Transwarranty Finance Ltd Management Discussions.

Background:

Transwarranty Finance Limited is a non-deposit accepting Non-Banking Finance Company ("NBFC"), holding a Certificate of Registration from the Reserve Bank of India ("RBI") engaged in a wide spectrum of financial services, both advisory and fund based lending.

The Company is headquartered in Mumbai and has a capital market subsidiary engaged in equity / commodities / currency broking and Merchant Banking.

Global Economic Overview:

Global economic growth marginally declined to 3.6% in 2018 mainly due to demand slowdown in the second half of the year, trade tensions between US and China, uncertainty about Chinas outlook, poor financial market conditions and subdued business confidence across many economies. As per the World Economic Outlook Report - April 2019, world economic growth is expected to further decelerate to 3.3% in 2019, attributable to negative effects of tariff increases enacted in US and China and an overall weak financial market sentiment.

Indian Economic Overview:

Despite global headwinds, the Indian economy emerged as the fastest growing major economy in the world, with estimated Gross Domestic Product (GDP) growth of 6.8% in 2018-19 as per the Central Statistics Offices (CSO). Demand revival is well reflected in 7.4% growth in financial, real estate and professionalservicesindustryand6.9%growthinmanufacturing in 2018-19. Rural India has seen good revival in demand with inflation under check and various government initiatives. IMF has projected growth to pick up to 7.3% in 2019-20 and 7.5% in 2020-21, supported by the continued implementation of structural reforms, easing of infrastructure bottlenecks and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy.

Industry Overview:

India has a diversified financial sector which comprises commercial banks, insurance companies, NBFCs, Housing Finance Companies, Co-operatives, Pension Funds, Mutual Funds and other smaller financial entities. The NBFC sector continues to remain at the forefront and drive new credit disbursals for Indias underserved retail and MSME space. Some of the growth drivers have been unique value proposition, regional outreach, deep understanding of the customer segment, customized product offerings and leveraging technology.

The year 2018 was a year of crisis for some of the NBFCs. Certain NBFCs could not manage asset-liability scenario and resulted in huge defaults, which further deteriorated the availability of the funding for NBFCs. The outlook for NBFCs for 2019 seems weak, but a gradual improvement in the liquidity situation could be expected in in the coming months.

Review of operations of the Company:

The Company along with its subsidiaries achieved consolidated revenue of Rs.1868.66 lakhs compared to Rs.1782.29 lakhs in the previous year. On a standalone basis the revenue is marginally higher at Rs1084.68 lakhs compared to Rs962.49 lakhs in previous year. This was mainly due to increase in share trading activity from Rs.571.42 lakhs in 2018-19 as compared to Rs384.60 lakhs in the previous year.

The Company has business advisory services consisting of Trade Finance, Corporate Finance and Investment Banking. Revenue from business advisory services has remained at almost same level of Rs455.74 lakhs in current year as compared to Rs449.96 lakhs in previous year.

The lending business against security of gold jewelry, has lost its shine due to various government measures and stringent directives by RBI to banks and NBFCs. As a result the company had decided to lower its exposure to gold lending business.

The Company has commenced personal and consumer lending business on digital platform in the second half of the year. The initial response has been very encouraging and there is huge potential to scale up the business. The company is taking necessary steps to upgrade the technology platform and to put in place the systems commensurate with higher scale of operations.

Strengths, Weakness, Opportunities and Threats (SWOT) analysis:

Strengths:

Professional and ethical management

Stringent cost control

Follows risk management systems

Weakness:

Limitations in getting funding due to low scale of business operations

Opportunities:

Scalability of digital lending business

Wealth management

Distribution of various financial products

Use of technology for scaling up

Threats:

Exposed to systemic risks like political and economic risks

Business Outlook:

TRANSWARRANTY, an RBI registered NBFC is active in a wide gamut of Financial Services like Corporate Finance, Project Finance, Trade Finance, Gold Loans, Margin Finance, Stock / Commodities / Currencies / Interest Rates / Other Derivatives Broking, Inter-Bank Forex Broking, Merchant Banking, Investment Banking etc. Excellent domain expertise combined with a strong client and institutional relationship network nurtured over last 25 years has ensured that all the Companies in the group are well poised to unlock value for its shareholders in the fast evolving financial landscape in India.

TRANSWARRANTY conducts all regulated capital market businesses through its subsidiary company, Vertex Securities Limited (listed on BSE), which in turn has a subsidiary company, Vertex Commodities And Finpro Pvt. Ltd. for the commodities and currency broking business.

Both the companies are well placed to exploit the opportunities when the economy begins to accelerate and industrial activity picks up. The scale up in fund based digital lending business is likely to boost the revenue. The company is also exploring equity capital from strategic / financial investors for the fund based lending business.

Financial Review:

The following table presents companys standalone abridged financials for the year 2018-19 along with comparatives for the previous year.

( Rs in Lakhs)
Particulars 31 March, 2019 31 March, 2018
Revenue from operations 1081.32 951.51
Other income 3.36 10.98
Total revenue 1084.68 962.49
Purchases-Stock-in-Trade 571.53 382.48
Employee Benefit expenses 153.13 190.13
Finance costs 72.75 26.60
Depreciation and amortization expense 24.49 60.88
Other expenses 246.84 267.44
Total expenses 1068.75 927.52
Profit before exceptional items and taxes 15.93 34.96
Exceptional items (net) - income / (expense) 0 22.24
Profit before tax 15.93 12.73
Tax expenses 3.28 4.60
Profit for the year 12.65 8.12

Key Ratios

Particulars 2018-19 2017-18
PBT/Total Income 1.47% 1.32%
PBT/Total Assets 0.30% 0.27%
RONW (Avg. Net Worth) 0.48% 0.39%
Debt/ Equity 0.73:1 0.50:1
Capital Adequacy 41.06% 44.64%
Tier I Capital 39.28% 43.20%
Tier II Capital 1.78% 1.44%

There is no significant change (i.e. change of 25% or more as compared to the immediately previous financial year) in the key financial ratios.

Risk Management:

Risk Management is an integral part of the Companys business strategy. The Company is exposed to specific risks that are peculiar to its business including interest rate volatility, economic cycle, market risk and credit risk. The management continuously assesses the risk and monitors the business and risk management policies to mitigate the risk.

Internal Control Systems and Their Adequacy:

The Companys internal control system is designed to ensure operational efficiency, protection and conservation of resources, accuracy and promptness in financial reporting and compliance with laws and regulations. The internal control system is supported by an internal audit process for reviewing the adequacy and efficacy of the Companys internal controls, including its systems and processes and compliance with regulations and procedures. Internal Audit Reports are discussed with the Management and are reviewed by the Audit Committee of the Board which also reviews the adequacy and effectiveness of the internal controls in the Company.

Human Resource Development:

The Company believes that the human resources plat a vital role in giving the company a competitive edge. The Companys philosophy is to provide congenial work environment, performance oriented work culture, knowledge acquisition/ dissemination, creativity and responsibility. As in the past, the Company has enjoyed cordial relations with the employees at all levels. Our employee strength is 22 as on 31st March, 2019.

Cautionary statements:

Statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, expectation may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied.

For and on behalf of the Board of Directors
Kumar Nair
Place: Mumbai Chairman
Date: 29 August, 2019 (DIN 00320541)