Your directors have pleasure in presenting the fortieth annual report together with theaudited accounts of the company for the year ended 31 March 2018.
| || ||Rs. in crores |
|Particulars ||2017 - 18 ||2016 - 17 |
|Gross Income ||5425.77 ||4660.35 |
|Profit Before Tax (PBT) ||1483.31 ||1105.58 |
|Profit After Tax (PAT) ||974.12 ||718.74 |
|Add: Balance brought forward ||450.85 ||247.94 |
|Amount available for appropriation ||1424.97 ||966.69 |
|Adjustments / Appropriation: || || |
|Transfer to statutory and other reserves ||700.00 ||450.00 |
|Dividend Equity ||101.60 ||54.70 |
|Tax on dividend ||20.68 ||11.14 |
|Balance carried forward ||602.69 ||450.85 |
|TOTAL ||1424.97 ||966.69 |
The paid up equity share capital of the company as at 31 March 2018 is ` 156.33 croresincluding the increase during the year by ` 5.38 lakhs consequent to allotment of sharesupon exercise of stock options by employees under the companys employee stock optionscheme 2007 and employee stock option scheme 2016.
During the year your company achieved a 34% growth in Profit before tax (PBT) and 25%growth in total assets under management. During the second half of the year the commercialvehicle (CV) industry saw a sharp recovery boosting sales of vehicles across. Vehiclefinance (VF) business recorded a disbursement growth of 42% buoyed by the recovery signalsin the CV market. Disbursements in VF for the year were at ` 20540 crores as against `14471 crores in the previous year.
The business recorded a growth of 33% in closing managed assets and a PBT growth of50%. With a relentless focus on collections the business brought down the non performingassets to 2% of closing assets as compared to 4.2% as on 31 March 2017. Home equity (HE)business recorded a disbursement of ` 3174 crores as against ` 3056 crores in theprevious year. The business faced huge rate competition from Banks which triggered lot ofpre-closures leading to a marginal growth in assets under management by 4%.
Disbursements in home loans (HL) were at ` 606 crores as against ` 325 crores in theprevious year and Micro Small and Medium Enterprise (MSME) were at ` 629 crores asagainst ` 666 crores in the previous year. The rural agri financing business disbursed `97 crores as against ` 73 crores during the previous year. The new initiative line ofbusinesses Vishesh and Trip Loans has recorded ` 67 crores of disbursements in its firstyear of launch.
The business assets under management (net of provisions) of the company as at 31 March2018 increased to ` 42879 crores from ` 34167 crores in the previous year recording agrowth of 25%.
The PBT for the year was at ` 1483.31 crores as against ` 1105.58 crores in theprevious year recording a growth of 34%.
Profit after tax grew by 36% and was at ` 974.12 crores for the year as compared to `718.74 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 45% (` 4.50per equity share) as approved by the board on 30 January 2018 for the year ended 31March 2018.
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 65% (` 6.5 perequity share) for the year ended 31 March 2018.
TRANSFER TO RESERVES
Your company has transferred a sum of ` 200 crores to statutory reserve as requiredunder the Reserve Bank of India Act 1934 and
` 500 crores to general reserves.
The company continues to focus and grow its two main business lines - VF and HE whiletesting the waters in new businesses such as HL MSME loans and rural agri loans. Thecompany continued its pilot of trip loans and Chola Vishesh the new product extensionsunder VF catering to the funding requirements of the VF eco-system. Trip loan is targetedat the trucking community by extending short-term credit for the freight/transportationprocess and is aimed at moving this lending product from the unorganized segment to theorganised segment. This will help the truckers get comparatively lower cost credit in atransparent process and thereby improving their Profitability. Chola Vishesh is extendedto existing credit 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. All the amounts were repaid and there was no unclaimed /unpaid matured deposits lying in the escrow account and hence the escrow account wasclosed on 31 March 2018.
The credit rating details of the company as at 31 March 2018 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 Debenture ||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 |
* INDIA ratings and CARE ratings have upgraded the long term rating to IND AA+ (Stable)and CARE AA+ during the year. The ratings as mentioned above were re-affirmed by therating agencies during FY 18.
ASSET FINANCE COMPANY
During the year the company continued being categorised as an Asset Finance Company(AFC) under the RBI Regulations.
The companys capital adequacy ratio was at 18.36% as on 31 March 2018 as againstthe statutory 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 two grants aggregatingto 82860 options to 15 employees. The scheme is in compliance with Securities andExchange Board of India (Share Based Employee Benefits) Regulations 2014 (SEBI (SBEB)Regulations) and the Companies Act 2013 (the Act). The total number of options availableas on 31 March 2018 under ESOP 2016 is 605513.
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 an employee stock option scheme 2007 (ESOP 2007).During the year there have been no fresh grants under the scheme and there have been nochanges in the scheme. The scheme is in compliance with SEBI (SBEB) Regulations and theAct. Number of options outstanding as on 31 March 2018 under the ESOP 2007 is 44294.
The certificate from the statutory auditors confirming that ESOP 2007 and ESOP 2016have 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 2018 are provided and disclosed on thewebsite of the company (weblink: http://www.cholamandalam/esop.aspx).
During the year Mr. N. Srinivasan was appointed as an executive vice chairman &managing director for a period of two years and Mr. Arun Alagappan was appointed as anexecutive director for a period of five years with effect from 19 August 2017. Furtherthe board at its meeting held on 30 October 2017 appointed Mr. Ashok Kumar Barat as anadditional director of the company who shall hold office up to the date of ensuing AGM
as an additional director. Mr. Barat is eligible for a term of office as an independentdirector up to 5 years with the approval of shareholders.
Mr. N. Srinivasan executive vice chairman & managing director (EVC & MD)retires by rotation at the ensuing AGM and being eligible has offered himself forre-appointment.
Retirement / Resignation:
The term of office of Mr. Nalin Mansukhlal Shah independent director of the companyexpired at the 39th AGM held on 27 July 2017 and accordingly he ceased to be a director.The term of office of Mr. Vellayan Subbiah managing director expired at the close ofbusiness hours on 18 August 2017.
Mr. M. M. Murugappan non-executive director resigned from the office of directorshipof the company effective the close of business hours on 31 October 2017.
The board places on record its deep appreciation for the significant contributions madeby Mr. Nalin Mansukhlal Shah and Mr. M. M. Murugappan as members of the Board and itssub-committees during their tenure of office. Further the board acknowledges and placeson record its deep appreciation to Mr. Vellayan Subbiah former managing director for ablysteering the company for the last 7 years and building the company from strength tostrength.
DECLARATION FROM INDEPENDENT DIRECTORS
The independent directors (IDs) have submitted declaration of independence as requiredpursuant to section 149(7) of the Act stating that they meet the criteria of independenceas provided in section 149(6) of the Act. In the opinion of the board these IDs fulfilthe conditions specified in the Act and the rules made there under for appointment as IDsand 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. N. Srinivasan EVC & MD (from 19 August 2017)
2. Mr. Vellayan Subbiah Managing Director (upto 18 August 2017)
3. Mr. Arun Alagappan Executive Director (from 19 August 2017)
4. Mr. D. Arul Selvan Chief Financial Officer and
5. Ms. P. Sujatha Company Secretary
DIRECTORS RESPONSIBILITY STATEMENT
The directors responsibility statement as required under section 134(5) of theAct reporting the compliance with accounting standards is attached and forms part of theboards 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
Themanagementdiscussionandanalysisreport(MDA)highlighting the business-wise details isattached and forms part of this report. MDA report also contains the details of the riskmanagement framework of the company including the development and implementation of riskmanagement 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 composition and category of directors number of meetings of the board composition ofthe various committees including the audit committee nomination and remunerationcommittee stakeholders relationship committee and corporate social responsibilitycommittee annual board evaluation remuneration policy criteria for board nomination andsenior management appointment whistle blower policy/vigil mechanism disclosure ofrelationships between directors inter-se state of companys 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 statement is prepared in accordance with the Act and therelevant accounting standards form part of this annual report.
M/s. S. R. Batliboi & Associates LLP chartered accountants were appointed asstatutory auditors of the company at the thirty ninth AGM held on 27 July 2017 for aperiod of five years commencing from the conclusion of thirty ninth AGM till the fortyfourth AGM subject to ratification by members at every AGM. Accordingly your directorsrecommend the ratification of the appointment of
M/s. S. R. Batliboi & Associates LLP as statutory auditors of the company from theconclusion of the fortieth AGM till the conclusion of the forty first AGM of the company.The statutory auditors have confirmed their eligibility for appointment.
Pursuant to the provisions of the Act and the rules framed there under M/s. R.Sridharan & Associates company secretaries had undertaken a secretarial audit of thecompany for FY 18. The secretarial audit report is attached and forms part of this reportand 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 groups philosophy is to reach out to the community by establishingservice-oriented philanthropic institutions in the field of education and healthcare asthe core focus areas. The company upholds the groups tradition by earmarking a partof its income for carrying 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 and is available on the website of the company (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 ` 17.56 crores and the company actually spent ` 17.57crores towards CSR activities during FY 18 the details of which are annexed to and formspart of this report.
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 has 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 (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 arms length basis. There are nomaterially significant related party transactions made by the company with promotersdirectors key managerial personnel or other designated persons which may have a potentialconfiict with the interest of the company at large. There are no contracts or arrangementsentered into with related parties during the year to be disclosed under sections 188(1)and 134(h) of the Act in form AOC-2. All related party transactions were placed before theaudit committee for prior omnibus approval at the beginning of the financial year. Thetransactions entered into pursuant to the approval so granted were placed before the auditcommittee for its review on a quarterly basis. None of the directors has any pecuniaryrelationship or transaction 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 ` 1.89 crores was incurred during the year underreview. Foreign currency remittances made during the year was ` 10.30 crores towardspurchase of fixed assets. The company does not have any foreign 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 of thecompany 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 ` 19.68 crores for the year ended 31 March 2018 andmade a PBT of ` 3.54 crores as against a PBT of
` 2.68 crores in the previous year.
CHOLAMANDALAM DISTRIBUTION SERVICES LIMITED (CDSL)
CDSL recorded a gross income of ` 11.51 crores for the year ended 31 March 2018 andmade a PBT of ` 6.78 crores as against a PBT of ` 8.35 crores in the previous year.
WHITE DATA SYSTEMS INDIA PRIVATE LIMITED (WDSI)
WDSI recorded a gross income of ` 50.33 crores for the year ended 31 March 2018 andmade a loss of ` 4.34 crores as against loss of ` 4.18 crores in the previous year.
COMPLIANCE WITH SECRETARIAL STANDARDS ON BOARD AND GENERAL MEETINGS
The company has complied with secretarial standards issued by the Institute of CompanySecretaries of India in respect of Board Meetings and Annual General Meeting held duringthe year.
The directors wish to thank the companys customers vehicle manufacturersvehicle dealers channel partners banks mutual funds rating agencies and shareholdersfor their continued support. The directors also thank the employees of the company fortheir contribution to the companys operations during the year under review.
| ||On behalf of the board |
|Place : Chennai ||M.B.N. Rao |
|Date : April 23 2018 ||Chairman |