Som Datt Finance Corporation Ltd Management Discussions

This Management Discussion and Analysis (MD&A) should be read in conjunction with the Companys Audited Financial Statements and accompanying notes.

About the Company - An Overview

Som Datt Finance Corporation Limited is a Non-Deposit taking Non-Banking Financial Company (NBFC-ND) registered with the Reserve Bank of India (RBI), categorised as an Investment and Credit Company (ICC). As per the Master Direction - Reserve Bank of India (Non-Banking Financial Company - Scale Based Regulation) Directions, 2023, the Company is classified under Base Layer (NBFC-BL). The equity shares of the Company are listed on the Bombay Stock Exchange (BSE Limited or BSE). It is primarily engaged in the activity of proprietary investments in stocks and securities, with its revenue mainly derived from dividends, investment income, and fluctuations in the stock market prices of its investee companies.

Macro-Economic Overview and Outlook

During the year 2024, the global economy faced significant headwinds, leading to a slowdown in growth. The International Monetary Fund (IMF) projects global Gross Domestic Product (GDP) growth at 2.8% for 2025, a downward revision from its April 2025 estimate of 3.3%. This deceleration is primarily attributed to escalating trade tensions, notably following the implementation of broad-based tariffs by the United States, which disrupted international trade flows and supply chains.

Despite the challenging global backdrop, Indias economy continued to display remarkable resilience during FY2024-25 supported by strong domestic consumption, a surge in government capital expenditure, expanding digital infrastructure, and robust service sector growth. Growth remained robust for 2024-25, with the outlook for financial year 2025-26 maintaining Indias status as the fastest growing major economy. According to the IMF, Indias GDP is estimated at $4.3 trillion in 2024, up from $2.1 trillion in 2015, reflecting a robust 105% growth over the past decade. India has consistently remained the fastest-growing major economy during this period and is poised to surpass Japan (USD 4.4 trillion) to become the worlds fourth-largest economy in 2025. The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI), has estimated Indias real GDP growth at 6.4% for FY2024-25, a moderation from the 8.2% growth recorded in FY2023-24. This continued growth is supported by strong domestic consumption, digital transformation, a resurgence in government investment, and robust service sector expansion. High-frequency indicators such as GST collections, E-way bills, and air passenger traffic indicate sustained domestic demand. As per the data from the Ministry of Finance, exports posted a moderate 0.1% increase to $395.6 billion (April 2024 - February 2025), with electronics, pharma, and engineering goods driving growth. The trade deficit narrowed on the back of lower global oil prices and steady demand for Indian services. Multilateral organisations like the World Bank, IMF, Organisation for Economic Cooperation and Development (OECD) have repeatedly held India as a bright spot in the global economy. All agencies agree India will remain the fastest growing large economy.

On the monetary policy front, the Reserve Bank of India (RBI) is easing across all its levers - rates, liquidity and regulations. It embarked on a rate-easing cycle starting in 2025 and announced continuous three cuts in the repo rate, 25 basis points each in February and April 2025, followed by a jumbo 50 bps in June 2025, a total of 100 bps, bringing the benchmark repo rate to 5.50%. The declining headline inflation within the target of 4% (with a band of +/- 2%), and rate stability permitted a supportive monetary stance, while fiscal consolidation continued through targeted spending and improved tax collections.

In its June 2025 Monetary policy, the RBI projected Consumer Price Index (CPI) inflation at 3.70%, within a comfortable range, for the financial year 2025-26, due to softer food inflation and normal monsoon is seen keep inflation benign. While growth forecasts remain unchanged at 6.5% headwinds to growth remain due to fast changing global developments. Though domestic investment remained robust, foreign portfolio outflows and rupee depreciation emerged as areas of concern. The RBIs proactive liquidity management and calibrated rate adjustments helped mitigate volatility and support macroeconomic stability.

Financial Services Sector Overview and Outlook

Indias financial services sector is at a pivotal point, poised for substantial growth driven by technological innovation, regulatory reforms, expanded financial inclusion, and macroeconomic stability. As the financial year 2025-26 unfolds, the financial sector is expected to reinforce its role as a key pillar of Indias economic expansion, facilitating capital mobilisation, credit distribution, risk management, and wealth creation across various segments. It encompasses a diverse range of institutions, including commercial banks, non-banking financial companies, insurance companies, cooperatives, pension funds, mutual funds, and other smaller entities.

In FY2024-25, Indias financial services sector witnessed moderate growth amidst a dynamic macroeconomic environment. According to a report by CARE Ratings, bank credit growth moderated to approximately 11% (FY25 YoY) due to a slowdown in personal loans and reduced exposures to NBFCs. As per ICRA Limited, NBFC credit growth eased to 13-15%, down from around 17% in the previous two years, influenced by a high base and rising concerns of borrower overleveraging in certain retail segments. Despite this, overall asset quality remained resilient, with credit rating agencies reporting higher reaffirmation rates and a favourable upgrade-to-downgrade ratio. Looking ahead to FY2025-26, the outlook for the sector remains positive. Leading agencies such as CRISIL and CARE Ratings expect improved credit demand, aided by a supportive monetary environment and easing inflation. Credit quality is likely to remain strong, underpinned by healthy balance sheets and disciplined risk management across financial institutions.

The sector is also witnessing significant tailwinds from the acceleration of digital infrastructure and fintech adoption. While regulatory interventions may exert short-term pressures, the long-term trajectory remains positive. For NBFCs, managing credit costs, particularly in unsecured lending, and responding to intensifying competition will be key to sustaining growth and profitability in the coming year.

Opportunities and Threats

Your Company relies on dividends and capital appreciation from its equity investments. Consequently, strong performance by the underlying investee companies can positively impact the Companys financials. Conversely, any inability of these companies to generate profits, distribute dividends, or deliver capital appreciation could adversely affect the Companys revenue stream. The Companys business performance remains significantly influenced by market movements and the prospects of its equity portfolio.

Indias representation in the MSCI Emerging Markets (EM) Index (as per its Fact Sheet) has remarkably risen from less than 10% in 2010 to 18% as of the end of January 2025. In FY2024-25, the Indian equity markets experienced volatility, with both indexes - Nifty50 and Sensex reaching all-time highs in September 2024. However, subsequent corrections were observed due to global economic uncertainties and foreign capital outflows.

The macroeconomic investment case for India has become increasingly compelling. In addition to Indias well-known demographic advantage, the governments capex offensive, expanding exports, growth of the technology sector driven by digitalisation and the green transition, and potential benefits from China plus one strategies have generated momentum for Indias stock market. However, challenges remain, including vulnerability to capital flows, inflation volatility stemming from food prices, the need for increased job creation in skilled sectors, exposure to climate change, and potential impacts from global trade dynamics. Thus, investing in Indias stock market offers potential financial rewards and a chance to participate in the countrys ongoing growth trajectory. Your companys strategic focus on dividends and capital appreciation from equity investments positions it to capitalise on Indias promising prospects and navigate market fluctuations effectively.

Risk and Concerns

Given that your Company primarily engages in investment activities, its risk is largely tied to the performance of investee companies in diverse fields. Investing in the stock market carries various risks. Some of the key risks are mentioned below, along with their causes and the mitigants that the Company enforce:

Risk Type	Definition	Cause / Effect / Impact	Mitigant
Market / Systematic Risk	Arises from overall market conditions. It affects all stocks and is beyond individual company control.	Economic downturns, geopolitical tensions, and global events impact stock prices.	Diversify across different sectors and stocks to reduce dependencies.
Liquidity Risk	Liquidity risk refers to the ease of buying or selling a stock without significantly affecting its price.	Stocks with low trading volumes and free float may cause difficulty in execution.	Focus on liquid stocks and avoid illiquid ones by continuously monitoring the relevant data.
Company-Specific Risk	Pertains to individual companies and their unique challenges.	Management changes, legal disputes, industry disruptions, or poor operational/financial performance.	Research companies thoroughly, diversify across sectors, and avoid overconcentration.
Interest Rate Risk	Interest rate changes impact stock prices indirectly. Higher rates can reduce corporate profits and make bonds more attractive.	When rates rise, stock valuations may decrease due to higher interest rates.	Stay informed about central bank policies and consider the overall economic environment.
Currency Risk	Currency fluctuations can affect returns in the case of foreign investments.	Exchange rate movements can amplify gains or losses.	Do not invest in foreign markets/ stocks.
Volatility Risk	Refers to price fluctuations. Stocks can experience sudden and significant swings.	Various reasons as explained above.	Maintain a long-term perspective, avoid panic selling, and focus on fundamentals.

Although investing carries inherent risks, strategic risk management can guide the effective navigation of the stock market. Your Company diligently monitors market fluctuations, recognising potential obstacles that may impact our growth trajectory.

Internal Control Systems and Their Adequacy

The Company has put in place an adequate system of Internal Controls that is commensurate with its size, requirements and the nature of operations. It ensures operational efficiency and accuracy in financial reporting and compliance with applicable laws and regulations.

An independent specialised agency serves as the Internal Auditor, submitting quarterly reports to the Audit Committee. The Committee reviews internal audit observations and takes corrective actions when needed. Statutory Auditors, Internal Auditors, and the Audit Committee have unrestricted access to necessary information and records.

Human Resources

While the Companys current operations do not necessitate significant human resources, we have employed qualified and experienced personnel to address organisational needs. Should growth opportunities arise, we will promptly employ the necessary human resources. Including the two Executive Directors, the Companys permanent workforce stood at nine as at the end of March 31, 2025.

Segment-wise or Product-wise Performance

The Company primarily engages in investment activities within India. Consequently, there are no distinct reportable segments or product-specific performance reports applicable to the Company.

Financial Performance, Key Ratios and Details of Significant Changes

This report should be reviewed alongside the Companys financial statements and other information provided in this Annual Report. Here below are the key financial parameters and ratios:

Particulars	Unit	FY24	FY23	YoY %
Key Financial Parameters:
Total operating income	lakhs	(302.48)	1,502.95	-120.1%
Total income	lakhs	(302.21)	1,502.95	-120.1%
Total expenses	lakhs	279.68	144.00	94.2%
Net profit/(loss)	lakhs	(542.24)	1,209.73	-144.8%
Net worth	lakhs	2,977.47	3,545.26	-16.0%
Total investments	lakhs	2,693.85	3,220.26	-16.3%
Total assets	lakhs	3,022.17	3,569.13	-15.3%
Key Financial Ratios:
Operating profit or EBIT margin	%	*	91.1%
Net profit margin	%	*	80.5%
Return on average net worth	%	-16.6%	41.1%
Return on average capital employed	%	-16.6%	41.1%
Return on average assets	%	-16.5%	40.9%
Debt to equity	No. of times	0.0x	0.0x

*not meaningful as both numerators and denominators are negative numbers.

The decline in key financial parameters and ratios, including total operating income, total income, net profit, net worth, total investments, operating profit margin, net profit margin, return on net worth, return on capital employed, and return on assets, was primarily attributed to the recognition of net unrealised losses amounting to 333.79 lakhs due to adverse movements in the market prices of equity investments. These comprised an unrealised loss of 491.88 lakhs from changes in the fair value of investments, offset by a realised gain of 158.09 lakhs. These unrealised losses are notional in nature, resulting from the fair valuation of financial instruments in accordance with Ind AS 109 as of the reporting date, i.e., March 31, 2025.

The total expenses increased by 94.2% year-on-year, primarily driven by the increase in employee headcount as well as costs incurred in connection with the Companys rights issue. It is also pertinent to note that, following the change in management during July 2023, the median employment tenure of employees (including executive directors) was six months. As a result, employee benefit expenses were incurred for only around half of the fiscal year 2024.

On the liabilities side, the Company did not undertake any borrowings during the financial year.

Ratios such as debtor turnover, inventory turnover, interest coverage ratio, and current ratio are not applicable to the nature of the Company.

Cautionary Statement

Statements in this MD&A Report regarding the Companys projections, estimates, and expectations have been made in good faith and may constitute forward-looking statements under applicable laws and regulations. Actual results may differ significantly from those expressed or implied due to various unforeseen factors. Key developments that could impact the Companys operations include industry downturns (both global and domestic), significant changes in Indias political and economic environment, applicable statutes, and ongoing litigations.