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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

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Director’s Report

Dear Members, The directors have pleasure in presenting the thirty seventh annual report together with the audited accounts of the company for the year ended 31 March, 2015. FINANCIAL RESULTS Rs. in crores Particulars 2014 - 15 2013 - 14 Gross Income 3691.19 3,262.84 Profit Before Tax 657.22 550.21 Profit After Tax 435.16 364.01 Add: Balance brought forward 305.32 123.64 Less: Adjustment for the year 2012-13 pursuant to the Scheme of Amalgamation - 0.49 Less: Deferred Tax adjustment for the year 2012-13 consequent to the Scheme of Amalgamation - 0.40 Amount available for appropriation 740.48 486.76 Adjustments / Appropriation: Transfer to statutory and other reserves 490.00 122.81 Dividend - Preference 2.88 - Dividend - Equity 50.30 50.11 Tax on dividend 10.68 8.52 Balance carried forward 186.62 305.32 TOTAL 740.48 486.76 SHARE CAPITAL During the year, the company increased the authorised share capital from Rs. 540 crores to Rs. 740 crores by increasing the authorised preference capital from Rs. 300 crores to Rs. 500 crores. The company issued and allotted 1% compulsorily convertible preference shares (CCPS) aggregating to Rs. 500 crores on a preferential basis to M/s. Dynasty Acquisition (FDI) Ltd., a foreign corporate. OPERATIONS In a challenging year, your company achieved a 19% growth in profit before tax. Closing managed assets grew by 9%. Given the muted economy and pressure on portfolio quality, your company adopted a cautious approach to disbursements, resulting in a slight dip of 2% in disbursements as compared to the prior year. At a division level, the continuing slowdown in the commercial vehicles (CV) market reflected in a drop in disbursements in the vehicle finance (VF) business to the tune of 8%. However, the division recorded a growth of 3% in closing managed assets and a PBT growth of 7%. The home equity (HE) business recorded healthy growth rates across all parameters: PBT growth of 26%, closing managed assets growth of 24% and disbursement growth of 8%. Both divisions faced pressure on their portfolio quality, resulting in higher gross non-performing assets (GNPA) percentages than the prior year. However, collections performance was better in the last quarter of the year and the deteriorating trend has been arrested. The GNPA levels remained lower than the industry. Disbursements in vehicle finance for the year were at Rs. 9,363 crores as against Rs. 10,128 crores in the previous year. The home equity business recorded a disbursement of Rs. 3,043 crores as against Rs. 2,810 crores in the previous year. Disbursements in home loans were at Rs. 89 crores as against Rs. 39 crores in the previous year and micro, small and medium enterprise (MSME) were at Rs. 249 crores as against Rs. 137 crores in the previous year. The gold loan vertical disbursed Rs. 62 crores during the year, but given the external environment, volatile gold prices and susceptibility to losses, your company stopped disbursements in this product in the second quarter of the year. The business assets under management (net of provisions) of the company as at 31 March, 2015 increased to Rs. 25,452 crores from Rs. 23,253 crores in the previous year, recording a growth of 9%. During the year, the RBI issued revised regulatory framework for NBFCs, progressively reducing the number of months overdue considered for recognition of NPAs and increasing the standard asset provisioning requirements starting FY16. A year ahead of the RBI mandatory requirement, as a prudent and conservative measure, your company decided to move to the next level of NPA recognition from the existing 6 months to 5 months overdue and increased its standard assets provisioning from 0.25% to 0.30% in FY15. The profit before tax for the year was at Rs. 657.22 crores as against Rs. 550.21 crores in the previous year. Profit after tax grew by 20% and was at Rs. 435.16 crores for the year as compared to Rs. 364.01 crores in the previous year. DIVIDEND The company paid an interim dividend on the equity shares at the rate of 25% (Rs. 2.50 per equity share) and a pro rata preferential dividend on 5,00,00,000 CCPS of Rs. 100 each at the rate of 1% per annum as approved by the board on 27 January, 2015 for the year ended 31 March, 2015. Your directors are pleased to recommend a final dividend of 10% (Rs. 1 per equity share) on the equity shares of the company. With this, the total dividend will be 35% (Rs. 3.50 per equity share) for the year ended 31 March, 2015. TRANSFER TO RESERVES Your company has transferred a sum of Rs. 90 crores to statutory reserve as required under the Reserve Bank of India Act, 1934 and Rs. 400 crores to general reserves. OUTLOOK The company continues to focus and grow its two main business lines - vehicle finance and home equity while seeding new business lines like home loans, corporate finance and rural finance. Vehicle finance: India''s commercial vehicle industry faced significant challenges in FY15, with sales dropping by 2.8% over the previous year. LCV sales dropped by 11.6% in the same period. However, the sector showed signs of revival in the second half of FY15. While the revival is currently limited to the strategic segment, it is widely expected that the uptick will be felt in the other segments as well. Many factors influence this belief - expected improvement in industrial activity, enhanced agricultural output, faster execution of infrastructure projects, improvement in consumption expenditure etc. A growth rate of 7-9% is projected for the CV industry in FY16 and the industry is expected to grow at a compounded annual growth rate (CAGR) of 10-13% till FY20 (source: CRISIL Research). Therefore, the outlook for the vehicle finance business is positive both in the short and medium term. The recent line extensions in the division such as two wheelers and construction equipment are also expected to grow rapidly and supplement the growth in the traditional product lines. Home equity: Competition has been rapidly increasing in this product with almost all the private sector banks and a number of public sector banks increasing their focus on loan against property (LAP) as an exclusive offering. An aggressive pricing strategy by the new entrants is expected to put downward pressure on the industry''s net interest margin (NIM). Entrenched players are scaling up operations to tap the market potential from tier III and tier IV cities. However, your company has established itself in the market place as a trusted and reliable partner for customers seeking a LAP loan with a quick turnaround time and customer friendly service. Building on this momentum, your company expects to grow this product line at a healthy pace in FY16. FIXED DEPOSITS The company is a systemically important non-deposit accepting non-banking finance company (SI - ND - NBFC). It ceased taking deposits from the public effective 1 November, 2006. At the time of conversion, the outstanding unmatured deposits were transferred to an escrow account together with the future interest payable thereon till the date of maturity and these are being repaid on maturity. Accordingly, there have been no fresh deposits accepted during FY15. As at 31 March, 2015 there were 30 depositors whose deposits had matured but had not claimed the maturity amount aggregating to Rs. 8.44 lakhs (along with interest accrued). As a process, the company sends periodical reminders to these depositors before transferring the sums due to the investor education and protection fund (IEPF) under section 125 of the Companies Act, 2013 (corresponding to section 205C of the Companies Act, 1956). During the year, the company remitted a sum of Rs. 5.54 lakhs to IEPF under this head representing unclaimed public deposits and interests thereon beyond seven years. ASSET FINANCE COMPANY During the year, the company retained its categorisation as an asset finance company (AFC) under the RBI Regulations. CAPITAL ADEQUACY The company''s capital adequacy ratio was at 21.24% as on 31 March, 2015 as against the statutory minimum capital adequacy of 15% prescribed by RBI. EMPLOYEE STOCK OPTION SCHEME Pursuant to the approval accorded by the shareholders at the twenty ninth annual general meeting of the company held on 30 July, 2007, the nomination and remuneration committee had formulated the Employee Stock Option Scheme 2007. During the year under review, the employees exercised 6,41,513 options and there were no fresh options granted. As required under the Securities and Exchange Board of India Regulations (SEBI Regulations) and the Companies Act, 2013, the following details of this scheme as on 31 March, 2015 are being provided: Mr. N. Srinivasan retires by rotation at the ensuing annual general meeting and being eligible, has offered himself for re-appointment. Ms. Bharati Rao and Mr. M.M. Murugappan were appointed as additional directors of the company during the year and they hold office up to the ensuing annual general meeting of the company. Your company has received required notices under the provisions of section 160 of the Companies Act, 2013 (the Act) proposing the candidature of Ms. Bharati Rao and Mr. Murugappan as directors and your board recommends the appointment of Mr. Murugappan as a non-executive director of the company liable to retire by rotation and Ms. Rao as an independent director for a term as proposed in the notice of the ensuing annual general meeting. DECLARATION FROM INDEPENDENT DIRECTORS The independent directors (IDs) have submitted a declaration of independence, as required pursuant to section 149(7) of the Act, stating that they meet the criteria of independence as provided in section 149(6). In the opinion of the board, these IDs fulfil the conditions specified in the Act and the rules made thereunder 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 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(3)(c) 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 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, highlighting the business-wise details is attached and forms part of this report. The 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 clause 49 of the listing agreement is attached and forms part of this report. The report also contains the details as required to be provided on the number of meetings of the board, composition of the various committees including the audit committee and corporate social responsibility committee, annual board evaluation, remuneration policy, criteria for board nomination and senior management appointment, whistle blower policy / vigil mechanism, etc. The managing director and the chief financial officer have submitted a certificate to the board regarding the financial statements and other matters as required under clause 49 of the listing agreement. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements prepared in accordance with the Act and the relevant accounting standards form part of this annual report. AUDITORS Pursuant to the provisions of section 139 of the Act and the rules framed thereunder, M/s. Deloitte Haskins & Sells, chartered accountants, were appointed as statutory auditors of the company in the last annual general meeting held on 31 July, 2014 for a period of 3 years commencing from the conclusion of the thirty sixth annual general meeting till the conclusion of the thirty ninth annual general meeting subject to ratification by members at every AGM. Accordingly, your directors recommend the ratification of the appointment of M/s. Deloitte Haskins & Sells, as statutory auditors of the company from the conclusion of the thirty seventh annual general meeting till the conclusion of the thirty eighth annual general meeting of the company. The statutory auditors have confirmed their eligibility for appointment. SECRETARIAL AUDIT Pursuant to the provisions of the Act and the rules framed thereunder, the company appointed M/s. R. Sridharan & Associates, company secretaries to undertake the secretarial audit of the company for FY15. The audit report is attached and forms part of this report and 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 in form 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-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 and has been earmarking 0.5% of its net profits to CSR activities till last year. With the enactment of the CSR provisions in the Act, the company has put in place a CSR policy incorporating the requirements therein which is also available on the company''s website, www.cholamandalam.com. As per the provisions of the Act, the company is required to spend atleast 2% of the average net profits of the company made during the three immediately preceding financial years. This amount aggregates to Rs. 860.74 lakhs and the company has entered into commitments with various NGOs to spend the entire amount. This being the first year of implementation of CSR activity, there was lead time involved in setting up the internal team and identification of implementing agencies and beneficiaries. Hence, out of the committed amount, the company spent Rs. 573.94 lakhs towards CSR activities during FY15, the details of which are annexed to and form part of this report. The company will continue with the remaining commitments in FY16. INTERNAL FINANCIAL CONTROLS Internal control framework including clear delegation of authority and standard operating procedures are available across all businesses and functions. These are reviewed periodically at all levels. The company adopts 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. All related party transactions other than exempted transactions that were entered into during the financial year were on an arm''s length basis and were in the ordinary course of business. 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. All proposed related party transactions are placed before the audit committee and also the board for approval at the beginning of the financial year. The transactions entered into pursuant to the approval so granted are placed before the audit committee for its review and ratification for modifications, if any, 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. 5.17 crores was incurred during the year under review. Foreign currency remittances during the year was Rs. 2.88 crores towards preference dividend and Rs. 2.01 crores towards purchase of fixed assets. The company does not have any foreign exchange earnings. PARTICULARS OF EMPLOYEES In accordance with the provisions of section 197 of the Act read with rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the information in respect of the employees of the company will be provided upon request. In terms of section 136 of the Act, the report and accounts are being sent to the members and others entitled thereto, excluding the aforesaid information which is available for inspection by the members at the registered office of the company during 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. 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. CHOLAMANDALAM SECURITIES LIMITED (CSEC) CSEC recorded a gross income of Rs. 14.44 crores for the year ended 31 March, 2015 and made a profit before tax of Rs. 3.42 crores as against a loss before tax of Rs. 0.40 crores in the previous year. CHOLAMANDALAM DISTRIBUTION SERVICES LIMITED (CDSL) CDSL recorded a gross income of Rs. 13.13 crores for the year ended 31 March, 2015 and made a profit before tax of Rs. 5.58 crores as against a profit before tax of Rs. 4.68 crores in the previous 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. Directors'' Responsibility Statement The directors accept the responsibility for the integrity and objectivity of the Statement of Profit & Loss and the Cash Flow Statement for the year ended 31 March, 2015 and the Balance Sheet as at that date (financial statements) and confirm that: - in the preparation of the financial statements the generally accepted accounting principles (GAAP) of India and applicable accounting standards have been followed and no material departures have been made from the same; - appropriate accounting policies have been selected and applied consistently and judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the company as at the end of the financial year and of the profits and the cash flows of the company for the year; - proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. To ensure this, the company has established internal control systems, consistent with its size and nature of operations, subject to the inherent limitations that should be recognised in weighing the assurance provided by any such system of internal controls. These systems are reviewed and updated on an ongoing basis. Periodic internal audits are conducted to provide reasonable assurance of compliance with these systems. The audit committee meets at regular intervals to review the internal audit function; - the financial statements have been prepared on a going concern basis; - adequate internal financial controls have been laid down to be followed by the company and such internal financial controls are operating effectively; - proper systems are in place to ensure compliance with the provisions of all applicable laws and such systems are adequate and operating effectively. On behalf of the board Place: Chennai M.B.N. Rao Date : 24 April, 2015 Chairman

Director’s Report