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Directors Report of Cholamandalam Investment & Finance Company Ltd.

Mar 31, 2015

Dear Members,

The directors have pleasure in presenting the thirty seventh annual report together with the audited accounts of the company for the year ended 31 March, 2015.

FINANCIAL RESULTS

Rs. in crores

Particulars 2014 - 15 2013 - 14

Gross Income 3691.19 3,262.84

Profit Before Tax 657.22 550.21

Profit After Tax 435.16 364.01

Add: Balance brought forward 305.32 123.64

Less: Adjustment for the year 2012-13 pursuant to the Scheme of Amalgamation - 0.49

Less: Deferred Tax adjustment for the year 2012-13 consequent to the Scheme of Amalgamation - 0.40

Amount available for appropriation 740.48 486.76

Adjustments / Appropriation:

Transfer to statutory and other reserves 490.00 122.81

Dividend - Preference 2.88 -

Dividend - Equity 50.30 50.11

Tax on dividend 10.68 8.52

Balance carried forward 186.62 305.32

TOTAL 740.48 486.76

SHARE CAPITAL

During the year, the company increased the authorised share capital from Rs. 540 crores to Rs. 740 crores by increasing the authorised preference capital from Rs. 300 crores to Rs. 500 crores. The company issued and allotted 1% compulsorily convertible preference shares (CCPS) aggregating to Rs. 500 crores on a preferential basis to M/s. Dynasty Acquisition (FDI) Ltd., a foreign corporate.

OPERATIONS

In a challenging year, your company achieved a 19% growth in profit before tax. Closing managed assets grew by 9%. Given the muted economy and pressure on portfolio quality, your company adopted a cautious approach to disbursements, resulting in a slight dip of 2% in disbursements as compared to the prior year.

At a division level, the continuing slowdown in the commercial vehicles (CV) market reflected in a drop in disbursements in the vehicle finance (VF) business to the tune of 8%. However, the division recorded a growth of 3% in closing managed assets and a PBT growth of 7%. The home equity (HE) business recorded healthy growth rates across all parameters: PBT growth of 26%, closing managed assets growth of 24% and disbursement growth of 8%.

Both divisions faced pressure on their portfolio quality, resulting in higher gross non-performing assets (GNPA) percentages than the prior year. However, collections performance was better in the last quarter of the year and the deteriorating trend has been arrested. The GNPA levels remained lower than the industry.

Disbursements in vehicle finance for the year were at Rs. 9,363 crores as against Rs. 10,128 crores in the previous year. The home equity business recorded a disbursement of Rs. 3,043 crores as against Rs. 2,810 crores in the previous year. Disbursements in home loans were at Rs. 89 crores as against Rs. 39 crores in the previous year and micro, small and medium enterprise (MSME) were at Rs. 249 crores as against Rs. 137 crores in the previous year. The gold loan vertical disbursed Rs. 62 crores during the year, but given the external environment, volatile gold prices and susceptibility to losses, your company stopped disbursements in this product in the second quarter of the year.

The business assets under management (net of provisions) of the company as at 31 March, 2015 increased to Rs. 25,452 crores from Rs. 23,253 crores in the previous year, recording a growth of 9%.

During the year, the RBI issued revised regulatory framework for NBFCs, progressively reducing the number of months overdue considered for recognition of NPAs and increasing the standard asset provisioning requirements starting FY16. A year ahead of the RBI mandatory requirement, as a prudent and conservative measure, your company decided to move to the next level of NPA recognition from the existing 6 months to 5 months overdue and increased its standard assets provisioning from 0.25% to 0.30% in FY15.

The profit before tax for the year was at Rs. 657.22 crores as against Rs. 550.21 crores in the previous year.

Profit after tax grew by 20% and was at Rs. 435.16 crores for the year as compared to Rs. 364.01 crores in the previous year.

DIVIDEND

The company paid an interim dividend on the equity shares at the rate of 25% (Rs. 2.50 per equity share) and a pro rata preferential dividend on 5,00,00,000 CCPS of Rs. 100 each at the rate of 1% per annum as approved by the board on 27 January, 2015 for the year ended 31 March, 2015.

Your directors are pleased to recommend a final dividend of 10% (Rs. 1 per equity share) on the equity shares of the company. With this, the total dividend will be 35% (Rs. 3.50 per equity share) for the year ended 31 March, 2015.

TRANSFER TO RESERVES

Your company has transferred a sum of Rs. 90 crores to statutory reserve as required under the Reserve Bank of India Act, 1934 and Rs. 400 crores to general reserves.

OUTLOOK

The company continues to focus and grow its two main business lines - vehicle finance and home equity while seeding new business lines like home loans, corporate finance and rural finance.

Vehicle finance:

India's commercial vehicle industry faced significant challenges in FY15, with sales dropping by 2.8% over the previous year. LCV sales dropped by 11.6% in the same period. However, the sector showed signs of revival in the second half of FY15. While the revival is currently limited to the strategic segment, it is widely expected that the uptick will be felt in the other segments as well. Many factors influence this belief - expected improvement in industrial activity, enhanced agricultural output, faster execution of infrastructure projects, improvement in consumption expenditure etc. A growth rate of 7-9% is projected for the CV industry in FY16 and the industry is expected to grow at a compounded annual growth rate (CAGR) of 10-13% till FY20 (source: CRISIL Research). Therefore, the outlook for the vehicle finance business is positive both in the short and medium term. The recent line extensions in the division such as two wheelers and construction equipment are also expected to grow rapidly and supplement the growth in the traditional product lines.

Home equity:

Competition has been rapidly increasing in this product with almost all the private sector banks and a number of public sector banks increasing their focus on loan against property (LAP) as an exclusive offering. An aggressive pricing strategy by the new entrants is expected to put downward pressure on the industry's net interest margin (NIM). Entrenched players are scaling up operations to tap the market potential from tier III and tier IV cities. However, your company has established itself in the market place as a trusted and reliable partner for customers seeking a LAP loan with a quick turnaround time and customer friendly service. Building on this momentum, your company expects to grow this product line at a healthy pace in FY16.

FIXED DEPOSITS

The company is a systemically important non-deposit accepting non-banking finance company (SI - ND - NBFC). It ceased taking deposits from the public effective 1 November, 2006. At the time of conversion, the outstanding unmatured deposits were transferred to an escrow account together with the future interest payable thereon till the date of maturity and these are being repaid on maturity. Accordingly, there have been no fresh deposits accepted during FY15.

As at 31 March, 2015 there were 30 depositors whose deposits had matured but had not claimed the maturity amount aggregating to Rs. 8.44 lakhs (along with interest accrued). As a process, the company sends periodical reminders to these depositors before transferring the sums due to the investor education and protection fund (IEPF) under section 125 of the Companies Act, 2013 (corresponding to section 205C of the Companies Act, 1956). During the year, the company remitted a sum of Rs. 5.54 lakhs to IEPF under this head representing unclaimed public deposits and interests thereon beyond seven years.

ASSET FINANCE COMPANY

During the year, the company retained its categorisation as an asset finance company (AFC) under the RBI Regulations.

CAPITAL ADEQUACY

The company's capital adequacy ratio was at 21.24% as on 31 March, 2015 as against the statutory minimum capital adequacy of 15% prescribed by RBI.

EMPLOYEE STOCK OPTION SCHEME

Pursuant to the approval accorded by the shareholders at the twenty ninth annual general meeting of the company held on 30 July, 2007, the nomination and remuneration committee had formulated the Employee Stock Option Scheme 2007. During the year under review, the employees exercised 6,41,513 options and there were no fresh options granted. As required under the Securities and Exchange Board of India Regulations (SEBI Regulations) and the Companies Act, 2013, the following details of this scheme as on 31 March, 2015 are being provided:

Mr. N. Srinivasan retires by rotation at the ensuing annual general meeting and being eligible, has offered himself for re-appointment.

Ms. Bharati Rao and Mr. M.M. Murugappan were appointed as additional directors of the company during the year and they hold office up to the ensuing annual general meeting of the company.

Your company has received required notices under the provisions of section 160 of the Companies Act, 2013 ("the Act") proposing the candidature of Ms. Bharati Rao and Mr. Murugappan as directors and your board recommends the appointment of Mr. Murugappan as a non-executive director of the company liable to retire by rotation and Ms. Rao as an independent director for a term as proposed in the notice of the ensuing annual general meeting.

DECLARATION FROM INDEPENDENT DIRECTORS

The independent directors (IDs) have submitted a declaration of independence, as required pursuant to section 149(7) of the Act, stating that they meet the criteria of independence as provided in section 149(6). In the opinion of the board, these IDs fulfil the conditions specified in the Act and the rules made thereunder for appointment as IDs and confirm that they are independent of the management.

KEY MANAGERIAL PERSONNEL

Pursuant to the provisions of section 203 of the Act read with the rules made thereunder, the following employees are the whole-time key managerial personnel of the company:

1. Mr. Vellayan Subbiah, Managing Director

2. Mr. D. Arul Selvan, Chief Financial Officer and

3. Ms. P. Sujatha, Company Secretary

DIRECTORS' RESPONSIBILITY STATEMENT

The directors' responsibility statement as required under section 134(3)(c) of the Act, reporting the compliance with accounting standards, is attached and forms part of the board's report.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS

There are no significant material orders passed by the regulators or courts or tribunals which would impact the going concern status of the company and its future operations.

MANAGEMENT DISCUSSION AND ANALYSIS

The management discussion and analysis report, highlighting the business-wise details is attached and forms part of this report. The report also contains the details of the risk management framework of the company including the development and implementation of risk management policy and the key risks faced by the company.

CORPORATE GOVERNANCE REPORT

A report on corporate governance as per clause 49 of the listing agreement is attached and forms part of this report. The report also contains the details as required to be provided on the number of meetings of the board, composition of the various committees including the audit committee and corporate social responsibility committee, annual board evaluation, remuneration policy, criteria for board nomination and senior management appointment, whistle blower policy / vigil mechanism, etc.

The managing director and the chief financial officer have submitted a certificate to the board regarding the financial statements and other matters as required under clause 49 of the listing agreement.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements prepared in accordance with the Act and the relevant accounting standards form part of this annual report.

AUDITORS

Pursuant to the provisions of section 139 of the Act and the rules framed thereunder, M/s. Deloitte Haskins & Sells, chartered accountants, were appointed as statutory auditors of the company in the last annual general meeting held on 31 July, 2014 for a period of 3 years commencing from the conclusion of the thirty sixth annual general meeting till the conclusion of the thirty ninth annual general meeting subject to ratification by members at every AGM. Accordingly, your directors recommend the ratification of the appointment of M/s. Deloitte Haskins & Sells, as statutory auditors of the company from the conclusion of the thirty seventh annual general meeting till the conclusion of the thirty eighth annual general meeting of the company. The statutory auditors have confirmed their eligibility for appointment.

SECRETARIAL AUDIT

Pursuant to the provisions of the Act and the rules framed thereunder, the company appointed M/s. R. Sridharan & Associates, company secretaries to undertake the secretarial audit of the company for FY15. The audit report is attached and forms part of this report and does not contain any qualification.

EXTRACT OF ANNUAL RETURN

In accordance with section 134(3)(a) of the Act, the extract of the annual return in form MGT-9 is attached and forms part of this report.

CORPORATE SOCIAL RESPONSIBILITY

The murugappa group is known for its tradition of philanthropy and community service. The group's philosophy is to reach out to the community by establishing service-oriented philanthropic institutions in the field of education and healthcare as the core focus areas. The company upholds the group's tradition by earmarking a part of its income for carrying out its social responsibilities.

The company has been carrying out corporate social responsibility (CSR) activities for many years now and has been earmarking 0.5% of its net profits to CSR activities till last year. With the enactment of the CSR provisions in the Act, the company has put in place a CSR policy incorporating the requirements therein which is also available on the company's website, www.cholamandalam.com.

As per the provisions of the Act, the company is required to spend atleast 2% of the average net profits of the company made during the three immediately preceding financial years. This amount aggregates to Rs. 860.74 lakhs and the company has entered into commitments with various NGOs to spend the entire amount. This being the first year of implementation of CSR activity, there was lead time involved in setting up the internal team and identification of implementing agencies and beneficiaries. Hence, out of the committed amount, the company spent Rs. 573.94 lakhs towards CSR activities during FY15, the details of which are annexed to and form part of this report. The company will continue with the remaining commitments in FY16.

INTERNAL FINANCIAL CONTROLS

Internal control framework including clear delegation of authority and standard operating procedures are available across all businesses and functions. These are reviewed periodically at all levels. The company adopts a co-sourced model of internal audit. The risk and control matrices are reviewed on a quarterly basis and control measures are tested and documented. These measures have helped in ensuring the adequacy of internal financial controls commensurate with the scale of operations of the company.

RELATED PARTY TRANSACTIONS

The company has in place a policy on related party transactions as approved by the board and the same is available on the website of the company.

All related party transactions other than exempted transactions that were entered into during the financial year were on an arm's length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the company with promoters, directors, key managerial personnel or other designated persons which may have a potential conflict with the interest of the company at large.

All proposed related party transactions are placed before the audit committee and also the board for approval at the beginning of the financial year. The transactions entered into pursuant to the approval so granted are placed before the audit committee for its review and ratification for modifications, if any, on a quarterly basis. None of the directors has any pecuniary relationship or transaction vis-a-vis the company.

INFORMATION AS PER SECTION 134(3)(m) OF THE ACT

The company has no activity relating to consumption of energy or technology absorption. Foreign currency expenditure amounting to Rs. 5.17 crores was incurred during the year under review. Foreign currency remittances during the year was Rs. 2.88 crores towards preference dividend and Rs. 2.01 crores towards purchase of fixed assets. The company does not have any foreign exchange earnings.

PARTICULARS OF EMPLOYEES

In accordance with the provisions of section 197 of the Act read with rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the information in respect of the employees of the company will be provided upon request. In terms of section 136 of the Act, the report and accounts are being sent to the members and others entitled thereto, excluding the aforesaid information which is available for inspection by the members at the registered office of the company during business hours on working days of the company. If any member is interested in obtaining a copy, such member may write to the company secretary in this regard.

DISCLOSURE OF REMUNERATION

The disclosure with respect to remuneration as required under section 197 of the Act read with rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is attached and forms part of this report.

CHOLAMANDALAM SECURITIES LIMITED (CSEC)

CSEC recorded a gross income of Rs. 14.44 crores for the year ended 31 March, 2015 and made a profit before tax of Rs. 3.42 crores as against a loss before tax of Rs. 0.40 crores in the previous year.

CHOLAMANDALAM DISTRIBUTION SERVICES LIMITED (CDSL)

CDSL recorded a gross income of Rs. 13.13 crores for the year ended 31 March, 2015 and made a profit before tax of Rs. 5.58 crores as against a profit before tax of Rs. 4.68 crores in the previous year.

ACKNOWLEDGEMENT

The directors wish to thank the company's customers, vehicle manufacturers, vehicle dealers, channel partners, banks, mutual funds, rating agencies and shareholders for their continued support. The directors also thank the employees of the company for their contribution to the company's operations during the year under review.

Directors' Responsibility Statement

The directors accept the responsibility for the integrity and objectivity of the Statement of Profit & Loss and the Cash Flow Statement for the year ended 31 March, 2015 and the Balance Sheet as at that date ("financial statements") and confirm that:

- in the preparation of the financial statements the generally accepted accounting principles (GAAP) of India and applicable accounting standards have been followed and no material departures have been made from the same;

- appropriate accounting policies have been selected and applied consistently and judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the company as at the end of the financial year and of the profits and the cash flows of the company for the year;

- 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. To ensure this, the company has established internal control systems, consistent with its size and nature of operations, subject to the inherent limitations that should be recognised in weighing the assurance provided by any such system of internal controls. These systems are reviewed and updated on an ongoing basis. Periodic internal audits are conducted to provide reasonable assurance of compliance with these systems. The audit committee meets at regular intervals to review the internal audit function;

- the financial statements have been prepared on a going concern basis;

- adequate internal financial controls have been laid down to be followed by the company and such internal financial controls are operating effectively;

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

On behalf of the board

Place: Chennai M.B.N. Rao

Date : 24 April, 2015 Chairman


Mar 31, 2013

The directors have pleasure in presenting the thirty fifth annual report together with the audited accounts of the company for the year ended 31 March, 2013.

FINANCIAL RESULTS

Rs. in crores

2012-13 2011-12

Gross income 2,555.68 1,788.21

Profit before tax 450.80 290.11

Profit after tax 306.55 172.54

Add: Balance brought forward 83.67 81.84

Amount available for appropriation 390.22 254.38

Adjustments / Appropriation:

Transfer to statutory and other reserves 211.31 134.51

Dividend - Equity 47.46 31.15

Tax on dividend 7.81 5.05

Balance carried forward 123.64 83.67

TOTAL 390.22 254.38

SHARE CAPITAL

During the year under review, the company issued and allotted 10,526,315 equity shares of Rs. 10 each at Rs. 285 per equity share, by way of a qualified institutional placement (QIP) aggregating to Rs. 300 crores to eligible investors.

OPERATIONS

During the year, the company recorded a substantial jump in its performance in vehicle finance and home equity businesses resulting in:

- 55% growth in profits before tax

- 36% growth in disbursements

- 41% growth in closing managed assets

Disbursements in vehicle finance for the year were at Rs. 9,882 crores as against Rs. 7,306 crores in the previous year recording a growth of 35%.

Home equity business recorded a disbursement of Rs. 2,161 crores as against Rs. 1,528 crores in the previous year recording a growth of 41%.

During the year, the company added three new product lines namely home loans, rural financing syndication and micro, small and medium enterprise (MSME) loans. While home loan business will focus on new home loans for the self employed segment, rural financing business will focus on arranging loans to the farmer community leveraging the relationships of the agri-based businesses of the Murugappa Group. The MSME business will offer bill discounting, working capital demand loans, bridge loans, pre-shipment credit and term loans to MSME''s.

Disbursements in home loans were at Rs. 3 crores and MSME were at Rs. 13 crores. The rural financing business syndicated an aggregate disbursement of Rs. 1 crore.

The business assets under management (net of provisions) of the company as at 31 March, 2013 increased to Rs. 18,999 crores from Rs. 13,470 crores in the previous year recording a growth of 41%.

The profit before tax for the year was at Rs. 450.80 crores as against Rs. 290.11 crores in the previous year. Profit after tax was at Rs. 306.55 crores for the year as compared to Rs. 172.54 crores in the previous year.

DIVIDEND

The company has paid an interim dividend of 25% (Rs. 2.50 per equity share) as approved by the board on 18 January 2013 for the year ended 31 March, 2013.

Your directors are pleased to recommend a final dividend of 10% (Rs. 1 per equity share). With this, the total dividend for the year will be 35% (Rs. 3.50 per equity share) for the year ended 31 March, 2013.

TRANSFER TO RESERVES

Your company has transferred a sum of Rs. 61.31 crores to statutory reserve as required under the Reserve Bank of India Act, 1934 and Rs. 150 crores to general reserves.

OUTLOOK

Vehicle finance:

The slowdown in the growth of the economy is impacting the sales of commercial vehicle (CV), particularly the heavy commercial vehicle (HCV) segment. The CV industry witnessed a de-growth of 2% during 2012-13 over 2011-12, led by the sharp decline (-23% over the previous year) in the sales of HCVs, which are essentially production driven assets. The vehicle finance business in Chola, predominantly focuses on the light commercial vehicles and small commercial vehicles for which the demand continued to be good during 2012-13. Hence the light and small CV segment, which are consumption driven assets and are engaged primarily in last mile transportation applications recorded a growth of 14%. Government of India has been taking several initiatives to bring the economy back to growth. Prospects for 2013-14 hinges on the overall economic growth and demand in the CV sector.

Home equity:

The environment for the home equity business has been intensely competitive in 2012-13 with more banks and NBFC''s entering the space and existing players strengthening their presence. However, the business has established itself in this space and is viewed today, as one of the most competitive and customer friendly business. The business expects to post decent growth in 2013-14 in this segment fueled by healthy credit off take in our target customer segments.

Gold loan:

Keeping in perspective the regulatory environment and market/industry trends, alternate business models for gold loan is being evaluated.

The company is adopting a cautious approach given the volatile and changing conditions in this domain.

FIXED DEPOSITS

The company is a systemically important non-deposit accepting non-banking finance company (SI - ND - NBFC). It ceased taking deposits from public effective 1 November, 2006. At the time of conversion, the outstanding unmatured deposits were transferred to an escrow account together with the future interest payable thereon till the date of maturity and these are being repaid on maturity, Accordingly, there have been no fresh deposits accepted during 2012-13. Net of repayments, the matured and unclaimed deposits (including interest accrued) as at 31 March, 2013 were Rs. 0.40 crores.

As at 31 March, 2013 there were 152 depositors whose deposits had matured but had not claimed the maturity amount aggregating to Rs. 0.40 crores (along with interest accrued). As a process, the company sends periodical reminders to these depositors before transferring the sums due to the Investor Education and Protection Fund (IEPF) under Section 205C of the Companies Act, 1956. During the year, the company remitted a sum of Rs. 0.18 crores to IEPF under this head representing unclaimed public deposits and interests thereon beyond seven years. In respect of outstanding fixed deposit of Rs. 0.02 crores, the repayment to the depositors has been stayed by courts / instruction from CBI and not remitted to IEPF.

CREDIT RATING

The Credit rating details of the company as on 31 March, 2013 are as follows:

Rating Agency Term Type Rating

ICRA LT NCD/SD/CC/Tl [ICRA]AA with Stable Outlook

LT PD [ICRA]AA- with Stable Outlook

ST CP / WCDL [ICRA]A1

CRISIL ST CP [CRISIL]A1

LT SD [CRISIL]AA-/Stable Outlook

CARE LT NCD CARE AA

LT SD CARE AA -

LT PD CARE A

INDIA Ratings* LT SD IND AA- (ind) with Stable Outlook

* earlier known as FITCH

NCD - Non Convertible Debentures CP - Commercial Paper

CC - Cash Credit SD - Subordinated Debt

TL - Term Loan WCDL- Working Capital Demand Loan

PD - Perpetual Debt ST - Short Term

LT - Long Term

The ratings as mentioned above were re-affirmed by the rating agencies during the year 2012-13.

ASSET FINANCE COMPANY

During the year, the company retained its categorisation as an asset finance company (AFC) by Reserve Bank of India (RBI).

RBI GUIDELINES

RBI constituted a Working Group headed by Smt. Usha Thorat to reflect on the broad principles that underpin the regulatory architecture for NBFCs. Based on the recommendations of the working group, RBI has released the draft guidelines on 12 December, 2012 in relation to corporate governance, entry point norms, principle business criteria and prudential regulations. The final guidelines on the same is awaited.

CAPITAL ADEQUACY

The company''s capital adequacy ratio was at 19.04% as on 31 March, 2013 as against 18.08% as on 31 March, 2012. The minimum capital adequacy prescribed by RBI is 15%.

EMPLOYEE STOCK OPTION SCHEME

Pursuant to the approval accorded by the shareholders at the twenty ninth annual general meeting of the company held in July, 2007, the compensation & nomination committee had formulated the Employee Stock Option Scheme 2007. During the year under review, the employees exercised 26,899 options and there were no fresh options granted. As required under the Securities and Exchange Board of India (Employee Stock Option and Employee Stock Purchase Scheme) Guidelines, 1999 (SEBI Guidelines), the following details of this scheme as on 31 March, 2013 are being provided:

The certificate from the statutory auditors as required under the SEBI Guidelines, confirming that the company''s Employees Stock Option Scheme 2007 has been implemented in accordance with the SEBI Guidelines and shareholders resolution, will be placed before the shareholders at the ensuing annual general meeting.

The board at its meeting held on 26 April, 2012 had approved the introduction of a new Employee Stock Option Plan 2012 (ESOP 2012) for the benefit of eligible employees of the company and its subsidiaries, subject to shareholders approval at the general meeting.

While members'' approval was obtained for the ESOP 2012 at the company''s annual general meeting held on 30 July, 2012, the company did not proceed with the implementation of the scheme consequent to the regulatory changes prohibiting acquisition of securities from the secondary market by ESOP Schemes.

DIRECTORS'' RESPONSIBILITY STATEMENT

The directors'' responsibility statement as required under Section 217 (2AA) of the Companies Act, 1956, reporting the compliance with the accounting standards, is attached and forms part of the directors'' report.

MANAGEMENT DISCUSSION AND ANALYSIS

The management discussion and analysis report, highlighting the business-wise details is attached and forms part of this report.

CORPORATE GOVERNANCE REPORT

A report on corporate governance, including the status of implementation of mandatory and non-mandatory norms as per clause 49 of the listing agreement and the corporate governance voluntary guidelines, 2009 issued by Ministry of Corporate Affairs, is attached and forms part of this report.

DIRECTORS

Mr. R.VKanoria retires by rotation at the ensuing annual general meeting and has expressed his intention not to seek re-appointment in view of his serving the board for a considerable period of time since 1995. The board places on record its appreciation for the long years of guidance, support and advise rendered by Mr. Kanoria.

Mr. M.B.N.Rao is liable to retire by rotation at the ensuing annual general meeting and being eligible, offers himself for re-appointment.

AUDITORS

M/s. Deloitte Haskins & Sells, chartered accountants, retire at the ensuing annual general meeting and are eligible for re-appointment.

INFORMATION AS PER SECTION 217 (1)(e) OF THE COMPANIES ACT, 1956

The company has no activity relating to consumption of energy or technology absorption. Foreign currency expenditure amounting to Rs. 0.28 crores (including interest accrued but not due) was incurred during the year under review. The company does not have any foreign exchange earnings.

PARTICULARS OF EMPLOYEES

In accordance with the provisions of Section 217 (2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975 and the Companies (Particulars of Employees) Amendment Rules, 2011, the name and other particulars of employees are to be set out in the annexure to the directors'' report. However, having regard to provisions of Section 219 (1)(b)(iv) of the Companies Act, 1956, the annual report is being sent to all members of the company excluding the aforesaid information. Any member interested in obtaining such particulars may write to the company secretary at the registered office of the company.

SUBSIDIARY COMPANIES

Cholamandalam Securities Limited, Cholamandalam Distribution Services Limited and Cholamandalam Factoring Limited are subsidiaries of the company. The financial performance of the subsidiaries is given below.

Cholamandalam Securities Limited (CSEC)

CSEC recorded a gross income of Rs. 7.21 crores for the year ended 31 March, 2013. CSEC made a loss before tax of Rs. 0.96 crores as against a loss before tax of Rs. 2.58 crores in the previous year.

Cholamandalam Distribution Services Limited (CDSL)

CDSL recorded a gross income of Rs. 11.56 crores for the year ended 31 March, 2013. CDSL made a profit before tax of Rs. 2 crores as against a loss before tax of Rs. 0.37 crores in the previous year.

Cholamandalam Factoring Limited (CFACT)

CFACT recorded a gross income of Rs. 1.46 crores for the year ended 31 March, 2013. CFACT made a profit before tax of Rs. 1.43 crores as against a loss of Rs. 61.29 crores in the previous year.

During the year, your board considered and approved a scheme of amalgamation of CFACT with the company, subject to the approval of Hon''ble High Court of Judicature at Madras and other necessary approvals and sanctions. The proposed "Appointed Date" for amalgamation is 1 April, 2012. CFACT filed the application and petition documents and the matter came up for final hearing on 27 March, 2013. The Order of the Hon''ble High Court is awaited.

ACKNOWLEDGEMENT

The directors wish to thank the company''s customers, vehicle manufacturers, vehicle dealers, banks, mutual funds, rating agencies and shareholders for their continued support. The directors also thank the employees of the company for their contribution to the company''s operations during the year under review.

On behalf of the board Place : Chennai M.B.N.Rao

Date : 26 April, 2013 Chairman


Mar 31, 2012

The directors have pleasure in presenting the thirty fourth annual report together with the audited accounts of the company for the year ended 31 March, 2012.

FINANCIAL RESULTS

Rs in crores

2011-12 2010-11

Gross income 1,766.60 1,201.83

Profit before tax 290.11 100.11

Profit after tax 172.54 62.18

Add: Balance brought forward 81.84 56.46

Amount available for appropriation 254.38 118.64

Adjustments / Appropriation:

Transfer to statutory and other reserves 134.51 15.55

Dividend

- Equity 31.15 17.89

- Preference 0.39

Tax on dividend 5.05 2.97

Balance carried forward 83.67 81.84

Total 254.38 118.64

SHARE CAPITAL

During the year under review, the company with the approval of the shareholders, increased the authorised capital from Rs 420 crores to Rs 450 crores and further made a fresh issue of 1,32,55,454 equity shares of Rs 10 each at Rs 160 per equity share, being the price determined in accordance with the SEBI ICDR Regulations, by way of a preferential issue aggregating to Rs 212 crores to the following investors:

Name of the Investor No. of equity Amount of shares Investment Rs in crores

Creador 1 LLC 66,27,727 106

Multiples Private Equity FII I 48,13,718 77

Multiples Private Equity Fund 18,14,009 29

Total 1,32,55,454 212

OPERATIONS

During the year ended 31 March, 2012, the company recorded a significant increase in its performance due to the sustained performance of the Vehicle Finance and Home Equity business inspite of the slow- down in the economy during the later part of the financial year. The reduction in loan losses on account of the Personal loan portfolio which has completely run-down also aided the effort. This resulted in:

190% growth in Profits before Tax

55% growth in disbursements

48% growth in closing managed assets

Disbursements in Vehicle Finance for the year were at Rs 7,306 crores as against Rs 4,496 crores in the previous year recording a growth of 62.50%.

Home Equity business recorded a disbursement of Rs 1,528 crores as against Rs 1,235 crores in the previous year recording a growth of 24%.

The newly launched gold loan business (launched in the month of Dec 2011) recorded disbursements aggregating to Rs 54 crores.

The total business assets under management (net of provisions) of the company as at 31 March, 2012 increased to Rs 13,462 crores from Rs 9,124 crores in the previous year recording a growth of 48%.

The profit before tax for the year was at Rs 290.11 crores as against Rs 100.11 crores in the previous year. Profit after tax was at Rs 172.54 crores for the year as compared to Rs 62.18 crores in the previous year.

DIVIDEND

Your directors approved an interim dividend of 15% (Rs 1.50/- per equity share) on 31 January, 2012 for the year ended 31 March, 2012, which has been since paid out.

Your directors are pleased to recommend a final dividend of 10% (Rs 1/- per equity share) of Rs 10 each.

TRANSFER TO RESERVES

Your company has transferred a sum of Rs 34.51 crores to statutory reserve as required by the Reserve Bank of India Act, 1934 and Rs 100 crores to general reserves.

OUTLOOK

Vehicle Finance:

The company is poised to grow at a steady phase as the growth potential of the portfolio continues to remain robust. The vehicle finance business predominantly focuses on the light commercial vehicles and small commercial vehicles for which the demand continues to be high. Hence it is expected that the demand will sustain for the commercial vehicles and the industry growth momentum will be stable over the next 5 years. As per CRISIL research the commercial vehicle industry is expected to record a growth [CAGR] of 18% to 20% in disbursements and is targeted to reach a level of about Rs 98,700 crores by 2015-16. If the inflationary pressures are contained without any significant monetary compression, the year ahead will see the growth momentum sustained.

Home Equity:

For the financial year 2012-13, the market for loan against property is projected at Rs 31,500 crores and is expected to maintain its growth trajectory for the next few years.

The demand for home equity loans is derived from the demand for credit off-take from its target customer segment. The target customer for home equity loans is the self-employed non-professional (SENP) group which comprises of small and medium scale industries / service providers, traders and SSI's.

Gold Loan:

The gold loan business, currently operating out of 31 locations will be evaluated taking into consideration the regulatory environment and market / industry trends.

New Business:

The company is planning to enter into affordable housing finance and provide loan facilities to Micro, Small and Medium Enterprises (MSME) that are associated with our group companies as vendors and suppliers.

FIXED DEPOSITS

The company is a systemically important non-deposit accepting non banking finance company (SI-ND- NBFC). It ceased taking deposits from public effective 1 November, 2006. At the time of conversion, the outstanding unmatured deposits were transferred to an escrow account together with the future interest payable thereon till the date of maturity and these are being repaid on maturity. Accordingly, there have been no fresh deposits accepted during the financial year 2011 - 12. Net of repayments, the matured and unclaimed deposits (including interest accrued) as at 31 March, 2012 were Rs 0.54 crores. As at 31 March, 2012 and as on the date of this report, there were 211 depositors whose deposits had matured but had not claimed the maturity amount aggregating to Rs 0.54 crores (along with interest accrued). As a process, the company sends periodical reminders to these depositors before transferring the sums due to the Investor Education and Protection Fund (IEPF) under Section 205C of the Companies Act, 1956. During the year, the company remitted a sum of Rs 0.16 crores to IEPF under this head representing unclaimed public deposits and interests thereon beyond seven years. In respect of outstanding fixed deposit of Rs 0.02 crores, the repayment to the depositors has been stayed by courts / instruction from CBI and not remitted to IEPF.

CREDIT RATING

Short Term:

The company's short term debt of Rs 3,000 crores is rated as [ICRA] A1 by ICRA and for Rs 250 crores is also rated as "CRISIL A1 " by CRISIL.

Long Term -Secured:

During the year, ICRA upgraded its long term rating on non convertible debentures and lines of credit from banks from [ICRA]AA- to [ICRA]AA. The outlook on the upgraded rating is "Stable".

CARE affirmed the rating of "CARE AA" to the non convertible debenture programme of the company.

Long Term - Unsecured:

ICRA upgraded its long term rating on subordinated debt programme of the company from [ICRA] AA- to [ICRA] AA. The outlook on the upgraded rating is Stable.

Fitch re-affirmed its existing rating of "Fitch AA-(ind)" with Stable outlook on the subordinated debt programme of the company.

ICRA upgraded its long term rating on perpetual debt instrument from [ICRA]A to [ICRA]AA-. The outlook on the upgraded rating is Stable.

CARE re-affirmed its existing rating of "CARE A " on the perpetual debt instrument of the company.

During the year, the company raised Perpetual Debt Instrument (PDI) aggregating to Rs 358 crores which were rated as [ICRA] A (Positive) or [ICRA] AA- by ICRA and CARE A by CARE. Part of the issue will qualify as Tier I capital and the balance will be considered as Tier II capital to address the company's capital adequacy requirements. The company also raised subordinated debt to the tune of Rs 225 crores which were rated as [ICRA] AA- or [ICRA] AA by ICRA and Fitch AA-(Ind) by Fitch, which will be used to meet the Tier II capital requirements as per RBI Guidelines.

ASSET Financing Company

During the year, the company was categorised as an Asset Financing Company (AFC) by Reserve Bank of India (RBI).

CAPITAL ADEQUACY

The company's capital adequacy ratio was at 18.08% as on 31 March, 2012 as against 16.67% as on 31 March, 2011. The minimum capital adequacy prescribed by RBI for an Asset Finance Company is at 15%.

Employee stock option scheme

Pursuant to the approval accorded by the shareholders at the twenty ninth annual general meeting of the company held in July 2007, the compensation & nomination committee had formulated the Employee Stock Option Scheme 2007. During the year under review, 3,70,880 options were granted to the employees of the company and its subsidiaries under the said scheme. As required under the Securities and Exchange Board of India (Employees Stock Option and Employees Stock Purchase Scheme) Guidelines, 1999 (SEBI Guidelines), the following details of this scheme as on 31 March, 2012 are being provided:

Nature of Disclosure Particulars

a. Options granted 24,73,123 options in 10 tranches since 30 July, 2007. Each option gives the grantee a right to subscribe to one equity share of Rs 10 each in the company.

b.The pricing formula The options were granted at an exercise price equal to the latest available closing price of the equity shares on the Stock Exchange in which there was highest trading volume, prior to the date of grant of the options.

c. Options vested 4,38,992

d. Options exercised 15,214

e. The total no. of shares 15,214 arising as a result of

exercise of option

f. Options lapsed/ 12,49,056 surrendered

g. Variation of terms of The compensation & nomination committee at its meeting Option held on 30 July, 2008 revised the performance parameters of the employees for vesting. No terms were varied during FY 2011-12.

h. Money realised by exercise Rs 4,35,887/- of options

i. Total no of Options in force 12,08,853

j. (i) Details of Options Options granted till date to senior management personnel are as granted to Senior follows: Management Personnel

name & Designation of the No. of Options granted Employee

Kaushik Banerjee, 69,995

President - Asset Finance

D.Arul Selvan, 43,773

Sr. Vice President & CFO

Rohit Phadke, 43,773

Sr. Vice President & Business

Head - Home Equity

(ii) Any other employee Name & Designation of the No. of Options granted

who received a grant in Employee any one year of Option amounting to 5% or more of Options granted during the year

Pravin Salian 35,400

Jaikumar K.P. 34,000

Nature of Disclosure Particulars

(iii) Employees who were None granted Options, during any one year, equal to or exceeding 1% of the issued capital of the company at the time of grant

k. Diluted Earnings Per 14.39 Share (EPS) pursuant to issue of shares on exercise of Option calculated in accordance with Accounting Standard AS-20

l.(i) Difference between the The employee compensation cost for the year would have been compensation cost using higher by Rs 2.60 crores had the company used the fair value of the intrinsic value of the options as the method of accounting instead of intrinsic value stock Options (which is the method of accounting used by the company) and the compensation cost that would have been recognised in the accounts if the fair value of Options had been used as the method of accounting

(ii) Impact of the The stock-based compensation cost calculated as per the intrinsic difference mentioned in (i) value method upto 31 March, 2012 is Nil. If the stock-based above on the profits of the compensation cost was calculated as per the fair value method company prescribed by SEBI, the total cost to be recognised in the financial statements for the period ended 31 March, 2012 would beRs 2,59,75,221/-

(iii)Impact of the Had the company accounted the Options as per fair value difference mentioned in the diluted EPS would have been Rs 14.18 per share instead of

(i) above on the EPS of the Rs 14.39 per share company

m. (i) Weighted Average Rs 160.46 exercise price of Options

(ii) Weighted average fair Rs 71.02 value of Options

n. (i) Method used to estimate the Black Scholes Options Pricing Model fair value of Options

(ii) Significant assumptions used (weighted average information relating)

(a) Risk -free interest rate 7.66%

(b) Expected life of the Option 4.15 years

(c) Expected volatility 50.21%

(d) Expected dividend yields 3.64%

(e) Price of the underlying Rs 185.45 share in the market at the time of Option grant

The certificate from the statutory auditor as required under the SEBI Guidelines, confirming that the company's Employees Stock Option Scheme 2007 has been implemented in accordance with the SEBI Guidelines and shareholders resolution, will be placed before the shareholders at the ensuing annual general meeting.

DIRECTORS' RESPONSIBIHTY Statement

The directors' responsibility statement as required under Section 217(2AA) of the Companies Act, 1956, reporting the compliance with the accounting standards, is attached and forms a part of the directors' report.

CORPORATE GOVERNANCE REPORT

A report on corporate governance, including the status of implementation of mandatory and non-mandatory norms as per clause 49 of the listing agreement and the corporate governance voluntary guidelines, 2009 issued by Ministry of Corporate Affairs, is attached and forms part of the directors' report.

MANAGEMENT DISCUSSION AND analysis

The management discussion and analysis report, highlighting the business-wise details is attached and forms part of this report.

DIRECTORS

Mr. N. Srinivasan was appointed as vice chairman of the company at the board meeting held on 31 January, 2012.

Mr. Indresh Narain and Mr. N. Srinivasan are liable to retire by rotation at the ensuing annual general meeting and being eligible, have offered themselves for re-appointment.

AUDITORS

M/s. Deloitte Haskins & Sells, chartered accountants, retire at the ensuing annual general meeting and are eligible for re-appointment.

INFORMATION AS PER SECTION 217(1)(e) OF THE COMPANIES ACT, 1956

The company has no activity relating to consumption of energy or technology absorption. Foreign currency expenditure amounting to Rs 2.79 crores (including interest accrued but not due) was incurred during the year under review. The company does not have any foreign exchange earnings.

PARTICULARS OF EMPLOYEES

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975 and the Companies (Particulars of Employees) Amendment Rules, 2011, the name and other particulars of employees are set out in the annexure to the directors' report. However, having regard to provisions of Section 219 (1) (b) (iv) of the Companies Act, 1956, the annual report is being sent to all members of the company excluding the aforesaid information. Any member interested in obtaining such particulars may write to the company secretary at the registered office of the company.

SUBSIDIARY COMPANIES

Cholamandalam Securities Limited, Cholamandalam Distribution Services Limited and Cholamandalam Factoring Limited are subsidiaries of the company. The financial performance of the subsidiaries is given below.

Cholamandalam Securities Limited (CSEC)

CSEC recorded a gross income of Rs6.32 crores for the year ended 31 March, 2012. CSEC made a loss before tax of Rs 2.58 crores as against a profit of Rs 0.49 crores in the previous year.

Cholamandalam Distribution Services Limited (CDSL)

CDSL recorded a gross income of Rs11.76 crores for the year ended 31 March, 2012. CDSL made a loss before tax of Rs 0.37 crores as against a profit of Rs 6.90 crores in the previous year.

Cholamandalam Factoring Limited (CFACT)

During the year, the company infused equity share capital aggregating to Rs 60 crores to strengthen the capital base of CFACT. CFACT recorded a gross income of Rs 0.02 crores for the year ended 31 March, 2012. CFACT made a loss before tax of Rs 61.29 crores as against a loss of Rs 8.16 crores in the previous year.

DIRECTORS'RESPONSIBILITY STATEMENT

The directors accept the responsibility for the integrity and objectivity of the statement of Profit & Loss Account for the year ended 31 March, 2012 and the Balance Sheet as at that date ("financial statements") and confirm that:

- In the preparation of the financial statements the generally accepted accounting principles (GAAP) of India and applicable accounting standards issued by the Institute of Chartered Accountants of India have been followed.

- Appropriate accounting policies have been selected and applied consistently and judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the company as at the end of the financial year and of the profit of the company for that period.

- Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. To ensure this, the company has established internal control systems, consistent with its size and nature of operations, subject to the inherent limitations that should be recognised in weighing the assurance provided by any such system of internal controls. These systems are reviewed and updated on an ongoing basis. Periodic internal audits are conducted to provide reasonable assurance of compliance with these systems. The audit committee meets at regular intervals to review the internal audit function.

- The financial statements have been prepared on a going concern basis.

ACKNOWLEDGEMENT

The directors wish to thank the company's customers, vehicle manufacturers, vehicle dealers, banks, mutual funds, rating agencies and shareholders for their continued support. The directors also thank the employees of the company for their contribution to the company's operations during the year under review.

On behalf of the board

26 April, 2012 M.B.N. Rao

Chennai Chairman

 
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