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(I) Business Overview

1. Global Economy

The global economy appears poised for a gradual recovery from the powerful blows of the pandemic and of Russias unprovoked war on Ukraine. China is rebounding strongly following the reopening of its economy. Supply-chain disruptions are unwinding, while the dislocations to energy and food markets caused by the war are receding. Simultaneously, the massive and synchronous tightening of monetary policy by most central banks should start to bear fruit, with inflation moving back toward its targets. According to IMF, global growth will bottom out at 2.8 percent this year before rising modestly to 3.0 percent in 2024

Notably, emerging market and developing economies are already powering ahead in many cases, with growth rates (fourth quarter over fourth quarter) jumping from 2.8 percent in 2022 to 4.5 percent this year. The slowdown is concentrated in advanced economies, especially the euro area and the United Kingdom, where growth (also fourth quarter over fourth quarter) is expected to fall to 0.7 percent and -0.4 percent, respectively, this year before rebounding to 1.8 and 2.0 percent in 2024

2. Indian Economy

Investors continue to demonstrate confidence in India as one of the most promising growth economies in current decade despite the gloom in global economies. Economic indicators in early 2023 continue to signal expansionary economic conditions, although the pace of economic growth has moderated in recent quarters. After rapid economic growth in the April-June 2022 quarter, driven by post-pandemic pent-up demand, growth moderated in the second half of 2022 as higher inflation, tighter monetary policy, and a weaker rupee reduced demand. The economy grew by 4.4% from a year ago during the third quarter of 2022-23 following a 6.3% growth in the previous quarter. Moderation in consumption demand (viz. government consumption) and investments has been a drag on overall economic growth in the quarter gone by. The International Monetary Fund (IMF) expects India to grow by 5.9% in FY 2023-24 and by an average rate of 6.1% over the next five years

Despite the global slowdown, exports performed well, probably because of the depreciated currency against the dollar. While goods exports remained modest, Indias services exports skyrocketed by 30% between April and February. A strong digitization drive the world over, cost-cutting measures by businesses to deal with the impending slowdown, and the growing trend of remote working increased demand for exports of services in technology, where India has a comparative advantage. Interestingly, the share of business and professional services in total services exports also increased as companies globally now prefer outsourcing a wide range of professions, such as accounting, audit, R&D, quality assurance, and after-sales service

The governments effort to consolidate its expense instils confidence that it may reduce the fiscal deficit to below 4.5% by 2025-26, with a fairly steady decline over the period as charted in the FY2023 budget

Rapidly tightening monetary policies by Central Banks across industrial economies have led to a global liquidity freeze and tighter credit conditions, making it expensive and difficult for businesses to borrow. Global uncertainties and geopolitical shifts have restructured supply chains and altered trade flows and relationships. All of these have led to lower visibility of future demand for products and services, thereby deterring investors to incur large expenses on futuristic projects

Net new foreign direct investment into India has risen very rapidly in recent years, with FDI reaching a new record level of USD 84 billion in the 2021-22 fiscal year, after inflows of USD 82 billion in the 2020-21 fiscal year. Rapid growth in FDI inflows has been evident over the past decade, with technology-related FDI having become an important source of investment

The acceleration of foreign direct investment inflows into India over the past decade reflects the strong long-term growth outlook for the Indian economy. Indias nominal GDP measured in USD terms is forecast to rise from USD 3.5 trillion in 2022 to USD 7.3 trillion by 2030. This rapid pace of economic expansion would result in the size of the Indian GDP exceeding Japanese GDP by 2030, making India the second largest economy in the Asia-Pacific region. By 2022, the size of Indian GDP had already become larger than the GDP of the UK and also France. By 2030, Indias GDP is also forecast to surpass Germany

Investments to play a significant role over the next two years while betting on consumption-driven growth is obvious given Indias large, young, and rising share of the upper middle-income population (having a high propensity to spend). India remains an attractive investment destination. The digital transformation of India that is currently underway is expected to accelerate the growth of e-commerce, changing the retail consumer market landscape over the next decade

By 2030, 1.1 billion Indians will have internet access, more than doubling from the estimated 500 million internet users in 2020. Overall, India is expected to continue to be one of the worlds fastest growing economies over the next decade

3. Private Equity

2022 was a year of recalibration for PE-VC investments in India, declining from the record highs of $70 billion in 2021 to $62 billion in 2022 amid global headwinds. Structural enablers helped India surpass $60 billion in investments for a third time in a demonstration of resilience. The year saw sustained deal volumes with small-sized deals (less than $100 million) contributing a larger share of overall deal flow (from 24% to 31%). Blockbuster deals (greater than $1 billion) in VC and private equity buyouts saw significant deceleration

IT/ITeS buyouts, commanding a share of $10 billion of the all-time high in buyout value of $16 billion in 2021, contracted as multiple IT sector deals failed to close due to a mismatch in valuations. The increasing cost of credit and rise in hedging costs also put a damper on buyout activity. Traditional sectors like BFSI, energy, healthcare, and manufacturing grew by around 50% in 2022 due to robust domestic demand. Consumer tech faced challenges amidst uncertainty in business models and unit economics while IT/ITeS (IT Services) faced challenges in export demand driven by an uncertain global environment, with investment value in the sectors declining by 60% to 70%. PE investment into Indian real estate fell sharply by 95 per cent in January-March 2023 to $45 million amid global uncertainties, according to property consultant

Exit activity slowed in 2022 to $24 billion across all modes of exit after an all-time high of $36 billion in 2021, but surpassed activity seen pre-2021. Traditional sectors dominated the share of exits greater than $100 million, with healthcare and manufacturing showing the largest increase in exit value. Secondary sales volume declined by around 35% over 2021 to 2022, and the public market exit route through IPOs came to a halt, as many companies deferred listings with 2021s new- age internet start-up listings underperforming on the public markets

Furthermore, recent events in the global financial world, including the collapse of Silicon Valley Bank and the contagion spreading to other mid-market US banks, have contributed to the overall uncertainty. The growth outlook for PE investors is driven by investment in companies and sectors that cater to a large untapped credit population, increasing consumption by a growing middle class, openness to credit, and an increasing ability of players to offer credit through offline and digital expansion. Indias BFSI and fintech sectors are at the forefront of this trend and is expected to see a resurgence in interest. The PE industry has sufficient dry powder on the back of a flurry of fund-raises following 2021s activity to drive investments in these sectors

(II) Analysis of Performance for the year ended March 2023

1. Business Review

As in the past, the Fund team continued to focus on undertaking portfolio divestments, thereby enabling return of capital to Fund investors. The Fund teams also successfully furthered the various litigations, paving the path to further divestments

2. Financial Performance

On a consolidated basis, the Income from Operations of the Company for FY2023 was Rs 644.46 mn and Other Income was Rs 110.68 mn. Accordingly, the Total Income on a consolidated basis for FY2023 was Rs 755.13 mn. The Total Expenses on consolidated basis were Rs 570.89. The resultant Profit Before Tax and Exceptional Items on a consolidated basis for FY2023 was Rs 216.17 mn

(III) Outlook for the Financial Year 2023-2024

The adverse developments at the IL&FS Group have impacted all IIMLs business plans for revenue growth. The newly constituted IL&FS Board has been working on a resolution plan for IL&FS Group. This plan calls for selling identified assets of IL&FS Group. In this regard, IL&FS has initiated the process to sell its holding in IIML. However, IL&FS has recently informed us that the sale process undertaken by them for selling their stake in IIML has not materialized. In view of this development IIML expects that IL&FS will take necessary steps to address this issue and take steps for selling their stake in IIML again

(IV) Business Segment and Human Resources

The Company presently operates in one business segment - fund management and related services

The adverse developments at IL&FS have had an adverse impact on employee morale, and the Company has witnessed significant number of employee departures. IIML is in the fiduciary business of managing third party money and therefore human capital is key to monitoring and continuing the business model and further its sustainability

The Company presently has 17 employees, including 4 sub-staff

(V) Internal Control Systems

The Company has an adequate system of internal controls to ensure accuracy of accounting records, compliance with all laws and regulations and compliance with all rules, processes and guidelines prescribed by the Management

An extensive internal audit is carried out by an independent firm of Chartered Accountants. Post audit reviews are also carried out to ensure follow up on the observations made. The scope of the internal audit is determined by the Audit Committee and the internal audit reports are reviewed by the Audit Committee on a regular basis. The suggestions and recommendations by the Internal Auditors are implemented in a time bound manner to ensure that the internal controls and systems are adequate

The Internal Auditors also review all Related Party Transactions of the Company and provide the necessary reports to the Audit Committee on a periodic basis

(VI) Significant Changes

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor, is as follows :

March 31, 2023 (Rs in lakhs) March 31, 2022 (Rs in lakhs) Explanation
(i) Debtors Turnover
Trade Receivables 0.00 220.40 Trade receivables are NIL as full provision for ECL has been made against the same
Turnover 3,521.20 2,434.48
Ratio N.A. 11.05
(ii) Inventory Turnover N.A. N.A.
(iii) Interest Coverage Ratio N.A. N.A.
(iv) Current Ratio
Current Asset 10,865.45 10,122.59 The current ratio has reduced due to increase in Income tax receivables during the year
Non Current Asset 782.33 473.75
Ratio 13.89 21.37
(v) Debt Equity Ratio N.A. N.A.
(vi) Operating Profit Margin (%)
PBT 2,362.20 1,203.98 Profitability has increased due to receipt of dividend from a subsidiary and a Joint Venture. There is also an increase in fair value gain on investments
Turnover 3,521.20 2,434.48
Ratio 67.09% 49.46%
(vii) Net Profit Margin (%)
PAT 2,400.97 1,249.67 Profitability has increased due to receipt of dividend from a subsidiary and a Joint Venture. There is also an increase in fair value gain on investments
Turnover 3,521.20 2,434.48
Ratio 68.19% 51.33%
(viii) Return on Net Worth (%)
Net worth 11,283.80 10,091.32 There is improvement due to higher profits during the year
PAT 2,400.97 1,249.67
Ratio 21.28% 12.38%