MANAGEMENT DISCUSSION AND ANALYSIS REPORT

A. ECONOMIC AND INDUSTRY OVERVIEW_

Economic Overview

The growth in GDP during 2014-15 is estimated to be at 7.4% as compared to growth of 6.9% in 2013-14, supported by slow improvement in industry and service sector, backed by some improvement in domestic demand. The dip in oil prices and the positive effects of the exchange rate movements helped the economy drift back to the path of recovery.

The possible headwinds to such promising prospects, however, emanate from factors like inadequate support from the global economy, saddled with subdued global demand conditions, particularly in Europe and Japan, the recent slowdown in China, on the domestic front from possible spill-overs of sub-par agricultural growth and the challenges relating to the massive requirements of skill creation and infrastructural up-gradation. Advance Estimates for 2014-15 suggest that though the global sluggishness has partly fed into the lacklustre growth in foreign trade; yet this downward brssure has been compensated by domestic demand.

The following were some of the sectoral highlights for 2014 -15:

• The 'Agriculture, Forestry & Fishing' sector is likely to show a growth of 1.1% in its GVA during 2014-15, as against the brvious year's growth rate of 3.7%, as per the information furnished by the Department of Agriculture and Cooperation (DAC).

GVA-Gross Value Added is a measure in economics of the value of goods & services procured in an area, industry or sector of an economy.

• The estimated growth in the 'Manufacturing', 'Mining & Quarrying', 'Electricity, Gas & Water supply', and 'Construction' is estimated to be 6.8%, 2.3%, 9.6% and 4.5%, respectively, during 2014-15, as compared to a growth of 5.3%, 5.4%, 4.8% and 2.5%, respectively, in 2013-14.

• The estimated growth in GVA for the Trade, Hotels, Transport & Communication and services related to Broadcasting services during 2014-15 is placed at 8.4% as against a growth of 11.1% in the brvious year. This is mainly on account of decline of 5.7% in the sales of commercial vehicles and growth in sales tax collection at 13.9% during April-December 2014 as compared to 19% in 2013-14.  and Analysis Report

• According to the latest estimates available on the Index of Industrial Production (IIP), the index of mining, manufacturing and electricity registered growth rates of 2.5%, 11 % and 10.7%, respectively during April-November, 2014-15, as compared to the growth rates of (-)2.1%, (-)0.4% and 5.4%, respectively during April-November, 2013-14. Private sector's contribution to the growth in the manufacturing during April-December 2014 was 8.0%.

• Financial, real estate and professional services sector, is expected to show a growth rate of 13.7% during 2014-15 as compared to growth rate of 7.9% in 2013-14. There was 11.5% growth in aggregate deposits and 10.5% growth in  bank credit as on December 2014 as compared to 15.9%  and 14.5% respectively, as on December 2013.  

Industry Overview

The sale of new Passenger Cars & MUVs (Multi Utility Vehicles) recorded a growth of 3.9% during 2014-15 against 6.1% de-growth in 2013-14, mainly on account of growth in Passenger Cars & Utility Vehicles. Within the Passenger Vehicles segment, Passenger Cars and Utility Vehicles grew by 5.0% and 5.3% respectively, whereas, Vans dropped by 10.2% during 2014-15 compared to brvious year.

All India sales of new Commercial Vehicles recorded a de-growth of 2.8% during 2014-15 against a de-growth of 20.2% in 2013-14. The improved performance was due to an upward trend in performance of M&HCVs (Medium & Heavy Commercial Vehicles), but the growth is still negative due to drop in LCVs (Light Commercial Vehicles) and SCV (Small Commercial Vehicles) segments in 2014-15. Medium & Heavy Commercial Vehicles (M&HCVs) witnessed a growth of 24.7% and LCVs & SCVs dropped by 2.2% and 13.1% respectively.

The Construction Equipment segment continued with a dip in sales for the second successive year. The sales witnessed a drop of 13.5% in 2014-15 against 18.7% in 2013-14.

Sales of tractors witnessed a de-growth of 13.0% in 2014­15 against a growth of 20.1% in 2013-14. Tractor demand for 2014-15 was subdued primarily due to a market slowdown.

The Indian Housing Finance market has crossed the Rs. 10 trillion mark translating into a steady growth of 17% (annualised) for 9M FY 2014-15. Given that there is still a large proportion of population which is still under-served by the traditional financial institution, there is still untapped potential for growth especially in certain segments like affordable housing.

B. MAGMA IN 2014-15_

Your Company ('Magma') has registered a reasonably good performance in FY 2014-15 inspite of the continuing challenges across most segments of the asset finance industry. Magma has always followed a policy of calibrating its strategy to focus on customers, products and locations which do not result in undue risk exposures for the Company. Concurrent with this philosophy, Magma has shifted focus to consolidation of the existing business and improvement of operational efficiency in FY 2014-15. Magma believes that the initiatives taken during the year will significantly enhance the ability to manage risk in a sustainable manner.

Magma has increased its total disbursements by 11% to Rs. 10,11,823.62 Lacs in FY 2014-15 compared to Rs. 9,08,066.96 Lacs in FY 2013-14. Total Assets under Management increased to Rs. 21,17,494.55 Lacs as on 31 March 2015 from Rs. 19,70,322.93 Lacs as on 31 March 2014 while total Loan Assets increased to Rs. 19,56,652.82 Lacs, as on 31 March 2015 from Rs. 17,87,728.77 Lacs as on 31 March 2014 having a growth of 9% YoY.

Magma has strategically reduced disbursements in commercial vehicles and construction equipment financing segments, which have struggled in both sales and delinquencies in the last couple of years. On the other hand, the Company has shown a strong disbursement growth in Mortgage, SME &Used Assets and a moderate growth in Tractor financing. Magma's diversified product portfolio enhances its ability to fine tune the disbursement growth strategy to reflect market realities. The change engineered in the product mix has resulted in an increase in the yields of the asset finance business. While overall gross yields on fresh disbursements increased by 10 bps to 16.51% during FY 2014-15, gross yields on loan book increased by 20 bps to 16.21% in FY 2014-15.

A brief overview of Magma's performance in key product segments:

• Car: Car financing comprise of around 26% of the total loan book. Magma has registered a 7% YoY decline in car finance disbursements. This is in line with FY 2013­14 when (Used Vehicles) UV sales showed a marginal decrease, UV sales growth has been comparatively muted in FY 2014-15.

• Commercial Vehicle: Magma has registered a 15% YoY decline in Commercial Vehicle (CV) finance disbursements This is a function of tightening of credit screens, coupled with primary sales de-growth in the respective segments. Magma has consciously reduced  its exposure in the CV financing segment over the last three years and the CV portfolio now comprise of only 13% of the total loan book.

• Commercial Equipment: Magma has registered a 9% YoY decline in Construction Equipment (CE) finance disbursements. CE along with CV has been the most impacted product segment due to the slowdown in commercial activity.

• Tractor: Magma has registered a 8% YoY growth in tractor finance disbursements, partly buoyed by increase in tractor sales and partly driven by its long term strategy to increase risk adjusted yields. Magma is currently the third largest tractor financing company in the private sector with a 9.1% market share of total tractor sales. Magma ITL ('MITL'), the JV between Magma and ITL, accounted for 23% of the total tractor disbursements done by Magma.

• Used Assets: Magma has registered a 13% YoY growth in Used Assets finance disbursements. This is mainly due to Magma's continued focus on high yield products. Used Assets financing comprises of 12% of the total loan book.

• Mortgage Finance: Magma has registered a 126% YoY growth in housing finance disbursements. The growth registered in the mortgage business mainly due to the roll out of the mortgage product in the existing branches of Magma and continued focus on cross-selling. Mortgage finance has contributed 17% of the total disbursements and 15% in the overall loan book by Magma in FY 2014- 15.

• General Insurance: Magma HDI General Insurance Company Limited ('MHDI'), the general insurance JV between Magma and HDI Gerling, has reported Gross Written Premium (GWP) collections of Rs. 55,481.43 Lacs in FY 2014-15, registering a 29% growth YoY.

A good share of Magma's efforts in FY 2014-15 has been concentrated on improving the delinquency scenario, especially in the commercial vehicles and construction equipment segments. While Magma reported a collection efficiency of 95.2% for the full year, the numbers for H1 FY 2014-15 and H2 FY 2014-15 are 94.5% and 95.9% respectively. This demonstrates the improvement in the collection efficiency, driven primarily by initiatives taken by the Company in FY 2014-15. Magma expects to fully exploit the benefits of the initiatives taken in FY 2014-15 in the coming fiscal years also.

Reserve Bank of India (RBI) has issued the Revised Regulatory Framework for NBFCs on 10 November 2014 and the related notification on 27 March 2015 to address various matters including harmonisation of asset classification and provisioning norms with that of Banks from brsent requirement of 6 months to 3 months in a phased manner over a period of 3 years starting from FY 2015-16. Magma has already started recognising NPAs at 4 months (120 days) since FY 2012-13 which makes it compliant with the requirements of FY 16-17. While these measures have resulted in higher provisioning requirements in FY 2014-15, Magma believes that early adoption will help the Company as it grows in size and becomes more systemically important. Magma also expects its provisioning requirements to reduce more sharply compared to its peers when the asset financing market situation improves.

Magma has rationalised the existing branch network in FY 2014-15 and the current network of 232 branches is well placed to drive the business growth when the market revives. It has also focused on exploiting the untapped potential of existing branches and has ensured that more products are available across our network. General insurance and mortgage finance products are available in 66 and 150 branches respectively. Both businesses have been launched in recent past and a key driver for the continued out performance of the two businesses in the near future would be the planned roll out of the products across the remaining Magma branches.

Magma has implemented numerous technological initiatives and shifted towards a higher level of automation to increase the efficiency of the Sales and Collections teams. These steps coupled with a higher level of branch network utilisation have resulted in an increase in operational efficiency.

FINANCIAL PERFORMANCE_

(All figures are on consolidated basis unless specifically mentioned otherwise)

The Company has exhibited commendable performance and reported a Profit after Tax (PAT) of Rs. 18,726.58 Lacs in fiscal 2014-15 on consolidated basis compared to Rs. 15,963.18 Lacs in fiscal 2013-14 thereby registering an increase of 17%. The strong performance was driven by multiple initiatives taken to drive topline growth as well as measures to optimise the bottom line, thereby driving profitability.

Income from Operations during the year increased by 12.3% on consolidated basis from Rs. 2,09,641.44 Lacs last year to Rs. 2,35,477.93 Lacs this year. The Company's total Income grew by 12.7% from Rs. 2,11,769.30 Lacs to Rs. 2,38,597.96 Lacs. Judicious pricing decisions coupled with alterations in the product  mix designed to provide the optimum risk reward benefit led to increase in yields during the year 2014-15. Average lending rates on income earning loan assets improved by 32 bps to 16.14% during FY15 versus 15.82% last year.

The Interest and Finance charges of Company increased from Rs. 1,17,707.18 Lacs in fiscal 2013-14 to Rs. 1,23,293.57 Lacs in 2014-15, an increase of 4.7% on consolidated basis.

There has been an increase in Personnel Costs by 48.9%, Brokerage & Commission by 14.6% and debrciation and amortisation expenses by 4.2%.However operating expense has reduced by 6%. Further steps had been taken to improve collection efficiency and other initiatives on the technology and organisational front to brpare the Company for the next phase of growth. Opex ratio increased from 3.27% in FY 14 to 3.66% in FY15.

Better interest cost management and a prudent mix of products financed helped the Company to increase Net Interest Margin (NIM) by 65 bps from 5.51% to 6.16% during the year 2014-15.

On Standalone basis, the total Capital Risk Adequacy Ratio (CRAR) for the year 2014-15 was 16.3%, against the RBI stipulated norm of 15% for non-deposit taking Asset Finance Companies.

OUR PEOPLE OUR STRENGTH_

The growing productivity of each team member reflects the success of our forward-looking endeavours that focus on the needs of the business as well as of those of our employees. These create a new narrative for the Company's growth and development - one that is people-driven and hence organisation centric

At Magma, our intellectual capital is a critical asset. We aim to attract, train and retain talent to create effective partnerships with and to fuel growth for the organisation. Our HR policies balance both business needs as well as those of the people sensitivities. Our practices and processes enable our people to deliver the best results, build upon their own capabilities, as also get recognised for their efforts.

To bring in greater order to process efficiencies within the company to enhance employee service levels, and further hone business outputs, we implemented a software for HR practices called 'PeopleSoft'. It facilitates achieving the following procedures - recruitment; employee engagement; organisation, leadership and development; learning and development; and appraisals - by automating them, and making them more efficient. Here's bringing to fore what we achieved in FY2014-15. As also what were our key areas of focus, development, innovation and improvement in HR practices.

Recruitment

In 2014-15, we focused on nurturing our talent-

• We focused on quality hires across mid and top management levels. The number was less than the brvious year, primarily due to lower levels of attrition.

• We hired local people (those that understand regional attributes and languages), to work with greater efficiency in areas that are geographically isolated or difficult to reach.

• We also created a 'people pipeline', to result in faster and smarter hires.

Changes in recruitment procedures:

We have shifted our focus from 'processes' to 'people'. We have made sure that the end-to-end management of an individual in a particular location is done by the same team or HR personnel. Regional human resource managers in our organisation do not focus solely on hiring local talent but also ensure that employees' job tenures are smooth and harmonious. This change has helped us increase retention rates by understanding why people leave, and resulted in us changing our HR processes accordingly.

Employee engagement

During 2014-15, we arranged various employee engagement activities. Such activities helped strengthen relationships between members of the staff. We celebrated myriad festivals, prominent days and conducted online contests, to engage with them better.

Rendezvous

Our marquee event called 'Rendezvous' was organised across 12 locations with more than 4,000 participants. The highlights of this event were the business performance brsentations; Value Workshops; Open House with the top management; rewards and recognitions for our high performing employees, long service awardees and employees' children for success in board examinations. The high point was the cultural events with performances wherein our talented employees competed for the top prize.

Parivaar-tan

We launched 'Parivaar-tan' which means 'a change in the family' to communicate alterations in HR policies. This included launching new and contemporised employee strategies, to enhance retention, belongingness and work-life balance. We helped our staff maximise their work time throughout the day, to enable them to become more productive.

Enhancing our integrity

We launched a number of awareness campaigns to guard against attempted fraud incidents. We also institutionalised the existing process, starting from whistle-blowing to strict investigation, to appropriate action that sends a message of zero tolerance in areas of fraud.

Leadership development

We focused on building capabilities at the top-most level with the following four core initiatives:

• Identification of high potential individuals

• Individual coaching through specialised trainers

• Strategic job rotation at senior levels

• 360o feedback aligned to competencies

We also began introducing similar initiatives to the next level in the organisation.

Learning and development (L&D):

In 2014-15, we launched our Learning Management System. All our training programmes were launched and managed through this. The system enables us to promote a blend of both classroom and e-learning initiatives (accessible through laptop and tabs) that ensures at least two mandays of training per person across the organisation, which is a sum-total of nearly 20,000 days!

Mandatory training: Through e-learning, we launched mandatory training programmes on organisational code of conduct, fair practices, values and company knowledge. Every employee had to undertake four programmes and two assessments and we achieved over 90% compliance across most functions.

Functional training: Several functional trainings were conducted by in-house trainers on various functional areas. These in-house trainers were first trained and certified by external subject-matter experts before imparting training to their respective employee groups. We also introduced e-learning programmes on tablets, focusing on anytime, anywhere learning, resulting in field-force education that is on-the-go.

Behavioural training: Among many soft skill training programmes run during the year our key highlight remained 'Synergy'. While the focus was on building cross functional apbrciation to ensure working outside of silos, the uniqueness of the program lay in its end-to-end design that included br-training expectation setting, a combination of individual & group learnings during the programme and post training peer groups' set up, to support and sustain the end results. This was followed up by measuring the Return-on-Expectation of the program, to combrhend its effectiveness.

Employee performance

We follow the time-tested, best practice of self, superior and review appraisal conducted online. However, for senior employees, we took the evaluation to an internal Talent Council. This gave us a combrhensive view of the seniors' performances. It also helped us introduce objectivity and build a leadership pipeline. Promotions were made through Assessment cum Development Centres managed in-house.

Our exciting plans for HR processes for 2015-16:

• We have made way for smarter hiring focusing on high quality and correct fit, especially at the local level

• More initiatives under the ambit of 'Parivaar-tan'. As well as additional pursuits to enhance employee retention and loyalty.

• Differentiated learning initiatives for employees with high potential and a history of high performance using a combination of methods that focus on anywhere-anytime learning

• ' Cascade goal-setting' for the middle management. We also focus on driving a culture that balances the needs of the business as well as those of people.

INFORMATION TECHNOLOGY_

At Magma, Information Technology plays a vital role in enabling the business to transform and also run the day to day operations with brcision. During 2014-15, we made significant strides in three important areas: enhancing our business applications, buliding robust IT Processes and in strengthening our infrastructure.

• Business Application Development: Robust delivery engine that translates business strategy to action.

o Core Lending System and the Point of Collection system were upgraded. We also ported our collection applications onto modern mobile devices.

o Implemented PeopleSoft as our Human Resource Management System

o Enabled Sales force efficiency with Sales Tablet application and a Channel portal

o Launched our Business Intelligence initiative

o Several new projects on the insurance side such as Agent portal, Rating engine, Renewal automation.

• Built Robust IT Processes

o Revised the IT Management policy; created the Information Security Policy.

o Established Magma Service Desk for handling incidents and service requests

o Created a Testing Center of Excellence with uniform testing practices

o Established security standards; regular security testing of applications.

o Established combrhensive vendor evaluation framework that helped close several new vendor decisions.

• Create Reliable Infrastructure

o Built a state of the art data center and enabled DR capability for core applications.

o Improved branch experience by upgrading network capabilities where required.

o Revisited the procurement modalities in place for data center support.

Road ahead

Having laid the foundation as mentioned above, our focus during FY15-16 is to woven around three themes that have a distinct business enablement focus.

• Streamline Business Processes using IT as a lever

o Enable the various organisation changes that help us reduce opex by streamlining the structure.

o Run focused projects that have a significant impact on the turn around time for loan processing and insurance policy issuance

o Implement a new core system leveraging a proven industry product

o Modern platform for customer support

• Enable Execution Excellence by using data

o Leverage single view of data for all reviews and drive analytics

o Enhance field force apps to enable smarter decisions in the field

• Build the Organisation

o Consolidate upon our Peoplesoft rollout

o Employee Self Service & Employee Portals

o Simplify user experience across applications

o Ensure business confidentiality, data security

CORPORATE IMAGE BUILDING_

The focus for Magma group in the year was largely on Below-the-Line tactical campaigns anchored around core business requirement. Visibility at dealership outlets and through sustained below the Line events - both multi product and dealer specific events were undertaken across business teams. The key focus in Sales activities revolved around MSTEP branding and activation - to bring a strong focus and awareness on the revamped sales process changes being undertaken across all Asset loan businesses. About 350 channels in all were branded through the year. In the Autolease business, we organised test drive campaigns and events for the corporate Auto lease customer segment at their brmises, working closely with some car manufacturers.

In the housing business, Magma focussed on Affordable Housing projects by putting up hoardings at approved projects and those funded by us for Construction loans. A mega event was undertaken with the Orissa chapter of CREDAI - the Builders and developers association in Bhubaneswar, where Magma was the main Sponsor. "Shikhar", an in-branch Cross selling initiative was launched across 10 states in the year with existing customer of ABF business invited and made spot sanctions for Homeloans. Magma Housing finance made 150 channel branding through Glow Sign Boards.

At Magma HDI, like the other businesses, the focus was more on local events and activities. 180 channels were branded with Signange boards. We also created a new specially designed channel kit that was shared with most of the Agencies, which was highly apbrciated. A festive Radio campaign was undertaken around Diwali and Durga Puja covering five states.

CORPORATE SOCIAL RESPONSIBILITY_

Magma has always believed in giving back the society in full spirit, not only through financial means but also in kind, and most importantly by continuously encouraging participation of Magmaites in such endeavours. During the year the Company had been involved directly and indirectly in various philanthropic activities.

Magma contributed a sum of Rs. 27.5 Lacs to The Philanthropic Society of the Orthodox Church(PSOC) through the 'Mumbai Marathon-Run for a noble cause' campaign. Senior management team ran the strenuous 21 km half marathon and completed the same successfully. A pledge was made to raise funds for PSOC. The Magmaites were encouraged

to donate generously towards this noble initiative, which they whole heartedly supported. The collective effort of the Magmaites had helped to build up a significant corpus. The donation will be used by PSOC for building classrooms for the higher classes. The noble endeavor of Magmaites will give these children a chance to reach their full potential and receive quality education in a disciplined, peaceful and intellectually stimulating environment.

24 passionate Magmaites joined thousands of people from all walks of life to participate in the Kolkata 25 Km Run. The event was held to support the underprivileged cancer patients of Tata Medical Centre, Kolkata. The participating Magmaites successfully completed the race and were awarded medallion of participation. Magma's participation was led by our Vice Chairman & Managing Director Mr. Sanjay Chamria. Magma further contributed Rs. 1.5 lac to the noble cause. The Support team members too stepped out in the morning chill to cheer the runners.

Magma intends to send a bigger team next year who can dedicate their run for a special cause.  Each year select Magmaites celebrates Diwali with less privileged children of the city and this year was no different. Soundless fire crackers and food packets were distributed to around 150­200 street children of Kolkata and Mumbai. The sheer joy of watching happy kids is cherished by everyone at Magma.

Magma also provides financial support to Akshaya Patra Foundation for running their school meal program. The Company is privileged to be a part of this noble initiative.

At Magma, we are dedicated to the cause of education and to the potential it holds to change lives for the better. We have partnered with Friends of Tribal Society for the Literacy Project and have adopted several schools in rural areas across the country. Ekal Vidyalaya is an innovative concept of One Teacher Schools (OTS), where one trained teacher educates children in the age group of 6-14 years for three hours every day using an informal methods of teaching.

With the firm belief that every child deserves the equality of purpose, Magma arranged for school essentials for students of two schools for the homeless children in Kolkata. Various articles like exercise books, drawing books, pencils, notebooks, crayons, eraser, pens etc. were handed to over 230 kids. The kids were overjoyed.

Christmas is a time of celebration, hope and laughter. To celebrate the spirit of the season, Magma hosted the 'Little  Angels' Christmas Party' for 85 children of The Philanthropic Society of the Orthodox Church (PSOC) on 24 December. The PSOC runs the Theotokos Girls' Hostel and the St. Ignatius Boys' Hostel, two orphanages to nurture and shelter orphan children. The kids also have access to high-quality education at the St. Ignatius English Medium School.

The Company has entered into an agreement with Petroleum Conservation Research Association (PCRA), a Government of India undertaking, in March 2015, for conducting driving habit improvement workshops to help trucker drivers save fuel and drive more safely. Magma has also tied up with a NGO/ Institution to provide dependable sanitation & medical health-check facilities at the Transport Nagars/ Mandis, in a sustainable manner. An ambitious target to cover a few thousand drivers across 12 Transport Nagars across the country will be undertaken through in the next year.

We have also been offering assistance to people suffering from various diseases like leukemia, cancer, tuberculosis etc, who are in need for financial support. We also support victims affected by natural calamities. In the recent past, we have extended our help to victims of Aila, Hudhud, Nepal earthquake, Uttarakhand disaster amongst others.

The lesser adjutant stork, a critically endangered migrant bird, is sighted in Bengal's only oxbow lake in Burdwan. The lake, sbrad across 10km in Purbasthali or Chupi Char, used to be a favourite habitat for migratory birds even a few years back. Overtime the lake became uninhabitable due to excessive filth and choking by hyacinth over the last decade. It would have remained deserted but for the initiative of two NGOs and Magma, that cleaned up much of the wetland. This has led to the return of the migratory birds, much to the delight of the birdwatchers and the locals.

On the occasion of World Environment Day, an initiative was launched to exhort car owners to ensure that their cars are PUC complaint. To facilitate this initiative for the general public and Magma employees, PUC vans were stationed at selected locations around Magma offices across 5 cities. Free PUC check was arranged for at these locations.

Magma is indeed proud to partner and would continue to, in its effort to create a happy society through various ongoing and innovative steps.  Apart from the above, as required by section 135 of the Companies Act, 2013, the details regarding CSR Committee, policy, amount spent etc. are mentioned in the related section of Director's Report.

CUSTOMER RELATIONSHIP MANAGEMENT_

Magma has a diverse product portfolio across asset financing, mortgage financing, SME financing, general insurance, and is positioned to provide a one stop solution to a wide range of financing requirements of its target customers. Magma's credit screens and processes are aligned to deliver superior customer service to the target customers who are largely first time buyers and small customers in deeper reaches of rural and semi urban India.

During the year we have taken initiatives to tap online queries of our potential customers and significantly increased our brsence in social networking sites like Facebook, Linkedin & Twitter. Our Facebook page for instance has attracted close to 185,000 likes. We are working on a number of digital initiatives in the coming year to make ourselves more customer centric which will translate into better customer experience, engagement and loyalty.

Magma continues to invest time and effort in systems and technology in further refining sales processes and systematic measurement of process metrics, aimed at improving efficiency and customer satisfaction. Significant investments in branch network, CRM processes, mobile technology and sales force automation will hold the key to winning customers in an ever increasing competitive environment.

INTERNAL CONTROL SYSTEMS_

Magma has adequate internal control mechanism with well-defined structure and processes to brvent revenue loss and/or misappropriation of funds and other assets of the Company.

The Internal Audit function is vested with the responsibility of evaluating and reporting

• the adequacy and effectiveness of design of processes and internal controls in mitigating the business risks.

• the level of discipline in process compliance by various functions and process owners in their respective operations and business decisions.

• the modus operandi, internal / external involvement and collusion as well as corresponding process lapses / non-compliances by investigating the suspected fraudulent cases

The reviews are conducted periodically by the Internal Audit function covering range of business processes, functions and locations. The Board of the Company has constituted an Audit Committee, which is headed by a Non-Executive Independent Director. The Audit Committee periodically reviews internal audit reports and brings to the notice of the Board any significant process deviations.

OPPORTUNITIES_

Over the last decade Magma has steadily diversified into new product segments which include tractor, used assets and mortgage finance and SME loans. During FY15, for the first time, these new product segments contributed more than 50% of fresh disbursements. Magma's focus on creating a diversified product mix coupled with increasing share of new product lines has created new opportunities for Magma.

The Indian Government is planning to implement multiple initiatives to drive infrastructure development. The brpared rollout of GST will provide an impetus to inter-state trade and commercial activity, while the implementation of infrastructure corridors, smart cities, road/train network development projects will lead to significant growth in industrial and commercial activities. Magma focuses on the self-employed non-professional customer segment in the semi urban and rural locations and these customer segments are expected to benefit significantly from the infrastructure driven growth impetus provided by the current government.

Technology has penetrated into rural India through the surge in usage of smartphones. Today India has the fastest growing smartphone market in the world. As rural India gets connected to the outside world, consumer awareness on formal channels of financing will increase this providing a platform for rural focused companies to chart new growth regions.

CHALLENGES_

The government needs to push industry friendly regulations to provide a fillip to commercial activity. Inability or delay of the government in taking concrete steps to smoothen the policy making processes will resulted in a more prolonged economic recovery process.

The economic downturn has resulted in excess capacity in the segments driven by rural commercial activity. As a result, the rural economy recovery is expected to be muted compared to the urban economy in the short term.

With GDP growth rates showing an upward trend over the last one year, competitive intensity in the financing industry is expected to increase resulting in irrational pricing in customer segments with good track records or proper documentation. The entry of payment banks and small banks can also result in increase in competitive intensity in the rural and semi-urban markets. While the market opportunity is huge for multiple players to co-exist, entities which are able to cater to the under-penetrated customer segments and have strong risk management abilities will be on a stronger footing.

OUTLOOK_

After a prolonged economic slowdown during FY2013 and FY2014, the Indian economy has started showing signs of improvement in FY2015. While the recovery has not been as swift as seen in FY2011, there are signs of increase in commercial activity in both the urban and rural economies.

Faster and more effective decision making and implementation of various initiatives already launched by the incumbent government are key drivers for the economic recovery. Reduction in global crude oil prices and consumer inflation numbers has provided the Indian government with a window of opportunity to put in place the building blocks for a sustained growth trajectory. The completion of the first round of coal mine auctions, the passage of Mines and Mineral Amendment Act, ongoing process of launching small banks and payment banks are key growth drivers for the asset finance industry. The final regulations issued by RBI on PSL recognition norms and NPA recognition norms for NBFCs have provided clarity on long pending changes in the NBFC industry. While signs of recovery are clearly seen in certain product segments, FY2016 is expected to be a year of consolidation, so that the industry is ready for the next phase of growth. GDP growth is expected to improve on the back of proactive government initiatives and revival of commercial activity.

Magma remains confident of the long term growth prospects & opportunities ahead of it in each of its businesses and chosen customer segments. Magma believes that it is uniquely positioned within the NBFC industry to capitalise on the opportunities provided and shall continue to seek growth in its target market segments of rural and semi-urban India.

Magma feels that its blend of business model, infrastructure, technology, management bandwidth and field force, would lead to a sustainable high growth trajectory in future years to come.

RISK MANAGEMENT_

Magma's Risk Management team of dedicated professionals uses latest statistical tools and software to help it benchmark against the best competitive practices of the industry and accordingly align its credit policies for every customer category in accordance with the organisation's own risk appetite and historical portfolio performance.

Whereas FY 2011 and FY 2012 saw Magma aligning its credit policies and service levels to compete with stiff market competition and customer demands in tune with the improved cash flows of the growing economy, successively FY 2013 onwards company is facing major challenges in respect of credit underwriting amidst the slowing economy and industry at large.

During these times concerns about market cash flow and primary sales loomed large with the slackening demand on the consumer side. However, by proactively adjusting lending norms in line with brvailing market conditions and operational viability across various customer categories, Magma maintained portfolio quality even with continued focus towards the most retail end of the market. Calculated risks taken on the back of strong portfolio analytics and risk forecasting helped Magma build a balanced portfolio of retail and strategic customers with optimum risk-return profile on wide range of assets.

Post formation of the new government at the Centre during the first quarter of FY 2015, the economic outlook has taken a positive turn which was reflected in positive growth of passenger car market. But shortage of market load during most part of FY 2015 as well as deficient monsoon continued to play spoilsport so far as the commercial vehicle and tractor markets were concerned. Positive cues about infrastructure development await implementation at project levels for the construction industry to look up and thereby translate into higher off-take of construction equipment.

Thus FY 2015 continued to show up challenges in respect of maintaining portfolio quality amidst limited customer cash flows. Magma's Risk Management team thereby worked with the help of experts to frame up portfolio monitoring mechanism that should enable the organisation to manage delinquency and net losses within organisational benchmarks.

Market risk

Magma's approach towards mitigation of market risk operate at two levels; namely -

(a) Identification of the macro-economic indicators as relevant to Magma's lending business and

(b) Establishing and regular monitoring of delinquency parameters at the portfolio level

Lead indicators

Lead macro-economic growth indicators that govern Magma's credit & risk policies are as follows:

1. Gross Domestic Product

2. Index of Industrial Production

3. Core Sector index

4. WPI Inflation

5. CPI Inflation

The above indicators have direct impact on customer cash flows and operational viability of a number of commercial assets that Magma funds; these are tracked very closely throughout the year to ensure portfolio level corrective steps from time to time.

Regular portfolio reviews by Magma's Risk Department that eventually reports to Magma's Risk Management Committee (RMC) ensures assessment of the evolving and changing market risks. The RMC meets at regular intervals to chalk out road-map in respect of building asset base as well as maintaining portfolio quality in the evolving market.

Operational risk management

Operational risk encompasses anything that is beyond credit or market risk and covers a wide range of the Company's activities. It involves alignment of all functions and verticals towards identifying the key risks in the underlying process. Each functional vertical does transaction testing to evaluate internal compliance and thereby lay down processes for further improvement. Thus, the approach is "bottom-up" ensuring acceptance of findings and faster adoption of corrective actions, if any, to ensure mitigation of perceived risks.

Over the past few years, Magma has undertaken following steps to minimise operational risk

• All processes are standardised and documented

• Clearly defined delegation of authority matrix

• Segregated credit and operations verticals to ensure effective maker and checker system

• Implementation of training calendar for all functions

• Easy access for all employees to various processes, rules, regulations and operating guidelines through web-based interactive system

• I nternal audit process covering both on-site and off-site audit of branches and departments

In a nutshell, internal metrics form the key of risk management in Magma. The entire credit process is metrics-driven to achieve the risk-return goals and ensure a healthy portfolio in the years to come.

People Risk

As part of our processes Magma is vigilant to ensure that various possible people risks are anticipated and if at all occur, quickly mitigated. Some people risks that Magma focus on include :

Risks associated with recruitment:

• Not finding candidates with appropriate qualifications & experience, at affordable cost and in the location required.

• Cultural misfits.

Risks associated with employing people:

• Losing high performers / people in critical rolls.

• Compensation not commensurate with profile and role leading to dissatisfaction/ attrition or harbouring poor performers.

Risks associated with redeploying or letting people go include:

• Transfers: new roles, to group companies or new locations.

• Terminations or job loss due to organisation restructuring.

• Incurring costs after people are gone.

Asset liability risk

Any mismatch in tenures of borrowed and disbursed funds may result in liquidity crunch and thereby impact Company's ability to service its loans. Thus it is imperative that there exists nil or minimal mismatch between the tenures of borrowing and assets. At Magma, prudence and appropriate risk is the guiding principle for decision making in the treasury functions. The Company has maintained appropriate asset liability maturity as regards its tenure and interest rates.

Foreign exchange risk

The Company has marginal exposure to foreign exchange risk, since its disbursements are in rupee terms and also around 99% of its borrowings are in the nature of domestic rupee debt. Wherever limited, foreign exchange exposure exists, the Company has entered into appropriate currency hedging to adequately cover up the said risks.

Liquidity risk management

Magma has over a period of 3 decades, worked meticulously in diversifying its borrowing profile and has repeatedly enhanced the set of institutions it borrows from. Such diversified and stable funding sources emanate from several segments of lenders like Banks, Insurance Companies, Mutual Funds and other institutions. As a consequence of its good portfolio quality consistently maintained over the past several years coupled with the fact that more than 70% of its assets comply with the Priority Sector Lending norms, the Company has established a formidable track record in its access to the securitisation / assignment market. The Bankers to the Company have also increased their funding limits to the Company substantially during the year. As a matter of prudence and with a view to manage liquidity risk at optimum levels, Magma keeps suitable levels of unutilised bank limits effectively mitigate possible contingencies arising out therefrom.

The Company has in place an Asset Liability Committee (ALCO) comprising of Company's senior management, which periodically reviews the asset - liability positions, cost of funds and sensitivity of forecasted cash flow over both short and long-term time horizons. It accordingly recommends for corrective measures to bridge the gaps, if any. The ALCO reviews the changes in the economic environment and financial markets and suggests suitable strategies for effective resource management. This results in proper planning on an on-going basis in respect of managing various financial risks viz. asset liability risk, foreign currency risk and liquidity risk.

CAUTIONARY STATEMENT_

Statements in the Management Discussion and Analysis, describing the Company's objectives, outlook, opportunities and expectations may constitute "Forward Looking Statements" within the meaning of applicable laws and regulations. Actual results may differ from those exbrssed or implied expectations or projections, among others. Several factors make a significant difference to the Company's operations including the government regulations, taxation and economic scenario affecting demand and supply, natural calamity and other such factors over which the Company does not have any direct control.

For and on behalf of the Board

Sanjay Chamria

Vice Chairman and Managing Director  

DIN: 00009894

Place : Kolkata  

date : 8 May 2015