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Cholamandalam Investment & Finance Company Ltd.

BSE: 511243 Sector: Financials
NSE: CHOLAFIN ISIN Code: INE121A01016
BSE LIVE 15:48 | 08 Dec 890.10 14.70
(1.68%)
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897.95

HIGH

899.45

LOW

880.00

NSE LIVE 15:47 | 08 Dec 889.60 14.70
(1.68%)
OPEN

885.25

HIGH

900.00

LOW

878.05

OPEN 897.95
PREVIOUS CLOSE 875.40
VOLUME 8625
52-Week high 1243.90
52-Week low 582.50
P/E 20.57
Mkt Cap.(Rs cr) 13909.59
Buy Price 891.00
Buy Qty 45.00
Sell Price 0.00
Sell Qty 0.00
OPEN 897.95
CLOSE 875.40
VOLUME 8625
52-Week high 1243.90
52-Week low 582.50
P/E 20.57
Mkt Cap.(Rs cr) 13909.59
Buy Price 891.00
Buy Qty 45.00
Sell Price 0.00
Sell Qty 0.00

Cholamandalam Investment & Finance Company Ltd. (CHOLAFIN) - Director Report

Company director report

BOARD'S REPORT

Your directors have pleasure in presenting the thirty eighth annual report togetherwith the audited accounts of the company for the year ended 31 March 2016.

FINANCIAL RESULTS

Rs in crores
Particulars 2015 - 16 2014 - 15
Gross Income 4193.70 3691.19
Profit Before Tax (PBT) 870.77 657.22
Profit After Tax (PAT) 568.45 435.16
Add: Balance brought forward 186.62 305.32
Amount available for appropriation 755.07 740.48
Adjustments / Appropriation:
Transfer to statutory and other reserves 420.00 490.00
Dividend - Preference 2.12 2.88
Dividend - Equity 70.26 50.30
Tax on dividend 14.74 10.68
Balance carried forward 247.95 186.62
TOTAL 755.07 740.48

SHARE CAPITAL

During the year as per the terms of issue the company converted the compulsorilyconvertible preference shares (CCPS) held by M/s. Dynasty Acquisition (FDI) Ltd andallotted 12285012 equity shares of Rs 10/- each at a conversion price of Rs 407/-(including a premium of Rs 397/-) per equity share on 2 September 2015.

OPERATIONS

During the year your company achieved a 32% growth in PBT and 17% growth in total AUM.Taking advantage of the pick-up in heavy commercial vehicles (HCV) and used vehiclesdemand a growth of 28% in disbursements was achieved as compared to the previous year.

At a division level the recovery signals in the commercial vehicles (CV) marketreflected in an increase in disbursements in the vehicle finance (VF) business to the tuneof 32%. The division recorded a growth of 14% in closing managed assets and a PBT growthof 60%. The home equity (HE) business recorded healthy growth rates across all parameters:Closing managed assets growth of 22% disbursement growth of 14% and PBT growth of 9%.

VF division was able to improve portfolio quality during the year while HE divisionfaced pressure on account of macroeconomic factors adversely affecting the small andmedium enterprises (SME) segment. The company has started reckoning assets 4 monthsoverdue as gross non-performing assets (GNPA). Hence the overall GNPA level seems to behigher than the previous year. However it is lower when both the years are compared at 5months overdue.

Disbursements in VF for the year were at Rs 12383 crores as against Rs 9363 crores inthe previous year. The HE business recorded a disbursement of Rs 3476 crores as againstRs 3043 crores in the previous year. Disbursements in home loans (HL) were at Rs 175crores as against Rs 89 crores in the previous year and micro small and medium enterprise(MSME) were at Rs 325 crores as against Rs 249 crores in the previous year. The ruralfinancing vertical disbursed Rs 21 crores during the year.

The business assets under management (net of provisions) of the company as at 31 March2016 increased to Rs 29650 crores from Rs 25452 crores in the previous year recording agrowth of 16%.

As in the previous year your company has early adopted the revised assetclassification norms by recognising NPAs at 4 months overdue one year ahead of themandatory requirement. Also standard assets provision has been made at 0.40% during theyear which is mandatory only in March 2018. In the current year your company has createdan additional provision on standard assets on a prudent basis to cover the revised assetclassification norms (3 months overdue) to the extent to be complied by March 2018.

The PBT for the year was at Rs 870.77 crores as against Rs 657.22 crores in theprevious year recording a growth of 32%.

PAT grew by 31% and was at Rs 568.45 crores for the year as compared to Rs 435.16crores in the previous year.

DIVIDEND

The company paid a pro rata preferential dividend on 50000000 1% CCPS of Rs 100 eachtill the date of conversion of CCPS into equity shares as approved by the board on 2September 2015 and an interim dividend on the equity shares at the rate of 25% (' 2.50per equity share) as approved by the board on 29 January 2016 for the year ended 31March 2016.

Your directors are pleased to recommend a final dividend of 20% (' 2 per equity share)on the equity shares of the company. With this the total dividend will be 45% (' 4.50 perequity share) for the year ended 31 March 2016.

TRANSFER TO RESERVES

Your company has transferred a sum of Rs 120 crores to statutory reserve as requiredunder the Reserve Bank of India Act 1934 and Rs 300 crores to general reserves.

OUTLOOK

The company continues to focus and grow its two main business lines - vehicle financeand home equity while seeding new business lines like home loans corporate finance andrural finance.

FIXED DEPOSITS

The company is a Systemically Important Non-Deposit Accepting Non-Banking FinanceCompany (SI - ND - NBFC). It ceased taking deposits from the public effective 1 November2006. At the time of conversion the outstanding unmatured deposits were transferred to anescrow account together with the future interest payable thereon till the date of maturityand were repaid on maturity. Accordingly there have been no fresh deposits acceptedduring FY 16.

As at 31 March 2016 there were 6 depositors whose deposits had matured but had notclaimed the maturity amount aggregating to Rs 1.08 lakhs (along with interest accrued). Asa process the company sends periodical reminders to these depositors before transferringthe sums due to the investor education and protection fund (IEPF) under section 125 of theCompanies Act 2013 (the Act). During the year the company remitted a sum of Rs 7.12lakhs to IEPF under this head representing unclaimed public deposits and interest thereonbeyond seven years.

CREDIT RATING

The credit rating details of the company as at 31 March 2016 are as follows:

Rating Agency Term Type Rating
ICRA LT NCD/SD/CC/TL [ICRA]AA with Stable Outlook
LT PD [ICRA]AA- with Stable Outlook
ST CP / WCDL [ICRA]A1 +
CRISIL ST CP [CRISIL]A1 +
LT SD [CRISIL]AA / Stable@
CARE LT NCD/SD CARE AA
LT PD CARE AA-
INDIA Ratings LT SD IND AA with Stable Outlook

 

NCD - Non Convertible Debentures CP - Commercial Paper PD - Perpetual Debt
CC - Cash Credit SD - Subordinated Debt LT - Long Term
TL - Term Loan WCDL- Working Capital Demand Loan ST - Short Term

The ratings as mentioned above were re-affirmed by the rating agency during FY 16. @The ratings were upgraded by the rating agency during the year.

ASSET FINANCE COMPANY

During the year the company retained its categorisation as an Asset Finance Company(AFC) under the RBI Regulations.

CAPITAL ADEQUACY

The company's capital adequacy ratio was at 19.68% as on 31 March 2016 as against thestatutory minimum capital adequacy of 15% prescribed by RBI.

EMPLOYEE STOCK OPTION SCHEME

Pursuant to the approval accorded by the shareholders at the twenty ninth annualgeneral meeting of the company held on 30 July 2007 the nomination and remunerationcommittee had formulated the employee stock option scheme 2007 (ESOP 2007). During theyear under review there has been no changes in the scheme and the scheme is in compliancewith Securities and Exchange Board of India (Share Based Employee Benefits) Regulations2014 (SEBI Regulations) and the Act. The details of the scheme as on 31 March 2016 areprovided and disclosed on the website of the company (web link: http://www.cholamandalam/esop.aspx).

The certificate from the statutory auditors as required under the SEBI Regulationsconfirming that the company's ESOP Scheme 2007 has been implemented in accordance withthe SEBI Regulations and shareholders resolution will be placed before the shareholdersat the ensuing annual general meeting.

DIRECTORS

The term of office of Mr. Indresh Narain independent director of the company expiredat the 37th AGM held on 31 July 2015 and accordingly ceased to be a director.The board places on record its deep appreciation for the contributions made by Mr. Narainas a chairman of the audit committee and member of the Board and various committees duringhis tenure in office. Mr. M.M. Murugappan director retires by rotation at the ensuingannual general meeting and being eligible has offered himself for re-appointment.

The term of office of Mr. Vellayan Subbiah managing director of the company expired on18 August 2015 and being eligible the board at its meeting held on 31 July 2015re-appointed Mr. Subbiah as the managing director of the company for a further period of 2years with effect from 19 August 2015 subject to the approval of the members at theensuing general meeting of the company.

DECLARATION FROM INDEPENDENT DIRECTORS

The independent directors (IDs) have submitted a declaration of independence asrequired pursuant to section 149(7) of the Act stating that they meet the criteria ofindependence as provided in section 149(6) of the Act. In the opinion of the board theseIDs fulfill the conditions specified in the Act and the rules made thereunder forappointment as IDs and confirm that they are independent of the management.

KEY MANAGERIAL PERSONNEL

Pursuant to the provisions of section 203 of the Act read with the rules madethereunder the following employees are the whole-time key managerial personnel of thecompany:

1. Mr. Vellayan Subbiah Managing Director

2. Mr. D. Arul Selvan Chief Financial Officer and

3. Ms. P. Sujatha Company Secretary

DIRECTORS' RESPONSIBILITY STATEMENT

The directors' responsibility statement as required under section 134(5) of the Actreporting the compliance with accounting standards is attached and forms part of theboard's report.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS

There are no significant and material orders passed by the regulators or courts ortribunals which would impact the going concern status of the company and its futureoperations.

MANAGEMENT DISCUSSION AND ANALYSIS

The management discussion and analysis report highlighting the business-wise detailsis attached and forms part of this report. The report also contains the details of therisk management framework of the company including the development and implementation ofrisk management policy and the key risks faced by the company.

CORPORATE GOVERNANCE REPORT

A report on corporate governance as per the Listing Regulations is attached and formspart of this report. The report also contains the details as required to be provided onthe number of meetings of the board composition of the various committees including theaudit committee and corporate social responsibility committee annual board evaluationremuneration policy criteria for board nomination and senior management appointmentwhistle blower policy / vigil mechanism etc.

The managing director and the chief financial officer have submitted a certificate tothe board regarding the financial statements and other matters as required underregulation 17(8) of the Listing Regulations.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements prepared in accordance with the Act and therelevant accounting standards form part of this annual report.

AUDITORS

Pursuant to the provisions of section 139 of the Act and the rules framed thereunderM/s. Deloitte Haskins & Sells chartered accountants were appointed as statutoryauditors of the company in the thirty sixth annual general meeting held on 31 July 2014for a period of 3 years commencing from the conclusion of the thirty sixth annual generalmeeting till the conclusion of the thirty ninth annual general meeting subject toratification by members at every AGM. Accordingly your directors recommend theratification of the appointment of M/s. Deloitte Haskins & Sells as statutoryauditors of the company from the conclusion of the thirty eighth annual general meetingtill the conclusion of the thirty ninth annual general meeting of the company. Thestatutory auditors have confirmed their eligibility for appointment.

SECRETARIAL AUDIT

Pursuant to the provisions of the Act and the rules framed thereunder the companyappointed M/s. R. Sridharan & Associates company secretaries to undertake thesecretarial audit of the company for FY 16. The audit report is attached and forms part ofthis report and does not contain any qualification.

EXTRACT OF ANNUAL RETURN

In accordance with section 134(3)(a) of the Act the extract of the annual return inform MGT-9 is attached and forms part of this report.

CORPORATE SOCIAL RESPONSIBILITY

The murugappa group is known for its tradition of philanthropy and community service.The group's philosophy is to reach out to the community by establishing service-orientedphilanthropic institutions in the field of education and healthcare as the core focusareas. The company upholds the group's tradition by earmarking a part of its income forcarrying out its social responsibilities.

The company has been carrying out corporate social responsibility (CSR) activities formany years now even before it was mandated under the Act. With the enactment of the CSRprovisions in the Act the company has put in place a CSR policy incorporating therequirements therein which is available on the company's website www.cholamandalam.com.

As per the provisions of the Act the company is required to spend at least 2% of theaverage net profits of the company made during the three immediately preceding financialyears. This amount aggregated to Rs 1105 lakhs and the company entered into commitmentswith various NGOs to spend the entire amount. Out of the committed amount the companyspent Rs 930 lakhs towards CSR activities during FY 16 the details of which are annexedto and form part of this report. In addition to this CSR spend the company contributed Rs200 lakhs to Chief Minister's Public Relief Fund towards flood relief activity in TamilNadu

which does not qualify as a CSR spend under schedule VII of the Act. The company wouldbe meeting its CSR obligations for FY 16 including the said sum.

INTERNAL FINANCIAL CONTROLS

Internal control framework including clear delegation of authority and standardoperating procedures are established and laid out across all businesses and functions.These are reviewed periodically at all levels. The company adopts a co-sourced model ofinternal audit. The risk and control matrices are reviewed on a quarterly basis andcontrol measures are tested and documented. These measures have helped in ensuring theadequacy of internal financial controls commensurate with the scale of operations of thecompany.

RELATED PARTY TRANSACTIONS

The company has in place a policy on related party transactions as approved by theboard and the same is available on the website of the company.

All related party transactions that were entered into during the financial year were onan arm's length basis and were in the ordinary course of business. There are no materiallysignificant related party transactions made by the company with promoters directors keymanagerial personnel or other designated persons which may have a potential conflict withthe interest of the company at large.

All proposed related party transactions were placed before the audit committee forapproval at the beginning of the financial year. The transactions entered into pursuant tothe approval so granted were placed before the audit committee for its review andratification for modifications if any on a quarterly basis. None of the directors hasany pecuniary relationship or transaction vis-a-vis the company.

INFORMATION AS PER SECTION 134(3)(m) OF THE ACT

The company has no activity relating to consumption of energy or technology absorption.Foreign currency expenditure amounting to Rs 1.15 crores was incurred during the yearunder review. Foreign currency remittances during the year was Rs 5.19 crores towardspreference and equity dividend and Rs 2.24 crores towards purchase of fixed assets. Thecompany does not have any foreign exchange earnings.

PARTICULARS OF EMPLOYEES

In accordance with section 136 of the Act the report and accounts is being sent to themembers and others entitled thereto excluding the statement prescribed under rule 5(2)and (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014. The aforesaid information is available for information at the registered office ofthe company during the business hours on working days of the company. If any member isinterested in obtaining a copy such member may write to the company secretary in thisregard.

DISCLOSURE OF REMUNERATION

The disclosure with respect to remuneration as required under section 197 of the Actread with rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 is attached and forms part of this report.

SUBSIDIARIES

CHOLAMANDALAM SECURITIES LIMITED (CSEC)

CSEC recorded a gross income of Rs 12.83 crores for the year ended 31 March 2016 andmade a PBT of Rs 1.74 crores as against a PBT of Rs 3.42 crores in the previous year.

CHOLAMANDALAM DISTRIBUTION SERVICES LIMITED (CDSL)

CDSL recorded a gross income of Rs 12.62 crores for the year ended 31 March 2016 andmade a PBT of Rs 7.01 crores as against a PBT of Rs 5.58 crores in the previous year.

During the year CDSL was given an "in principle" approval by RBI to convertthe company into a payments bank under the Guidelines for Licensing of Payments Bank.However considering the challenges in the project and the changing landscape leading tosubstantially higher investment over and above the regulatory capital requirement of Rs100 crores longer gestation period to reach profitable operations the board decided notto proceed with the payments bank proposal. Accordingly the "in principle"approval was surrendered to RBI in March 2016.

WHITE DATA SYSTEMS INDIA PRIVATE LIMITED (WDSI)

During the year your company invested a sum of Rs 8 crores in 1275917 equity sharesof WDSI. Further to this WDSI became a subsidiary of the company with effect from 16March 2016 with the aggregate equity holding of the company in WDSI constituting 63%.

WDSI had commenced operations in April 2015 and recorded a gross income of Rs 0.04crores for the period ended 31 March 2016 with a loss before tax of Rs 0.52 crores.

ACKNOWLEDGEMENT

The directors wish to thank the company's customers vehicle manufacturers vehicledealers channel partners banks mutual funds rating agencies and shareholders for theircontinued support. The directors also thank the employees of the company for theircontribution to the company's operations during the year under review.

On behalf of the board
Place : Chennai M.B.N. Rao
Date : 29 April 2016 Chairman

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