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Cholamandalam Investment & Finance Company Ltd.

BSE: 511243 Sector: Financials
NSE: CHOLAFIN ISIN Code: INE121A01024
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OPEN 535.00
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VOLUME 113463
52-Week high 600.90
52-Week low 179.20
P/E 29.42
Mkt Cap.(Rs cr) 44,567
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 535.00
CLOSE 538.75
VOLUME 113463
52-Week high 600.90
52-Week low 179.20
P/E 29.42
Mkt Cap.(Rs cr) 44,567
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

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

Company director report

Your directors have pleasure in presenting the forty second annual report together withthe audited accounts of the company for the year ended 31 March 2020.

FINANCIAL RESULTS

Rs. in crores
Particulars 2019-20 2018-19
Gross Income 8652.89 6992.64
Profit Before Tax (PBT) 1585.73 1823.15
Profit After Tax (PAT) 1052.37 1186.15
One-time Provision for COVID and Macro 504.36 -
Profit Before Tax before one-time provisions 2090.09 1823.15
Profit after Tax before one-time provisions 1387.09 1186.15
Total Comprehensive income 988.92 1190.24
Appropriation:
Transfer to statutory and other reserves 720.00 840.00
Dividend - Equity 166.17 101.63
Tax on dividend 34.15 20.89

SHARE CAPITAL

During the year pursuant to the approval of shareholders by way of postal ballots on13 January 2020 and 24 February 2020 the company had allotted 28125000 equity sharesto 36 Qualified Institutions Buyers at Rs. 320 per equity share on 31 January 2020 and9345794 equity shares to Cholamandalam Financial Holdings Limited a promoter entity byway of a preferential allotment at Rs. 321 per equity share on 7 March 2020.

Further there was an increase in paid up capital during the year by Rs. 7.56 croresconsequent to allotment of shares upon exercise of stock options by employees under thecompany's employee stock option schemes.

The total paid up equity share capital of the company as at 31 March 2020 is Rs.163.98 crores.

Upon approval by the shareholders and completion of other regulatory procedures for thesub-division of equity shares the equity share of face value of Rs. 10 (Rupees Ten) fullypaid up has been sub-divided into 5 equity shares of face value of Rs. 2 (Rupees Two)fully paid-up with effect from 18 June 2019.

OPERATIONS

The financial year 2019-20 showed a slowdown in growth over previous year. It was alsonegative for the automotive industry with degrowth in commercial passenger vehicles andtwo wheelers segment. Despite the slowdown your company was able to grow year on year interms of volume with growth in passenger vehicles and two-wheeler segments. Your companyhas also increased its market share across all product segments except in heavy commercialvehicles. At the end of the year we had the COVID-19 pandemic hit the global economybringing it to a standstill. Due to the wide-spread COVID-19 pandemic government hadannounced a lock-down of all businesses and all activities effective 25 March 2020 whichimpacted disbursements of Q4 of FY 20.

Pursuant to the moratorium announced by the Reserve Bank of India (RBI) on EMIrepayments (initially till May 2020 and further extended to August 2020) the company hasframed a Board approved policy and accordingly offered moratorium to its customers.

As a matter of abundant caution your company has factored in possibility of delay incustomer payments post moratorium in case the economic slowdown is long drawn.Accordingly

the company has created a one-time contingency provision of Rs. 284 crores towardsprobable losses against loans which were extended the moratorium. Over and above this thecompany has also created a macro provision of Rs. 250 crores to meet contingencies if anythat may arise post moratorium due to the global recession and economic slow-down. Intotal the company has set aside an additional provision of Rs. 534 crores (including Rs.30 crores of macro provision created in FY 19) to meet any contingencies that may arise infuture due to the COVID-19 business disruptions.

The company has not availed moratorium so far on its borrowings and it does not planto avail moratorium even during the second phase of the moratorium (June to August 2020).The company had closed March 2020 with a cash balance of Rs. 6508 crores and also hadsanctioned lines of Rs. 4462 crores. This adequately covers the needs of the ALM processwith no negative cumulative mismatches across all time buckets. Even after extending themoratorium to its customers for the second phase the cash position of the company isadequate to meet all its maturities and fixed obligations till September 2020.

Inspite of the slowdown in the automotive sector the lockdown of the entire nation inMarch 2020 the high level of provisions made towards the COVID-19 pandemic and theprovision towards macro factors the company achieved a growth of 16% in assets undermanagement (AUM). The profit after tax (PAT) before considering the impact of the one timeprovision for COVID-19 and the macro factors (one time provision) grew by 17%. The PATregistered a degrowth of 11% as compared to FY 19 after considering the one timeprovision.

Vehicle Finance (VF) business witnessed a disbursement decline of 6%. Disbursements inVF for the year were at Rs. 23387.43 crores as against Rs. 24983.24 crores in theprevious year. The business recorded a growth of 9% in closing managed assets and profitbefore tax (PBT) declined by 26% after considering additional provision of Rs. 398 crorestowards its share of one time provision. PBT before one time provision grew by 6% year onyear.

Home equity (HE) business also witnessed a disbursement decline of 5%. Disbursements inHE for the year were at Rs. 3661.89 crores as against Rs. 3836.55 crores in the previousyear. The business recorded a growth of 11% in closing managed assets and a PBT decline of20% after considering its share of one time provision of Rs. 90.56 crores. PBT before onetime provisioning grew by 10% year on year.

Disbursements in home loans (HL) business were at Rs. 1504.74 crores as against Rs.1156.88 crores in the previous year and Micro Small and Medium Enterprise (MSME)business were at Rs. 537.11 crores as against Rs. 473.84 crores in the previous year.

The business AUM of the company as at 31 March 2020 increased to Rs. 60549 croresfrom Rs. 54279 crores in the previous year recording a growth of 12%.

OUTLOOK

Outlook for the coming financial year continues to remain uncertain with the COVID-19situation evolving each day. Apart from agriculture and related activities most othersectors of the economy have been adversely impacted by the pandemic and are expected toshow de-growth.

VF business will continue to be the mainstay for the company. HE portfolio has alsobeen a significant contributor to the company's growth and profitability. HL is the risingstar and has a great potential to be built into a solid portfolio considering theexpertise of the company in handling typical customer profiles. The company's robustcollection mechanism aided with a strong credit risk assessment framework will help ussteer through the strong currents of the COVID-19 pandemic in FY 20-21.

DIVIDEND

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: https://www.cholamandalam.com/company-policies.aspx).

Payment of dividend

The board of directors at their meetings held on 12 December 2019 and 26 February2020 had declared interim dividends of Rs. 1 per equity share and Rs. 0.70 per equityshare of the face value of Rs. 2 each respectively (aggregating 85% on Rs.2/- face value)for FY 20 (previous year declared 65% - Rs. 1.30 per share - at face value of Rs. 2 pershare). The board of directors have recommended the same to be declared as final dividendfor FY 20.

TRANSFER TO RESERVES

The company transferred a sum of Rs. 220 crores to statutory reserve as required underthe Reserve Bank of India Act 1934 and Rs. 500 crores to general reserves.

FIXED DEPOSITS

The company is an NBFC - Investment and Credit Company (NBFC-ICC). The company does nothold or accept deposits as of the date of balance sheet.

CAPITAL ADEQUACY

The company's capital adequacy ratio was at 20.7% as on 31 March 2020 as against thestatutory minimum capital adequacy of 15% prescribed by RBI.

EMPLOYEE STOCK OPTION (ESOP) SCHEMES

ESOP 2016

Pursuant to the approval accorded by the shareholders on 3 January 2017 thenomination and remuneration committee had formulated an employee stock option scheme 2016(ESOP 2016).

During the year the company made three grants aggregating to 360232 options to 8employees. The total number of options issued as on 31 March 2020 under ESOP 2016 is4082637.

ESOP 2007

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. Number of options outstanding as on 31 March 2020 under the ESOP2007 is 78120.

The schemes are in compliance with Securities and Exchange Board of India (Share BasedEmployee Benefits) Regulations 2014 (SEBI (SBEB) Regulations) and the Companies Act 2013(the Act).

The certificate from the statutory auditors confirming that ESOP 2007 and ESOP 2016have been implemented in accordance with the SEBI (SBEB) Regulations and shareholdersresolutions has been obtained and will be available for the shareholders at the ensuingAGM.

The details of the schemes as on 31 March 2020 are provided and disclosed on thewebsite of the company (weblink: https://www. cholamandalam/esop.aspx).

DIRECTORS

Appointments

During the year the board at its meeting held on 30 July 2019 had appointed Ms. BhamaKrishnamurthy as an additional director in the capacity of an independent director witheffect from 31 July 2019 and she shall hold office up to the date of ensuing AGM as anadditional director. The appointment of Ms. Bhama as an independent director for a term of5 years from the date of appointment has been recommended for the approval of shareholdersat the ensuing AGM.

Further the board at its meeting held on 5 November 2019 had appointed Mr. ArunAlagappan as the managing director of the company for a period of five years effective 15November 2019. Mr. Ravindra Kumar Kundu was appointed as the executive director of thecompany for a period of five years effective 23 January 2020. Both the appointments havebeen recommended for approval of the shareholders at the ensuing AGM of the company.

Mr. M.M. Murugappan chairman and non-executive director retires by rotation at theensuing AGM and being eligible has offered himself for re-appointment.

Retirement

Ms. Bharati Rao retired at the conclusion of the 41st AGM held on 30 July2019. The board places on record its deep appreciation for the immense contribution madeby Ms. Bharati Rao during her tenure on the board and as a member of the variouscommittees.

DECLARATION FROM INDEPENDENT DIRECTORS

All the independent directors (IDs) have submitted their declaration of independenceas required pursuant to section 149(7) of the Act confirming that they meet the criteriaof independence as provided in section 149(6) of the Act. In the opinion of the board theIDs fulfill the conditions specified in the Act and the rules made there under forappointment as IDs including the integrity expertise and experience and confirm that theyare independent of the management. All the IDs of the company have registered their nameswith the data bank of IDs and are in the process of completion of online proficiencyself-assessment test as per the timeline notified by the Ministry of Corporate Affairs(MCA).

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 companyduring FY 20:

1. Mr. Arun Alagappan Managing Director

2. Mr. Ravindra Kumar Kundu Executive Director (from 23 January 2020)

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

4. 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 (MDA) highlighting the business-wisedetails is attached and forms part of this report. MDA 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 composition and category of directors number of meetings of the board composition ofthe various committees annual board evaluation remuneration policy criteria for boardnomination and senior management appointment whistle blower policy/vigil mechanismdisclosure of relationships between directors inter-se state of company's affairs etc.

The managing director and the chief financial officer have submitted a compliancecertificate to the board regarding the financial statements and other matters as requiredunder regulation 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 and forms part of this annual report.

AUDITORS

M/s. S.R. Batliboi & Associates LLP chartered accountants are the statutoryauditors of the company. They were appointed as statutory auditors of the company at the39th AGM held on 27 July 2017 for a period of five years commencing from theconclusion of 39th AGM till the conclusion of 44th AGM.

SECRETARIAL AUDIT

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 20. The secretarial audit report is attached and forms part of this reportand does not contain any qualification.

COST RECORD AND COST AUDIT

Maintenance of cost records and requirements of cost audit as prescribed under theprovisions of section 148(1) of the Act is not applicable for the business activitiescarried out by the company.

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 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 Rs. 28.87 crores and the company spent Rs.28.88 crorestowards CSR activities during FY 20 the details of which are annexed to and forms part ofthis report.

In April 2020 the company contributed a sum of Rs. 1 crore to The Prime Minister'sCitizen Assistance and Relief in Emergency Situations Fund and Rs. 3 crores to Governmentof Tamil Nadu - Chief Minister's Public Relief Fund for COVID-19 relief activities.

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: https://www.cholamandalam.com/company-policies.aspx).

All transactions with related parties that were entered into during the financial yearwere in the ordinary course of business and were on an arm's length basis. There are nomaterially significant 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 intowith related parties during the year to be disclosed under sections 188(1) and 134(h) ofthe Act in form AOC-2. All transactions with related parties were placed before the auditcommittee for prior approval at the beginning of the financial year. The transactionsentered into pursuant to the approval so granted were placed before the audit committeefor its review on a quarterly basis. None of the directors has any pecuniary relationshipor 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. 129.40 crores was incurred during the yearunder review. Foreign currency remittances made during the year was Rs. 11.02 crorestowards purchase of fixed assets. The company does not have any foreign exchange earnings.

PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS

Being an NBFC the disclosures regarding particulars of loans given guarantees givenand security provided is exempted under the provisions of section 186(11) of the Act.

As regards investments made by the company the details of the same are provided undernote 10 in standalone financial statements and notes 12 and 45 in consolidated financialstatements of the company for the year ended 31 March 2020.

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 are being sent tothe members and others entitled thereto. The statement prescribed under rule 5(2) and 5(3)of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 isavailable for inspection. If any member is interested in obtaining a copy such member maysend an e-mail to the company secretary in this regard.

COMPLIANCE WITH SECRETARIAL STANDARDS ON BOARD AND GENERAL MEETINGS

The company has complied with all the provisions of secretarial standards issued by theInstitute of Company Secretaries of India in respect of meetings of the board of directorsand general meetings held during the year.

INTERNAL COMPLAINTS COMMITTEE

The company has in place a policy for prevention of sexual harassment in line with therequirements of the Sexual Harassment of Women at the Workplace (Prevention Prohibitionand Redressal) Act 2013 (POSH Act). The company has complied with the provisions relatingto constitution of internal complaints committee (ICC) under the POSH Act. ICC has beenset up to redress complaints received regarding sexual harassment. All employees arecovered under this policy. During the year the company conducted workshops for employeescreating awareness about POSH Act. During the calendar year ended 31 December 2019 therewere no referrals received by ICC.

HIGHLIGHTS OF PERFORMANCE OF SUBSIDIARIES / ASSOCIATES

CHOLAMANDALAM SECURITIES LIMITED (CSEC)

During the year CSEC focused on creating three distinct business lines for enhancingrevenues and productivity - broking wealth and insurance distribution. The brokingbusiness grew 9% wealth business dropped by 32% due to cap on upfront income andinsurance distribution business was scaled up significantly. CSEC achieved a gross incomeof Rs. 23.58 crores for the year ended 31 March 2020 and made a PBT of Rs. 3.28 crores asagainst a PBT of Rs. 3.31 crores in the previous year. The Mutual Fund AUM was at Rs. 846crores. CSEC did not declare any dividend during the year.

CHOLAMANDALAM HOME FINANCE LIMITED (CHFL)

CHFL recorded a gross income of Rs. 38.61 crores for the year ended 31 March 2020 andmade a loss before tax of Rs. 0.77 crores as against a loss of Rs. 11 crores in theprevious year. CHFL did not declare any dividend during the year. The company had made anapplication to National Housing Bank (NHB) for registration as a Housing Finance Company(HFC) in June 2018 and currently engaging with RBI the new regulator for HFCs to obtainlicense to operate as HFC. Currently the company continues its focus on growing insurancecorporate agency business.

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.M. Murugappan
Date : June 3 2020 Chairman