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Cholamandalam Investment and Finance Company Ltd.

BSE: 511243 | NSE: CHOLAFIN |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE121A01024 | SECTOR: Finance - Leasing & Hire Purchase

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Annual Report

For Year :
2019 2017 2016 2015 2014 2013 2012 2011 2010

Director’s Report

BOARD-S REPORT

The directors have pleasure in presenting the forty first annual report together with the audited accounts of the company for the year ended 31 March, 2019.

FINANCIAL RESULTS

Rs. in crores

Particulars

2018Rs.19

2017Rs.18

Gross Income

6,992.64

5,479.66

Profit Before Tax (PBT)

1,823.15

1,401.37

Profit After Tax (PAT)

1,186.15

918.30

Total Comprehensive income

1,190.24

924.60

Appropriation:

Transfer to statutory and other reserves

840.00

700.00

Dividend - Equity

101.63

101.60

Tax on dividend

20.89

20.68

SHARE CAPITAL

The paid up equity share capital of the company as at 31 March, 2019 is Rs.156.43 crores including the increase during the year by Rs.3.42 lakhs, consequent to allotment of shares upon exercise of stock options by employees under the company-s employee stock option schemes 2007 and 2016.

The board of directors of the company at its meeting held on 27 April, 2019 has recommended sub-division of each equity share of face value of Rs.10 (Rupees Ten) fully paid up into 5 (Five) equity shares of face value of Rs.2 (Rupees Two) fully paid up to the shareholders of the company. Upon approval by shareholders and completion of other regulatory procedures for the sub-division, face value of each equity share will become Rs.2 (Rupees Two).

OPERATIONS

During the year, the company achieved a 30% growth in PBT and 26% growth in business assets under management net of provisions (AUM). The company brought down the stage 3 assets (net of ECL) to 1.67% of closing assets as on 31 March, 2019 as compared to 2.25% as on 31 March, 2018.

Vehicle finance (VF) business recorded a disbursement growth of 21%. Disbursements in VF for the year were at Rs.24,806.70 crores as against Rs.20,539.97 crores in the previous year. The business recorded a growth of 29% in closing managed assets and a PBT growth of 28%.

Home equity (HE) business recorded a disbursement growth of 21%. Disbursements in HE for the year were at Rs.3,836.55 crores as against Rs.3,174.04 crores in the previous year. The business recorded a growth of 15% in closing managed assets and a PBT growth of 38%.

Disbursements in home loans (HL) business were at Rs.1,156.88 crores as against Rs.605.96 crores in the previous year and Micro, Small and Medium Enterprise (MSME) business were at Rs.473.84 crores as against Rs.629.09 crores in the previous year. The new lines of businesses, disbursed Rs.176.54 crores as against Rs.67.35 crores during the previous year.

The AUM of the company as at 31 March, 2019 increased to Rs.54,279 crores from Rs.42,924 crores in the previous year, recording a growth of 26%.

The PBT for the year was at Rs.1,823.15 crores as against Rs.1,401.37 crores in the previous year, recording a growth of 30%. PAT grew by 29% and was at Rs.1,186.15 crores for the year as compared to Rs.918.30 crores in the previous year.

OUTLOOK

VF business will continue to be the mainstay for the company. HE portfolio has also been a significant contributor to the company-s growth and profitability. While the company expects the affordable housing segment to grow over the next few years, the growth opportunities available in VF and HE businesses, will enable the company to continue to hold the product leadership in these businesses. Cholamandalam Home Finance Limited (CHFL), the company-s wholly owned subsidiary has applied for housing finance license from National Housing Bank (NHB). Upon receipt of license, CHFL will start home loan business. The company will leverage digital, data and analytics with a key objective to create better customer experience.

DIVIDEND

Dividend distribution policy

The company has formulated a dividend distribution policy in compliance with regulation 43A of SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015 (Listing Regulations), copy of which is available on the website of the company. (weblink: https://www.cholamandalam.com/files/media/ CholamandalamDividend-Distribution-policy.pdf).

Payment of dividend

The company paid an interim dividend on the equity shares at the rate of 45% (Rs.4.50 per equity share) as approved by the board on 30 January, 2019 for the year ended 31 March, 2019.

Your directors are pleased to recommend a final dividend of 20% (Rs.2 per equity share) on the equity shares of the company. With this, the total dividend will be 65% (Rs.6.50 per equity share) for the year ended 31 March, 2019.

Upon sub-division of equity shares of Rs.10 (Rupees Ten) each into 5 (Five) equity shares of face value of Rs.2 (Rupee Two) each fully paid-up, the final dividend if declared at the ensuing AGM would be paid proportionately at the rate of 20% on the equity shares of Rs.2 each i.e. Rs.0.40 per share.

TRANSFER TO RESERVES

The company transferred a sum of Rs.240 crores to statutory reserve as required under the Reserve Bank of India Act, 1934 and Rs.600 crores to general reserves.

FIXED DEPOSITS

The company is a Systemically Important Non-Deposit Accepting Non-Banking Finance Company (NBFC-ND-SI). It ceased taking deposits from the public effective 1 November, 2006. The company does not hold or accept deposits as of the date of balance sheet.

Investment and Credit Company (NBFC-ICC)

During the year, RBI vide notification dated 22 February, 2019 harmonised different categories of non-banking financial companies (NBFCs) viz. Asset Finance Companies (AFC), Loan Companies (LCs) and Investment Companies (ICs) into a new category called NBFC - Investment and Credit Company (NBFC-ICC). Accordingly, the company being an AFC falls in the category of Investment and Credit Company (NBFC-ICC).

CAPITAL ADEQUACY

The company-s capital adequacy ratio was at 17.36% as on 31 March, 2019 as against the statutory minimum capital adequacy of 15% prescribed by RBI.

EMPLOYEE STOCK OPTION (ESOP) SCHEMES

ESOP 2016

Pursuant to the approval accorded by the shareholders by way of postal ballot on 3 January, 2017, the nomination and remuneration committee had formulated an employee stock option scheme 2016 (ESOP 2016). During the year, the company made four grants aggregating to 2,55,104 options to 29 employees. The total number of options issued as on 31 March, 2019 under ESOP 2016 is 7,94,946.

ESOP 2007

Pursuant to the approval accorded by the shareholders at the twenty ninth annual general meeting (AGM) of the company held on 30 July, 2007, the nomination and remuneration 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 no changes in the scheme. Number of options outstanding as on 31 March, 2019 under the ESOP 2007 is 31,203.

The schemes are in compliance with Securities and Exchange Board of India (Share Based Employee 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 2016 have been implemented in accordance with the SEBI (SBEB) Regulations and shareholders resolutions has been obtained and will be placed before the shareholders at the ensuing AGM.

The details of the schemes as on 31 March, 2019 are provided and disclosed on the website of the company (weblink: https://www. cholamandalam/esop.aspx).

DIRECTORS

Appointments

Mr. M.M. Murugappan was appointed as an additional director with effect from 31 May, 2018 by the board and subsequently appointed by the members at the 40th Annual general meeting (AGM) held on 26 July, 2018 as a director of the company. Mr. Murugappan has been elected as chairman of the board effective 27 July, 2018.

Mr. N. Ramesh Rajan and Mr. Rohan Verma were appointed as additional directors in the capacity of independent directors with effect from 30 October, 2018 and 25 March, 2019 respectively. They shall hold office up to the date of the ensuing AGM as additional directors. The appointments of Mr. Rajan and Mr. Verma as independent directors up to 5 years from the respective date of their appointments has been recommended for the approval of shareholders at the ensuing AGM.

Mr. Arun Alagappan, executive director retires by rotation at the ensuing AGM and being eligible, has offered himself for re-appointment.

Retirement / Resignation

Mr. M.B.N. Rao, chairman of the company retired at the conclusion of the 40th AGM held on 26 July, 2018.

Mr. V. Srinivasa Rangan, director of the company retired at the close of business hours of 31 March, 2019.

Mr. N. Srinivasan, executive vice chairman and managing director stepped down as a director and as managing director of the company effective the close of business hours of 18 August, 2018.

The board places on record its deep appreciation for the significant contributions made by Mr. M.B.N. Rao, Mr. V. Srinivasa Rangan and Mr. N. Srinivasan towards the success of the company during their tenure.

DECLARATION FROM INDEPENDENT DIRECTORS

All the independent directors (IDs) have submitted their declaration of independence, as required pursuant to section 149(7) of the Act, confirming that they meet the criteria of independence as provided in section 149(6) of the Act. In the opinion of the board, the IDs fulfill the conditions specified in the Act and the rules made there under for appointment 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 there under, the following employees were/are the wholetime key managerial personnel of the company during FY 19:

1. Mr. N. Srinivasan, EVC & MD (up to 18 August, 2018)

2. Mr. Arun Alagappan, Executive Director

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 Act, reporting the compliance with accounting standards, is attached and forms part of the board-s report.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS

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

MANAGEMENT DISCUSSION AND ANALYSIS

The management discussion and analysis report (MDA), highlighting the business-wise details is attached and forms part of this report. MDA report also contains the details of the risk management framework of the company including the development and implementation of risk 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 forms part of this report. The report also contains the details as required to be provided on the composition and category of directors, number of meetings of the board, composition of the various committees annual board evaluation, remuneration policy, criteria for board nomination and senior management appointment, whistle blower policy/vigil mechanism, disclosure of relationships between directors inter-se, state of company-s affairs, etc.

The executive director and the chief financial officer have submitted a compliance certificate to the board regarding the financial statements and other matters as required under regulation 17(8) of the Listing Regulations.

BUSINESS RESPONSIBILITY REPORT

A business responsibility report is attached and forms part of this report.

ADOPTION OF INDIAN ACCOUNTING STANDARDS

The company has adopted the Indian Accounting Standards (Ind AS) in respect of the accounting period beginning from 1 April, 2018 pursuant to the Companies (Indian Accounting Standards) Rules, 2015, as amended. Accordingly, the company has for the first time prepared its financial statements in compliance with Ind AS for the year ended 31 March, 2019, together with the comparative period data as at and for the year ended 31 March, 2018. The principle adjustments made by the company in restating the Indian GAAP financial statements including the balance sheet are given under Note 48 and Note 49 in the standalone and consolidated financial statements respectively.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statement is prepared in accordance with the Act and the relevant accounting standards and forms part of this annual report.

AUDITORS

M/s. S. R. Batliboi & Associates LLP, chartered accountants are the statutory auditors of the company. They were appointed as statutory auditors of the company at the 39th AGM held on 27 July, 2017 for a period of five years commencing from the conclusion 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 the company for FY 19. The secretarial audit report is attached and forms part of this report and does not contain any qualification.

COST RECORD AND COST AUDIT

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

EXTRACT OF ANNUAL RETURN

In accordance with section 134(3)(a) of the Act, the extract of the annual return in form MGTRs.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-oriented philanthropic institutions in the field of education and healthcare as the core focus areas. The company upholds the group-s tradition by earmarking a part of its income for carrying out its social responsibilities.

The company has been carrying out corporate social responsibility (CSR) activities for many years now even before it was mandated under the Act. The company has put in place a CSR 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 the average net profits of the company made during the three immediately preceding financial years. This amount aggregated to Rs.23.06 crores and the company spent Rs.23.07 crores towards CSR activities during FY 19, the details of which are annexed to and forms part of this report.

INTERNAL FINANCIAL CONTROLS

Internal control framework including clear delegation of authority and standard operating 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 of internal audit. The risk and control matrices are reviewed on a quarterly basis and control measures are tested and documented. These measures have helped in ensuring the adequacy of internal financial 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 the board and the same is available on the website of the company (weblink: https://www.cholamandalam.com/files/ MEDIA/Policy-on-Related-Party-Transactions.pdf).

All transactions with related parties that were entered into during the financial year were in the ordinary course of business and were on an arm-s length basis. There are no materially significant related party transactions made by the company with promoters, directors, key managerial personnel or other designated persons which may have a potential conflict with the interest of the company at large. There are no contracts or arrangements entered into with related parties during the year to be disclosed under sections 188(1) and 134(h) of the Act in form AOCRs.2. All transactions with related parties were placed before the audit committee for prior approval at the beginning of the financial year. The transactions entered into pursuant to the approval so granted were placed before the audit committee for its review on a quarterly basis. None of the directors has any 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.2.77 crores was incurred during the year under review. Foreign currency remittances made during the year was Rs.9.85 crores towards 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 given and security provided is exempt under the provisions of section 186(11) of the Act.

As regards investments made by the company, the details of the same are provided under note 10 in standalone financial statements and notes 12 and 45 in consolidated financial statements of the company for the year ended 31 March, 2019.

DISCLOSURE OF REMUNERATION

The disclosure with respect to remuneration as required under section 197 of the Act read 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 the 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 is available for inspection at the registered office of the company during the business hours on working days of the company. If any member is interested in obtaining a copy, such member may write 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 the Institute of Company Secretaries of India in respect of meetings of the board of directors and general meetings held during the year.

INTERNAL COMPLAINTS COMMITTEE

The company has in place a policy for prevention of sexual harassment in line with the requirements of the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH Act). The company has complied with the provisions relating to constitution of internal complaints committee (ICC) under the POSH Act. ICC has been set up to redress complaints received regarding sexual harassment. All employees are covered under this policy. During the year the company conducted workshops for employees creating awareness about POSH Act. During the calendar year ended 31 December, 2018, there were no referrals received by ICC.

HIGHLIGHTS OF PERFORMANCE OF SUBSIDIARIES / ASSOCIATES CHOLAMANDALAM SECURITIES LIMITED (CSEC)

During the year, the securities business and wealth business merged its operations with focus to build profitable relationships with retail and emerging high networth individual clients. The company achieved an income of Rs.22.02 crores for the year ended 31 March, 2019 as against Rs.19.68 crores in the previous year. The Mutual fund AUM crossed Rs.1,130 crores. CSEC recorded a gross income of Rs.22.02 crores for the year ended 31 March, 2019 and made a PBT of Rs.2.68 crores as against a PBT of Rs.3.41 crores in the previous year. During the year, CSEC obtained corporate agency (composite) license from Insurance Regulatory and Development Authority (IRDA) to carry on the insurance distribution business. CSEC did not declare any dividend during the year.

CHOLAMANDALAM HOME FINANCE LIMITED (CHFL)

The name of Cholamandalam Distribution Services Limited was changed to Cholamandalam Home Finance Limited with effect from 27 April, 2018 to reflect the proposed new housing finance business of the company. During the year, the company applied for Housing Finance Company (HFC) license with National Housing Bank (NHB) and the license from NHB is awaited.

CHFL recorded a gross income of Rs.41.24 crores for the year ended 31 March, 2019 and made a loss before tax of Rs.10.53 crores as against a PBT of Rs.6.78 crores in the previous year. CHFL did not declare any dividend during the year.

WHITE DATA SYSTEMS INDIA PRIVATE LIMITED (WDSI)

During the year, the shareholding of the company in WDSI reduced from 63% to 31% consequent to TVS Logistics Services Limited taking a majority stake in WDSI. Consequently, status of WDSI changed from subsidiary to associate effective 1 October, 2018. WDSI recorded a gross income of Rs.52.12 crores (unaudited) for the year ended 31 March, 2019 and made a loss of Rs.4.21 crores (unaudited) as against a loss of Rs.4.50 crores in the previous year. WDSI did not declare any dividend during the year.

ACKNOWLEDGEMENT

The directors wish to thank the company-s customers, vehicle manufacturers, vehicle dealers, channel partners, banks, mutual funds, rating agencies and shareholders for their continued support. The directors also thank the employees of the company for their contribution to the company-s operations during the year under review.

On behalf of the board

Place : Chennai M.M. Murugappan

Date : April 27, 2019 Chairman

Director’s Report