Your Directors have pleasure in presenting their Thirty Third Annual Report and the Audited Statements of Accounts for the financial year ended March 31, 2012.
Your Directors at their meeting held on November 09, 2011 declared an interim dividend of Rs. 2.50/- per equity share (i.e.25%) for the financial year 2011-12, which was paid on December 02, 2011. The payment of this Interim Dividend involved an outflow of Rs. 6,574.09 lacs, including tax on dividend of Rs. 917.62 lacs.
Your Directors have recommended a final dividend of Rs. 4/-per equity share (i.e. 40%) for the financial year ended March 31, 2012. This dividend distribution would result in a cash outflow of Rs. 10,520.48 lacs including tax on dividend of Rs. 1,468.46 lacs.
Thus, the total amount of dividend (including interim dividend paid) for the year ended March 31, 2012 shall be Rs.17,094.58 lacs including tax on dividend of Rs. 2,386.08 lacs, as against Rs.17,123.84 lacs, including tax on dividend of Rs. 2,438.95 lacs for the previous financial year.
CAPITAL ADEQUACY RATIO Your Company's total Capital Adequacy Ratio (CAR), as of March 31, 2012, stood at 22.26% of the aggregate risk weighted assets on balance sheet and risk adjusted value of the off-balance sheet items, which is well above the regulatory minimum of 15%.
For the financial year ended March 31, 2012, your Company earned Profit Before Tax of Rs.188,091.02 lacs as against Rs.184,892.76 lacs in the previous financial year and the Profit After Tax of Rs.125,744.96 lacs as against Rs.122,988.00 lacs in the previous financial year. The total Income for the year under consideration was Rs. 589,387.66 lacs and total expenditure was Rs. 401,296.64 lacs.
The total disbursements made for financing of commercial vehicles during the year under review were Rs.1,948,588 lacs. As on March 31, 2012, the outstanding hypothecation loans were Rs. 2,142,970.14 lacs.
During the financial year ended March 31, 2012, the Company mobilised Rs. 595,208.57 lacs through Non- convertible debentures, Rs.13,670.87 lacs through subordinated debts, Rs. 284,446.77 lacs through term loans, Rs. 23,100 lacs through working capital loans, Rs. 25,000 lacs through commercial paper and Rs. 834,613.44 lacs through assignment of loan receivables from the customers.
ECONOMIC AND BUSINESS ENVIRONMENT
The financial year 2011-12 was tough for Indian economy. The Central Statistical Office (CSO) put out an advance estimate of Gross Domestic Product (GDP) growth of 6.9% for 2011-12 as against 8.4% in 2010-11. The GDP growth was 7.7% in the first quarter of the financial year 2011-12, which dropped to 6.9% in the second quarter and further down to 6.1% in the third quarter.
In terms of contribution to GDP growth, service sector accounted for 79% of growth with trade, hotels, transport and communications contributing over 44%. The contribution to the overall growth in GDP from industrial sector and agriculture sector was 16% and 5% respectively.
The lower GDP growth was mainly due to deceleration in industrial growth which was lower at 3.9% as compared to 7.6% in 2010-11. The agriculture sector registered lower growth of 2.5% as against 7% in 2010-11. The services sector registered a modest growth of 9.4% as compared to 9.3% in 2010-11.
The factors responsible for the slowdown in Indian economy in the year 2011-12 include high interest rate, tight monetary policy which led to successive increase in repo rate, inflation, trade deficit, weak Indian Rupee, uncertain global economic scenario, supply side constraints due to restrictions on iron ore production, decline in natural gas production and weak coal output.The Reserve Bank of India hiked the repo rate 13 times between March, 2010 and January, 2012 cumulatively by 375 basis point. The tightening of monetary policy, in order to control inflation, resulted in slowing down of investment and growth.
On global front, the growth also slowed down in emerging and developing economies reflecting the combined impact of monetary tightening and slowdown in global growth. In euro area, the European Central Bank was required to make large scale liquidity infusions to reduce the stress in global financial markets. The US economy continued to show sign of modest recovery. The deterioration in global economy in the latter half of 2011-12 led to sharp capital outflows from India and put pressure on Indian rupee.
The Society of Indian Automobile Manufacturers (SIAM) has reported growth rate of 12.24% for overall domestic sales of vehicles in the financial year 2011-12 over the same period last year. The overall Commercial Vehicles segment sales grew by 18.20%. The sale of Light Commercial Vehicles (LCVs) grew by 27.36%, the Medium and Heavy Commercial Vehicles (MHCV) grew by 7.94%, Utility vehicle sales grew by 16.47%, the Goods Carriers grew by 6.31%. However, the Passenger Carriers and Three-Wheelers sales recorded decline of 4.50% and 2.43% respectively. On export front, the Passenger Vehicles registered growth of 14.18% in the financial year 2011-12. The Commercial vehicles and Three Wheelers recorded growth of 25.15% and 34.41% respectively. The overall export of vehicles registered growth of 25.44% in the year 2011-12.
The slowdown in Indian economy, lower freight movement due to restrictions on iron ore production and weak coal output coupled with high interest rates are major factors impacting the truck financing business in 2011-12. Your Company, having regard to long-term interest of the business, had consciously adopted more cautious, conservative and selective approach in terms of customer assessment, loan margins and disbursement, not perturbed by aggressive practices adopted by the competitors to grab business. All the aforementioned factors moderated the growth of the Company's business for the year ended March 31, 2012. The suspension of mining of iron ore by order of the courts impacted business of transportation of iron ore leading to defaults and re-possession of certain specially built vehicles financed by the Company. As such, the Company has made higher provision and write off for the year ending March 31, 2012 compared to the last year.
The Company's fund mobilization from banks, institutions and the Public issue and private placement of non-convertible debentures continued to be smooth. The high interest rates on loans and the tight monetary policy did not have major impact of the Company's net interest margin due to financial planning and prudent management of fund mobilization and treasury activities and efficient monitoring of mix of fixed and floating loans raised by the Company. In the challenging business environment, your Company continued to maintain its leadership status in the segment of financing of pre-owned trucks due to relationship based business model being followed by the Company, the large net-work of branches and trained human resource built up by your Company over the past couple of years.
OUTLOOK AND OPPORTUNITIES
The Reserve Bank of India (RBI) in its annual Monetary Policy Statement for 2012-13 dated April 17, 2012, has announced reduction in the repo rate by 50 basis points from 8.5% to 8% with immediate effect. The RBI has also announced increase in the borrowing limit of scheduled commercial banks under the marginal standing facility from 1% to 2% of the bank's net demand and time liabilities. According to the RBI's Monetary policy statement, the liquidity conditions have eased in recent weeks, and are now steadily moving towards the comfort zone of the Reserve Bank. With these measures, RBI expects to address three important issues, namely stabilizing the growth of Indian economy around its current post-crises trend, containing the risk of inflation and enhancing the liquidity cushion to the system.
The headline WPI inflation which remained above 9% for nearly two years, has moderated significantly to below 7% by March, 2012. The non-food manufactured products inflation has dropped from a high of 8.4% in November, 2011 to 4.7% in March, 2012, actually coming down below 5% for the first time in two years. Further easing out of inflation could lead to some reversal of tight monetary measures taken by the RBI, which could encourage investment activity.
Business confidence, as measured by the business expectations indices of the Reserve Bank's industrial outlook survey, showed a pick-up in the business sentiments in last quarter of the year 2011-12 and a marginal moderation in first quarter of the current year 2012-13. The downtrend in Indian economy appears to be bottomed out.
The industry is expected to perform better than the last year as leading indicators suggest turn around in IIP growth. The overall domestic growth outlook for the current year looks a little better than last year. According to RBI's baseline projections, the GDP growth for the current year 2012-13 should be 7.3%. The global outlook also looks slightly better than expected earlier.
Qualified Foreign Institutions (QFI) were allowed to directly invest in Indian equity markets in January, 2012. This was done to widen the class of investors, attract foreign funds, reduce market volatility and deepen the Indian capital market. To strengthen the investment environment, the Union Budget 2012 has proposed various reforms including simplifying the process of issuing IPOs and introducing Rajiv Gandhi Equity Saving Scheme. The Union Budget 2012 also seeks to give further boost to infrastructure development by way of providing low cost funds for roads, power, ports, increasing private sector participation in infrastructure investment. The normal monsoon forecast for current year 2012-13 and the improvement in aforementioned macro-economic and other factors should give a fillip to your Company's growth dynamics in the coming years. This year the management has laid more focus on further strengthening the customer relationship.
Reserve Bank of India has issued final guidelines on securitization. RBI is expected to announce in the end-June, 2012 the draft guidelines on the regulatory framework for Non-Banking Financial Companies (NBFCs), inter alia dealing with tightening capital adequacy norms and higher provisioning. It is expected that RBI will allow the sufficient period to NBFCs for migrating and re-aligning its operations with the new regulations.
Your directors are of the opinion that despite challenges ahead, your Company's operations would not be seriously affected and your Company would continue to grow in future as well.
As on March 31, 2012, there were 1,336 fixed deposits aggregating to Rs. 739.38 lacs that have matured but remained unclaimed. There were no deposits, which were claimed but not paid by the Company. The unclaimed deposits have since reduced to 1,084 deposits amounting to Rs. 535.23 lacs. Appropriate steps are being taken continuously to obtain the depositors' instructions so as to ensure renewal/ repayment of the matured deposits in time.
Shriram Equipment Finance Company Limited (SEFCL)
In view of high priority accorded to infrastructure development and foreseeing huge potential in infrastructure financing on December 23, 2009 the Company established SEFCL as a wholly-owned subsidiary primarily for financing construction equipment. SEFCL which was registered with RBI as a Non-Deposit Accepting Non-Banking Finance Company on October 8, 2010 has generated assets of Rs. 1,900 crore within a year of its registration. Its income from operations for the year ended March 31, 2012 was Rs. 21,010.10 lacs as against Rs. 2,016.48 lacs in the previous financial year ending March 31, 2011 and Profit after Tax of Rs. 5,162 lacs as against Rs.115 lacs in the previous financial year ending March 31, 2011.
During the year under review, your Company subscribed to 100 lacs Compulsorily Convertible Preference shares of Rs. 100/- each aggregating to Rs. 10,000 lacs issued by SEFCL.
Shriram Automall India Limited (SAIL)
In order to institutionalize the trading of pre-owned vehicles and equipment and bringing transparency and proper pricing of the vehicles, the Company established on April 16, 2010 another wholly-owned subsidiary company SAIL. The Automall provide a one-stop shop, catering to the various needs of commercial vehicle owners, providing trading platform for the sale of pre-owned, re-furbished and re-possessed commercial vehicles. Considering the large investments and resources required for setting up of Automalls, SAIL has also decided to set up low cost mini Automalls. SAIL has established eight Automalls including four mini Automalls, the last one was set up at Gulbarga. For the financial year ended March 31, 2012, SAIL has reported income from operations of Rs.11,545.92 lacs as against Rs. 6,216.26 lacs in the previous year. Being the initial stages of its operations, SAIL has incurred a loss of Rs.30.44 lacs. The management of SAIL hopes that the full-fledged operationalization of the SAIL's Automalls all over India would attract participation of banks and other NBFCs in using SAIL's trading platform for the sale of pre-owned vehicles.
During the year under review, your Company subscribed to 20,000,000 equity shares of Rs. 10/- each issued by SAIL.
In terms of the Circular No: 51/12/2007-CL-III dated February 08, 2011 of the Ministry of Corporate Affairs, Government of India, the Board of Directors of the Company have given their consent for not attaching the Annual Reports of the subsidiaries to the Balance Sheet of the Company. A statement on consolidated financial position of the Company with that of the subsidiaries is attached to the Annual Report. The consolidated financial statements attached to this Annual Report are prepared in compliance with the applicable Accounting Standards and Listing Agreement.
The annual reports and the annual accounts of the subsidiaries and the related detailed information shall be made available to shareholders of the Company and the subsidiaries seeking such information at any point of time. The annual accounts of the subsidiaries shall also be kept for inspection by shareholders at the Registered Office of the Company and of the respective subsidiaries. The Company shall furnish hard copy of details of accounts of the subsidiaries to any shareholder on demand.
The annual accounts of the subsidiaries shall be available on the website of the Company viz. www.stfc.in and shall also be provided to the Shareholders on their written request to the Company.
During the year under review, the Company allotted 139,900 fully paid up equity shares of the face value of Rs. 10 each to its employees on their exercise of stock Options by them. Details of the shares issued and allotted under the Employees Stock Option Scheme of the Company, as well as the disclosures in compliance with Clause 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,1999 are set out in Annexure to this Report.
PUBLIC ISSUE OF SECURED NON-CONVERTIBLE DEBENTURES
In June, 2011 your Company made Public Issue of Secured Non-Convertible Debentures (NCDs) of face value of Rs.1,000 each, aggregating to Rs. 50,000 lacs (Base Issue) with an option to retain over-subscription upto Rs. 50,000 lacs for issuance of additional NCDs aggregating to a total of upto Rs. 1,00,000 lacs, pursuant to the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 and subject to the necessary approvals, consents and permissions. The Public Issue received overwhelming response from investors. The Base Issue was over-subscribed on the very first day of opening of the Issue. The over-subscription level was 5.28 times of the Base Issue size (2.64 times of the Issue size after retaining over subscription). Your Company issued and allotted NCDs aggregating to Rs.99,999.93 lacs. The objects of the Public issue was to raise funds for various financing activities including lending and investments, to repay existing loans and for business operations including for meeting capital expenditure and working capital requirement.
Considering the potential in raising funds by issue of NCDs and the extra-ordinary support received from the investing public for the NCD offerings made in last three successive years, your Board in its meeting held on May 8, 2012 has decided to offer and allot, subject to aforementioned regulations and such other approvals as may be necessary, secured/unsecured NCDs not exceeding Rs. 200,000 lacs in one or more tranches through Public issue and/or by way of private placement at appropriate time during the current financial year.
SCHEME OF ARRANGEMENT
The Board of Directors of the Company in their meeting held on December 21, 2011 approved a Scheme of arrangement for Merger of Shriram Holdings (Madras) Private Limited (SHMPL) into the Company subject to approval of Shareholders, Madras High Court and other necessary regulatory approvals. SHMPL is Promoter of the Company holding 9,33,71,512 Equity shares of the Company representing 41.26% Share Capital of the Company. SHMPL does not have any business operations, and its assets primarily comprise of the investment held in the Company, and income comprises of dividend/ other income earned from investment in the Company. The Scheme envisages that SHMPL would cease to exist post-Merger and the shareholders of SHMPL would hold shares in the Company directly. The purpose of the proposed Merger of SHMPL into the Company is to reorganize the shareholding of the Company by reducing intermediate shareholding tier and to enable the shareholders of SHMPL to hold equity shares in the Company directly. The Appointed Date of the Scheme is April 1, 2012.
CORPORATE SOCIAL RESPONSILITY INITIATIVES
Your Company is fully aware of the fact that as a corporate citizen, it is also entrusted with the responsibility to contribute for the betterment of the community at large and has the necessary resources at its disposal to do so. Hence, your Company endeavours to empower the under-privileged and the weaker sections of the community. Your Company has been supporting several NGOs involved in educational, vocational and other charitable programs and has continued to engage itself in social welfare activities by contributing to charitable institutions.
During the financial year ended March 31, 2012, your Company supported a variety of charitable projects and has contributed a sum of Rs. 539.55 lacs to charitable organizations.
Your Company firmly believes that the human capital built up by it over the years is its most valuable asset and all efforts are made to empower them continuously. The broader employee ownership of its share capital has contributed to a large extent on retaining its employees and has also impacted positively on the Company's performance. Imparting of training through internal as well as external training programmes is being done continuously so as to equip them to face the new challenges in the market place. As of March 31, 2012, the Company has 15,057 of employees.
Mr. R. Sridhar has resigned as Managing Director of the Company and moved to Shriram Capital Limited as CEO and Managing Director to take up responsibilities at the Group level with effect from April 01, 2012. Mr. Sridhar worked with the Company for last 26 years and held various senior positions including as Managing Director of the Company. The Board has placed on record its appreciation of his immense contribution while serving as Managing Director of the Company and for his leadership, building strong foundation that helped the Company reaching greater heights, achieving substantial growth and impressive performance on all important parameters.
Mr. Umesh Revankar who has been working with the Company for last 24 years in charge of operations has been promoted as CEO & Managing Director. The Board of Directors of the Company in its meeting held on February 10, 2012 have appointed him as an Additional Director as well as Managing Director of the Company with effect from April 1, 2012 subject to approval of shareholders. Mr. Revankar has been instrumental in successfully managing the operations of the business of the Company, building the model of financing of pre-owned vehicles and new vehicles and for the substantial growth in business of the Company from its humble beginning. In accordance with Section 260 of the Companies Act, 1956, Mr. Umesh Revankar will hold office of Additional Director upto the date of the ensuing Annual General Meeting. The necessary resolutions for approval of shareholders are proposed in the Notice of the ensuing Annual General Meeting for his appointment as Director and also for his appointment as Managing Director and payment of remuneration for a period of five years with effect from April 1, 2012.
Mr. S. Venkatakrishnan has resigned as a Director of the Company from May 8, 2012. The Board of Directors in its meeting held on May 8, 2012 appointed Mr. R. Sridhar as Director in the casual vacancy caused by resignation of Mr. S. Venkatakrishnan. Your Company will continue to receive benefit of Mr. Sridhar's advice and rich experience in the financial services sector in the capacity of non-executive director.
In terms of the provisions of the Companies Act, 1956 and the Articles of Association of the Company, Mr. M. M. Chitale and Mr. Adit Jain would retire by rotation at the forthcoming Annual General Meeting and are eligible for re-appointment. However, they have expressed desire not to seek re-appointment as Director due to other commitments and responsibilities. As such, resolutions are proposed in the Notice of the forthcoming Annual General Meeting to this effect and also not to fill up the vacancy caused by the retirement of the said Directors at this meeting or any adjourned meeting thereof. The Board has placed on record its appreciation of the invaluable services rendered by Mr. Venkatakrishnan, Mr. M.M. Chitale and Mr. Adit Jain.
Mr. M. S. Verma and Mr. S. M. Bafna would retire by rotation at the ensuing Annual General Meeting, and being eligible, offer themselves for re-appointment.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to the provisions of section 217(2AA) the Companies Act, 1956, the Directors confirm that, to the best of their knowledge and belief:
a) In the preparation of the Annual Accounts, the applicable Accounting Standards have been followed along with proper explanation relating to material departures;
b) That such accounting policies as mentioned in Schedule 2.1 of the Accounts have been selected and applied consistently, and judgments and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2012 and of the profit of the Company for the year ended on that date;
c) That proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
d) The Annual Accounts have been prepared on a going concern basis.
The Company has made necessary changes in its Fair Practice Code in line with Circular dated March 26, 2012 of Reserve Bank of India. The Company continues to comply with all the requirements prescribed by the Reserve Bank of India, from time to time as applicable to it.
The Report on Corporate Governance forms part of the Annual Report, and is annexed herewith.
As required by the Listing Agreement, Auditors' Report on Corporate Governance and a declaration by the Managing Director with regard to Code of Conduct are attached to the said Report.
The Management Discussion & Analysis is given as a separate statement forming part of the Annual Report.
Further, as required under Clause 49 of the Listing Agreement, a certificate, duly signed by the Managing Director and Chief Financial Officer on the Financial Statements of the Company for the year ended March 31, 2012, was submitted to the Board of Directors at their meeting held on May 8, 2012. The certificate is attached to the Report on Corporate Governance.
AWARD FOR EXCELLENCE IN FINANCIAL REPORTING FROM ICAI
The directors are pleased to inform that your Company's Annual Report for the year ended March 31, 2011, has been adjudged as the winner of the gold award amongst the entries received under the Category V - Financial Services Sector (other than Banking and Insurance) of the Institute of Chartered Accountants of India (ICAI) Awards for Excellence in Financial Reporting. Earlier, the Company's Annual Report for the year ended March 31, 2009 had won silver award for excellence in Financial Reporting.
M/s. S. R. Batliboi & Co., Chartered Accountants, Mumbai and M/s. G. D. Apte & Co., Chartered Accountants, Mumbai, Auditors of the Company retire at the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. Certificates have been received from them to the effect that their re-appointment as Auditors of the Company, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956. They have also confirmed that they hold a valid peer review certificate as prescribed under clause 41(1)(h) of the Listing Agreement. Members are requested to consider their re-appointment.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO
Pursuant to the requirement under Section 217(1)(e) of the Companies Act, 1956, read with Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988:
a. The Company has no activity involving conservation of energy or technology absorption.
b. The Company does not have any Foreign Exchange Earnings.
c. Outgo under Foreign Exchange - Rs. Nil.
PARTICULARS OF EMPLOYEES
Information in accordance with the provisions of Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975, as amended, forms part of Directors' Report. However, as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, this Report and Accounts are being sent to all the Shareholders of the Company, excluding the statement of particulars of employees under Section 217(2A) of the Companies Act, 1956. Any Shareholder interested in obtaining a copy of the said statement may write to the Company Secretary at the Head Office of the Company, and the same will be sent by post.
The Board of Directors would like to place on record their gratitude for the guidance and cooperation extended by Reserve Bank of India and the other regulatory authorities. The Board takes this opportunity to express their sincere appreciation for the excellent patronage received from the Banks and Financial Institutions and for the continued enthusiasm, total commitment, dedicated efforts of the executives and employees of the Company at all levels. We are also deeply grateful for the continued confidence and faith reposed on us by the Shareholders, Depositors, Debenture holders and Debt holders.
For and on behalf of the Board of Directors
Mumbai May 08, 2012