KJMC Financial Services Ltd Management Discussions

OVERVIEW

The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013, guidelines issued by the Securities and Exchange Board of India (SEBI), prudential norms issued by Reserve Bank of India, Ind AS i.e. Indian Accounting Standards prescribed by the Institute of Chartered Accountants of India and the Generally Accepted Accounting Principles in India. Our Management accepts responsibility for the integrity and objectivity of these financial statements. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner and reasonably present our state of affairs, profit / loss and cash flows for the

GLOBAL ECONOMY

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions,

Russias invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to decline to 6.5 percent in 2023 and to 4.1 percent by 2024. Monetary policy should stay the course to restore price stability, and fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy. Structural reforms can further support the fight against inflation by improving productivity and easing supply constraints, while multilateral cooperation is necessary for fast-tracking the green energy transition and preventing fragmentation.

The 2023 forecast is 0.2 percentage point higher than predicted but below the historical average of 3.8 percent. Rising interest rates and the war in Ukraine continue to weigh on economic activity. Chinas recent reopening has paved the way for a faster-than-expected recovery. Global inflation is expected to fall to 6.6 percent in 2023 and 4.3 percent in 2024, still above pre-pandemic levels.

INDIAN ECONOMY

Indian economy is expected to grow at 7 per cent (in real terms) for the year ending March 2023, this follows an 8.7 per cent growth in the previous financial year. Credit growth to the Micro, Small, and Medium

Enterprises (MSME) sector has been remarkably high, over 30.5 per cent, on average during Jan-Nov 2022 period. Capital Expenditure (Capex) of the Central Government, which increased by 63.4 per cent in the first eight months of FY 2023, was another growth driver of the Indian economy in the current year. RBI projects headline inflation at 6.8 per cent in FY23, which is outside its target range.

Source: www.pib.gov.in

. The optimistic growth forecasts stem from a number of positives like the rebound of private consumption given a boost to production activity, higher Capital Expenditure (Capex), near-universal vaccination coverage enabling people to spend on contact-based services as well as the return of migrant workers to cities to work, the strengthening of the balance . sheets of the Corporates, a well-capitalised public sector banks ready to increase the credit supply and the credit growth to the Micro, Small, and Medium Enterprises (MSME) sector to name the major ones.

Despite the three shocks of COVID-19, Russian-Ukraine conflict and the

Central Banks across economies led by Federal Reserve responding with synchronised policy rate hikes to curb inflation, leading to appreciation of US Dollar and the widening of the Current Account Deficits (CAD) in net importing economies, agencies worldwide continue to project India as the fastest-growing major economy at 6.5-7.0 per cent in FY23. Despite the downward revision, the growth estimate for FY23 is higher than for almost all major economies and even slightly above the average growth of the Indian economy in the decade leading up to the pandemic.

OUTLOOK

Dwelling on the Outlook for 2023-24, the Survey says, Indias recovery from the pandemic was relatively quick, and growth in the upcoming year will be supported by solid domestic demand and a pickup in capital investment. It says that aided by healthy financials, new private sector capital formation cycle are visible and more importantly, compensating for the private sectors caution in capital expenditure, the government raised capital expenditure substantially.

Entrenched inflation may prolong the tightening cycle, and therefore, borrowing costs may stay ‘higher for longer. In such a scenario, global economy may be characterised by low growth in FY24. However, the scenario of subdued global growth presents two silver linings – oil prices will stay low, and Indias CAD will be better than currently projected. The overall external situation will remain manageable.

Growth is expected to be brisk in FY24 as a vigorous credit disbursal, and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporates and banking sectors.

India is the third-largest economy in the world in PPP terms and the fifth-largest in market exchange rates. As expected of a nation of size, the Indian economy in FY23 has nearly "recouped" what was lost, "renewed" what had paused, and "re-energised" what had slowed during the pandemic and since the conflict in Europe.

INDUSTRY OVERVIEW

As per the Reserve Bank of India (RBI), Indias banking sector is sufficiently capitalised and well-regulated. The financial and economic conditions in the country are far superior to any other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are generally resilient and have withstood the global downturn well. BFSI sector in India is likely to become third largest sector in the world by the year 2025. The Indian banking industry has recently witnessed the rollout of innovative banking models like payments and small finance banks.

Schemes like these coupled with major banking sector reforms like digital payments, neo-banking, a rise of Indian NBFCs and fintech have significantly enhanced Indias financial inclusion and helped fuel the cycle in the country.

Financial Inclusion remains one of the most important agenda of Government of India and also will be area of focus for different players in the BFSI Sector players viz Banks, NBFCs, Mutual Funds, Insurance etc.

INDUSTRY GROWTH PROSPECTS:

MSME

The MSME sector comprises nearly 63 million enterprises, which contribute 30 per cent to Indias GDP, 45 per cent to manufacturing, 40 per cent to exports, and provides employment to over 113 million people, per government data. The sector has put up with several shocks in recent times. Demonetisation came first, followed by GST implementation that took time to settle down, which was then followed by the downturn in the economy, Covid-19 and, most recently, geopolitical tensions such as the Russia-Ukraine war. According to government data, more than 5,907 MSME units shut shop during the time. The sector faced challenges related to financial liquidity, debt repayments, meeting fixed expenses like wages and salaries, statutory dues, etc. In addition, raw material prices also went up manifold, which led to an increase in the cost of production, thereby impacting cash flows.

The government is cognisant of the challenges and has from time to time taken steps to alleviate them. During the pandemic, for example, to alleviate the pressure on the MSME sector, it came out with the Emergency Credit Line Guarantee Scheme (ECLGS). While that has helped to some extent, there have also been defaults in repayments. A Reserve Bank of India (RBI) report states that micro enterprises availed 24 per cent of the loans disbursed under ECLGS, but their share in overall NPAs stood at 43 per cent as of September 2022.

Changes in the MSME sector as per the Union Budget 2023:

The Finance Minister highlighted the following changes in the MSME sector while presenting the Union Budget 2023: a. The Credit Guarantee Scheme for MSMEs will be revamped through infusion of Rs.9,000 crore in the corpus, further enabling additional collateral-free credit of Rs. 2 lakh crore. Also, the cost of such credit will be reduced by about 1%.

b. The FM also announced that the buyers may not claim tax deductions unless they pay the MSMEs first. This will ensure that

MSMEs receive timely payments. c. The FM has also proposed to set up an "Entity DigiLocker" that can be used by MSMEs, large businesses and charitable trusts to store and share documents online with financial authorities, regulators and banks. d. The government and government entities will return 95% of the forfeited amount to MSME business persons who were unable to fulfil their contracts during the Covid period.

Micro sector with 630.52 Lakh estimated enterprises accounts for more than 99% of total estimated number of MSMEs. Small sector with 3.31 Lakh and Medium sector with 0.05 lakh estimated MSMEs accounted for

0.52% and 0.01% of total estimated MSMEs, respectively. Out of 633.88 estimated number of MSMEs, 324.88 lakh MSMEs (51.25%) are in rural area and 309 lakh MSMEs (48.75%) are in the urban areas.

LOANS & INVESTMENTS

S&P Global Ratings projected Indian banking sectors weak loans will decline to 3-3.5 per cent of gross advances by March 31, 2025 as structural improvements and good economic prospects would support the resilience of financial institutions. In its mid-year global bank outlook, S&P said Indias economic growth prospects should remain strong over the medium term, with GDP expanding 6-7.1 per cent annually in fiscal years 2024-2026. India to remain the fastest-growing economy in Asia-Pacific, and the fastest-growing large economy globally.

The small and midsize enterprise sector and low-income households are vulnerable to rising interest rates and high inflation. But it is believed that interest rates in India are unlikely to rise materially. This should limit the risk for the countrys banking industry.

BUSINESS REVIEW

Your Company is a NBFC registered with the RBI to carry out NBFC activities under Section 45(IA) of the Reserve Bank of India Act, 1934 and it is engaged primarily in the business of investing/trading in securities and advancing personal and commercial loans. The Company is also involved in providing fund based financial services and funding solutions to the Indian Corporate, institutions, MSMEs etc. In the present era of digital revolution, technology has been leaving its indelible mark in several areas, including finance. Your Company believes technology will play a crucial role in making a breakthrough in the NBFC sector for the years to come. The use of technology typically has been confined to calculation of ‘credit scores. Your Company initiated building its own proprietary technology for Lending including assessment and collection. This technology will utilize several third Party APIs for assessing customers credit worthiness using data collected through loan application and other credit verification of the documents of the customer using technology. Your Company believes that its focus on positioning itself as a

Tech based NBFC shall provide a significant competitive market and it expects to continue to grow and align itself with the expected general economic and population growth trends and the governments focus on improving the economic standard of this population segment.

FINANCIAL REVIEW

On standalone basis, your Company earned the gross income of Rs. 30874 (Rs. in 000) as against Rs 37350 (Rs. in 000) in the previous year. The total expenditure during the year under review was Rs. 37176 (Rs. in 000) as against Rs 38324 (Rs. in 000) in the previous year. The Net Loss after tax before OCI was Rs. 8936 (Rs. In 000) as against Net Loss after tax before OCI of Rs 4307 (Rs. in 000) in the previous year.

On consolidated basis, your Company earned the gross income of Rs 31190 (Rs. in 000) as against Rs 37891 (Rs. in 000) in the previous year. The total expenditure during the year under review was Rs 37742 (Rs. in 000) as against Rs 39617 (Rs. in 000) in the previous year. The Net Loss after tax before OCI was Rs 9216 (Rs. in 000) as against Net Loss after tax before OCI of Rs 5067 (Rs. in 000) in the previous year.

KEY FINANCIAL RATIOS

Ratio	31.03.2023	31.03.2022	Key Ratio Analysis
Debtors Turnover	-	-
Ratio
2 Inventory Turnover	-	-
Ratio
3 Interest Coverage Ratio	0.11	0.89	On Standalone basis, the interest coverage ratio as on 31st March 23 is 0.11 as against 0.89 as on 31st March 2022. The reduction is primarily on decrease in the EBIT to 7.90 Lakhs in the current year as from 76.11 Lakh in the previous year.
4 Current Ratio	17.86	1.33	On Standalone basis the current ratio as on 31st March 23 is 17.86 as against 1.33 as on 31st March 2022. The increase in the current ratio is primarily due to decrease in current liability.
5 Debit Equity Ratio	0.11	0.06	On Standalone basis the debt equity ratio as on 31st March 23 is 0.11 as against 0.06 as on 31st March 2022. The increase in the debt equity ratio is primarily due to increase in debt.
6 Operating profit Margin	0.03	0.20	On Standalone basis, the operating profit margin on 31st March 23 is 0.03 against 0.20 as on 31st March 2022. The reduction is primarily on decrease in the EBIT to 7.90 Lakhs in the current year as from 76.11 Lakh in the previous year.
7 Net Profit Margin	(0.29)	(0.12)	On Standalone basis, Net Profit Margin as on 31st March 23 is (0.29) as against (0.12) as on 31st March 2022. The increase is primarily on decrease in the PAT to (89.36) Lakhs in the current year as from (43.07) Lakh in the previous year.

RISKS AND CONCERNS

The Company is exposed to specific risks that are particular to its business and the environment within which it operates including economic cycle, market risks, competition risk, interest rate volatility, human resource risk and execution risk etc. The Company manages these risks by maintaining a conservative financial profile and by following prudent business and risk practices. Being engaged in the business in a highly regulated industry; we are presented with risk containment measures in the very regulations. The Companys business could potentially be affected by the following factors:-

? Impact of markets on our revenues and investments, sustainability of the business across cycles.

? Sharp movement / Volatility in prevailing interest rates in the market.

? Risk that a client will fail to deliver as per the terms of a contract with us or another party at the time of settlement.

? Risk due to uncertainty of a counterpartys ability to meet its financial obligations to us

? Risk of default or non-repayment of loan by a borrower due to liquidity crisis, economic downturns, bankruptcy or other reasons

? Risk due to mismatch between assets and liabilities on account of inadequate liquidity, changes in interest rates, etc.

? Failure of processes and controls with respect to the operations can have adverse impact on the business continuity, reputation and profitability of the Company

? Risk due to changes in Regulatory framework

? Inability to conduct business and service clients in the event of a contingency such as a natural calamity breakdown of infrastructure, etc.

? Higher pricing pressure with the risk of increase in weighted average cost of funds

? Depreciation in the rupee and hardening global yields to have risks of effects on Overseas Investors

OPPORTUNITIES AND THREATS

The Indian financial sector has weathered the Covid-19 storm and has emerged stronger with higher capital, better asset quality and improved profitability. Your non-banking financial institution will have to remain prepared to face new challenges and reap emerging opportunities in this dynamic environment, keeping the focus on appropriate business models, adoption of new technologies, sustainability, stability, consumer protection and financial inclusion.

One of the significant opportunity for our demand for credit in the Indian market. The growth in demand for credit is driven by the increase in consumer spending, the rise of e-commerce, and the expansion of small and medium-sized enterprises. Your Company can leverage this opportunity by expanding the offerings and catering to the diverse needs of our customers.

Another opportunity for our Company is the growth of digital payments and the adoption of digital technologies in the financial sector. The rise of digital payments has led to a surge in the number of digital transactions, which has created a vast amount of data. Your Company can leverage this data to offer personalized financial products and services to the customers.

One of the significant challenges faced by crunch. The COVID-19 pandemic has led to a decrease in the availability of funds, which has affected the NBFCs ability to lend. The Reserve Bank of India (RBI) has announced several measures to address the liquidity issues faced by NBFCs, such as the Targeted Long-Term Repo Operations (TLTRO) and the Partial Credit Guarantee Scheme. In our case, your Company needs to adopt a cautious approach to manage the liquidity to mitigate the impact of any future disruptions.

Another challenge faced by NBFCs is the increasing competition from banks and fintech companies. Banks have been expanding their offerings to cater to the needs of the unbanked and underbanked segments of the population, which were earlier serviced by NBFCs. Fintech companies have also been disrupting the traditional financial sector by offering innovative financial products and services. As a result, your Company need to be agile and innovative in our approach to stay competitive in the ever evolving financial sector.

ADEQUACY OF INTERNAL CONTROLS

Your Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition and that transaction are authorised, recorded and reported correctly. The Company has an extensive system of internal control which ensures optimal utilisation and protection of resources, its security, accurate reporting of financial transactions and compliances of applicable laws and regulations as also internal policies and procedures.

Your Company has in place, an adequate internal control and internal audit system managed by qualified and experienced people. Main objective of the system is to safeguard the Companys assets against loss through unauthorised use and pilferage, to ensure that all transactions are authorised, recorded and reported correctly and timely, to ensure various compliances under statutory regulations and corporate policies are made

Company on time and to is the figure out the weaknesses persisting in the system and increasing suggest remedial measure for the same. The Company has continued its efforts to align all its processes and controls with best practices in these areas. Based on the framework of internal financial controls and compliance systems established and maintained by the Company, work performed by the internal, statutory and secretarial auditors including audit of internal financial controls over financial reporting by the statutory auditors and the reviews performed by management and the relevant board committees, including the audit committee, the board is of the opinion that the Companys internal financial controls were adequate and effective during FY 2022-23.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES

of the NBFCs is liquidity

Your Company continues to lay great stress on its most valuable resource - people. Continuous training, both on the job and in an academic setting, is a critical input to ensure that employees at all levels are fully equipped to deliver a wide variety of products and services to the rapidly growing customer base of your Company. It is our endeavour to create an environment where people can use all of their capabilities in support of the business. Therefore, your Company encourages its employees to balance their work and personal responsibilities. The Company is actively working on developing a culture driven by the collective spirit of experience and companywide ownership. Assignment, empowerment and accountability will be the cornerstone of the people lead processes.

CAUTIONARY STATEMENT

Management discussion and analysis report contains statements which are forward looking based on assumptions. Actual results may differ from those expressed or implied due to risk and uncertainties which have been detailed in this report. Several factors as listed in this report could make significant difference to the Companys operations. are requested to make their own independent judgments and seek professional advice before taking any investment decisions.