Saraswati Commercial (India) Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Saraswati Commercial (India) Limited (SCIL or the Company) is a Non deposit-taking Non-Banking Financial Company registered with the Reserve Bank of India (RBI) engaged in the business of investment in shares and securities and lending activities. SCIL has two subsidiaries namely; Arkaya Commercials Pvt Ltd. and Sareshwar Finance and Trading Pvt Ltd.

The Company has been identified for categorisation as NBFC-Middle Layer under Scale Based Regulation (SBR), a Revised Regulatory Framework for NBFCs as per the list issued by RBI in its Press Release 2022-2023/975 dated September 30, 2022, as the total asset size of all the Companies in the Group exceeds Rs. 1000 crore.

Since the asset size of the Company along with its group Companies is more than rupees 1000 crores, the Company is following Prudential norms as per Non-Banking Financial Company - Systemically Important Non Deposit-taking Company (Reserve Bank) Directions, 2016.

Economy and Markets

(a) Economic review:

• Global economy

Financial year 2022-2023 began with uncertainties while steering through challenges. On the positive side, after inflicting chaos for almost two years, the impact of the COVID-19 pandemic on lives and livelihoods started retreating. This was assisted by a mass immunization programme and the arrival of a less infectious variant called omicron. However, the flip side was the escalation of Russia-Ukraine war, continuous disruption in global supply chain leading to inflation globally due to closing down of China were amongst the major events that provided maximum volatility to the markets. Since then, the different world economies are struggling to combat inflationary pressures, causing them to constantly hike rates, causing in a slowdown in growth. IMF too lowered its growth forecast for 2022 and 2023. In January 2023, the World Economic Outlook Update projects that global growth slowdown will be more pronounced for Advanced economies than Emerging and Developing economies. Advanced economies Real GDP growth is projected at 1.3% in 2023 vis-a-vis 3.9% for Emerging and Developing economies.

• Indian Economy

As stated by the World Bank in its India Development Update, Indias growth continues to be resilient despite some signs of moderation in growth. Although significant challenges remain in the global environment, India was one of the fastest growing economies in the world. The overall growth remains robust and is estimated to be 6.9 percent for the full year with real GDP growing 7.7 percent year-on-year during the first three quarters of fiscal year 2022-2023. There were some signs of moderation in the second half of financial year 2022-2023. Growth was underpinned by strong investment activity bolstered by the governments capex push and buoyant private consumption, particularly among higher income earners. Inflation remained high, averaging around 6.7 percent in financial year 2022-2023 but the current-account deficit narrowed in Q3 on the back of strong growth in service exports and easing global commodity prices.

The Reserve Bank of Indias has withdrawn accommodative measures to rein in inflation by hiking the policy interest rate. Indias financial sector also remains strong, buoyed by improvements in asset quality and robust private-sector credit growth. As per the projections by the World Bank - India to remain the fastest growing major economy in the world during 2021-24.

(b) Outlook:

The global economy is currently bracing itself for slower growth, primarily due to the unsettling impact of the Russia Ukraine conflict and the tightening of monetary policy. These factors have led to significant supply-side disruptions, creating challenges for economies around the world. However, amidst this uncertain outlook, certain economies are expected to exhibit resilience and drive global growth. The widening of the Current Account Deficits (CAD) in net importing economies, agencies worldwide continue to project India as the fastest-growing major economy at 6.5-7.0 per cent in financial year.

2022- 2023.

Given the crisis and despite concerns surrounding the sector, NBFCs with robust business models, strong liquidity mechanisms, governance and risk management standards are well positioned to take benefit of the market opportunity.

India is further expected to witness a growth of 6.0% in FY 2023-24. RBI projects CPI inflation for Q1 - financial year 2023- 24 at 5.0% and for Q2 - financial year 2023-24 at 5.4% on the assumption of a normal monsoon. Whereas on the inflationary front, it is anticipated that the rates would remain moderate somewhere between 5-6%, due to the Governments adherence to calibrated monetary policies.

The Company is mainly into the business of investment in shares and securities. The revenue of Company is generated from Trading in Shares and Securities and Lending activities. Considering the above positive factors, if there is a better performance in the equity market, then the Company is expected to accomplish better performance compared to the previous year.

(c) Industry structure and developments:

India has a diversified financial sector undergoing rapid expansion with many new entities entering the market along with the existing financial services firms. The sector comprises commercial banks, insurance companies, NBFCs, housing finance companies, co-operatives, pension funds, mutual funds and other smaller financial entities. After the COVID-19 impact gradually tapers off, the financial services sector is poised to grow eventually on the back of strong fundamentals, adequate liquidity in the economy, significant government and regulatory support, and the increasing pace of digital adoption. In fact, digital transactions will play a larger role in the financial eco-system than hitherto witnessed.

• Non-Banking Financial Companies:

Indias financial services sector comprises of commercial banks/co-operative banks, non-banking financial companies, insurance companies, pension / mutual funds and other various entities. India is expected to be fourth largest private wealth market globally by 2028.

NBFCs have become increasingly important in recent years as they have played a critical role in providing credit to individuals and businesses that are underserved by traditional banks. This is especially true in rural and semi-urban areas, where NBFCs have been able to fill the gap left by banks. One of the key advantages of NBFCs is their ability to be flexible in their lending practices. Unlike banks, which have a rigid set of guidelines for lending, NBFCs can tailor their lending practices to meet the specific needs of their clients. This has made them an attractive option for those who are looking for more personalised financial services. They are financial institutions that provide a wide range of banking services like loans, credit facilities, investments, and other financial products. NBFCs have played a significant role in the Indian economys growth story, especially in the rural and semi-urban areas. They cater to the financial needs of small and medium-sized businesses, entrepreneurs, farmers, and individuals who do not have access to traditional banking services. In this article, we will explore the future of NBFCs in India.

After the pandemic decline, 2023 has brought growth for the NBFCs. It has demonstrated an innovative and resilient streak over the years which includes adapting efficiently even during the COVID-19 pandemic to avoid the revolving credit landscape. The market share of NBFCs has increased in the last few years with Asset Under Management (AUM) accounting for as much as 18% of the overall credit on March 2019, up from 12% in March 2008. A few challenges over the past three years lowered their share to 16% in fiscal 2022, with banks making bigger growth strides. The increase in NBFCs AUM from US$ 44.02 billion (Rs. 3.6 lakh crore) in March 2008 to almost US$ 330.21 billion (Rs. 27 lakh crore) in March 2022, and is expected to increase further, indicates the importance of the sector to overall credit delivery in the economy.

NBFCs have become important components of Indias financial sector and have been recording higher credit growth than scheduled commercial banks (SCBs) over the past few years. Non-Banking Financial (NBFC) sector has played a crucial role in bridging the credit gap and supporting the growth of various sectors such as micro, small and medium enterprises (MSMEs), agriculture and affordable housing, among others. NBFCs continue to leverage their superior understanding of regional dynamics and customised products and services to expedite financial inclusion in India. NBFCs have emerged as the principal institutions providing credit financing to the unorganised and underserved sectors. NBFCs have revolutionised the lending system in India by providing financial inclusion for those who lack easy access to credit. Lower transaction costs, innovative products, quick decision making, customer orientation and prompt service standards have typically differentiated NBFCs from banks. Considering the reach and expanse of NBFCs, these are well-suited to bridge the financing gap in a large country like India. Systemically important NBFCs have demonstrated agility, innovation and frugality to provide formal financial services to millions of Indians. The growing importance of NBFCs is reflected in the consistent rise of their credit as a proportion to GDP as well as in relation to credit extended by SCBs to the NBFC sector.

• Equity Markets:

In 2021-2022, equity investors reaped handsome rewards as their wealth grew nearly ^78 lakh crore while Sensex gained 10,502 points or 22%. However, the financial year 2022-2023 saw the outperformance of the Indian markets. In a year in which S&P 500 is down by 20% and most markets are down between 10 to 20 %, Nifty is up by 4.8%. This outperformance is the result of mainly two factors: One, Indias superior economic growth; two, domestic investors support the market by buying every dip caused by FII selling.

On the flipside, elevated inflation levels triggered by the Russia-Ukraine war was the biggest negative catalyst for the equity market. Moreover, the COVID-19 lockdown in China caused supply chain constraints globally, which impacted economic activities in certain sectors. To tame the elevated inflation levels, central banks across the globe, including RBI, hiked interest rates. The higher prices and borrowing costs have raised recession fears in the U.S. and other major economies. This, in turn, has darkened the outlook for global growth as it could have a spillover effect on the Indian economy and other parts of the world.

FPIs turned net sellers to the tune of Rs 38,334 crore during the financial year, being wary of expensive valuations. However, strong domestic participation cushioned some losses as investors showed confidence in Indias long-term growth story backed by the resilience shown by the Indian economy and India Inc.

The Company believes that given the volatile nature of the equity markets, it is advisable to maintain a diversified portfolio at all times by taking into account your risk profile, financial goals, and investment horizon.

(d) Opportunities and threats:

Indian Economy provides excellent growth opportunities as the increased thrust to power, road, ports, telecom and other infrastructure projects will create a positive environment for the Investment and Financial Services Industry in India. Further, growth of service sector also presents new opportunities for Investment and Financial Services Industry in India.

With increasing globalization, integration of world markets, it not only provides new avenues for earning opportunities for our investment business but is also impacted / threatened by domestic and global events. The Company believes that it has to adopt robust risk management practices and continuously monitor and adapt to changing dynamics to not only take advantage of the earnings opportunities but also mitigate the risks and threats posed by the local and global events.

The most significant threat for any lending activity is to constantly exhibit operational excellence and contain the loss given defaults within the acceptable limits. The Company believes that this task is to be worked upon continuously through a very sharp learning and unlearning in order to achieve operational excellence. NBFCs rely on external funding to fulfill the financing needs of their customers. A liquidity crunch arising from reduced loan recovery, external funding or other unforeseen events could adversely impact the loan disbursement cycle of the NBFCs leading to subdued performance.

India being an emerging global economy, faces notable risks due to global relations. A shift in developed and emerging countries interest rates, policies and protectionism along with trade and capital market conditions may hamper businesses locally. Geopolitical and trade tensions in the global market post further risk to the Indian NBFC industry. There also exists Risk of investment or Market risk which arising from the adverse movements in market price of various securities and it similarly depends on the global markets, which may impact value of portfolio of investment in securities.

External Risks associated with liquidity stress, political uncertainties, fiscal slippage concerns, etc. Regulatory and compliance-related changes in the sector affecting NBFCs

Any stringent regulatory change or unfavorable policy change can pose a threat to the industry players in the short run.

(e) Risks and Concerns:

The Financial services industry is subject to continuously evolving regulatory requirements due to increasing globalization, integration of world markets. Risk is an integral part of the business and almost every business decision requires the management to balance risk and reward. The Company is exposed to the market risk, liquidity risk, operational risk, compliance risk, cyber security risk and credit risk. It is further exposed to risk of economic cycle. The company manages these risks by remaining very conservative and following requisite risk management practices.

(f) Internal Control Systems and their adequacy:

As a part of the effort to evaluate the effectiveness of the internal control systems, your Companys internal audit system reviews all the control measures on a periodic basis and recommends improvements, wherever appropriate. The Company has in place adequate internal control systems and procedures commensurate with the size, scale, complexity and nature of its business. These systems and procedures provide reasonable assurance of adherence to the accounting procedures and policies, maintenance of proper accounting records, reliability of financial information, compliance with regulatory directives, efficacy of its operating systems, protection of resources and safeguarding of assets against unauthorized use. The management regularly reviews the internal control systems and procedures, undertake corrective actions, in their respective areas and thereby strengthen the controls.

(g) Segment-wise or product-wise performance:

The Company is engaged in the business of investment, trading in shares and securities & Lending Activities. As per Ind AS 108 "Operating Segments", specified under Section 133 of the Companies Act, 2013, there are no reportable operating or geographical segments applicable to the Company.

The gross revenue from such Financing and Investment activities considered in profit & loss account (including unrealised gain) for the year is Rs. 2,397.56 Lakhs and considered in other comprehensive income (including unrealised gain) is Rs. (19.57) Lakhs.

(h) Discussions on Consolidated Financial Performance with respect to Operational Performance:

			(Rs. in Lakhs)
Particulars	Saraswati Commercial (India) Limited		% changes
	Consolidated
	31.03.2023	31.03.2022
Total Income (I)	2,402.70	8,691.50	(72.36)
Total Expenses (II)	493.20	319.50	54.37
Profit before tax (I-II=III)	1,909.51	8,372.01	(77.19)
Less: Tax Expenses (IV)	739.18	1,876.77	(60.61)
Profit after Tax (III-IV=V)	1,170.33	6,495.23	(81.98)
Share in profit/(loss) of associates	-	-	-
Profit after Tax & share in profit/(loss) of associates (V+VI=VII)	1,170.33	6,495.23	(81.98)
Other Comprehensive Income before share in profit/ (loss) of associates and tax (VIII)	4.41	8,064.11	(99.95)
Less: Tax expenses on Other Comprehensive Income (IX)	20.90	790.19	(97.35)
Share in other comprehensive income of associates (X)	-	-	-
Other Comprehensive Income for the year (VIII-IX+X= XI)	(16.49)	7,273.92	(100.23)
Total Comprehensive Income (VII+XI= XII)	1,153.84	13,769.16	(91.62)
Earnings per share (EPS)
Basic	113.48	631.69	(82.03)
Diluted	113.48	631.69	(82.03)

(i) Key Financial Ratios:

Ratios	Standalone		Consolidation
	2022-2023	2021-2022	2022-2023	2021-2022
Interest Coverage Ratio	11.84	102.05	11.84	102.04
Current Ratio	0.01	0.47	0.01	0.47
Debt Equity Ratio	0.09	0.12	0.09	0.12
Net Profit Margin	48.63%	76.90%	48.70%	76.89%
Return on Net Worth	4.89%	32.20%	4.90%	32.22%
CRAR (capital-to-risk weighted assets ratio) (%)	63.35%	81.15%	0.00%	0.00%
CRAR- Tier I Capital (%)	63.35%	81.15%	0.00%	0.00%
CRAR- Tier II Capital (%)	0.00%	0.00%	0.00%	0.00%

The Parent Company & its group is mainly engaged in the business of investment and trading in shares and securities hence its profitability is directly link to and impacted by equity market volatility.

Ratios where there has been significant change (i.e. change of 25% or more as compared to the immediately previous financial year): All the figures mentioned hereunder are Rs. in Lakhs.

Interest Coverage Ratio:

On a standalone basis, Interest coverage ratio as on March 31, 2023 stood at 11.84 against 102.05 as on March 31, 2022. The decrease in ratios is due to decrease in profit as compared to previous year. The Earnings before interest and taxes stood at 2081.04 as on 31^st March, 2023 visa-vis 9,273.58 as on 31^st March, 2022.

On a consolidated basis, Interest coverage ratio as on March 31, 2023 stood at 11.84 against 102.04 as on March 31, 2022. The decrease in ratios is due to decrease in profit as compared to previous year. The Earnings before interest and taxes stood at 2084.81 as on 31st March, 2023 visa-vis 9,283.68 as on 31st March, 2022.

Current Ratio:

On a standalone basis, the current ratio stood at 0.01 as on 31st March, 2023 visa-vis 0.47 as on 31st March, 2022. On a consolidated basis, the current ratio stood at 0.01 as on 31st March, 2023 visa-vis 0.47 as on 31st March, 2022. The decrease in current ratio is primarily due to decrease in current assets.

Net Profit Margin and Return on Net Worth:

On Standalone basis, the Net profit margin stood at 48.63% as on 31st March, 2023 visa-vis 76.90% as on 31st March, 2022. On Standalone basis, the Return on Networth stood at 4.89% as on 31st March, 2023 visa-vis 32.20% as on 31st March, 2022.

The decrease in ratios is due to decrease in profit after tax i.e. 1,160.40 as on 31st March, 2023 visa-vis net profit after tax 6,487.90 as on 31st March, 2022.

On Consolidated basis, the Net profit margin stood at 48.70% as on 31st March, 2023 visa-vis 76.89% as on 31st March, 2022. On Consolidated basis, the Return on Networth stood at 4.90% as on 31st March, 2023 visa-vis 32.22% as on 31st March, 2022.

The decrease in ratios is due to decrease in profit after tax i.e. 1170.33 as on 31st March, 2023 visa-vis net profit after tax of 6,495.23 as on 31st March, 2022.

CRAR (capital-to-risk weighted assets ratio) (%):

The CRAR 63.35 % as on 31st March, 2023 visa-vis 81.15 % as on 31st March, 2022. This Ratio is decreased due to decrease in regulatory capital and increase in risk weighted assets.

(j) Human Resource Development:

The Company believes that the human resources are vital resource in giving the Company a competitive edge in the current business environment. The Companys philosophy is to provide congenial work environment, performance oriented work culture, knowledge acquisition/dissemination, creativity and responsibility. As in the past, the Company enjoyed cordial relations with the employees at all levels. Training plans for employees are developed based on needs identified in consultation with the employees and their departmental heads.

(k) Cautionary Statements:

Statements in this report on Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied due to risk and uncertainties. These risks and uncertainties include significant changes in political and economic conditions in India and internationally, volatility in interest rates and in the securities market, new regulations and Government policies that may impact the companys business as well as the ability to implement strategies. The Company assumes no responsibility nor is under any obligation to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events.