Management Discussion and Analysis Report Global Overview: Global economy witnessed another year of subdued and uneven growth in 2014. According to International Monetary Fund (IMF), world economy grew by 3.4% rate in 2014, with a pickup in growth in advanced economies (mainly in U.S. and U.K.) and a slowdown in emerging market and developing economies. Despite the slow-down, emerging market and developing economies still accounted for three-fourths of global growth in 2014. Going forward, a number of compound forces (such as global shocks and many country or region specific factors) are likely to determine the outlook of global economies. In advanced economies, mainly in Euro area, the prospects of growth are clouded by aging populations, weak investment and policy actions. Moreover, many advanced economies and some emerging markets are dealing with high private or public debt or both. Although, lower oil prices provide a boost to global economic activities but it will weigh on oil exporters. Growth in the U.S. remained strong, averaging 3.9% annualized in the last three quarters of 2014. Consumption, the main engine of growth, has benefited from steady job creation and income growth, lower oil prices and improved consumer confidence. The Unemployment Rate declined to 5.5% in March 2015, more than 1 percentage point below its level of a year ago. Going forward, lower oil prices, softer Inflation, favorable financial conditions and strengthened household will maintain growth momentum. According to IMF estimates, the U.S. growth is likely to reach 3.1% in 2015 and accelerate at the same rate during 2016. Economic growth remains weak across Euro countries in 2014 as output and investment remained well below br crisis levels. The slowdown in investment derives from persistent economic slack, declining growth expectations, ongoing political and policy uncertainty, geopolitical tensions and tight credit conditions. In 2015, growth is expected to increase to 1.5% from 0.9% in 2014 on account of supportive wage increases, a near-term boost from lower oil prices and the European Central Bank's (ECB) actions. ECB announced a decisive asset purchase program, including purchases of sovereign bonds. However, uneven recovery across the countries, high Unemployment, aging population and low investment will weigh on the recovery. Moreover, ECB's reforms strengthen sentiments but this effort is still a work in progress. Growth slowed down across most of the Asian countries in Q1 of 2014 as Exports growth declined and domestic demand cooled in China. However, activity picked up in most of the region's economies in Q2, including in China, on new measures to support activity. Going forward, Asia's growth outlook is expected to remain steady and is expected to continue outperforming the rest of the world. While China's growth rate is shifting to a more sustainable pace, growth is projected to pick up elsewhere in the region on lower oil prices, still-favorable financial conditions and healthy labour markets. Domestic Overview: On the domestic front, macroeconomic vulnerabilities have abated significantly from the second half of 2014 on the back of improvement in growth outlook, fall in Inflation, recovery in the external sector and political stability. In advance estimate of Nation Income, FY2014-15 real GDP growth of India has been pegged at 7.4% YoY compared with 6.9% YoY last year. These estimates follow the recent base revision in GDP to FY2011-12 from FY2004-05. Moreover, GDP of India which entered the USD2 tn club in 2014 is likely to register an above USD3 tn value in nominal terms by 2018. Terming India as a "bright spot" on the global economic landscape, the International Monetary Fund (IMF) raised India's growth forecast for FY2015-16 to 7.5% YoY, on account of positive policy actions, stronger investment flows and lower global oil prices. Other leading organizations (World Bank, ADB, OECD) too revised their outlook. According to ADB, higher growth in India is expected to come on the back of easing monetary stance by the Reserve Bank of India (RBI) and a pick-up in capital expenditure. OECD think implementation of new reforms promised by the Government will be the key to puffing India on a strong and sustainable growth path. Price of oil dropped about 60% between June 2014 and January 2015, plunging to a six-year low of USD47 a barrel in January. Despite a rebound from that low, oil is likely to remain at around USD55-60 a barrel in FY2015-16. India benefits from lower oil prices through improved Current Account Deficit (CAD) reduced Fiscal Deficit and lower Inflation. Petroleum-related products comprise about 30% of India's merchandise Imports and 20% of merchandise Exports. So, cheaper oil will decrease Trade Deficit as well as CAD. Moreover, falling oil prices allowed the Government to bring about a slew of fuel subsidy reforms in October 2014, including diesel price deregulation and announcement of new gas price. As a result, under-recoveries for oil companies is expected to decrease from INR1399 billion in FY2013-14 to INR840 billion in FY2014-15 and INR650 billion in FY2015-16 and moderate Fiscal Deficit. On the other hand, Inflation in India is finally moderating to comfortable rates. CPI Inflation dropped to 5.2% YoY in March 2015 from 8.3% YoY last year, not only because of favorable base and cheaper food items but also due to weaker fuel prices. Owing to the slump in oil prices, Fuel and Light Inflation declined to as low as 3.8% YoY in January 2015. With de-regulation of diesel, the pass through of global prices would ease Inflation directly / indirectly. As per RBI study, 10% decline in crude could reduce CPI by 20bps. India's income pyramid shows the rapid decline in lower income class and a steady increase in higher income class. Low income group (earns upto USD2500 a year) which constituted more than 60% in 2005 has fallen to less than 50% in 2010 and is 20] expected to fall further. Similarly, High income group (earns more than USD10000 per year) has gone up from 2% in 2005 20( to 4% in 2010 and is projected to scale up further, which gives us clear visibility of the kind of income as well as consumption growth the country is witnessing. However, macro-economic adjustment is far from complete, with persistence of slowdown in Industrial activities. Much more efforts in terms of removing structural impediments, building business confidence and creating fiscal space to support investments will be needed to secure over 8% growth. BUSINESS OVERVIEW Your Company believes that by pursuing Innovative business models, the businesses can be transformed to create sustainable benefits for all and long term value for our stakeholders. The initiative taken by your company to focus on digital business is a step in this direction. Financial Services During the year, the BSE Sensex has gone up by 24.89% on YoY basis. The BSE and NSE combined Cash volumes were INR 51,845.00 billion in 2014-15 against INR 33413.37 billion last year, registering an increase of 55.16 percent. Out of the total volume registered in the exchanges, 87.06% contributed by F&O segment in FY14-15 against 93.44% registered in FY 13- 14. Though the market during the year was favorable, the participation of non-institutional investors was not increased in commensurate with market movement. There was brssure on brokerage yield also. We believe that the brokerage businesses in India will see phase of consolidation in future. As on 31st March 2015, we have more than 35,000 registered clients for our Equity Brokerage Services. In Institutional business, we were successful in getting empanelment with 21 institutions as at 31st March, 2015. The financing segment mainly consists of Loan against Shares (LAS). Your company focuses more on the quality of collateral rather yield on lending. The company keeps sufficient margins of quality stocks from borrowers. The Investment Banking segment is highly correlated with the Capital Market and the subdued sentiments in last year specifically towards primary issues had an impact on the earnings of your Company. FORESEEGAME.COM Foreseegame.com is No. 1 consumer engagement platform in India with Alex ranking of 380 at India level. As on 31st March 2015, foreseegame.com had more than 1 million registered users. With more than 1 million pageviews per month and 25 minutes average time spend per user, foreseegame.com is far ahead from any peer platform in India. During the year, the revenue earned from this segment was Rs. 4.09 millions which your Company feels is in the line with any start up business. With the advent of urbanization the advertising industry is experiencing a paradigm shift to digitalisation. The advertising platform is now more inclining towards digital platforms to attract the youth consumers of the nation. The rise in internet usage and healthy growth in sales of smart phones together with higher net disposable income led to the popularisation of digitalization to a greater level. Considering the benefits of the digitalisation coupled with the increasing affordability amongst the population, the contemporary marketing and promotional strategies are switching to digital mastering design to keep up with the ongoing changes in advertising. According to a study by the Internet & Mobile Association of India (IAMAI) and the IMRB international the online advertising was projected to reach INR 3575 crores by March 2015, rebrsenting a growth of 30% from the brvious year where it was INR 2750 crores. On industry wise spends, the report reflected that e-commerce, telecom, FMCG and consumer durables are the top three verticals driving digital ad spends in India. The outlook for digital advertising and marketing sector in India remains promising as the internet penetration in the country is still low and expected to grow significantly in the years to come. Launch of affordable 4G smart phones, expansion of data services to the rural part of the nation and the government's Digital India initiative are likely to keep driving the growth of digital content in the country. This factor is expected to remain supportive to the performance of digital advertising and marketing sector as well. Your company is foreseeing excellent opportunities in this space and is expecting good growth in this business segment. SASTASUNDAR.COM Sastasundar.com has been able to establish itself as a trusted brand among customers. High percentage of repeat orders from the existing customers reflects high confidence of the customers on brand. At brsent, the services of sastasundar. com is available in Kolkata and nearby suburb area and it is processing on an average 2000 plus orders on daily basis. The revenue from this segment during the year was Rs. 211.19 millions comparison Rs. 6.63 millions brvious year. Sensing the positive response of the customers, your company has launched its own brands of products in healthcare segment. Your Company's aspiring portfolio of products viz Zerotox, Healthbuddy Herbal, Healthbuddy Organic, Healthbuddy Natural, Lingerie Fit, Noknok Baby, Aasaan, Handyware, Healthbuddy Care, Stoptar, Chefon and Pure & Fresh are getting good feedback from the market and getting acceptance in households. The bakery and confectionary range of products of Chefon as well and Tea & Spices range under Pure & Fresh made on innovative concept of Make-to-order has been launched. The uniqueness of Make-to-Order wherein products are made after customer's order so that the customers can have fresh products to eat, is going to create separate space for Chefon and Pure & Fresh in market. The extensive R&D work done by your Company for the core purpose of providing health drink to the customer as per their body requirement has been completed. We are working on the regulatory approvals and are hopeful to launch this innovative product under the brand DNAVITA which we believe will be highly beneficial for the mankind. OPPORTUNITIES • Healthy and sustainable economic growth rate with sound macro-economic fundamentals • With more than 350 million internet users in India which is expected to cross 500 million by 2017 provides excellent opportunities for digital businesses • Young and aspiring population THREATS • Increased competition from local and global players operating in India • Technology Advancement • Getting Trained Manpower RISK MANAGEMENT The objective of risk management is to balance the tradeoff between risk and return and ensure optimum risk adjusted return on capital. The Risk Management Policies related to Procurement, Debtors, Inventory, Financing and Investments are in place and properly documented and reviewed continuously. The processes have been laid down to oversee the implementation of the policies and continuous monitoring of the same. Our Board level Committee viz. Audit Committee and Risk Management Committee oversee risk management policies and procedures. It reviews the credit and operational risks, reviews policies in relation to investment strategy and other risks like interest rate risk, compliance risk and liquidity risk. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY In any industry, the processes and internal control systems play a critical role in the health of the Company. We have adequate Internal Audit and Control system across all businesses. Our internal control systems are adequate and provide, among other things, reasonable assurance of recording transactions of operations in all material respects and of providing protection against significant misuse or loss of company assets. We believe in the conduct of its affairs in a fair and transparent manner by adopting the highest standards of professionalism, honesty, integrity and ethical behaviour. The internal processes have been designed to ensure adequate checks and balances at every stage. Internal audit is conducted to assess the adequacy of our internal controls procedures and processes, and their reports are reviewed by the Audit Committee of the Board. Policy and process corrections are undertaken based on inputs from the internal auditors. HUMAN RESOURCES Human resource is one of the most important key to the success of any company. Your Company's business critically depends on quality of manpower. Your Company's multi-business context posses unique challenges to the Human Resource function. The HR function of your Company has been structured and aligned in line with the business needs and requirements. The Company's businesses are managed by a team of competent and passionate leaders, capable of enhancing your Company's standing in the competitive market. The Company's employees have a defining role in significantly accelerating its growth and transformation, thereby enhancing its position as one of the largest corporate houses. The Company has a structured recruitment process, the focus is on recruiting people who have the right mindset for working at Microsec, supported by structured training programmes and internal growth opportunities. The company consistently invests efforts in training and developing its employees, which in-turn leads to sustained growth. The total employee strength of Microsec Group is 818 as on 31st March, 2015. 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. The Actual result may vary materially from those exbrssed or implied in the statement. Several factors make a significant difference to the company's operations including the government regulations, taxation and economic scenario affecting demand and supply condition and other such factors over which the Company does not have any direct control. |