BOARD'S REPORT TO THE MEMBERS Your Directors have pleasure in presenting their 11th Report together with the audited Financial Statements of your Company for the year ended 31st March, 2016. State of Company's Affairs Results: MOFSL Standalone During the year under review, the standalone revenues for the year were Rs. 1.11 bn, a decline of 14.20% as compared to Rs. 1.29 bn last year. Interest income declined by 18.50% to Rs. 0.54 bn, in line with the decrease in the NBFC loan book. Dividend income from subsidiary companies was Rs. 0.14 bn, as compared to Rs. 0.42 bn in the previous year. Dividend income from short-term investments was Rs. 8.41 mn, as compared to Rs. 22.27 mn in the previous year. Profit on sale of investments was Rs. 0.28 bn, as compared to Rs. 0.11 bn last year. Rent income was Rs. 0.13 bn in FY2016, up 63.34%. Other operating income was Rs. 3.08 mn in FY2016, while other income was Rs. 9.63 mn. Total expenses (before depreciation, interest and exceptional items) decreased during the year, from Rs. 0.26 bn a year back to Rs. 0.20 bn this year. Profit before depreciation, interest, exceptional item and taxation (EBITDA) decreased by 11.69% this year, from Rs. 1.03 bn to Rs.0.91 bn. Interest and finance charges decreased marginally from Rs. 295.78 mn to Rs. 295.26 mn. Reported net profit decreased by 23.09% to Rs. 465.26 mn. MOFSL Standalone's commitments to our own mutual fund products stood at Rs. 3.07 bn, as of 31st March, 2016. The unrealized gain on these investments is Rs. 0.52 bn as of 31st March, 2016. The same is not reflected in the profit and loss account for the year. The detailed results of operations of the Company are given in the Management Discussion & Analysis forming part of this Report. Consolidated Results The consolidated revenues for the year were Rs. 10.93 bn for the year under review, an increase of 40.98% as compared to the previous year. - Broking revenues increased by 3.93% to Rs. 5.09 bn. Market activity remained muted this year, especially in the high-yield cash segment. Average daily volumes in the equity markets were Rs. 3.01 tn in FY2016, down 9.97% from last year. Cash market volumes dipped 5.56% YoY to Rs. 201.50 bn. Within cash, delivery declined 6.35% YoY to Rs. 60.71 bn. However, cash volumes were still 50.13% higher than the average seen between FY2012-2014 and delivery volumes were still 55.43% higher than the FY2012-2014 average. Within derivatives, futures dipped 2.18% YoY to Rs. 502.08 bn. This year, options were down 11.86% YoY to Rs. 2.30 tn, a reversal from recent years when options led the growth in the overall market volumes. Amongst cash market participants, retail and prop saw declines of 8.33% and 7.46% YoY respectively. DII cash volumes increased 1.93% YoY, led by renewed retail interest into equity mutual funds. The proportion of retail within cash volumes decreased from 50.36% to 48.88% YoY. Our overall equity market share increased from 1.51% to 1.96% on a YoY basis. Due to our continued focus and investments into this business, we succeeded in capturing a larger chunk of the incremental volumes this year across both cash and derivatives. As of 31st March, 2016, our client base included more than 788,000 retail broking and distribution clients and 590 institutions. Our Pan-India distribution reach stood at 2,000+ business locations across 511 cites. - Asset management fees also saw significant traction, increasing 76.55% to Rs. 2.24 bn as compared to last year. Total assets under management/advice across mutual funds, PMS and private equity businesses was Rs. 132.74 bn, up 60.78% YoY. Within this, the mutual fund AUM was Rs. 50.66 bn, PMS AUM was Rs. 54.12 bn and private equity AUA was Rs. 27.96 bn. The company saw increased mobilization into its open-end equity mutual fund products and PMS products. In the private equity business, the 3rd real estate fund - India Realty Excellence Fund III, achieved its first close. - Investment banking fee at Rs. 0.24 bn saw a 25.19% growth over the previous year. The IPO pipeline has gathered steam, following the investments made into an ECM team. - Housing finance related income increased by 853.62% to Rs. 2.18 bn as the business gained traction this year in terms of clients, network, banking lines and loan book. It has received rating upgrades from both Crisil and ICRA, which should bode well for future fund-raising. The business focuses on the small-ticket affordable space, with the average ticket-size per loan holding around Rs. 1 mn on a YoY basis. - Fund based income increased by 2.06% to Rs. 1.12 bn. In line with the long term strategy to grow Return on Equity sustainably, MOFSL has made strategic allocation of capital to long term RoE enhancing opportunities like Aspire Home Finance and sponsor commitments to existing mutual fund and private equity funds of MOFSL group. The NBFC loan book, previously run from equity capital, is now being run as a spread business with borrowed funds. The previous year had also included profit earned on partial exits in few investments of the Private Equity fund in which MOFSL made sponsor commitments. - Other income decreased by 20.03% YoY to Rs. 0.05 bn. Total expenses (before interest and depreciation) for the year at Rs. 6.46 bn registered a 25.38% jump over last year. People cost increased by 31.97% to Rs. 2.51 bn. This was largely owing to an increase in hiring in the retail broking & distribution and housing finance businesses. Operating expenses increased by 19.51% to Rs. 2.32 bn. Other costs were Rs. 1.63 bn, an increase of 24.53% over last year. The profit before depreciation, interest, exceptional items and taxation (EBITDA) increased by 71.97% to Rs. 4.46 bn. Reported net profit for the year affer minority interest stood at Rs. 1.69 bn, an increase of 17.74%. MOFSL group's commitments to our own mutual fund products stood at Rs. 5.89 bn, as of 31st March, 2016. The unrealized gain on these investments is Rs. 1.17 bn as of 31st March, 2016. The same is not reflected in the profit and loss account for the year. MOFSL group's commitments to our alternative investment products stood at Rs. 1.98 bn, as of 31st March, 2016. Future Outlook While the new government launched several initiatives to drive growth, investments and competitiveness and has controlled the macro situation, several challenges still persist. Urban consumption, rural consumption and exports are expected to fuel the incremental growth in the economy. However, the rural economy has been badly hit by drought. Exports growth remains sluggish. The urban consumer base has to expand further. Nevertheless, with the commodity slump, unemployment and sanctions hitting BRICS peers, India looks relatively attractive. India's Niffy has outperformed most Emerging Market peers in US$ terms on a 10-Year basis, despite short-term vagaries. While FIIs pulled out monies this year due to profit booking and migration towards safer assets, it was countered by strong inflows from DIIs, which saw a surge of retail interest into equity mutual funds. As reforms gain speed, the capex cycle should gather momentum and give a fill-up to market activity. Our investments into competencies during the recent quarters are leading to tangible business outcomes. We remain on course in creating a fair mix of capital markets, asset management and fund-based businesses. Over the last few quarters, we have gained significant traction across asset mobilization and market share, which shows our efforts are bearing fruit. We remain optimistic in our ability to capture the growth opportunities as they unfold further. Credit Rating During the year, CRISIL Limited reaffirmed the Credit Rating of "CRISIL A1+"to the Commercial Programme of Rs. 2.50 bn of the Company. ICRA Limited assigned the credit rating of [ICRA] AA" Rating with a stable outlook to the NCD Programme of Rs. 1.50 bn of the Company. CRISIL Limited also reaffirmed the Credit Rating of "CRISIL A1+"to the Commercial Programme of Rs. 7.00 bn of Motilal Oswal Securities Limited, a wholly owned subsidiary of the Company. The ratings indicate a very strong degree of safety regarding timely servicing of financial obligations. ICRA Limited assigned the credit rating of [ICRA]A1+ to the Commercial Paper Programme of Rs. 3.00 bn of Aspire Home Finance Corporation Limited(AHFCL), step down subsidiary of the Company. ICRA Limited assigned the credit rating of [ICRA]AA- with a Stable Outlook and CRSIL Limited assigned "CRISIL A+/Stable" Rating to the NCD Programme of Rs. 5.00 bn of AHFCL. Dividend and Reserves The Company at the Meeting of its Board of Directors held on 3rd February, 2016, had declared an interim dividend of Rs. 2.00 per Equity Share, out of the profits of the Company for the third quarter and nine months ended 31st December, 2015 on 14,21,11,075 Equity Shares of Rs. 1.00 each aggregating to Rs. 28,42,22,150/- . Keeping in view the distributable profits available with the Company, the Board of Directors at its meeting held on 12th March, 2016, had declared a second interim dividend of Rs. 1.50 per Equity Share, out of the profits of the Company on 14,21,74,075 Equity Shares of Rs. 1.00 each aggregating to Rs. 21,32,61,113/- . As per the requirement of the Reserve Bank of India Guidelines, your Company has transferred a sum of Rs. 95.68 millions to the Statutory Reserves. Further, during the year under review, the Company has not transferred any amount to the General Reserves. Share Capital During the year under review, the Company allotted 20,11,400 equity shares under various employee stock option schemes of the Company. Accordingly, the paid up share capital of the Company as on 31st March, 2016 is Rs. 14,21,74,075 (Rupees Fourteen Crore Twenty One Lac Seventy Four Thousand and Seventy Five only). The disclosures in compliance with Section 62 of the Companies Act, 2013 read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014, SEBI (Share Based Employee Benefits) Regulations, 2014 are set out to the report as "Annexure 1". The Employee Stock Option Scheme is administered by the Nomination and Remuneration/Compensation Committee of the Board of the Company, in accordance with the applicable SEBI (Share Based Employee Benefits) Regulations, 2014. Fixed Deposits Since your Company is the non deposit taking Non Banking Financial Company, it has not accepted any deposits under Chapter V of Companies Act, 2013 during the year under review. Subsidiaries During the year under review, Motilal Oswal Insurance Brokers Private Limited, subsidiary of the Company, became wholly owned subsidiary of the Company on 7th August, 2015. Further, Aspire Home Finance Corporation Limited has become Material Subsidiary of the Company pursuant to Regulation 16(1) (c) of Listing Regulations, 2015. Accordingly, as on 31st March, 2016, the Company has the following subsidiary companies: Sr. No. Name of the subsidiaries 1. Motilal Oswal Securities Limited (MOSL) 2. Motilal Oswal Investment Advisors Private Limited 3. MOPE Investment Advisors Private Limited (MOPE) 4. Motilal Oswal Commodities Broker Private Limited 5. Motilal Oswal Insurance Brokers Private Limited 6. Motilal Oswal Capital Markets Private Limited (Subsidiary of MOSL) 7. Motilal Oswal Asset Management Company Limited (MOAMC) (Subsidiary of MOSL) 8. Motilal Oswal Trustee Company Limited (Subsidiary of MOSL) 9. Motilal Oswal Wealth Management Limited (Subsidiary of MOSL) 10. Motilal Oswal Securities International Private Limited (Subsidiary of MOSL) 11. Motilal Oswal Capital Markets (Hong Kong) Private Limited (Subsidiary of MOSL) 12. Motilal Oswal Capital Markets (Singapore) Pte. Limited (Subsidiary of MOSL) 13. Aspire Home Finance Corporation Limited. (Subsidiary of MOSL) 14. Motilal Oswal Real Estate Investment Advisors Private Limited (MORE). (Subsidiary of MOPE) 15. Motilal Oswal Real Estate Investment Advisors II Private Limited (Subsidiary of MORE) 16.India Business Excellence Management Co. (Subsidiary of MOPE) 17Motilal Oswal Asset Management (Mauriius) Private Limited (Subsidiary of MOAMC) The policy for determining material subsidiaries as approved by the Board is displayed on the Company's website at www.Motilaloswalgroup.com Pursuant to the provisions of Section 129(3) of the Companies Act, 2013, a statement containing salient features of financial statement of subsidiaries in Form AOC-1 is annexed to the Financial Statement in the Annual Report. Your Company will also make available copy of separate audited financial statement in respect of each of the subsidiary companies upon request by any Member of the Company interested in obtaining the same. The separate audited financial statement in respect of each of the subsidiary companies is also available on the website of your Company at www.motilaloswalgroup.com The financial performance of each of the subsidiary included in the consolidated financial statement of your Company is annexed herewith to this Report as "Annexure 2". Directors and Key Managerial Personnel Directors The Company has 6 (Six) Directors comprising of 3 (Three) Independent Directors, 1 (One) Non-executive Director, 1 (One) Chairman, Managing Director & Chief Executive Officer and 1 (One) Joint Managing Director. Mr. Raamdeo Agarawal retires by rotation at the forthcoming Annual General Meeting and being eligible, offer himself for reappointment. The details of Mr. Raamdeo Agarawal is stated in the Corporate Governance Report forming part of this Annual Report and Notice of the Annual General Meeting of the Company. Mr. Motilal Oswal has been re-appointed as Managing Director pursuant to the resolution passed in the Nomination and Remuneration / Compensation Committee and Board Meeting held on 19th October, 2015 respectively, subject to the approval of the members at the forthcoming Annual General Meeting, for a period of five years with effect from 18th January, 2016, and shall be liable to retire by rotation. The details of Mr. Motilal Oswal is stated in Corporate Governance Report forming part of this Annual Report and Notice of the Annual General Meeting of the Company. Mr. Balkumar Agarawal, Independent Director was appointed at the Annual General Meeting (AGM) of the Company held on 22nd August, 2014 to hold office up to the conclusion of next AGM of the Company. Due to his pre-occupation, he expressed his inability to continue further as Independent Director for another term. Accordingly, Mr. Balkumar Agarawal ceased to be a Director of the Company with effect from closure of business hours of 8th August, 2015. The Company has received necessary declarations from Mr. Vivek Paranjpe, Mr. Praveen Tripathi and Mrs. Sharda Agarwal, Independent Directors of the Company under section 149(7) of the Companies Act, 2013. Key Managerial Personnel In accordance to the provisions of Companies Act, 2013, Mr. Motilal Oswal, Chairman, Chief Executive Officer and Managing Director, Mr. Raamdeo Agarawal, Joint Managing Director, Mr. Sameer Kamath, Chief Financial Officer and Mr. Murli Krishnan Iyer, Company Secretary and Compliance Officer are Key Managerial Personnel of the Company. Mr. Murli Krishnan Iyer was appointed as the Company Secretary and Compliance Officer of the Company with effect from 5th October, 2015 in place of Mr. Samrat Sanyal who resigned from the post of Company Secretary and Compliance Officer with effect from the closure of business hours of 6th April, 2015. Further, in accordance to the provisions of Section 203 of the Companies Act, 2013, Mr. Iyer was also designated as Key Managerial Personnel of the Company. Committees of the Board The details of all the Committees of the Board along with their charters, composition and meetings held during the year, are provided in the Report on Corporate Governance which forms part of this Annual Report. The Board has accepted all the recommendations of the Audit Committee. Corporate Social Responsibility (CSR) The Company, Motilal Oswal Financial Services Limited recognizes the responsibilities towards society and strongly intends to contribute towards development of knowledge based economy. The Company has also framed the Corporate Social Responsibility (CSR) Policy containing the details of activities to be undertaken under CSR, prohibited activities under CSR, CSR Projects and Implementation Schedule, Budgeting and Allocation of funds, monitoring and evaluation of CSR activities. As the part of the initiatives under Corporate Social Responsibility, during the year under review the Company has made contribution in area of education towards formation of Ashoka University in New Delhi and JITO Administrative Training Foundation. The Company has made direct contribution and also through Motilal Oswal Foundation, a not-for-profit charitable company incorporated under Section 25 of the Companies Act, 1956. The Annual Report on CSR activities is annexed herewith to this Report as "Annexure 3". Performance Evaluation Pursuant to the provisions of section 134(3)(p) of the Companies Act, 2013 and Schedule IV of the Companies Act, 2013 and in accordance to Regulation 17(10) of the Listing Regulations, 2015, the Board has carried out the annual performance evaluation of the Board as a whole, various Committees of the Board and of the Directors. A structured questionnaire was prepared after taking into consideration the inputs received from the Directors, covering various aspects of functioning mechanism of the Board and Committee. The performance evaluation of the Independent Directors was carried out by the entre Board. The Directors expressed their satisfaction with the evaluation process. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report annexed to this Report. Corporate Governance A separate report on Corporate Governance is annexed to this Report. The certificate received from the Auditors of the Company confirming compliance to the conditions of Corporate Governance as stipulated in Regulation 34 and Schedule V to the Listing Regulations, 2015, is annexed to Report on Corporate Governance. Management Discussion and Analysis The Management Discussion and Analysis Report for the year under review as stipulated in Regulation 34 of the Listing Regulations, 2015 is annexed to this Report. Vigil Mechanism/Whistle Blower Policy The Company has established the Vigil Mechanism/Whistle Blower Policy for the Directors and employees for reporting the genuine concerns or grievances, significant deviations from key management policies and reports any non-compliance and wrong practices, e.g., unethical behaviour, fraud, violation of law, inappropriate behavior /conduct etc. The functioning of the vigil mechanism is reviewed by the Audit Committee from time to time. None of the Directors or employees have been denied access to the Audit Committee of the Board. The Vigil Mechanism / Whistle Blower Policy is uploaded on the Website of the Company at www.motilaloswalgroup.com Business Risk Management The Company realizes the importance of Enterprise Risk Management (ERM) framework and had taken early initiatives towards its implementation. A systematic approach has been adopted that originates with the identification of risk, categorization and assessment of identified risk, evaluating effectiveness of existing controls and building additional controls to mitigate risk and monitoring the residual risk through effective Key Risk Indicators (KRI). The implementation is being carried out in phased manner with the objective to encompass the entre line of businesses. Effective ERM involves a robust implementation of three lines of defense - first line of defense is the front-line employees, the second line of defense is the risk and compliance function and the third line of defense is external and internal auditors. To build an effective risk culture significant effort has been made towards robustness of these lines of defense. In the opinion of Board there are no elements of risks threatening the existence of the company. Internal Financial Controls The Internal Financial Controls with reference to financial statements as designed and implemented by the Company are adequate. The Internal Financial Control procedure adopted by the Company are adequate for safeguarding its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information. During the year under review, the Internal Financial Controls were operating effectively and no material or serious observation has been received from the Auditors of the Company for inefficiency or inadequacy of such controls. Particulars of Loans, Guarantees or Investments Your Company being the Non Banking Financial Company having the principal business of providing loans is exempted from the provisions of Section 186 of the Companies Act, 2013 to the extent of providing loans, giving guarantee and providing security in connection with loan. However, the details of investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in note no. 11 to the financial statement. The particulars of loans/advances in the nature of loans to subsidiaries required to be disclosed in the annual accounts of the company as stipulated in Regulation 34 and Schedule V to the Listing Regulations, 2015, are annexed to the financial statement in the Annual Report. Related Party Transactions All related party transactions entered into during the financial year were on an arm's length basis and in the ordinary course of business. All Related Party Transactions were placed before the Audit Committee for prior approval. Prior omnibus approval of the Audit Committee is obtained for the transactions which are unforeseen or repetitive in nature. The details of all such related party transactions entered into pursuant to the omnibus approval of the Committee, were placed before the Audit Committee on a quarterly basis for its review. Details of particulars of material contracts or arrangements or transactions entered into by the Company under secion 188(1) of the Companies Act, 2013, with related pares in form AOC-2 are provided in "Annexure 4" as required under Section 134(3)(h) of Companies Act, 2013 and Rules made there under. The policy on Materiality of Related Party Transactions as approved by the Board is uploaded on the Company's Website at www. Motilaloswalgroup.com. Statutory Auditors Your Company has appointed M/s. Haribhakti & Co. LLP, Chartered Accountants, as Statutory Auditors for the period of three years at its Annual General Meeting held on 22nd August, 2014, subject to the ratification by the members in every Annual General Meeting. In compliance to the provisions of Section 139 of the Companies Act, 2013, the appointment of the statutory auditors is to be ratified by the members at the forthcoming Annual General Meeting. M/s. Haribhakti & Co. LLP, Chartered Accountants have given their consent for ratification of their appointment for financial year 2016-17. Accordingly, the members will be required to ratify the appointment of Auditors for the current financial year and fix their remuneration. There were no qualifications, reservations, adverse remarks or disclaimers in the report of Statutory Auditors of the Company. Secretarial Audit In accordance with the provisions of Section 204 of the Companies Act, 2013 read with rules there under, the Company had appointed M/s. U. Hegde and Associates, Practicing Company Secretaries, for conducting the secretarial audit of the Company for the Financial Year 2015-16. There were no qualifications, reservations, adverse remarks or disclaimers in the Secretarial Audit Report of the Company. The secretarial audit report is annexed to this Report as "Annexure 5". Particulars of employees as required under Section 197 of the Companies Act, 2013 and Rules framed there under In accordance with the provisions of Section 197(12) of Companies Act, 2013, the ratio of the remuneration of each director to the median employee's remuneration and other details in terms of sub-section 12 of Section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are forming part of this report as "Annexure 6". In accordance with the provisions of Section 197 of the Companies Act, 2013 read with Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the annexure pertaining to the names and other particulars of employees is available for inspection at the Registered Office of the Company. Any shareholder interested in obtaining a copy of the said Annexure may write to the Company Secretary & Compliance Officer at the Registered Office of the Company. Directors' Responsibility Statement Pursuant to Section 134(3)(c) read with Section 134(5) of the Companies Act, 2013, your Directors confirms that: a. in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; b. the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the company for that period; c. the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; d. the directors had prepared the annual accounts on a going concern basis; e. the directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and f. the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Extract of Annual Return The details forming part of extract of annual return of the Company in Form MGT-9 is annexed herewith to the report as "Annexure 7". Number of Board Meetings The details of Board Meetings held in Financial Year 2015-16 is stated in Corporate Governance Report forming part of this Annual Report Significant and Material Orders There were no significant and material orders passed by the Regulators or Courts or Tribunals impact ng the going concern status and company's operations in future during the year 31st March, 2016. Material changes and commitments, affecting the financial position of the Company There have been no material changes and commitments, affecting the financial position of the Company, which have occurred between the end of the financial year of the Company and the date of this Report. Nomination and Remuneration Policy The Board has on the recommendation of Nomination and Remuneration/Compensation Committee framed a policy on directors' appointment and remuneration of Directors including criteria for determining qualification, positive attributes, independence of directors and remuneration for Directors, Key Managerial Personnel and other employees. The policy is annexed to this report as "Annexure 8". Conservation of Energy and Technology Absorption and Foreign Exchange Earnings and Outgo In view of the nature of activities which are being carried on by the Company, Rule 8(3) of the Companies (Accounts) Rules, 2014 concerning conservation of energy and technology absorption respectively are not applicable to the Company. There was no inflow or outflow of foreign exchange during the year under review. Acknowledgments Your Directors take this opportunity to thank the Authorities, Bankers, Shareholders and the Customers of the Company for their continued support to the Company. The Directors also place on record their sincere appreciation of the contributions made by every member of the MOFSL family for their dedicated efforts that made these results achievable. For and on behalf of the Board of Motilal Oswal Financial Services Limited Motilal Oswal Chairman & Managing Director DIN : 00024503 Place : Mumbai, date : 30th April, 2016. |