TCI Finance Ltd Management Discussions

Industry Structure and Developments Business Environment

TCI Finance Limited (TCIFL or the Company), is a non-deposit taking Non-Banking Financial Company (NBFC) registered with RBI and classified as an NBFC-non deposit taking Company. TCIFL engaged in the business of financial services.

NBFC Sector is passing through a critical phase at this juncture. Recent failures of certain large Non-Banking Financial Companies (NBFCs), severe liquidity strain confronting the sector and the consequent financial stability concerns have brought NBFC regulations back into focus.

INDUSTRY AND ECONOMIC SCENARIO

The Indian economy has been consistently outperforming all other leading economies over the last few years with respect to both GDP growth as well as other macro-economic factors. This is primarily backed by the governments strong infrastructure push and slow-but-steady revival in private consumption as reflected in the uptick in several high frequency indicators such as Index of Industrial Production (IIP), GST collections, sales of consumer durables, two- wheelers and passenger cars, and system credit and deposit growth. The economy has also shown significant resilience to external factors such as supply chain disruptions, growing geopolitical tensions, inflationary pressures, and weakness in global demand, further underscoring the strength of its underlying fundamentals.

In FY 2023-24, India continued to surpass all market estimates quarter on quarter and closed the financial year with 8.2% Year on Year ("YoY") growth. We have also demonstrated strong fiscal consolidation in recent years with fiscal deficit for FY 2023-24 declining to 5.6% (vs originally budgeted at 5.9%). Our Monetary Policy Committee ("MPC") has been successful in navigating the high interest rate environment and maintaining the retail inflation within its target range of 4-6% in recent months (4.85% in March 2024). Indias external position also remains healthy with forex reserves touching an all-time high of $651.5 Billion providing it with a comfortable import cover. Despite geopolitical uncertainties, Indian markets have also continued to attract healthy foreign portfolio investment of Rs. 3.4 lakh crore in FY 2023-24. Indias growing importance in international markets is further underscored by JPMorgans announcement regarding Indias inclusion in its emerging market debt index in FY 2024-25.

All of these are reflected in S&P Global Ratings upgrade of Indias sovereign rating outlook to positive from stable while retaining the rating at BBB- in May 2024. As per the agency, the rating draws support from Indias sound economic fundamentals underpinning the growth momentum in the coming years and the expectation of broad continuity in economic reform and fiscal policies by the government even after the 2024 elections.

The financial services segment, and in particular NBFCs & HFCs, has been a key facilitator of this economic growth. Credit growth has remained robust in FY 2023-24 backed by strong demand from consumers, the Government of Indias ("GoIs) push on financial inclusion, and ever-improving access to credit by way of increasing focus on digitalisation across the industry. We believe that we have also reached the peak of this rate-hike cycle and may see some cuts towards the later half of FY 2024-25. These factors, coupled with decade-low Non-Performing Assets ("NPAs") and an actively evolving regulatory framework, pave way for healthy double-digit credit growth in the coming years as well. The growth is likely to be broad-based across segments with some moderation expected in the unsecured products. While margins may see some pressure due to elevated interest rates in the short term, overall the sector is expected to report healthy operating performance in over a longer term.

Opportunities

The biggest opportunity for financial services sector in India currently lies in the sheer size of the economy. India is now the 5th largest economy worldwide and well on its way to become the 3rd largest within this decade. The GoIs infrastructure push, revival in private capex, growth of the SME ecosystem, increasing consumer demand, and potential of demographic dividend are all expected to drive this growth. Further, the current credit penetration in India - Credit to GDP ratio - remains low at ~70% compared to other larger economies; this is expected to sharply increase over the next decade backed by rapidly developing digital public infrastructure and a notable improvement in the credit appetite seen across segments. All of this indicates a significant market opportunity of INR 500 lakh crore+ for all lenders in the country.

With increasing financial inclusion, a large part of this opportunity shall arise from the deeper markets, where both banks and non-banks have started making significant inroads. This has led to both larger and smaller players alike to increasingly adopt a phygital strategy allowing them to cater to this largely new-to-credit base in a cost-effective manner, leveraging both physical presence alongwith superior digital capabilities. Further, the sector is also witnessing a collaboration between incumbents and new age FinTechs for both capability building as well as distribution that has helped the former to provide their customers with a seamless experience, creating win-win propositions for all stakeholders involved in the lending lifecycle.

Threats

While theres every reason to be optimistic about Indias growth story, the sector may face some headwinds in the coming year - elevated cost of funds, margins under pressure, availability of funds for smaller non-banks, and some moderation in asset quality. While the current macroeconomic environment has been stable with overall inflation well within the target range since the start of the year, the rate cuts are not expected to kick-in at least till later part of the year. As a result, margins are expected to remain under pressure. In addition, the lower-than-expected deposit mobilization for the banks may impact their borrowing costs as well as their ability to extend credit to various sectors including NBFCs. This may further impact the non-banks. Furthermore, with recent increase in the unsecured portfolio for several players, the sector may see some moderation in the asset quality.

Segment-wise or product-wise performance of the Company

The Company is a NBFC. It is engaged in the business of financing which is the only segment in the Company. Hence, the results for the year under review pertain to only financing activity.

The Companys total Revenue from Operations during the year were Rs. 135.34 Lakhs and the net loss is Rs. (47.97) Lakhs as against Rs. (251.03) lakhs respectively in the previous year.

Outlook

The Company being an investment company seeks opportunity in the capital market. The Volatility in stock indices represents both an opportunity and challenge for the company. We continue to see significant opportunities in the market for long term.

The company carry shares and securities in its books. The effect of mark to market thereon have been taken into account for the year. The Company will continue to monitor for any material changes to future economic conditions.

Risks and concerns

The Company recognizes that risk is an integral and unavoidable component of business and is committed to managing the risk in a proactive and effective manner. The Company is an NBFC Company registered under RBI and categorized as a Loan Company. In todays challenging and competitive environment, strategies for mitigating inherent risks in accomplishing the growth plans of the Company are imperative. The common risks for the Company are financial risks, credit risk, liquidity risk, market risk, etc.

Risk mitigation is also an exercise aiming to reduce the loss or injury arising out of various risk exposures. The Company adopts a systematic approach to mitigate risks associated with accomplishment of objectives, operations, revenues and regulations. The Company believes that this would ensure mitigating risks proactively and help to achieve stated objectives.

The NBFC industry in general faces the risk of re-entry and new entry of players and existence of several unorganized regional players increasing the competition which mainly affects the asset quality. This is further characterized by captive NBFCs floated by other business houses. The ever existing systemic and delinquency risks and fluctuations in interest rates and risk weight make the companies more vulnerable. Deployment of funds in sensitive and volatile sectors increases the risk exposure while concentration risk increases dependency.

Internal Control Systems and their adequacy

Internal Control measures and systems are established to ensure the correctness of the transactions and safe guarding of the assets. The Management ensures adherence to all internal control policies and procedures as well as compliance with regulatory guidelines. The audit committee of the Board of Directors reviews the adequacy of internal controls. This has improved the management of the affairs of the Company and strengthened transparency and accountability.

The Companys Internal Financial Control System is commensurate with the size, scale and complexity of its operations. The Company has in place policies and procedures required to properly and efficiently conduct its business, safeguard its assets, detect frauds and errors, maintain accuracy and completeness of accounting records and prepare financial records in a timely and reliable manner. Further, your Companys Internal Financial Controls (IFC) has been reviewed and actions have been taken to strengthen financial reporting and overall risk management procedures. Detailed procedural manuals are in place to ensure that all the assets are safeguarded, protected against loss, proper prevention & detection of frauds & error, the accuracy and completeness of the accounting records, and all transactions are authorized, recorded and reported correctly.

The Internal Auditors monitor and evaluate the efficiency and adequacy of Internal Financial control system in the Company, its compliance with operating systems, accounting procedures and policies. To maintain its objectivity and independence, the Internal Auditors report directly to the Chairman of the Audit Committee of the Board, all the significant audit observations and follow up actions thereon. Both Statutory Auditor on quarterly basis and Internal auditor on annually basis have sessions with the Audit committee. The Internal audit reports are placed before the Audit committee on annual basis and all findings and observation, if any are recorded thereon. The said observation and comments, if any of the Audit Committee are placed before the board. The Internal Auditor is a permanent invitee to the Audit Committee Meetings. The Audit Committee advises on various risk mitigation exercises on a regular basis.

The audit committee also reviews reports submitted by the management and audit reports submitted by internal auditors and statutory auditors on periodic basis. Suggestions for improvement are considered and the audit committee follows up on corrective action. The audit committee also meets companys statutory Auditor to ascertain, inter alia their views on the adequacy of internal control systems and keeps the board of directors informed of its major observations, if any, periodically.

Your Board is of the opinion that the Internal Financial Controls, affecting the Financial Statements of your Company are adequate and are operating effectively.

Discussion on Financial Performance with respect to operational performance

TCI Finance Limited follows accrual basis of accounting under the historical cost convention. It has adopted Indian Accounting Standards ("Ind AS") notified under section 133 of the Companies Act 2013 ("the Act") read with the Companies (Indian Accounting Standards) Rules, 2015 from April 1,2019 and the effective date of such transition is April 1,2018. Your company is a small sized, BSE and NSE listed, Non Banking Financial Company (NBFC).

The Companys total Revenue from Operations during the year were Rs. 135.34 Lakhs and the net loss is Rs. (47.97) Lakhs as against Rs. (251.03) lakhs respectively in the previous year.

The loss in the current year is mainly on account of provision for impairment of its investment in and loans granted to Mahendra Investment and Advisors Private Limited.

The Company is in the process of identifying various alternatives/ new areas to venture into for reviving the Company. Material Developments in Human Resources/Industrial Relations

The Company always considers its human resources as a valuable asset and is committed towards their development for continuous growth. Focus on training to enhance the skill-sets of employees in line with the business and market requirements continued throughout the year and it confers rewards and recognition based on merit.

The employee relations have continued to be harmonious throughout the year. The Company has 4 permanent employees as on 31 st March 2024.

Financial Ratios (%)

Explanation

1. Debtor turnover: The reduction in the current year has been mainly on account of non recognition of interest on loans to Amrit Jal Ventures Private Limited for which provision for impairment loss has been created.

2. Interest Coverage Ratio: The reduction in Profit has been mainly on account of provision for impairment of loans and advances to Amrit Jal Ventures Private Limited.

3. Debt Equity ratio: There has been a reduction in debt equity ratio in the current year on account of provision for impairment of loans and advances to Amrit Jal Ventures Private Limited.

4. Operating Profit Margin: There has been a reduction in the operating margin on account of non- recognition of income on loans and advances to Amrit Jal Ventures Private Limited.

5. Net Profit Margin: There has been a negative Net profit margin on account of non-recognition of income and provision of impairment loss on loans and advances to Amrit Jal Ventures Private Limited.

Return on Net Worth

The Company recorded a loss of Rs. 47.97 Lakhs for FY 2023-24 as compared to the loss of Rs. 251.03 lakhs for FY 2022-23. The Net Worth of the Company Rs. (6335.98 Lakhs) as of 31st March 2024 as compared to Rs. (6285.30 Lakhs) as of 31st March 2023. Due to adverse developments in the entities to whom the company has advanced loans / given guarantees / investments made, the Company had incurred these losses and adversely affect the future income from operations. These factors substantially affected the operations of the Company.

Cautionary Statement

Statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of the applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the Companys operations include economic and political conditions in which the Company operates, interest rate fluctuations, changes in Government/ RBI regulations, Tax laws, other statutes and incidental factors.