Sakthi Finance Ltd Management Discussions

GLOBAL ECONOMY

Post Covid-19 pandemic, the global economy is gradually recovering from past crisis despite the disruptions due to Russia-Ukraine war. Most of the Central Banks across the globe have tightened monetary policy to curtail the inflation impact. Asian economies are expected to drive most of global growth in 2023, as they benefit from less intense inflationary pressure compared to other regions. The global economy is still projected to grow slowly. The International Monetary Fund (IMF) forecasts a 2.8 percent global GDP growth in 2023 compared to 3.4 percent in 2022.

INDIAN ECONOMY

Indian economy is expected to grow at a moderate pace in 2023 supported by strong domestic demand and continued investments. The Reserve Bank of India ("RBI") projects that GDP growth will slow down to 6.5 percent in financial year 2023-24 from 7.2 percent in financial year 2022-23.

Inflation which was at an average of 6.8 percent during the financial year 2022-23 will become the key challenge. RBi on its part raised key repo rate by cumulative of 250 basis points during the year 2023 to take it to 6.5 percent. RBI has indicated that it will remain vigilant, monitor every information and data and act appropriately for the interest of all stakeholders. The Indian Government has taken several measures to boost the economy including Production Linked Incentive Scheme, The National Manufacturing Policy, The National Investment Manufacturing Zone, PM Gati Shakti, National Legislative Policy, etc.,

Agriculture is projected to grow by 3.5 per cent in FY23, likely due to the strong performance of the livestock and fisheries sectors and expectations of good rabi harvest based on increased acreage. Manufacturing is expected to grow by 1.6 per cent. attributable to high input prices, supply constraints, weak external demand and subdued domestic demand for consumer durables. Construction is projected to grow by 9.1 per cent mainly due to the Governments focus on infrastructure projects and demand recovery in the real-estate sector. The services sector is projected to grow by 9.1 per cent in FY23 with contact intensive services such as trade, hotels, transport and related services expected to grow by 13.7 per cent. This is due to the revival of the pent- up demand for the hospitality sector and resumption of travel. Financial, real-estate and professional services growth is expected to moderate to 6.4 per cent possibly due to slowdown in the credit growth with rising interest rates and deceleration in the global demand for software and professional services. OPPORTUNITIES AND THREATS

In the Automotive sector, the Indian Commercial Vehicle ("CV") Industry is poised for a healthy growth and there will be adoption of alternate fuel usages also. The Medium and Heavy Commercial Vehicles ("M&HCV") Industry is the backbone of Indian Economy and is undergoing technological upgradation through the implementation of Real-Time Driving Emission ("RDE") Norms from April 2023. With strong push for road infrastructure, the demand for trailers / multi-axle vehicles will increase. The strong e-commerce industry moving to Tier 1 and Tier 2 cities will increase the demand for Light Commercial Vehicles ("LCVs"). The demand for buses also improved as schools and offices have started in full swing after Covid shutdowns.

As our company has principally been engaged in financing of pre-owned commercial vehicles only, there will not be much impact during the financial year 2023-24.

ECONOMIC FORECAST IN THE FINANCIAL YEAR 2023-24 The GDP growth for the financial year 2023-24 has been estimated to be 6.5 per cent by RBI. The International Monetary Fund ("IMF") has projected Indias GDP growth to 6.1 per cent for the financial year 2023-24 from the earlier projection of 5.9 per cent after the countrys stronger-than-expected growth in the quarter ended 31st December 2022.

KEY REGULATORY CHANGES

RBI had introduced Risk-Based Internal Audit to be undertaken by all deposit-taking NBFcs with effect from 1st April 2022. Accordingly, our Company has adopted a Risk-Based Internal Audit Policy.

RBi has also notified "Scale Based regulation ("SBR"): A Revised Regulatory Framework for NBFCs" on 22nd October 2021. This is an integrated framework with respect to capital requirements, governance standards, prudential regulation which comes into effect from 1st October 2022. Based on the criteria specified, your company falls under the NBFC - Middle Layer.

RBI has also issued various other circulars, in an effort to harmonize various regulations between banks and NBFCs and has also given various timelines for its compliance by NBFCs.

PERFORMANCE AND FINANCIAL REVIEW

During the financial year 2022-23, your company disbursed Hire Purchase Advances to the extent of Rs 821.52 crore as against Rs 596.66 crore in the previous financial year 2021-22, despite the mixed economic conditions.

As on 31st March 2023, the total deposits held by the company stood at Rs 23.89 crore, as against Rs 79.81 crore as 31st March 2022. The total income for the financial year 2022-23 stood at Rs 191.94 crore and the net profit after tax for the year stood at Rs 12.49 crore, being 31.20 per cent higher than the previous year, mainly due to increase in revenue from operations. The company accounted for depreciation, amortization and impairment an amount of Rs 14.73 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 2022-23 as against the financial year 2021-22.

Ratios	31st March 2023(%)	31st March 2022(%)
Return on Net Worth	7.15	5.97
Capital to Risk Adjusted Ratio ("CRAR"):
- Tier I Capital	13.99	13.74
- Tier II Capital*	5.69	7.92
Net Interest Income / Average Total Assets	6.35	5.72
Profit Before Tax / Average Total Assets**	1.35	1.03
Total Debt / Net Worth	5.99	6.22
Interest Coverage Ratio	1.25	1.26
Gross NPA / Average Total Assets	5.45	4.74
Net NPA / Average Total Assets***	2.63	1.88

* On account of reduction in discounted value of subordinated debts (Unsecured Redeemable, Non-Convertible Debentures) as compared to previous year.

** Due to increase in revenue from operations.

*** Due to increase in non-performing assets.

RISKS AND CONCERNS

Your Company, like any NBFC, has been subject to normal industry risks posed to other NBFCs such as credit, market, interest and operational risks. Your company always takes pro-active and prudent risk management practices to mitigate these risks. Risk Management Committee and Audit Committee periodically reviews the policies in relation to risk so that they are in conformity 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. The Companys external Internal Auditor submits his report to the Audit Committee on a periodical basis. Suitable action is promptly taken to rectify the deficiencies, if any.

PROSPECTS

The prospect for growth depends on various factors. Improvement in economic activities, revival of construction/ mining activities and rising consumer demand, which were aided by the Governments fiscal and monetary policies, raised the growth during the financial year 2022-23.

Further, your company is concentrating financing of pre-owned Commercial Vehicles only. 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 whole-hearted support from our loyal investor base, your company was able to mobilize Public Issue NCDs for Rs 146.86 crores in the most challenging times during the current year.

human resources development

Your Company had a very harmonious and cordial relationship with all its employees during the financial year ended 2022-23. 521 permanent employees were on the rolls of the company as on 31st March 2023. 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 pro-active steps to strengthen the organizational competency through various training programmes at all levels on a regular basis to its employees.

	For and on behalf of the Board
	M Manickam
7th August 2023	Chairman
Coimbatore	DIN:00102233

Cautionary Statement

Certain statements made in the Management Discussion and Analysis Report describing the Companys objectives, predictions may forward-looking statements" within the meaning of applicable laws and regulations. Actual results may vary significantly from forward-looking statements contained in this report due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, change in interest rates, new regulations and Government policies that may impact the Companys business as well as its ability to implement the strategy.