sungold capital ltd share price Management discussions

Your Directors are pleased to present the Management Discussion and Analysis Report for the year ended 31st March, 2023.

The management discussion and analysis have been included in consonance with the code of corporate governance as approved by the Securities and Exchange Board of India (SEBI). Investors are cautioned that these discussions contain certain forward-looking statements that involve risk and uncertainties including those risks which are inherent in the Companys growth and strategy. The company undertakes no obligation to publicly update or revise any of the opinion or forward-looking statements expressed in this report consequent to new information or developments, events or otherwise.

Introduction

Non-Banking Financial Companies (NBFC) sector has, over the years, evolved considerably in terms of size, operations, technological sophistication and entry into newer areas of financial services and products. The number of NBFCs as well as the size of the sector have grown significantly. There is an increasingly complex web of inter-linkages of the sector with banks, capital market and other financial sector entities, on both sides of the balance sheet. The sector has also seen advent of many non-traditional players leveraging technology to adopt tech-based business models. NBFCs have always played an important role in promoting financial inclusion in India. They havebeencomplementing and supplementing the banking sector in reaching out credit to theun-bankedsegments of the society. The biggest contribution of NBFCs is their ability to cater to the needsof the Micro, Small & medium Enterprises (MSMEs) which form the cradle of Entrepreneurship and innovation in India. NBFCs innate ability to understand their customers needs and accordingly innovate to offer customized products make them the perfect conduit for credit delivery to MSMEs.

Industry Overview:

In FY23, systemic credit showed strong growth on the back of pent-up retail demand from sectors such as housing and auto. Credit demand also grew due to strong demand from NBFCs and the trade segment. Overall credit grew by an estimated 13.3% and systemic retail credit by 19.2%. NBFCs have shown remarkable resilience and have gained prominence in the financial sector ecosystem. Their share in the overall credit pie increased to 18% in fiscal 2023 from 12% in fiscal 2008. Over the years, NBFCs have consolidated their position as a key intermediary in the Indian financing sector with differentiated offerings such as niche financing, last-mile connectivity and an alternative to bank financing. With respect to liabilities, NBFCs have become increasingly interconnected with the financial system. The COVID-19 pandemic, the consequent acceleration in the adoption of technology and change in consumer habits, and the increasing availability of data for credit decision-making have supported the further acceleration of retail credit growth. Revival of economic activity, pent-up demand, strong export, and domestic support have strengthened credit growth in the MSME segment. The market share of NBFCs in outstanding MSME loans (including LAP) was 25% in FY 2022 and is estimated to have increased to 27% in FY23. In terms of growth, NBFCs witnessed a CAGR of 21% between fiscals 2017 and 2023, compared to 8% for other players. Going forward, NBFCs are expected to continue to witness rapid growth and increase their market share in this segment.

Opportunities

Reports from the World Bank indicate that Non-Banking Financial Institutions act as critical pillars contributing to macroeconomic stability and sustained economic growth and prosperity, due to their ability to finance firms and individuals at a reasonable cost, reduce volatility by providing multiple sources to finance and park funds and enable creation of a competitive environment characterized by a diverse array of products. This has been proven time and again in developed markets. Non-Banking Finance Companies (NBFCs) continue to play a critical role in making financial Services accessible to a wider set of Indias population and are emerging as strong intermediaries in the retail finance space. Going forward, one should expect NBFCs to further strengthen theirpresence in retail finance and grow at a reasonably healthy pace.

Threats

The biggest challenge before NBFCs is that they are facing stiff competition from banks and financial institutions, due to their ability to raise low-cost funds which enables them to provide funds at a much cheaper rate. More stringent capital adequacy norms have been stipulated by RBI for NBFCs which is making it difficult for them to give cheaper finance. Ever-increasing competition from commercial counterparts whose capacity to absorb losses is higher, counter- party failures and recommendations being made to increase the purview of monitoring by regulatory authorities increase the threat of losing the essence of Non-banking Finance Companies which are specifically designed to reach out and finance certain target groups.

Financial Performance

The details of the financial performance of the Company is given below:

(Rs. In lakhs)

Particulars	For the year ended March 31, 2023	For the year ended March 31, 2022
Total Revenue	180.39	135.97
Total Expense (Excluding Depreciation)	176.27	131.14
Gross Profit before depreciation and tax	3.51	4.83
Net Profit After Tax	2.63	3.62
Balance of Profit brought forward	99.98	97.09
Balance available for appropriation	2.63	3.62
Earning Per Shares (EPS) Basic
Diluted	0.014	0.020
	0.014	0.020

During the year under review, the Company generated total revenue of Rs 180.39 Lakhs as compared to 135.97 Lakhs of the previous financial year. The Company achieved net profit of Rs 2.63 Lakhs as compared to Rs 3.62 Lakhs in the previous financial year. The directors are continuously looking for new avenues for future growth of the Company.

Key Ratios

Key Ratios on a Consolidated Basis

Ratio	Formula	Numerato r	Denominator	CY	PY	%Variatio n	Reason
Current Ratio	[Current Assets/Current Liabilities]	Current Asset	Current Liability	0.01	0.69	-99%	Due to increase ICD
Debt Equity Ratio	[Debt/Shareholder s Equity]	Debt	Shareholders Equity	-	-	0%	Borrowings NA
Debt Service Coverage Ratio	[Net Operating Income/ Total Debt Service]*	Earning available for debt service*	Total Debt Service*	-	-	0%	NA
Return on Equity Ratio	[Profit after tax for the year/ Shareholders Equity]	Profit after tax	Average Shareholder s Equity	0.001	0.002	002028%	NA
Inventories Turnover Ratio	[COGS/ (Average Inventories)]	COGS	Average Inventories	-	-	0%	NA
Trade Receivable s Turnover Ratio	[Revenue from Operations/ Average Trade Receivables]	Revenue from Operations	Average Trade Receivables	-	-	0%	NA
Trade Payables Turnover Ratio	[Total Purchases/ Average Trade Payables]	Total Purchases	Average Trade Payables	-	-	-	NA
Net Capital Turnover Ratio	[Revenue from Operations/ Average Working Capital]	Revenue from Operations	Working Capital	(0.21)	(18.69)	-99%	Due to increase ICD Borrowings
Net Profit Ratio	[Profit after Tax/ Revenue from Operations]	Profit after tax	Revenue from Operations	0.01	0.03	-47%	Due to increase ICD Borrowings
Return on Capital Employed	[EBIT/ Capital Employed*]	EBIT	Capital Employed*	0.001	0.002	-48%	Due to increase ICD Borrowings
Return on Investment	[Profit after tax/ Capital Employed*]	Profit after tax	Capital Employed*	0.00	0.00	-48%	Due to increase ICD Borrowings

Investments/Developments

India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. The banking regulator has allowed new entities such as payment banks to be created recently, thereby adding to the type of entities operating in the sector. However, financial sector in India is predominantly a banking sector with commercial banks accounting for more than 64% of the total assets held by the financial system. In September 2021, the international branch of the National Payments Corporation of India (NPCI), NPCI International Payments (NIPL), has teamed with Liquid Group, a cross-border digital payments provider, to enable QR-based UPI payments to be accepted in 10 countries in north and southeast Asia. The Central Government met its fiscal deficit target of 6.4% of the GDP supported by higher nominal GDP growth, robust tax collections and subsidy rationalisation. The Governments push towards infrastructure creation led to a CAPEX growth of 24% (y-o-y) in FY23. In July 2021, Indias largest commodities derivatives exchange, Multi Commodity Exchange of India Ltd., and European Energy Exchange AG (EEX) signed a memorandum of understanding (MOU) with the goal of knowledge sharing and expertise exchange on electricity derivative products. This MOU will make it easier for the two exchanges to collaborate in areas including knowledge sharing, education and training, and event planning in the field of electricity derivatives. The government has approved 100% FDI for insurance intermediaries and increased FDI limit in the insurance sector to 74% from 49% under the Union Budget 2021-22.

Government Initiatives

The Government of India has taken various steps to deepen reforms in the capital market, including simplification of the IPO process, which allows qualified foreign investors (QFIs) to access the Indian bond market. In 2019, investment in Indian equities by foreign portfolio investors (FPIs) touched five-year high of Rs. 101,122 crore (US$ 14.47 billion). Investment by FPIs in Indias capital market reached a net Rs. 12.52 lakh crore (US$ 177.73 billion) between FY02-21 (till August 10, 2020). In the Union Budget 2022-23, India has announced plans for a central bank digital currency (CBDC) which will be known as Digital Rupee. In July 2021, Rajya Sabha approved the Factoring Regulation (Amendment) Bill in 2020, enabling ~9,000 NBFCs to participate in the factoring market. The bill also gives the central bank the authority to establish guidelines for improved oversight of the US$ 6 billion factoring sector.

Reserve Bank of India (RBI) Policy Measures

The RBI also announced various measures. On September 30, 2021, the Reserve Bank of India communicated that the applicable average base rate to be charged by non-banking financial company - micro finance institutions (NBFC-MFIs) to their borrowers for the quarter beginning October 1, 2021, will be 7.95%. The Government and Reserve Bank of India (RBI) have taken various measures to facilitate easy access to finance for Micro, Small and Medium Enterprises (MSMEs). These measures include launching Credit Guarantee Fund Scheme for MSMEs, issuing guideline to banks regarding collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA). With a combined push by Government and private sector, India is undoubtedly one of the worlds most vibrant capital markets.

Financial Services -NBFC Sector

NBFCs have become important constituents of the financial sector and have been recording higher credit growth than scheduled commercial banks (SCBs) over the past few years. NBFCs are continuously leveraging their superior understanding of regional dynamics, well-developed collection system and personalised services to expedite financial inclusion in India. Lower transaction costs, quick decision making, customer orientation and prompt provision of services have typically differentiated NBFCs from banks. Considering the reach and expanse of NBFCs, these are well-suited for bridging the financing gap. Systemically important NBFCs have demonstrated agility, innovation and frugality to provide formal financial services to millions of Indians. Over the last decade, NBFCs have witnessed phenomenal growth. From being around 12% of the balance sheet size of banks in 2010, these are now more than a quarter of the size of banks. Given their large interconnection with the financial system and the importance of the NBFC in credit intermediation, the RBI has been enhancing the regulatory oversight of large NBFCs. Keeping in mind potential systemic risks that NBFCs might pose to the financial system, the RBI in its ‘Discussion Paper on Revised Regulatory Framework for NBFCs: A Scale-Based Approach (12 January 2021) seeks to balance regulatory arbitrage in favour of NBFCs and the recent growth trajectory of NBFCs by adopting a new approach towards regulating NBFCs. The first three challenges were common to banks, NBFCs and HFCs. The last, namely ‘continuing to service their own debt created severe stress for NBFCs and HFCs. The known structural arbitrage that NBFCs and HFCs enjoyed such as not maintaining a Cash Reserve Ratio (CRR) and a Statutory Liquidity Ratio (SLR) became a severe disadvantage during the pandemic. The unfolding of events after the lockdown resulted in creating a scenario of NBFCs having to provide adequaterelief on debt servicing obligations to their customers while not being granted the same relief on their liabilities. NBFCs and HFCs who had adopted prudent practices of maintaining adequate liquidity were able to tide over this problem; others could not. Thus, the business model of the NBFC sector was severely tested in FY2022. This was the fourth large external stress that the sector has faced in the last few years, namely, (i) demonetisation, (ii) GST implementation, (iii) failure of a large NBFC, and (iv) the pandemic. The fact that many NBFCs have managed to overcome these severe stresses without significant impact is a testimony to their resilience. With superior capital adequacy, better margins, frugal cost management and lower non-performing assets (NPAs), the NBFC sector is well poised to seize the opportunity provided in the post-pandemic revival cycle. The revised regulatory framework proposed by the RBI intends to make the NBFC sector more resilient.

Human Resources

The Company has a group of able and experienced employees. The Company believes that the quality of its employees is the key to its success in the long run. The Company continues to have cordial relations with its employees and provides personal development opportunities for all round exposure to them. The Directors wish to place on record their appreciation and acknowledgment of the efforts and dedication and contributions made by employees at all levels during the year under review.

Segment-wise performance

The Company has done well in all segments as we can see from the financial statements above.

The Financial and Operational Performance

The financial statement is in confirmation with provisions of the Companies Act, 2013 and applicable accounting standard recommended by the Institute of Chartered Accountants of India. The financial statement reflects the genuine desire for the transparency and best judgment for the estimates made on prudent and reasonable basis to correctly reflect the true and fair affairs of the company.

Internal control systems and their adequacy:

The Company has instituted the three lines of defence model, viz. (i) management and internal control measures, (ii) financial controls, risk management practices, security measures and compliance oversight, and (iii) a robust internal audit function providing the third level of defence. The Company has an independent internal management assurance function which is commensurate with its size and scale. It evaluates the adequacy of all internal controls and processes; and ensures strict adherence to clearly laid down processes and procedures as well as to the prescribed regulatory and legal framework. The Company has further strengthened its internal audit function by investing in domain specialists to increase effectiveness of controls. The internal controls and risk management practices are validated periodically with suitable review mechanisms in place. The Internal Control over Financial Reporting (ICOFR) is the bedrock for the risk and control framework for the Company. The Companies Act 2013 requires the Board of Directors and statutory auditors of the Company to comment on sufficiency and effectiveness of internal controls.

Our strategy:

Expansion of existing activities. Financial Management/Advisory Services.

Brand recognition Retention of customer base with a holistic association approach. Constant strengthening of risk framework.

Risks & concerns:

Risk management involves identification of risk, assessing the impact on business if a security incident occurs, and making the right financial decision about how to deal with the results of ones assessment. As an NBFC, The Company is exposed to credit, liquidity, market and interest rate risk. It continues to invest in talent, processes and emerging technologies for building advanced risk management capabilities. Over years, sustained efforts to strengthen its risk framework have resulted in stable risk metrics for the Company . It monitors asset liability mismatches to ensure that there are no imbalances or excessive concentrations on either side of the balance sheet.

Operational risk is the risk of loss resulting from inadequate or failed internal processes, systems or human factors, or from external events. The goal is to keep operational risk at an appropriate level relative to the characteristics of its businesses, the markets in which it operates and the regulatory environment. The businesses, along with support units and operations, play a critical part in managing operational risk on a daily basis, in addition to implementing internal control-related policies and procedures. Continuous monitoring of risk is carried out at multiple levels through Key Risk Indicators (KRI).

Compliance

The Compliance function of the Company is responsible for independently ensuring that operating and business units comply with regulatory and internal guidelines. The Compliance Department of the Company is continued to play a pivotal role in ensuring implementation of compliance functions in accordance with the directives issued by regulators, the Companys Board of Directors and the Companys Compliance Policy. The Audit Committee of the Board reviews the performance of the Compliance Department and the status of compliance with regulatory/internal guidelines on a periodic basis.

Road ahead

India is expected to be fourth largest private wealth market globally by 2028. Indias insurance industry has huge growth potential. Indias insurance market is expected to reach US$ 250 billion by 2025. It also offers an opportunity of US$ 78 billion of additional life insurance premiums from 2020-30. India is today one of the most vibrant global economies on the back of robust banking and insurance sectors. The relaxation of foreign investment rules has received a positive response from the insurance sector, with many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the coming quarters, there could be a series of joint venture deals between global insurance giants and local players. The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in AUM to Rs. 95 lakh crore (US$ 1.47 trillion) and more than three times growth in investor accounts to 130 million by 2025. Indias mobile wallet industry is estimated to grow at a Compound Annual Growth Rate (CAGR) of 150% to reach US$ 4.4 billion by 2022, while mobile wallet transactions will touch Rs. 32 trillion (USD$ 492.6 billion) during the same period.

Cautionary

The Board of Directors have reviewed the Management Discussion and Analysis prepared by the Management, and the Independent Auditors have noted its contents. Statement in this report of the Companys objective, projections, estimates, exceptions, and predictions are forward lookings tatements subject to the applicable laws and regulations. The statements may be subjected to certain risks and uncertainties.

Disclaimer

All the data used in the initial sections of this report has been taken from publicly available resources and discrepancies, if any, are incidental and unintentional.