FUTURE CAPITAL HOLDINGS LIMITED
ANNUAL REPORT 2011-2012
Your Directors have pleasure in presenting the Seventh Annual Report of
your Company with the audited statement of accounts for the year ended 31st
The highlights of the consolidated and standalone financial results of the
Company for the financial years 2011-12 and 2010-11 are as under:
(Rs. in million)
Particulars Consolidated Standalone
2011-12 2010-11 2011-12 2010-11
Total Income 7,437.45 4,015.14 7,027.62 2,637.28
Total Expenditure 5,921.51 3,176.57 5,676.50 1,885.39
Profit Before Tax 1,515.94 838.57 1,351.12 751.89
Provision For Tax
Benefit Tax) 457.63 347.36 429.19 199.28
Profit After Tax 1,058.31 491.21 921.93 552.61
Profit brought forward from
previous year /period (359.07) (590.07) 178.78 (122.74)
Profit available for
appropriation 699.24 (98.86) 1,100.71 429.87
Transfer to Reserve Fund under
Section 45-IC of the RBI
Act, 1934 186.34 119.64 184.39 110.52
Proposed Dividend 97.20 97.18 97.20 97.18
Dividend Tax thereon 15.77 15.76 15.77 15.76
Transfer to General Reserve 46.10 27.63 46.09 27.63
Balance carried forward
to Balance Sheet 353.83 (359.07) 757.26 178.78
The Company is focused on retail and wholesale credit, which is expected to
drive growth for the Company going forward. The Company has grown its
outstanding Loan Book from Rs. 28,548 million to Rs. 46,704 million. The
Retail Loan Book has grown from Rs. 8,144 million to Rs. 19,451 million.
The Wholesale Book expanded from Rs. 20,404 million to Rs. 27,253 million.
Both, Retail and Wholesale Loan Book grew during the year, but the
proportion of Loan Book growth tilted more towards Retail credit this year.
The Net worth of the Company increased from Rs. 7,469 million to Rs. 8,316
million as at 31st March, 2012.
The Company has brought down its gross NPAs from Rs. 71 million to Rs. 36
million and net NPA from Rs. 18 million to NIL pursuant to better asset
quality/ policies, which is now largely secured with adequate collateral,
significantly more conservative provisioning norms and improved
Consolidated Net Interest Income increased 92% from Rs. 1,199 million
during the financial year ending 31st March, 2011, to Rs. 2,303 million
during the financial year ending 31st March, 2012. This was largely on
account of larger Loan Book in comparison to previous year.
The Profit Before Tax was up by 81%, the Profit After Tax was up by 115%
from Rs. 491 million to Rs. 1,058 million.
Keeping in mind the overall performance and the outlook for your Company,
the Directors are pleased to recommend a dividend of Rs. 1.50/- (Rupee One
and Paise Fifty Only) per share i.e. 15% on each Equity Share of Rs. 10/-
(Rupees Ten Only). The dividend would be paid to all the shareholders,
whose names appear in the Register of Members / Beneficial Holders list on
the Book Closure date.
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
As required under Clause 49 of the Listing Agreement entered into with the
Stock Exchanges, the Management Discussion and Analysis of the financial
condition and result of consolidated operations of the Company for the year
under review, is annexed and forms an integral part of the Directors`
During the year under review, the Company issued and allotted 15,000
(Fifteen Thousand) equity shares of Rs. 10/- each, on exercise of Stock
Options granted to employees under FCH Employee Stock Option Scheme - 2008.
Consequently, the issued, subscribed and paid-up capital increased by
15,000 equity shares of Rs. 10/- each. Consequently, the issued, subscribed
and paid-up capital of the Company increased from Rs. 64,78,34,840/- to
Rs.64,79,84,840/-as at the end of the financial year.
Subsequent to the year under review, pursuant to the approval of the
shareholders sought through Postal Ballot, results of which were announced
on 5th July, 2012, the authorized share capital of the Company has been re-
classified into 10,30,00,000 equity shares of Rs. 10/- each and 1,00,00,000
Compulsorily Convertible Preference Shares of Rs. 10/- each, aggregating to
With reference to 1,00,00,000 warrants issued by the Company on 30th
September, 2010, the warrant holders had not exercised their right to
convert their warrants into equity shares by the latest date of exercise of
such right, which was 29th March, 2012 (i.e. within 18 months from the date
of allotment) as per the Securities and Exchange Board of India (Issue of
Capital and Disclosure Requirements) Regulations, 2009 and consequently the
Subsequent to the year under review, the Board at its Meeting held on 4th
June, 2012 had approved the execution of Share Purchase Agreement with
Pantaloon Retail (India) Limited, Future Value Retail Limited, Mr. Kishore
Biyani and Cloverdell Investment Ltd ("Cloverdell") and also the execution
of Share Subscription Agreement with Cloverdell pursuant to which an open
offer has also been proposed by Cloverdell. Consequent to the subscription
of shares and secondary acquisition through the above arrangement,
Cloverdell would acquire substantial stake and control of the Company.
CHANGE OF REGISTERED OFFICE
During the year under review, the Company shifted its registered office
from FCH House, Peninsula Corporate Park, Ganpatrao Kadam Marg, Lower
Parel, Mumbai - 400 013 to 15th Floor, Tower-2, Indiabulls Finance Centre,
Senapati Bapat Marg, Elphinstone (West), Mumbai - 400 013 with effect from
1st September, 2011.
During the year under review, the Hon`ble High Court of Judicature at
Bombay, vide its order dated 17th June, 2011, had approved the Scheme of
Arrangement (Scheme) between the Company and Future Capital Financial
Services Limited (FCFS), a Wholly Owned Subsidiary of the Company and a
Systemically Important Non Deposit Taking Non Banking FInance Company
registered with the Reserve Bank of India, under the provisions of Section
391 to 394, 78 and 100 to 103 of the Companies Act, 1956, inter alia,
providing for Amalgamation of FCFS with the Company and the Scheme became
effective on 29th June, 2011.
During the year under review, Future Capital Commodities Limited (FCCL)
became a step down subsidiary of the Company and has obtained membership of
leading commodity exchanges i.e. Multi Commodity Exchange and National
Commodity & Derivatives Exchange Limited and also from National Spot
Exchange Limited for commencing its commodity trading business.
During the year under review, the Company divested its shareholding in
Future Hospitality Management Limited, a Wholly Owned Subsidiary of the
Company effective from 2nd September, 2011 vide Share Purchase Agreement
dated 2nd September, 2011 entered into with Future Ideas Realtors India
Limited. Also, the Company`s shareholding in Kshitij Property Solutions
Private Limited, a Wholly Owned Subsidiary of the Company was divested
effective from 1st December, 2011 vide Share Purchase Agreement dated 1st
December, 2011, entered into with Everstone Capital Advisors Private
Your Directors are pleased to inform that the Hon`ble High Court of
Judicature at Bombay, vide its order dated 13th April, 2012, has approved
the Scheme of Amalgamation of two wholly owned subsidiaries of the Company
viz. Future Capital Investment Advisors Limited and FCH Securities &
Advisors Limited with Kshitij Investment Advisory Company Limited and the
same has been effective pursuant to filing the certified true copy of the
said order with the Registrar of Companies on 2nd June, 2012.
Subsequent to the year under review, Future Capital Home Finance Private
Limited, a Wholly Owned Subsidiary of the Company made an application to
the National Housing Bank for obtaining the Certificate of Registration to
commence its housing finance business.
Subsequent to the year under review, the Company sold the entire 10,00,000
fully paid-up equity shares of Rs. 10/- each held in its Wholly Owned
Subsidiary Company namely Myra Mall Management Company Limited (Myra Mall)
to Providence Educational Academy Private Limited, in its capacity as a
Trustee of AAA Holding Trust, a private trust. Consequently, Myra Mall
ceased to be a Subsidiary of the Company with effect from 9th July, 2012.
In terms of the General Circulars No. 2/2011 & 3/2011 of the Ministry of
Corporate Affairs (MCA), dated 8th and 21st February, 2011, respectively,
copies of the Balance sheet, Profit and Loss Account, Report of the Board
of Directors and Auditors of the Subsidiaries of the Company have not been
attached with the Balance Sheet of the Company. These documents will be
made available upon request by any Member of the Company interested in
obtaining the same and these documents are also kept for inspection by any
Member at the Corporate Office of the Company and the Subsidiaries.
However, as directed by the MCA, the financial data of the Subsidiaries has
been furnished under `Details of Subsidiaries`, forming part of the Audited
Accounts. Further, pursuant to Accounting Standard (AS - 21) issued by the
Institute of Chartered Accountants of India, the Consolidated Financial
Statements presented by the Company in this Annual Report includes
financial information of its Subsidiaries.
The Company being a Non Deposit Accepting NBFC has not accepted any
deposits from the public during the year under review and shall not accept
any deposits from the public without obtaining prior approval of Reserve
Bank of india.
The Company has complied with the Regulations of the Reserve Bank of India
as on 31st March, 2012, as are applicable to it as a Systemically Important
Non Deposit Taking Non Banking FInance Company.
The Company`s capital adequacy ratio was 18.63% as on 31st March, 2012,
which is significantly above the threshold limit of 15% as prescribed by
Reserve Bank of India.
During the year under review, Credit Analysis & Research Ltd. ("CARE")
retained the "A1+" ("A One Plus"). The rating is the highest rating issued
by CARE for short term debt instruments and indicates strong capacity for
timely payment of short term debt obligations and further indicates that
the borrowing carries the lowest credit risk. During the year under review,
the rating of short term borrowing programme was enhanced by Rs. 2,000
million i.e. from Rs. 7,000 million to Rs. 9,000 million.
During the year CARE has upgraded your Company`s rating to "CARE AA-"
("Double A Minus") from "CARE A+" ("Single A Plus") for the Secured
Redeemable Non-Convertible Debentures (NCDs) for an aggregate amount of Rs.
6,000 million. The rating of the NCDs was also upgraded by Brickwork
Ratings India Private Limited (Brickwork) to "BWR AA-" ("BWR Double A
Minus") from "BWR A+" ("BWR A Plus") for issue size upto Rs. 5,500 million.
Brickwork has also assigned the "BWR AA-" ("BWR Double A Minus") rating to
the proposed Unsecured Subordinated Debt Issue of the Company for Rs. 1,500
million. The rating indicates that the NCDs carry low credit risk and offer
adequate safety for timely servicing of debt obligations. This rating
indicates that the NCDs are considered to offer adequate credit quality in
terms of timely servicing of debt obligations and further indicates
CARE has also upgraded your Company`s rating to "CARE AA-" ("Double A
Minus") from "CARE A+" ("Single A Plus") in respect of the long-term bank
loan facilities of the Company aggregating to Rs. 22,500 million (enhanced
from Rs. 8,500 million), having tenure of more than one year. Facilities
with this rating carry low credit risk and offer adequate safety for timely
servicing of debt obligations.
Subsequent to the year under review, CARE has also assigned the "CARE AA-"
(Double A Minus) rating to the Company`s Non-Convertible Debentures (NCDs)
programme for an enhanced limit of Rs. 10,500 million (enhanced from
In accordance with Sections 255 and 256 of the Companies Act, 1956, read
with the Articles of Association of the Company, Mr. G.N. Bajpai,
Independent Director and Mr. K.K. Rathi, Non Executive Director, retire by
rotation and being eligible offer themselves for re-appointment at the
ensuing Annual General Meeting.
Brief resumes of Mr. G. N. Bajpai and Mr. K. K. Rathi, nature of their
expertise in specific functional areas and names of companies in which they
hold directorship and / or membership / chairmanship of committees of the
Board, as stipulated under Clause 49 of the Listing Agreement entered into
with the Stock Exchanges, are annexed and forms part of this Report
Based on the confirmations received, none of the Directors are disqualified
for appointment under Section 274(1)(g) of the Companies Act, 1956.
DIRECTORS` RESPONSIBILITY STATEMENT
Pursuant to the requirements of Section 217(2AA) of the Companies Act,
1956, with respect to Directors` Responsibility Statement, it is hereby
i) that in the preparation of the annual accounts for the financial year
ended 31st March, 2012, the applicable accounting standards have been
followed along with proper explanation relating to material departures, if
ii) that the Directors have 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 of the Company
for that period.
iii) that the Directors have taken proper and sufficient care 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.
iv) that the Directors have prepared the annual accounts for the financial
year ended 31st March, 2012, on a going concern basis.
CONSOLIDATED FINANCIAL STATEMENTS
The Audited Consolidated Financial Statements are provided in this Annual
Report. These statements have been prepared on the basis of the financial
statements received from Subsidiaries, as approved by their respective
Board of Directors.
M/s. S. R. Batliboi & Co., Chartered Accountants, Statutory Auditors of the
Company, retire at the ensuing Annual General Meeting and have expressed
their willingness to continue, if so appointed. As required under the
provisions of Section 224(1B) of the Companies Act, 1956, the Company has
obtained a written confirmation from the Auditors proposed to be re-
appointed to the effect that their re-appointment, if made, would be in
conformity with the limits specified in the said Section.
A proposal seeking their re-appointment is provided as part of the Notice
of the ensuing Annual General Meeting.
PARTICULARS OF EMPLOYEES, EMPLOYEES STOCK OPTION SCHEME AND EMPLOYEES STOCK
In terms of the provisions of Section 217(2A) of the Companies Act, 1956,
read with the Companies (Particulars of Employees) Rules, 1975, as amended
from time to time, the name and other particulars of certain employees are
required to be set out in the Annexure to the Directors` Report. However,
as per the provisions of Section 219(1)(b)(iv) of the said Act, the
Directors` Report excluding the aforesaid information is being sent to all
the Members of the Company and others entitled thereto. Members who are
interested in obtaining such particulars may write to the Company.
Subsequent to the year under review, the Members of the Company vide
Special Resolutions passed through Postal Ballot, result of which was
announced on 5th July, 2012, approved the FCH Employees Stock Option Scheme
- 2012 (FCH ESOS - 2012) for the Company and its Subsidiary Companies.
However, the Company has not granted any Options under the FCH ESOS - 2012.
The disclosure(s) as required under the Securities and Exchange Board of
India (Employee Stock Option Scheme & Employee Stock Purchase Scheme)
Guidelines, 1999, are annexed and forms part of this Report (Annexure 2).
PARTICULARS OF ENERGY CONSERVATION, TECHNOLOGY ABSORPTION, EXPENDITURE ON
RESEARCH AND DEVELOPMENT, FOREIGN EXCHANGE INFLOW/OUTFLOW, ETC.
The requirements of disclosure with regard to Conservation of Energy in
terms of Section 217(1)(e) of the Companies Act, 1956, read with the
Companies (Disclosure of Particulars in the Report of Board of Directors)
Rules, 1988, are not applicable to the Company.
The Company`s activities do not require any technology to be absorbed as
mentioned in the aforesaid Rules. However the Company makes all efforts
towards conservation of energy, protection of environment and ensuring
The details of the earnings and outgo in Foreign Exchange during the year
under review are provided as Note No. 37 to the Financial Statements as at
31st March, 2012. The Members are requested to refer to the said Note for
details in this regard.
A report on Corporate Governance as required under Clause 49 of the Listing
Agreement entered into with the Stock Exchanges, forms part of the Annual
A Certificate from M/s. SVJS & Associates, Company Secretaries, confirming
compliance with the conditions of Corporate Governance as stipulated under
the aforesaid Clause 49, also forms part of the Annual Report.
HUMAN RESOURCE MANAGEMENT
Skilled and motivated employees are one of the cornerstones of our
business. We focus on meeting the skill gap and providing skilled manpower
wherever required. We ensure a favorable work environment for all our
employees. Our recruitment and Human Resources management set up enables us
to attract and retain employees.
We are grateful to the Government of India, the Reserve Bank of India, the
Securities and Exchange Board of India, Stock Exchanges, Insurance
Regulatory and Development Authority of India and other regulatory
authorities for their valuable guidance and support and wish to express our
sincere appreciation for their continued cooperation and assistance. We
look forward to their continued support in future.
We wish to thank our bankers, rating agencies, customers and all other
business associates for their support and trust reposed in us.
Your Directors express their deep sense of appreciation for all the
employees whose commitment, co-operation, active participation, dedication
and professionalism has made the organisation`s growth possible.
Finally, the Directors thank you for your continued trust and support.
On behalf of the Board of Directors
Date : 30th July, 2012
ANNEXURE 1 TO THE DIRECTOR`S REPORT
I) Mr. G. N. Bajpai
Mr. G. N. Bajpai, aged 68 years, has had a distinguished career in the
Indian financial sector for over 40 years. Mr. Bajpai completed his Master
of Commerce degree from the University of Agra and his Bachelor of Laws
degree from the University of Indore. Mr. Bajpai has been the Chairman of
the Securities and Exchange Board of India, Life Insurance Corporation of
India, National Stock Exchange, Corporate Governance Task Force of
International Organisation of Securities Commission, and Insurance
Institute of India among others. He has also been a member of the Board of
Directors of General Insurance Corporation of India, ICICI Bank, Unit Trust
of India, Axis Bank and Indian Railway Finance Corporation. Mr. Bajpai is a
member Board of Advisors of Indian Army Group Insurance Fund. He serves on
the Governing Board of the National Insurance Academy. Mr. Bajpai was on
the Board of Governors of the Indian Institute of Management (Lucknow).
Currently, he is a Visiting Professor of Middlesex University, London. He
has delivered lectures including at the London School of Economics, Harvard
University and the Massachusetts Institute of Technology and has addressed
the Organisation of Economic Co-operation and Development (OECD) and
International Monetary Fund (IMF). Mr. Bajpai has written three books and
was awarded the "Outstanding Contribution to the Development of Finance"
from the Prime Minister of India, Dr. Shri Manmohan Singh.
The details of the directorship and/or membership/chairmanship of
Committees of the Board of Mr. G. N. Bajpai (except private companies,
Section 25 companies and foreign companies).
Name of the Company Committee positions
held (excluding in Company)
Committee and Investor
1 Future Generali India Life
Insurance Company Limited C C
2 Future Generali India Insurance
Company Limited C C
3 The Dhanlaxmi Bank Limited - -
4 Mandhana Industries Limited M -
5 Future Venture India Limited M -
6 Nitesh Estates Limited - -
7 New Horizons India Limited - -
8 PNB Housing Finance Limited - -
9 Usha Martin Limited - -
10 Micromax Informatics Limited - -
11 Walchandnagar Industries Limited - -
12 Dalmia Cement (Bharat) Limited M -
13 United Spirits Limited - -
C - Chairman of the Committee
M - Member of the Committee
Mr. Bajpai holds 50,000 equity shares in the Company.
II) Mr. Krishan Kant Rathi
Mr. Krishan Kant Rathi, aged 51 years, brings more than 26 years of
experience in senior positions at some of India`s respected business
houses. Mr. Rathi has rich knowledge and competence in business expansions,
joint ventures and divestment, financial restructuring and fund raising
(domestic and international), system driven operations, risk management and
Presently Mr. Rathi is the Chief Executive Officer of Future Ventures India
Ltd. Prior to joining the Company, Mr. Rathi was the Director of Motilal
Oswal Private Equity Advisors Pvt. Ltd. As a Director, Mr. Rathi oversaw
both investment as well as post investment monitoring of portfolio
companies and execution of the overall private equity strategy.
He has earlier worked with KEC International Limited as the Controller
Corporate Finance for eight years and the President (Finance) with H & R
Johnson (India) Limited (R. Raheja Group Company) for eight years. He was
associated with Future Group between 2005-07 as the Group CFO.
Mr. Rathi is a first class Commerce graduate, a rank-holder Chartered
Accountant from The Institute of Chartered Accountants of India and a
qualified Company Secretary from The Institute of Company Secretaries of
The details of the directorship and/or membership/chairmanship of
Committees of the Board of Mr. Rathi (except private companies, Section 25
companies and foreign companies).
Name of the Company Committee positions
held (excluding in Company)
Committee and Investor
1 Future Generali India
Life Insurance Company Limited M M
2 Future Generali India
Insurance Company Limited M M
3 Future Finance Limited - -
4 Aadhaar Retailing Limited - -
5 Turtle Limited - -
6 Lee Cooper (India) Limited - -
7 Celio Future Fashion Limited - -
8 Future Market Networks Limited - M
9 Indus - League Clothing Limited - -
10 Capital Foods Limited - -
11 Clarks Future Footwear Limited M -
12 Amar Chitra Katha Pvt. Ltd. - -
(Subsidiary of Public Ltd. Co.)
M - Member of the Committee
Mr. Rathi does not hold any shares in the Company.
ANNEXURE 2 TO THE DIRECTORS` REPORT
Disclosures as required under the Securities and Exchange Board of India
(Employee Stock Option Scheme & Employee Stock Purchase Scheme) Guidelines,
1999 [SEBI (ESOS & ESPS) Guidelines, 1999].
(I) FCH EMPLOYEES` SHARE PURCHASE SCHEME(S)
The Company has two Employees Share Purchase Schemes viz. FCH Employees
Share Purchase Scheme - 2007 (FCH ESPS - 2007) and FCH Employees Share
Purchase Scheme - 2008 (FCH ESPS - 2008). The disclosures below are in
respect of the year ended 31st March, 2012.
Number of Equity Shares issued During the year, no equity
during the year shares were allotted to any
employee under the FCH ESPS - 2007&
Price at which Equity Shares were
issued during the year N.A.
Employee-wise details of Equity
Shares issued during the year to:
i) Directors and senior managerial
ii) any other employee who is
issued Equity Shares in any one
year amounting to 5% or more of
Equity Shares issued during that year Nil
iii) identified employees who are
issued Equity Shares, during any one
year equal to or exceeding 1% of the
issued capital of our Company at the
time of issuance Nil
Diluted EPS pursuant to issuance of
Equity Shares under ESPS during the
Consideration received against the
issuance of Equity Shares Nil
(II) FCH EMPLOYEES STOCK OPTIONS SCHEME(S)
The Stock Options granted to the employees currently operate under four
schemes viz. FCH Employees Stock Option Scheme - 2007 (FCH ESOS - 2007),
FCH Employees Stock Option Scheme - 2008 (FCH ESOS - 2008), FCH Employees
Stock Option Scheme - 2009 (FCH ESOS - 2009) and FCH Employees Stock Option
Scheme - 2011 (FCH ESOS - 2011) (collectively referred as `Schemes`). The
disclosures below are in respect of the year ended 31st March, 2012.
Options Granted during the year FCH ESOS - 2007 : Nil
FCH ESOS - 2008 : 65,000
FCH ESOS - 2009 : Nil
FCH ESOS - 2011 : 12,02,000
The pricing formula As per the Schemes approved
pursuant to the SEBI (ESOS & ESPS)
Options Vested FCH ESOS - 2007 : Nil
FCH ESOS - 2008 : Nil
FCH ESOS - 2009 : Nil
FCH ESOS - 2011 : Nil
Options Exercised FCH ESOS - 2007 : Nil
FCH ESOS - 2008 : 15,000
FCH ESOS - 2009 : Nil
FCH ESOS - 2011 : Nil
The total number of shares arising as 15,000 equity shares of Rs. 10/-
a result of exercise of option each
Options lapsed/ cancelled/ forfeited FCH ESOS - 2007 : 7,000
FCH ESOS - 2008 : 40,000
FCH ESOS - 2009 : Nil
FCH ESOS - 2011 : 5000
Variation of terms of options No variation made in the terms of
the Options granted under any of
Money realized by exercise of options Rs. 15,30,000/-
Total Number of options in force FCH ESOS - 2007 : 4,52,000
FCH ESOS - 2008 : 5,79,500
FCH ESOS - 2009 : 3,50,000
FCH ESOS - 2011 : 11,97,000
Employee wise details of options
granted during the year to:
i) Directors and senior managerial
ii) Any other employee who received Refer Note 1
a grant in any one year of options
amounting to 5% or more of the options
granted during the year
iii) Identified employees who are
granted options, during any one year
equal to or exceeding 1% of the issued
capital (excluding outstanding
warrants and conversions) of the
Company at the time of grant.
Diluted Earnings Per Share (EPS) Diluted EPS calculated in
pursuant to issue of shares on accordance with AS-20
exercise of options calculated in is Rs. 15.01 (Consolidated) and
accordance with Accounting Standard Rs. 12.91 (Standalone) for the FY
AS-20 (`Earnings Per Share`) 2011-12.
Where the company has calculated the * Had the Company (Consolidated)
followed the employee compensation followed the fair value method for
cost using the intrinsic value of the accounting the Stock Options,
stock options, the difference between compensation expense would have
the employee compensation cost so been higher by Rs. 85,613,346/-
computed and the employee compensation with consequent profits and on
cost that shall have been recognized if lower Consolidated profits. On
it had used the fair value of the account of the same the diluted
options, shall be disclosed. The EPS of the Company (Consolidated)
impact of this difference on EPS of would have been less by Rs. 1.32
the company shall also be disclosed. per share.
Weighted-average exercise prices and Weighted Avg. Exercise Price
weighted-average fair values options FCH ESOS - 2007 : Rs. 238.39
shall be disclosed separately for FCH ESOS - 2008 : Rs. 176.79
options whose of exercise price FCH ESOS - 2009 : Rs. 242.59
either equals or exceeds or is FCH ESOS - 2011 : Rs. 129.68
less than the market price of the
Weighted Avg. Fair Value
FCH ESOS - 2007 : Rs. 113.70
FCH ESOS - 2008 : Rs. 96.63
FCH ESOS - 2009 : Rs. 141.50
FCH ESOS - 2011 : Rs. 66.00
* Note: Above figures are derived by considering the Options granted to the
employees of the Company and its subsidiaries.
A description of the method
and significant assumptions used
during the year to estimate
the fair values of options,
including the following
i) risk-free interest rate FCH ESOS - 2007 : N.A.
FCH ESOS - 2008 : 8.31%
FCH ESOS - 2009 : N.A.
FCH ESOS - 2011 : 8.07% to 8.32%
ii) expected life FCH ESOS - 2007 : 3.75 years
FCH ESOS - 2008 : 5.07 years
FCH ESOS - 2009 : 4.86 years
FCH ESOS - 2011 : 5.70 years
iii) expected volatility FCH ESOS - 2007 : N.A.
FCH ESOS - 2008 : 50.08% to 54.89%
FCH ESOS - 2009 : N.A.
FCH ESOS - 2011 : 48.94% - 54.89%
iv) expected dividends FCH ESOS - 2007 : N.A.
FCH ESOS - 2008 : 0.59%
FCH ESOS - 2009 : N.A.
FCH ESOS - 2011 : 0.46% - 0.59%
v) the price of the underlying Same as that of Grant Price
shares in market at the time of
Note 1: Details of the options granted under ESOS to the Directors and
Senior Managerial personnel of Future Capital Holdings Limited during the
financial year 2011-12, and its subsidiaries are as under:
Particulars Position A B C D
a Directors and
Mr. V. Vaidyanathan Vice Chairman & - - - 6,47,000
Mr. Ashok Shinkar Head Corporate - - - 1,00,000
Center & Chief
Mr. Shailesh Shirali CEO - Wholesale - - - 35,000
Mr. Apul Nayyar CEO - Retail - - - 1,00,000
Mr. Pankaj Sanklecha Chief Risk Officer - - - 25,000
Mr. Vivek Kanwar Executive V. P.- - - - 35,000
Wealth & Broking
Mr. Prashant Shetty Sr. V. P.- Finance - - - 25,000
Mr. Manish Chitnis Sr. V. P.- - - - 25,000
Mr. Chetan Gandhi Head - Legal & - - - 10,000
Mr. Adrian Andrade Head - Human - - - 20,000
Mr. Pradeep Head - Store - - - 25,000
Marketing & BIU
Mr. Pushpinder Singh Head - Mortgages - - - 20,000
Mr. Rahul Jain Head - Operations - - - 15,000
Mr. Nilesh Doshi Head - Internal - - - 15,000
Mr. Girish Dev Vice President- - 15,000 - -
Mr. Mahesh Dholiya National Credit - - - 15,000
Head - Retail
Mr. Arindam Das Head - Gold Loans - 10,000 - -
Mr. Deepak Bakliwal Sr. V. P. - - - 15,000
Ms. Shikha Hora Head - Wealth - 15,000 - -
Mr. Rishikant Mishra Head - Two - - - 15,000
Mr. Sandeep Joshi Head - Property - 10,000 - -
Mr. Amit Mande Head - Consumer
Durables & SIS - 15,000 - -
Mr. Nishant Kotak Vice President - - - - 15,000
Legal - Corporate
Mr. Abhinav Jain Vice President - - - - 15,000
Mr. Jitendra Panda Head - Sales - - - 10,000
Mr. Sudhakar Atla Regional Head -
South, Mortgages - - - 15,000
Ms. Anooba Kini Head - Resourcing, - - - 5000
Total Nil 65,000 Nil 12,02,000
b. Any other
received a grant in
any one year of
amounting to 5% or
more of the options
granted during the
employees who are
during any one year
equal to or exceeding
1% of the issued
and conversions) of
the Company at the
time of grant
A = Number of options granted under FCH ESOS - 2007
B = Number of options granted under FCH ESOS - 2008
C = Number of options granted under FCH ESOS - 2009
D = Number of options granted under FCH ESOS - 2011
MANAGEMENT DISCUSSION AND ANALYSIS
The financial year 2011-12 has witnessed many economic challenges at the
global stage. The year saw stronger economies in the European region such
as France and Germany having to come to the rescue of other European
countries like Spain, Portugal, Greece, Italy and Ireland which faced
public debt crises. The US faced a downgrade of its sovereign credit
rating, yet the dollar continued to gain strength amidst mixed signals from
the largest economy of the world. Japan, a victim of natural and man-made
disasters, also saw a disruption in its economy and the Middle East faced a
wave of protests and demonstrations against those in power in the form of
the Arab Spring. At the same time, extensive liquidity infusions from the
European Central bank and the US Federal Reserve did thaw the situation
temporarily, yet there are doubts whether such infusion of liquidity will
solve the structural issues of high debt and slower growth, which is now
more pronounced in the developed economies. Emerging economies too are
beginning to feel the impact of the global slowdown. The World Bank expects
the global GDP to expand by 2.5% in 2012, and accelerate to 3.1% in 2013,
as reported by Reuters.
India too has faced turbulent times in 2011, partly due to international
triggers and partly due to domestic incidents. The Reserve Bank of India
(RBI) followed a tight monetary policy for most of the year in an attempt
to tame stubborn high inflation. Against this backdrop, during FY12, the
RBI increased the repo rate from 6.75% to 8.5% in six tranches and the
reverse repo rate from 5.75% to 7.5%, again in 6 tranches. These rates saw
some respite only at the beginning of FY13 when they were cut by half a
percentage point each. Bank rates were also increased during FY12 and
liquidity was tight in the market almost throughout the year. Reflecting
the slower investment climate, credit growth tapered off to about 17% from
the highs of about 21% witnessed in the previous year. The combination of
rising interest rates, high inflation, and lower investment reflected in
lower industrial output and economic growth. After over two years of
sustained high growth, India`s economic growth rate slowed to less than 7%
However, the sustained efforts of the RBI seemed to pay off towards the end
of calendar 2011 when inflation dipped to 7.5% in December and stayed so
for the rest of the year, from the double digit inflation for the better
part of the earlier two years. The RBI has not yet dropped guard on this
front, yet they are beginning to shift their focus on growth, which is
beginning to slow down and a trend that can no longer be explained away as
The RBI proceeded to reduce interest rates and release liquidity into the
system towards the end of the last FY 12.
INDUSTRY STRUCTURE AND DEVELOPMENTS
Non-Banking Finance Companies (NBFCs) broadly comprise Asset Finance
Companies, Investment Companies, Loan Companies and Infrastructure Finance
Companies. Traditionally, they have played a crucial role in the
development of sectors like transport, infrastructure, equipment leasing
and hire purchase, retail amongst others. NBFCs have also enabled
substantial broad based economic development by financing small business
segments and the economically weaker sections of society besides
facilitating the funding of first-time borrowers.
NBFCs have played a special role in funding MSMEs, which are the backbone
of the Indian economy and contribute almost half of the country`s total
industrial production and generate sizeable employment. In the process,
they have also promoted inclusive development and have provided a major
thrust to the rural and semi-rural sector. In the Twelfth Plan period, the
MSME Ministry has set a growth target of 15% for this segment, which is
currently growing at 12-13% per annum. According to the Ministry, there are
over 6,500 small clusters in the country but 99% of them are in cottage
industry belonging to sectors like coir, handicrafts and handloom. Due to
the fact that this segment of industry is highly unorganised, and in many
cases, deal in parallel economy, funds from banks and alternate source of
capital such as private equity, venture capital and angel funds are not
forthcoming. Beyond government sources of finance, it is the NBFC sector
that supports their initiatives as NBFCs often do customised alternative
credit evaluation methodologies for credit assessment for this sector.
Indeed the RBI has well captured this in one of their reviews as follows:
"In addition to enhancing competition in the financial system, these
institutions play a role in broadening the access of financial services to
the population at large. NBFIs are important financial intermediaries
particularly for the small scale and retail sectors."
Overall, NBFCs across the country offer a range of services including
retail asset backed lending, lending against securities and microfinance.
This segment in the financial sector has been growing considerably over the
past few years. Last but not the least, NBFCs make a sizeable contribution
to the state exchequer.
To infuse more transparency in loans and advances, the RBI, in March 2012
revamped the Fair Practices Code (FPC) to be adopted by NBFCs in their
lending business. The guidelines emphasized on the general principles about
adequate disclosures on the terms and conditions for more transparency,
which we believe will improve the confidence of customers in the services
provided by NBFCs in the long run.
Future Capital Holdings Limited (FCH) provides financial services across a
wide range of consumer and wholesale businesses. As veritable one-stop
financial shop, it offers a comprehensive suite of products and services
that meet all four key financial needs of customers, namely Borrowing,
Protection, Investment and Planning.
Your Company is focusing largely on catering to the MSME segment which we
believe is largely under-banked and under-served in India, and is hence a
large opportunity for your Company. Your Company has the required skill
sets for serving this need, and hence the passion for this area as well.
The largest focus of your Company`s business is to provide financing to
MSMEs, with their residential or commercial property as the collateral.
Your Company is also capitalising on the growing consumption in India. Your
Company seeks to maintain a comprehensive product suite that covers
financing consumer durables like Televisions, Air Conditioners as well as
financing Two-Wheelers. Your Company is structured to meet multiple needs
of customers not only for maximum customer impact, but also for optimal
productivity. Your Company also has a well-established corporate lending
business and has developed its Broking and Wealth Management services to
grow its fee-based income.
The loan book of your Company has grown 64% from Rs. 28.55 billion in FY11
to Rs. 46.70 billion in FY12. What is particularly important to note is
that the share of retail business in the loan book steadily increased from
18% in FY10, to 29% in FY11, to 42% in FY12. Through its extensive branch
network, which increased to 197 branches by end of FY12, FCH has been able
to reach customers across most states and major cities in India. Your
Company plans to grow the retail business and increase its contribution to
the overall loan book in the coming years.
Mortgage Loan has been the biggest contributor in the retail loan book
composition and the product has been growing steadily for the last two
years. The mortgage loan book grew to reach Rs. 15,434 million by the end
of FY12. The composition of the retail loan book as on 31st March 2012 is
given below -
Gold Loan, which was launched in February 2011, grew steadily to produce a
healthy loan book of Rs. 2,343 million by the end of FY12. Through the
extensive branch network, your Company has been able to reach out to Gold
Loan customers in more than 40 cities in India. Your Company is confident
about this product contributing profitably in the coming years.
Utilizing the strong processes, automated credit-scoring solutions and
presence at the dealer stores, your Company also had a steady growth in
consumer durable loan business which has grown to reach a loan book of
Rs.444 million in FY12. Currently, your Company is able to acquire more
than 12,000 customers a month through this product.
Your Company also launched two-wheeler loans during the last financial
year. Considering the growth of the two-wheeler segment and the fact that
this is a segment that has been highly under-served in India, your Company
has chosen this niche area with improved value proposition for the two-
wheeler customers. This business requires relatively high investment in the
initial years as ticket size is small, and it requires high volume of
transactions, but your Company has embarked on building this business as it
is more suited for smaller/medium size companies like ours.
FCH launched its Private Wealth proposition for customers in April 2011.
Through this vertical, your Company provides its customers access to
financial products and solutions like mutual funds, insurance, structured
products, property services, private equity funds, etc. Additionally, it
provides a unique advisory led approach, backed by incisive research to
deliver holistic wealth management solutions to HNIs. Future Capital
Holding Private Wealth (FCH PW) seeks to deliver results to its clients in
the arena of wealth management by constantly leveraging its strengths. FCH
PW operates out of 10 full service branches across India. It currently has
an experienced sales team of over 70 private wealth managers, advising over
2000 High Networth Clients. The private wealth managers of your Company are
trusted advisors for their client`s personal and business needs backed by a
platform of transparency, product innovation and advisory.
FCH, through its 100% subsidiary, Future Capital Securities Limited (FCSL)
operates in the retail broking space with a focus on fee based income. FCSL
acquired memberships of various stock exchanges and made its foray into the
Currency Derivatives segment business. Future Capital Commodities Limited
(FCCL), a wholly owned subsidiary of FCSL, acquired memberships of various
commodity exchanges and commenced business in the Commodity Derivatives and
Spot Commodities business. FCSL and FCCL operate out of 19 full service
branches across India and have more than 125 Business Associates across
India to cater to the needs of retail clients for their investments in
Securities, Commodities, Mutual Funds, etc. To provide unparalleled access
and the highest level of convenience to its clients, it has introduced a
one of its kind Trading Platform and an intranet portal, "futuredirect" and
Finally, to complete the customer service proposition for alternative
investments, your Company has successfully launched its retail property
While FCH has achieved steady growth in the past three years, high levels
of corporate governance, transparency, robust processes and controls
continue to be an integral part of your Company`s policy. Your Company has
consistently maintained good quality of assets and reduced its gross and
net NPAs over the past quarters due to tighter management, a robust credit
check framework and streamlined processes and checks. The gross NPA has
improved from 0.25% in FY11 to 0.08% in FY12 while the net NPA has improved
from 0.06% to 0.00% over the same period.
Particulars Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4-
FY10 FY11 FY11 FY11 FY11 FY12 FY12 FY12 FY12
NPA 3.73% 2.60% 1.98% 0.27% 0.25% 0.05% 0.03% 0.04% 0.08%
NPA 1.63% 1.08% 0.85% 0.00% 0.06% 0.00% 0.01% 0.00% 0.00%
Usually, as companies grow in size and maturity, it is expected that the
NPA levels tend to increase and stabilise over time. Yet your Company has
built strong capabilities in credit scoring, cash flow evaluation
techniques and collections. Finally, your Company is structured uniquely
where the functions of sales, credit policy, credit administration, fraud
control, operations and collections are unique and separated from each
other, thereby providing for checks and controls in the process.
Considering the above, even as you Company grows in maturity, we expect the
asset quality to remain high as compared to peer and industry standards.
To support the business growth, your Company has maintained a healthy
capital adequacy. As of 31st March 2012, the capital adequacy ratio of your
Company stands at 18.63% which is much higher than the minimum capital
adequacy requirement required by the RBI.
CARE has upgraded the long term rating of your Company to "CARE AA-"(Double
A minus) from CARE A+ (Single A plus) in the previous financial year. The
upgrade was a result of the review conducted by CARE on the recent
developments including operational and financial performance of your
Company. Brickworks has also provided long term rating of "AA-"(Double A
minus) to your Company in the last financial year. The revised ratings
provided by these rating agencies reflect the confidence that they have
expressed in our stable and top quality management with good track records,
and a strong and proven business model as is evidenced by the growth in
profitability and high quality of assets.
The leadership and guidance of the key management, with their insight and
experience in the fields of industry and finance, has been one of the
fundamental factors driving the growth of your Company in FY12 and will
continue to be a key strength of your Company. Your Company will continue
to grow the retail portfolio as a percentage of the overall loan book which
we believe will provide diversification over a large number of customers
and as a result, it will offer great stability in performance. FCH looks
forward to the steady growth in future as the respective department heads,
including business origination, credit and support functions with their
strengthened teams efficiently implement the strategies.
During the financial year FY12, the outstanding balance (borrowing) for
your Company was Rs. 43,863 million as of FY12, as compared to Rs. 26,238
million in FY11. As a strategy, your Company raised most of this debt as
long term debt, which was matched with the cash flow of the customers`
repayments. Only 6.78% of your Company`s borrowing was short term, and
overwhelmingly, over 93%, including the equity was long duration
borrowings. This provides excellent cushion for the company for repayments
of its obligations. During the year, your Company successfully managed to
raise Rs. 2,000 million as subordinated debt for the first time. Further,
the borrowings were mostly at floating rates linked with base rates of the
banking system, and the customer repayments too, were linked to the
floating rate, largely insulating the company from interest rate risks.
One of the significant achievements of your Company was that in spite of
the rising interest rate and tough liquidity conditions in the Indian
market, your Company has performed exceptionally well to reduce the margin
of incremental borrowing as compared to the movement of base rates, based
on improved performance of your Company and its financial prospects. Your
Company also increased the number of banking relationships with key public
and private banks in India during the last financial year.
CONSOLIDATED FINANCIAL PERFORMANCE
The following table presents our consolidated results of operations for the
year ended 31st March, 2012:
Year ended Year ended
March 31, 2012 March 31, 2011
(Rs. in million) (Rs. in million)
Income 7,438 4,015
Expenditure 5,922 3,177
Profit before tax 1,516 838
Provision for income tax 458 347
Profit after tax 1,058 491
Your Company had an excellent year in terms of profitability and returns.
The Profit Before Tax grew by 81% where as Profit After Tax grew by 115%.
The Return on Average Net Worth improved from 6.67% in FY11 to 13.41% in
FY12. The Return on Average Total Assets increased from 1.73% in FY11 to
2.27% in FY12. The Earning per Share (Basic) grew by 113%, from Rs. 7.64 in
FY11 to Rs. 16.33 in FY12.
The table below presents a breakdown of our income for the year ended 31st
Year ended Year ended
March 31, 2012 March 31, 2011
(Rs. in million) (Rs. in million)
Income from retail financial
services 3,124 1,506
Income from wholesale
credit and treasury 4,072 2,064
Others 242 445
Total income 7,438 4,015
The increase in income during the year was mainly on account of increase in
our loan book along with the increase in the fee based income.
We had incurred an expenditure of Rs. 5,922 million for the year ended 31st
March, 2012. Our expenditure comprised of personnel expenses,
administration & other expenses and finance cost. Out of the total
expenditure, Finance costs comprised 67% followed by administration and
other expenses of 17%, Personnel expenses of 15% and
Depreciation/Amortization of 1% for the year. The increase in the
expenditures during the year was mainly on account of increase in borrowing
for growth and increase in our branch network, headcounts, introduction of
new product line, etc.
The table below presents a breakdown of our expenditure for the year ended
31st March, 2012:
Year ended Year ended
March 31, 2012 March 31, 2011
(Rs. in million) (Rs. in million)
Personnel expenses 868 479
Administration and other
expenses 1,021 768
Depreciation/amortization 55 42
Financial expenses 3,977 1,888
Total expenditure 5,922 3,177
Profit Before Tax
Your Company made a profit before tax of Rs. 1,516 million for the year
ended 31st March, 2012 as compared to Rs. 838 million for the year ended
31st March, 2011. The profit primarily reflects increased business in the
credit division and fee based income.
Net Profit After Tax
The Profit after tax was up by 115% to Rs. 1,058 million from Rs. 491
million in the previous year. The profit primarily reflects an increase in
the Net Interest Income and growth in the fee based income.
As of 31st March, 2012, shareholders` funds of your Company amounted to
Rs.8,316 million as compared to Rs. 7,469 million as on March 31, 2011. The
increase is mainly on account of profit earned in the current year Rs.1,058
Your Company has adequate systems of internal control which commensurate
with its size and nature of operations. It maintains a system of internal
controls designed to provide a high degree of assurance regarding the
effectiveness and efficiency of operations, the adequacy of safeguards for
assets, the reliability of financial controls and compliance with
applicable laws and regulations.
The systems in your Company ensure that assets are safeguarded against loss
from unauthorized use. Your Company is in the process of further
strengthening its system controls by implementation of a new robust Loan
Your Company has, during the year, established an In-house Internal Audit
Department. The Internal Audit Team, undertakes comprehensive audit of
functional areas and operations of your Company to examine the adequacy of
and compliance with policies, plans and statutory requirements. Significant
audit observations and follow up actions thereon are reported to the Audit
Committee. The Audit Committee reviews the adequacy and effectiveness of
your Company`s internal control environment and monitors the implementation
of audit recommendations.
Your Company has invested in people, processes and technology to mitigate
risks posed by the external environment and by its borrowers. Your Company
does an assessment of cash flow of the borrowers for MSME customers before
lending to them, and for low ticket transactions, it has implemented
statistically valid credit scoring systems that adequately capture the risk
in lending and collections. Regular credit bureau inputs are incorporated
in the credit scoring model and credit analysis process. We ensure that the
underwriting and collection process are well streamlined and managed by
highly competent workforce.
The operations team does an independent due-diligence of the documentation
and books the loans. The operations team presents the PDCs or ECS
instruction of customers, and directly gives the returned cheques to the
collections team for physical collections, if any. The above processes
ensure there is clear segregation of responsibilities, the customer is
appraised by separate teams, and there are checks and balances within the
Your Company implements effective customer engagement and awareness tools
like regular automated SMS, welcome and awareness calling, E-mailers &
follow up letters at regular intervals to keep the customer aware of the
High quality of customer experience is of critical importance in building a
sustainable customer franchise and FCH recognizes the same. FCH ensures
that high quality of service engagement with its customers through physical
branches and call centre.
FCH has set up elaborate procedures and systems as well as invested in a
strong IT backbone to assist in monitoring of the portfolio on a continuous
basis. Detailed procedures and policies have been established for
underwriting across various product categories, based on the credit profile
of the customer. Since last year, your Company has been continuously
monitoring and realigning its credit policies at regular interval and is
also working very closely with leading credit bureaus in the country to
ensure better credit quality.
The risk management committee reviews and addresses strategy and
portfolio/balance sheet risks arising from credit, liquidity movements and
interest rate movements. Sustained efforts to strengthen the risk framework
and portfolio quality have yielded results. The overall portfolio quality
has improved over time and is stable and healthy. FCH`s Assets-Liability
Committee (ALCO), set-up in line with the guidelines issued by the RBI,
monitors asset-liability mismatches and ensures that there are no material
imbalances or excessive concentration on either side of the balance sheet.
During FY12, your Company has taken major initiatives to strengthen the
technology and operations framework in order to provide better and faster
service delivery to its customers. It is carrying out the implementation of
"FinnOne", a system by Nucleus Software, which replaces the existing Loan
Management System and results in improvement in data quality, better checks
and controls as well as faster processing capabilities. FinnOne is
considered to be the best Loan Management System in India and is being used
by various leading Banks and Financial Institutions in India and globally.
Your Company is also implementing the Gold Loan Management System by
Gradatim Software which brings more efficiency in processing gold loans.
During the year, your Company has also implemented a new HR management
system, developed eFax System for automating workflow from remote two
wheeler stores and automated calling for verification through Dialler to
speed up workflow.
FCH recognises that people play a critical role in achieving its goals. As
on 31st March, 2012, your Company had a team of 1,123 talented and
experienced employees, providing a wide range of financial services.
The focus for the year was to build platforms and to put in place scalable
processes that would meet the needs of your Company`s growth agenda. To
achieve a good work culture, the people agenda has a 3 pronged strategy -
Driving a performance culture to achieve financial goals, Future Proofing
the franchise to build sustainability and Engagement & Communication to
As a growing Company there are many opportunities available to employees to
contribute and grow, ensuring that motivation is high. Your Company prides
itself on its ability to attract and retain talents at all levels. It
continues to use the Employees Stock Options Scheme (ESOS) and Employee
Stock Purchase Scheme (ESPS) to foster a sense of ownership among
employees. While employee engagement is at the heart of everything your
Company does, the learning and development as well as talent management
framework is being strengthened to build the capabilities that are required
for the future.
Statements made in this Management Discussion and Analysis Report may
contain certain forward-looking statements based on various assumptions on
the Company`s present and future business strategies and the environment in
which it operates. Actual results may differ substantially or materially
from those expressed or implied due to risk and uncertainties. These risks
and uncertainties include the effect of economic and political conditions
in India and abroad, volatility in interest rates and in the securities
market, new regulations and Government policies that may impact the
Company`s businesses as well as the ability to implement its strategies.
The information contained herein is as of the date referenced and the
Company does not undertake any obligation to update these statements. The
Company has obtained all market data and other information from sources
believed to be reliable or its internal estimates, although its accuracy or
completeness cannot be guaranteed.
Date : 30th July, 2012