Sumedha Fiscal Services Ltd Management Discussions

GLOBAL ECONOMY

Global growth is projected at 3.1 percent in 2024 and 3.2 percent in 2025, with the 2024 forecast 0.2 percentage point higher than that in the October 2023 World Economic Outlook (WEO) on account of greater-than-expected resilience in the United States and several large emerging market and developing economies, as well as fiscal support in China. The forecast for 2024–25 is, however, below the historical (2000–19) average of 3.8 percent, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth. Inflation is falling faster than expected in most regions, in the midst of unwinding supply-side issues and restrictive monetary policy. Global headline inflation is expected to fall to 5.8 percent in 2024 and to 4.4 percent in 2025, with the 2025 forecast revised down.

With disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced. On the upside, faster disinflation could lead to further easing of financial conditions. Looser fiscal policy than necessary and than assumed in the projections could imply temporarily higher growth, but at the risk of a more costly adjustment later on. Stronger structural reform momentum could bolster productivity with positive cross-border spillovers. On the downside, new commodity price spikes from geopolitical shocks––including continued attacks in the Red Sea––and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions. Deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts could also cause growth disappointments.

In many cases, with inflation declining and economies better able to absorb effects of fiscal tightening, a renewed focus on fiscal consolidation to rebuild budgetary capacity to deal with future shocks, raise revenue for new spending priorities, and curb the rise of public debt is needed. Targeted and carefully sequenced structural reforms would reinforce productivity growth and debt sustainability and accelerate convergence toward higher income levels. More efficient multilateral coordination is needed for, among other things, debt resolution, to avoid debt distress and create space for necessary investments, as well as to mitigate the effects of climate change.

Source: World Economic Outlook

INDIAN ECONOMY

After a better-than-expected 7.6% this fiscal, Indias real GDP growth will likely moderate to 6.8% in fiscal 2025. The transmission of the rate hikes effected by the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) between May 2022 and February 2023 still continues and is likely to weigh on demand next fiscal. On the other hand, regulatory actions to tame unsecured lending will have a bearing on credit growth.

A lower fiscal deficit will mean the fiscal impulse to growth will be curtailed. But the nature of spending will provide some support to the investment cycle and rural incomes. Uneven economic growth for key trade partners and an escalation of the ongoing Red Sea crisis can be a drag on exports.

That said, some factors will continue to underpin growth next fiscal. Continued disinflation will support the purchasing power of consumers. This assumes a spell of normal monsoon in calendar 2024, which can lift agricultural growth on a low base and a gradual pick-up in private sector capex will make investment growth more broad-based.

Net-net, amid the interplay of these factors, India will retain its position as the fastest growing large economy. Interestingly, the next seven fiscals (2025-2031) will see the Indian economy crossing the $5trillion mark and inching closer to $7trillion. A projected average expansion of 6.7% in this period will make India the third-largest economy in the world and lift per capita income to the upper middle-income category by 2031.

Source: CRISIL

INDIA M&A TRENDS 2024

Midmarket dealmaking takes the lead as Indias M&A market stays strong. While much of the globes developed economies are in the doldrums, fast-growing India continues to speed ahead.

This is reflected in Indias M&A activity. While deals slowed down following a boom year in 2022, activity in 2023 remained robust, with volume estimated to be above levels seen over the past 10 years, excluding 2022.

Indian companies struck more than 90 M&A deals worth a total of about $32 billion in 2023 (taking into account only deals that were worth over $75 million). In 2022, companies had struck 109 deals worth $118 billion. In 2023, mid-market acquirers with up to $1 billion in revenue accounted for nearly half of the mergers and acquisitions, mainly to bolster their market positions. Indian conglomerates also pursued acquisitions to reshape their portfolio and create new lines of growth.

Factors such as stabilisation of interest rates, growing convergence between buyer and seller pricing expectations and availability of dry powder particularly held by sovereign wealth funds ("SWF"), private equity ("PE") and venture capital investors will propel deal making activity in 2024. These factors, compounded with Indias increasing importance in the global economy, predict a bright future for inbound M&A and PE activity in India, particularly in areas such as digital transformation and technology, decarbonisation and renewables, pharmaceuticals and healthcare, financial services and real estate and infrastructure.

Globally, meanwhile, M&A activity dropped 15% to $3.2 trillion in 2023, the lowest in a decade, as dealmakers grappled with high interest rates, regulatory scrutiny, and mixed macroeconomic signals that made them more cautious.

PRIVATE DEBT AS A POTENTIAL STRUCTURING OPTION

In recent times, private debt is increasingly being resorted to as a viable structuring option by parties and being explored by seasoned equity investors as well. It is safe to assume that private debt arrangements shall grow in popularity in India, with key focus on the security package, redemption events and interest rate available to the lender.

INFRASTRUCTURE INVESTMENT TRUSTS ("InvITs") AND REAL ESTATE INVESTMENT TRUSTS ("REITs")

There has been tremendous growth in InvITs and REITs as investment vehicles in the past few years. While we have about 22 (twenty two) InvITs and 4 (four) REITs registered in India with a total asset under management of around INR 3,500,000,000,000 (Indian Rupees Three Trillion Five Hundred Billion), in view of the expected decline in interest rates, introduction of tax incentives and relaxed investment regime, the road ahead in terms of fund mobilisation by the InvITs and REITs looks promising.

India is also witnessing diversification of the portfolio of these vehicles to non-traditional asset classes. With the increase in e-commerce, digitalisation and data localisation, it is expected that a number of warehouse and data centre InvITs may also be constituted, especially considering the recent classification of data centres as infrastructure. The trend of diversification also unlocks the potential for green and sustainable urban expansion for the country, and we expect to see an increase in InvITs in this sub sector as well. That being said, the preference for sponsors and investments in the infrastructure and airport sectors remains strong and is likely to dominate large-ticket deals in 2024.

ALTERNATIVE INVESTMENT FUNDS (AIFs) IN INDIA

The Alternative Investment Fund is a unique investment vehicle that is beyond traditional investments like fixed deposits, equity, mutual funds, stocks, etc. It is quite popular among mature investors, who are willing to earn higher returns by taking higher risks. As per the recent SEBI data, it has shown an overall growth of 30% in FY 2022-23. As of March 2022, the total commitment raised was Rs 6.41 lakh crore; in March 2023, it increased to Rs 8.34 lakh crore.

BUSINESS OVERVIEW

Highlights of Financial Performance during FY 2023-24

• Total Income from Operation of Rs. 9550.10 Lacs (Rs. 6046.15 Lacs for FY 22-23)
• Profit Before Tax of Rs. 918.49 Lacs (Rs. 145.37 Lacs in FY 22-23)
• Net Profit of Rs.771.74 Lacs (Rs. 101.92 Lacs in FY 22-23)
• Basic EPS after extra ordinary items stood at Rs. 9.67, compared to Rs. 1.28 in FY22-23

Sumedha Fiscal Services Limited is one of the countrys leading merchant bankers with specialization in debt syndication, financial restructuring and corporate advisory, managing private placement as well as public issues of both equities and debt. The Company has evolved over a period of time to a leading diversified financial services firm and today is acknowledged for its unmatched management consultancy and advisory services. The Company is primarily engaged in providing various fee based services such as fund mobilization through issuance of debt, quasi-equity, structured hybrid instruments etc., corporate restructuring, trading and loan syndications. Its vast clientele includes Indias premier public and private corporates. The Company continually fulfills its objective of serving clients in an integrated manner and relentlessly strives to accomplish its vision of ‘adding values to value in each of its deliverables.

INVESTMENT BANKING BUSINESS

One of the businesses of the Company, Investment Banking remains a prime focus of the Company. The business segment has contributed Rs. 532.06 lacs, for the year under review in comparison with Rs. 696.73 lacs in the Financial Year 2022-23.

RISK MANAGEMENT

We have in place a comprehensive risk management strategy to effectively handle the various external and internal risks that can impact our business performance. The strategy involves identification, quantification and management and reporting of the principal risks that have the potential to affect our ability to create and deliver long-term value to our stakeholders.

The Company is having a system of risk management commensurate with its size and nature of activities to address the consequent vulnerability. Quarterly reports on relevant areas are placed before the Audit Committee and the Board of Directors of the Company. All major risks are identified, monitored and acted upon within the internal framework. However, the Company is not yet required to constitute a Risk Management Committee pursuant to Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Risk management forms an integral part of the Companys business operations and monitoring activities. Due to increasing globalisation, integration of world markets, newer and more complex products and transactions and an increasingly stringent regulatory framework, the financial services industry is subject to continuously evolving legislative and regulatory environment.

Against the backdrop of the credit environment and general macro factors playing out across sectors, we remain confident of our integrated risk and governance approach, which has demonstrated the capability to withstand economic and credit cycles, as well as dynamically adopt new scenarios and learnings into the risk and governance framework. We are well positioned to accelerate our growth across all lines of business, given to our strong risk architecture, coupled with our strong management capability, robust capital and liquidity management and high governance standards with pan India presence.

RISKS AND CONCERNS

The Company is subject to following broad risks -

Operational Risk

The Companys business is largely dependent upon people and processes. Any shortcomings in internal processes and system shall result into material adverse impacts on the operation and financial position of the Company.

The Company regularly conducts audits of internal processes and system and has well defined internal control firmly in place. Its workforce in terms of key management team consists of professionals having high level of commitment and expertise and is equipped in handling the affairs of the Company thereby mitigating such risks arising out of operational mismanagements.

Market Risk

Risks arising from fluctuation in the value of financial instruments due to volatility in market variables such as stock prices, interest rates, currency rates, credit spreads and other asset prices. Being a financial services intermediary, our business is vulnerable to such risks, including that pertaining to our proprietary trading activities.

The Company continually monitors its portfolio and securities and the usage of derivatives to minimize such risks.

Liquidity Risk

Any lack of liquidity in the market which adversely impacts the ability of the Company to pay out its short-term financial obligations, to sell its assets quickly in a market without loss, to access funds at competitive rates, shall inevitably bear material impact on its financials. Severe liquidity crunch in the market and associated market disruptions shall also withhold the clients from honoring their commitment towards the Company which would indirectly lead to the Companys inability to perform its financial obligations.

The Company has got strong business strategies in place to maintain a long-term orientation despite rocky short term performances. Its businesses are adequately capitalized. Further, the Company also maintains a portion of Capital in liquid assets to address any unforeseen liquidity crisis. Its main focus remains upon planning well in advance and building financial buffers which shall go a long way towards mitigating the effects of a coordinated economic downturn.

Regulatory and Compliance Risk

Most of our businesses as well as the Company itself operate in strongly regulated business segments. The risk arises out of a change in laws and regulation governing our business. It could also arise on account of inadequate addressal of regulatory requirements or differences in interpretation of regulations vis-?-vis the regulators.

The Company operates in a strict regulatory compliant environment. It has dedicated teams of professionals looking after the compliance with applicable laws, rules, regulations and guidelines involving the businesses of the Company. External advises and professional services are sought when needed to remove any iota of non-compliance. Internal Audit is also carried out regularly to monitor the compliances with the Companys policies and the applicable statutory regulations.

Reputation Risk

Companys reputation is a vital ingredient to business success, whether in regards to customer trust or employee loyalty. While key ingredients for acquiring a good corporate reputation, such as high quality, outstanding service, and competitive prices, are relatively well understood, there are seemingly countless ways in which a brand might be damaged. Reputation Risk is a very high risk factor and cause long term or irreparable loss to the business or profitability.

The Company takes pride in the enormous goodwill and brand value that it has built due to decades of providing exemplary services guided by the sole principle of customer centricity. It has built a truly dedicated workforce which share the same responsibility of delivering utmost good services whilst safeguarding the interest of the stakeholder and the reputation of the Company.

INTERNAL CONTROL SYSTEMS

The internal control system of the Company is designed to suit the complexity of its business operations. The system ensures strict adherence to all applicable statutes and regulations governing the business operations. The internal financial controls with reference to financial statements as designed and implemented by the Company are adequate. The internal financial control procedure adopted by the Company is adequate for safeguarding its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information.

There has been no material developments in the area of Human Resources.

The Company had 39 permanent employees during the year under review.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor

RATIOS	2023-24	2022-23	Variance	Reason for variance
Debtor Turnover	0.02	0.04	(50%)	Majorly due to high increase in turnover in comparison to low increase in overall debtors.
Inventory Turnover	0.15	0.25	(40%)	Majorly due to increase in Revenue from Operations.
Operating Profit Ratio%	0.10	0.03	233.34%	Majorly due to increase in Revenue from Operations.
Net Profit Ratio%	0.08	0.02	300%	Primarily due to increase in Net Profit
Debts Equity Ratio %	-	-	-	Note: No Debt
Interest Coverage Ratio %	-	485.31 Times	(100%)	Note: No Interest payable during the year.
Current Ratio %	79.00	75.41	4.76%	-
Return on Networth %	14.48	2.20	558.18%	Due to increase in profit generation

Cautionary Statement

This Management Discussion and Analysis provides the details of the Company objectives. Statements detailed here are not exhaustive but are for information purposes only. The actual performance of the Company in future may vary substantially from those outlined herein. Some of the statements written herein are forward looking and should not be construed as a guarantee of performance. The readers must exercise their due diligence before forming any opinion based on this statement.

	For and on behalf of the Board
Place: Kolkata	Vijay Maheshwari
Date: 14th May, 2024	Chairman
	DIN: 00216687