Shardul Securities Ltd Management Discussions.

(i) Financial Performance:

Despite the general trend being one of pessimism in the Non-Banking Finance Companys segment that has been going through a period of confidence crisis, your Company stayed afloat achieving a gross revenue of Rs.526 lakhs during the year under report and a net profit of Rs.234 lakhs. On a consolidated basis including the subsidiary, your company achieved a net profit of Rs.265 lakhs albeit the results were marginally lower compared to the previous financial year.

(ii) Industry Structure and developments:

The year under report passed through a critical and grueling period of uncertainty on the economic front, thanks to the impending General elections in the ensuing year coupled with reports of economic down turn, unemployment and job losses, slowdown in credit offtake and a lack of a booster by way of sizable investments either domestic or foreign to reverse the trend.

The global economy led the way with USA tightening on their imports with heavy levies and the so called principles of free market economy were set aside to bring about protective measures to encourage domestic production and consumption. This was further accentuated by hostile political stand off by USA against China, Iran for import of oil, Russia and partly India and certain other European countries as well on trade issues.

The NBFC sector in India faced liquidity crisis due to the impact created by the failure of ILFS to honor their debt commitments and there was also repercussion in the financial sector due to certain major frauds for huge amounts suffered by many banks. These were in addition to huge provisions for bad debts of Public Sector and some private sector banks.

The Industrial sector suffered due to the slowdown and the Airlines Industry was badly hit apart from other heavy, medium and small scale industries resulting in lowering of production, heavy accumulation of rolling stock, reduced profitability and job losses. The Agricultural sector continued to face uphill task to maintain the production levels without the base support price apart from drought like conditions prevailing in many parts of the country. It fell to 15% of GDP from around 17%.

The service sector and industrial sector, however, contributed marginally higher as during the previous years which enabled the GDP growth to hover around 6.8%. The steady crude oil prices in international market also helped the Government to marginally mobilize towards infrastructure developments.

The capital markets remained volatile though it appeared to be more index driven than real time appreciation in small and medium cap stocks. It was reported that many stocks in medium to small cap were trading well below their low levels during the previous years and trading was only concentrated mostly on index based stocks.

The foreign exchange reserves continued to remain at a level exceeding $ 400 Billion mark though an air of discomfort and uncertainty was hanging over waiting for the political developments in the country. Even after this got cleared, it could be seen that markets reacted adversely to the New Budget announcements on direct taxes on high income group. The FDIs remittances increased by 6% to 42 billion dollars, FIIs PNote remittances exceeded Rs 81000 Crores during the year.

The Exports for the year stood at $330 billion while the imports increased to $ 514 billions thus widening the gap further. The Current account deficit was at 2.5% of GDP while the Fiscal deficit was contained at 3.4%. The inflation fell too low for a developing economy causing widespread discontent particularly in the Agriculture sector.

(iii) Business Review:

Despite the economic slowdown, high volatility in Capital markets, and other uncertainties your company could achieve comparable results with that of the previous year. While the markets are looking up to the Govt to provide impetus for a higher level of growth in coming months, certain measures initiated by the Govt on taxes especially in the capital market segment appear to be backfiring to the detriment of the investors.

India is going through a kind of economic down turn and it is not clear to forecast how the year will turn out to be and when the situation might reverse. We are watching the markets and the developments and would take appropriate steps to ensure that we put our resources to optimum use.

(iv) Opportunities and Threats:

The GDP is projected at 7.2 percent for the current year but the Governments finances might be under severe stress due to fall in GST collections, a downward trend in Direct tax collections, slackness in FDI inflows and lack of investment in infrastructure due to funds constraint. The Government has projected huge investments but the availability of resources is not clear. It remains to be seen if the Government would be able to reach its targets depending on which the spur in the Economy might happen.

(v) Segment-wise - Product-wise reporting:

As there has been no change in your companys business activities and broking activities there are no separate reportable segment.

(vi) Outlook:

Your company expects the capital markets continuing to be volatile in view of the present down turn in economy and would like to be guarded in making projections for the year. However, if the anticipated Government expenditure to boost the economy takes place, the market might become vibrant and your company should be able to achieve better results for the coming year.

(vii) Risks and Concerns:

Your companys activities which are essentially in the capital market segments and the risk perception of our activity could be discerned as under:

Market Risk: Your companys major investments are mostly in capital market instruments like shares, mutual funds and bonds and any volatility could erode the capital value of the investments. No doubt, your company would keep a close vigil on movement of prices and take appropriate steps to minimize this risk.

Interest risk: The changes in interest rates by RBI and Banks could result in fluctuations in prices and consequently the income of various investments and borrowings by the company may vary. Your company has put in measures to hedge this risk but this cannot be eliminated totally.

Operation Risk: The stock market operations are fraught with certain risks associated with market judgments by operational executives and their decision making process based on certain perceptions prevailing at any given time and these could change suddenly resulting in unexpected adverse positions.

(viii) Internal Financial Control Systems and their Adequacy:

Your company has in place adequate interest control measures. There is continuous monitoring of all the activities and necessary creative measures are taken periodically to manage any unforeseen risk factors.

(ix) Human Resources:

Your company has adequate trained professionals to manage the affairs of the company in the most prudent manner.

(x) Details of significant changes in key financial ratios are given in Annexure D to Board Report.