Hemant Kanoria - Chairman

Dear Shareholders,

The year under review has been a very challenging one for the Non Banking Financial Sector in India, especially after the IL&FS episode in September 2018. The infrastructure sector in India has also been facing challenging times. But, your Company has strongly withstood the storms and is well ensconced in its re-engineered financing activities. The Indian economy has slowed down in comparison to the previous years and also there has been a slowdown globally. The General Elections in India just got over, and the National Democratic Alliance (NDA) government is back with a stronger mandate for the next five years which, we all hope, will enable them to build a stronger India in all respects.

Economy and business outlook

During the year under review, protectionism has been on the rise across the globe. Most developed nations are finding it increasingly difficult to propel growth. On top of that, the tariff-related trade tension between the two largest economies has only added to the sense of uncertainty. Until and unless the leaders of these two super-powers sit across the table to iron out the issues, any escalation in their trade conflict can have far reaching impact on other economies and can drag down global growth further. In fact, the US has not restricted its tariff war against China only, several other trade partners, including India, are now being targeted. This can have a major impact on commodity prices as well. With international funding agencies like the World Bank and International Monetary Fund forecasting slower growth in this year and the next, the only positive fallout from this is perhaps the change in stance amongst the central banks in the developed nations. While they had earlier embarked on a process of unwinding their monetary expansion programmes, the recent developments have made them to pause.

On the domestic front, a marked slowdown is visible in capital goods formation and the manufacturing sector. Lower economic activity is getting reflected in lower tax collections as well. The government, sensing the seriousness of the situation, has already initiated discussions with the various stakeholders and we expect swift action to address all the concern areas. An infrastructure-led pump-priming of the economy looks very much on the cards. Right now, creating employment is one of the top priorities for the government, and there can be no better way to do this than by stepping up infrastructure creation. Jobs for the semi-skilled and unskilled people will be created in large numbers.

During the year under review, the sheen on the India Growth Story remained intact. India once again moved up in the World Bank’s ‘Ease of Doing Business’ survey. Progress on the Insolvency & Bankruptcy Code (IBC) has been slower than expected, but it has nonetheless ushered in a healthy credit culture, and this will reap rich dividends in terms of attracting more investments to India. The roll-out of the Goods & Services Tax (GST) has considerably expanded the tax base, formalised larger segments of the economy and heralded a transparent way of doing business. Further rationalisation of the GST tax rates will provide a huge boost to entrepreneurship.

The cumulative impact of all these has been India’s rising appeal as an investment destination amidst a scenario of global slowdown. India recorded a total FDI (equity + re-invested earnings + other capital) of USD 64.4 billion during the year under review, up from USD 61 billion in 2017-18. For the first time, India’s total exports (goods and services combined) surpassed the USD 500 billion mark. With a foreign exchange reserve of more than USD 420 billion, India is prepared to weather any probable global turbulence.

The Union Budget 2019-20, to be presented in July, is likely to provide clarity on the direction of reforms that this government will undertake. If the Interim Budget 2019-20 was any indication, we feel this government will focus more on the social sector and, in particular, will aim to uplift the standard of living of the rural masses. Going forward, we foresee a major push in the construction of roads and highways and rural infrastructure. The forecast of a near-normal monsoon and government’s steps to spur the rural economy will trigger brisk activity in the agrarian sector.

Company outlook

During the year under review, your Company posted a consolidated income of Rs. 6,470 crore (an increase of 20 per cent over last fiscal’s Rs. 5,400 crore) and registered a net profit of Rs. 487 crore (a 29 per cent jump over last year’s Rs. 377 crore). Your Company’s consolidated disbursements stood at Rs. 21,229 crore, marginally below last year’s figure. The consolidated shareholders' fund of your Company stood at Rs. 4,111 crore, while the consolidated assets under management stood at Rs. 47,070 crore. Thus, clearly your Company’s performance has remained strong during the year under review.

It is worth noting that the second half of the year under review has been quite challenging. The NBFC sector faced a severe liquidity shortage in the aftermath of the IL&FS episode in September 2018. The flow of funds to NBFCs dried up from institutional sources. However, your Company, because of its prudent risk management practices and foresight, has weathered this crisis well. It was a strategic move on part of the management to go slow on disbursements and to focus more on the credit quality. This conservative approach has rewarded us. While there was some marginal fall in our disbursements and in the assets under management, the growth in income and net profit remained firmly on track. It is also worth noting that your Company is now the only one in its category which is still standing tall. Our sound business model has helped us withstand many a systemic shock in the last 30 years and every time we emerged stronger. This time too it will be no different.

Reserve Bank of India (RBI) acted proactively and introduced a number of steps to help the NBFC sector to deal with the liquidity situation. One such step has enabled your Company to undertake co-lending with banks. This will work out to be a win-win situation for us and our bank-partners. While the banks will provide the bulk of funds for co-lending, we will add value with our excellence in management of economically productive assets. Thus, co-lending will allow your Company to bring down the leverage on the balance sheet and at the same time bring down our cost of capital. From here onwards, we are headed for a more volume-driven game with a focus on improving the return on equity. So far, your Company has tied up with five public sector banks.

Taking note of the fact that technology will be the defining factor behind one’s competitiveness in the digital age, the management of your Company has been extensively investing in technology. The Company has built resilient operations and embraced digitalisation. An interactive platform has been introduced which has received encouraging response from our customers and vendor partners. To ensure that digitalisation plays an integral part in our future innovations, your Company is also investing in training to create a smart, future-ready workforce.

The management is also keenly following the developments on the IBC front as we expect several brownfield investment opportunities to open up there. Your Company, with its expertise, experience and skill-sets, is well placed to provide turn around support to some of the stressed infrastructure projects that are under the IBC resolution process.

The Indian economy, despite some signs of stress, is still growing faster than most major economies. Thus, the prospects for your Company remain bright. Equipped with the resources, processes, manpower, technology, and more importantly the experience and expertise gained over the years, your Company is keen to scale new heights in the infrastructure space. We look forward to receiving your continued support in this exciting journey ahead.

Thank You,

Hemant Kanoria