The management of the Company is pleased to present the Management
Discussion and Analysis Report (to the extent applicable to the Company) covering overall
performance and outlook of its activities.
ECONOMIC SCENARIO AND OUTLOOK Global Economy
As per the International Monetary Fund - World Economic Outlook update,
Global economic activity is experiencing a broad-based and sharper-than- expected
slowdown, with inflation higher than seen in several decades. The cost-of-living crisis,
tightening financial conditions in most regions, Russias invasion of Ukraine, and the
lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecasted
to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is
the weakest growth profile since 2001 except for the global financial crisis and the acute
phase of COVID-19 pandemic.
As per Reserve Bank of India (RBI), global growth is slowing with
significant downside risks to the baseline outlook. The recent financial stability risks
and global spillovers have imparted significant uncertainty to the economic outlook, as
policymakers juggle between sticky inflation on one hand and financial stability risks on
the other. These developments are imparting sizeable volatility to global financial
markets and generating large adverse spillovers on to emerging market economies through
volatility in capital flows, currency movements and bond yields, posing downside risks to
their growth prospects.
Indian Economy
For the Indian economy, 2022 was a year of resilience despite a
challenging external environment. Despite inflationary pressures and global macro
uncertainties, the Indian economy grew by 9.7 percent in the first half of 2022-23, and by
6.3 percent in July-September quarter spurred by strong private consumption and
investment. According to National Statistical Office (NSO), the growth in real GDP during
2022-23 is estimated at 7.0 per cent as compared to 9.1 percent in 2021-22. Consumer Price
Index (CPI) inflation persisted at elevated levels during 202223, impacted by a series of
adverse supply shocks and the continuing pass-through of high input costs. During
November-December with the stronger than usual seasonal correction in food prices, CPI
surged again to 6.4 percent (y-o-y) in February as food inflation rose.
As per NSO data release, the Indian economy is intrinsically better
positioned than many parts of the world to head into a challenging year ahead, mainly
because of its demonstrated resilience and its reliance on domestic drivers. Despite the
three waves of COVID-19, Russian-Ukraine conflict and the Central Banks across economies
led by Federal Reserve responding with synchronized policy rate hikes to curb inflation,
leading to appreciation of US Dollar and 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 percent in FY-23.
NBFC
As per RBI reports, the balance sheet size of NonBanking Financial
Company (NBFCs) grew at a subdued pace in 2021-22, reflecting both weak demand and risk
aversion amid disruptions caused by the second wave of COVID-19. NBFCs also faced
headwinds as competition from banks intensified, particularly in the retail space. The
sector nevertheless maintained comfortable liquidity buffers, adequate provisioning, and a
strong capital position.
The deceleration in loans and advances of the sector was driven by an
absolute decline in unsecured loans by Systematically Important - Non - Deposit Taking -
Non Banking Financial Company (NBFCs- ND-SI), highlighting their preference for safe
assets in an atmosphere of economic uncertainty. NBFCs- ND-SI also continued to shore up
their liquidity, with their cash and bank balances exhibiting double digit growth. At end
- September 2022, balance sheet growth of NBFCs moderated on the back of a decline in
investments of NBFCs-ND-SI. Credit, however, grew in double digits for both NBFCs-ND-SI
and NBFCs-D.
After the regulatory overhaul in October 2022, NBFCs are segregated
into four layers, namely, Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer
(NBFC-UL) and Top Layer (NBFC-TL), based on their asset size, activity, and perceived
level of riskiness. In terms of size, NBFC-BL comprises all NBFCs-ND with asset size below
Rs.1,000 crore. NBFCs-ND with asset size above Rs. 1,000 crore and NBFCs-D are clubbed
under NBFC-ML. NBFC-UL comprises those NBFCs (including NBFCs-D) which are specifically
monitored by the Reserve Bank on the basis of a set of parameters and scoring methodology.
The framework also envisages that top ten eligible NBFCs in terms of their asset size
shall always be categorized as NBFC- UL. Apart from scale, the new regulatory framework
also prescribes activity-based regulation for NBFCs.
The Company
Your Company is a registered NBFC with RBI since 22nd May, 2009. The
mainstay of your Companys operations continued to be investments in various companies,
under which steady dividend income flows into the Company coupled with sustained
appreciation in capital. During the year under review, your Company has earned income in
the form of dividends, rent, interest on ICD lending activities and profit on sale of
investments.
Financial Performance
Your Companys standalone financial performance for F.Y. 2023 vis-a-vis
the previous year is given below:
(Rs. in lakhs)
| Particulars |
Standalone |
Consolidated |
|
2022-23 |
2021-22 |
2022-23 |
2021-22 |
| Total Income |
4,053.97 |
4,298.65 |
4,966.21 |
5,008.22 |
| Finance Costs |
367.59 |
135.73 |
368.85 |
136.15 |
| Net Income |
3,686.38 |
4,162.92 |
4,597.36 |
4,872.07 |
| Operating Expenses |
657.21 |
620.86 |
843.59 |
764.98 |
| Profit Before Tax |
3,029.17 |
3,542.06 |
3,753.77 |
4,107.10 |
| Profit after Tax |
2,328.29 |
2,911.63 |
2,860.88 |
3,338.30 |
The consolidated accounts provide a more accurate representation of the
Companys performance as compared to standalone accounts.
Profits after tax over the last five years and movement of net worth
are plotted on Charts A and B respectively:
Details of significant changes in key financial ratios
| Ratio |
2022-23 |
2021-22 |
% Change |
| Debtors Turnover |
N.A. |
n.a. |
- |
| Inventory Turnover |
N.A. |
n.a. |
- |
| Interest Coverage Ratio |
9.62 |
27.49 |
-64.99 |
| Current Ratio |
341.50 |
450.60 |
-24.21 |
| Debt Equity Ratio |
0.03 |
0.03 |
0 |
| Operating Profit Margin (%) |
85.29 |
82.37 |
3.09 |
| Net Profit Margin (%) |
57.43 |
67.73 |
-15.21 |
| Return on Net Worth (%) |
1.69 |
1.54 |
9.74 |
Notes:
• Above ratios are based on Standalone Financials of the Company.
• The decrease in Interest Coverage Ratio is primarily due to
higher interest costs for the current year compared to the previous year. In the current
year, interest was paid for 12 months on borrowings, whereas in the previous year, it was
paid for only 4 months.
• The negative changes in the Current Ratio are mainly attributed
to a decrease in the fair valuation of Investments/Current Assets.
• Although the net profit generated for the current year is lower
than the previous year, the Return on Net Worth shows an improvement compared to the
previous year. This increase in Return on Net Worth is due to a decrease in reserves
resulting from Other Comprehensive Income, specifically related to the fair valuation of
Investments.
Asset Liability Management (ALM)
The Companys Asset-Liability Committee (ALCO), set up in line with the
guidelines issued by the RBI, monitors asset-liability mismatches to ensure that there is
no imbalance or excessive concentration on either side of the Balance Sheet. The Company
continues to closely monitor liquidity in the market and as a part of its ALCO strategy,
maintains a liquidity management desk to reduce its liquidity risk.
FULFILMENT OF RBIS NORMS AND STANDARDS
Your Company fulfils the standards laid down by the RBI relating to
recognition and provisioning of non-performing assets, capital adequacy, statutory
liquidity ratio, etc. The capital adequacy ratio of the Company is well above the RBI norm
of 15%.
INVESTMENTS
The portfolio of the Company in quoted investments as on 31st March,
2023 was Rs. 1,10,652 lakhs, at market value.
RISKS AND CONCERNS
Your Company is exposed to specific risks that are particular to its
business and the environment in which it operates, which includes market risk, interest
rate volatility, execution risk and economic cycle.
• The Company has significant quoted investments which are exposed
to fluctuations in stock prices. These investments represent a substantial portion of the
Companys core capital and are vulnerable to fluctuations in the stock markets. Any
decline in these quoted investments may severely impact its financial position and results
of operations.
• Liquidity Risk: Asset/Liability Management: The Company is
exposed to liquidity risk principally as a result of lending to its customers for periods
which may differ from those of its funding sources. Financial firms are now increasingly
focused on asset-liability risk. Asset-liability risk is a leveraged form of risk. The
capital of most financial institutions is small relative to the firms assets or
liabilities, hence small percentage changes in assets or liabilities can translate into
large percentage changes in capital.
The risk is that the value of assets might fall or that the value of
liabilities might rise. The Company is alive to the dynamics of this risk and has in place
a control structure for closely monitoring incipient signs of risk in this area and to
take necessary corrective measures, if needed. The Companys treasury actively manages
asset liability positions in accordance with the overall guidelines laid down by the
management in the ALM framework.
• The Company can be adversely affected by volatility in interest
rates in India, which could cause its margins to decline and profitability to shrink. It
is therefore exposed to interest rate risk, principally as a result of lending to its
customers at interest rates, in amounts, and for periods which may differ from those of
its funding sources. Your Company is hedged to a large extent against this risk through
the reset clause in its advances portfolio.
• While the Indian economy has shown sustained growth over the
last several years, a slowdown could cause the business of the Company to suffer. The
Company manages such risks by maintaining a conservative financial profile and following
prudent business and risk management practices.
• The risk appetite is enunciated by the Board from time to time.
The Company has in place specially mandated Committees such as ALCO, Risk Management
Committee, besides Nomination and Remuneration Committee and Audit Committee.
INTERNAL CONTROL SYSTEMS
The Company has an independent internal control system which is
commensurate with the size and scale of the Company. It evaluates the adequacy of all
internal controls and processes and ensures strict adherence to clearly laid down
processes and procedures as well as to prescribe regulatory and legal framework.
Conforming to the requirements of regulatory authorities such as the RBI and SEBI and
consistent with the requirements of the Listing Regulations of the Stock Exchanges, the
Company has institutionalized an elaborate system of control processes designed to provide
a high degree of assurance regarding the effectiveness and efficiency of operations, the
adequacy of safeguards for assets, reliability of financial controls and compliance with
applicable laws and regulations. The Internal Auditors are mandated to carry out
periodical audit and report on areas of non-compliances/weaknesses.
Corrective actions in case of reported deficiencies, if any, are taken
actively to further strengthen the internal control systems. These reports are reviewed by
the Audit Committee of the Board of Directors for follow-up action and instructions are
issued for taking necessary measures.
Outlook
The Companys present business operations are preponderantly that of an
investment company, future of which largely depends upon financial and capital markets.
Your Company has investments in debt instruments (including through mutual funds),
financially sound companies and immovable properties. The income from Dividends will
continue to contribute to the income of the Company. The management is optimistic about
the future outlook of the Company. The Company will expand its activities, consistent with
its status as a NBFC.
Cautionary Statement
Statements in this Management Discussion and Analysis describing the
Companys objectives, projections, estimates and expectations may be forward looking
within the meaning of applicable laws and regulations. Actual results may differ from
those expressed or implied. Important factors that could make a difference to the
Companys operations include changes in Government regulations and tax regime, economic
developments within India and abroad, financial markets, etc.
The Company assumes no responsibility in respect of forward-looking
statements that may be revised or modified in future on the basis of subsequent
developments, information or events. The financial statements are prepared in accordance
with the Indian Accounting Standards (Ind AS) notified under Section 1 33 of the Companies
Act, 2013 read with Companies (Accounts) Rules, 2014. The management of the Company has
used estimates and judgments relating to the financial statements on a prudent and
reasonable basis, in order that the financial statements reflect a true and fair manner,
the state of affairs and in profit/loss for the year. The narrative on our financial
condition and result of operations should be read together with our audited consolidated
financial statements and the notes to these statements included in the Annual Report.
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