Sulabh Engineers & Services Ltd Management Discussions

Sulabh Engineers and Services Limited - An Overview

Sulabh Engineers and Services Limited offers credit solutions to customers all across India. We have emerged as a trusted partner in creating transformative experiences and lasting impressions in customers lives.

Sulabh Engineers and Services Limited is a prominent Non-Banking Finance Company (NBFC) positioned for growth as the sector undergoes significant reforms. Over the past four decades, we have established a strong reputation for quality, craftsmanship, and expertise. Our rapid growth has been driven by a commitment to exceptional customer service, transparent business practices, secure financial policies, and a trusted customer base. As a leading financial enterprise with a rich business history, Sulabh is founded on inclusion and sustainability, helping us unlock value for generations to come. Our presence spans across the agrarian heartlands of rural India to its vibrant, cosmopolitan metros where we set wings to aspirations.

At Sulabh, we are committed to meeting our customers at every touch point of their financial journey so that they get to explore unlimited possibilities through us. We recognize that businesses with solid track records and promising futures often need short- to medium-term financing to support expansion or acquire new assets. To address these needs, we offer flexible and seamless financial solutions, providing quick access to capital for business growth. We view Investor Relations as a cornerstone of our strategy, focusing on fostering transparent, open, and long-term relationships with our stakeholders. Our aim is to support your businesses growth through reliable financing options and strategic financial management.

Industry Overview

Financial Year 2024-25 marked a phase of strong NBFC growth, regulatory recalibration, and rapid technological adoption. The road ahead promises steady expansion—anchored in retail and rural lending—while navigating asset quality risks and growing compliance complexity. NBFCs that adeptly balance growth with digital transformation and strategic funding will cement their role as key enablers of Indias financial inclusion and development journey. Brief overview for the industry is bifurcated below:

Sector Performance, Funding, Technological & Market Trends

• Growth and profitability:

- NBFC assets grew robustly, with aggregate credit nearing Rs52 trillion by Dec 2024 and projected to surpass Rs60 trillion by FY 2026.

- Rapid loan book expansion has stressed profitability—especially in microfinance, where profit margins plunged ~95% in FY25.

• Asset mix:

- Retail loans dominated NBFC portfolios—comprising ~58% of total credit and expanding at ~23% CAGR (FY 23-24), though projected to slow to 16-18% in FY 25-26. o Two-wheeler financing (65% NBFC-led) and vehicle/home loans remain strong pillars.

• Funding sources:

- NBFCs are rebalancing away from short-term commercial paper as banks re-enter consumer lending, aided by lighter risk weights. Tighter liquidity means rising reliance on capital markets and offshore debt—especially among larger NBFCs—amid higher funding costs.

• Digital transformation:

- NBFCs are ramping up AI, ML, and Big Data to improve credit appraisal, risk management, fraud detection, and customer experience.

- Deepening fintech partnerships—with platforms like ONDC, Account Aggregator, and OCEN—enables API-driven lending, plug-and-play credit origination, and expanded reach.

• Emerging segments:

- Green finance (e.g., EV loans, sustainable housing) is gaining momentum due to policy support.

- Blockchain, DeFi, open banking, and CBDC pilots are laying groundwork for innovation in credit delivery and transparency.

India: Leading the Way - NBFC Sector Perspective for FY 2024-25

As the global economy seeks direction amid uncertainty, India has emerged as a beacon of growth and stability, and the Non-Banking Financial Company (NBFC) sector is playing a pivotal role in this journey. In FY 2024-25, the NBFC industry in India continues to demonstrate strong momentum, reinforcing the countrys leadership position in driving financial inclusion, supporting MSMEs, and enabling credit access across diverse segments of the population.

NBFCs have steadily expanded their footprint across urban and rural landscapes, helping bridge the credit gap where traditional banks have limited reach. In FY 2024-25, this role has deepened further. With the economy projected to grow at over 7%, NBFCs are aligning their strategies with national priorities—focusing on micro-lending, vehicle finance, housing loans, education financing, and small-ticket business loans. This has not only spurred entrepreneurship and consumption but also ensured more inclusive economic growth.

Technology has become a game-changer for the sector. Most NBFCs have embraced digital lending models, automated loan processing systems, and AI-based credit assessment tools to improve reach and reduce turnaround times. FY 2024-25 marks a significant increase in digital disbursements and collections, especially in Tier II and Tier III cities, helping NBFCs scale efficiently while maintaining portfolio quality.

Regulatory clarity and confidence-building measures by the Reserve Bank of India (RBI), especially the continued implementation of the Scale-Based Regulation (SBR) framework, have improved governance, risk oversight, and transparency across the sector. Larger NBFCs are now better capitalized, with improved asset-liability management practices and greater emphasis on customer protection.

Despite rising interest rates and inflationary challenges globally, Indian NBFCs have remained resilient, aided by a growing domestic demand base, improved borrower sentiment, and access to diversified funding sources. Credit growth in the NBFC sector for FY 2024-25 is expected to exceed 12-14%, driven by retail lending and robust recovery performance.

In conclusion, India is indeed leading the way—and NBFCs are at the heart of this transformation. With their adaptability, digital-first approach, and deep grassroots reach, NBFCs are not just financial institutions; they are agents of progress in Indias growth story for FY 2024-25 and beyond.

Financial Performance of the Company

During the current financial year as per standalone financials, the Company has demonstrated notable improvement in its financial performance, marked by steady growth across all key indicators. The Total Revenue from Operations rose to Rs165.32 lakh, reflecting a healthy increase from Rs141.69 lakh in the previous year. This growth is indicative of enhanced business activity, improved market outreach, and sustained customer engagement. The Profit Before Interest and Depreciation (PBIDTA) also witnessed a significant rise, reaching Rs219.30 lakh as compared to Rs159.46 lakh in the previous year, underscoring better operational efficiency and cost management. Furthermore, the Companys Profit After Tax (PAT) has grown remarkably, standing at Rs164.09 lakh, up from Rs105.69 lakh in the prior year. This improvement in net profitability highlights the Companys continued focus on financial discipline, prudent decision-making, and value creation for stakeholders. Overall, these figures reflect the Companys strong and stable financial footing, and its commitment to sustained growth.

As per the consolidated financials, the Company witnessed significant growth in its financial performance across key metrics. The Total Revenue from Operations saw a robust increase, rising to Rs492.95 lakh as compared to Rs315.50 lakh in the previous year, reflecting improved operational efficiency and market performance. The Profit before Interest and Depreciation (PBIDTA) also registered a substantial jump, reaching Rs421.15 lakh in the current year, up from Rs249.69 lakh last year. This increase is indicative of better cost management and higher margins on revenue. Moreover, the Profit After Tax (PAT) surged to Rs325.19 lakh, marking a strong growth from Rs174.82 lakh in the preceding year. This rise in profitability showcases the Companys ability to sustain earnings growth while optimizing operational costs, ultimately resulting in enhanced value creation for stakeholders.

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 importance of a strong internal control system for its overall health. Internal control is a fundamental pillar of governance, offering management operational freedom within a framework of checks and balances. Sulabh Engineers and Services Limited has established a comprehensive internal control framework tailored to its businesss nature, size, and risks. This framework includes a clear organizational structure, documented policies, an authority matrix, and controls that ensure operational efficiency, adherence to internal policies and legal requirements, and protection of resources.

The Company maintains effective internal financial controls over reporting, ensuring accurate and reliable financial information. Its internal control environment supports operational efficiency, asset security, fraud prevention, and accurate accounting records. Internal audit reports are submitted to the Audit Committee and are also reviewed by the Managing Director.

Additionally, the Company has implemented a risk-based internal audit policy. This policy aims to identify critical business processes and controls, evaluate their effectiveness, and provide recommendations for improvements. The goal is to enhance business processes and internal controls, ensuring robust oversight and continual enhancement of operational efficiency.

Strengths	Weaknesses
• Distinct Relationship-Based Business Model The company operates on a relationship-driven business approach, enabling personalized financial solutions backed by extensive experience in credit appraisal and collections. This model not only enhances customer loyalty but also strengthens risk management capabilities.	• Dependence on National Economic Growth The companys business expansion and revenue generation remain significantly influenced by the overall economic performance of the country. Economic slowdowns directly impact lending volumes and asset quality.
• Proven and Consistent Financial Performance Over the years, the company has demonstrated a stable and consistent financial track record, reflecting its operational efficiency, prudent financial management, and strategic growth initiatives.	• Vulnerability of Borrower Segment A considerable portion of the borrower base, particularly MSMEs and individual borrowers, is more susceptible to adverse macroeconomic conditions, exposing the company to heightened credit risk during downturns.
• Experienced Senior Management Team The company benefits from a highly skilled leadership team with deep industry knowledge and expertise across critical financial domains. Their strategic decision-making and operational oversight play a pivotal role in driving sustainable growth.
• Robust Institutional and Market Relationships Strong and enduring relationships with public sector units, private entities, and institutional clients position the company advantageously within the competitive landscape. These connections facilitate consistent deal flow and expansion opportunities.
Opportunity	Threats
• Expanding Demand for Working Capital Financing There is a significant market opportunity to address the working capital needs of businesses, individuals, and the MSME sector. With limited access to traditional banking channels, these segments seek alternative financing solutions, positioning the company for growth.	•Inflationary Pressures Persistent inflation can erode consumers purchasing power and increase operational costs, thereby reducing credit uptake and potentially impacting the companys profitability.
• Growing Customer Base Seeking Upgrades and Financing Solutions Rapid sectoral advancements and increasing consumer aspirations are driving demand for credit products across industries. The company can leverage this trend by expanding its product offerings to meet the diverse financing needs of new and existing customers.	•Rising Competition The financial services sector is witnessing increased competition from captive finance arms of large corporations and small banks that offer specialized and competitive lending products, posing a threat to market share.
	• Human Resource and Industrial Relations Challenges Developments in human resources, such as changes in employment patterns or challenges in talent retention, could impact operational efficiency. Industrial relations, if not effectively managed, could also lead to disruptions in business continuity.

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, 2025:

	March, 31, 2025	March,31, 2024
	Ratios	Ratio
1 Current Ratio	13.05	16.13
2 Debt- Equity Ratio	0.06	0.05
3 Debt-Service Coverage Ratio	4.57	0.00
4 Return on Equity Ratio	0.06	0.04
5 Inventory Turnover Ratio	-	-
6 Trade Receivable Turnover Ratio	0.08	0.07
7 Trade Payable Turnover Ratio	-	-

Calculation of Ratios of Consolidated Financials for the year ending March, 31, 2025:

Ratios	March, 31, 2025	March, 31, 2024
	Ratios	Ratios
1 Current Ratio	9.97	10.50
2 Debt-Equity Ratio	0.05	0.03
3 Debt Service Coverage Ratio	4.63	1.73
4 Return on Equity Ratio	0.07	0.04
5 Inventory Turnover Ratio	-	-
6 Trade Receivable Turnover Ratio	0.29	0.25
7 Trade Payable Turnover Ratio	-	-

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 Maintaining borrowers loyalty through winning relationship

Material developments in Human Resources / Industrial Relations front

During the year under the review i.e. 2024-25 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 Company has shown encouraging progress in its overall performance. This improvement is not only visible in the way the Company has managed its operations but also in how it has translated those efforts into positive financial outcomes. The steady upward trend reflects a well-aligned strategy, consistent efforts by the team, and a growing connection with the market and customers.

The increase in business has been supported by wider outreach and deeper engagement with clients. This has helped the Company strengthen its position in the market, with operations becoming more robust and streamlined over time. The results achieved point to more efficient handling of resources, better planning, and an ability to adapt to changing business conditions without compromising on quality or service delivery.

The Companys focus on maintaining a disciplined and thoughtful approach has clearly paid off. Its ability to manage costs effectively, improve internal processes, and make timely and prudent decisions has all contributed to the overall positive outcome. There has also been a clear emphasis on creating long-term value for everyone associated with the Company — be it customers, employees, or other stakeholders.

Overall, the operational performance has laid a strong foundation that supports the Companys financial well-being. The harmony between day-to-day operations and broader financial goals suggests that the Company is not only performing well at present but is also well-prepared to continue growing in the future.

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.