Cholamandalam Financial Holdings Ltd.
|BSE: 504973||Sector: Financials|
|NSE: CHOLAHLDNG||ISIN Code: INE149A01033|
|BSE 00:00 | 18 Apr||499.85||
|NSE 00:00 | 18 Apr||497.45||
|Mkt Cap.(Rs cr)||9,382|
|Mkt Cap.(Rs cr)||9382.18|
Cholamandalam Financial Holdings Ltd. (CHOLAHLDNG) - Director Report
Company director report
The Directors take pleasure in presenting the 68th Annual Report togetherwith the audited financial statements of the Company for the year ended 31stMarch 2017.
1. Scheme of Arrangement Share Capital and reduction in face value of Share
The Board of Directors of the Company at the meeting held on 3rd November2016 approved a Scheme of Arrangement ('Scheme') for the demerger of the ManufacturingBusiness Undertaking of the Company on a going concern basis in favour of TubeInvestments of India Limited (Resulting Company formerly 'TI Financial HoldingsLimited'). The Manufacturing Business Undertaking means manufacturing of tubes stripstubular components bicycles and fitness products chains for automobile sector andindustrial applications roll-formed sections other metal formed products industrialgears designing and manufacturing of dies and includes investments in Shanthi GearsLimited Financiere C10 SAS Sedis SAS Sedis Co. Limited Sedis Gmbh TI Tsubamex PrivateLimited and TI Absolute Concepts Private Limited. The Scheme received the approval of theshareholders of the Company at the Equity Shareholders meeting convened and held on 24thApril 2017 as per the directions of the National Company Law Tribunal Chennai ('NCLT').The Scheme was sanctioned by the NCLT vide its Order dated 17th July 2017. TheScheme has become effective on 1st August 2017 being the date of filing ofthe aforementioned Order of Sanction with the Registrar of Companies Tamil Nadu Chennai.The Appointed Date for transfer and vesting of the Manufacturing Business Undertaking ofthe Company into the Resulting Company was 1st April 2016.
Consequent to the said demerger of the manufacturing activities the business of theCompany is financial services in the nature of investment company. The Company hassubstantial investments in the following companies:
Cholamandalam Investment and Finance
Company Limited engaged in non-banking financial business;
Cholamandalam MS General Insurance Company Limited engaged in general insurancebusiness; and
Cholamandalam MS Risk Services Limited engaged in risk management andengineering solutions business.
In order to reflect the present nature of business the name of the Company is beingchanged to 'TI Financial Holdings Limited'.
Pursuant to the Scheme in respect of the issued subscribed and paid up share capitalof the Company the face value of each share was also correspondingly reduced to '1/-.Necessary formalities are being complied with in the said regard including crediting ofthe new Equity Shares of the face value of '1/- and dispatch of the share certificates tothe shareholders holding the shares in physical form.
The shareholders are entitled for issue and allotment of corresponding number of equityshares of '1/- each in the Resulting Company. The shares so issued will be listed on thesame Stock Exchanges where the equity shares of the Company are listed viz. the BSELimited and the National Stock Exchange of India Limited.
During the year under review the Company has not issued shares with differentialvoting rights and sweat equity shares.
2. Share Capital
The paid up Equity Share Capital as on 31st March 2017 was '18.75 Cr.During the year under review the Company allotted 101334 Equity shares to eligibleemployees under the Employees Stock Option Scheme.
Consequent upon demerger of the Manufacturing Business Undertaking as stated above on agoing concern basis in favour of the Resulting Company the share capital will standreduced in accordance with the Scheme of Arrangement.
3. Business Environment
The Indian financial sector is a highly diversified one comprising banks insurancecompanies non-banking financial companies pension funds mutual funds co-operatives andsmaller financial entities with payment banks being the latest entrants to the sector.The sector is currently in an expansion mode with the existing financial services playersregistering strong growth besides new entities entering the market. In recent years theGovernment of India and the Reserve Bank of India have ushered in
a slew of reforms to liberalise regulate and boost the sector. With such a collectivethrust by the Government as well as the private sector needless to state the Indianfinancial services market is fast becoming one of the most dynamic and vibrant of thecapital markets across the globe.
The Company has a sizeable shareholding stake in businesses engaged in non-bankingfinancial services (NBFCs as generally referred) general insurance and risk managementservices as per details furnished in this Report.
For the Indian NBFC industry the year 2016-17 was a stable one thanks to thefavourable stance adopted by both the Regulator and the Government. Riding on the back ofvery welcome measures by and large it is expected that the sector will witness steadygrowth in the coming years backed by a continuous expansion of the asset classes andhigher market share for the key players in the market which may come even at the cost ofmid-sized banks.
For Cholamandalam Investment and Finance Company Limited engaged in financialservices with its major funding stake in the auto sector the outlook remains positive asthe sector is expected to grow between six and nine per cent.
The Indian general insurance industry has grown close to twenty per cent year afteryear over the last several years with the gross direct premium of non-life insurers(except standalone health) at around '1.1 billion in 2016-17. This despite the challengesthe industry has been facing due to the overall slowdown in the economy weak investmentstream and changes that tail a de-tariffed regime. The new Crop Insurance Scheme of theGovernment of India has provided an appreciable impetus in handsomely improving the cropinsurance premium for the industry with the motor health and fire segments toocontinuing to grow strongly.
For Cholamandalam MS General Insurance Company Limited engaged in general insurancebusiness the business outlook remains very positive as it seeks to geographically growthrough phased building of its distribution reach through a digitally enabled modelacross the country.
For Cholamandalam MS Risk Services Limited engaged in providing risk management andengineering solutions in the field of safety health and environment in association withCholamandalam MS General Insurance Company Limited the business outlook is bright as itlooks at constantly strengthening its consultancy portfolio through the launch of newerservices.
*Consequent to the demerger of the Manufacturing Business Undertaking from the Companywith effect from 1st April 2016 the Company is vested with the remainingbusiness undertaking being the Financial Services Business only. Accordingly figures forthe financial year ended 31st March 2016 and 31st March 2017 arenot comparable.
5. Performance Overview
During the year under review the Company earned revenue of '40.07 Cr. mainly throughdividend income received on its strategic long-term investments in the companies engagedin financial services business as stated above. The profit before and after tax for theyear was at '36.29 Cr.
As stated the Company has a portfolio of significant strategic investments which arelong-term in nature in the companies as listed above. These companies performed wellduring the year under review as may be seen from their performance summary below:
5.1 Cholamandalam investment & Finance Company Limited ('CIFCL')
The Company holds about 46% of the paid up and subscribed equity share capital ofCIFCL a leading comprehensive financial services provider offering vehicle finance homeloans home equity loans SME loans investment advisory services stock broking and avariety of other financial services to its customers. Thus CIFCL is an Associate Company.CIFCL presently operates from over 700 branches across India with total assets undermanagement above '36000 Cr. CIFCL is a listed company with its equity shares traded onthe National Stock Exchange of India Limited (NSE) and the BSE Limited (BSE).
CIFCL had yet another year of fine performance with its vehicle finance vertical doingwell. CIFCL's consolidated profit before tax at '1107 Cr. increased by 26% (previous year:'879 Cr.) and consolidated profit after tax at '719 Cr. grew by 25% (previous year: '575Cr.). CIFCL's disbursement's increased to '18591 Cr. during the year (previous year:'16380 Cr.).
CIFCL declared an interim dividend of '3.50 per share and further declared a FinalDividend of '2.00 on equity share of face value of '10 each for the financial year2016-17.
5.2 Cholamandalam MS General insurance Company Limited ('CMSGICL')
The Company holds about 60% of the paid up and subscribed equity share capital ofCMSGICL - a joint venture with Mitsui Sumitomo Insurance Company Ltd. Japan engaged ingeneral insurance business. Thus CMSGICL is a subsidiary of the Company. CMSGICL offers awide range of insurance products for individuals and corporates. For individuals variousproducts are offered under Motor Insurance Travel Insurance Health Insurance AccidentInsurance and
Home Insurance. For SMEs and Corporate Insurance clients CMSGICL offers customizedinsurance solutions encompassing insurance and risk consulting services such as FireInsurance Engineering Insurance Liability Insurance Marine Insurance and PropertyInsurance.
CMSGICL achieved a Gross Written Premium (including reinsurance remittance) of '3143Cr. during the year (previous year: '2466 Cr.) a growth of 27%.
CMSGICL's profit before tax at '297 Cr. increased by 39% (previous year: '213 Cr.) andprofit after tax at '208 Cr. grew by 41% (previous year: '148 Cr.).
CMSGICL has declared a maiden dividend of '0.60 per share on its equity share of facevalue of '10 each for the financial year.
5.3 Cholamandalam MS Risk Services Limited ('CMSRSL')
The Company holds about 49.50% of the paid up and subscribed equity share capital ofCMSRSL (a joint venture with Mitsui Sumitomo Insurance Company Ltd. Japan) and has atechnical collaboration with InterRisk a group company of Mitsui Sumitomo InsuranceGroup. Chola MS Risk offers comprehensive Risk Management and Engineering solutions in thefield of Safety Health and Environment.
CMSRSL achieved revenue of '39.19 Cr. during the year (previous year: '32.42 Cr.). Theprofit before tax was at '2.61 Cr. (previous year: '2.83 Cr.) and profit after tax was at'1.60 Cr. (previous year: '1.99 Cr.).
CMSRSL declared a dividend of '2.00 per share on its equity share of face value of '10each for the financial year 2016-17.
The Board of Directors had declared an interim dividend of '1.25 per share during thefinancial year 2016-17 which was paid on 24th February 2017. Afterconsidering the accounts of the Company for the year ended 31st March 2017the Board does not propose to recommend any final dividend for the year.
7. Registration with Reserve Bank of India
The Company's revenue and assets are in the form of financial assets/revenues andhence certain regulatory requirements prescribed by the Reserve Bank of India ('RBI') fornon-banking financial companies would be applicable to the Company. Since the Companymeets all the criteria for a Core Investment Company and has a net worth in excess of '100Crore the Company may have to seek registration with the RBI under the relevantprovisions if the Company intends to access
public funds as defined under the extant regulatory guidelines.
Mr. C K Sharma resigned from the Board with effect from 7th March 2017 forpersonal reasons. Further consequent to the demerger of the Manufacturing BusinessUndertaking M/s. M M Murugappan Hemant M Nerurkar Madhu Dubhashi Pradeep V Bhide and SSandilya resigned from the Board of Directors of the Company with effect from 1stAugust 2017. The Board places on record its appreciation for the contributions made bythem during their term as Chairman / Directors of the Company.
Consequent to Mr. L Ramkumar assuming Office as Managing Director in the ResultingCompany he resigned as a Director and as Managing Director of the Company with effectfrom 1st August 2017. The Board places on record its appreciation for thecontribution made by Mr. Ramkumar during his tenure in Office.
Mr. Vellayan Subbiah was appointed as Additional Director and as Managing Director(Designate) with effect from 19th August 2017 subject to the approval of theshareholders. As per the terms of his appointment the appointment was intended for themanufacturing business company. Consequent to the demerger of the manufacturing businessand his assuming office as such in the Resulting Company his appointment will not betaking effect in the Company.
Mr. A Vellayan Mr. M B N Rao (Independent Director) and Ms. Shubhalakshmi Panse(Independent Director) were appointed as Additional Directors of the Company with effectfrom 1st August 2017. Mr. A Vellayan was elected as the Chairman of the Boardof Directors of the Company at the Board meeting held on 9th August 2017.
A resolution proposing the appointment of Mr. A Vellayan as a Director liable to retireby rotation under Section 152 of the Companies Act 2013 ('the Act') forms part of theNotice for the ensuing Annual General Meeting (AGM).
Mr. N Srinivasan Director liable to retire by rotation under Section 152 of the Actretires by rotation at the forthcoming AGM and being eligible offers himself forre-appointment.
Mr. M B N Rao and Ms. Shubhalakshmi Panse Independent Directors in terms of the Actand the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 ('SEBIListing Regulations')
being eligible offer themselves for appointment as Independent Directors pursuant toSection 149 of the Act. Each of them has furnished necessary declaration in terms ofSection 149(6) of the Act affirming that they meet the criteria of independence asstipulated thereunder.
The Board takes pleasure in recommending the appointments of Mr. A Vellayan Mr. M B NRao and Ms. Shubhalakshmi Panse and the re-appointment of Mr. N Srinivasan at theforthcoming AGM as Directors as per details contained in the Notice for the 68thAGM.
9. Key Managerial Personnel
The Company had appointed Mr. K Mahendra Kumar as Chief Financial Officer and KeyManagerial Personnel at the Board Meeting held on 3rd November 2016 in thevacancy caused by the resignation of Mr. Arjun Ananth on 29th February 2016and he joined on 15th December 2016.
Mr. K Mahendra Kumar and Mr. S Suresh Company Secretary resigned with effect from 1stAugust 2017 consequent to the demerger and their appointments as the Chief FinancialOfficer and the Company Secretary respectively in the Resulting Company.
Mr. N Ganesh was appointed as Manager of the Company pursuant to the provisions ofSections 196 197 and 203 read with Schedule V and other applicable provisions of theCompanies Act 2013 and the Rules thereunder as may be applicable for a term of threeyears with effect from 9th August 2017 subject to approval of theshareholders.
The following are the Key Managerial Personnel (KMPs) of the Company. All the KMPs wereappointed with effect from 9th August 2017:
a) Mr. N Ganesh as the Manager;
b) Mr. AN Meyyappan as the Chief Financial Officer; &
c) Ms. E Krithika as the Company Secretary and Compliance Officer under the SEBIListing Regulations.
At the 66th Annual General Meeting M/s. S.R. Batliboi & Associates LLPChartered Accountants were appointed as the Statutory Auditors of the Company for a periodof five years from the conclusion of the said 66th Annual General Meeting tillthe conclusion of the 71st Annual General Meeting. In terms of the CompaniesAct 2013 the appointment of the said Statutory Auditors is subject to ratification eachyear.
Further in terms of the Shareholders' approval the remuneration payable to the saidStatutory Auditors in respect of their appointment is to be fixed each year.
Accordingly the Board recommends the ratification of the appointment of M/s. S.R.Batliboi & Associates LLP Chartered Accountants as the Statutory Auditors of theCompany for the period from the conclusion of the 68th Annual General Meetingtill the conclusion of the 69th Annual General Meeting on the terms ofremuneration as set out in the resolution contained in the Notice of the Annual GeneralMeeting.
11. Energy Conservation Technology Absorption and Foreign Exchange Earnings and Outgo
The Company has no activity relating to consumption of energy or technology absorptionetc. The Company does not have any foreign exchange earnings. There was a foreign exchangeoutgo by way of repatriation of dividend amounting to '0.03 Cr. during the year underreview details relating to which are annexed and form part of this Report as Annexure A.
12. Corporate Social Responsibility
The Corporate Social Responsibility (CSR) Committee was reconstituted post demerger.The Committee consists of three members of them one is an Independent Director.
The Company being part of the Murugappa Group is known for its tradition ofphilanthropy and community
service. The Company's philosophy is to reach out to the community by establishingservice-oriented philanthropic institutions in the field of education and healthcare asthe core focus areas. Pursuant to the requirements of the Companies Act 2013 the Companyhas put in place a CSR policy incorporating the requirements therein which is alsoavailable on the Company's website at the following link http://www.tifhl.com/article/values/467.
As per the provisions of the Companies Act 2013 '2.03 Cr. was required to be spenton CSR and '2.57 Cr. was spent towards CSR projects/activities during the financial year.Details are furnished in the Annual Report of CSR activities annexed to and forming partof this Report as Annexure B as well as in the Company's website at the following link13.1. Deposits
* Consequent to the demerger of the Manufacturing BusinessUndertaking from the Company with effect from 1st April 2016 the Company isvested with the remaining business undertaking being Financial Services Business only.Accordingly figures for the financial year ended 31st March 2016 and 31stMarch 31 2017 are not comparable.
Cholamandalam MS General Insurance Company Limited is a subsidiaryCholamandalam Investment and Finance Company Limited is an associate and Cholamandalam MSRisk Services Limited is a joint venture of the Company.
The Statement containing salient features of the financial statementsof the Company's subsidiary associate and joint venture companies is attached as AnnexureC. The Consolidated Financial Statements of the Company and its subsidiary associate andjoint venture companies prepared in accordance with the Accounting Standard (AS) 21 formpart of the Annual Report.
The Company derives its income mainly by way of dividend fromlong-term investments made in companies engaged in financial services which are mainlysubsidiary joint venture or associate of the Company. During the financial year theprofit before and after tax were at '36.29 Cr. due to dividends received from theinvestee companies on the back of their improved business performance.
Internal control systems in the organisation are looked at as the keyto its effective functioning. The role of Internal Audit is to periodically evaluate theadequacy and effectiveness of the internal controls recommend improvements and alsoreview adherence to policies based on which corrective action is taken to address gaps ifany.
Revenue and capital expenditures will be governed by approved budgetsand the levels defined by a delegation of authority mechanism. Review of capitalexpenditure will be undertaken with reference to benefits expected in line with the policyfor the same.
The Company has a formal system of internal financial control toensure the reliability of financial and operational information and regulatory andstatutory compliances. The Company's business processes are equipped with monitoring andreporting processes to ensure financial discipline and accountability.
Risk management refers to the formal processes whereby risksassociated with the "enterprise" as a whole are managed. As the Company is aninvestment company its investments will be subject to a formal detailed evaluation andapproval by the Board of Directors.
A report on corporate governance of the Company together with acertificate from the Auditors is annexed in accordance with the terms of the SEBI ListingRegulations and forms part of the Board's Report as Annexure D. A certificate has beensubmitted to the Board regarding the financial statements and other matters in terms ofPart B of Schedule II [Corporate Governance] of the SEBI Listing Regulations.
The Report further contains details as required to be provided in theBoard's Report on the policy on Directors' appointment and remuneration including thecriteria annual evaluation by the Board and Directors composition and other details ofBoard committees implementation of risk management policy whistle-blower policy/vigilmechanism etc.
The information required to be disclosed under the provisions ofSection 197 of the Act read with Rule 5 of the Companies (Appointment & Remunerationof Managerial Personnel) Rules 2014 is annexed to and forms part of this Report asAnnexure E.
An internal Complaints Committee (ICC) to redress complaints receivedregarding sexual harassment is functional. The Company has framed a policy on preventionof sexual harassment at workplace in line with the requirement of the Sexual Harassment ofWomen at the Workplace (Prevention Prohibition & Redressal) Act 2013. The policyextends to all employees (permanent contractual temporary and trainees). Appropriatesensitization about the new Policy and the remedies available thereunder is being made asrequired. No complaints were received and disposed off during the year under review.
Details in respect of the Company's Employee Stock Option Schemes asrequired under the relevant SEBI Regulations are displayed in the Company's website at thefollowing link http://www.tifhl.com/article/ values/554.
With respect to the Stock options granted by the Company under theexisting Stock Option Schemes on the Scheme becoming effective the employees concerned(irrespective of whether they continue to be employees of the Company or become employeesof the Resulting Company) will be issued one stock option by the Resulting Company forevery stock option held in the Company whether the same are vested or not on terms andconditions similar to the relevant Schemes. As per the Scheme necessary steps are beingtaken to enable the continuance of the same in the hands of the employees who becomeemployees of the Resulting Company. The existing exercise price of the stock options ofthe Company shall stand suitably adjusted in an appropriate manner as determined by theNomination and Remuneration Committee of the Company and the balance of the exercise priceshall become the exercise price of the stock options issued by the Resulting Company.
The Board of Directors confirm that the Company has in place aframework of internal financial control and compliance system which is monitored andreviewed by the Audit Committee and the Board besides the statutory internal andsecretarial auditors. Further pursuant to Section 134(5) of the Companies Act 2013 theBoard of Directors confirm that:
b) they have in the selection of accounting policies consulted thestatutory auditors and have applied their recommendations consistently and madeadjustments and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company as at 31st March 2017 and of theprofit of the Company for the year ended on that date;
c) they have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act 2013for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities;
e) they have laid down internal financial controls to be followed bythe Company and that such internal financial controls are adequate and were operatingeffectively during the year ended 31st March 2017; and
All related party transactions that were entered into during thefinancial year under review were on an arm's length basis and were in the ordinary courseof business. There were no materially significant related party transactions during theyear which may have a potential conflict with the interest of the Company at large.Necessary disclosures as required under the Accounting Standard (AS) 18 have been made inthe notes to the Financial Statements.
The policy on Related Party Transactions as approved by the Board isuploaded and is available on the following link on the Company's website
During the year under review:
- the Company's manufacturing business
was demerged pursuant to the Scheme of Arrangement as per details furnished inparagraph 1 above [Scheme of Arrangement Share Capital and Listing of Equity Shares].Consequently the Company has become financial services company in the nature ofinvestment company;
- there were no material changes and commitments affecting the financial position ofthe Company which have occurred between the end of the financial year of the Company towhich the financial statements relate viz. 31st March 2017 and the date ofthis Report; &
- there were no significant material orders passed by the regulators or courts ortribunals impacting the Company's going concern status and its operations in future.
25. Secretarial Audit
During the financial year 2016-17 the Company had pursuant of the provisions ofSection 204 of the Companies Act 2013 and The Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 appointed Mr. R Sridharan of Messrs. R. Sridharan &Associates a firm of Company Secretaries in Practice to undertake the Secretarial Auditof the Company. The Report of the Secretarial
Audit is annexed herewith and forms part of this Report as Annexure F.
26. Annual Return
Extract of the Annual Return is annexed and forms part of this Report as Annexure G.
27. Business Responsibility Reporting
The SEBI Listing Regulations stipulates that top 500 listed entities based on marketcapitalization (calculated as on 31st March of every financial year) are tofurnish as part of their Annual Report a Business Responsibility Report.
Accordingly in accordance with the requirements of the Regulations a BusinessResponsibility Report is attached and forms part of this Annual Report as Annexure H.
The Directors thank all Customers Vendors Financial Institutions Banks StateGovernments Joint Venture Partners and Investors for their continued support to yourCompany's performance and growth. The Directors also wish to place on record theirappreciation of the contribution made by all the employees of the Company resulting in thegood performance during the year under review.