culture with higher sense of accountability and responsibility among all its employees. Your Company takes concrete steps to strengthen the organizational competency through various training programmes for various levels on a regular basis for all its employees.

3rd September 2021 For and on behalf of the Board M Manickam Chairman
Coimbatore DIN:00102233