MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL ECONOMY

Global economic growth disappointed again in 2015, slowing to 3.1%, and is expected to recover at a slower pace than brviously expected. While the last global economic crisis had its origins in advanced economies, Asian economies were relatively unscathed and provided a valuable counterbalance to the global economy. However, this time around, that has changed. Emerging markets are under stress, especially those with trade linkages to China. The International Monetary Fund (IMF) in its World Economic Outlook, released in April 2016, warns that "uncertainty has increased, and risks of weaker growth scenarios are becoming more tangible. The fragile conjuncture increases the urgency of a broad-based policy response to raise growth and manage vulnerabilities".

The baseline projection for global growth in 2016 is 3.2%, as a modest recovery in advanced economies continues and activity stabilizes among major commodity exporters, according to the World Bank's January 2016 Global Economic Prospects. As always, forecasts are subject to significant downside risks. A more protracted slowdown across large emerging markets could have substantial spill overs to other developing economies, and eventually impact the recovery in advanced economies. A broad-based slowdown across developing countries could pose a threat to hard-won gains in raising people out of poverty, the report warns. However, there is potentially one bright spot in the global economy, the US, which registered a 2.5% growth in 2015. Global oil prices are expected to stay in the band of USD 40-50 per barrel in the foreseeable future but they are unlikely to fall further. This means that on a year-on-year calculation, inflation numbers across the globe could well begin to edge up by the middle of 2016, including in India.

INDIAN ECONOMY

India is seen as the fastest growing economy amongst the world's major economies, with GDP growth estimated at 7.6% in 2015-16 as compared to 7.2% in 2014-15. Growth in the services sector, which has been the key driver of India's growth for several years, has however slowed to an estimated 9.2% as compared to 10.3% in the brvious year. The industrial and manufacturing sectors remained flat, with manufacturing output shrinking since November 2015. The IIP growth during 2015-16 was 2.4% as compared to 2.8% during the brvious year. Notwithstanding the erratic and sub-optimal monsoon in most parts of the country, growth in the agriculture sector for 2015-16, has been estimated at 1.1%, albeit from a low base, as compared to the decline of 0.2% during the brvious year. Thankfully, the stock of food-grains as on 1st April 2016 was higher at 43.4 million tonnes as against 41 million tonnes a year ago. Consumer price index based retail inflation showed a steady decline and stood at 4.9% in 2015-16, compared to 5.9% in 2014-15. Improved supply side management ensured a moderation in food prices during the second half of 2015-16. Wholesale price index (WPI) based inflation, remained negative throughout 2015-16, averaging (-) 2.5% in 2015-16 as compared 2% in 2014

India's Current Account Deficit narrowed to 1.4% of GDP in April - December 2015 compared to 1.7% of GDP during the corresponding brvious period. The Government's decision to continue on the path of fiscal consolidation ensured that the fiscal deficit was contained at 3.9% of GDP for 2015-16, as compared to 4.1% in the brvious year.

In the past year, the government has accelerated efforts to boost public investment, with a particular focus on roads, railways and the power sector. Notably, the government has taken several steps to improve road project execution. Project approvals have also been accelerated. The results of these measures are reflected in the 69% year-on year increase in projects awarded by the National Highways Authority of India (NHAI) to 2,649 km, in the 8 months ending November 2015. In the power sector, after addressing the issue of coal availability in its first year in office, the government has now turned its attention to restoring the financial health of India's electricity distribution companies, which are primarily owned by state governments. The UDAY scheme which seeks to transfer the debt of SEBs to the State Governments has been welcomed by several states. Two important legislations, the Bankruptcy bill and the Real Estate Regulation bill were approved by both houses of Parliament. With inflation remaining within its targeted range, RBI has progressively reduced the Policy rate by 150 basis points since January 2015, to its current level of 6.50%. However, the transmission of these reductions by commercial banks to their borrowers has only been partially done.

AUTOMOTIVE SECTOR

The commercial vehicle segment led the recovery of the automotive sector in FY 2015-16, with Medium and Heavy Commercial Vehicle (M&HCV) sales registering a strong growth of 30% (PY 16%), driven partly by replacement  demand and partly by br-buying, ahead of anticipated mandatory changes in emission and safety norms. Notably, the haulage segment grew at an imbrssive 40% over the brvious year, while the tipper segment registered a growth of over 20%. Although freight demand remained sluggish, the reasonably stable and benign diesel prices provided a measure of relief to road transport operators. Sales of Light Commercial Vehicles, above 3.5 tonnes (LCV) bounced back after two successive years of decline, registering a growth of 13% during the year, while sales of Passenger Cars and Utility Vehicles registered a modest growth of 7% (PY 4%). Tractor sales however, declined by 11.5%, impacted variously by the failure of the monsoon in some parts of India and by unseasonal rains in other parts.

OPERATING & FINANCIAL PERFORMANCE

Your Company's disbursements at Rs.11364 cr., registered a healthy growth of 15% over the brvious year, propelled by a 34% growth in Medium and Heavy Commercial Vehicles. Your Company continued to maintain a strong position in its key markets and chosen customer segments. Competition for available business intensified during the year, exerting brssure on margins. Your Company was largely able to counter this through its strong customer relationships and its well renowned customer service excellence. The gross receivables managed by the Company stood at Rs.20699 cr. as at 31st March 2016, a growth of 10% over the brvious year.

In November 2014, the Reserve Bank of India, issued a revised regulatory framework for NBFCs, which inter alia required the asset classification and provisioning norms to be aligned with those for Banks. Accordingly, the Prudential Norms for Non-Banking Financial (Deposit Accepting or Holding) Companies were amended, requiring NBFC's to classify Non-Performing Assets based on 3 months over dues,  by the financial year ending 31st March 2018. However, your Company has, as a matter of prudence, adopted the three months norm, in advance, for the financial year ended 31st March 2016, as compared to the 120 days norm followed in the brvious financial year, entailing an additional impact of Rs.6.6 crores on the profit after tax for the year. In keeping with the Company's focus on maintaining superior asset quality, the Gross and Net NPAs as at 31st March, 2016, based on the revised three month NPA classification norm adopted by your Company, stood at 2.08% and 0.92%, respectively, making it the best performing portfolio amongst its peers, by some distance.

The net profit from continuing operations was Rs.477.28 cr. as against Rs.454.14 cr. in the brvious year, registering a growth of 5%. The Company's Net-Worth stood at Rs.3312.62 cr. as on 31.3.2016. Capital Adequacy (CRAR) at 18.51% was comfortably higher than the statutory requirement of 15%. Your Company continues to provide for Standard Assets at 0.40% and has transferred an amount of Rs.1.32 cr. towards Contingent Provision against Standard Assets.

RESOURCE MOBILISATION

a) Deposits

During the year, your Company mobilised fresh deposits aggregating to Rs.491.41 cr. Renewal of deposits during the year amounted to Rs.690.31 cr. rebrsenting 83% of the matured deposits of Rs.838.40 cr. Deposits outstanding at the year-end were at Rs.2246.27 cr. as against Rs.1924.72 cr. in the brvious year. The Net accretion for the financial year was Rs.321.56 cr. which is the highest in the history of your Company.

As at 31st March 2016, 4580 deposits amounting to Rs.33.41 cr. had matured for payment and were due to be  claimed or renewed. After close follow-up, the figures are currently down to 2796 and Rs.17.22 cr. respectively. Steps are continuously being taken to arrange for repayment or renewal of these deposits. There has been no default in repayment of deposits or payment of interest thereon during the year. Investor Relation Services - Deposits continue to enjoy the ISO 9001:2008 certification from Bureau Veritas Certification (India) Private Limited.

b) Term Funding

During the year, your Company raised term funding from Banks, Mutual funds, Insurance companies and others in the form of non-convertible debentures and term loans to the tune of Rs.2222 cr., across various tenors.

c) Bank Finance

As part of the overall funding plan, your Company's working capital limits with Consortium banks were retained at Rs.1800 cr. During the year, your Company also issued several tranches of commercial paper aggregating to Rs.9835 cr. The maximum amount outstanding at any time was Rs.4155 cr. and the amount outstanding at the end of the year was Rs.1050 cr.

d) Assets Securitised / Assigned

During the year, your Company raised resources to the extent of Rs.2998 cr. through securitisation and assignment of receivables.

CREDIT RATINGS

All the borrowings of the Company are rated. The short term borrowings (including commercial paper) are rated "A1+" (very strong degree of safety). Fixed Deposits are rated "AAA" (Highest Credit Quality). The long term borrowings are rated

"AA+" (High Degree of Safety), with a "Stable outlook" and are rated by ICRA, CRISIL and India Ratings.

OUTLOOK

The Indian economy is projected to grow at 7.8%, in 2016-17 as per most accounts. With headline inflation likely to remain low, it is widely expected that RBI will sustain its current accommodative stance. With most macroeconomic indicators remaining stable, the various measures initiated by the Central government are likely to have a salutary impact on the automotive sector. The continuing thrust on infrastructure and revival of mining activities, coupled with the increase in budget allocation for rural sector and fast tracking of irrigation projects, augur well for the growth of Medium and Heavy Commercial Vehicles as well as construction equipment.

According to the estimates of the Society of Indian Automobile Manufacturers (SIAM) sales of M&HCVs are projected to grow at 12 to 15% in FY 2016-17, while LCV sales are expected to grow by 7-9%. Passenger Cars / Utility Vehicles are projected to grow at 6 to 8%. The tightening of emission norms effective April 2017 is also likely to spur some advance buying in M&HCV's in the second half of the year. With diesel prices expected to remain stable, the outlook for the automotive sector appears reasonably optimistic.

Private sector investment however, remains weak, amid cyclical headwinds such as high corporate leverage, slow export growth, persistent excess capacity in several sectors, and a troubled banking sector. More than ever, the behaviour of the Southwest monsoon will have a major bearing on India's economic fortunes this year. Large parts of the country are reeling from a severe drought after two successive years of deficient rains, resulting in distress for much of the rural economy. On a positive note, all indications are that the monsoon would be normal, in the wake of the weather phenomenon La Nina and this certainly augurs well, not only for the rural sector but for the economy as a whole. The Government's focus on enhancing expenditure in the priority areas of farm and rural sector, social sector and infrastructure sector are very welcome. The various announcements in the Union Budget 2016, such as the increased budget allocation for rural sector, fast tracking of irrigation projects, increase in farm credit and targeted increase of road and bridge construction activities, augur well for the economy. India's overall economic growth is supported by robust consumer spending, which is estimated to make up 55 per cent of aggregate demand in the economy. This is expected to receive a major boost, with the implementation of the public sector salary increases, mandated by the 7th Pay Commission, and a rise in rural incomes, provided the forecast of a good monsoon is realised.

Against this backdrop, your Company hopes to post reasonable growth in its chosen lines of business and also continue to explore new, profitable business opportunities. Competitive brssures in the vehicle financing market are likely to remain high, with banks increasingly focussing on retail lending, thereby exerting downward brssure on margins. As always, brservation of asset quality will remain a key imperative, especially in light of the early adoption of the more stringent three month NPA norm by your Company. Growth with Quality and Profitability has been the underlying philosophy that has guided your Company over the years and shall continue to do so in the future as well.

INTERNAL FINANCIAL CONTROLS

The Company has a well-established internal financial control and risk management framework, with appropriate policies and procedures, to ensure the highest standards of integrity and transparency in its operations and a strong corporate governance structure, while maintaining excellence in services to all its stakeholders. Appropriate controls are in place to ensure: (a) the orderly and efficient conduct of business, including adherence to policies, (b) safeguarding of assets, (c) brvention and detection of frauds / errors, (d) accuracy and completeness of the accounting records and (e) timely brparation of reliable financial information.

RISK MANAGEMENT

Your Company has built a robust risk management framework over the years. Engaged, as it is, in retail financing, the Company has to manage various risks, such as credit risk, liquidity risk, interest rate risk and operational risk. The Risk Management Committee and the Asset Liability Management Committee review and monitor these risks at regular intervals. The Company manages credit risk through stringent credit norms established through several years of experience in this line of business and continues to follow the time tested practice of personally assessing every borrower, before committing to a credit exposure. This process ensures that the expertise in lending operations acquired by the Company over decades is put to best use and acts to mitigate credit risks. The Company monitors ALM on an ongoing basis to mitigate the liquidity risk, while interest rate risks arising out of maturity mismatch of assets and liabilities are managed through regular monitoring of the maturity profiles. The Company also measures the interest rate risk by the duration gap method.

Operational risks arising from inadequate or failed internal processes, people and systems or from external events are adequately addressed by the internal control systems and are continuously reviewed and monitored. A stable and experienced management team provides much needed continuity and expertise in managing the dynamic changes  in the market environment. Process improvements and quality control are on-going activities and are built into the employees' training modules, as well. The Company has well documented Standard Operating Procedures for all processes to ensure better control over transaction processing and regulatory compliance.

INTERNAL AUDIT

As part of the efforts to evaluate the effectiveness of the internal control systems, your Company's internal audit department independently evaluates the adequacy of control measures on a periodic basis and recommends improvements, wherever appropriate. The Internal Audit team plays an essential role in continuously monitoring the effectiveness of the Standard Operating Procedures, as a part of risk mitigation.

The internal audit department is manned by highly qualified and experienced personnel and reports directly to the Audit Committee of the Board. The Audit Committee regularly reviews the audit findings as well as the adequacy and effectiveness of the internal control measures.

Additionally, an Information Security Assurance Service is also provided by independent external professionals. Based on their recommendations, the Company has implemented a number of control measures both in operational and IT related areas, apart from information security related measures.

HUMAN RESOURCES

Your Company believes that its greatest assets are its people and Training is an investment in long term people development, for organisational excellence. During the year under review, your Company has taken several new initiatives to ensure that the knowledge and wisdom gained over decades is handed down to the next generation of employees. A well balanced mix of domain knowledge and behavioural training was taken  up towards talent transformation. These initiatives, sbrad across 4600 man days of training, have paid rich dividends in the form of a strong group of in-house facilitators of domain knowledge and a highly motivated team of employees geared to fulfilling the needs of your Company's valued customers.

INFORMATION TECHNOLOGY

Your Company has a State of the Art Data Centre catering not only to its own needs but also those of its subsidiaries and associates, with a capacity of over 250 servers, managed by professionals providing 24/7 support, with over 99.99% uptime. The Data Centre is accredited for ISO/IEC 27001:2013 by TUV Rheinland for Information Security Management System. The Disaster Recovery Site for all critical applications is hosted at a separate facility with near real-time data replication.

The Company has developed robust business applications on the Oracle Technology platform, catering to various business verticals such as Hire Purchase, Loans, Leasing and Deposits and works off Oracle Financials and Hyperion for Financial Accounting and Reporting.

The Company has also taken several initiatives in developing mobile applications including "Sundaram MCollect", an application designed to process collections, which enables our Executives in the field to serve our customers at their door step. Extensive Dashboards developed in 'Project Sundaram', the Company's proprietary software platform, serve as key decision support tools.