MANAGEMENT DISCUSSION AND ANALYSIS

ECONOMY OVERVIEW GLOBAL ECONOMY

The Global economy grew at a slightly faster pace in 2014, as a modest revival in the euro zone and a pickup in India helped offset slowdowns in China and Japan. While showing signs of recovery, the global economy is still struggling to gain momentum as many countries continue to grapple with various internal and global challenges. Economic challenges in Europe and emerging economies continue to be a cause for concern. Developed countries like the US, the UK, and Germany continue to recover, albeit slowly. The major economies are faced with a multitude of challenges. Compared to last year, the outlook for advanced economies has improved, while growth in emerging markets and developing economies is projected to be lower, primarily reflecting weaker prospects for some large emerging markets and oil exporting countries. Disappointing growth in other developing countries in 2014 reflected not only in weak external demand, but also domestic policy tightening, political uncertainties and supply-side constraints.

Major factors driving the global outlook include soft commodity prices; persistently low interest rates but increasingly divergent monetary policies across major economies; and weak world trade. In particular, the sharp decline in oil prices since mid- 2014 will support global economic activity. It will also help offset some of the headwinds to growth in oil-importing developing economies. However, it will dampen growth prospects for oil exporting countries, with significant regional repercussions. Overall, global growth is expected to rise moderately, to 3.0 per cent in 2015, and average about 3.3 per cent through 2017.

INDIAN ECONOMY

The Financial Year (2014-15) began on a positive note with a clear mandate to the National Democratic Alliance. During the year there has been significant reduction in crude oil prices, narrowing of the current account deficit, drop in consumer price inflation and the liquidity situation has somewhat eased on account of proactive measures taken by the Reserve Bank of India. All these have reasserted India's reputation as an attractive investment destination compared to other emerging countries. This performance comes on the back of lowered fiscal and current account deficits, easing inflation, manageable commodity prices and structural reforms initiated by the newly-instated Central Government. The banking sector in particular, has witnessed low credit growth coupled & high non-performing assets (NPAs) during the year under review. The Indian economy grew at a rate of 7.4% during 2014-15.

The outlook for the Indian economy looks good as the economy is showing signs of improvement. There is optimism around the slew of initiatives taken by the Government like 'Make in India' program, coal and telecom auctions, increased FDI limits in certain sectors, a financial inclusion effort through its Pradhan Mantri Jan Dhan Yojana and India's improved rating outlook. Monetary policy is also likely to be more supportive with the Reserve Bank of India having resorted to a flexible methodology to reduce inflation. The pick-up in rural demand would further improve economic growth.

INDUSTRY STRUCTURE & DEVELOPMENTS

NON-BANKING FINANCIAL COMPANIES (NBFCs)

NBFCs have emerged as vital intermediaries and have competed strongly with banks and financial institutions. Though, the last two years have been tough on NBFCs on account of the economic slowdown, subdued operating environment, moderation in asset growth rates, rise in delinquencies & plummeting profits; the NBFCs have steadily grown in number & have enhanced their market share, indicating the strength of their business models. The share of NBFCs has grown from 10.7% of banking assets in 2009 to 14.3% in 2014.

The competition in the NBFC sector has been increasing and the sector has been engaged in steady consolidation during the past few years and has been witness to weaker NBFCs gradually exiting, paving the way for a stronger sector. As for the loan base, the stagnation in infrastructural development, stunted growth, negative political environment of the past, & distressed business have increased the likelihood of defaults, increased restructuring of loans, which in turn could further lead to a deterioration of asset quality.

Nevertheless, in the recent months, the macroeconomic vulnerabilities at the domestic front have subsided considerably owing to the improvement in growth outlook, fall in inflation, recovery in industrial production data. Further impetus is provided by the government's commitment to enforce fiscal discipline & with the sharp decline in international oil prices, the current account deficit also remains within the comfort zone. The role of NBFCs in financial inclusion continues to be of significant importance and with their unique business models, it remains to be seen how the NBFCs will respond to the various initiatives announced by the Central Government.

The regulatory framework for NBFCs has also undergone change, with the revised RBI regulations for NBFCs being formed for strengthening the financial system, bringing the norms in line with those of banks and for reducing the systematic risk the NBFCs pose to the financial system since they borrow heavily from banks. Though, prime facie it may appear to be affecting the productivity of NBFC, with time, they are more likely to improve NBFCs capacity to endure asset quality shocks and also deal with systemic risks. The increased disclosure requirements & corporate governance norms will enhance transparency, increase the responsibility of the management and further supplement investor awareness. The RBI has also come out with its Guidelines for Licensing of Small Finance Banks in the Private Sector with the objective of furthering its initiative of financial inclusion.

SEGMENT-WISE PERFORMANCE

Though the year under review has been challenging, the performance of the company has been good with both its major segments i.e. Secured Lending and Proprietary Investments, doing well.

Secured Lending

In the Secured Lending segment, the company has followed a more cautious approach this year and the emphasis has been on consolidation of the loan book. The company has coupled its strong underwriting practices with additional checks & more frequent monitoring to run a zero-default loan book in an environment where the overall finanical sector has seen rising NPAs. The loan book as on 31 Mar 2015 stood at Rs.68.51 cr. The blended yield for the FY 2014-15 was 20.11%.

The company strongly values the relationships with its clients, building on transparency and trust with them. It looks after their best interests to allowing them the flexibility to brpay and ensures quick turnaround time for loan processing and approval. Over time the company has become the Lender of choice for small & mid-sized companies in the Delhi NCR region looking for short term loans.

The company continues to cater to the short-term/working capital requirements of small and mid-sized companies. The due diligence process followed by the company is constantly improved to adapt to newer challenges in the operating environment. Amongst other aspects, the company continues to lay emphasis on borrower's cash flows, borrower's equity in the project during the due diligence process. During the year under review, the company has added new clients to ensure rotation of its loan book, so as to mitigate any exposure risks. With the slowness in the overall economic environment, especially the real-estate sector, the company would be following a more cautious approach to lending. The focus will be to ensure the quality of its loan book by lending to high quality borrowers. We will lend to the borrowers with strong balance sheets, even if it comes at a decline in our yields. The knowledge and experience of the management coupled with the strong due diligence mechanism have helped the company operate with low NPAs in a challenging economic environment. The company is confident of scaling up its loan book in the coming years.

Proprietary Investments

The other major segment of the company i.e. Proprietary Investments, wherein the company trades in arbitrage opportunities arising in the stock market like Open Offers, Demergers, Delistings etc; has done reasonably well during the year under review, despite the extreme uncertainty brvailing in the stock market on account of micro & macro-economic factors. We will gradually scale down the deployment of funds in this segment as our loan book grows in the coming years.

Going forward, the company's intends to focus on its Secured Lending business and further expand its loan book as it sees ample opportunities in the lending space, for those NBFCs which have the right set of people, knowledge, internal systems & network in place.

BUSINESS OUTLOOK

The year under review was challenging with slowness in the overall economic environment & rising NPAs in the banking sector. However, despite of the subdued environment, the company has performed well, which is not only encouraging but also motivating for the company to further expand its operations. Though, the company expects the business environment to remain challenging in the for the next couple of years, the company strongly believes that with the right set of people having adequate experience & knowledge, a sound due diligence system in place, it would be able to perform well in the coming years as well.

As part of the due diligence process the company conducts extensive site visits, ground checks so as to get a complete view of the Borrower's profile. Post-disbursal of the loan, the company regularly conducts site visits, takes regular sales and cash flow updates, to identify any stress as early as possible, which enable it take corrective action at the earliest. The systems and procedures of the entire lending model have evolved over the years on account of continuous refinement. The company understands and values the relationship with all its stakeholders, which coupled with its prudent business approach, has held it in good stead over the years. Though the company is cautious in expanding its loan book in the immediate short-term; it is expecting a better business environment in the coming years. This will create more opportunities for those NBFCs which have the right set of people, systems in place in the medium to long term. The company is on the right track and will steadily expand its loan book in the years to come.

RISKS AND CONCERNS

The financial services space in India is highly competitive. Being in the credit business, the company is exposed to risks that are innate to the business environment which include market, credit, operational, human resource, interest, liquidity and economic risks. The banking system as a whole has been witnessing higher level of non-performing assets (NPA) and with the restructured loans turning bad, the problems of the industry have only compounded. However, the outlook for the sector over next few years looks comparatively better on account of positive trend of growth in the economy which is expected to boost credit demand.

The Company ensures that the underwriting and collection process and infrastructure are well streamlined and managed by a highly competent workforce that is imparted necessary training as well. This helps the company in maintaining high asset quality and no-default record. The company lays emphasis not just on detailed credit analysis but also considers other factors too which may affect the quality of Credit.

The Company believes its efforts to continuously strengthen its risk framework and portfolio quality, will help it maintain & further expand a stable & healthy loan book.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The company has transparent & reliable operating systems, control measures which provide it reliable financial reports, operating effectiveness and overall efficiency. The internal control systems are commensurate with the size and nature of the operations of the company, to ensure smooth working and strict compliance with all rules & regulations. The Company has also put in place Management Information Systems (MIS) to assist in monitoring of portfolios on a continuous basis and has been continuously monitoring & realigning its credit policies and processes at regular intervals to ensure better credit quality. Corrective actions are taken as & when the need identified. The robust internal controls and risk management systems in place give us an advantage over peers in the sector.

FINANCIAL PERFORMANCE

The company had Sales of Rs.93.10 crores this financial year Vs. Rs. 112.96 crores in the brvious year.

The Company's Profit before tax (PBT) stood at Rs.12.26 crores as against Rs.9.98 crores during the brvious year 2013-14. The corresponding figures for Profit after Tax (PAT) are Rs.7.99 crores and Rs.7.20 crores for the current year and brvious year, respectively.

HUMAN RESOURCES

The Company continues to emphasise on retaining, training and enhancing its human resource base. The Company continues to value the critical role that human capital plays in the modern workplace and aims to create a harmonious environment to enable the raising of employee productivity and hence allow employees to reach their full potential. With the focus being on scaling up its loan book, the company continues to develop a stronger & better secured lending team equipped with the right set of people having the right set of knowledge, expertise & experience. The company is hopeful of making even better strides towards its goals in the coming years. As on 31st March 2015, the company has 11 people on its payrolls.

CAUTIONARY STATEMENT

Statement in the Management Discussion and Analysis of financial condition and result of operations of the Company, describing Company's objectives, expectations or brdictions are "forward looking statements" within the meaning of applicable Securities Laws and Regulations. Investors are cautioned that actual results could differ materially from those exbrss and implied. Important factors that could make a difference to the Company's operations include economic conditions, Government policies, taxation laws, market conditions, over which the Company does not have any control. This report must be read in conjunction with Company's financial statements and notes on accounts.