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Corporate Information
  •         DIRECTOR'S REPORT
Magma Fincorp Ltd
Industry : Finance & Investments
BSE Code:524000NSE Symbol:MAGMAP/E(TTM):7.29
ISIN Demat:INE511C01022Div & Yield %:1.28EPS(TTM):8.6
Book Value (Rupee ):94.8844041Market Cap (Rupee Cr.):1688.89Face Value(Rupee):2
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Dear Shareholders,

Your Directors have pleasure in presenting the 38th Annual Report along with the Audited Financial Statements of the Company for the financial year ended 31 March, 2018.

Financial highlights is given below:

(Rs. in Lacs)

Consolidated Standalone
FY 2017-18 FY 2016-17 FY 2017-18 FY 2016-17
Total income 229,858.65 240,530.93 203,710.89 202,673.42
Profit before interest and depreciation 127,274.12 122,659.49 110,339.50 100,156.44
Less: Interest and finance charges 90,546.05 113,130.24 78,467.49 94,256.97
Less: Depreciation 4,922.45 4,850.13 4,897.65 4,828.66
Profit before tax 31,805.62 4,679.12 26,974.36 1,070.81
Tax Expense 8763.21 3,405.89 6,725.42 461.13
Profit after tax (Before Minority Interest) 1 23,042.41 1,273.23 20,248.94 609.68
Minority Interest - (772.04) - -
Profit after tax (After Minority Interest) 23,042.41 2,045.27 20,248.94 609.68
Add: Surplus brought forward 56,403.47 55,160.75 47,606.42 47,129.24
Add: Impact of pre-acquisition surplus on Merger - - 4,309.84 -
Balance available for appropriation 79,445.88 57,206.02 72,165.20 47,738.92
- Statutory reserves 4,589.95 800.05 4,110.00 130.00
- General reserve 13,832.22 - 13,832.22 -
Dividend Paid
- On preference shares 0.75 2.08 0.75 2.08
- On equity shares 1,895.79 - 1,895.79 -
- Dividend tax 386.09 0.42 386.09 0.42
Balance carried forward 58,741.08 56,403.47 51,940.35 47,606.42

 1The Company had sold non-performing assets (NPAs) of Rs. 67,802.19 lacs which included NPAs greater than 2 years in asset backed portfolio and greater than 6 months in mortgage portfolio. The aforesaid sale resulted in reduction of profit after tax byRs. 14,526.88 lacs for the quarter and year ended 31 March 2017.

Economic and Industry Overview

Global Economic Overview

According to the World Economic Outlook (December 2017 update), the global output was projected to expand by a healthy 3.7% in 2017. The pickup in the growth is broad based, lead by both developed and emerging economies. The forecast for 2018 is even higher at 3.9%, reflecting the back of a pick-up in investments.

A Global Economic Survey carried out amongst members of the Global Chamber Platform (GCP) has also increased confidence in the global economy. With optimistic growth fore-casts and an increase in business confidence for 2018, the global growth rate has is picking up steam after signalled out the following challenges:

Protectionism and insufficient access to foreign markets.

Persistent trade barriers, and the increasing risk of trade wars among the world's major economic blocs may have potential to undermine the expected positive growth for 2018. global growth momentum on Political instability has been ranked as the second main challenge.

The tightening of global financial conditions, the stability of the financial system, as well as the effects of climate change were considered as the other main challenges for the global economy in the year ahead.

Indian Economic Overview

India's GDP is estimated to grow by 7.4% in FY2018, which makes the country the world's fastest-growing major economy in 2018. This growth is driven by robust public and private consumption. Consumption was supported by lower energy costs, public sector salary and favourable monsoon rains. Economic activity also benefited from a pick-up in FDI and an increase in public infrastructure spending. Some of the key factors driving growth are:

On implementing GST, the Indian economy has initiated the process of transforming into a formal economy, improving the tax base. The tax collection for 11 months in FY 2018 showed an increase in net direct taxes by 19.5% on y-o-y basis.

Foreign Direct Investment (FDI) inflows reached US$ 208.99 billion during April 2014 - December 2017, with maximum contribution from services, computer software & hardware, telecommunications, construction, trading and automobiles.

The foreign exchange reserves were US$ 422.53 billion in the week up to March 23, 2018, according to data from the RBI, which is approximately 11 months of imports.

Merchandise exports grew 11% to US$ 273.73 billion and imports 21% to US$ 416.87 billion on a y-o-y basis.

India has improved its ranking in the World Bank's Doing Business Report by 30 spots over its 2017 ranking, and is ranked 100 among 190 countries in 2018 edition of the report.

Moody's upgraded India's sovereign rating after 14 years to Baa2, with a stable economic outlook.

However, there are some concerns:

CPI inflation was at 4.4% in February 2018. In the last monetary policy review, the RBI has projected an increase in CPI inflation to 5.1-5.6%, during the first half of FY2019.

There are headwinds from the higher bank NPAs, elevated bond yields and trade protectionism may cause disruption.

The tightening of global financial markets, in combination with the NPA-laden domestic banking sector, could affect international capital inflows.

In the first three quarters of FY2017-18, oil prices have been about 16% greater in dollar terms than in the previous year.

It is estimated that a $10 per barrel increase in the price of oil will reduce growth by ~0.25bps and increase WPI inflation by ~1.7bps.

Industry Overview

NBFC Sector

NBFCs are vital intermediaries, driving the last mile transmission of credit to sectors that have not had meaningful access to formal banking credit. They have made a significant contribution towards supporting the government's agenda of extending financial inclusion. This role assumes an even greater significance at a time when banking institutions, especially Public Sector Banks, are struggling with growth and asset quality.

Over the last few decades, NBFCs have developed and supported important infrastructural requirements, driving economic growth – especially in the areas of transportation (commercial vehicle and auto finance), rural industry (tractors, small equipment and small sector finance), high potential medium & small scale industry (MSME), consumption financing and home finance.

Overview of underlying asset class Automobile sector

All India sales of new Commercial Vehicles (CV) recorded a growth of 19.94% during FY2017-18, as opposed to 4.2% growth in FY2016-17. The increase in demand has been in all segments such as Medium & Heavy Commercial Vehicles (MHCV), Small Commercial (SCV) and Light Commercial (LCV) vehicles, which witnessed growth of 11.2%, 27.2% and 16.2%, respectively.

Volume in the Construction Equipment (CE) segment increased by 24.8% in FY2017-18, as opposed to a decline of 12.5% in FY2016-17.

The sale of new passenger vehicles recorded a growth of 7.9% during FY2017-18, against 9.2% growth recorded in FY2016-17. This was mainly due to a slower growth in the utility vehicle segment. Within the Passenger Vehicles segment, Passenger Cars, Utility Vehicles and Multipurpose Vehicles grew by 3.3%, 21.0% and 5.8% respectively, compared to the corresponding previous year.

The revival in demand and rural growth led to 22.1% of volume growth in tractors during FY2017-18 as compared to growth of 18.1% in FY2016-17, the demand for tractors was stronger on back of increased farm activities, with a normal monsoon forecast and improved soil moisture and reservoir levels. An upward revision in Minimum Support Price (MSP) and non-agriculture demand also contributed to tractor growth in FY2017-18.

SME Sector

The MSME sector in India continues to demonstrate resilience in the face of testing global and domestic economic circumstances. The sector has sustained an annual growth rate of over 10% for the past few years. With its agility and dynamism, the sector has shown innovativeness and adaptability to survive economic shocks.

The significance of MSMEs is attributable to their caliber for employment generation, low capital & technology requirement, the promotion of industrial development in rural areas, the use of traditional or inherited skill, the use of local resources, mobilisation of resources and the exportability of products.

Further, the MSME sector continues to have a huge unmet demand for credit. The NBFCs share in MSME financing will continue to grow, but competitive intensity is expected to rise due to the entry of small finance banks and PSB recapitalisation.

Mortgage Sector

Last year the government announced various measures such as Pradhan Mantri Awas Yojana (PMAY), in addition to an extension of the credit-linked subsidy scheme, to expand the affordable housing sector. India's mortgage-to-GDP ratio is still low at 10% in Fiscal 2017 compared to other developing countries, but it has improved from 7.4% in Fiscal 2010, given rising incomes, improving affordability, growing urbanisation including the emergence of tier 2 and tier 3 cities, the evolution of the nuclear family concept, tax incentives, widening reach of financiers and faster loan sanctioning. Various structural drivers such as a young population, smaller family sizes, urbanisation, rising income levels and widening reach of financiers provides immense growth prospects for NBFCs in the housing space in medium to long term.

Overview of Company's Performance

The Company has shown significant of its business in FY2017-18. The new initiatives taken by the Company under a new leadership, have shown positive impact during current year. The momentum of disbursement has shown good traction, leading to steady asset growth on a quarterly basis.

Asset Quality

The consolidated GNPA ratio on 90 dpd basis on total AUM, declined from 8.8% (restated based on new regulatory norms applicable for year ended 31 March 2018) in March 2017 to 7.0% in March 2018. Similarly, the NNPA ratio on total AUM has declined from 7.5% in March 2017 to 5.2% in March 2018. This is a significant improvement which is the result of various collection initiatives undertaken by the Company.

Disbursements and Loan Assets

During the year FY2017-18, the standalone disbursements grew by 12.7% from Rs. 5,96,750 lacs in FY2016-17 to Rs. 6,72,581 lacs in FY2017-18. Similarly, the consolidated disbursements grew by 8.5%, from Rs. 6,71,582 lacs in FY2016-17 to Rs. 7,28,680 lacs in FY2017-18. The growth in disbursement is mainly on the back of increase in disbursement of Used Assets, Commercial Vehicles and the SME loans.

Total assets as on 31 March 2018, on standalone basis reached to Rs. 11,95,236 lacs, a growth of 4.70% on y-o-y basis and on consolidated basis it reached to Rs. 13,70,127 lacs, an increase of 0.6% on y-o-y basis.

Total Loan assets as on 31 March 2018 on standalone basis increased by 1.9% y-o-y basis to Rs. 13,76,553 lacs. However, the Total Loan Assets registered on consolidated basis registered a decline of 3.4% to Rs. 15,55,474 lacs.

New Initiatives and Business Outlook

Asset Backed Finance (ABF) business has shown helathy growth on the backdrop of various initiatives taken by the Company to return to the path of healthy growth, with a clear focus on portfolio quality. The disbursement in ABF business has shown an increase of 12% as Compared to last year.

Mortgages Business, the Company continued its transition to sourcing direct business and disbursing lower ticket loans in

FY 2017-18. This strategic shift to direct origination and lower ticket size loans impacted the Company's disbursement and loan growth of mortgage business in FY2017-18. With the transition being almost complete, the Company expects steady growth in the business going forward. The push for affordable housing by the Government of India will further expand the Company's current housing strategy.

SME Business continues to remain a bright spot for the Company.

With better yields and lower credit cost, SME profitability is best among the products which we offer. Temporary disruption due secularprogressineacharea to demonetisation led to lower disbursement in first half of fiscal 2017-18. In FY2017-18, SME disbursement increased by 12%, as compared to last year, due to increased contribution of business from tier 2/3 towns, the build geo-cluster and industrial segment, an increased contribution of business from Direct Sourcing - starting with pre-approved loans - on a large existing customer database.

Insurance business continues to be profitable in FY2017-18.

During the year a sound foundation has been laid by the new management team. The Company has achieved improved loss ratios through portfolio correction measures, ensuring that the underwriting guidelines and processes are well defined. The insurance business is growing in a responsible and calibrated manner as per the plan. The Company has launched new and innovative product "One health, a comprehensive health insurance plan" in the health insurance segment to capture market share in the fast growing health insurance market. This would ensure that the Company remains cost-efficient in its operations. The Company also intends to launch new products and shall continue to invest in technology to enhance the dealing experience for channel partners resulting in an improved customer experience.

Branch network

Magma has expanded its branch network to 305 branches in FY2018 as compared to 284 branches in FY2017. The Company continues to exploit the untapped potential of existing branches and ensured that more products are available across our branch network. General insurance and mortgage finance products are available in 125 and 94 branches, respectively.

Capital Raise

At the beginning of the year 2018-19, the Company has successfully raised Rs. 500 Crores through a Qualified Institutional Placement (QIP). The QIP received an overwhelming response, getting 1.76 times oversubscription from many renowned and marque institutional investors across India and Asia.

Financial Performance

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

The Company Profit afterTax (PAT) on consolidated basis increased to Rs. 23,042 lacs in FY2017-18 compared to Rs. 1,273 lacs in FY2016-17.

Better interest cost management and a prudent mix of products helped the Company increase its net interest margin (NIM) by 137 basis points, from 7.4% to 8.8%, during FY2017-18. Even though average lending rates on earning loan assets declined by 7 basis points to 16.24%, it was offset by a decline in the cost of funds from 9.81% in FY2016- 17 to 9.15%.

Net Income from Operations (i.e. total income less finance cost) on a consolidated basis increased by 9.3% from Rs. 1,27,401 lacs in FY2016-17 to Rs.1,39,313 Lacs in FY2017-18.

A decrease in volumes and also doing more business through direct sourcing, resulted in a 14% decline in the Brokerage and commission expenses in FY2017-18, as compared to last year. However, the overall opex ratio increased from 3.6% in FY 2016 -17 to 4.4% in

FY2017 -18 mainly due to lower Assets Under Management, and higher investment in branch expansion, investments in technology, investments in the existing business and increase outsourcing of collections in higher brackets.

On a Standalone basis, the total Capital Risk Adequacy Ratio (CRAR) for the year FY2017-18 was 20.7%, against the RBI stipulated norm of 15% for non-deposit taking Asset Finance Companies. The recent capital infusion through Qualified Institutional Placement will further strengthen the capital adequacy going forward.

Opportunities, Challenges and Outlook

Opportunities

In the present economic system of India, NBFCs have assumed a significant role in providing accessible and affordable financial services

With the focus of NBFCs on segments traditionally neglected by banks (non-salaried professionals, individuals, traders and transporters), and with the ongoing stress on public-sector banks due to mounting bad debt, NBFCs have a lucrative opportunity to expand their presence in the Indian financial story.

The success of NBFCs can be clearly attributed to their ability to assess the credit worthiness of customers with informal income, superior product construct tailored to meet the needs of identified customer segment, excellent turn-around time (TAT) from lead to disbursement, widerandeffective reach, strong risk management capabilities to check and control bad debts, and an overall better

The success of NBFCs can be clearly attributed to their ability to assess the credit worthiness of customers with informal income, superior product construct tailored to meet the needs of identified customer segment, excellent turn-around time (TAT from lead to disbursement, wider and effective reach, strong risk management capabilities to check and control bad debts, and an overall better understanding of their customer segments.

As the Indian customer evolves, NBFCs would need to leverage new technologies to improve the customer experience.

Increasingly, financial transactions are conducted through electronic banking. As the consumer acceptance of eKYC and biometric authentication increases, fingerprint recognition has the potential of becoming the most commonly used technology for customer interactions. Adoption of the emerging and new technology would result in faster loan approvals and enrich customer experience.

Challenges

India's financial sector is facing considerable challenges. High non-performing assets especially of the Public Sector Banks, and the slow deleveraging and repair of corporate balance sheets are testing the resilience of the banking system, holding back investment and growth.

The year 2017-18 was the year of benign interest rates. However, interest rates have substantially hardened towards the end of the financial year and have continued to harden in FY2018-19.

Ensuring that the overall interest cost remains under control would be a big challenge in FY2018-19.

The hardening of crude oil prices could lead to higher inflation during the year, putting further upward pressure on the interest rates.

There has been explosive growth in the financial services sector in the recent few years. The advent of the new generation banks, full service banks, small finance banks and payment banks has opened multiple opportunities for the available talent. Ensuring that the available talent remains committed with the Company, providing adequate career opportunities to existing talent pool and continuously building back up talent pool would be another key challenge for the industry.

Outlook

The Indian economy has returned to become leading growth economy after twin disruptions caused by demonetization and roll out of the Goods and Services Tax. The growth in FY2018-19 has been projected to be higher than the previous year. The third consecutive good monsoon would provide further tailwind to the growth and specially augurs well for the rural economy.

Over last two years, the Company has gone through a transformation building blocks for returning to secular quality growth. The emerging opportunities provide an excellent platform to achieve sustainable growth.

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 Accounting Standard-21-"Consolidated Financial Statements" and Accounting Standard-27-"Financial Reporting of Interests in Joint Ventures" issued by The Institute of Chartered Accountants of India. The Consolidated Financial Statements forms part of this Report.

Subsidiary and Joint Venture Companies

Magma Housing Finance Limited [Formerly, Magma Housing Finance (A Public Company with Unlimited Liability)] (MHFL) is a wholly owned subsidiary of the Company. MHFL has made disbursements of Rs. 56,099 lacs against Rs. 47,539 lacs in previous year. MHFL has earned a PBT of Rs. 3,560 lacs for the year ended 31 March 2018 against Rs. 5,198 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 (MHDI) (the ‘JV Company') has completed five full years of operation in the year ending 31 March 2018. MHDI has reported Gross Written Premium (GWP) of Rs. 56,028 lacs in FY 2017-18 against Rs. 42,288 lacs in FY 2016-17. MHDI has earned PBT of Rs. 606 lacs for the year ended 31 March 2018 as against Rs. 717 lacs for the year ended 31 March 2017.

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 Rs. 1.36 Lacs for the year ended 31 March 2018 against Rs. 1.92 Lacs in previous year.

Corporate Restructuring

Scheme of merger between your Company and Magma Advisory Services Limited

The Board of Directors of your Company approved the Scheme of merger between Magma Advisory Services Limited, wholly owned subsidiary (‘Transferor Company') (MASL) and Magma Fincorp Limited (Transferee Company) (MFL) with the stated objectives of inter alia achieving greater integration, financial strength and flexibility; and achieving consolidation of the activities of our Company. The Central Government through the

Regional Director, Eastern Region, Ministry of Corporate Affairs (the "Regional Director"), has vide its confirmation order dated 15 January 2018 (the "Effective Date"), approved the Scheme.

Consequently, the Scheme became effective from 15 January 2018, with effect from 1 April 2017 being the Appointed Date of the Scheme, the entire business and undertaking(s) of MASL including all the debts, liabilities, duties and obligations and all assets have been transferred to MFL. MASL stands dissolved without winding-up on the effective date and therefore ceases to be a wholly owned subsidiary Company of your Company. Magma Housing Finance Limited, which was at the time an indirect subsidiary held through MASL, has become a direct subsidiary of your Company.

Scheme of amalgamation between your Company and Magma ITL Finance Limited

The Board of Directors of your Company approved the Scheme of amalgamation between Magma ITL Finance Limited, wholly owned subsidiary (‘Transferor Company') (MITL) and Magma Fincorp Limited (Transferee Company) (MFL) with the stated objectives of inter alia achieving greater integration, financial strength and flexibility and achieving consolidation of the activities of our Company. The Hon'ble National Company Law Tribunal, Kolkata Bench (NCLT), has vide its order dated 8 May 2018 approved the Scheme.

Consequently, the Scheme becoming effective from 8 May 2018 with effect from 1 October, 2017, being the Appointed Date of the Scheme, the entire business and undertaking(s) of MITL including all the debts, liabilities, duties and obligations and all assets have been transferred to MFL. 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.

Dividend

As stipulated in SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2016, 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/.

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 Rs. 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.

Transfer to Reserve

The Company proposes to transfer a sum of Rs. 4,110.00 lacs to Statutory Reserve as required by RBI. An amount of Rs. 51,940.35 lacs is proposed to be retained in the Surplus Account as at the end of FY 2017-18.

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 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 2018 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.in at https://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 under the Magma Employees Stock Option Plan 2007:

During the year, 69,000 Equity Shares of the face value of Rs. 2/- each were allotted to the eligible employees at a price of Rs. 60/- per Equity Share (including a premium of Rs. 58/- per Equity Share) upon the exercise of stock options by the employees.

After the close of financial year

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

The new Equity Shares issued shall rank pari passu with the existing Equity Shares of the Company in all respects.

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 Rs. 5,385.73 lacs divided into 26,92,86,736 (Twenty Six Crore Ninety Two Lacs Eighty Six Thousand Seven Hundred and Thirty Six) Equity Shares of Rs. 2/- each as on date.

Debt

Secured Debt

During the year, the Company issued 1,600 Nos. Secured Redeemable Non-Convertible Debt in the nature of Debentures of face value Rs. 10 lacs each, aggregating to Rs. 16,000 Lacs. In addition, the Company also issued 200 Nos. Secured Redeemable Non-Convertible Debt in the nature of Debentures of face value Rs. 100 lacs each, of which 15% (partly paid) of the face value aggregating to Rs. 3,000 Lacs. Total amount raised through Secured Redeemable Non-Convertible Debt Instruments is Rs. 19,000 lacs.

Unsecured Subordinated Debentures

During the year, the Company issued 200 Nos. Unsecured Redeemable Non-Convertible Subordinated Debt in the nature of Debentures of face value of Rs. 10 lacs each, aggregating to Rs. 2,000 lacs. Total amount raised through Unsecured Redeemable Non-Convertible Subordinate Debt Instruments is Rs. 2,000 lacs.

Perpetual Debt Instrument

During the year, the Company issued 10 Nos. of Unsecured Redeemable Non-Convertible Perpetual Debt in the nature of Debentures of face value of Rs. 10 lacs each aggregating to Rs. 100 lacs .Total amount raised through Unsecured Redeemable Non-Convertible Perpetual Debt instruments is Rs. 100 lacs.

Credit Rating

During FY 2017-18, 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 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. CARE Ratings & ICRA Limited have also revised upwards its rating outlook on long term facilities to Stable from Negative. SMERA and Brickwork ratings has reaffirmed the rating for Unsecured Subordinated Debt Instrument at AA.

Rating for Short-term debt instruments from CRISIL are reaffirmed at CRISIL A1+.

Instrument Rating Rating Agency
Rating Under Basel Guidelines
Fund Based & Non Fund Based from AA- CARE
Banks AA- ICRA
AA- India Ratings
Short Term Debt (Commercial Paper) A1+ CARE/CRISIL
Secured Redeemable Long Term AA- CARE
Bond/Note AA- ICRA
AA- India Ratings
Unsecured Subordinate Tier II Bonds AA- CARE
AA Brickwork/SMERA
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. 35(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. 14, 19, 30, 33 and 42 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. The Committee met three 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.

To make the current Risk Management practice more robust and aligned to the industry practice, the management has set up an

Integrated Risk Management (IRM) Framework encompassing both the Credit Risk as well as the Market & Interest Risk of the organisation. The said framework helps to manage the risks through constant monitoring of key parameters 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.

Currently, Magma's Risk Management team of dedicated professionals uses latest statistical tools and applications to help it benchmark against the best competitive practices of the industry and accordingly align its credit policies for every customer category in accordance with the organisation's own risk appetite and historical portfolio performance.

Challenges of Portfolio quality faced in last two years have largely been overcome in FY 2018 through a robust hind-sighting process, hawk like focus towards resolution of early warning indicator (EWI), and Continuous Portfolio Monitoring Indicator (CPMI) cases. The initial results are very encouraging.

Regular portfolio reviews by Magma's Risk Department that eventually reports to the Risk Management Committee ensures assessment of the evolving and changing market risks. The RMC meets at regular intervals to chalk out road-map in respect of building asset base as well as maintaining portfolio quality in the evolving market.

Market risk

Magma's approach towards mitigation of market risk operate at two levels; namely -

(a) Identification of the macro-economic indicators as relevant to Magma's lending business and

(b) Establishing and regular monitoring of delinquency parameters at the portfolio level

Lead indicators

Lead macro-economic growth indicators that govern Magma's credit & risk policies are as follows:

1. Gross Domestic Product

2. Index of Industrial Production

3. Core Sector index

4. CPI Inflation

The above indicators have direct impact on customer cash flows and operational viability of commercial assets that Magma funds; these are tracked very closely throughout the year to ensure portfolio level corrective steps from time to time.

Operational risk management

Operational risk encompasses anything that is beyond credit or market risk and covers a wide range of the Company's activities. It involves alignment of all functions and verticals towards identifying the key risks in the underlying process. Each functional 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.

Magma's Risk Department is working closely with external experts to set up a robust Operational Risk Framework in the organization to build up strong safe-guards against the perceived operational risks. With the proposed framework in place, Magma will look forward towards an automated Risk Control system which will better manage both policy and processes and help minimize frauds and improve portfolio quality.

Presently, Magma already has following mechanisms and implemented processes that help minimize operational risks:

• All processes are standardized and documented

• Separate credit function to enable unbiased credit assessment

• Clearly defined delegation of authority matrix

• Segregated operations vertical to ensure effective maker and checker system

• Implementation of training calendar for all functions

• Easy access for all employees to various processes, rules, regulations and operating guidelines through web-based interactive system

• Internal audit process covering both on-site and off-site audit of branches and departments

In a nutshell, internal metrics form the key of risk management in Magma. The entire credit process is metrics-driven to achieve the risk-return goals and ensure a healthy portfolio.

Asset liability risk

Any mismatch in tenures of borrowed and disbursed funds may result in liquidity crisis and thereby impact 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. At Magma, prudence and appropriate risk is the guiding principle for decision making in the treasury functions. The Company has maintained appropriate asset liability maturity with regard to its tenure and interest rates.

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 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 a formidable 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 in respect of managing various financial risks viz. asset liability risk, foreign currency risk and liquidity risk.

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

People Risk

Our intent is to be proactive in identifying and addressing risk aspects around people and address them in a timely and comprehensive manner. Risks that Magma focuses on include:

Risks associated with recruitment:

• Delay in hiring due to non-availability of candidates with appropriate qualifications & experience at the right cost and in the location required

• Hiring candidates who are not aligned with our culture

Risks associated with attrition or underperformance: Losing high performers / people in critical roles

• Lack of timely action against non-performers

• Ethical and fraud related issues

Risks associated with redeploying or letting people go include: Job loss due to organization restructuring

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 subsidiaries. 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 well defined organisational structure, documented policies, guidelines, defined authority matrix and internal financial controls ensure efficiency of operations, protection of resources and compliance with the applicable laws and regulations.

Moreover, the Company continuously upgrades its systems and undertakes review of policies. The internal financial control is supplemented by extensive internal audits, regular reviews by 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 2018.

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/ secretarial-documents/download-secretarial-documents/.

Human Resource-People Count at every step

At Magma, we know that our employees are key in ensuring consistent business success. Our aim is to provide a conducive work environment and enhance their skills, so that they can meet their aspirations while contributing to the Company. We are consistently assessing market trends and understanding our employee requirements to adopt new processes and policies or simplifying and modifying existing ones.

Learning and development

In continuation of our efforts to create an ecosystem of learning for our employees, we achieved 14,000 man-days of training covering 4,500 employees. We launched 21 new training programs across classroom and on-line learning platform. One of our key initiatives amongst these was "Maitree" our signature 0-90 day on-boarding program for new joiners; 90% of them went through the program. "Learnsmart24x7", our new online Learning

Management System found resonance with the employees and 4,500 of them got certified across various mandatory and functional learning courses. The portal is a savvy platform available anytime, anywhere and on any device. Through our Sales skill programs, aimed at frontline employees and customised to the role, we covered 87% employees.

The involvement of business leaders in training was truly a positive step towards building a culture of learning. A series of Train the Trainer programs were launched to create a pool of functional trainers in Business. This model helped build ownership and involvement of managers across levels and they not just attended training but also trained their teams.

"Learning Friday", our in branch training model, is one of the continuous learning programs where the 1st Friday of every month is dedicated to learning and providing positive strokes to teams. 10 editions of the program through the year covered all frontline employees, and first level supervisors in ABF business.

The key focus during the year was to build skills that improve job performances and help employees attain success on a continuous basis.

Driven by technology

We are progressing in a concerted manner to embed technology in areas that simplify lives of our employees and enable productivity.

Our onsite PeopleSoft platform today has all modules live including employee confirmation, separation and recruitment. To create a great new joinee experience eMilaap, a portal to upload new hire documents went live earlier this year.

Going forward, we will focus on mobility options while strengthening dashboards for our leaders to leverage. We also plan to embrace new age platforms such as chatbots that will allow our employees, especially those in the field to get real time responses on key policy queries.

Incentive schemes

Incentive schemes can be an important driver for business outperformance. We have these schemes for all employees in line (revenue generating, customer facing) roles. Our schemes are sharp with clear key performance indicators (KPIs) for our line staff to ensure accountability and understanding. The scheme design incorporates channel nuances to ensure that each plan is aligned with the specific objectives of the department and channel of business.

At the frontline, we have monthly incentive schemes, while at supervisory roles, the frequency is quarterly and annually.

These are dynamic schemes that reflectchanges in the external business environment and revisited each year.

Employee retention endeavors

Sustained business success is best enabled when our performing and critical employees remain with us for extended periods of time. Hence retention has been an area of focus. To strengthen the process, we emphasise on:

• Maintaining work-life balance.

• Personally communicating with our employees to understand their problems

• Strengthening employee touch points with HR via branch visits, open house

• Clarifying career aspirations for key talent so that they remain aware of their growth within Magma.

• Ensuring that remuneration is appropriately benchmarked and aligned with the role.

Outlook

In the coming year, we will focus on the following areas:

Use values as the bedrock in everything that we do. - Launch values based recognition platform Magma STARS

- Celebrate Magma values during the year

Talent management

- Structured talent management framework to create an internal succession planning pipeline

- Embed career roadmaps for frontline and supervisory roles

Enhance HR processes

- Contemporary suite of policies across the employee life cycle

- Drive automation and technology creating a WOW employee experience through PeopleSoft and other satellite systems

- Adopt practices creating a more balanced work-life approach

Enable efficiencies and performance

- Sharper Performance Improvement Program (PIP) to address consistent issues of underperformance

- Robust performance management architecture that is system enabled

Sexual Harassment of Women 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. During the year under review, one case of sexual harassment was reported, which was then resolved by the Company. To build awareness and appreciation of this area, we have implemented an online knowledge module leveraging our learning management system.

Information Technology

Magma has been an innovator and an early adopter of technology.

Information Technology has been in the process of transforming from a business enabler to a key business driver in FY 17-18. This year Information Technology focused on business transformation which has direct impact on the way Magma does business, embracing digital payment channels, implementing innovative solutions, improving employee satisfaction and enhancing operational efficiency.

In Fiscal 17-18 Magma has been building a Credit decision engine which would help automate the credit decision at the front end. This will help Magma in serving the customer much faster, to maintain a high quality portfolio and enable sales team to make decisions on real time basis. Customer needs and customer satisfaction are key drivers for all the solutions Magma has implemented this year. As rural customer landscape is changing constantly and as they are embracing and adopting digital technology, Magma introduced a mobile payment gateway. Customers can now pay their EMIs without going to the branches. The mobile payment gateway supports Debit card transaction, net banking, UPI and 2 payment banks. This year Magma collected EMIs of the tune of Rs. 5,880 lacs through 40956 transactions. Customer service team was enabled with streamlined and customised system workflow for reaching their business targets and to serve customer in a better way.

GST and Demonetisation were major unruly events which affected all the NBFCs this year, Information Technology has enabled business to tackle these events by enhancing the Core Application and making it GST compliant. From Demonetisation point of view, the Point of Collections systems has been upgraded quickly to accommodate the disruptive changes.

To improve its internal employee satisfaction Magma has implemented innovative solutions such as Chatbots to automate

Helpdesk activities which helped in improving employee productivity and enhanced IT issue management. Employee on-boarding process was digitised to give a best in class onboarding experience to new employees. HR and Admin team have adopted Magma Service Desk (MSD) in a big way in FY2018 which has helped streamline their daily operational support. Travel management system has been re-engineered to provide flexibility for employees to manage their travel activities. These initiatives improved employee satisfaction, productivity and reduced internal operational cost.

Magma has moved its email platform to cloud based services from Microsoft (Office 365 Exchange Online services for its Email collaboration services) making it a disaster proof service which is highly scalable and secure. As per the master guidelines issued by RBI for ‘IT Management framework', an IT Strategy Committee has been formed which connects on a quarterly basis and reviews the Information Technology and Technology security initiatives.

A Technology Vulnerability Management program has been put in place to ensure all business applications go through rigorous security scans before going into production.

Business is leveraging the real time decision making capabilities driven by data analytics and business intelligence dashboards. Daily and monthly dashboards are built for all key employees across the organization which enable them to track the business growth and take informed decisions based on data insights.

During FY2018-19, Information Technology will continue its focus on improving the top line growth and impacting bottom line directly by implementing solutions that fall under five strategic themes namely "Digital", "Operational Efficiency ", "Analytics", "Collaboration" and "Security". The focus will be on delivering business value fast and securely by constantly challenging the status quo, experimenting, evolving and delivering solutions that are simple, reliable and innovative.

Corporate Image Building & Engaging Target Audience

On the marketing and communications front, for Magma group in FY2018, the key focus continued to be on Below-The-Line activations across targeted geographies. These activation programs were largely consisting of low-cost visibility at dealership level and engaging the target audience through well planned series of activities at locations. In branch communications and events were focused more in order to achieve better cross-sale and up-sale to existing customers. This also helped reinforce the idea that

Magma offers a wide basket of financial solutions to the customers.

Through these events, we show-cased the asset finance products Vehicles, new and used, Unsecured SME lending and the Housing products. The key focus in sales activities revolved around automation and tablet adoption, to leverage the revamped sales process changes being undertaken across all loan products. Customer convenience and ease of decision making to reduce the Turnaround time was one of the key deliverables. We continued to emphasise on the quality of servicing to our existing customers to make them happy.

FY 17-18 considered to be the most dynamic year for Leasing industry because of the introduction of GST. GST was expected to consolidate the vehicle leasing market in India and fuel to roaring leasing vehicle sector but instead unexpected climb in the tax rate jolted the entire leasing sector & same was experienced by Magma Auto lease. Due to the prevailing uncertainty and high cost impact, some of the clients decided to move out of the leasing arrangement. However due to high level of customer engagement,

Auto lease business managed to retain most of its client base with a live fleet of 4000 Vehicles. In order team has undergone structural change which will give us greater engagement with our existing customers & position as a preferred leasing partner for new acquisitions at Pan India Level.

In the Housing business, Magma focused on Affordable Housing projects by putting up smaller hoardings at approved project locations. We attended all National Housing Bank, builder association/CREDAI and industry bodies like FICCI anchored events and in some smaller locations, even organised Builder meets to make them familiar with Magma Housing products and build relationships. "Shikhar" and "Apna Ghar Utsav", in-branch Cross selling initiatives were taken up where existing customers of ABF business were invited and provided spot sanction for Home loans. We have also started promoting Pradhan Mantri Awas Yojana (PMAY) and Credit Linked Subsidy Scheme (CLS) very proactively at all our branches and also at some of the affordable housing projects.

At Magma HDI, apart from series of local events and engagement activities for Customers and Intermediaries throughout the year, the highlight was the multi-city mega launch of OneHealth at 4 zonal headquarters - Mumbai, Kolkata, Hyderabad & Raipur, followed by smaller events at 35 locations covering 1600 Intermediaries. The events were covered by all leading media houses around the country. We have also partnered with leading corporate broking houses and industry associations to organise thought leadership seminars at Delhi and Hyderabad.

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 your Company. Your Company also believes in integrity, good governance, professionalism, transparency and client satisfaction.

In our endeavour to lay down clear guidelines for dealing with customers and ensuring fair treatment plus superior customer experience to our customers, this year we have created the Group Wide Customer Services Policy. This policy includes the regulatory requirements and leading market practices to enhance the customer experience and have better customer retention. The policy aims to create a framework for: Ensuring courteousness, fairness and reasonableness in all the dealings with the customers

• Ensuring transparent communication of information pertaining to products, services and related procedures

• Ensuring privacy and confidentiality of customer information

• Handling customer complaints quickly and empathetically

In FY 18 we initiated a structured project for improving customer experience. We conducted a customer journey mapping and identifying 104 moments of truth and prioritised improvement projects for 37 key areas where customer experience needed to be enhanced. As a result of these initiatives, customer complaints, across ABF, SME and HFC verticals, have reduced significantly by 62%. We have also commenced work on identifying the right Customer Record Management solution for the business with the objective of having one unique customer id across the Group. Other initiatives taken during the year include regular updates to customers over SMS for their loans during processing or even servicing and closure which has helped us to provide a quick, almost instant update and transparency to our customers.

Events such as "Shikhar" – the in-branch invitation for spot sanction for new home loans provided to our existing ABF and SME customers, has continued to help us reach out and cross-sell our existing customers. 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. During the year, we have also launched various customer feedback studies through our call centre, in-branch customer services, short-code services & emailer campaigns.

Directors Appointment

Your directors vide a resolution passed by circulation on 29 August 2017 on the recommendation of the Nomination and Remuneration Committee had appointed Ms. Madhumita Dutta-Sen (DIN: 07885010) as the Additional Director in the capacity of Non-Executive Director with effect from 29 August 2017. Ms. Dutta-Sen is serving as a nominee of International Finance Corporation ("IFC") on the Board of the Company. Her terms and conditions of the appointment are governed by the Subscription and Policy Rights Agreement dated 24 June, 2011 and Amendment to the said Agreement dated 29 September, 2014 entered into by and between the Company and IFC.

By virtue of the provisions of Articles of Association of your Company and Section 161 of the Companies Act, 2013, Ms. Dutta-Sen will vacate office at the ensuing Annual General Meeting (AGM) of your Company. Your Directors have recommended for the approval of the Members the appointment of Ms. Dutta-Sen as Non-Executive Director of the Company, liable to retire by rotation, with effect from the date of the ensuing AGM of your Company.

Ms. Dutta-Sen is not disqualified from being appointed as a Director as specified in terms of Section 164 of the Companies Act, 2013.

Notice under Section 160 of the Companies Act, 2013, have been received from a Member of the Company proposing candidature of Ms. Dutta-Sen. Appropriate resolution seeking your approval to the aforesaid appointment along with brief profile of Ms. Dutta-Sen is appearing in the Notice convening the 38th 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. Mayank Poddar (DIN: 00009409), 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 reappointment of the Director liable to retire by rotation at the ensuing AGM.

Resignation

During the financial year, Ms. Ritva Kaarina Laukkanen (DIN: 01782934) who was the Non-Executive Director of the Company and a nominee of IFC, has resigned from the Board of Directors with effect from 15 May 2017.

After the close of the financial year Mr. Sanjay Nayar (DIN:00002615), Non-Executive Director of the Company and a nominee of Zend Mauritius VC Investments, Limited (Zend) has resigned from his office as a Director from the of the Company with effect from 19 April 2018. The above resignation was consequent upon termination of the Investment Agreement with Zend.

The Board of Directors placed on record their deep appreciation for the assistance and guidance provided by Ms. Ritva Kaarina Laukkanen and Mr. Sanjay Nayar during their tenure as Directors of the Company. The Company benefitted immensely from their rich management experience.

The Board of Directors also placed on record their appreciation to Zend for their sustained support during the transformation journey of your Company for over the last 7 years.

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 2018, the applicable accounting standards 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 2018 and of the profit of the Company for the year ended on that date;

c. that proper and sufficient 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 six 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 resignation of Mr. Sanjay Nayar, the Audit Committee was reconstituted and presently comprises of Mr. Narayan K Seshadri who serves as the Chairman of the Committee and Mr. Nabankur Gupta, 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

Pursuant to resignation of Ms. Ritva Kaarina Laukkanen and Mr. Sanjay Nayar, the Nomination and Remuneration Committee was reconstituted and presently comprises of Mr. Nabankur Gupta who serves as the Chairman of the Committee and Mr. Narayan K Seshadri. Mr. Satya Brata Ganguly and Mr. V K Viswanathan 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. Further, there has been no materially significant related party transactions between the Company and its directors, their relatives, subsidiaries or associates, hence, the Company is not required to provide the details of form AOC-2.

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 / 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 No-7596] to conduct the Secretarial Audit for the FY 2017-18. The Secretarial Audit Report for the financial year ended 31 March 2018 is annexed herewith and marked as Annexure-2. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.

Secretarial Standard

The Company complies with all applicable Secretarial Standard.

Business Responsibility Report (BRR)

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 of Code of Conduct by

Board Members and Senior Management Personnel;

(ii) Report on the Corporate Governance; and

(iii) 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 orderspassedbytheRegulators furnished in note no. 34 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 the provisions of the Companies Act, 2013, 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 Rs. 1,94,084/- (Rupees One Lac Ninety Four Thousand and Eight Four Only) to IEPF.

Pursuant to Rule 6 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, (as amended from time to time) read with applicable provisions of the Companies Act, 2013 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 2,82,336 equity shares of face value of Rs. 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 2017 (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.

Fraud Reporting

During the year under review, neither the Statutory Auditors nor the Secretarial Auditors 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
9 May 2018