Your directors have pleasure in presenting the thirty ninth annual report together withthe audited accounts of the company for the year ended 31 March 2017.
|FINANCIAL RESULTS || ||Rs. in crores |
|Particulars ||2016 - 17 ||2015 - 16 |
|Gross Income ||4660.35 ||4193.70 |
|Profit Before Tax (PBT) ||1105.58 ||870.77 |
|Profit After Tax (PAT) ||718.74 ||568.45 |
|Add: Balance brought forward ||247.94 ||186.62 |
|Amount available for appropriation ||966.69 ||755.07 |
|Adjustments / Appropriation: || || |
|Transfer to statutory and other reserves ||450.00 ||420.00 |
|Dividend - Preference ||- ||2.12 |
|Dividend - Equity * ||54.70 ||70.26 |
|Tax on dividend ||11.14 ||14.74 |
|Balance carried forward ||450.85 ||247.95 |
|TOTAL ||966.69 ||755.07 |
* Provision for final dividend for FY 17 is not included in current year as perRevised Accounting Standard-4.
The paid up equity share capital of the company as at 31 March 2017 is 156.28 croresincluding the increase during the year by 0.13 crores consequent to allotment of sharesupon exercise of stock options by employees under the company's employee stock optionscheme 2007 (ESOP 2007).
During the year your company achieved a 27% growth in profit before tax (PBT) and 15%growth in total assets under management. Though FY 17 was a turbulent year withmacro-economic factors impacting the businesses a growth of 13% in disbursements wasachieved as compared to FY 16.
The note-ban impacted the business in the second half of the year marking sluggishgrowth in disbursement when compared to first half. Though collections were also impactedfor a short period quick actions to mitigate the same was put in place by introducingnon-cash modes of collection at all locations.
Vehicle finance (VF) business recorded a disbursement growth of 17% buoyed by therecovery signals in the commercial vehicles (CV) market. Disbursements in VF for the yearwere at 14471 crores as against 12383 crores in the previous year.
The business recorded a growth of 18% in closing managed assets and a PBT growth of23%. VF business was able to achieve improved collection behavior compared to previousyear in spite of setbacks arising due to demonetisation related issues.
Home equity (HE) business recorded a disbursement of 3056 crores as against 3476crores in the previous year. The drop is primarily attributable to low credit appetite ofthe small and medium enterprises (SME) customers in the wake of demonetisation. Closingmanaged assets of HE grew by 8%. HE business continued to register higher levels ofnon-performing assets (NPA) compounded due to note-ban adversely affecting the SMEsegment.
Disbursements in home loans (HL) were at 325 crores as against 175 crores in theprevious year and micro small and medium enterprise (MSME) were at 666 crores as against325 crores in the previous year. The rural agri financing business disbursed 73 crores asagainst 21 crores during the previous year.
The business assets under management (net of provisions) of the company as at 31 March2017 increased to 34167 crores from 29650 crores in the previous year recording agrowth of 15%.
As in the last few years your company has early adopted the revised assetclassification norms by recognising NPAs at 3 months overdue one year ahead of themandatory requirement as laid down by RBI.
The PBT for the year was at 1105.58 crores as against 870.77 crores in the previousyear recording a growth of 27%.
Profit after tax grew by 26% and was at 718.74 crores for the year as compared to568.45 crores in the previous year.
Dividend distribution policy
The company has formulated a dividend distribution policy in compliance with regulation43A of SEBI (Listing Obligation and Disclosure Requirement) Regulations 2015 (ListingRegulations) copy of which is available on the website of the company (weblink: http://www.cholamandalam.com/files/media/Cholamandalam-Dividend-Distribution-policy.pdf).
Payment of dividend
The company paid an interim dividend on the equity shares at the rate of 35% (3.50 perequity share) as approved by the board on 25 January 2017 for the year ended 31 March2017.
Your directors are pleased to recommend a final dividend of 20% (2 per equity share) onthe equity shares of the company. With this the total dividend will be 55% (5.50 perequity share) for the year ended 31 March 2017.
TRANSFER TO RESERVES
Your company has transferred a sum of 150 crores to statutory reserve as required underthe Reserve Bank of India Act 1934 and 300 crores to general reserves.
The company continues to focus and grow its two main business lines - VF and HE whilenurturing the new businesses such as HL MSME loans and rural agri loans for futuregrowth.
The company has added trip loans and Chola Vishesh as new product extensions under VFcatering to the funding requirements of the VF eco-system. Trip loan is targeted at thetrucking community by extending short-term credit for the freight/transportation processand is aimed at moving this lending product from the unorganized segment to the organisedsegment. This will help the truckers get comparatively lower cost credit in a transparentprocess and thereby improving their profitability. Chola Vishesh is extended to existingcredit tested customers a pre-approved loan leveraging technology.
The company is a Systemically Important Non-Deposit Accepting Non-Banking FinanceCompany (NBFC-ND-SI). 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 17.
As at 31 March 2017 there were no deposits matured but had not been claimed (alongwith interest accrued). During the year the company remitted a sum of 1.89 lakhs to IEPFunder this head representing unclaimed public deposits and interest thereon beyond sevenyears.
ASSET FINANCE COMPANY
During the year the company continued being categorised as an Asset Finance Company(AFC) under the RBI Regulations.
The credit rating details of the company as at 31 March 2017 are as follows:
|Rating Agency ||Term ||Type ||Rating |
|ICRA ||LT ||NCD / SD / CC / TL ||[ICRA]AA with Positive Outlook |
| ||LT ||PD ||[ICRA]AA- with Positive Outlook |
| ||ST ||CP / WCDL ||[ICRA]A1+ |
|CRISIL ||ST ||CP ||[CRISIL]A1+ |
| ||LT ||SD ||[CRISIL]AA / Stable |
|CARE ||LT ||SD ||CARE AA |
| ||LT ||PD ||CARE AA- |
|INDIA Ratings ||LT ||NCD / SD ||IND AA with Stable Outlook |
| ||LT ||PD ||IND AA- with Stable Outlook |
|Brickwork Ratings* ||LT ||NCD ||BWR AA+ with Stable Outlook |
|NCD - Non Convertible Debentures ||CP - Commercial Paper ||PD Perpetual Debt ||CC - Cash Credit ||ST Short Term |
|SD - Subordinated Debt ||LT Long Term ||TL - Term Loan ||WCDL - Working Capital Demand Loan || |
ICRA revised the rating outlook from Stable to Positive in July 2016.
* Brickwork ratings assigned BWR AA+ (Stable) rating for the proposed NCD issuance ofthe company. The ratings as mentioned above were re-affirmed by the rating agencies duringFY 17.
The company's capital adequacy ratio was at 18.64% as on 31 March 2017 as against thestatutory minimum capital adequacy of 15% prescribed by RBI.
EMPLOYEE STOCK OPTION (ESOP) SCHEMES
Pursuant to the approval accorded by the shareholders by way of postal ballot on 3January 2017 the nomination and remuneration committee had formulated an employee stockoption scheme 2016 (ESOP 2016). During the year the company made 579980 grants to 40employees. The scheme is in compliance with Securities and Exchange Board of India (ShareBased Employee Benefits) Regulations 2014 (SEBI (SBEB) Regulations) and the CompaniesAct 2013 (the Act). The total number of options available under ESOP 2016 is 3125102.
Pursuant to the approval accorded by the shareholders at the twenty ninth annualgeneral meeting (AGM) of the company held on 30 July 2007 the nomination andremuneration committee had formulated the ESOP 2007. During the year there have been nofresh grants under the scheme and there has been no changes in the scheme. The scheme isin compliance with SEBI (SBEB) Regulations and the Act. Number of options outstanding ason 31 March 2017 under the ESOP 2007 is 648965.
The certificate from the statutory auditors confirming that ESOP 2007 and ESOP2016 have been implemented in accordance with the SEBI (SBEB) Regulations and shareholdersresolution will be placed before the shareholders at the ensuing AGM.
The details of both the schemes as on 31 March 2017 are provided and disclosed on thewebsite of the company (weblink: http://www.cholamandalam/esop.aspx).
Mr. N. Srinivasan director retires by rotation at the ensuring AGM and beingeligible has offered himself for re-appointment.
Mr. Vellayan Subbiah the current managing director holds office till 18 August 2017.
Further the board at its meeting held on 15 March 2017 appointed Mr. N. Srinivasan asexecutive vice chairman and managing director of the company for a period of two yearseffective 19 August 2017 and Mr. Arun Alagappan as an executive director of the companyfor a period of five years effective 19 August 2017 subject to the approval of themembers at the ensuing AGM of the company. Upon such appointments becoming effective Mr.N. Srinivasan and Mr. Arun Alagappan will become key managerial personnel of the companypursuant to the provisions of section 203 of the Act.
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 there under 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 made thereunder the following employees are the whole-time key managerial personnel of the company:
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 disclosure of relationships between directorsinter-se state of company's affairs 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.
BUSINESS RESPONSIBILITY REPORT
A business responsibility report is attached and forms part of this report.
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements prepared in accordance with the Act and therelevant accounting standards form part of this annual report.
M/s. Deloitte Haskins & Sells chartered accountants were appointed as statutoryauditors of the company for a period of three years at the thirty sixth AGM of the companyas per the transition provisions of section 139 of the Act where the rules prescribed themaximum tenure for appointment of a firm if they had already been serving as auditors formore than 7 years. Accordingly M/s. Deloitte Haskins & Sells chartered accountantsstatutory auditors of the company complete their three year tenure at the closure of thethirty ninth AGM of the company.
Pursuant to sections 139 and 141 of the Act and other applicable provisions if anyread with Companies (Audit & Auditors) Rules 2014 made there under (including anystatutory modification(s) or re-enactment thereof for the time being in force) it isproposed to appoint M/s. S.R.Batliboi & Associates LLP chartered accountants asstatutory auditors of the company for a period of five years commencing from theconclusion of thirty ninth AGM till the forty fourth AGM subject to approval of themembers at the ensuing AGM.
The secretarial audit report is attached and forms part of this report and does notcontain any qualification. Pursuant to the provisions of the Act and the rules framedthere under the company appointed M/s. R. Sridharan & Associates company secretariesto undertake the secretarial audit of the company for FY 17.
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. The company has put in place aCSR policy incorporating the requirements therein which is available on the website of thecompany (weblink: www.cholamandalam.com/csr-policy.aspx).
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 13.85 crores and the company actually spent 13.86 crorestowards CSR activities during FY 17 the details of which are annexed to and forms part ofthis report.
INTERNAL FINANCIAL CONTROLS
Internalcontrolframeworkincludingcleardelegationofauthority and standard operatingprocedures are established and laid out across all businesses and functions. These arereviewed periodically at all levels. The company has a co-sourced model of internal audit.The risk and control matrices are reviewed on a quarterly basis and control measures aretested and documented. These measures have helped in ensuring the adequacy of internalfinancial controls commensurate with the scale of operations of the company.
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 (weblink: http://www.cholamandalam.com/files/MEDIA/Policy-on-Related-Party-Transactions.pdf).
All related party transactions that were entered into during the financial year were inthe ordinary course of business and were on an arm's length basis. 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.
There are no contracts or arrangements entered into with related parties during theyear to be disclosed under sections 188(1) and 134(h) of the Act in form AOC-2.
All proposed related party transactions were placed before the audit committee forprior omnibus approval at the beginning of the financial year. The transactions enteredinto pursuant to the approval so granted were placed before the audit committee for itsreview on a quarterly basis. None of the directors has any pecuniary relationship ortransaction vis--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 1.61 crores was incurred during the year underreview. Foreign currency remittances made during the year was 2.45 crores towards equitydividend and 5.83 crores towards purchase of fixed assets. The company does not have anyforeign exchange earnings.
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.
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 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014. The aforesaid information is available for inspection 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.
CHOLAMANDALAM SECURITIES LIMITED (CSEC)
CSEC recorded a gross income of 15.33 crores for the year ended 31 March 2017 and madea PBT of 2.68 crores as against a PBT of 1.74 crores in the previous year.
CHOLAMANDALAM DISTRIBUTION SERVICES LIMITED (CDSL)
CDSL recorded a gross income of 13.40 crores for the year ended 31 March 2017 and madea PBT of 8.35 crores as against a PBT of 7.01 crores in the previous year.
WHITE DATA SYSTEMS INDIA PRIVATE LIMITED (WDSI)
WDSI recorded a gross income of 11.07 crores for the year ended 31 March 2017 and madea loss of 4.17 crores as against loss of 0.52 crores in the previous year.
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 : April 28 2017 ||Chairman |