MANAGEMENT DISCUSSION AND ANALYSIS 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 broking. Economic Scenario: India experienced strong inclusive growth between 2003 and 2011, with average growth above 8% and the incidence of poverty cut in half. This reflected gains from past structural reforms, strong capital inflows up to 2007 and expansionary fiscal and monetary policies since 2009. These growth engines faltered in 2012. Stubbornly high Inflation as well as large current and fiscal deficits left little room for monetary and fiscal stimulus to revive growth. The prospect of "tapering" monetary stimulus in OECD countries and the reversal in capital inflows, as well as the difficulty to pass reforms to remove growth bottlenecks in the run-up to the 2014 general elections further weighed on India's economic performance. In 2014, the economy has shown signs of a turnaround and imbalances have lessened. Fiscal consolidation at the central government level has been accompanied by a decline in both inflation and the current account deficit. Confidence has been boosted by on-going reforms to the monetary policy framework, with more weight given to inflation. The large debrciation in the rupee has also helped revive exports. Industrial production has rebounded and business sentiment has surged, triggered by a decline in political uncertainty. Reducing macroeconomic imbalances further is key to sustaining consumer and investor confidence and to containing external vulnerabilities - this will require adhering to the fiscal roadmap and implementing the proposed changes to the monetary policy framework. Structural reforms would raise India's economic growth. In their absence, however, growth will remain below the 8% growth rate achieved during the brvious decade. Infrastructure bottlenecks, a cumbersome business environment, complex and distorting taxes, inadequate education and training, and outdated labour laws are increasingly impeding growth and job creation. Female economic participation remains exceptionally low, holding down incomes and resulting in severe gender inequalities. Although absolute poverty has declined, it remains high, and income inequality has in fact risen since the early 1990s. Inefficient subsidy programmes for food, energy and fertilisers have increased steadily while public spending on health care and education has remained low. Recent economic developments and projections The economic slowdown since mid-2011 has been more pronounced in India than in the OECD area and many other emerging economies. In 2013, GDP growth measured at market prices was at its weakest since 2003 - 4.7% compared to an average of 8% over the period 2003-11 - and the manufacturing sector contracted in volume terms for the first time since 1991. By contrast, financial and business services continued to grow at 10% or more. On the demand side, investment and private consumption have been weak, while exports rebounded in the second half of 2013 following the rupee debrciation. Weaker exports of goods during the first months of 2014, however, suggest that competitiveness remains an issue. Structural bottlenecks have taken a toll on economic growth and on the manufacturing sector in particular. Lengthy authorisation processes and uncertainty surrounding land acquisition have held back infrastructure investment, while corporate investment has suffered from rising input prices which have squeezed corporate margins. Job creation has been sluggish and most jobs remain informal despite some pick-up in formal employment, mostly in services. Consumer price inflation has remained much higher than in the OECD area and in other BRICS. A series of one-off factors have contributed to inflation, including: adverse weather conditions, adjustment in administrative prices for core food items, oil products, electricity and railways; the extension of the National Rural Employment Guarantee Scheme (NREGS), which established a wage floor in rural areas; the rupee debrciation in the summer 2013. Supply-side constraints in the food sector - including the lack of cold storage and refrigerated transport facilities - have also contributed to food price volatility. The decline in inflation in the first half of 2014 is encouraging but inflation expectations have remained stubbornly high. Prospects and risks Activity is projected to pick up gradually. Private consumption should grow steadily, in particular in rural areas, reflecting past rises in agricultural minimum support prices (MSPs) and rural wages. Investment should recover as the decline in political uncertainty has boosted business sentiment. If successful, efforts to put large stalled infrastructure projects back on track would also raise investment. The projected rebound in external demand should boost exports. Tight monetary and fiscal stances and high corporate leverage will restrain domestic demand. Inflation and inflation expectations are projected to decline gradually, reflecting some moderation in wages and food prices as well as the implementation of the new monetary policy framework. Current risks are broadly balanced, although for the medium term risks are on the downside, contingent on the implementation of reforms. Exports, which have been showing signs of recovery after the rupee debrciation in the summer 2013, may be restrained by supply-side bottlenecks. High corporate leverage and deteriorating asset quality in the banking sector may put the investment recovery at risk. Poor weather conditions (a deficient monsoon) could weigh on agriculture and add to inflation brssures. A slower than projected recovery, coupled with the impact of the debrciation of the rupee on oil and fertiliser subsidies, could make the planned fiscal consolidation more challenging, potentially undermining macroeconomic stability. On the other hand, a firm commitment to contain both inflation and the fiscal deficit would boost confidence and thus investment and consumption. Implementation of badly needed structural reforms would boost growth and, if properly designed, could also hasten the short-term recovery. (Source for above: OECD Economic Surveys - India, November 2014) Review of operations of the Company: The Company along with its subsidiary company achieved consolidated revenue of Rs. 1399.47 lakhs compared to Rs. 1477.97 lakhs in the brvious year. The Company has three major business operations in advisory services consisting of Trade Finance, Corporate Finance and Investment Banking. Trade finance, which caters to the working capital needs of companies, continues to be impacted by the weak industrial activity and executed business transactions of Rs. 5,183 crores (brvious year Rs. 4,035 crores) with income of Rs. 173 lakhs (brvious year Rs. 262.16 lakhs) for the year. Corporate Finance & Investment Banking too were impacted due to the lack of credit growth in banking and most of the companies deferring investments. Business transactions worth of Rs. 112 crores (brvious year Rs. 215 crores) was executed with a income of Rs. 123 lakhs (brvious year Rs. 92.27 lakhs) The lending business, which is providing loans to the economically challenged sections of the society against security of gold jewelry, is losing its shine due to falling gold price due to various government measures to discourage import of Gold and stringent directives by RBI to banks and NBFC for taking exposures to gold lending business. The company had decided to lower its exposure to gold lending business till full clarity emerges. Subsidiaries: Vertex Securities Limited Vertex Securities Limited (Vertex) is engaged in the following businesses: 1. Vertex and its subsidiary Company are engaged in the business of broking with close to 200 offices pan India with strong footprint in southern and western India. The business caters to retail, HNI and institutional clients. The Company provides brokerage services in Equity, Equity derivatives, Commodity futures and Currency derivatives. The Company also has third-party financial products distribution of Mutual Funds and IPO's. The Company is also a Depository for Equity segment 2. Commodity broking service is provided through its subsidiary company, Vertex Commodities And Finpro Pvt Ltd (VCFPL). 3. The Company is also a Merchant Bank. Vertex Securities Limited has membership of: a. National Stock Exchange of India Ltd (NSE) b. Bombay Stock Exchange Ltd (BSE) c. OTC Exchange of India (OTCEI) d. NSDL (for depository services) e. SEBI registration as a Merchant Banker. f. MCX Stock Exchange Ltd. (MCX SX) Vertex Commodities & Finpro Pvt Ltd has membership of following commodity exchanges: a. Multi Commodity Exchange of India (MCX) b. National Commodity and Derivative Exchange (NCDEX) c. National Multi Commodity Exchange (NMCE) d. National Spot Exchange of India Ltd (NSEIL) Vertex Securities Limited: During the year ended 31st March, 2015, Vertex Securities Limited earned consolidated revenue of Rs. 596.49 Lacs as compared to Rs. 583.50 Lacs in the brvious year. The consolidated operations have recorded a net loss of Rs. 33.34 Lacs as compared to a net loss of Rs. 152.92 Lacs in the brvious year. Vertex Commodities and Finpro Pvt Ltd: During the year ended 31st March, 2015, the subsidiary company Vertex Commodities And Finpro Private Limited earned total revenue of Rs. 91.91 lacs and loss of Rs. 5.52 lacs as against Rs. 133.89 lacs and loss of Rs. 53.86 Lacs respectively in the brvious year. Business Outlook: TRANSWARRANTY, an RBI registered NBFC is the flagship company of the Transwarranty Group, which is active in a wide gamut of Financial Services like Corporate Finance, Project Finance, Real Estate & Infrastructure Finance, Trade Finance, Gold Loans, Margin Finance, Stock / Commodities / Currencies / Interest Rates / Other Derivatives Broking, InterBank Forex Broking, Merchant Banking, Investment Banking etc. Excellent domain expertise combined with a strong client and institutional relationship network nurtured over 21 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 Finpro and Commodities Pvt Ltd for the commodities broking business. Both the companies are well placed to exploit the opportunities when the economy begins to grow and industrial activity picks up. To give impetus to the overall revenue, the fund based lending business is being given renewed focus. The company is also exploring equity capital from strategic / financial investors for the fund based lending business. Risk Management Risk Management is an integral part of the Company's business strategy. The Company is exposed to specific risks that are particular 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 minimize the risk. Internal Control Systems And Their Adequacy The Company's 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 Company's 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. The CEO/CFO certification provided in the report discusses the adequacy of our internal control systems and procedures. Human Resource Development The Company believes that the human resources are vital in giving the company a competitive edge in the current business environment. The Company's 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. Cautionary statements Statements in the Management Discussion and Analysis describing the Company's 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 exbrssed or implied. |
