Sulabh Engineers & Services Ltd Management Discussions

Sulabh Engineers and Services Limited An Overview

Sulabh Engineers and Services Limited provides a wide range of credit solutions to customers across India and has steadily built its position as a trusted financial partner committed to creating meaningful and transformative experiences in the lives of its customers. Through its customer-focused approach and dedication towards financial inclusion, the Company continues to support individuals and businesses in achieving their financial aspirations and growth objectives.

As a prominent Non-Banking Finance Company (NBFC), the Company is well-positioned to benefit from the ongoing evolution and reforms within the financial services sector. Over the past four decades, the Company has earned a strong reputation based on quality service, professional expertise, reliability, and customer trust. Its sustained growth has been driven by a consistent focus on customer satisfaction, transparent business practices, disciplined financial policies, and long-standing relationships with its customers and stakeholders.

With a rich legacy and strong business foundation, the Company continues to operate with a philosophy rooted in inclusion and sustainability, enabling it to create long-term value for all stakeholders. The Companys presence extends from the agrarian regions of rural India to the fast-growing and cosmopolitan metropolitan cities, reflecting its commitment to supporting aspirations across diverse customer segments and geographies.

At Sulabh, the Company remains committed to supporting customers at every stage of their financial journey by offering financial solutions designed to meet evolving needs and unlock growth opportunities. The Company understands that businesses with established track records and future growth potential often require short- to medium-term financial assistance for expansion, operational growth, or acquisition of assets. To address these requirements, the Company offers flexible and efficient financing solutions that facilitate timely access to capital and support business development initiatives.

The Company also considers Investor Relations as an integral part of its long-term strategy and remains focused on maintaining transparent, open, and enduring relationships with its stakeholders. Through responsible financial management and dependable financing solutions, the Company strives to support the sustainable growth and financial progress of its customers and stakeholders.

Industry Overview

Financial Year 2025 26 continued to reflect strong momentum in the NBFC sector, supported by regulatory strengthening, increasing digital adoption, and sustained demand for retail and business credit. The sector remained focused on balancing growth with prudent risk management, while continuing to expand financial access across urban, semi-urban, and rural markets. Going forward, NBFCs are expected to play an even more significant role in supporting inclusive economic development, driven by technology-led operations, diversified funding models, and customer-centric financial solutions. A brief overview of the industry is bifurcated below:

Sector Performance, Funding, Technological & Market Trends

Growth and profitability:

o The NBFC sector continued to witness steady growth during FY 2025 26, supported by strong credit demand across retail and MSME segments. Aggregate sectoral credit maintained healthy expansion, reinforcing the importance of NBFCs within Indias financial ecosystem.

o While competitive market conditions and evolving regulatory requirements placed pressure on margins in certain lending segments, the sector continued to focus on operational efficiency, portfolio quality, and sustainable profitability.

Asset mix:

o Retail lending continued to remain a major component of NBFC portfolios, with strong demand observed in vehicle finance, housing loans, MSME financing, and small-consumer lending.

o Financing for two-wheelers, commercial vehicles, affordable housing, and business expansion remained important growth drivers for the industry during the year.

Funding sources:

NBFCs continued to diversify their borrowing profile by increasing reliance on long-term funding sources, capital market instruments, securitization transactions, and strategic institutional partnerships.

Rising focus on liquidity management and asset-liability balancing encouraged NBFCs to adopt more disciplined and diversified funding strategies amid changing interest rate conditions.

Digital transformation:

The sector further accelerated the adoption of digital technologies such as Artificial Intelligence (AI), Machine Learning (ML), and data analytics to strengthen credit appraisal systems, fraud detection mechanisms, risk monitoring and customer engagement. Partnerships with fintech platforms and digital ecosystems continued to expand, enabling seamless loan origination, faster credit assessment, API-based lending models, and improved customer accessibility across geographies.

Emerging segments:

Green and sustainable financing segments, including electric vehicle financing and environmentally sustainable asset funding, continued to gain traction due to increasing policy support and evolving customer preferences.

Technological developments involving blockchain-based solutions, open banking frameworks, digital public infrastructure, and pilot initiatives relating to Central Bank Digital Currency (CBDC) continued to contribute towards innovation and transparency in financial services delivery.

India: Leading the Way NBFC Sector Perspective for FY 2025 26

As the global economy continued to navigate a period of economic uncertainty and evolving financial conditions, India maintained its position as one of the worlds fastest-growing major economies. The Non-Banking Financial Company (NBFC) sector continued to play a vital role in supporting this growth trajectory by strengthening financial inclusion, facilitating credit access, and supporting entrepreneurial and consumption-driven economic activity across the country.

During FY 2025 26, NBFCs further expanded their reach across urban, semi-urban, and rural markets, helping bridge the credit gap in segments where traditional banking penetration remained limited. The sector continued aligning its growth strategies with national economic priorities by focusing on areas such as microfinance, MSME lending, vehicle financing, affordable housing finance, education loans, and small business credit. These initiatives contributed towards encouraging entrepreneurship, enhancing consumption, and promoting inclusive economic development.

Technology continued to transform the operational landscape of the NBFC industry during FY 2025 26. Digital lending platforms, automated processing systems, AI-driven underwriting models, and technology-enabled customer service mechanisms became increasingly integrated into business operations. Digital disbursements and collection systems continued to witness strong adoption, particularly across Tier II and Tier III cities, enabling NBFCs to improve efficiency, reduce turnaround time, and strengthen portfolio monitoring capabilities.

The continued implementation of the Reserve Bank of Indias Scale-Based Regulation (SBR) framework further strengthened governance standards, risk management practices, compliance mechanisms, and transparency across the sector. NBFCs remained focused on maintaining adequate capitalization, improving asset-liability management frameworks, and enhancing customer protection measures while ensuring long-term financial sustainability.

Despite global inflationary pressures, interest rate volatility, and changing macroeconomic conditions, the Indian NBFC sector demonstrated resilience during FY 2025 26, supported by strong domestic demand, improving borrower sentiment, and diversified funding avenues. Growth in retail credit, improved recovery trends, and increased digital penetration continued to support overall sectoral expansion.

In conclusion, India continues to lead the way in driving inclusive financial growth, and NBFCs remain central to this transformation. With their adaptability, technology-driven approach, and deep customer reach, NBFCs continue to strengthen their position as key contributors to Indias economic progress and financial inclusion journey during FY 2025 26 and beyond.

Financial Performance of the Company

During the financial year under review, the Company delivered a mixed financial performance as per its standalone financial statements. The Total Revenue from Operations grew to 204.67 lakh, as against 165.32 lakh in the previous year, reflecting enhanced business activity, improved market outreach, and sustained customer engagement. However, this growth in revenue was accompanied by a significant decline in profitability, with the Profit Before Tax standing at 9.88 lakh as compared to 208.28 lakh in the previous year, and the Profit After Tax at 0.03 lakh against 164.09 lakh in the corresponding period. This decline in profitability, despite the increase in revenue, is primarily attributable to higher operational costs, increased provisions, and other non-recurring expenses incurred during the year. The Management remains focused on strengthening operational efficiencies and cost optimization measures to improve overall profitability in the ensuing financial year.

As per the consolidated financial statements, the Company witnessed a decline in its financial performance across key metrics during the year under review. The Total Revenue from Operations stood at 388.94 lakh as compared to 492.95 lakh in the previous year, reflecting a moderation in overall business activity. The Profit Before Tax also declined to 179.06 lakh in the current year, as against 367.99 lakh in the previous year, on account of relatively higher costs and other operating factors during the period. Correspondingly, the Profit After Tax (PAT) stood at 169.79 lakh as compared to 325.19 lakh in the preceding year. While the current year reflects a moderation in overall profitability, the Company remains focused on strengthening its operational efficiencies and pursuing sustainable growth strategies to enhance value creation for its stakeholders going forward.

Risk and Concerns

The Company faces a variety of risks, including credit risk, interest rate risk, liquidity risk, market risk, and operational risk. In previous financial years, the Company experienced losses primarily due to loans that were classified as sub-standard assets and, due to non-repayment, were reclassified as non-performing assets (NPAs). This significantly impacted the Companys performance. However, in the current financial year, the Company has successfully rebounded and achieved profitability.

To manage these risks, the Company has implemented a robust risk management framework. This framework is designed to identify, assess, and address business risks and opportunities effectively. The Company understands the importance of managing these risks to protect shareholder and stakeholder interests, achieve business objectives, and foster sustainable growth. The risk management process involves the prompt identification of risks and the development of action plans to mitigate them. These plans are continuously monitored to ensure that risks are managed appropriately.

A strong governance framework supports this risk management approach. The Board of Directors and its committees are responsible for approving risk strategies and delegating credit authorities. The Company employs rigorous underwriting practices and ongoing risk monitoring to maintain portfolios within acceptable risk levels. Effective risk management involves proactive measures rather than reactive responses, aiming to influence future business events and minimize the likelihood and impact of potential risks.

In the broader context of the financial sector, the execution of risk management techniques is crucial for ensuring that business models remain viable and compliant with evolving regulatory requirements. The growth of Non-Banking Financial Companies (NBFCs) has been a significant aspect of the banking sectors evolution. NBFCs play a critical role in distributing financial services, particularly in underserved areas. The Reserve Bank of India (RBI) and the Ministry of Finance has introduced various initiatives to support borrowers and institutions during challenging times. Nonetheless, it remains the responsibility of each institution to proactively address and mitigate anticipated risks to ensure continued stability and success in their operations.

Internal Control System & its Adequacy

The Company recognizes the critical and abiding importance of maintaining a strong and robust internal control system as a cornerstone of its overall organizational health and long-term sustainability. Internal control continues to remain a fundamental pillar of good corporate governance, as it affords the management the necessary operational freedom and flexibility to conduct business effectively, while simultaneously operating within a well-defined framework of checks and balances designed to safeguard the interests of all stakeholders.

In line with this philosophy, Sulabh Engineers and Services Limited has established and continues to maintain a comprehensive internal control framework that has been carefully tailored to suit the nature, size, and complexity of its business operations, as well as the risks associated therewith. This framework encompasses, among other elements, a clearly defined organizational structure, well-documented policies and procedures, a formally laid do authority matrix, and a set of controls that collectively work towards ensuring operational efficiency across the organization, strict adherence to internal policies as well as applicable legal and regulatory requirements, and the adequate protection and safeguarding of the Companys resources.

The Company remains committed to maintaining effective internal financial controls over financial reporting, thereby ensuring that the financial information generated and disclosed is accurate, reliable, and reflective of the true state of affairs of the Company. The internal control environment put in place by the Company is designed to support and reinforce operational efficiency, the security of its assets, the prevention of fraud, and the maintenance of accurate and complete accounting records. In furtherance of this objective, internal audit reports are regularly submitted to the Audit Committee for its review and consideration, and are also independently reviewed by the Managing Director, thereby ensuring an additional layer of oversight.

Furthermore, and in keeping with its continued focus on strengthening governance practices, the Company has implemented a risk-based internal audit policy. This policy is aimed systematically identifying critical business processes and the controls associated with them, evaluating the effectiveness of such controls on an ongoing basis, and providing meaningful and actionable recommendations for their improvement wherever necessary. The overarching goal of this policy is to enhance the Companys business processes and internal controls over time, thereby ensuring robust oversight mechanisms and fostering a culture of continual enhancement of operational efficiency across the organization.

Outlook

In recent years, the future of NBFCs is witnessing good growth in consumer lending. The liquidity position has improved and is gradually coming back to normal. In the future also, NBFCs will play a crucial role in economic development and in financial inclusion.

Segment Wise Performance:

Our Company is dealing with only one Segment i.e., providing Financial and Insurance Services. There is no other segment in the Company.

Calculations of Ratios of Standalone Financials for the year ending March, 31, 2026:

Calculation of Ratios of Consolidated Financials for the year ending March, 31, 2026:

Disclosure of Accounting Treatment:

In the preparation of the financial statements, the Company has followed the applicable Accounting Standards referred to in Section 133 of the Companies Act, 2013. The significant accounting policies which are consistently applied have been set out in the notes to the financial statements.

Future Plans

The Company continues to make steady progress by focusing on practical and people-centered strategies. One key area of improvement has been the smarter use of information and insights while giving out loans and ensuring timely repayments. By closely studying patterns and behaviors, the team has been able to make better decisions, reduce risks, and speed up the overall process, benefiting both the Company and its customers.

In addition, efforts have been made to further strengthen the Companys position in the market. This includes enhancing trust, building a strong reputation, and staying ahead through consistent performance and reliability.

Most importantly, the Company places a strong emphasis on maintaining long-lasting relationships with its borrowers. By focusing on their needs, offering support when required, and ensuring smooth communication, the Company has been able to earn their loyalty and trust which is essential for continued growth and success.

The board has determined the following plans to achieve its corporate goals:

Effective use and implementation of data analytics in the process of loan disbursement and loan recovery.

Further strengthening the leadership position

Material developments in Human Resources / Industrial Relations front

During the year under the review i.e. 2025-26 there being no material developments in the Human Resources and industrial relation front of the company.

Financial Performance with Respect to Operational Performance

During the current year, the Companys overall performance was impacted by a challenging business environment. This is reflected not only in the manner in which operations were managed but also in the financial outcomes for the year, which fell short of the levels achieved in the previous year. The moderation in performance points to the need for a re-evaluation of certain strategic and operational aspects, even as the team continued to put in consistent efforts to sustain the Companys connection with the market and its customers.

Despite continued outreach and engagement with clients, the Companys operations faced headwinds that affected overall profitability during the year. While the Companys market position remains intact, the results for the year indicate the impact of rising costs, operational pressures, and evolving business conditions that required greater adaptability without compromising on quality or service delivery.

The Companys disciplined and thoughtful approach nonetheless continued to guide its functioning through a difficult year. Efforts towards cost management, process improvement, and timely decision-making helped contain the extent of the impact, even as overall outcomes remained subdued. The Company continued to place emphasis on long-term value creation for all its stakeholders customers, employees, and others associated with the Company even as short-term results reflected the broader challenges faced during the year.

Overall, while the year under review presented certain operational and financial challenges, it has also provided valuable insights that will help strengthen the Companys approach going forward. The Company remains focused on aligning its day-to-day operations with its broader financial goals, and is taking the necessary steps to position itself for a more stable and sustainable performance in the periods ahead.

Cautionary Statement

This report is based on the current situation, past experience, and information available to the company about its business, along with assumptions regarding the economic and industrial environment, governmental policies, and other regulatory factors. The companys performance is significantly influenced by these factors. Readers should review this report alongside the financial statements and accompanying notes. Future performance may be materially impacted by changes in these factors, which are beyond the companys control, and may alter the views expressed or inferred from this report. Therefore, investors are encouraged to make their own independent assessments, considering all relevant factors, before making any investment decisions.