MANAGEMENT'S DISCUSSION AND ANALYSIS LADDERUP IN FY 15 - BUSINESS & FINANCIAL PERFORMANCE Ladderup Finance Ltd. (LFL) The Company being a registered NBFC with RBI has been primarily engaged in the business of investing in securities of Listed and Unlisted Companies. The investment portfolio of your Company is diversified across various sectors such as financial services, healthcare, retail, packaging, information technology, real estate, etc. For FY 2014-15 on a standalone basis, the Company's profit after tax stood at Rs. 175 lakhs as against Rs. 234 lakhs in the PY thereby a decrease in profits of about 25% as compared to the PY. Your Company as in the last few years continues to evaluate investment opportunities in asset based transactions with good growth prospects. Ladderup Corporate Advisory Private Limited (LCAPL) The FY 2014-15 was relatively difficult and uncertain year for Companies operating in the financial services space. The global macroeconomic conditions as well as domestic market conditions converged simultaneously to create strong headwinds. There was perceptible impact on margins and profitability for most companies in the financial services space as well. LCAPL's revenues decreased from Rs. 536 Lacs in brvious year to Rs. 389 lakhs and this resulted in the Net Loss for the FY 2014-15 of Rs. 163 Lacs as against a Net Loss of Rs. 51 lakhs in the PY. LCAPL continued its in-depth coverage and servicing of large and midmarket corporate clients during the year. LCAPL was able to build significant relationships with many well-known, reputed corporate groups during this year while focusing on deepening relationships with the existing clients through an array of customised advisory services. The year saw mixed trends in the credit environment. Some sectors underwent stress while others continued to show growth. LCAPL focused mainly on the growth sectors. The year saw a stable trend in credit demand from the corporate and mid-market business segments for working capital and term facilities. LCAPL's debt vertical was able to tap this opportunity. The volatility and weak sentiment in the secondary markets for most of the year considerably impacted the primary markets. While LCAPL started the FY with a number of private equity offerings in the pipeline, many of them could not be completed due to challenging market conditions. Some of the deals got extended into the current FY. LCAPL also advised on a number of significant cross-border and domestic M&A deals. LCAPL has taken a conscious effort of building a sector based approach and has identified a few sectors of focus viz. Packaging, Chemicals, Engineering, Consumer goods, Renewable Energy and the current pipeline of deals shows the result of these efforts. These efforts are paying off and the Company closed a Private Equity Transaction in the decorative paints and packaging industries. LCAPL has been selectively working on its Merchant Banking business and the Equity Capital Market (ECM) segment. In the year FY 2014-15 the Team has been able to successfully handle an open offer assignment and multiple valuation and fairness opinions for very large and reputable corporates including private equity funds. Ladderup Wealth Management Private Limited (LWMPL) During the FY 2014-15 overall Wealth Management Industry faced some headwinds as most of the asset classes continued to remain under brssure. LWMPL continued its work in a focused way at increasing the pace of client acquisition and adding fresh talent to the core team. The Company continued its innovative approach of customising wealth management advice and providing structured solutions across all asset classes to the clients. All these efforts has helped the Company achieve total revenue of Rs. 260 lakhs in FY 2014-15 218 lakhs) while the profit after tax stood at Rs. 32 lakhs for FY 2014-15. The Company would strive to continue its best practices in wealth management. ECONOMIC & INDUSTRY OVERVIEW: India's real GDP growth marginally improved to 7.4% in the FY 2014-15 as compared to 6.9% in FY 2013-14. The Central Statistics Office has recently revised the national accounts aggregates by shifting to new base year of 2011-12 from earlier base of 2004-05. The GDP figures are hence in terms of the revised series. The overall investment climate still remains cautious. While slower growth is a major worry, inflation concerns have subsided with WPI inflation ranging at around 3-4% for the FY 2014-15, falling from around 7.4% for the FY 2013-14. While the CPI inflation which was running close to double-digits at 10.4% for the FY 2013-14 has declined to an average range of 4-5% for FY 2014-15. The Current Account Deficit (CAD) declined sharply from a record high of 4.7% of GDP to 1.9% of GDP in FY 2014-15. The primary reason for such an achievement were the continued steps taken by the Government and RBI in curtailing CAD. The forex reserve position of the country also improved to USD 330 bn at the end of FY 2014-15 from USD 300 bn at the end of FY 2013-14. The new government under the leadership of Mr. Narendra Modi has been putting in efforts to improve the overall investment climate and there is lot of hope that the new policy framework would support the growth engine. Though there remains some major concerns and industry growth still being subdued. The food prices would need to be consistently watched, to not let the inflation element go out of control. The current situation indicates that there is likely to be a pick-up in consumption and investment, especially with a heavy thrust on infrastructure development and building capacities. FINANCIAL AND CAPITAL MARKET CAPITAL MARKET M&A and PE activity The key highlight for domestic and inbound deals in FY 2014-15 is the increasing confidence of the global players in India growth story. Domestic M&A deals are mainly driven by the consolidation wave with Sun Pharma acquiring Ranbaxy, Kotak merging with ING Vysya, Flipkart buying Myntra and a few large power sector mergers and acquisitions. On the Inbound deals, though the size of some of the deals were not large, but sectors like Chemicals and Real Estate sector did witness global reputed organisations pursuing inorganic growth by acquiring majority in Indian companies viz. Government of Singapore-owned GIC acquiring majority in Nirlon Ltd. (commercial real estate) as well German Specialty chemical giant Evonik acquiring Monarch Catalysts Pvt. Ltd. While the value of outbound deals in India witnessed a downfall, there was an increase in the value of inbound deals in the latest FY. A brief summary is as follows: PRIMARY EQUITY MARKETS The current fiscal - FY 2014-15 - witnessed healthy equity capital market activity in the otherwise declining trend of fund raising, which began in FY 2011-12 and continued up till FY 2013-14. In value terms, Indian Companies raised a significantly higher amount in FY 2014-15 vis-a-vis brvious years backed by change in the sentiments in the economy and the steps taken by the Government. Infact, the established Listed Companies were able to harness the QIP route to their advantage by raising a record Rs. 28,500 crores (approx.) in FY 2014-15. The victory of the BJP led NDA and the installation of the Modi Government has brought 'Achhe Din' in the capital markets, taking indices to new highs and the investor sentiments has improved albeit of late it has turned cautious as the results of several companies did not meet the expectations. SECONDARY MARKET EQUITY Foreign Portfolio Investors (FPIs) made a net investment of over Rs. 1 lakh crore into equity markets during the fiscal ended 31st March, 2015. Mutual funds pumped in over Rs. 40,000 crore in equity markets in 201415, making it their first net inflow in six years for an entire fiscal. Besides, fund managers invested a net amount of Rs. 5.87 lakh crore in debt markets in the past FY, which ended on 31st March. The huge inflows also helped the MF industry reach around Rs. 12 lakh crore mark in assets under management (AUM) at the end of the FY. In FY 2014-15, the country's 44 fund houses together saw a growth of 31% in their asset base vis-a-vis FY 2013-14, according to Association of Mutual Funds in India (Amfi). The AUM stood at Rs. 9.05 lakh crore in brceding fiscal and has been on the rise since FY 2011-12. The growth in asset base comes on the back of BSE Sensex surging around 25% in the past FY. The Sensex was at 22,446 (1st April, 2014 opening) and closed at 27,957 (31st March, 2015), up 24.6%. In addition, the markets have been volatile, the current FY saw the Sensex at a high of 30,024 (4th March, 2015) and at a low of 22,295 (1st April, 2014). OPPORTUNITIES The sentiment in the Indian financial market has changed considerably over the past few years; the economic growth, though subdued for last couple of years, is likely to show positive momentum over the coming years. This has brsented ongoing opportunities for financial intermediaries to sbrad and benefit from the investment culture across the country. Following factors brsent specific opportunities across our businesses: • Growing Corporate activities and related need for fund raising, re-organisation and acquisitions; • Low penetration of financial services and products in India; • Globalisation - corporates are looking at expanding in domestic/overseas markets through merger & acquisitions; • Growing midsize segment of corporate activity where the need for customised solution is particularly high; • Regulatory reforms including policy framework aiding greater participation by all class of investors; • Growing Financial Services industry's share of wallet for disposable income; • Wealth management business is transforming from mere wealth safeguarding to growing wealth; • Regulatory reforms would aid greater participation by all class of investors; • Emerging technology to enable best practices and processes; • Size of the Indian capital market and favourable demographics like huge middle class, relatively large younger population with disposable income and investible surplus and risk taking abilities of the youth. In this backdrop, Ladderup Group has evolved into a strong and focused financial services organisation over the years and is set to further accentuate its business growth in the Investment Banking, Merchant Banking, Debt Syndication and Wealth Management. THREATS Despite great opportunities, there are significant factors brsenting threats to our businesses viz. • Bad monsoon leading to higher food prices, thus inflation may continue to remain out of control which may lead RBI to continue with monetary tightening policy measures; • Impact on economic growth of the rising prices of oil and industrial raw materials, decelerating investment demand and high inflation; • Volatility in the Rupee-US Dollar movement due to various factors including current account deficit; • Reducing capital expenditure by Industries; • Regulatory changes impacting the landscape of business; • Increased competition from local and global players operating in India; • Continuous downward brssure on the fees, commissions and brokerages caused by an overbanked market and willingness of most players to deliver services at very low fees. However, your Company is well aware of the above threats and has worked steadily to strengthen its business operations by putting appropriate policies and measures in place and well positioned to counter any adverse threat successfully. RISK AND CONCERN In this era of globalization the financial service sector has been integrated with the global markets and is becoming more complex and competitive with introduction of newer and complex products & transactions, stringent legislative and regulatory environment. The ability to manage risks across geographies, products, asset classes, customer segments and functional departments is of paramount importance for the hindrance-free growth of the organisation which helps in delivering superior shareholder value by achieving an appropriate tradeoff between risks and returns. Risk is inevitable in business and there are various risks associated with your Company as well like portfolio risk, industry risk, credit risk, internal control risk, technology risk, regulatory risk, human resources risk and competition risk. The Company's focus of risk management is all about risk reduction and avoidance. It has combrhensive integrated risk management framework that comprise of clear understanding of the Company's strategies, policies, initiatives, norms, reporting and control at various levels. Timely and effective risk management is of prime importance to our continued success. The risk for the Company arises mainly out of the risks associated with the operations we carry. Experienced professionals review and monitor risks in our Company. We have combrhensive risk management policies and processes to mitigate the risks that are encountered in conducting business activities. The management also periodically reviews the policies and procedures and formulates plans for control of identified risks and improvements in the systems. A risk/compliance update report is regularly placed before the Audit Committee/Board of Directors of the Company. The Directors/Audit Committee review the risk/ compliance update reports and the course of action taken or to be taken, to mitigate and manage the risks is taken. HUMAN RESOURCES We are a dynamic and progressive group that actively fosters a challenging work environment and encouraging entrebrneurship. We groom leaders to drive our future in knowledge intensive, people driven business, such as, ours. We strive towards creating an empowering environment to support the development of highly motivated and skilled professionals in their pursuit of excellence. With trust being the critical part of our business belief, we lay strong emphasis on integrity, teamwork, innovation, performance and partnership. Our organisation is committed and focused on identifying and retaining the right talent to meet the overall business strategy and objective. The broad range of activity includes viz. robust manpower planning process in line with the business objective, enhancement of employee skill-sets by identifying training and development needs, retention programmes, reward and recognition, learning and development. We aim to continue on the path of pursuing excellence through unorthodox means and out of the box methodologies thereby expanding the horizons of our conventional wisdom. The coming year will see us harnessing the maximum benefits from these initiatives and unleashing the power of human capital. INTERNAL CONTROL AND THEIR ADEQUACY Your Company being in service industry, has in place clear processes and well-defined roles and responsibilities for its employees at various levels. The Management has a defined reporting system, which facilitates monitoring and adherence to the process and systems and various statutory compliances. These have been designed to provide reasonable assurance with regard to maintaining proper accounting controls, monitoring economy and efficiency of operations, protecting assets from unauthorised use or losses, and ensuring reliability of financial and operational information published from time to time. OUTLOOK - 2015-16 Macroeconomic scenario in India significantly improved during current year and the economy is in much better shape vis-a-vis brvious few years - primarily driven by services sector as well as picking up industrial activity. This points to buoyancy in domestic consumption. With this sound footing, now the savings-investment dynamics will be crucial for the growth to strengthen further in the coming years in addition to reversal of the subdued export performance being currently witnessed. The key will be the response of savings to improved price and financial market stability, and of investment, particularly in the crucial infrastructure sector, to reform efforts of the Government that are underway. With the government putting its act together to resolve issues related to mining and construction (read coal block auctions, etc.), that will provide much needed impetus to GDP as these two sectors have effect on quite a few industries. Better use of resources is critical to shore up productivity which is currently abysmal as reflected in current ICOR. Globally, while some economies have shown resilience and improvement - Germany and USA, respectively, others like several European countries, Japan as well as China have shown slowing growth. Hence the global scenario is a mixed bag. Considering the improving domestic macroeconomic parameters supported by benign crude prices and Government's commitment to reforms, the outlook for Indian economy looks positive, though the uncertainties arising from increasing rate scenario in US and situation brvailing in Eurozone could have an impact in the coming year. Given the above and assuming normal monsoons, growth of around 8.5% looks possible in 2015-16. CAUTIONARY STATEMENT The Statements in this Management Discussion and Analysis Report describing the Company's objectives, projections, estimates and expectations may be forward looking statements within the meaning of applicable laws and regulations. Actual results might differ materially from those exbrssed or implied. The Company is not under any obligation to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events. |