Sumedha Fiscal Services Ltd Management Discussions.


The Economic Survey of India for 2017 by OECD has characterized it as -

• Growth has been strong

• Tax reform could make growth more inclusive

• Policy reforms at the state and municipal levels could boost productivity and reduce spatial disparities (inequality due to natural disadvantages of some regions relative to others).

Economic growth of around 7% makes India the fastest-growing G20 economy. The acceleration of structural reforms, the move towards a rule-based policy framework and low commodity prices have provided a strong growth impetus. Recent deregulation measures and efforts to improve the ease of doing business have boosted foreign investment. Investment is still held back by the relatively high corporate income tax rates, a slow land acquisition process, regulations which remain stringent in some areas, weak corporate balance sheets, high non-performing loans which weigh on banks lending and infrastructure bottlenecks. Quality job creation has been low, held back by complex labour laws. However increase in crude prices to impact inflation and hurt growth.

Capital Markets

Sensex has reached 36024 points despite sobering aftermath of demonetization and disruptions from the implementation of the GST. Market regulator SEBIs momentous reform, giving the green signal to the much awaited universal exchanges (trading in securities & commodities) and to relax the entry norms for foreign portfolio investors boosted sentiment. The market shrugged off fiscal deficit concerns. Movement of oil price and Feds rate hikes are to cast their spell on Indian capital market. Tighter US monetary policy will hurt portfolio inflows into emerging markets such as India.

Revival of lending by PSBs

Insolvency and Bankruptcy Code 2016 (IBC) intends to effectively resolve distressed companies and safeguard the interest of all stakeholders. If it fails, then the Company goes to liquidation. It is a collective mechanism for resolving insolvency within a framework of equity and fairness to all stakeholders to preserve economic value in the process. The privilege of selecting a resolution plan for a distressed company has been given to financial creditors owing to their ability to take business decisions and create value. IBC has not fundamentally introduced any new powers of enforcement for creditors that were not available earlier, but has armed lenders with the additional privilege of deciding how best to revive the Company. However, at the resolution stage, the immediate focus tends to be on debt payouts to lenders rather than on charting a course to get the Company back on its feet. This payout is, in turn, guided by an evaluation matrix prepared by financial creditors with a focus on the amount of upfront and deferred payment that will be paid to them. Thus the resolution plan seems more like a recovery plan.

The recent IBC amendment ordinance proposes that only 66% (as opposed to 75%) of the financial creditors are required to approve a resolution plan. This would enable larger resolutions in coming times.

Easing of the norms for genuine promoters to take part in the resolution process associated with their company will act as a catalyst in the government and RBIs efforts towards stressed asset resolution. Enabling MSME promoters to bid for their companies under the IBC resolution process will help in speedy resolution in a large number of cases. The decision to treat home-buyers on par with financial creditors will also prove to be a substantial relief for a large section of the society and will also give a boost to the real-estate sector.

Higher bids placed for the stressed assets under the IBC process show that it has already started working and has potential in the resolution of the NPA cases whereby the banks can recover significantly.


Global economic recovery is expected to continue and could revive India exports. The key events to watch out for would be Indias Annual budget, rate hikes by global central banks, monsoon trends, followed by news flow on run up to state and general elections. Key risks include (a) Higher-than-expected crude oil prices and weaker than-expected GST revenues, (b) Twin balance sheet stress (Overleveraged companies and high Non Performing Assets of the banks), (c) Pace of rate hikes by global central banks, (d) Upcoming election outcomes and (e) Geopolitical situation.

The valuation of key Indices (Nifty/Sensex) appear to be stretched as against the historical averages. However, India remains one of the few regions with structural long term growth drivers. The concerted efforts by government to revive the investment cycle, benefits of decent monsoons and pay hike, will help revive the growth in corporate earnings, which has been muted for few years.

A comprehensive tax reform would promote inclusive growth. Effective implementation of the Goods and Services Tax would support competitiveness, investment and economic growth. Governments plans to reduce the corporate income tax rate and broaden the base will serve the same objectives. Ensuring clarity and certainty in tax legislation and employing more skilled tax officers would strengthen the tax administration and make the system fairer and more effective.

Highlights of Financial Performance during FY 2017-18

• Total Income from Operation of Rs. 2164 Lacs (Rs. 1697 Lacs for FY16-17)

• Profit Before Tax of Rs. 445 lacs (Rs. 511 lacs in FY16-17)

• Net Profit of Rs. 352 lacs (Rs. 356 lacs in FY16-17)

• Basic EPS after extra ordinary items stood at Rs. 4.41, compared to Rs. 4.46 in FY16-17.


Investment Banking

Investment Banking continues to be the major revenue earning division of the Company, contributing around 46% to total revenue for the year under review. Performance of this segment improved overall in revenue terms but below its potential due to stagnant investment climate in the economy and weak corporate investment activity. Reluctance of public sector banks for fresh lending due to regulatory restrictions and uncertainties of repayment/recovery also contributed to the scenario.

The Company provides merchant banking, loan syndication, financial restructuring, portfolio resolution of stressed assets, M&A and equity placements under its investment banking division. In spite of challenging situation in the market Income from this segment has recorded Rs. 987 lacs (previous year Rs. 871 lacs).

Capital Market Operation

Capital Market Division of the Company offers equity, currency and commodity broking and wealth management for institutional and individual clients.

The market remained buoyant during most of the year and driven mainly by transactions from Fils and domestic Institutions. Participation of common man has been very low. The scenario is featured with low margin, high investment in hardware and software, high compliance cost and growing regulatory requirements. The Company has recorded an income of Rs. 233 lacs against Rs. 268 lacs during FY16 -17.

Risks & Concerns

The Company is subject to following broad risks -

• Operational Risk

• Market Risk

• Financial Risk

• Compliance Risk

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.

Internal Control Systems

The Company currently operates in areas related to Investment Banking, Wealth Management and Broking Services. The Company 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 64 permanent employees during the year under review.

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 Ratan Lai Gaggar
Date : 19th May, 2018 Chairman