MANAGEMENT DISCUSSION AND ANALYSIS REPORT REVIEW OF MACRO-ECONOMIC ENVIRONMENT FY2014-15 & OUTLOOK FOR FY 2015-16: Global Economy The global economy in 2014-15 felt the brunt of multiple economic and geo-political events across the world. The fall in crude was the single most significant economic event that spanned the major part of the year, along with most other commodities. The Chinese dragon seems to be slowing from its brisk gallop. Growth in many emerging market economies is softening, indicating an adjustment to diminished medium term growth expectations and lower revenues from commodity exports, as well as country-specific factors.The outlook for advanced economies led by the US is showing signs of improvement, owing to the boost to disposable incomes from lower oil prices, continued support from accommodative monetary policy stances, and more moderate fiscal adjustment. If the decline in oil prices manage to sustain, it could boost consumption and support growth. Geopolitical tensions continue to pose threats, and risks of disruptive shifts in asset prices remain relevant. In some advanced economies, protracted low inflation or deflation also pose risks to activity. The International Monetary Fund (IMF) has projected global growth to increase slightly to 3.50% in 2015 from 3.40% in 2014 and then to rise further in 2016 to 3.80% according to the International Monetary Fund (IMF). The increase in 2015 will be driven by are bound in advanced economies (which is expected to increase to about 2.4% in 2015, compared to 1.8% in 2014) supported by the decline in oil prices, with the United States playing the most important role in the recovery. In emerging and developing markets, in contrast, growth is projected to decline to 4.3% in 2015 compared to 4.6% in 2014, reflecting downward revision for oil exporters, a slowdown in China which reflects a move toward more sustainable growth Indian Economy The Indian Economy was witness to some very dramatic changes during the last one year. Prior to FY2014, the Indian economy was going through turbulent times with high inflation, a shockingly adverse balance of payment (BoP) situation and languishing growth (based on an old GDP series). While the Indian position looked quite fragile a year back, today, it appears as if the past belonged to a different country. The twin deficits, namely current account and fiscal deficit, are now in comfort zone and inflation has nearly halved from a year ago. Fy2015 saw the Union Elections deliver an unbrcedented, decisive mandate - the first-ever after 30 years. Following its success in the Union Elections, the NDA registered wins in several State Elections, strengthening its mandate further for enactment of reforms. The year FY2015 also witnessed softening of the global commodity prices, which gave a huge and unexpected relief to commodity importers like India. The Indian economy showed signs of recovery, with GDP growth rising to 7.3% (source - mospi.nic.in) for the financial year ended March 31, 2015 (FY15). Growth prospects are likely to improve in the current fiscal, driven by the government's development initiatives and pick-up in business cycle. While agriculture growth remained weak due to poor monsoon, manufacturing and industrial growth saw an improvement in FY15. Agriculture growth could continue to remain sluggish in FY16 owing to uncertainty in monsoon. Overall, the momentum in government-led infrastructure spending, combined with revival in consumer demand, is likely to provide the necessary impetus for economic growth. We expect weakness in commodity prices, especially in crude oil, can help manage both, the current account deficit (CAD) and the fiscal deficit. CAD is likely to remain below 1% of GDP in FY16, and recent steps to reduce fuel subsidies, through decontrol of diesel prices and direct transfer of LPG subsidies to bank accounts of beneficiaries, can contain fiscal deficit to the targeted 3.9% of GDP.Fiscal balance further improved with Government's fiscal deficit has fallen to 4.1% of GDP in FY 2014-15 from 4.5% of GDP in FY 2013-14, this fall is aimed to be achieved through the government's stake sale in state owned entities and rationalization of fuel subsidy amid higher devolution to the states. Lower global commodity prices helped WPI inflation move south, as manufacturing comprises a large weight in WPI. Impact of commodity prices into CPI inflation may be muted, since local factors like food and services comprise a larger weight within CPI. The government is focusing on food inflation through administrative measures, including lower MSP hike, release of stocks and restrictions on exports. Equity Markets The benchmark Nifty was up 26.65% YoY in FY2015 (21.61% YoY in USD terms). Bulk of the returns came during the first quarter, as expectations built around the Elections and then immediately following the decisive results. The subsequent quarters saw the returns taper, as markets awaited a revival in business cycle and improvement in corporate earnings. Short-term returns (3-Month) were marked by heightened volatility, which picked up in Q4FY2015 vs. brvious quarters. Nifty's average P/E in FY2015 was 21.08x, with an increasing trend since the Elections. This is up from the 5-Year historical average of 19.73x. CNX Midcap's average P/E in FY2015 was 18.59x, up from the 5-Year average of 17.15x. The gap between the large-cap and mid-cap indices had broadened in the immediate months after the election results, but has been closing since Jan 2015 onwards. As and when corporate earnings pick up, valuations should re-rate. But despite tapering returns, FIIs and domestic investors still clocked strong net inflows into equities during that period. Outlook for FY2016 The outlook for growth has improved modestly on the back of disinflation, real income gains from decline in oil prices, easier financing conditions and some progress on stalled projects. These conditions should augur well for a reinvigoration of private consumption demand. Conditions for growth are slowly improving with easing input cost brssures, supportive monetary conditions and recent measures relating to project approvals, land acquisition, mining and infrastructure. SYSTEMATIX OVERVIEW Systematix Corporate Services Limited (SCSL) has come a long way since its incorporation more than two decades ago. The Company is a SEBI registered 'Category I' Merchant Banker and consists of 5 subsidiaries. Your Company's operations are organized around four broad business lines - Public Issues/ Right issues, Debt Syndication, Private Placements and SME Listings for its brstigious corporate clients. With a knowledge centric approach and our mission to provide our customers with secure, customized and combrhensive financial solutions and thereby achieve sustained growth we have restructured ourselves through a hub-and-spoke model and have become a one stop service provider of financial services across various assets classes during the year. Through its five subsidiaries, your Company has established its brsence in the Wealth Management, Institutional Broking, Commodities and Loan Syndication businesses. Systematix Corporate Services Ltd. through its associates has also set up a SEBI approved Venture Capital Fund through the trust route and Systematix Assets Management Co. Pvt. Ltd. is the advisor to the Fund.Your Company, through its subsidiaries, has facilities at around 600 locations via branches & franchisees, servicing around 1.30 Lacs clients with around 350 terminals, sbrad across 19 states and around 134 cities, targeting a strong client base across India. This strategy is complemented by the following strengths: •Diversified revenue streams with a balanced mix of revenue from various businesses •Strong and liquid balance sheet •Cost flexibility •Risk Management •People and culture As a result, Systematix has emerged as a truly diversified Financial Super Mart with a wide selection of products and services spanning multiple asset classes and consumer segments. Now SCSL offers Equity, Commodities, Currency, IRF, SLBs, Depository Service, Online Trading, IPO and Mutual Fund Distribution, PMS, Loan Against Shares apart from merchant and investment banking services to various clients. We maintain our focus on building a long term sustainable business structured around the strengths of our scalable technology platform, enhanced customer service and the introduction of applications that enhance customer experience. SERVICES OFFERED: Merchant Banking: Equity capital raising activity witnessed a small up trend this year after subdued performance in the brvious two years. During the FY2015, QIP emerged as the brferred route to raise money as compared to other equity option by 113%. Right Issue also received some favor as an alternative option to raise money. However, volumes in the IPO market were significantly higher by 146%. The other segment FPOs/OFS etc. also ended the year with lower volumes. Overall primary debt market through public issue registered a significant fall of 77% in issuances Your company, Merchant Banking Division comprises of a group of highly experienced professionals with diverse expertise in merchant and investment banking with special skills in assisting medium sized companies going public. We help companies to raise capital during the seed, growth and expansion phases as well as acquisition financing and structuring the deal to maximize value for all its stakeholders. The combrhensive range of services from conception to completion provided under one roof reinforces our commitment on quality assurances through total involvement. The team have more than a decade experience in the capital markets and have handled a variety of deals across several key sectors such as hospitality, automobiles, retail, engineering, media & entertainment, infrastructure, logistics, metals & mining, pharmaceuticals, power, banking & financial services, telecom & IT among others. During the year under review, the division has gone down around 48.55% to Rs.161.35 lacs as compared to last year of Rs. 313.59 lacs. Our offerings are as follows: •Open Offers/ Delisting / Buy-backs •IPOs/ Rights Issues/Follow-on Public Offers •Equity / Debt placements •Valuations •ESOP Advisory •Other Corporate Advisory Services Financing & Other Activities: The income from financing & other activities was Rs.1771.11 lacs, marginally increase by 4.11% over the brceding year. The Company's product offerings include activities like financing against shares and margin funding. Wealth Management: We have built our Wealth Management offering with a passion for excellence. The Wealth Management team at Systematix works with the objective of providing our clients with a bouquet of smart investment products, each analyzed and evaluated meticulously and thereafter blended together to brcisely meet your unique investment needs. We have an enviable research team that spans multiple asset classes bringing insightful research to our team of wealth managers. The proximity and connectivity of our Management with industry enables us to view in closer detail, the companies we study for investing. Our approach is entirely client-centric, which means that the services and products will be tailored to suit your specific requirements, while we build the wealth management plan around you. We draw from our expertise spanning every aspect of wealth management to create solutions for exclusively for you. What makes us truly different is what we do after you make the investments, we constantly monitoring of your investments, fine tuning them to dynamic external scenario of today. Distribution and marketing income comprises commission, brokerage and marketing income generated from distribution of third party products such as insurance, mutual funds and online marketing on the Company's website. A part of the income is contributed by commission and brokerage on Mutual Fund Distribution from the wealth management platform. During the year company's income from distribution and marketing was Rs.18.41 lacs as compared to Rs. 21.30 lacs earnings & decreased by 13.57 % from last year. Systematix Wealth Management has a dual structure where Private Client Group offers personalized advisory services, on the other side Portfolio Management Services offers personalized asset management services. Portfolio Management Services: Portfolio Management Service (PMS) is a sophisticated investment vehicle that offers customized investment strategies to capitalize on opportunities in the market. Efficient Investment Management requires time, knowledge, understanding, expertise and constant monitoring of developments in micro and macro economical environment. That is difficult for investors because of involvement in its own businessprofession and other activities. For those who need an expert to help to manage their investments, PMS is the right answer. An experienced Fund Manager considers your financial goals and market environment to form a right investment strategy that is best suitable for your portfolio. Given the unbrdictable nature of the markets,Our Portfolio Managers work with clients to design an individual investment strategy in accordance with their objectives, risk tolerance, and liquidity needs and draw upon the best suited portfolio. In a nut shell, based on our holistic investment approach and innovative product capabilities we offer you very active multi asset class portfolio advisory & management services with personalized attention and active participation of Systematix' management. We offer both discretionary and non-discretionary portfolio services. Commodities & Currency Derivatives: Commodities market has emerged as a separate asset class offering for market-savvy investors, arbitrageurs and speculators to create wealth. Today, Commodities have evolved as the next best option after stocks and bonds for diversifying the portfolio. On other hand, Currency Derivatives Trading is emerging as an avenue for market-savvy investors (individuals and corporate) in India to diversify their portfolio and manage their foreign exchange risk by hedging against exposure taken on currency loans or for exporters and importers to hedge their currency fluctuation risk or for monetary apbrciation or debrciation. Systematix aims to harness the immense potential of the Commodities and Currency Derivatives market by providing you a simple yet effective interface, research and knowledge. Research: Research Team offers incisive, timely, objective and in-depth research across multiple asset classes. Driven by an in-depth understanding of investments and a deep sense of professional ethics and integrity, the Systematix Wealth Research team provides unbiased advice to our clients. Being brsent across the entire spectrum of investment services / products, such as equities, derivatives, fixed income products,currencies, mutual funds and commodities, Systematix Wealth Research subjects each security in its universe to stringent analytical rigor to arrive at the fair value. We take pride in our philosophy of offering advice which is in the best interest of our clients. Our emphasis on building long-term relationship ensures that we work closely with our clients empowering them to gain from market opportunities. Our Research Process is structured around the objective of enabling our Wealth Management Team to create winning portfolios for our Clients across diverse assets, capable of delivering superior returns to investors as well as to brvent portfolio erosion in bad times. The Philosophy and Goal of Systematix Wealth Research is to provide investors with a clear analysis that enables them to take a rational decision towards achieving the desired profit objectives. OPPORTUNITIES AND THREATS Opportunities •Long-term economic outlook positive, will lead to opportunity for capital market services •Growing Financial Services industry's share of wallet for disposable income. •Regulatory reforms would aid greater participation by all class of investors •Leveraging technology to enable best practices and processes •Corporates looking at consolidation / acquisitions / restructuring opens out opportunities for the corporate advisory business Threats •Execution risk •Short term economic slowdown impacting investor sentiments and business activities •Slowdown in global liquidity flows •Increased intensity of competition from local and global players •Market trends making other assets relatively attractive as investment avenues Strengths •Strong Brand name •Experienced top management •Integrated financial services provider •Independent and insightful research •State of art infrastructure HUMAN RESOURCES The Company continues to lay emphasis on developing and facilitating optimum human performance. Performance management was the key word for the Company this year. Recruitment process has been strengthened to ensure higher competence levels. CAUTIONARY STATEMENT Certain statements in the Management Discussion and Analysis describing the Company's objectives, brdictions may be "forward looking statements" within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, volatility in interest rates, new regulations and government policies that may impact the Company's business as well as its ability to implement the strategy. The Company does not undertake to update these statements. |