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Corporate Information
  •         DIRECTOR'S REPORT
Magma Fincorp Ltd
Industry : Finance & Investments
BSE Code:524000NSE Symbol:MAGMAP/E(TTM):10.69
ISIN Demat:INE511C01022Div & Yield %:1.17EPS(TTM):6.42
Book Value (Rupee ):94.5448263Market Cap (Rupee Cr.):1848.31Face Value(Rupee):2
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Dear Shareholders,

Your Directors have pleasure in presenting the 39th Annual Report along with the Audited Financial Statements of the Company for the financial year ended 31 March, 2019.

FINANCIAL HIGHLIGHTS IS GIVEN BELOW:

(` in Lacs)

Standalone Consolidated
Particulars FY 2018-19 FY 2017-18 FY 2018-19 FY 2017-18
Total income 228,474.56 209,845.67 251,339.06 232,786.93
Profit before interest and depreciation 147,067.55 129,862.56 161,439.46 145,569.07
Less: Interest and finance charges 101,764.01 101,255.26 112,223.40 111,748.76
Less: Depreciation 5,015.63 4,898.60 5,046.39 4,922.45
Profit before tax 40,287.91 23,708.70 44,169.67 28,897.86
Share of profit of joint ventures - - 66.42 186.82
Tax Expense 12,775.04 3,586.16 13,835.46 5,395.91
Profit after tax 27,512.87 20,122.54 30,400.63 23,688.77
Add: Other Comprehensive Income/ (loss) (182.29) 4.79 (496.70) 270.31
Total Comprehensive Income 27,330.58 20,127.33 29,903.93 23,959.08
PROFIT AVAILABLE FOR APPROPRIATION
Profit after tax 27,512.87 20,122.54 30,400.63 23,688.77
Balance of profit for earlier years 13,257.93 (412.49) 25,498.14 8,707.23
Profit available for appropriation 40,770.80 19,710.05 55,898.77 32,396.00
Add: Other Comprehensive Income/ (loss) (122.73) (60.40) (136.66) (26.19)
Transfer to statutory reserve (5,510.00) (4,110.00) (6,200.00) (4,589.95)
Less: Dividend paid (2,597.11) (2,281.72) (2,597.11) (2,281.72)
Balance carried forward 32,540.96 13,257.93 46,965.00 25,498.14

Note: The Company has adopted Ind AS from 01 April 2018 with effective transition date of 01 April 2017 and accordingly, these financial statements together with the comparative reporting period have been prepared in accordance with the recognition and measurement principles as laid down in Ind AS. Accordingly, the previous year's figures have been regrouped and rearranged wherever necessary to align with the current year's presentation.

ECONOMIC AND INDUSTRY OVERVIEW

Global Economic Overview

After strong growth in 2017 and early 2018, global economic activity slowed notably in the second half of last year, reflecting a confluence of factors affecting major economies. China growth declined following a combination of needed regulatory tightening and increase in trade tensions with the United States. The euro area economy lost more momentum than expected, as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of the new emission standards.

Global growth is expected to remain steady at 3.7% in 2020, as the decline in growth of advanced economies, due to unwinding of the US fiscal stimulus and the fading of the favorable spillovers from US demand to trading partners, would be offset by a pickup in emerging market and developing economy growth.

Indian Economic Overview

According to the world economic outlook India is expected to grow at 7.3% in fiscal year 2019-20 (given the recent increase in oil prices and the tightening of global financial conditions).

India's GDP growth is supported by the continued recovery of investments and robust consumption. The increase in GDP will be supported by the following:

• Near Normal monsoon forecast by the Indian Metrological Department: As per IMD the country is likely to observe well distributed rainfall during monsoon 2019. IMD has also mentioned that these rains will be quite beneficial to the farmers in the country during the Kharif season.

• Strengthening of Goods and Service Tax compliance and further reducing subsidies: Intelligent data analytics, related tax leakage detections will further help the government in continuous increase in GST collections.

• Strengthen financial sector balance sheets, including through accelerated resolutions of Non performing assets under a simplified bankruptcy framework: This year the government provided further capital infusions to public sector banks. These measures, combined with the application of the Prompt Corrective

Action framework, which requires timely recognition and resolution of bad loans are helping to address solvency and asset quality challenges.

• Implementation of structural reforms and easing of infrastructure bottlenecks: Increased Government effort to solve land related problems will boost overall infrastructure sector.

• Growth in Industrial Production: For the year to date (April 2018 to January 2019), IIP growth has shown a growth of 4.4% as compared to 4.1% in the corresponding period. In FY 2019-20 the growth will further improve due to growth in private consumptions and investments.

However, there are some concerns:

• Inflation: Headline consumer price index (CPI) inflation averaged 4.4% during fiscal year 2019 upto August 4.1%, excluding the estimated impact of house rent allowances (HRAs) for central government employees. A broad-based uptick in inflation in respect of prices of fuel, transportation, personal care/effects, education and health services was largely offset by the unexpectedly and unseasonal benign food inflation.

For FY 2019-20, structural model estimates indicate that inflation will move in a range of 4.5-4.8%, assuming a normal monsoon and no major exogenous/policy shocks.

• Fiscal Deficit: The government fiscal health remain a key risk in FY 2019-20. With the central government revising up its fiscal deficit, the fiscal consolidation path have been stretched again. Achieving the fiscal deficit 2019-20 will be challenging given the aggressive divestments and goods and service tax collection targets. However the government net borrowing from the market is expected to moderate to 2.4 trillion in fiscal 2019-20 from 3.02 trillion this fiscal

• Political Uncertainty: In H1 2019, the political uncertainty is expected to compound negative effects impinging on investment such as weak external demand and high real interest rates and arrest private investment, as businesses seek political certainty before committing to new projects. The elections being held in April-May 2019 will be an important determinant of future growth and investment.

Industry Overview

NBFC Sector

FY 2018-19 was an extremely challenging year for Non-Banking Finance Companies (NBFC). The default by a major infrastructure financial institution on repayment of commercial papers shook the industry, making debt investors wary of investing in them; leading to tremendous liquidity pressure. The asset liability scenario worsened. The market too has punished them heavily, with stock prices of the listed non-banks hitting 52 week lows. However the liquidity situations has improved and is gradually returning to normalcy even as borrowing costs have increased by 0.5-2.0%. NBFCs are now diversifying the liability side and reducing dependence on banks and mutual funds for capital.

The focus now is on tapping resources from new avenues like retail NCD, deposits, insurance, pension and EPFO funds.

India has been witnessing good growth in consumer lending in recent years and NBFCs have been growing this business much better than banks.

Regardless of recent panic and meltdown in the market values of NBFCs, they are here to stay and will play an important role in the economic growth and financial inclusion. In fact, as the economy becomes larger and grows faster, the need for credit will rise disproportionately. Hence NBFC will be required to support the economy with free flowing credit lines.

Overview of underlying asset class

Automobile sector

All India sales of new Commercial Vehicles (CV) continue to grow, it grew by 17.55% during FY 2018-19, as compared to 19.94% in FY 2017-18. The increase in demand has been in all segments such as Medium & Heavy Commercial Vehicles (MHCV), Light Commercial Vehicles (LCV) and Small Commercial Vehicles (SCV) which witnessed growth of 11.4%, 17.6% and 21.2%, respectively.

The sale of new passenger vehicles recorded a growth of 2.7% during FY 2018-19, against 7.9% growth recorded in FY 2017-18. The sluggish growth is mainly due to high fuel prices, rising borrowing & insurance cost and the popularity of ride hailing apps. Within the Passenger Vehicles segment, Passenger Cars, Utility Vehicles and Multipurpose Vehicles grew by 2.0%, 2.1% and 13.1% respectively, compared to the corresponding previous year.

SME Sector

Small and medium enterprises (SME) sector, rightly known as India's ‘engine of growth', has scaled significantly over the years on the back of increasing awareness, digital advancements and better opportunities that have encouraged many entrepreneurs to offer innovations and emerge as success stories. Micro, small, and medium enterprises (MSMEs) complement large corporates as suppliers and directly cater to endusers. The MSME sector contributes to the country's socio-economic development by providing large employment opportunities in rural and backward areas, reducing regional imbalances, and assuring equitable distribution of national wealth and income.

Mortgage Sector

The recent NBFC crisis in India has brought to the fore the funding and low equity capitalization issues especially of the housing finance company (HFC) sector. Despite headwinds Housing finance companies still remain an attractive business opportunity.

Overview of Company's Performance The Company continues to show significant progress in each area of its business in FY2018-19. The new initiatives undertaken by the Company continues to show positive impact in all areas during the current year.

Disbursements and Loan Assets

During the year FY2018-19, the standalone disbursements grew by 14.1% from `6,72,581 lacs in FY 2017-18 to `7,67,204 lacs in FY2018-19. Similarly, the consolidated disbursements grew by 20.2%, from `7,28,680 lacs in FY2017-18 to `8,75,736 lacs in FY2018-19. The growth in disbursement is mainly on the back of increase in disbursement of Housing loans, Used Assets, Commercial Vehicles, Construction Equipment's and SME loans.

Total Loan Assets as on 31 March 2019 on standalone basis increased by 4.3% y-o-y basis to `14,59,915 lacs. Similarly, the total Loan Assets on consolidated basis registered a growth of 7.8% to `17,02,865 lacs.

Asset Quality

The consolidated Stage 3 Assets (Gross Non Performing Assets (GNPA)) ratio on 3 month overdue basis on total Assets Under Management (AUM), declined significantly from 8.6% in March 2018 to 4.8% in March 2019. Similarly, the Net Non Performing Assets (NNPA) ratio on total AUM has declined from 4.5% in March 2018 to 3.1% in March 2019. The early warning indicators for all products are trending below threshold parameters indicating robust quality of portfolio being currently underwritten.

Liquidity

Magma has been able to steer through this liquidity crisis well, primarily because our Business Model, both in NBFC and HFC is focused on retail lending with

a. Average ticket size of ` 4 to 5 lacs for ABF, ` 9 to 10 lacs for Mortgage and ` 20 lacs for SME Business;

b. Pan India presence through its 310 branches spread across 21 States;

c. Diversified product mix, with no single product comprising more than 20% of the portfolio; and

d. Our robust track record of asset securitization, having done securitization of over 230 pools for total asset value of over ` 41,500 crore over past 12 years with diverse investors, namely Public Sector Banks, Private Sector Banks, Foreign Banks and Mutual Funds.

We were able to raise adequate resources for our disbursements to continue unhindered. We exited the year with liquidity of over ` 2000 crore, enough to meet all our funding requirements for over 2 months without any additional funds raise and we have also tightened our internal ALM norms and will further improve during the current year.

New Initiatives and Business Outlook

Key Initiatives FY 2018-19:-

• Customer Delight - Implemented State of the art Customer Relation Management (CRM) system for 360o customer view across Business leading to improvement in cross sell and customer experience

• Analytics powered Credit Engine implemented leading to improvement in Turn Around Time (TAT) and uniformity in credit decision

• Independent enterprise wide, independent risk management framework (ERM) has been set up to monitor all risk, for e.g. Credit Governance, Operational Risk, Fraud Risk, InfoSec and Compliance.

Asset Backed Finance (ABF) disbursement grew by 10%, increasing from ` 534,531 lacs in 2017-18 to `587,673 lacs in 2018-19. The overall AUM increased from ` 11,080,14 lacs in 2017-18 to `11,591,16 lacs in FY 2018-19. This stable growth is on the backdrop of the following:-

• Healthy disbursement growth in focus products namely Commercial Vehicles and Used Assets which achieved a sharp YOY growth of 30% and 28% respectively in FY 2018-19.

• Used Assets AUM contribution increased from 18% in FY 2016-17 to 28% in FY 2018-19

• Direct channel contribution significantly grew from 37% in FY 2017-18 to 41% in FY 2018-19.

ABF business continued portfolio reshaping, by increasing contribution of focus products, which is yielding positive results.

Mortgages Business, the Company showed a significant growth this year with disbursement increasing by 84% over previous year. The overall disbursement increased from ` 59,352 lacs in FY 2017-18 to `1,09,182 lacs in FY 2018-19. The increase is due to the following:-

• Stellar growth in Home loan portfolio of 223%.The disbursement in home loans grew from `20,054 lacs in FY 2017-18 to `64,700 lacs in FY 2018-19 in line with "GO HOME LOAN" strategy implemented by the Company.

• The contribution of home loan portfolio increased from 25% in FY 2016-17 to 38% in FY 2018-19 in the overall housing AUM.

• Direct sourcing improved from 33% in Q2FY 2017-18 to 79% in Q4FY 2018-19 in line with change in the company's "GO DIRECT" strategy.

• Focused deep market penetration in 93 locations across 10 states using unit model implementation.

The push for affordable housing by the Government of India will further expand the Company's current housing portfolio. The company is poised towards being a unique affordable finance company having a national presence.

SME Business continues to grow at a healthy pace. SME disbursement increased from ` 134,797 lacs in FY 2017-18 to `178,880 lacs in FY 2018-19 registering a growth of 33%. The asset under management increased by 16% i.e. from 195,889 lacs in FY 2017-18 to `227,755 lacs in FY 2018-19. The growth is due to the following:-

• Distribution focus in Upcountry markets which helped clock growth over 41% in upcountry cities. Direct distribution model launched to increase customer wallet share through auto top-ups.

• MScore Credit Rule Engine launched, along with back-tested Credit Scorecards for improvement in credit quality.

With more geographical expansions and focus on portfolio quality the SME business is expected to continue to show good growth in the coming years and will contribute significantly to the bottom line of the Company.

Insurance business crossed `1,00,000 lacs Gross Written Premium in FY 2018-19 registering a growth of 83.1% YoY vs the industry growth of 12.9%. The insurance business reached a customer base of 1 million in FY 2018-19 with 5,000+ partners as at March 2019.The business has witnessed significant productivity improvements in retail agency, banc assurance and alliance channels. The company continues to increase its Non motor commercial portfolio backed by strong panel of reinsurers. The Servicing infrastructure for retail and group health business put in place which will help significant growth in health insurance business in the coming years.

Branch network

Magma has expanded its branch network to 310 branches in FY 2018-19 as compared to 305 branches in FY 2017-18. The Company has a pan India presence with good geographical diversification. The Company continues to exploit the untapped potential of existing branches and ensure that more products are available across our branch network.

FINANCIAL PERFORMANCE

(All figures are on consolidated basis unless specifically mentioned otherwise)

The Company's Profit after Tax (PAT) on consolidated basis increased to ` 30,401 lacs in FY 2018-19 compared to ` 23,689 lacs in FY 2017-18 registering a growth of 28.3%.

The Company has maintained stable net interest margin (NIM) of 8.5% despite facing a high interest rate scenario. Better interest cost management and a prudent mix of products helped the Company maintain its net interest margin (NIM).

Net Income from Operations (i.e. total income less finance cost) on a consolidated basis increased by 15% from ` 121,038 lacs in FY 2017-18 to `139,116 lacs in FY 2018-19.

The write off and provisions has shown a significant improvement in FY 2018-19. The write offs and provision declined from ` 31,595 lacs in FY 2017-18 to ` 26,540 lacs in FY 2018-19. However, the overall opex ratio increased from 3.8% in FY 2017-18 to 4.2% in FY 2018-19 mainly due to investments in technology and investments in the existing business.

On a Standalone basis, the Capital Risk Adequacy Ratio (CRAR) for the year FY 2018-19 was 24.9%, against the RBI stipulated norm of 15% for non-deposit taking Asset Finance Companies.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios:

1. Debt Equity ratio has fallen from 6.13 to 4.60 at standalone level and from 6.15 to 4.79 at consolidated level. This represents a fall of 25% and 22% at standalone and consolidated level. The primary reason of fall in debt equity ratio is capital raise of ` 500 crore through Qualified Institutional Placement (QIP) in April 18 and retained earnings for the year.

2. There is a significant increase in ROA by 26.1% in FY 2018-19 (as compared to FY 2017-18), due to the following factors: a. NIM was healthy at 8.5% in FY 2018-19, an increase of 13% on YoY basis

b. Net Credit Cost dropped by 16.0% on a YoY basis, primarily on account of improvement in Collection efficiency (exceeded 100% in FY 2018-19) and Asset quality (Gross NPA dipping from 8.6% in FY 2017-18 to 4.8% in FY 2018-19).

There is an increase in Return on Networth (RoNW) by 1.2% in FY 2018-19 (as compared to FY 2017-18), due to the following factors:

a. NIM was healthy at 8.5% in FY 2018-19, an increase of 13% on YoY basis

b. Net Credit Cost dropped by 16.0% on a YoY basis, primarily on account of improvement in Collection efficiency (exceeded 100% in FY 2018-19) and Asset quality (Gross NPA dipping from 8.6% in FY 2017-18 to 4.8% in FY 2018-19).

c. RoNW increase is partially offset by increase in Closing Net Worth (net of goodwill) by 39.4% in FY 2018-19 as compared to FY 2017-18 mainly due to impact of Capital raise of ` 500 crore through QIP during the year.

CHANGE IN NATURE OF BUSINESS

During the year, there was no change in the nature of business of the Company or its subsidiary.

MATERIAL CHANGES AND COMMITMENTS AFFECTING FINANCIAL POSITION BETWEEN THE END OF THE FINANCIAL YEAR AND DATE OF THE REPORT

There are no material changes or commitments affecting the financial position of the Company that have occurred between the end of the financial year and the date of this Report.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with the requirements in terms of Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (hereinafter referred to as ‘Listing Regulations') your Company prepared Consolidated Financial Statements in accordance with Ind AS 110 "Consolidated Financial Statements" and Ind AS 27 "Separate Financial Statements". The Consolidated Financial Statements forms part of this Report.

SUBSIDIARY AND JOINT VENTURE COMPANIES

Magma Housing Finance Limited (MHFL) is a wholly owned subsidiary of the Company. MHFL has made disbursements of ` 108,532 lacs in FY 2018-19 against ` 56,099 lacs in previous year. MHFL has earned a PBT of ` 4,700 lacs for the year ended 31 March 2019 against ` 5,188 lacs in previous year.

The Company's Joint Venture with HDI Global SE for General Insurance Business in India named Magma HDI General Insurance Company Limited (Magma HDI) (the ‘JV Company') has shown good growth in the current year. Magma HDI has reported Gross Written Premium (GWP) of ` 102,582 lacs in FY 2018-19 against ` 56,028 lacs in FY 2017-18. Magma HDI has earned negative PBT of ` 841 lacs for the year ended 31 March 2019 as against ` 543 lacs for the year ended 31 March 2018 mainly due to increase in management expenses.

Jaguar Advisory Services Private Limited (JASPL), a Joint Venture with HDI Global SE is an Advisory Services Company domiciled in India. Presently, JASPL provides manpower services. JASPL has earned a PBT of ` 1.05 lacs for the year ended 31 March 2019 against ` 1.36 lacs in previous year.

Pursuant to the order dated 8 May, 2018 of Hon'ble National Company Law Tribunal, Kolkata Bench, Magma ITL Finance Limited, wholly owned subsidiary (MITL) has been merged with your Company and MITL stands dissolved without winding up on the effective date and therefore ceases to be wholly owned subsidiary company of your Company

Statement containing salient features of Accounts of the Company's subsidiary and joint venture companies

Pursuant to Section 129(3) of the Companies Act, 2013 a statement in Form AOC-1 containing the salient features of the Financial Statement of your Company's subsidiary and joint ventures forms part of this Report and hence not repeated here for the sake of brevity.

TRANSFER TO RESERVE

The Company proposes to transfer a sum of ` 5,510.00 lacs to Statutory Reserve as required by RBI.

DIVIDEND

As stipulated in Regulation 43A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has in place the Dividend Distribution Policy which is available on the Company's website at its weblink i.e.,https://magma.co.in/about-us/investor-relations/ secretarial-documents/download-secretarial-documents/ The same also forms part of the Board's Report and is annexed as Annexure - 5.

In accordance with the Policy, the Board would endeavour to maintain a total dividend pay-out ratio in the range of 10% to 20% of the annual standalone PAT of the Company. Your Directors have recommended dividend @40% on Equity Shares i.e. Re. 0.80 per Equity Share of the face value of ` 2/- each to deliver sustainable value to its shareholders. The payment of the dividend is subject to declaration by the members at the ensuing Annual General Meeting of the Company.

DEPOSITS

Being a non-deposit taking Company, your Company has not accepted any deposits from the public within the meaning of the provisions of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 and the provisions of Companies Act, 2013.

EMPLOYEE STOCK OPTION SCHEME

Your Company had formulated and implemented Magma Employees Stock Option Plan 2007 (MESOP 2007) and Magma Restricted Stock Option Plan 2014 (MRSOP 2014) in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and SEBI (Share Based Employee Benefits) Regulations, 2014 including any amendments thereto (‘SEBI Guidelines/Regulations').

The Nomination and Remuneration Committee of the Board of Directors of the Company, inter alia, administers and monitors the MESOP 2007 and MRSOP 2014 in accordance with the applicable SEBI Guidelines/Regulations.

The details of the options granted and outstanding as on 31 March 2019 along with other particulars as required by Regulation 14 of the SEBI (Share Based Employee Benefits) Regulations, 2014 is available on the website of the Company www.magma.co.inathttps://magma.co.in/about-us/investor- relations/secretarial-documents/download-secretarial- documents/ and the Auditors' Certificate would be placed at the forthcoming Annual General Meeting pursuant to Regulation 13 of the said Regulations.

SHARE CAPITAL

Equity Shares

During the year, the following changes were effected in the Share Capital of the Company:

Issue of Equity shares through Qualified Institutional Placement (QIP) under the provisions of Chapter VIII of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended

Your Company raised capital amounting to ` 500 crore, approximately, through the Qualified Institutional Placement (QIP) route by way of issuing and allotting 3,22,58,064 Equity Shares of face value ` 2 each for cash at issue price of ` 155 per Equity Share (including a premium of ` 153 per Equity Share), to a host of renowned and marque Institutional Investors who are Qualified Institutional Buyers.

The new Equity Shares issued and allotted as aforesaid rank "pari passu" with the existing Equity Shares of the Company in all respects.

Your Company has duly utilised the issue proceeds raised through QIP, to augment its long term working capital requirements, strengthen its financial position by augmenting its long term capital resources, improve its capital adequacy norms and for general corporate purposes and for payment of Issue expenses. This is in line with the issue purpose mentioned in the Explanatory Statement of the Notice of the Postal Ballot dated 13th November, 2017 and the Placement Document filed with various Regulatory Authorities. Details of the Issue and the end use of funds were furnished to the Audit Committee.

Issue of Equity Shares under the Magma Employees Stock Option Plan 2007:

During the year, 37,500 Equity Shares of the face value of ` 2/- each, were allotted to the eligible employees at a price of ` 60/- per Equity Share (including a premium of ` 58/- per Equity Share) upon the exercise of stock options by the employees.

After the close of financial year

After the close of financial year, 18,000 Equity Shares of face value of ` 2/- each were allotted to the eligible employees at face value upon the exercise of stock options by the employees.

Consequent to the issue of the additional Equity Shares as above, the issued, subscribed and paid up Equity Share Capital of the Company stands increased to ` 53,86,84,472/- (Rupees Fifty Three Crore Eighty Six lacs Eighty Four thousand Four Hundred and Seventy Two only) divided into 26,93,42,236 Nos. (Twenty Six Crore Ninety Three lacs Forty Two Thousand Two Hundred and Thirty Six only) of Equity Shares of ` 2/- each as on date.

DEBT

Public Issuance of Secured Redeemable Non-Convertible Debentures

Your Company has announced its maiden retail issue of Secured Redeemable Non Convertible Debentures (NCDs) of face value of ` 1,000/- each for an amount of ` 200 crore ("Base Issue Size"), with an option to retain over subscription upto `300 crore aggregating to ` 500 crore (the "Overall issue size/ Tranche I Issue"), to continue to broaden the liability mix by bringing in new instruments as well as diversifying the investor base and profile. The Issue opened for subscription on 8th April 2019 and closed on 30th April 2019. 20,14,145 NCDs were allotted on 6 May 2019 and listed with National Stock Exchange of India Limited and BSE Limited.

The net proceeds received from the Issue shall be used for the purpose of onward lending, financing, and for repayment/prepayment of interest and Principal of the existing borrowings of our Company and for general corporate purposes as mentioned in the Tranche I Issue Prospectus.

Private Placement Issue of Debentures (Secured & Unsecured Debt) & bank borrowings

During the year, the Company converted 200 partly paid units of Secured Redeemable Non-Convertible Debentures of face value ` 100 lacs each to fully paid up, raising the balance amount of ` 17,000 lacs, being 85% of total face value.

During the year, the Company has raised fresh long term Secured Loan from Banks of ` 75,000 lacs.

During the year, the Company has raised a long term loan in the nature of Subordinate debt from Bank aggregating to ` 10,000 lacs. The purpose of the Loan is to augment the Tier II Capital of the Company.

During the year, the Company has also raised funds from Banks and Mutual funds through fresh issue PTC (Pass Through Certificate) aggregating to ` 2,81,097 lacs.

CREDIT RATING

During FY 2018-19, rating for Short-term debt instruments from CRISIL are re-affirmed at CRISIL A1+. Credit Analysis & Research Limited (‘CARE') reaffirmed its ratings on the Company's Short term debt instruments at CARE A1+, Bank Facilities, long term Secured and Subordinated Debt instruments at CARE AA- and Perpetual Debt instruments at CARE A+. The long term Secured Debt instruments and Bank Facility ratings of the Company have been reaffirmed by ICRA Limited & India Ratings & Research Private Limited at ICRA AA- and IND AA- respectively. AA- reflects that these instruments have high degree of safety regarding timely payment of financial obligations and carry very low credit risk. ACUITE (erstwhile SMERA) and Brickwork ratings has reaffirmed the rating for Unsecured Subordinated Debt Instrument at AA. During the year Brickwork ratings & ACUITE have also rated the Secured Redeemable Non Convertible Debenture of the Company as AA.

All the above mentioned ratings carries a Stable outlook.

Instrument Rating Rating Agency
Rating Under Basel Guidelines
Fund Based & Non Fund AA- CARE
Based from Banks AA- ICRA
AA- India Ratings
Short Term Debt (Commercial Paper) A1+ CARE/CRISIL
Secured Redeemable AA- CARE/
Long Term Bond/Note ICRA/India Ratings
AA BWR/ACUITE
Unsecured Subordinate Tier II Bonds AA- CARE
AA Brickwork/ACUITE
Perpetual Debt Instruments A+ CARE
AA- Brickwork

A status of ratings assigned by rating agencies and migration of ratings during the year is also provided in note no. 56(i) to the standalone financial statements of the Company.

PARTICULARS OF LOANS, GUARANTEE AND INVESTMENTS OUTSTANDING DURING THE FINANCIAL YEAR

Particulars of loans, guarantee and investments outstanding during the financial year is furnished in note nos. 6, 7, 44 and 55 to the standalone financial statements of the Company.

RISK MANAGEMENT

The Risk Management Committee (RMC), functions in line with the Non-Banking Financial Companies – Corporate Governance (Reserve Bank) Directions, 2015 and Listing Regulations. The Committee met four times during the year, its terms of reference and functioning are set out in the Corporate Governance Report. The Company understands that risk evaluation and risk mitigation is a function of the Board of the Company and the Board of Directors are fully committed to developing a sound system for identification and mitigation of applicable risks viz., systemic and non-systemic. The Company has also implemented/adopted Risk Management Policy duly approved by the Board.

To make the current Risk Management practice more robust and aligned to the industry practice, the management has set up an internationally accepted forward looking Integrated Risk Management (IRM) Framework. This covers all risks families including but not limited to Credit Risk, Market & Interest Risk, Compliance Risk, Operational Risk, Reputational Risk and Financial Risk. The said framework facilitates identification, measurement, mitigation and reporting of risks through constant monitoring of Key Risk Indicators within the organisation. Involvement of the Senior Management team in implementation of the IRM framework ensures achievement of overall organisational objectives across all business units.

The risk management infrastructure operates on five key principles:

1. An overarching Risk Appetite Statement that defines the shape of the portfolio, delivering predictable returns, through economic cycles, and optimizing enterprise-wide risk-return and capital deployment.

2. Independent governance and risk management oversight.

3. Establishment of forward looking Strategic Risk Assessment with pre-emptive credit and liquidity interventions, to ensure proactive early action in the event of emerging market adversity.

4. Maintenance of well-documented risk policies with performance guardrails.

5. Extensive use of risk and business analytics, and credit bureau as an integral part of decision making process.

The Integrated Risk Management group is headed by the Chief Risk Officer, who is responsible for overseeing Magma's risk functions including credit risk, market risk, compliance risk, operational risk, reputational risk and financial risk across all businesses, products and processes.

Credit Risk

Magma adopts an independent approval process guided by product policies, customer selection criteria, credit acceptance criteria and other credit underwriting processes for sanctioning and booking each loan. This allows each customer to be independently assessed based on both financial and non-financial measures.

All credit policies are clearly documented and approved by the Risk Management Committee of the Board. Credit policies are reviewed on a periodic basis driven by changes in macro-economic, industry/segment and credit bureau in addition to internal portfolio performance.

Credit approval and administration is managed through a judicious use of Credit Rule Engine, assessment by seasoned credit appraisal experts and an appropriate delegation of credit authority.

The journey of portfolio quality correction initiated in FY 2017-18 has been steadfastly pursued in FY 2018-19 as well. A robust hindsighting process and ensuring focus on attaining statistically derived benchmarks for early warning indicator (EWI), and continuous portfolio monitoring indicator (CPMI) have led to significant improvements in delinquencies and loss parameters.

Operational risk management

Operational risk framework is designed to cover all functions and verticals towards identifying the key risks in the underlying processes.

The framework, at its core, has the following elements:

1. Documented Operational Risk Management Policy

2. Well defined Governance Structure

3. Use of Identification & Monitoring tools such as Loss Data Capture (LDC), Risk and Control Self Assessment (RCSA), Key Risk Indicators (KRIs).

4. Standardized reporting templates, reporting structure and frequency

5. Regular workshops and training for enhancing awareness and risk culture

Magma has adopted the internationally accepted 3-lines of defense approach to operational risk management.

First line - Each function/vertical undergoes transaction testing to evaluate internal compliance and thereby lay down processes for further improvement. Thus, the approach is "bottom-up", ensuring acceptance of findings and faster adoption of corrective actions, if any, to ensure mitigation of perceived risks.

Second line – Independent risk management vertical supports the first line in developing risk mitigation strategies and provides oversight through regular monitoring. All key risks are presented to the Risk Management Committee on a quarterly basis.

Third line – Internal Audit conducts periodic risk-based audits of all functions and process to provide an independent assurance to the Audit Committee.

Market risk

Any mismatch in tenures of borrowed and disbursed funds may result in liquidity crisis and thereby impact the Company's ability to service its loans. Thus it is imperative that there exists nil or minimal mismatch between the tenure of borrowed funds and assets funded. Magma has well-defined treasury policies for managing liquidity, investments, interest rate and borrowings. The Company has endeavour to maintain appropriate asset liability maturity with regard to its tenure and interest rates.

The Company has taken the following measures to rectify/bridge the cumulative negative mismatch in the March 2019 quarter:

1. Raised funds through long term Secured and Unsecured Loan.

2. Raised long term funds through Securitisation.

3. Raising funds through public issue of Secured NCDs.

Foreign exchange risk

The Company has marginal exposure to foreign exchange risk, since its' disbursements are in rupee terms and the nature of its borrowings are also in domestic rupee debt. Wherever limited foreign exchange exposure exists, the Company has entered into appropriate currency hedging to adequately mitigate the said risk.

Liquidity risk management

Magma, over a period of 3 decades, has worked meticulously to diversify its borrowing profile and has repeatedly enhanced the set of institutions it borrows from. Such diversified and stable funding sources emanate from several segments of lenders such as Banks, Insurance Companies, Mutual Funds, Pension funds, Financial and other institutions including Corporates. In addition to this, the Company has established an excellent track record in its access to the securitization / assignment market. As a matter of prudence and with a view to manage liquidity risk at optimum levels, Magma keeps suitable levels of unutilized bank limits to effectively mitigate possible contingencies arising out therefrom.

The Company has in place an Asset Liability Management Committee (ALCO) comprising of Board Members, which periodically reviews the asset-liability positions, cost of funds, and sensitivity of forecasted cash flows over both, short and long-term time horizons. It accordingly recommends for corrective measures to bridge the gaps, if any. The ALCO reviews the changes in the economic environment and financial markets and suggests suitable strategies for effective resource management. This results in proper planning on an on-going basis with respect to managing various financial risks viz. asset liability risk, foreign currency risk and liquidity risk.

The Company has a comfortable liquidity position by way of unutilized Bank line and investment in Fixed Deposits and further supported by funds raised through Secured/Unsecured Term Loan, Secured Debentures, Commercial Papers and Securitization.

People Risk

Magma provides a conducive work environment to its employees that enables them to perform well and hone their skills. Our policies are designed to ensure a healthy and safe workplace, free from discrimination or harassment. Our people are our most valuable asset and we are committed to attract, engage and retain talent to create long-term value for our customers and stakeholders.

People risks that Magma focuses on includes following:

Inadequate availability of skilled manpower:

• Limited availability of candidates with appropriate skillset, experience and culture fitment.

Productivity Risk:

• Longer learning curve leads to low output.

• Time taken to filling of required manpower hampers installed capacity.

Succession planning:

• Risk to business continuity due to lack of leadership succession.

Magma is proactive in identifying and addressing risk aspects around people and address them in a timely and comprehensive manner.

Further, the Board is of the opinion that at present there are no material risks that may threaten the functioning of the Company.

INTERNAL CONTROL SYSTEM

Internal Control and Audit

Magma has an adequate system of internal control in place. The Company has documented its policies, controls and procedures, covering all financial and operating activities. IT general controls, designed to provide a reasonable assurance with regard to reliability on financial reporting, monitoring of operations, protecting assets from unauthorised use or losses, compliances with regulations, prevention and detection of fraudulent activities, etc. The Company continues its efforts to align all its processes and controls with leading practices.

A well-established, independent Internal Audit team reviews, monitors and evaluates the efficacy and adequacy of internal control systems in the Company, its compliance with operating systems, procedures and policies of the Company and its subsidiary. The scope and authority of the Internal Audit division is derived from the Audit Charter, duly approved by the Audit Committee.

The Audit Committee of the Board of Directors, comprising of independent directors, regularly reviews the audit plans, significant audit findings, adequacy of internal controls, compliance with accounting standards as well as reasons for changes in accounting policies and practices, if any.

Internal Financial Control

The Company's has in place adequate internal financial controls with reference to financial statements, commensurate with the size, scale and complexity of its operations. Review of the internal financial controls environment of the Company was undertaken during the year which covered testing of Process, IT and Entity level controls including review of key business processes for updating Risk Control Matrices, etc. The risk and control matrices are annually reviewed and control measures are tested and documented. Moreover, the Company continuously upgrades its systems and undertakes review of policies, guidelines, manuals and authority matrix. The internal financial control is supplemented by extensive internal audits, regular reviews by the Management and standard policies and guidelines to ensure reliability of financial and all other records to prepare financial statements, its reporting and other data. The Audit Committee of the Board reviews internal audit reports given along with management responses. The Audit Committee also monitors the implemented suggestions. The Company has, in material respect, an adequate internal financial control over financial reporting and such controls are operating effectively. The statutory auditors of the Company have also certified on the existence and operating effectiveness of the internal financial controls relating to financial reporting as of March 2019.

VIGIL MECHANISM/ WHISTLE BLOWER POLICY

The Company has in place a vigil mechanism named "Breach of Integrity and Whistle Blower (Vigil Mechanism) Policy" to provide a formal mechanism to the Directors and employees to report their concerns about unethical behaviour, actual or suspected fraud or violation of the Company's Code of Conduct or ethics policy. The Policy provides for adequate safeguards against victimisation of employees who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee.

The details of the said Policy is explained in the Corporate Governance Report and is available on the website of the Company www.magma.co.in at https://magma.co.in/about-us/investor-relations/s ecretarial- documents/download-secretarial-documents/.

HUMAN RESOURCE-PEOPLE COUNT AT EVERY STEP

At Magma, we believe that key pillars to business are people, processes, product and technology. Our endeavour is to create a conducive environment in which all four pillars work in harmony for the success of the organisation and its people.

Learning and development

In continuation of our efforts to make Magma a self-developing Organization, we have taken various learning initiatives delivered through an e-Learning platform and instructor led programmes. This year special emphasis has been on developing ‘Personal & Managerial Effectiveness'. The senior leadership at Magma was taken through a leadership journey - Leadership Excellence through Awareness Practice (LEAP) program. The participants gained insight on self, organizational and peer leadership through one-on-one coaching and peer reflection sessions.

The key focus is to leverage L&D and business partnership to co-create novel learning methods and embedding them to deliver business outcomes.

Driven by technology

We have embedded technology to ease our people processes. Our onsite PeopleSoft platform has all modules which are delivered on the internet including recruitment, employee confirmation, performance management, separation for employees and real-time dashboard for leaders to take informed decision. To create a great new joinee experience eMilaap, a portal to upload new hire documents has been well-adopted.

Incentive schemes

Incentive is an important driver of business outperformance. We have schemes for employees in Line (revenue generating, customer facing) roles designed with clear key performance indicators (KPIs). The scheme design incorporates specific nuances to ensure that each plan is aligned with the business objectives. At the frontline, we have monthly incentive schemes, while at supervisory roles, the frequency is quarterly and annually. These are dynamic schemes that reflect changes in the external macroeconomics environment and revisited each year.

Key HR Initiatives

Our retention strategy starts from the hiring stage and continues through the entire employee life cycle management. We are having the following retention strategies:

• Hire people who meet the job role and Value system of Magma

• To strengthen our new joinees experience we launched "Aarambh" & "Maitree 2.0"

• Launched performance recognition programs-"Udaan" & "Pinnacle" for faster career growth

• Launched a technology platform to facilitate resolution of employee queries

• Launched monthly Reward & Recognition programmes to achieve business outcomes

Outlook

In the coming year, Magma is focusing upon following areas in the People Agenda:

Culture

Initiatives are being deployed to create stories and symbols that manifest the Values of integrity, collaboration and respect.

Retention

- Managerial capability enhancement through training and coaching.

- To drive succession planning and career progression - Leverage the Talent Council framework for internal promotions.

Productivity

Re-enforcement of Supervisor accountability and responsibility.

Deploy performance review framework.

Engagement

Promote and conduct organisation level communication initiatives such as Leadership interaction through webcast – "Vartalaap", Annual day celebration-"Magma Mahotsav". Programmes for Regular engagement with employees across all levels.

Prevention of Sexual Harassment at Workplace

The Company has zero tolerance towards sexual harassment at the workplace and has adopted a ‘Policy for Prevention of Sexual Harassment' to prohibit, prevent or deter any acts of sexual harassment at workplace and to provide the procedure for the redressal of complaints pertaining to sexual harassment, thereby providing a safe and healthy work environment, in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act 2013 and the rules thereunder. We have also constituted an Internal Complaints Committee (ICC) to consider and address sexual harassment complaints in accordance with Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. During the year under review, no case of sexual harassment was reported. To build awareness and appreciation of this area, we have implemented an online knowledge module leveraging our learning management system.

The Focus in the coming year is to emphasis and embed ethical work practices and integrity driven behaviour as one of the prime employee behaviour. For this effect one of the core initiatives is to embed evaluation of this behavior in every step of the employee life cycle, i.e., from recruitment to separation.

INFORMATION TECHNOLOGY

Magma continues to leverage technology in boosting efficiency and effectiveness of the critical functions across the value chain of processes encompassing Customer Service, sales, operations and risk management. This year Information Technology focused on empowering the branch operations and Customer service teams with Customer 360 views to improve Customer engagement and the quality of service. The controls and the workflow for credit risk assessment were significantly enhanced through automated policy rules and scorecards.

In FY 2018-19, Magma implemented "M-Serve", a Customer Relationship Management solution that focuses on streamlining and improving Customer Service across the touchpoints, while strengthening cross-sell and up-sell to meet the financial needs of existing Customers having healthy credit profile. The efficiency delivered through Customer 360 views and tracking of every Customer interaction continues to improve Customer engagement and loyalty.

The analytics based automated Credit Engine for ABF business has improved the consistency in decision making and increased process efficiency of credit risk assessment through straight-through processing, while delivering the economy of scale. The Credit Engine is directly integrated with point-of-sale to provide reliable and timely decisions for loan products covering cars, commercial vehicles and tractors. The automated workflow ensures the most efficient use of credit officers' time for exceptional cases requiring intervention for risk assessment.

The value-chain of lead-to-disbursement processes were optimized to identify and eliminate unnecessary paperwork. This resulted in improving efficiency of file processing at the branches and driving reduction in overheads of manual verification for the subsequent stages leading to disbursement.

The Information Technology function implemented an on-premises Cloud solution for databases of the mission-critical systems. The variations in demand of database resources across the systems are managed most efficiently through simple, agile and elastic capabilities of database system engineered for extreme performance, low operating costs and reduced risk of component failures. The Cloud capabilities coupled with on-premises deployment ensures performance and data residency with complete control.

During FY 2019-20, the Information Technology will continue to deliver digital capabilities to drive productivity improvements and reduction in turn-around-time for disbursements. The modernization of sales applications and loan origination systems will encompass effective ecosystem engagement, reduction in data entry and paper work, automated workflows with embedded controls for deviations and risk management, standards-based platform for integration and interoperability, and warehouse for business intelligence and analytics.

CORPORATE IMAGE BUILDING & ENGAGING TARGET AUDIENCE

Some of the key initiatives undertaken by Magma during the year are:

External branding though ATL

Magma conducted a brand promotion campaign on Radio pitching our product bouquet on 3 leading FM Radio channels, covering 16 important cities in India. Leading channels were selected for the regional language campaign to create brand awareness and recall.These initiatives accelerated a flow of enquiries, strengthened the brand recall and formed channel relationships across clusters.

Digital initiatives

We made efforts to strengthen our presence on digital platforms. The objective was to reinforce connect with customers and dealers. We beefed up our presence on social media channels such as Facebook, Linked in, Twitter with regular business updates, posts on the various achievements of the Company. Further, Magma posted various articles, TV interviews contributed by the management which helped in Thought leadership. We also launched a dedicated page for the Magma employees on Facebook, "WOW MAGMA", which managed to grab the imagination of Magmaites within weeks of launch.

Internal activities

The international communication team continued to host several business driving contests for our sales and collection teams. These contests motivated our teams and strengthened our relationship with the channels & regular organisational updates through e-mailers and internal branding, several employee engagement activities, regular Reward & Recognition programmes formed an important part of Magma's internal branding initiative. "Magma Mahotsav", held in 39 cities on the same day – our employee engagement flagship event was highly appreciated with the team as it recorded nearly 93% attendance pan India.

Customer connect programmes

During FY 2018-19, we focussed on cross sell to the existing customer base. "Grahak Diwas" activation was undertaken at 50 branches on a particular day of the month giving special offering to customers with good track record. Promotional initiatives included the use of mass SMS blast, tele-calling and branch branding. We ran an extended radio Campaign in 17 cities during the festive months which added to Magma's visibility and awareness.

Outdoor Branding

In order to increase our brand-recall in rurban India, we undertook the use of a cost-effective media like wall painting along highways and transport nagars. Repetitive branding at these areas and along highways strikes a chord with drivers and travelers who often use these roads for their livelihoods and help them relate with the product once they come face to face with it. We completed a total of about 4.40 lacs sq. ft wall painting in FY 2018-19 in the states of Haryana, Bihar, Jharkhand, Uttar Pradesh, West Bengal, Telengana and Maharashtra.

Public Relations

Magma continued to feature in the media throughout the year. Our business update, product launches, Business outlook was covered by the top print and electronic media channels. Interviews of Management team members, authored article, company profiling stories etc. were the highlight of the year. We also made our presence felt at large BFSI events where our management leaders shared their comments on a variety of subjects.

CSR

Magma continued to invest in the CSR programmes all through the year. Our initiatives such as Highway Heroes, M Scholar, M Care etc. grabbed attention of the society. We were recognised with as many as three awards for the exemplary work on our social commitment in FY 2018-19 from large organisation such as Indian Chamber, ACEF and UBS Forum etc.

CUSTOMER RELATIONSHIP MANAGEMENT

Magma aims to be the most trusted and accessible financial services institution, promoting financial inclusion and creating value for all its stakeholders. Customer Service is a key focus area for our Company. Our Company also believes in integrity, good governance, professionalism, transparency and client satisfaction.

In FY 2018-19 Project "Shikhar" was undertaken to transform Customer Experience and improve Quality of Customer Service. The key initiatives in this project were aligned to transform Customer Experience.

• Customer Persona Mapping done to understand Customer needs and align Service proposition.

• Improvements in key Customer Impacting Processes.

• Improved Service Capability and Quality through CRM Implementation & Contact Centre transition and Branch Token dispensing systems.

• Customized Offer for Existing Customers to enhance Cross Sell conversion and increase Customer Outreach.

We have successfully implemented Group wide CRM

- Microsoft Dynamics solution for Customer Service Management and Lead Management.

CRM now provides one view of customer enabling effective analysis to improve Servicing and Cross Sell.

We have successfully transitioned Inbound and Outbound Calling process to Consolidated Contact Centre Model to achieve increased efficiency, tighter monitoring and improved quality of Contact Centre Operations.

We have strengthened Cross Sell of Mortgage products to ABF customer base and have set a base for strong Cross Sell preposition.

Algorithms have been designed taking into consideration customer track record and propensity to buy. Robust roll out of these campaigns have resulted in Magma Customer Service team clocking an all-time high Cross Sell to existing customers in March 19.

Other initiatives taken during the year include regular updates to customers over SMS in 10 Regional languages, Digitalization of key customer communications such as Welcome Letter, Insurance Policy Document & Agreement Copy, changes made in POS to enhance lead fulfilment process.

Events such as "Red Carpet Day" – the in-branch invitation for our existing ABF customers, has helped us reach out and treat our existing customers in a special manner. The focus on Customer Service desk in all branches has helped us to tap online queries of our potential customers and engage them through multiple initiatives. There are several technology & process changes undertaken to simplify the process of lead fulfilment and Servicing of Existing Customers. Project re-engineering is an ongoing exercise to proactively identify and eliminate pain points for customers.

DIRECTORS

Appointment

Your directors at its meeting held on 31 January 2019, on the recommendation of the Nomination and Remuneration Committee, had appointed Mrs. Vijayalakshmi Rajaram Iyer (DIN: 05242960) as an Additional Director in the capacity of Non-Executive Independent Director with effect from 31 January 2019.

Your Directors have recommended for the approval of the Members the appointment of Mrs. Iyer as Non-Executive Independent Director of the Company.

Mrs. Iyer is not disqualified from being appointed as a Director as specified in terms of Section 164 of the Companies Act, 2013.

Re-appointment

Mr. Narayan K Seshadri (DIN: 00053563) will complete his present term as an Independent Director on 24 September 2019. Your Directors at its meeting held on 15 May, 2019, on the recommendation of the Nomination and Remuneration Committee, recommended for the approval of the Members, the re-appointment of Mr. Seshadri as an Independent Director of the Company for another period of five years with effect from 25 September 2019 considering his expertise, skills and knowledge, particularly in the field of finance and accounts. Further Mr. Seshadri articulates and provides his valuable guidance and inputs in all matters pertaining to the financial statements and is current with finance and business matters.

Mr. Seshadri is not disqualified from being appointed as a Director as specified in terms of Section 164 of the Companies Act, 2013.

Requisite Notices under Section 160 of the Act have been received in respect of Mrs. Iyer and Mr. Seshadri, who have filed their consents to act as Directors of the Company, if appointed/re-appointed. Appropriate resolution seeking your approval to the aforesaid appointment/ re-appointment along with brief profile of Mrs. Iyer and Mr. Seshadri is appearing in the Notice convening the 39th AGM of your Company.

Retirement by Rotation

In accordance with the provisions of the Companies Act, 2013 and Regulation 36 of the Listing Regulations, Mr. Sanjay Chamria (DIN 00009894), retires at the ensuing AGM, and being eligible offers himself for re-appointment.

The brief resume/details relating to Director who is to be re-appointed is furnished in the Notice of the ensuing AGM.

The Board of Directors of your Company recommends the re-appointment of the Director liable to retire by rotation at the ensuing AGM.

Cessation

Mr. Nabankur Gupta who had joined the Company since 2008 ceased to be the Independent Director of the Company due to his sudden sad demise on 7 December 2018. He had joined the Company as an Independent Director on 22 October 2008. Since then he had given his unstinted support to the Company; by guiding throughout as a member of Board of Directors, Chairman of Nomination and Remuneration Committee and member of the Audit Committee of the Board. Magma has immensely benefitted from the valuable advice and guidance provided during his association with the Company. The Board of Directors recognizes and place on record his valued contribution and unstinted support to the Company ever since his joining the Company's Board of Directors in Independent capacity.

Independent Directors

The Company has received declarations pursuant to Section 149(7) of the Companies Act, 2013 from all the Independent Directors of the Company confirming that they meet the criteria of independence as prescribed both under Section 149(6) of the Companies Act, 2013 and in terms of Regulation 16 of Listing Regulations.

Familiarisation programme

In compliance with the requirement of Regulation 25 of Listing Regulations, the Company has put in place a familiarisation programme for the Independent Directors to familiarise them about the Company and their roles, rights, responsibilities in the Company. The details of the familiarisation programme are explained in the Corporate Governance Report. The same is also available on the website of the Company www.magma.co.in at https://magma.co.in/about-us/investor-relations/ secretarial-documents/download-secretarial-documents/.

Performance Evaluation

The Board evaluated the effectiveness of its functioning and that of the Committees and of individual directors by seeking their inputs on various aspects of Board/Committee Governance through structured questionnaire.

The aspects covered in the evaluation included the contribution to and monitoring of corporate governance practices, participation in the long-term strategic planning and the fulfilment of Directors' obligations and fiduciary responsibilities, including but not limited to, active participation at the Board and Committee meetings.

The Chairman of the Board had one-on-one meetings with the Independent Directors and the Chairman of the Nomination and Remuneration Committee had one-on-one meetings with the Executive and Non-Executive Directors. Also, the Nomination and Remuneration Committee has carried out evaluation of every director's performance and reviewed the self-evaluation submitted by the respective directors. These meetings were intended to obtain Directors' inputs on effectiveness of Board/Committee processes.

The Board considered and discussed the inputs received from the Directors. Further, the Independent Directors at their meeting, reviewed the performance and role of non-independent directors and the Board as a whole and Chairman of the Company. Further, the Independent Directors at their meeting had also assessed the quality, quantity and timeliness of flow of information between the Company management and the Board that was necessary for the Board to effectively and reasonably perform their duties.

Remuneration Policy

The Board has, on the recommendation of the Nomination and Remuneration Committee adopted the Remuneration Policy, which inter-alia includes policy for selection and appointment of Directors, Key Managerial Personnel, Senior Management Personnel and their remuneration. The Remuneration Policy is stated in the Corporate Governance Report.

DIRECTORS' RESPONSIBILITY STATEMENT

To the best of our knowledge and belief, your Directors make the following statements in terms of Section 134 (5) of the Companies Act, 2013:

a. that in the preparation of the annual accounts for the year ended 31 March 2019, the applicable Ind AS have been followed along with proper explanation relating to material departures, if any;

b. that such accounting policies as mentioned in Notes to the annual accounts have been selected and applied consistently and judgement 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 31 March 2019 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, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d. that the annual accounts have been prepared on a going concern basis;

e. that proper internal financial controls are in place and that the financial controls are adequate and are operating effectively; and

f. that proper systems to ensure compliance with the provisions of all applicable laws are in place and that such systems are adequate and operating effectively.

MEETINGS

Minimum four pre-scheduled Board meetings are held annually. Additional Board meetings are convened by giving appropriate notice to address the Company's specific needs. In case of business exigencies or urgency of matters, resolutions are passed by circulation.

During the year five Board Meetings and five Audit Committee Meetings were convened and held, the details of which are given in the Corporate Governance Report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013 and Listing Regulations.

Audit Committee

Pursuant to the sudden demise of Mr. Nabankur Gupta, the Audit Committee was reconstituted and presently comprises of Mr. Narayan K Seshadri who serves as the Chairman of the Committee and Mr. Satya Brata Ganguly and Mr. V K Viswanathan as other members. The terms of reference of the Audit Committee has been furnished in the Corporate Governance Report. All the recommendations made by the Audit Committee during the year were accepted by the Board.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee was reconstituted after demise of Mr. Nabankur Gupta and presently comprises of Mr. V K Viswanathan who serves as the Chairman of the Committee and Mr. Narayan K Seshadri and Mr. Satya Brata Ganguly as other members. The terms of reference of the Nomination and Remuneration Committee has been furnished in the Corporate Governance Report.

Stakeholders' Relationship Committee

The composition and terms of reference of the Stakeholders' Relationship Committee has been furnished in the Corporate Governance Report.

Corporate Social Responsibility (CSR) Committee

The Corporate Social Responsibility Committee comprises of Mr. Mayank Poddar who serves as the Chairman of the Committee and Mr. Sanjay Chamria and Mr. Satya Brata Ganguly as other members.

The Annual Report on CSR activities is annexed herewith and marked as Annexure 1.

CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES

All transactions with Related Parties are placed before the Audit Committee for approval. All related party transactions that were entered into during the financial year were on an arm's length basis and in the ordinary course of business, the particulars of such transactions are disclosed in the notes to the financial statements. The nature of related party transactions require disclosure in AOC-2, the same is attached with this Report.

The Policy on Related Party Transactions is available on the Company's website at its weblink i.e.https://magma.co.in/about-us/investor-relations/ secretarial-documents/download-secretarial-documents/.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS

There were no significant material orders passed by the Regulators / Courts / Tribunals which would impact the going concern status of the Company and its future operations.

STATUTORY AUDITORS

M/s. B S R & Co. LLP, Chartered Accountants, Bangalore, bearing Registration No. 101248W/W-100022 have been appointed as the Statutory Auditors of the Company for a period of 5 years from the conclusion of the 36th AGM (for FY 2015-16) till the conclusion of the 41st AGM (for FY 2020-21).

Statutory Auditors' Observations

The notes on financial statements referred to in the Auditors' Report are self-explanatory and do not call for any further comments. The Auditors Report does not contain any qualification, reservation, adverse remark or disclaimer.

Secretarial Audit

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board of Directors of the Company has appointed M/s. MKB & Associates, Practicing Company Secretaries [Membership Firm No: 7596] to conduct the Secretarial Audit for the FY 2018-19. The Secretarial Audit Report for the financial year ended 31 March 2019 is annexed herewith and marked as Annexure-2. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.

SECRETARIAL STANDARDS

The Company compiles with all aplicable secretarial standards.

BUSINESS RESPONSIBILITY REPORT

As stipulated in Regulation 34 (2) (f) of the Listing Regulations, the Business Responsibility Report describing the initiatives taken by the Company from environmental, social and governance perspective forms part of this Report.

CORPORATE GOVERNANCE

Your Company complies with the provisions laid down in Corporate Governance laws. It believes in and practices good corporate governance. The Company maintains transparency and also enhances corporate accountability. In terms of regulation 34 of Listing Regulations read with Schedule V, the following forms part of this Report:

(i) Declaration regarding compliance to Code of Conduct by Board Members and Senior Management Personnel;

(ii) A certificate from a Practicing Company Secretary that none of the directors on the Board of the Company have been debarred or disqualified from being appointed or continuing as directors of companies by the Board/Ministry of Corporate Affairs or any such statutory authority;

(iii) Report on the Corporate Governance and

(iv) Auditors' Certificate regarding compliance of conditions of Corporate Governance.

PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNING AND OUTGO

Your Company does not have any activity requiring conservation of energy or technology absorption and the foreign exchange earnings and the foreign exchange outgo of the Company is furnished in note no.54 to the standalone financial statement.

EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the Annual Return in form MGT 9 forms part of this Report and is annexed herewith and marked as Annexure-3.

PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES

In terms of the provisions of Section 197(12) of the Companies Act, 2013 (‘the Act') read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules are provided in this Report and marked as Annexure-4.

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016 are provided in this Report and marked as Annexure-4.

TRANSFER OF AMOUNT TO INVESTOR EDUCATION AND PROTECTION FUND

Pursuant to Section 124 (5) of the Companies Act, 2013, read with Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 as amended from time to time, relevant amount which remained unpaid or unclaimed for a period of seven years have been transferred by the Company, from time to time on due dates, to the Investor Education and Protection Fund (IEPF). During the year under review your Company has transferred `3,33,934/- (Rupees Three lacs Thirty Three Thousand Nine Hundred Thirty Four Only) to IEPF.

Pursuant to Section 124 (6) of the Companies Act, 2013 and read with Rule 6 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, (as amended from time to time), all the underlying shares in respect of which dividends are not claimed/paid for the last seven consecutive years or more are liable to get transferred to the IEPF DEMAT Account with a Depository Participant as identified by the IEPF Authority. Accordingly, during the year under review 1,04,368 equity shares, of face value of ` 2/- each, were transferred to IEPF DEMAT Account.

The Company has uploaded the details of unpaid and unclaimed amounts lying with the Company as on 2 August 2018 (date of last Annual General Meeting) and also the details of equity shares transferred to IEPF DEMAT Account on the Company's website (www.magma.co.in), as also on the Ministry of Corporate Affairs' website (www.mca.gov.in).

FRAUD REPORTING

During the year under review, neither the statutory auditors nor the secretarial auditor has reported to the Audit Committee under section 143 (12) of Companies Act, 2013, any instances of fraud committed against the Company by its officers or employees, the details of which needs to be mentioned in the Board's Report.

APPRECIATION

Your Directors would like to record their appreciation of the hard work and commitment of the Company's employees and warmly acknowledge the unstinting support extended by its bankers, alliance partners and other stakeholders in contributing to the results.

CAUTIONARY STATEMENT

Statements in the Board's Report and Management Discussion and Analysis, describing the Company's objectives, outlook, opportunities and expectations may constitute "Forward Looking Statements" within the meaning of applicable laws and regulations. Actual results may differ from those expressed or implied expectations or projections, among others. Several factors make a significant difference to the Company's operations including the government regulations, taxation and economic scenario affecting demand and supply, natural calamity and other such factors over which the Company does not have any direct control.

For and on behalf of the Board
Narayan K Seshadri Sanjay Chamria
Chairman Vice Chairman and Managing Director
DIN: 00053563 DIN: 00009894
Mumbai
15 May 2019