Sumedha Fiscal Services Ltd Management Discussions.


A crisis like no other. FY 2020-21 has been an unprecedented year in modern times, with the pandemic impacting human life extensively across the globe. The COVID-19 pandemic has led to a severe global recession that is unique in many ways. The contraction in 2020 was very sudden and deep compared with previous global crises. The slowdown across economies witnessed in 2019 exacerbated further in 2020 by the shock delivered by the pandemic. As a result, the global GDP is believed to have contracted by ~3.3% in 2020, with all major economies moving into negative territories. China was the only exception amongst the major economies to have posted a positive growth in 2020, albeit at a much lower rate of 2.3%. The pandemic crisis also stands out for its differential impacts across sectors and countries, complex channels of transmission, and high uncertainty about the recovery path, given that it depends on the fate of the virus itself. Lockdown measures designed to contain COVID-19 (for example, social distancing and closing down non-essential local business) have led the global economy into one of its most severe recessions since 1900, however the economic upheaval could have been much more severe had it not been for the quick and synchronised response from central banks and governments globally, although this too varied across countries.


The carnage continues. The second wave of the Covid-19 pandemic has taken a vicious toll on Indias health, but the economic toll has also been heavy, though nothing like the carnage seen in the first quarter of the last fiscal year, when GDP growth crashed drastically in response to the Centres no-notice lockdown. An accommodative monetary policy from the Reserve Bank of India (RBI) and fiscal policy interventions by the central government, coupled with the gradual reopening of the economic activities from June 2020, have led to a sequential recovery in economic output. Data from the Central Statistical Office (CSO) reveals sequential improvement in quarterly GDP growth- (-24.4%/-7.3%/0.4%/1.6% in 1Q/2Q/3Q/4Q FY 2020-21). Nevertheless, Indias GDP shrank 7.3 per cent in 2020-21 (in real terms adjusted for inflation).

Almost all the sectors have been adversely affected as domestic demand and exports sharply plummeted with some notable exceptions where high growth was observed. Economists are downgrading their estimates as a range of data - from the rate of cheques bouncing to the amount of mortgaged gold jewellery up for sale - shows the extent of the economic damage from the ongoing devastating second wave of the disease. The economy, which was facing a slowdown even before the pandemic, now confronts a crash of consumer demand - constituting over 55% of the economy - as household incomes and jobs have declined.

The second wave of COVID-19 infections and new virus variants pose uncalculated repercussions and remain the key downside risk to growth assumptions which so far have been retained by the Reserve Bank of India at 10.5% YoY for 2021 (IMF projects growth at +12.5% in 2021).


The next big worry. Higher global inflation, rising commodity prices, a weaker rupee and local lockdowns could bring in higher prices and worsen the pandemic situation in India. As COVID-19 cases surge and deaths rise, collapsing health systems could push state and city governments to impose curfews and restrictions on movement. Local lockdowns and supply disruptions are likely to stay for a while. Even though the government and businesses are better prepared than they were last year, the preparation is unlikely to suffice for the kind of surge being seen now. It appears that no one expected a second wave of this magnitude.

Inflation remained above the Reserve Bank of Indias target band of 4% +/- 2%for the first eight months of FY2020- 21 till Nov2020 reaching its highest peak since 2014 of 7.6% in October 2020 mainly on account of high food inflation. Though retail inflation fell back under the RBIs target band post Nov 2020, it gained pace again in Feb 2021/March 2021 reaching 5%YoY/ 5.5% YoY. Overall, retail inflation in FY2020-21 stood at 6.2% YoY, 1.4 ppts above FY 2019-20 retail inflation. Wholesale inflation on the other hand came off by 1.1ppts to 0.6% YoY in FY 202021 (till Feb 2021) vs. FY 2019-20.

Fuel prices in India continued to inch towards the Rs 100-mark. The spike in diesel prices have contributed to a growth in freight rates across ways of transport. High transport cost shall lead to increase in higher inflation, impacting industries further. The rise in commodity prices is worrisome as it could stoke retail price inflation in the coming months when the increased fuel, power and raw material costs are passed on by companies to consumers. The expectation of a normal monsoon and the accommodative RBI stance provide comfort at this juncture as the country battles the second wave and attempts to overcome it with minimal damage to lives and livelihood. The central bank believes that a normal monsoon predicted by the India Meteorological Department (IMD) is expected to sustain rural demand and overall output in 2021-22, while also having a soothing impact on inflation pressures. However, whilst India is still reeling from the unprecedented impact of second wave of the pandemic and with the prospect of a third wave looming large, concerns and consequences of rising inflation are likely to stay for a long time.


Mitigating pandemic woes. In response to the ongoing crisis, the Indian Government announced stimulus measures worth INR 17trn- (8% of FY 2019-20 GDP), directed primarily towards the poor, migrants and rural areas. The Reserve Bank of India cut the repo rate by 40bps to 4.0% and reverse repo rate by 45bps to 3.35%. The Reserve Bank of India also announced the liquidity measures worth INR 13.6trn (7% of FY 2019-20 GDP). The Bank for the first time in history committed its balance sheet for the conduct of monetary policy by announcing the Government Securities Acquisition Programme (G-SAP).

Small businesses and financial entities at the grassroot level are bearing the brunt of the second wave of infections. Against this backdrop, and based on continuing assessment of the macroeconomic situation and financial market conditions, the RBI proposed to take more measures including a liquidity facility of Rs 50,000 crore to ease access to emergency health services, special long-term repo operations (SLTRO) for small finance banks (SFBs), credit to MSME entrepreneurs, and resolution Framework 2.0 for COVID related stressed assets of individuals, small businesses and MSMEs.

The RBIs relief measures are centred on the small borrowers and entities in the unorganised sector. In an additional welcome move, the central bank has taken steps to address the credit needs of the healthcare sector too. However, in general, banks have turned cautious in lending and have indicated that they will calibrate their loan growth based on evolving conditions. The cautious outlook of banks could limit the uptake of the measures announced by the RBI.


Vaccine injects hope.

The rollout of the vaccination drive across the major economies, including India, in the last quarter of FY 2020-21 has accorded a much-needed boost to sentiments around a sustained recovery of economic activity across the globe. Almost all major central banks have pledged to continue an accommodative monetary stance to reinforce the economic green shoots. Coupled with the base effect, economic growth is expected to bounce back strongly in FY 2021-22 on the global as well as the domestic front. However, a lot would hinge on how the pandemic plays out, given the resurgence of the virus and the spread of infections.

Thanks to unprecedented policy response, the COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis. However, emerging market economies and low-income developing countries have been hit harder and are expected to suffer more significant medium-term loss. A high degree of uncertainty surrounds these projections, with many possible downside and upside risks. Much still depends on the race between the virus and vaccines. Greater progress with vaccinations can uplift the forecast, while new virus variants that evade vaccines, can lead to a sharp downgrade.

The challenges to business posed by inflationary pressure and the uncertain market conditions, would place strong emphasis on managing the business in a dynamic manner and altering operational priorities to suit the changing market conditions.

Source: International Monetary Fund, Reserve Bank of India, Union Budget 2021-22


Highlights of Financial Performance during FY 2020-21

• Total Income from Operation of Rs. 1991.17Lacs (Rs. 1799.32 Lacs for FY19-20)

• Profit Before Tax of Rs. 959.22 Lacs (Rs. (388.29) Lacs in FY19-20)

• Net Profit of Rs. 833.02 Lacs (Rs. (354.85) Lacs in FY19-20)

• Basic EPS after extra ordinary items stood at Rs. 10.43, compared to Rs. (4.44) in FY19-20

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 issue of debt, quasiequity, 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.


One of the oldest businesses of the Company, Investment Banking remains a prime focus of the Company. The business segment has contributed Rs 652.43 lacs, for the year under review which is approx. 50% decline when compared with Financial Year 2019-20.

Before the pandemic hit, the Companys performance in investment banking was well set on its growth trajectory. But the COVID-19 crisis has posed an unprecedented challenge which will take some time to overcome. Complete lockdown, partial ease in lockdown and thereafter the second wave of COVID-19 have deeply scarred the Companys businesses. Challenges in conducting in person engagements are not only adversely affecting the due-diligence processes but also impacting the turnaround time and revenue prospects of the future and present clients. Furthermore, given that most of the workforce is working remotely, investment banks are also facing hindrances in effectively monitoring trading, processing key performance indicators (KPIs) and managing trade exceptions. Any instability or prolonged periods of unfavorable market or economic conditions as a result of the ongoing pandemic could lead to a significant decrease in the volume and value of the Companys businesses. In light of the ongoing crisis, the Company shall continually evaluate strategy to grow the investment banking division as a sustainable franchise.


In a rapidly changing political, economic, regulatory and financial environment, the Company continued to leverage on its strong risk management capabilities during FY 2020-21. The approach to risk management is to proactively look at emerging risks in the context of the overall economic environment.

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.

Against the backdrop of this 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.


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

The Company is exposed to potential changes in value of financial instruments. Any decline in the price of investment in quoted securities may affect the financial performance and position. Market Risks may pertain to interest bearing securities (interest rate risk), equities (equity price risk) and foreign exchange ratio risk (currency risk).

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

While the ostensible purpose of the legislation was to reduce systemic financial risk and protect consumers, it also strained the business/revenues/profitability of corporates. New laws or regulations or changes in the enforcement of existing laws and regulations could invite inadvertent non compliances with the regulations leading to strictures/penalties and even punitive action from 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 noncompliance. 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.

• Risk yet to be gauged of the ongoing pandemic

The COVID-19 pandemic is a global stress event that is testing all businesses financial, operational and commercial resilience. It has triggered off not only all the risks explained above but many other unforeseen and uncalculated ones. Against this backdrop, the financial services sector is having to adapt rapidly and at scale to current constraints and market conditions. The Company has prioritized immediate financial and operational measures such as protecting liquidity and cash flows, and ensuring that it shall be able to keep core business activities going. It is regularly monitoring all the critical operational and financial aspects of the businesses along with examining the potential financial stability risks that may lie ahead due to the impact of pandemic.


The Company currently operates in areas related to Investment Banking and is having all the required regulatory approvals with clear demarcation of operational and compliance responsibilities. Quarterly status thereof are reviewed by the Internal Auditors (external) and placed before the Audit Committee and the Board for remedial measures, if any.

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

The Company had 47 permanent employees during the year under review.


Debtor Turnover 480666/1993168 0.24 482890/1801158 0.26 Increased by 07.69% (a)
Inventory Turnover 1101441/1993168 0.55 379272/1801158 0.21 Increased by 161.90% (b)
Operating Profit Ratio% 884141/1993168 0.44 (300928)/ 1801158 (0.16) Increased by 375.00% (c)
Net Profit Ratio% 833019/1993168 0.42 (354854)/1801158 (0.19) Increased by 321.05% (c)
Debts Equity Ratio% 8640/798442 0.01 13818/798442 0.02 Decreased by 50.00% (d)
Interest Coverage Ratio% 144.62 Times (35.50) Times Increased by 507.38% (c)
Current Ratio % 2839692/32398 87.65 2369543/80429 29.46 Increased by 197.52% (e)
Return on Net worth% 5.33 (9.05) Increased by 158.90% (c)

NOTE: (a) Majorly due to increase in overall debtors at the year end.

(b) Majorly due to downfall in Capital market.

(c) Majorly due to losses arising out of abrupt downfall in secondary market.

(d) Due to timely payment made by the Company towards its outstanding.

(e) Due to substantial decrease in Companys liabilities and increase in its Inventory levels.

Details of change in return on Net Worth as compared to the immediately previous Financial Year along with a detailed explanation thereof:

There has been positive return on Networth in the current year due to increase in the profit, which is also a strong indicator of the potential future growth of the Company and its efficient management systems.

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
Ratan Lal Gaggar