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HOME   >  CORPORATE INFO >  MANAGEMENT DISCUSSION
Management Discussion      
Equitas Holdings Ltd. - (Amalgamated)
BSE Code 539844
ISIN Demat INE988K01017
Book Value 50.73
NSE Code EQUITAS
Dividend Yield % 0.00
Market Cap 40980.63
P/E 531.04
EPS 0.23
Face Value 10  
Year End: March 2016
 

 MANAGEMENT DISCUSSION & ANALYSIS

Industry Overview

The world economy remained sluggish and weak in general. India was the only large economy showing good growth. The country's growth has led to a rise in financing needs. NBFCs have played a major role in complementing banks and other financial institutions, and help fill the gaps in availability of financial services with respect to products as well as customer and geographical segments. Strong linkages at the grassroot level makes them a critical cog in catering to the unbanked masses in rural and semi-urban reaches, enabling the Government and Regulators to further the mission of financial inclusion. The sheer size of the market in terms of financially excluded households brsents large opportunities for a business model that offers sustainable credit to the unbanked and under-banked at affordable rates and a repayment cycle sbrad over a longer duration. Banking and NBFC sectors have, however, had a challenging phase as certain industrial sectors suffered a downturn.

The dynamics of the NBFC sector is reflective of its evolving role in niche areas of specialised services. Operationally, the sector remained relatively stronger vis-à-vis commercial banks in terms of capital adequacy and profitability. However, the asset quality of the NBFC sector has also suffered deterioration in recent years.

Equitas Holdings Limited and Businesses

Equitas Holdings Limited (EHL) is the Holding Company of the Equitas Group of Companies. EHL holds investments in subsidiary companies and is a Core Investment Company – Non Systemically Important (CIC – Non SI) as per RBI Regulations. Apart from holding investments in subsidiary companies, EHL provides loans to subsidiaries and corporate guarantees for the borrowings of subsidiaries from banks and institutions.

The Group started its business in 2007 as a Micro Finance entity and over time, diversified into other business lines through its subsidiaries: Equitas Housing Finance Limited [EHFL], 2010 and Equities Finance Limited [EFL], 2011 respectively.

Equitas Technologies Private Limited [ETPL], which was set-up in October 2015, is in the business of development of a technology platform for freight, logistics, carriers and related services which matches demand with supply and where various vendors and customers can be brought together for fulfillment of mutual sales and services. It operates under the brand “Wow truck”.

Small Finance Bank [SFB]: The Company, along with nine other entities, received an 'in principle' approval on 7th October 2015 from The Reserve Bank of India to establish a small finance bank in the private sector under Section 22 of the Banking Regulation Act, 1949. The validity of the 'in principle' approval is for 18 months, within which some of the various corporate actions have been / would be initiated as below:

Equitas Micro Finance Limited and Equitas Housing Finance Limited will be merged with Equitas Finance Limited to form the SFB;

 Foreign holding to be reduced to less than 49% through an Initial Public Offer [IPO]. The Company met this objective as a result of its IPO in April 2016.

? Fulfill all requirements to obtain final banking license during 2016-17.

As a Small Finance Bank, the Company aims to inculcate the habit of prudent long term savings among the unbanked and under-banked in India. Over time, the SFB will mobilise retail deposits that will aid in reducing the overall cost of funds and build a strong base of mass and affluent banking customers. The SFB hopes to be driven brdominantly by two channels:

i) a large network of community bankers by appointing Business Correspondents and

ii) its own branch network catering to mass and affluent customers

As the organisation transforms itself into a SFB, two distinct portfolios will emerge - Retail Asset and Retail Liabilities.

The Retail Assets will continue to grow through established lines of business like Micro Finance, Used Commercial Vehicle Finance, MSE Finance, Home Loans etc. The Retail Liabilities will focus on mobilizing funds through retail household accounts.

Details of Subsidiaries:

1. Equitas Micro Finance Limited (EMFL):

EMFL is a wholly owned subsidiary of Equitas Holdings Limited (EHL). EMFL is registered as NBFC-MFI with RBI.

Customer Segment:

EMFL provides small loans of around Rs. 2,000 to Rs. 35,000 to people who are in the Economically Weaker Section (EWS) / Low Income Group (LIG) income category. RBI has put in a regulatory framework, which, among others, also defines the income level of customers who can be serviced by MFIs. Currently this stands at Rs. 1.6 lakhs of annual income for households in urban areas and Rs. 1 lakh of annual income for households in rural areas.

Regulatory Framework:

Recognising the active role played by MFI in driving financial inclusion, RBI in 2011 had introduced a strong regulatory framework to strengthen this sector. As of now, the significant regulatory guidelines are:

Household annual income of families who avail micro loans from MFIs should not be more than Rs .1.6 lakh in urban areas and Rs. 1 lakh in rural areas.

?Not more than 2 MFIs can give loan to the same borrower

?The total loan outstanding of both the MFIs to the same borrower should not exceed Rs. 1 lakh at any point in time

?Loan amount should not exceed Rs. 60,000 in the 1???? cycle & Rs. 1 lakh in subsequent cycles.

?The margin (i.e. the difference between cost of funds of the MFI and its lending rate) not to exceed 10% in case of MFIs with asset size exceeding Rs. 100 crore and 12% in other cases

?Loans above Rs. 30,000 should necessarily have a minimum tenor of 2 years.

?Borrowers should be given a choice of frequency of repayment viz. weekly, fortnightly or monthly

?Aggregate amount of loans given for income generating purpose is not less than 50% of total loans given

?Benefit of priority sector classification extended to lending of banks to MFIs.

Business Environment:

Given the demand for such loans, the MFI sector is expected to record sustained high growth over the next few years.

The MFIs have established themselves as efficient and effective institutions for the last mile connectivity to low income clients. They are expected to play a supportive role to the initiatives on financial inclusion of the Regulators and Government. In September, Reserve Bank of India (RBI) gave in-principle approval to start small finance banks to 10 entities of which 8 are microfinance firms including Equitas. This faith in MFIs also augurs well for the Indian Microfinance sector that has seen its ups and downs since 2010.

This new opportunity gives MFIs the ability to diversify their products and services, obtain access to electronic channels, expansion of their fund base as well as derive the opportunity to bring an overall positive impact on the financial wellbeing of its constituents.

Operational and Financial Results

EMFL has, right from its inception, been focused on creating a highly efficient platform to deliver micro finance loan services to clients. EMFL has put in place a state-of-the-art Risk Management System for controlling operational risk and has built a robust technology backbone to process a large number of transactions in a seamless manner. The earlier industry-leading OMR (Optical Mark Recognition) technology has now been replaced by front- end tablets. Client acquisition process is now a paperless process across all branches. Applications are entered directly into the tablet, photograph of clients and KYC documents are captured on the tablet and it moves to head office for processing. The tablet process which was launched at about 60 branches in the brvious year has been extended to all the branches during the year. This is expected to bring in substantial savings in cost and time, besides higher levels of validations. EMFL disbursed Rs.3,173 crore during the year resulting in the total loan outstanding (including securitized loan outstanding) going up from Rs.2,144 crore as on 31st  March, 2015 to Rs. 3,283 crore as on 31st March, 2016. Thirty Eight branches were added including three each in two new states (Haryana & Punjab), taking the total number of branches to 399.

Since EMFL had built up infrastructure to handle high volume operations, the growth during the year resulted in better utilization of staff and other resources leading to lower operating costs. EMFL posted a net profit after tax of Rs. 80.36 crore for the year ending 31st  March 2016 compared to Rs. 68.55 crore for the brvious year. The Return on Equity (RoE) was at 19.12%.

Capital Adequacy

As at the end of year, EMFL's Capital to Risk Adjusted Assets (CRAR) was comfortable at 21.70% against the regulatory requirement of 15%. During April 2016, the Holding company has infused fresh capital of Rs.288 crore out of the funds raised from IPO, which significantly improved the CRAR.

Resources and Treasury

The funding for the business is from an optimum mix of equity and debt. EMFL continues to follow the policy of diversification of funding sources. EMFL has existing relationships with about 36 lenders across Banks, Financial Institutions, NBFCs and Overseas FII investors, who have sanctioned limits of Rs.2,448 crore during the year, out of which Rs.2,348 crore have been availed as on 31st  March, 2016. It includes Rs.250 crore of NCDs and Rs.150 crore of Subordinated Debt issued during the year. Undrawn lines as at the year-end include Rs.100 crore.

The EMFL during the year completed around Rs.662 crore of fund raising through securitization transactions with various banks. The overall off-book assets constituted 22% of total assets as on 31st  March, 2016.

During the year, EMFL's credit ratings were reaffirmed by CARE and CRISIL at CARE A and CRISIL A-/Stable. CRISIL has upgraded the credit ratings of EMFL in April 2016 to CRISIL A/Stable. Further, during the year, CRISIL has reaffirmed the MFI Grading of EMFL at the highest level of mfR1.

Human Resources

EMFL has provided a wide range of benefits to its employees including health insurance for all employees and their dependents. EMFL also provides stock option benefits to all employees of EMFL by which the employees get opportunity to acquire shares in EHL. In recognition of its employee-friendly HR practices, EMFL was ranked among the top 50 Great Places to Work in India by The Great Place to Work Institute India Inc. The number of employees as at the end of the year was 5,317.

To enable employees provide quality education to their children, Equities Group has introduced Children Education Loan for the employees. All the employees are covered by the ESOP Scheme. The Group has also provided opportunities to employees to move across business verticals through the Career Enhancement Program [CEP]. New joinees are inducted into EMFL through a 2-day training programme, which is conducted once a month in every region. Leadership Development Programme for the Senior Management team of EMFL was also facilitated during the year.

Risk Management

EMFL has a Board approved Risk Management Policy. The Board periodically reviews the risks faced by EMFL and the practices followed to manage them. This is in line with the Risk Management framework formulated by the Group.

Regulatory uncertainty has been a dominant risk faced by the microfinance sector. This risk has come down considerably during the last couple of two years following RBI's regulations for NBFC-MFIs.

As an NBFC, EMFL is exposed to credit, liquidity, interest rate and operating risks. EMFL has invested in people, processes and technology to effectively mitigate these risks.

Credit Risk

EMFL considers the need for funds for productive purposes of clients, all of their other borrowings and the bonding with the rest of the group members, before extending loan, which is further reinforced through group guarantees. In addition, with the full rollout of the Credit Bureau initiatives, over-borrowing has been effectively curtailed.

Operational Risk

EMFL has put in multi-layered checks and controls over key client interface processes. Each field level process conducted by the staff is scrutinized through multiple levels of risk oversight, creating a strong risk management system, what we call as the 'Equitas Chakravyuh'. Further EMFL also constantly upgrades its control processes based on analysis of failed processes. EMFLs robust controls are well reflected in the almost negligible instances of breach of control. The control parameters of EMFL are generally held as benchmarks in the MFI sector globally and EMFL continues to fine-tune the same based on experience. 19% of disbursements for FY16 were done by way of electronic fund transfer directly to the customers' bank account.

EMFL has also identified a few critical processes and has put in a rigorous FMEA (Failure Mode Effect Analysis) process to ring-fence potential process failures and limit damage. Equitas has successfully implemented offsite disaster recovery facility. This has also been tested and certified by the auditors that it is working fine.

Market Risk

Liquidity Risk: Given the sensitive nature of the sector, the funding by banks is closely linked to the overall image of the sector as well as the regulatory environment. EMFL has internal guidelines on the quantum of excess liquidity which is a balance between the need for liquidity and reducing the cost of negative carry on excess liquidity.

ALM Risk:

EMFL ensures matched funding without any adverse mismatch in structural liquidity. Interest rate sensitivity arises as EMFL has high (about 51%) percentage of its borrowings under floating rate whereas the entire lending is on a fixed rate. EMFL adopts off-book transactions like securitization / bilateral assignments as a means of locking in interest rates.

Leverage:

EMFL adopts a conservative policy related to leveraging capital. Along these lines, EMFL considers the entire managed assets (including securitization and bilateral assignment of portfolios) for maintaining sufficient capital adequacy.

Further EMFL follows a policy of limiting securitization and bilateral assignments to 35% of total managed assets.

Micro & Small Enterprise Loans

A survey amongst micro finance clients about four years ago showed that about 15% of the clients have the ability to grow their businesses to a higher level. However they lack access to capital from organized financiers and often end up borrowing from the private lenders. To serve the need of such clients, EMFL has entered into an agreement with Equitas Finance Limited (EFL) to source such clients for EFL. EFL does underwriting for the sourced clients and provides loans in the range of Rs. 50,000 – Rs. 5 lakhs. For the year under review, EMFL sourced nearly 31800 clients who were able to avail of such Micro Enterprise loans from EFL.

Micro Housing Loan

Many of the Micro Finance clients are in need of funds to convert kacha houses to pucca houses, for extension of the house or to complete the house which was left incomplete for lack of funds. The requirement of funds for this purpose ranges from Rs. 50,000 to Rs. 5 lakhs. EMFL has entered into an agreement with Equitas Housing Finance Limited (EHFL) to source clients for EHFL. EHFL does its own due diligence and approves the credit. EMFL has sourced close to 2,700 clients under this arrangement.

Outlook and challenges

The growth of Micro Finance looks robust with underlying demand for micro-credit. However, EMFL will have to balance geographic concentration and work towards limiting over-borrowing by its members.

2. Equities Finance Limited (EFL)

Equitas Finance Limited [EFL] is an NBFC-ND-SI registered with RBI under the 'Asset Finance Company' [AFC] category. It provides asset-based financing to segments of customers, who do not have adequate access to finance from formal financing channels. EFL offers used commercial vehicle financing to small truck operators and also financing to self-employed business people, belonging to Micro and Small Enterprises (MSE).

Used Commercial Vehicle [UCV] Financing

UCV finance market is quite large in size and is estimated at around INR 1.80 Lac Crore. Downtrend in new CV sales for a short time does not impact the UCV finance market but a sustained weakness in new CV industry does have an impact on the UCV market, as experienced in FY15. With the increase in sale of new CVs in FY16, UCV market is also showing signs of moving towards stability. Traditionally, customers in the UCV market brfer models that are more than 6 or 8 years old, but this trend is changing in recent times and customers are tending towards purchase of newer models, i.e., 3 to 6 years old vehicles, as these vehicles are likely to deliver them 'value for money' due to better fuel economy and lower maintenance cost.

EFL offers financing services mainly to customers who are desirous of becoming owners of CV, after years of experience as drivers. Out of the used CV portfolio funded by EFL, about 80% of them are such first time finance buyers, with no prior exposure to organised financing such as banks or NBFCs. Sufficient freight availability is crucial for our customers to ensure that they turnaround their vehicle optimally increasing their freight revenues. Given the profile of our customers, their ability to absorb earning shocks beyond a couple of months is low. This calls for very close handholding and working with each customer to support them suitably in times of stress.

EFL's receivables management has been good and the level of delinquencies & NPA are under control and compare very favorably with peers. In view of the criticality of the same, the Receivables Management would continue to remain a key management focus.

Micro & Small Enterprises [MSE] financing

SMEs are critical to the nation's economy as they contribute significantly to India's domestic production. According to the NSSO Survey of 2013, there are some 57.70 million small business units, mostly individual proprietorship, which run manufacturing, trading or services activities. (Source: Economic Characteristics of Unincorporated Non Agricultural Enterprises (Excluding Construction) in India, National Survey Sample Report, February 2013). These encompass myriad of small manufacturing units, shopkeepers, fruits / vegetable vendors, truck and taxi operators, foodservice units, repair shops, machine operators, small industries, artisans, food processors, street vendors and many others. A vast part of the non-corporate sector operates as unregistered enterprises and formal or institutional architecture has not been able to reach out to meet its financial requirements. (Source: Ministry of Finance Circular on Launch of MUDRA Bank).

Equitas' target segment is at lower end within the MSME segment, which are currently not serviced by any formal financiers.

Equitas is one amongst few to explore financing to this segment and offers loans with ticket size ranging from Rs.50,000  to Rs.30 lakh to such customers.

EFL is also looking at offering other loan products like loan against gold, two wheeler loans etc., which have been  launched on a 'pilot' basis during Q3FY16 in some branches. This business is primarily sourced through EMFL;  collection is also managed by them.

A large proportion of the loans above Rs.5 lakh is extended to the self-employed category, which mainly utilizes funds  for business purposes such as purchase of assets, expansion and working capital requirements. CRISIL Research  estimates total outstanding in this segment to reach Rs.3,459 billion by 2016-17 with a CAGR of 23-25%. While most of  these are high ticket loans from Rs.1 Crore and above, servicing the formal segment, there are similar opportunities in  the informal sector with cash and carry profiles such as small traders.

EFLs customers are in the informal segment, who do not possess sufficient documented proof of income. The biggest  challenge in this financing activity is the ability to identify prospective customers and assess their income with  reasonable certainty.

The focus of EFL in terms of customer segment is on those who:

a) deal in goods or services of daily use nature;

b) sell on cash & carry

As on date, the delinquency is very low in MSE financing portfolio due to the close understanding of the customer  segment as well as securing repayment through ECS / ACH mode.

This has been aided by the following:

a) Understanding of the markets and customer profile

Deep understanding of this segment of customers is possible since Equitas Group has been servicing similar customer  profile since its inception. This is aided by the fact that the Management team as well as most of the organisation  comes with deep understanding and long experience of servicing customers, who are not serviced by the formal  financial sector.

Assessing the repayment capability of customers is a major challenge in these categories. This is largely because of the  very low asset base and cash-based income of the borrowers. Assessment of the applicant's knowledge of the business  and financial viability is carried out by field staff as well as an independent team of credit officers. A viability report is  brpared for each customer before credit decision is taken.

A majority of customers in this segment, mainly used CV financing business, lack proper banking habits and hence end  up paying back the instalments by way of cash, creating resultant operational risks. The experience of running micro  finance with 100% cash collections and strong risk management practices has been leveraged to bring about similar  high quality operational processes. Mobile based receipting technology at the field level has enhanced controls  significantly and reduced the operational risk.

Endorsement of EFL's name in the Registration Certificate [RC] book of the vehicle is of paramount importance to  establish the security in favour of EFL. For MSE financing businesses, registration of Mortgage Deed is mandatory, prior  to disbursement. These are tracked closely.

b) Relationship with customers

The cash flow of the customers, in used CV segment, is typically dependent on the one or two vehicles they own and any minor disturbance, including accident, could affect their cash flow and ability to service the loan on time. The market practice is for the financier to repossess the vehicles after the overdoes cross 60 or 90 days, with little effort made to differentiate between intent and ability of the customer to repay.

Equitas has redefined its approach in this crucial aspect of customer relationship. Branch team is trained to differentiate between customers with genuine difficulties and customers who are intentionally avoiding the repayment. EFL provides its data to all the four Credit Information Companies [CICs] i.e., Credit Bureaus operating in the country. Customers are kept informed of the information sharing and also advised on the importance of paying installment on the 'due date' and how such repayment practice would help them when they would want to avail loans in the future from organized finance sector.

Customers in MSE financing business repay through ECS / ACH mode and probably this is the first time that they are effectively using the banking channel to repay loans. These customers need constant reminders to keep funds in their bank accounts at the time the monthly dues hits their bank accounts. The tele-calling team at Equitas Head Office calls customers in advance to alert and remind them of the installment due date.

In summary, EFL has been able to grow well in the last year in all the key businesses it operates, due to the unique position and relationship with the customers that it has built over time.

Operational and Financial Results

During the year, EFL expanded the used CV business by increasing the network to 135 branches sbrad over 13 States and 1 Union Territory. Equitas Group had already a brsence through its microfinance business in many of the areas such as Tamil Nadu, Pondicherry, Maharashtra, Madhya Pradesh, Gujarat, Karnataka and Rajasthan. The progressive geographic diversification is seen as one of the key elements of EFL's risk diversification plan.

MSE product is targeted mainly at customers of EMFL, and in the initial phase all branches of Tamil Nadu were covered and during FY16, this product was launched in other States.

EFL increased the disbursements across the 3 divisions from about Rs.410 Crore in Q1FY16 to about Rs.540 Crore in Q4FY16 and achieved a total disbursement for the year of about Rs.1,916 crore. The disbursement in FY16 rebrsents a CAGR of about 53% over FY14.

This enabled EFL to close the year with a total AUM outstanding of about Rs.2,597 Crore comprising of loan outstanding of Rs.2,249 crore and a securitised portfolio of about Rs.347 crore. AUM growth in FY16 over FY14 has been about 70.4%.

Interest Income stood at Rs.401 crore vs. Rs.257 crore in the brvious year, reflecting a growth of 56.1% while Total Income stood at Rs.476 crore vs. Rs.297 crore in the brvious year, reflecting a growth of 60.6%.

EFL's collection performance was also quite effective, despite the migration to 5 months recognition norms for NPA for FY16 as compared to 6 months up to FY15. The GNPA% of EFL compares very favourably with its peers.

EFL posted a Net Profit after Tax of Rs.85.1 crore for the year compared to Rs.34.2 crore, which rebrsents a growth of about 148.7% over FY15. The profitability increase in FY16 could be attributed to the better operating performance of the branches as well as reduction in average borrowing costs due to the capital infusion done in end FY15, which was available for the full year in FY16.

During the year, EFL further strengthened its collection, legal and risk teams. The various efforts taken during the year are expected to help in scaling up the operations in the coming years, while keeping control over portfolio quality.

Capital Adequacy

As at the end of the year, the Capital to Risk Adjusted Assets Ratio [CRAR] stood comfortably at 29.63% as against the RBI requirement of 15%. During April 2016, the Holding company has infused fresh capital of Rs.288 crore out of the funds raised from IPO, which significantly improved the CRAR of EFL.

Resources and Treasury

The funding for the business is raised through a mix of equity and debt. During the year, EFL has diversified the debt funding sources to include Term Loans from Banks / Financial Institutions, Subordinated Debt and Commercial Paper to improve the asset liability position.

Working Capital limits are under a Consortium of banks led by State Bank of India with a total sanctioned limit of Rs.412 crore as of 31st  March, 2016. During the year, EFL has also borrowed term loans amounting to Rs.545 crore from Banks /

Financial Institutions, issued Non-Convertible Debentures [NCDs] amounting to Rs.150 crore on private placement  basis and Commercial Paper amounting to Rs.25 crore. Apart from the above, EFL raised funds through Securitization /  Direct Assignment transactions amounting to Rs.382 crore during the year.

During the year, rating agency CARE has reaffirmed the credit ratings for Long Term Bank Borrowings and NCDs of EFL at “CARE A-”. Further, India Ratings & Research [an associate of FITCH Group] has reaffirmed the credit ratings for Long Term Bank Loan and NCDs EFL at “INDA- with Stable Outlook”. Further, rating agency CRISIL has assigned “CRISIL A1” for the Commercial Paper of EFL and India Ratings has upgraded the Commercial Paper of EFL to “IND A1” from “IND A2+”.

Human Resources

EFL has provided a wide range of benefits to its employees including health insurance for all its employees and their dependents. The number of employees as at 31st  March, 2016 was 2,928 as against 2,228 employees as at 31st  March,  2015.

To enable employees provide quality education to their children, Equitas Group has introduced Children Education Loan for the employees. All the employees are covered by the ESOP Scheme. The Group has also provided opportunities to employees to move across business verticals through the Career Enhancement Program [CEP]. New joinees are inducted into EFL through a 2-day training programme, which is conducted once a month in every region. Leadership Development Programme for the senior management team of EFL was also facilitated during the year.

Risk Management

EFL has a Board approved Risk Management Policy and the Board periodically reviews the risks faced by EMFL and the practices followed to manage them. This is in line with the Risk Management framework formulated by the Group.

The risks that are part of the policy framework covers both, external and internal risks. The Risk Management policy is brsented to the Audit & Risk Management Committee [ARMC] and Board every year, wherein the risk parameters as assessed by the Management is brsented to the Committee and Board. A scoring methodology has also been evolved based on the severity and likelihood of each risk; the risk score arrived at is categorised as High, Low & Medium.

Further, the progress / movement is captured on each of the risk element, especially the high risk areas, on an ongoing basis and periodically reviewed by the Management for corrective actions, wherever required.

EFL has also in place a FMEA [Failure Mode Effects Analysis] for its operational processes, wherein detailed study is done on the impact of the failure in terms of severity, occurrence and detection. A composite score is arrived i.e., Risk Priority Number [RPN], on the basis of which action is taken for higher risk scores to further reduce the risk of the failure of process. This is also reviewed by the ARMC and Board on an annual basis.

Apart from credit and operating risks, covered in the brceding paragraphs, EFL faces financial risks namely liquidity risk, credit default risks and interest rate risks. Timely mobilization of debt funds is critical for achieving planned growth and profitability. EFL's lending is on a fixed rate basis whereas the borrowing comprises of both fixed and floating rate basis.

EFL leverages the relationship of the Group with various lenders to raise debt funds and it has a robust asset liability management process, which is reviewed by the Asset Liability Committee [ALCO]. This ensures that the liquidity and interest rate risks are well managed. The Minutes of the ALCO is also placed to the Board at every quarter meetings.

Outlook and challenges

NBFCs are increasingly playing a critical role in making financial services accessible to wider set of India's population and, thus, emerging as significant players in the retail finance space. EFL has chosen market segments which have a large market size with few organised players.

The gap in regulation with reference to provisioning norms between banks and NBFCs are progressively getting narrowed and NBFC norms would be fully aligned with banks by FY18. This would make the sector more attractive from the investor perspective. With a well-trained and committed resource team, sound systems and processes and customer friendly practices, EFL is confident of achieving healthy growth over the years.

Some of the products of EFL, especially the used CV finance, remains strongly linked to the overall economic performance of the country and the performance of some key sectors. The Management needs to be continuously focused to keep the portfolio quality under control

3. Equitas Housing Finance Limited (EHFL)

EHFL is a wholly owned subsidiary of Equitas Holdings Limited (EHL) and registered with National Housing Bank (NHB). EHFL, incorporated in June 2010, started its operations in June 2011, and 2015-16 is the fifth year of operations.

Background

Affordable housing continues to be the focus of many stakeholders including the Central & State Governments, Regulators, builders and society at large. Fiscal concessions were provided by GoI (under sections 80C and 24 of IT Act, 1961). Loans provided by Banks to HFCs for on-lending purposes upto Rs.10 lakh were brought under PSL. In the last two years, the Central Government has renewed its focus on housing through launching 'Housing for all by 2022' scheme for the economically weaker sections and low-income groups, through public-private-partnership (PPP) and interest subsidy.

EHFL has focused on self-employed non-professionals and salaried people in the informal sector for providing loans in the 'affordable housing segment'. While traditional HFCs and banks do not concentrate on this segment, some of these players have recently entered this segment. This includes niche HFCs as well as a few private sector banks that have created separate verticals to focus on this segment.

Equities Approach

In the last year, EHFL increased focus on small ticket segments and reduced exposure to loans above Rs.30 lakh ticket size. Housing loans were extended to over 1,141 customers during the year and of these around, 1,052 loans are less than Rs.15 lakh ticket size. In addition, EHFL have also extended Loans against property to 347 customers.

EHFL has availed NHB's Credit Risk Guarantee Scheme. In addition, eligible EWS and LIG customers are also benefiting by a reduced EMI through the interest subsidy from the Government's Pradhan Mantri Awas Yojana.

Operational and Financial Results

EHFL consolidated its operations in Tamilnadu, Karnataka and Maharashtra. The total number of branches operational as on 31st  March, 2016 was 14. The number of live accounts grew from 3,111 in the brvious year to 4,349 this year.

EHFL started focusing on lower ticket loans to mitigate its risks, which resulted in a fall in average ticket size from Rs.12  lakhs to Rs.9 lakhs. The loan disbursement during the year was Rs.106 crore. Branches have quickly adopted the 'small  ticket loan concept'. The cumulative loan disbursement from inception is at Rs.327 crore.

The loans outstanding at the end of the current year were Rs.246 crore as against Rs.179 crore of brvious year. The  totals assets of EHFL were at Rs.272 crore as of March 16.

EHFL posted a net profit after tax of Rs.200 lakhs during the current year as against the net profit after tax of Rs.221  lakhs in the brvious year.

During the year, EHFL reduced its lending rates to cater to larger customer segments and this has impacted profitability.  Increase in NPA and cessation of revenue grant during the year also affected its profitability.  As per the Gazette notification dated 18th  December, 2015, EHFL has been covered by The Securitisation and  Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI Act]. This would help EHFL  in speeding up its recovery mechanism from delinquent borrowers. The benefit of SARFAESI Act is expected to help the Company in resolving NPA accounts.

Capital and Capital Adequacy

The paid-up capital of EHFL was Rs.40 crore, the Capital to Risk Adjusted Assets (CRAR) was at 31.17 % at the end of the financial year. During April 2016, the Holding company has infused fresh capital of Rs.40 crore out of the funds raised from IPO, which significantly improved the CRAR.

Resources and Treasury

During the year EHFL made fresh borrowings in the form of term loans of Rs.115 crore from various banks including NHB. This also includes Rs.25 crore of priority sector loans from Banks. NHB has sanctioned Rs.25 crore by way of Refinance facilities for the year 2015-16.

Also, during the year, EHFL has issued Secured Non-Convertible Debentures (NCDs) of Rs. 50 crore subscribed by Mutual Fund. During the year, CRISIL upgraded the rating for the long-term bank loan facilities from “BBB-/Stable” to “CRISIL A-/Stable” in October 2015 and from CRISIL A-/Stable to CRISIL A/Stable in April 2016.

Human Resources

To enable employees provide quality education to their children, Equitas Group has introduced Children Education Loan for the employees. The Group has also provided opportunities to employees to move across business verticals through the Career Enhancement Program [CEP]. New joinees are inducted into EHFL through a 2-day training programme, which is conducted once a month in every region. Leadership Development Programme for the senior management team of EHFL was also facilitated during the year.

Risk Management

EHFL has a Board approved Risk Management Policy and the Board periodically reviews the risks faced by EHFL and the practices followed to manage them. This is in line with the Risk Management framework formulated by the Group.

As an HFC, the key risk apart from liquidity risk and interest rate risk is the credit risk. The borrowers are from either the  Economically Weaker Section [EWS] / Low Income Group [LIG] category or small to medium self-employed persons.

The assessment of cash flow remains a challenge. However, EHFL has leveraged the expertise gained over the past 3  years as well as experience in the rest of the Group in assessing income of such business. Credit oversight mechanisms  help to control risks arising out of possible faulty credit assessments.

EHFL has invested in people, processes and technology to effectively mitigate risks including technical, legal and credit  risk posed by the market environment and by its borrowers.

Outlook and challenges

Given the low base of housing loan outstanding of EHFL, strong growth is envisaged during the next year through  branch expansion and specifically focused expansion in Metro locations. EHFL is strengthening collection and field risk  teams to support the growth plans.

Sourcing of business remains a challenge due to lack of established channels. EHFL is working on creating dedicated  Direct Selling Agents (DSA), who can focus on small ticket housing loans. Another area of focus during the next year is  working with builders in the affordable housing segment.

4. Equitas Technologies Private Limited (ETPL)

Equitas Technologies Private Limited (a wholly owned subsidiary of Equitas Holdings Limited) was incorporated on 27th  October, 2015. ETPL is into the freight facilitation business under the brand name of 'WOWTruck' with web domain  name registered as 'www.wowtruck.in'. ETPL intends to provide a common platform for transporters and suppliers to  connect 'online' and carry out transactions on real time basis.

Freight Movement in India

Primary freight traffic in 2015-16 has outpaced the growth rate recorded in 2014-15, aided by improved industrial activity, faster implementation of infrastructure projects, and recovery in mining activities and rise in export demand.

The share of roads has increased due to infrastructure bottlenecks in the Railways. Bulk commodity traffic, which accounts for majority of railway freight, will continue to propel rail freight growth over the next five years. However, the share of Railways in overall freight movement is expected to decline because of higher growth expected in the non-bulk segment as compared to the bulk segment (Coal, Fertilizers & iron ore etc) and continuing capacity constraints in the railways.

Roads continue to be the most brferred mode in the domestic freight transportation services industry, mainly because of faster growth in non-bulk traffic for which road transportation is brferred.

Truck Market in India

The commercial vehicle (CV) industry has been through turbulent times during FY14 & FY15. It has went through a major correction phase and has consolidated during the last financial year. The return ratios were at cyclical low, with decadal high credit cost and lowest margins. However, incremental freight rates, reduction in diesel prices and improvement in utilization levels have indicated the end of downward cycle. There is gradual improvement as stability in business and economy is emerging.

Technology-led Solutions

Using technology, substantial benefits can be provided to both transporter and supplier of load to the transaction such as:

? Standardised freight rates, to a great extent

? Standardised labour charges

? Easy booking of trucks with short notice

? On time pick-ups and deliveries

? Web enabled tracking of truck on real-time basis

? System-enabled real time confirmations of delivery, accidents, mishaps etc.

? Working capital support to transporter under certain conditions

? Booking of return loads in advance

? Removing the pain of account keeping of freight on the part of the supplier

? Possible value added services to the transporter in future on fuel, tyre, insurance etc.

Operational and Financial Results

ETPL has started operations with a network of 23 branches during the year. The 'Wowtruck' platform is being developed in phases. The 1st  phase was completed by end December 2015. Further enhancements and functionalities  are being undertaken. These would be completed by early Q2FY17.

During the period year under review, ETPL posted operational revenue of Rs.3.47 lakhs and a Net Loss of Rs.245 lakhs.

Cautionary Statement

Statements in this MD&A describing the Company's and Group's objectives, projections, estimates, market tends and  expectations may be 'forward looking' within the meaning of applicable laws and regulations. Actual results might  differ materially from those exbrssed or implied.

For and on behalf of the Board of Directors

P N Vasudevan Managing Director

N Rangachary Chairman

Place : Chennai,

Date : th 6 May, 2016  

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