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Directors Report of L&T Finance Holdings Ltd.

Mar 31, 2015

Dear Members,

The Directors of your Company have pleasure in presenting the Seventh Annual Report together with the audited financial statements for the financial year ended March 31, 2015.

Financial Results

The summary of the Company's financial performance, both on a consolidated and standalone basis, for the financial year 2014-15 as compared to the previous financial year 2013-14 is given below:

(Rs. in Lakhs) Consolidated

Particulars 2014-15 2013-14

Total Income 633,744.93 523,718.42

Less: Total Expenses 530,652.08 441,230.35

Profit before exceptional Items & taxes 103,092.85 82,488.07

Exceptional Items 14,389.42 -

Profit before Tax 117,482.27 82,488.07

Less: Tax Expense 32,410.80 23,003.91

Profit after Tax 85,071.47 59,484.16

Add: Share in profit of associate company 396.43 205.17

Profit for the year 85,467.90 59,689.33

Add: Balance brought forward from previous year 84,421.15 84,078.98

Balance Available 169,889.05 143,768.31

Appropriations

Statutory Reserve 18,931.63 16,861.65

Proposed Dividend on Equity Shares 13,762.29 12,888.37

Dividend paid for previous year 5.04 1.29

Dividend Distribution Tax on proposed dividend / dividend paid 4,955.37 3,656.03 (Including tax on Dividend paid for previous year)

Interim Dividend on Preference Shares 11,016.53 7,597.50

Redemption premium on Cumulative Compulsorily

Redeemable Preference Shares 254.60 -

Transfer to/(from) Debenture Redemption Reserve 2,658.16 11,649.00

Depreciation rate adjustment 313.92 -

Amalgamation adjustments - 51.90

Transfer to Reserve u/s 36(1)(viii) of Income Tax Act, 1961 4,798.00 6,440.00

Transfer to Reserve u/s 29-C of National Housing Bank 1,350.00 201.42

Surplus in the Statement of Profit and Loss 111,843.51 84,421.15

Standalone Particulars 2014-15 2013-14

Total Income 32,693.19 29,122.67

Less: Total Expenses 7,490.42 9,433.44

Profit before exceptional Items & taxes 25,202.77 19,689.23

Exceptional Items - -

Profit before Tax 25,202.77 19,689.23

Less: Tax Expense (960.03) 50.92

Profit after Tax 26,162.80 19,638.31

Add: Share in profit of associate company - -

Profit for the year 26,162.80 19,638.31

Add: Balance brought forward from previous year 12,918.28 17,698.51

Balance Available 39,081.08 37,336.82

Appropriations

Statutory Reserve 5,233.00 3,928.00

Proposed Dividend on Equity Shares 13,762.29 12,888.37

Dividend paid for previous year 5.04 1.29

Dividend Distribution Tax on proposed dividend / dividend paid 12.27 3.38 (Including tax on Dividend paid for previous year)

Interim Dividend on Preference Shares 11,016.53 7,597.50

Redemption premium on Cumulative Compulsorily

Redeemable Preference Shares - -

Transfer to/(from) Debenture Redemption Reserve - -

Depreciation rate adjustment - -

Amalgamation adjustments - -

Transfer to Reserve u/s 36(1)(viii) of Income Tax Act, 1961 - -

Transfer to Reserve u/s 29-C of National Housing Bank - -

Surplus in the Statement of Profit and Loss 9,051.95 12,918.28

Financial Performance

Being a Core Investment Company, the Company's standalone revenue is substantially, dividend from its subsidiaries and hence, it is meaningful to look at the Consolidated Performance.

Consolidated

* Total income grew by 21% from Rs. 523,718.42 Lakhs in FY 2013-14 to Rs. 633,744.93 Lakhs in FY 2014-15.

* Profit before exceptional items and taxes has grown from Rs. 82,488.07 Lakhs in FY 2013-14 to Rs. 103,092.85 Lakhs in FY 2014-15.

* Profit After Tax (PAT) excluding exceptional items was Rs. 73,603.00 Lakhs in FY 2014-15 as compared to Rs. 59,689.33 Lakhs in FY 2013-14.

During the year, the net loan book size grew from Rs. 3,869,715.04 Lakhs to Rs. 4,576,313.36 Lakhs reflecting a growth of 18%.

The Average Assets Under Management (AAUM) of the Mutual Fund business stood at Rs. 2,249,670 Lakhs for the quarter ended March 31, 2015 as against Rs. 1,825,519 Lakhs for the quarter ended March 31, 2014, a growth of 23%.

Standalone

* Total income grew from Rs. 29,122.67 Lakhs in FY 2013-14 to Rs. 32,693.19 Lakhs in FY 2014-15.

* Profit before tax has grown from Rs. 19,689.23 Lakhs in FY 2013-14 to Rs. 25,202.77 Lakhs in FY 2014-15.

* Profit After Tax (PAT) was Rs. 26,162.80 Lakhs in FY 2014-15 as compared to Rs. 19,638.31 Lakhs in FY 2013-14.

Appropriations

The Company proposes to transfer Rs. 5,233.00 Lakhs (Previous year Rs. 3,928.00 Lakhs) to Special Reserve created u/s 45—IC of the Reserve Bank of India Act, 1934. The Company proposes to transfer Rs. 13,762.29 Lakhs (Previous year Rs. 12,888.37 Lakhs) to Dividend Account towards payment of proposed dividend on Equity Shares and Rs. 12.27 Lakhs (Previous year Rs. 3.38 Lakhs) towards payment of Dividend Distribution Tax on the proposed dividend and retain Rs. 9,051.95 Lakhs (Previous year Rs. 12,918.28 Lakhs) in the Statement of Profit and Loss of the Company.

Material Changes and Commitments

There were no material changes and commitments affecting the financial position of the Company which occurred between the end of the financial year to which these financial statements relate and the date of this Report.

Dividend

The Board of Directors had declared and paid an interim dividend @ 8.75% (two options), 9.00% (one option), 8.40% (one option), 8.50% (one option) and 8.35% (two options) per share (on pro-rata basis for the issuance made during the year) as applicable, on the five series of Cumulative Compulsorily Redeemable Preference Shares (CCRPS) of face value of Rs. 100/- each of the Company, for the financial year 2014-15, entailing an outflow of Rs. 11,016.53 Lakhs (excluding Dividend Distribution Tax). No final dividend is proposed on CCRPS.

The Directors are pleased to recommend a final dividend of Rs. 0.80 per Equity Share of face value of Rs. 10/- each for the financial year 2014-15, entailing an outflow of Rs. 13,762.29 Lakhs (excluding Dividend Distribution Tax). The dividend, if approved at the ensuing Annual General Meeting, would be paid to those members whose name appear in the Register of Members/Beneficial Holders as on September 2, 2015.

Credit Rating

During the year, Credit Analysis and Research Ltd. (CARE) has accorded a rating of 'CARE AA ' [Double A Plus] for the various issues of Redeemable Preference Shares. The rating indicates that the Preference Shares carry very low credit risk and are considered to have a high degree of safety regarding timely servicing of financial obligations and further indicating "Stable" outlook.

Share Capital

During the year under review, to fund the capital requirements of the subsidiaries from time to time, your Company has issued 36,340,000 Listed Cumulative Compulsorily Redeemable Preference Shares (CCRPS) of Face Value Rs. 100/- each for cash at par aggregating Rs. 36,340.00 Lakhs on private placement basis. The said shares were issued in accordance with the SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 (SEBI Regulations).

During the year, the Company has issued in total 18,36,925 Equity Shares to employees of the Company and its Subsidiary companies pursuant to their exercise of stock options under ESOP Scheme - 2010.

Pursuant to the above issue of Preference Shares and allotment of Equity Shares on exercise of employee stock options, the paid-up capital of your Company increased to Rs. 308,368.59 Lakhs (including Preference Share Capital of Rs. 136,340.00 Lakhs) as at March 31, 2015 from Rs. 271,844.90 Lakhs as at March 31,2014.

Investment in Subsidiaries

During the year under review, the Company has infused capital in its following subsidiaries by subscribing to the equity shares offered by them:

Name of subsidiary company Amount of capital subscribed (Rs.in Lakhs)

L&T Capital Markets Limited 600.00

L&T Investment Management 501.82 Limited

Registration as Core Investment Company

The Company is a registered Non-Banking Financial Institution - Core Investment Company (NBFC-CIC) pursuant to the receipt of Certificate of Registration from the Reserve Bank of India (RBI) dated September 11, 2013, under Section 45-IA of the Reserve Bank of India Act, 1934.

Statutory Disclaimer

The Company is having a valid Certificate of Registration dated September 11, 2013 issued by the Reserve Bank of India under Section 45-IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the Company or for the correctness of any of the statements or representations made or opinions expressed by the Company and for repayment of deposits / discharge of liabilities by the Company.

Fixed Deposits

The Company has not accepted any deposits from the public since inception.

Directors

During the year under review, Mr. B. V. Bhargava, Mr. S. V Haribhakti, Mr. P V. Bhide, Ms. Kamakshi Rao and Mr. Harsh Mariwala, who had offered themselves for appointment as Independent Directors (IDs) and who were qualified for the said position, pursuant to Section 149(6) of the Companies Act, 2013 (the Act), were appointed as IDs by the Members at their Sixth Annual General Meeting held on July 24, 2014, to hold office for a period upto March 31, 2019.

During the year under review, Mr. A. K. Jain, a Non-Executive Director, resigned from the Board of Directors to devote time to other commitments and accordingly ceased to be a Director of the Company with effect from February 26, 2015. The Board places on record its appreciation of the valuable services rendered by him during his tenure as a Director of the Company.

The provisions of Section 149(1) and 149(4) of the Act, pertaining to the appointment of a Woman Director and Independent Directors have been notified by the Ministry of Corporate Affairs with effect from April 1, 2014. The revised Clause 49 of the Equity Listing Agreement notified by SEBI with effect from October 1, 2014 also mandated appointment of a Woman director in addition to Independent Directors. As at March 31, 2015, the Company has five Independent Directors including one Woman Director.

The Company has familiarized the Independent Directors with the Company, their roles, responsibilities in the Company, nature of industry in which the Company operates, business model of the Company, etc. The details of the familiarization programme is available on the website of the Company at http://www.ltfinanceholdings. com/investors/corporate-governance.aspx.

All Independent Directors have given declarations that they meet the criteria of independence as provided under Section 149 (6) of the Act and Clause 49 of the Equity Listing Agreement. Further, all the Directors meet the Fit and Proper criteria stipulated by the RBI pursuant to the revised regulatory framework notified during the year. The terms and conditions of appointment of Independent Directors is also available on the website of the Company at http://www.ltfinanceholdings.com/ investors/corporate-governance.aspx.

Section 152 of the Act provides that unless the articles provide for the retirement of all directors at every annual general meeting, not less than two-third of the total number of directors of a public company shall be persons whose period of office is liable to determination by retirement of directors by rotation. For the purpose of determining the total number of directors, Independent Directors are required to be excluded. Accordingly, Mr. N. Sivaraman, President & Whole-time Director will retire by rotation at the ensuing Annual General Meeting (AGM) and being eligible, has offered himself for re-appointment.

The Directors of the Company have affirmed compliance with the Code of Conduct of the Company.

Additional Information and brief profile, as stipulated under the Equity Listing Agreement with respect to the Director seeking re-appointment, is annexed to the Notice of the AGM. Further, the business items relating to the re-appointment of above Director have been included in the Notice of the AGM.

Key Managerial Personnel

During the year under review, Mr. C. S. Damle resigned as the Chief Financial Officer of the Company for pursuing alternate career opportunities. As on March 31,2015, the Company has the following Key Managerial Personnel:

1) Mr. Y. M. Deosthalee - Chairman & Managing Director

2) Mr. N. Sivaraman - President & Whole-time Director

3) Mr. N. Suryanarayanan - Company Secretary

The Board of Directors, at its meeting held on April 23, 201 5 has, on the recommendation of the Audit Committee, appointed Ms. Upma Goel, Deputy Finance Controller and a Chartered Accountant with over 22 years experience, as a Key Managerial Person to discharge the functions of the Chief Financial Officer.

Company's Policy on Director Appointment and Remuneration

A. Background and Objectives

Section 178 of the Companies Act, 2013 ('the Act') as well as Clause 49 of the Equity Listing Agreement (Listing Agreement) require the Nomination and Remuneration Committee to formulate a Policy relating to the remuneration of the Directors, Key Managerial Personnel (KMP), Senior Management and other employees of the Company and recommend the same for approval of the Board. Further, Section 178(4) of the Act and Clause 49 of the Listing Agreement stipulate that the policy shall be disclosed in the Board's Report.

Moreover, Section 134 of the Act stipulates that the Board's Report shall include a statement on Company's Policy on directors' appointment and remuneration including criteria for determining qualifications, positive attributes, independence of director and remuneration for key managerial personnel and other employees.

The Board of Directors at its meeting held on February 25, 2015, has, based on the recommendation of the Nomination and Remuneration Committee, approved the Policy on Directors' Appointment and Remuneration for Directors, Key Managerial Personnel and other Employees.

B. Brief Framework of the Policy

a) The objective of this Policy is

* To guide the Board in relation to appointment and removal of Directors.

* To evaluate the performance of the Members of the Board including Independent Directors.

* To formulate the criteria for evaluation of Independent Director and the Board.

* To determine criteria for payment of remuneration to Directors, Key Managerial Personnel, Senior Management and Employees.

* To recommend to the Board on remuneration payable to the Directors including Key Managerial Personnel, Senior Management and Employees, if required.

b) Evaluation Criteria of Directors and Senior Management/Key Managerial Personnel/ Employees

* Non-Executive Directors/Independent Directors Before determining the remuneration, the Nomination and Remuneration Committee ('the Committee') is required to carry out evaluation of performance of Independent Directors/Non-Executive Directors, against the following criteria:

* Membership & Attendance - Board and Committee Meetings.

* Contribution during such meetings.

* Active participation in strategic decision making.

* Inputs to executive management on matters of strategic importance.

* Executive Directors

With respect to evaluation of performance of Executive Directors, the evaluation is on the basis of Key Performance Indicators (KPI), which would be identified every year for Executive Directors (ED) and weights assigned for each measure of performance keeping in view the distinct roles of each ED. The identified KPI for Executive Directors shall be approved by the Board, pursuant to the recommendation of the Nomination and Remuneration Committee.

* Senior Management/Key Managerial Personnel/Employees

The Human Resource Department (HR Department) would assign the responsibility of carrying out the evaluation of the aforementioned persons every year ending March 31st, to the reporting superior/department heads. KPI are identified well in advance at the commencement of the financial year. Performance benchmarks are set and evaluation of employees is done by the respective reporting manager(s)/Management vis-a-vis the performance benchmarks. The payment of remuneration/annual increment to the aforementioned persons is determined after the satisfactory completion of Evaluation process.

The HR Department of the Company is authorized to design the framework for evaluating the KMPs/Senior Management Personnel/Employees. The objective of carrying out the evaluation by the Company is to identify and match rewards with performance.

c) Criteria for Remuneration

In determining the criteria for remuneration for Directors and Senior Management, the Nomination and Remuneration Committee is required to ensure that:

1) the relationship between remuneration and performance benchmark is clear;

2) there is a balance between fixed and incentive pay reflecting short and long term performance objectives, appropriate to the working of the Company and its goals;

3) the remuneration is divided into two components viz. fixed component comprising salaries, perquisites and retirement benefits and a variable component comprising performance bonus;

4) the remuneration including annual increment and performance bonus is decided based on the criticality of the roles and responsibilities, the Company's performance vis-a-vis the annual budget achievement, individuals performance vis-a-vis KRAs / KPIs, industry benchmark and current compensation trends in the market.

Performance Evaluation

Pursuant to the provisions of the Companies Act, 2013 (the Act) and Clause 49 of the Equity Listing Agreement, the Board has carried out an annual performance evaluation of its own performance, the directors individually, as well as the Audit Committee (AC) and Nomination and Remuneration Committee (NRC).

Manner of Evaluation

The NRC and the Board have laid down the manner in which formal annual evaluation of the performance of the Board, Committees and individual Directors has to be made.

It includes circulation of evaluation forms separately for evaluation of the Board and its Committees, Independent Directors/Non-Executive Directors/Executive Director and Chairman of the Company.

The process of the annual performance evaluation broadly comprises:

a) Board Evaluation:

* Evaluation of the Board as a whole by the Business Heads and individual Board members, followed by collation thereof by NRC for apprising the Board

b) Audit Committee and Nomination and Remuneration Committee Evaluation:

* Evaluation of the Committees by the respective Committee members, followed by compilation thereof by NRC for submission to the Board

c) Independent / Non-Executive Directors Evaluation:

* Evaluation by other Board members excluding the Director being evaluated, followed by individual feedback to the directors concerned by the Chairman of the Board and summary feedback to the NRC.

d) Chairman Evaluation:

* Evaluation by the other members of the Board followed by feedback thereon by the Chairman of the NRC to the Chairman of the Board and apprising the Board.

e) Evaluation of President & Whole-time Director:

* Evaluation by the other members of the Board followed by feedback thereon by the Chairman of the Board to the director concerned and apprising the NRC and Board.

Employee Stock Option Scheme

The disclosures required to be made under the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 as amended from time to time, together with a certificate obtained from the Statutory Auditors, confirming compliance thereto, has been appended as Annexure A forming part of this Report.

Reports on Corporate Governance

The Report on Corporate Governance for the year under review, is forming part of the Annual Report. The certificate from the Auditors of the Company confirming compliance with the conditions of Corporate Governance is annexed to the Corporate Governance Report.

Statutory Auditors

The Auditors, M/s. Sharp & Tannan, Chartered Accountants, hold office until the conclusion of the ensuing Annual General Meeting (AGM) and are recommended for re-appointment.

Pursuant to Section 139(2) of the Companies Act, 2013 (the Act) and the rules made thereunder, no listed company shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years. The aforesaid appointment is subject to ratification by Members of the Company at every AGM.

Further, the proviso to the said Section 139(2) stipulates that every company existing on or before the commencement of the Act, has to comply with the requirements of this Section within three years from the date of commencement of this Act. The Audit Committee and Board of Directors of the Company have recommended the appointment of M/s. Sharp & Tannan, Chartered Accountants as Statutory Auditors for a further period of one year i.e. from the conclusion of the Seventh AGM till the conclusion of the Eighth AGM, subject to the approval of the Members in the ensuing AGM of the Company. For the information of Members, M/s. Sharp & Tannan has already served as Statutory Auditors of the Company for a period of seven years.

M/s. Sharp & Tannan have confirmed that their re-appointment, if made, will comply with the eligibility criteria in terms of Section 141(3) of the Act. Further, the Auditors have confirmed that they have subjected themselves to Peer Review process by the Institute of Chartered Accountants of India (ICAI) and hold valid certificate Issued by the Peer Review Board of ICAI.

Particulars of Employees

The information required pursuant to Section 197 of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company has been appended as Annexure B of this Report. In terms of first proviso to Section 136 of the Act, the Report and Accounts are being sent to the Members and others entitled thereto, excluding the information on employees' particulars as required pursuant to Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel)

Rules, 2014. The said information is available for inspection by the Members at the Registered Office of the Company during business hours on working days of the Company up to the date of the ensuing Annual General Meeting. If any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary in this regard.

The Board of Directors affirm that the remuneration paid to employees of the Company is as per the Remuneration Policy of the Company and none of the employees listed in the said Annexure/Information is related to any Director of the Company.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo Considering the Company's activities as a Core Investment Company carrying out its activities through its subsidiaries, the particulars regarding conservation of energy & technology absorption as required to be disclosed pursuant to the Rule 8(3) of the Companies (Accounts) Rules, 2014 are not relevant to its activities.

There were no foreign exchange earnings during the year (Previous year Rs. Nil); the foreign exchange used by the Company during the year was Rs. 202.17 Lakhs (Previous year Rs. 196.48 Lakhs) towards professional fees, Directors' sitting fees and travelling expenses.

Depository System

As the Members are aware, the Company's equity shares are compulsorily tradable in electronic form. As on March 31, 2015, out of the Company's total equity paid-up capital comprising of 1,720,285,900 Equity Shares, only 224,746 Equity Shares were in physical form and the remaining capital is in electronic form. In view of the numerous advantages offered by the Depository System, the Members holding shares in physical form are advised to avail of the facility of dematerialization.

Subsidiary Companies

The Company conducts its business through subsidiaries for each of the business segment in which it operates. As of March 31,2015, the Company had 15 subsidiaries (including step down subsidiaries), which is summarized in the diagram below:

During the year under review, as part of the corporate restructuring exercise, L&T Trustee Services Pvt. Ltd. was merged with L&T Mutual Fund Trustee Ltd. in order to create better synergies across the group, optimal utilisation of resources and reduction in regulatory and legal compliances/filings.

The Scheme of Arrangement has been sanctioned by the Honourable High Court of Judicature at Bombay vide its Order dated August 27, 2014.

By virtue of the above, L&T Trustee Services Pvt. Ltd. ceased to be a step down subsidiary of the Company.

Material Subsidiaries

As required under the Clause 49(V)D of the Equity Listing Agreement, the Board of Directors at its meeting held on October 22, 2014 has approved the Policy for determining Material Subsidiaries ('Policy'). The details of the Policy are available on the website of the Company at http://www. ltfinanceholdings.com/ investors/corporate-governance.aspx.

Performance and Financial Position of each subsidiary/associate and joint venture companies As required under Rule 5 and Rule 8(1) of the Companies (Accounts) Rules, 2014, a report on the performance and financial position of each of the subsidiaries and associates of the Company has been appended as Annexure C to this Report.

The Company does not have any overseas subsidiaries. Directors' Responsibility Statement The Board of Directors of the Company confirms that:

1) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

2) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31,2015 and of the profit of the Company for that period;

3) the directors had taken proper and sufficient care 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;

4) the directors had prepared the annual accounts on a going concern basis;

5) the directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and operating effectively;

6) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Internal Control Systems and their Adequacy

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. Testing of such Control Systems form a part of Internal Audit functions. The scope and authority of the Internal Audit (IA) function is defined in the Internal Audit Charter. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman & Managing Director and functionally to the Audit Committee. The Internal Audit functions are carried out by the Internal Audit department of L&T Financial Services Group.

The Internal Audit Department monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies of the Company. Based on the report of the internal audit function, process owners undertake corrective action, if any, in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions, if any, are presented to the Audit Committee of the Board.

Meetings

The details of the Board meetings held by the Company during the financial year 2014-15 are disclosed in the Corporate Governance Report annexed along with this Report.

Composition of Audit Committee

The Company has constituted an Audit Committee in terms of the requirements of the Companies Act, 2013, Clause 49 of Equity Listing Agreement and regulations of the Reserve Bank of India. The details of the same are disclosed in the Corporate Governance Report.

Vigil Mechanism

The Company has formulated and established a Vigil Mechanism Framework to enable directors and employees to report genuine concerns about unethical behaviour, actual or suspected fraud or violation of Code of Conduct. Under this framework, the Company has set up a "Whistle Blower Investigation Committee ("the Committee")". The Chairman of this Whistle Blower Investigation Committee is the Chief Ethics Officer of the Company responsible for receiving, validating, investigating and reporting to the Audit Committee of this matter. The Chief Internal Auditor of L&T Financial Services Group acts as 'Chief Ethics Officer'.

The objective of this mechanism is to maintain a redressal system which can process all complaints concerning questionable accounting practices, internal controls, or fraudulent reporting of financial information.

The mechanism framed by the Company is in compliance with the requirements of the Companies Act, 2013 and Equity Listing Agreement and available on the website of the Company at http://www. ltfinanceholdings.com/ investors/corporate-governance.aspx

Corporate Social Responsibility (CSR)

In accordance with the requirements of Section 135 of the Companies Act, 2013, the Company has constituted a CSR Committee. The composition and terms of reference of the CSR Committee is provided in the Corporate Governance Report.

The Company has also formulated a CSR Policy which is available on the website of the Company at http://www.ltfinanceholdings.com/investors/ corporate -governance.aspx. Annual Report on CSR activities as required under the Companies (Corporate Social Responsibility Policy) Rules, 2014 has been appended as Annexure D to this Report.

Particulars of Loans given, Investments made, Guarantees given or security provided by the Company:

Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the Notes to the Financial Statements.

Particulars of Contracts or Arrangements with Related Parties:

The Board of Directors at its meeting held on June 20, 2014 has approved the Policy on Related Party Transactions (RPT Policy), pursuant to the recommendation of the Audit Committee. In line with the requirements of the Companies Act, 2013, RBI Regulations and Equity Listing Agreement, the Company has formulated a Policy on Related Party Transactions which is also available on the Company's website at http://www.ltfinanceholdings. com/investors/corporate-governance.aspx. The Policy intends to ensure that proper reporting, approval and disclosure processes are in place for all transactions between the Company and Related Parties.

Key features of the RPT Policy are as under:

* All RPT's should be referred to the Audit Committee of the Company for approval irrespective of its materiality. The Audit Committee, on the recommendation of the management, will approve certain transactions with related parties which would occur on regular basis or at regular intervals. The Audit Committee shall, at the end of each year appraise the position of the approved transactions to ensure that all necessary requirements are being complied with.

* All RPT's which are not at arm's length and / or which are not in the ordinary course of business should be presented to the Board for an appropriate decision.

All Related Party 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 were no materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel, Body Corporate(s), which had a potential conflict with the interest of the Company at large. Accordingly, the disclosure of Related Party Transactions as required under Section 134(3) (h) of the Companies Act, 2013 in Form AOC 2 is not applicable. The Directors draw attention of the members to Note No. 24.4 to the Financial Statements which sets out related party disclosures.

Risk Management Framework

The Company and its subsidiaries have a risk management framework to inform the Board Members about risk assessment and minimization procedures and periodical review to ensure that executive management controls risk by means of a properly designed framework. The Audit Committee is kept apprised of the proceedings of the Risk Management Committee and also apprised about the risk management framework at subsidiaries.

Auditors' Report

The Auditors' Report is unqualified. The Notes to the Accounts referred to in the Auditors' Report are self-explanatory and therefore do not call for any further clarifications under Section 134(3)(f) of the Companies Act, 2013.

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 Company has appointed Ms. Naina R. Desai, Practising Company Secretary to undertake the Secretarial Audit of the Company. The Secretarial Audit Report is appended as Annexure E to this Report.

There is no adverse remark, qualifications or reservation in the Secretarial Audit Report.

Policy for Prevention, Prohibition and Redressal of Sexual Harassment at Workplace

The Company has in place a Policy for Prevention, Prohibition and Redressal of Sexual Harassment at Work Place. Appropriate reporting mechanisms are in place for ensuring protection against Sexual Harassment and the right to work with dignity. During the year under review, the Company has not received any complaints in this regard.

Extract of Annual Return as required and prescribed under Section 92(3) of the Companies Act, 2013 and Rules made thereunder

The extract of Annual Return in MGT 9 as required under Section 92(3) of the Companies Act, 2013 and prescribed in Rule 12 of the Companies (Management and Administration) Rules, 2014 is appended as Annexure F to this Report.

Significant and Material Orders Passed by the Regulators or Courts

There are no significant material orders passed by the Regulators / Courts which would impact the going concern status of the Company and its future operations. Further, no penalties have been levied by RBI/any other Regulators during the year under review.

Reserve Bank of India Regulations

The Company has complied with all the applicable regulations of the Reserve Bank of India as on March 31, 2015.

Other Disclosures

During the year under review, the Company has not obtained any Registration/licence/authorisation, by whatever name called from other financial sector regulators.

Market Capitalisation/Price Earnings Ratio/ Percentage increase/decrease in the market quotations

a. Variations in the market capitalisation of the Company: The market capitalisation as on March 31, 2015 was Rs. 10,803.40 Crore (Rs. 12,639.19 Crore as on March 31, 2014).

b. Price Earnings Ratio of the Company was 14.60 as at March 31, 2015 and was 24.29 as at March 31, 2014. Considering the Company being a non-operating Core Investment Company which carries on the business through its underlying subsidiaries, the performance of the Company would be aptly reflected by its consolidated earnings. Hence, the P/E Ratio has been computed on the basis of consolidated performance.

c. Percent increase over/ decrease in the market quotations of the shares of the Company as compared to the rate at which the Company came out with the last public offer. The closing share price of the Company at National Stock Exchange of India Limited on March 31, 2015 being Rs. 62.80 per equity share of face value of Rs. 10/- each has grown 1.21 times, since the Company's Initial Public Offer made in the year 2011 (Offer Price was Rs. 52/- per equity share of face value of Rs. 10/- each).

Acknowledgement

The Directors express their sincere gratitude to the Reserve Bank of India, Securities and Exchange Board of India, BSE Limited, National Stock Exchange of India Limited, Ministry of Finance, Ministry of Corporate Affairs, Registrar of Companies, other government and regulatory authorities, lenders, financial institutions and the Company's bankers for the ongoing support extended by them. The Directors also place on record their sincere appreciation for the continued support extended by the Company's stakeholders and trust reposed by them in your Company. The Directors sincerely appreciate the commitment displayed by the employees of the Company and its subsidiaries across all levels, resulting in successful performance during the year.

For and on behalf of the Board of Directors

Y. M. Deosthalee N. Sivaraman Chairman & Managing President & Director Whole-time Director

Place : Mumbai Date : April 23, 2015


Mar 31, 2014

Dear Members,

The Directors of your Company take pleasure in presenting the Sixth Annual Report together with the annual audited statement of accounts for the financial year ended March 31, 2014.

Financial Results

The summarized financial results of the Company are given hereunder:

(Rs. in Lakhs)

Particulars 2013-14 2012-13

Total Income 29,122.67 20,067.22

Less: Total Expenses 9,433.44 6,894.06

Profit before Exceptional Items 19,689.23 13,173.16

Exceptional items * - 23,572.92

Profit before Tax 19,689.23 36,746.08

Less: Tax Expense 50.92 5,613.56

Profit after Tax 19,638.31 31,132.52

Add: Balance brought forward 17,698.51 5,933.84 from previous year

Balance Available 37,336.82 37,066.36

Appropriations

Statutory Reserve 3,928.00 6,250.00

Proposed Dividend on - 150.00

Preference Shares

Proposed Dividend on Equity 12,888.37 12,875.70 Shares

Dividend paid for previous year 1.29 -

Dividend Distribution Tax on 3.38 92.15 proposed dividend / dividend paid

Interim Dividend on Preference 7,597.50 - Shares

Surplus in the Statement of 12,918.28 17,698.51 Profit and Loss

* Exceptional items represent profit on sale of investments net of costs related to integration of acquired entities.

Appropriations

The Company proposes to transfer Rs. 3,928.00 lakhs (Previous year Rs. 6,250.00 lakhs) to Special Reserve created u/s 45–IC of the Reserve Bank of India Act, 1934.

The Company proposes to transfer Rs. 12,888.37 lakhs (Previous year Rs. 12,875.70 lakhs) to Dividend Account towards payment of proposed dividend on Equity Shares and Rs. 3.38 lakhs (Previous year Rs. 92.15 lakhs) towards payment of Dividend Distribution Tax (including for dividend paid for the previous year) on the proposed dividend and retain Rs. 12,918.28 lakhs (Previous year Rs. 17,698.51 lakhs) in the Statement of Profit and Loss of the Company.

Dividend

The Board of Directors had declared and paid an interim dividend @ 8.75% (two series) and 9.00% per share (on pro-rata basis for the issuance made during the year) as applicable, on the three series of Cumulative Compulsorily Redeemable Preference Shares of face value of Rs. 100/- each of the Company for the financial year 2013-14, entailing an outflow of Rs. 7,597.50 lakhs (excluding Dividend Distribution Tax).

The Directors are also pleased to recommend a final dividend of Rs. 0.75 per Equity Share of face value of Rs. 10/- each for the financial year 2013-14, entailing an outflow of Rs. 12,888.37 lakhs (excluding Dividend Distribution Tax).

The dividend, if approved at the ensuing Annual General Meeting, would be paid to those members whose name appear in the Register of Members/Beneficial Holders as on July 21, 2014.

Consolidated Financial Statements

The Directors have pleasure in attaching the Consolidated Financial Statements pursuant to Clause 32 of the Equity Listing Agreement entered into with the Stock Exchanges and prepared in accordance with the Accounting Standards prescribed by the Institute of Chartered Accountants of India in this regard. The Auditors'' Report to the Shareholders thereupon does not contain any qualification.

- Total income grew by 31% from Rs. 3,99,479.32 lakhs in FY 2012-13 to Rs. 5,23,718.42 lakhs in FY 2013-14.

- Profit before exceptional and extraordinary items and taxes has grown from Rs. 77,061.47 lakhs in FY 2012-13 to Rs. 82,488.07 lakhs in FY 2013-14.

- Profit After Tax (PAT) was Rs. 59,484.16 lakhs in FY 2013-14 compared to Rs. 72,918.77 lakhs in FY 2012-13 due to exceptional income in FY 2012-13 and higher credit costs in the year under review, mainly due to the economic scenario affecting the infrastructure and other corporate sectors.

During the year, the loan book size grew from Rs. 32,20,000.00 lakhs to Rs. 38,96,714.04 lakhs reflecting a growth of 20%.

The Average Assets Under Management (AAUM) of the Mutual Fund business stood at Rs. 18,25,518.65 lakhs for the quarter ended March 31, 2014 as against Rs. 11,16,937.84 lakhs for the quarter ended March 31, 2013, a growth of 63%.

Share Capital

During the year under review, to fund the capital requirements of the subsidiaries from time to time, your Company has issued 2,50,00,000 Listed 9% Cumulative Compulsorily Redeemable Preference Shares (CRPS) of Face Value Rs. 100/- each for cash at par aggregating Rs. 25,000.00 lakhs on private placement basis. The said shares were issued in accordance with the SEBI (Issue and Listing of Non-convertible Redeemable Preference Shares) Regulations, 2013 (SEBI Regulations). The Preference Shares issued by your Company are the first such instruments to be issued on a private placement basis and listed pursuant to SEBI Regulations.

During the year, the Company has issued in total 16,88,443 Equity Shares to employees of the Company and its Subsidiary companies pursuant to their exercise of stock options under ESOP Scheme - 2010.

Pursuant to the above issue of Preference Shares and allotment of Equity Shares pursuant to exercise of employee stock options, the paid-up capital of your Company increased to Rs. 2,71,844.90 lakhs (including Preference Share Capital of Rs. 1,00,000.00 lakhs) as at March 31, 2014 from Rs. 2,46,676.05 lakhs as at March 31, 2013.

Investment in Subsidiaries

During the year under review, your Company has infused capital in its following subsidiaries by subscribing to the equity shares offered by them :

Name of subsidiary Amount of capital company subscribed

(Rs. in lakhs)

L&T FinCorp Ltd. 25,000.00

L&T Housing Finance Ltd. 15,000.00

Family Credit Ltd. 10,000.00

L&T Infra Debt Fund Ltd. 7,100.00

L&T Vrindavan Properties Ltd. 1,425.00 (formerly L&T Unnati Finance Ltd.)

L&T Capital Markets Ltd. 1,420.00

L&T Mutual Fund Trustee Ltd. 10.00

Registration as Core Investment Company

Your Company is now a registered Non-Banking Financial Institution - Core Investment Company (NBFC- CIC) pursuant to the receipt of Certificate of Registration from the Reserve Bank of India (RBI) dated September 11, 2013, under Section 45-IA of the Reserve Bank of India Act, 1934.

Statutory Disclaimer

The company is having a valid Certificate of Registration dated September 11, 2013 issued by the Reserve Bank of India under Section 45-IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits / discharge of liabilities by the company.

Fixed Deposits

The Company has not accepted any deposits from the public since inception.

Directors

During the year, Mr. R. Gopalakrishnan, Mr. Subramaniam N. and Mr. M. Venugopalan resigned from the Board of

Directors and accordingly ceased to be Directors of your Company with effect from August 1, 2013. The Board places on record its appreciation of the valuable services rendered by them during their tenure as Directors of the Company.

Prior to the coming into force of Section 149 of the Companies Act, 2013, six of the Company''s Directors, Mr. A. K. Jain, Mr. B. V. Bhargava, Mr. S. V. Haribhakti, Mr. P. V. Bhide, Mr. Harsh Mariwala and Ms. Kamakshi Rao were categorised as Independent Directors in terms of the definition contained in the Equity Listing Agreement.

The provisions of Section 149(4) of the Companies Act, 2013, pertaining to the appointment of Independent Directors have been notified by the Ministry of Corporate Affairs with effect from April 1, 2014. Pursuant to the coming into force of Section 149 of the Companies Act, 2013, from April 1, 2014, the Company has re-assessed the status of its Directors with a view to determining their qualifying for classification as Independent Directors in terms of Section 149(6) of the Companies Act, 2013. Accordingly, Mr. B. V. Bhargava, Mr. S. V. Haribhakti, Mr. P. V. Bhide, Mr. Harsh Mariwala and Ms. Kamakshi Rao fulfil the criteria laid out in Section 149(6) of the Companies Act, 2013, in this regard.

Section 149(10) of the Companies Act, 2013, restricts the tenure of Independent Director to two terms of up to ten years, with a single term not exceeding five years, which shall be effective from April 1, 2014. The revised Clause 49 of the Equity Listing agreement issued by Securities and Exchange Board of India (SEBI), pursuant to Circular no. CIR/CFD/POLICY CELL/2/2014 dated April 17, 2014, also contains the same provisions. Mr. B. V. Bhargava, Mr. S. V. Haribhakti, Mr. P. V. Bhide and Ms. Kamakshi Rao retire by rotation at the forthcoming Annual General Meeting (AGM) and, they, being eligible, have offered themselves for appointment as Independent Directors of your Company pursuant to the provisions of the Companies Act, 2013, to hold office for a period upto March 31, 2019.

Pursuant to the provisions of Section 161 of the Companies Act, 2013, read with the relevant provision in the Articles of Association, Mr. Harsh Mariwala was appointed as an Additional Director by the Board of

Directors of the Company with effect from October 23, 2013. He holds office as a Director up to the date of the forthcoming AGM. Your Company has received a notice in writing from a Member proposing his candidature for the office of Independent Director. Mr. Mariwala qualifies to be an Independent Director pursuant to the provisions of Section 149(6) of the Companies Act, 2013.

Additional Information and brief profile, as stipulated under the Equity Listing Agreement for each of the above Directors seeking re-appointment / appointment, is annexed to the Notice of the AGM. Further, the business items relating to the re-appointment / appointment of above Directors have been included in the Notice of the AGM.

Employee Stock Option Scheme

The disclosures required to be made under Clause 12.1 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, as amended from time to time, together with a certificate obtained from the Statutory Auditors, confirming compliance thereto, are provided in Annexure A forming part of this Report.

The Company has also instituted a revised Employee Stock Option Scheme of the Company, known as Employee Stock Option Scheme – 2013 (ESOP Scheme – 2013), which was approved by the Members vide postal ballot in Apr''14.

Report on Corporate Governance and Management Discussion & Analysis

The report on Corporate Governance and Management Discussion & Analysis for the year under review, are forming part of the Annual Report. The certificate from the Auditors of the Company confirming compliance with the conditions of Corporate Governance is annexed to the Corporate Governance Report.

Statutory Auditors

The Auditors, M/s. Sharp & Tannan, Chartered Accountants, hold office until the conclusion of the ensuing Annual General Meeting and are recommended for re-appointment.

The Ministry of Corporate Affairs has notified the provisions of Section 139 of the Companies Act, 2013, for appointment of Auditors, which is effective from April 1, 2014. Pursuant to Section 139(2) of the Companies Act, 2013 and the rules made thereunder, no listed company shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years. Further, the aforesaid appointment is subject to ratification by the Members of the Company at every AGM.

The period of ten years (two terms of five years each) has to be calculated from the date of appointment of the auditors. Further, the proviso to said Section 139(2) stipulates that every company existing on or before the commencement of the Companies Act, 2013, has to comply with the requirements of this section within three years from the date of commencement of this Act. M/s. Sharp & Tannan has already served as Statutory Auditors of the Company for a term of five years.

Pursuant to Section 139(2) of the Companies Act, 2013, the Audit Committee and Board of Directors of the Company have recommended their appointment for a period of one year i.e from the conclusion of the Sixth AGM till the conclusion of the Seventh AGM, subject to approval of the Members in the AGM of the Company. M/s. Sharp & Tannan have confirmed that their re- appointment, if made, will comply with the eligibility criteria in terms of Section 141(3) of the Companies Act, 2013.

Particulars of Employees

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 and the rules framed thereunder, the names and other particulars of employees are set out in the Annexure II to the Directors'' Report. In terms of the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Directors'' Report is being sent to all the shareholders of the Company excluding the aforesaid information. The said Annexure is available for inspection at the registered office of the Company. Any shareholder interested in the said information may write to the Company Secretary at the Registered Office of the Company.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo

In view of the nature of activities being carried on by the Company, Rules 2A and 2B of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, concerning conservation of energy and technology absorption respectively, are not applicable to the Company.

There were no foreign exchange earnings during the year (Previous year Rs. Nil); the foreign exchange used by the Company during the year was Rs. 196.48 lakhs (Previous year Rs. 168.11 lakhs) towards professional fees, Directors'' sitting fees and travelling expenses.

Depository System

As the Members are aware, the Company''s equity shares are compulsorily tradable in electronic form. As on March 31, 2014, out of the Company''s total equity paid-up capital comprising of 1,71,84,48,975 shares, only 14,915 shares were in physical form and the remaining capital is in electronic form. In view of the numerous advantages offered by the Depository system, the Members holding shares in physical form are advised to avail of the facility of dematerialization.

Subsidiary Companies

As of March 31, 2014, the Company had 16 subsidiaries (including step down subsidiaries), which is summarized in the diagram below:

As per the provisions of Section 212 of the Companies Act, 1956, the Company is required to attach, inter alia, the Directors'' Report, Balance Sheet and Statement of Profit and Loss of the subsidiaries to its annual report. The Ministry of Corporate Affairs, Government of India vide its circular No. 2/2011 dated February 8, 2011 has provided an exemption to companies from complying with the provisions of Section 212 subject to fulfillment of certain conditions as mentioned in the said circular. Accordingly, the annual report of the Company for the FY 2013-14 does not contain the financial statements of the subsidiaries. As required under the aforesaid circular, the consolidated financial statements of the Company duly audited by the statutory auditors form part of this Annual Report. Your Company shall make available the audited annual accounts and related information of its subsidiaries, to those members who wish to have copies of the same and these documents will also be kept open for inspection by any member at the Registered Office of the Company on any working day, except on Saturdays,

Sundays & Holidays between 11.00 a.m. and 1.00 p.m. up to the date of the ensuing Annual General Meeting.

During the year under review, as part of management restructuring exercise, L&T Fund Management Pvt. Ltd. (erstwhile FIL Fund Management Private Ltd.) was merged with L&T Investment Management Ltd. in order to create better synergies across the group, optimal utilisation of resources and reduction in regulatory and legal compliances/filings.

The Scheme of Arrangement has been sanctioned by the Honorable High Court of Judicature at Bombay vide its Order dated October 25, 2013.

Directors'' Responsibility Statement

The Board of Directors of the Company confirms that:

1) in the preparation of the annual accounts, the applicable accounting standards have been followed and there has been no material departures;

2) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2014 and of the profit of the Company for the year ended on that date;

3) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

4) the annual accounts have been prepared on a going concern basis; and

5) proper systems are in place to ensure compliance of all laws applicable to the Company.

Auditors'' Report

The Auditors'' Report is unqualified. The notes to the Accounts referred to in the Auditors'' Report are self- explanatory and therefore do not call for any further clarifications under Section 217(3) of the Companies Act, 1956.

Reserve Bank of India Regulations

The Company has complied with all the applicable regulations of the Reserve Bank of India as on March 31, 2014.

Acknowledgement

Your Directors express their sincere gratitude to the Reserve Bank of India, Securities and Exchange Board of India, BSE Limited, National Stock Exchange of India Limited, Ministry of Finance, Ministry of Corporate Affairs, Registrar of Companies, other government and regulatory authorities, lenders, financial institutions and the Company''s bankers for the ongoing support extended by them. The Directors also place on record their sincere appreciation for the continued support extended by the Company''s stakeholders and trust reposed by them in your Company. Your Directors sincerely appreciate the commitment displayed by the employees of the Company and its subsidiaries across all levels, resulting in successful performance during the year.

For and on behalf of the Board of Directors

Y. M. Deosthalee N. Sivaraman

Chairman & Managing President & Director Whole-time Director

Place : Mumbai Date : April 23, 2014


Mar 31, 2013

Dear Members,

The Directors have pleasure in presenting their Fifth Annual Report together with the Accounts of your Company for the financial year ended March 31, 2013.

Financial Results

The summarized financial results of the Company are given hereunder:

(Rs. Lakhs)

Particulars 2012-13 2011-12

Total Income 20,067.22 12,942.14

Less: Total Expenses 6,894.06 4,052.15

Profit before Exceptional Items 13,173.16 8,889.99

Exceptional Item* 23,572.92 -

Profit before Tax 36,746.08 8,889.99

Less: Provision for Tax 5,613.56 1,764.96

Profit after Tax 31,132.52 7,125.03

Add: Balance brought forward from previous year 5,933.84 233.81

Balance available for appropriation which Directors appropriate as follows: 37,066.36 7,358.84

Statutory Reserve 6,250.00 1,425.01

Proposed Dividend on Preference Shares 150.00 -

Proposed Dividend on Equity Shares 12,875.70 -

Dividend Distribution Tax on Proposed Dividend 92.15 -

Surplus carried forward to Balance Sheet 17,698.51 5,933.83

*exceptional item represents profit on sale of investments net of costs related to integration of acquired entities.

Appropriations

The Company proposes to transfer Rs. 6,250.00 lakhs (Previous year Rs. 1,425.01 lakhs) to Special Reserve created u/s 45—IC of Reserve Bank of India Act, 1934 and retain Rs. 17,698.51 lakhs (Previous year Rs. 5,933.83 lakhs) in the Statement of Profit and Loss of the Company.

Further, the Company proposes to transfer Rs. 13,025.70 lakhs (Previous year Rs. Nil) to Dividend Account towards payment of proposed dividend on Equity Shares & Preference Shares and Rs. 92.15 lakhs (Previous year Rs. Nil) towards payment of Dividend Distribution Tax on proposed dividend.

Dividend

Your Directors recommend a final dividend of Rs. 8.75 on pro-rata basis per Cumulative Compulsorily Redeemable Preference Share of face value Rs. 100/- each for the financial year 2012-13, entailing an outflow of Rs. 150.00 lakhs (excluding Dividend Distribution Tax).

Your Directors are also pleased to recommend a final dividend of Rs. 0.75 per Equity Share of face value Rs. 10/- each for the financial year 2012-13, entailing an outflow of Rs. 12,875.70 lakhs (excluding Dividend Distribution Tax).

The dividends, if approved at the ensuing Annual General Meeting, would be paid to those members whose names appear in the Register of Members/ Beneficial Holders as on Monday, July 29, 2013.

Completion of acquisitions initiated in the previous financial year and new initiatives

During the year, pursuant to regulatory approvals, your Company has successfully completed on October 09, 2012, the acquisition of Indo Pacific Housing Finance Limited, a housing finance company registered with the National Housing Bank. The said subsidiary has been subsequently re-named as L&T Housing Finance Limited. The said subsidiary offers a wide range of housing finance products like home loans, loans for construction/ repair of property and loan against property.

During the year, your Company also acquired Family Credit Limited, a well established Non Banking Financial Company (NBFC) with presence across two wheeler and four wheeler financing, from Societe Generale Consumer Finance. This acquisition would consolidate your Company''s presence in auto financing business in India. The acquisition was completed on December 31, 2012, pursuant to receipt of regulatory approvals.

Pursuant to approvals received from Securities and Exchange Board of India (SEBI), the acquisition of FIL Fund Management Private Limited and FIL Trustee Company Private Limited, the companies carrying on the mutual funds business of Fidelity in India, was successfully completed on November 23, 2012, and subsequently transfer of schemes managed by FIL Fund Management Limited was completed successfully. On further approvals received from SEBI, the sponsorship of L&T Mutual Fund has also been transferred to your Company from its subsidiary, L&T Finance Limited, by acquisition of the entire shareholding of L&T Investment Management Limited and L&T Mutual Fund Trustee Limited, the Asset Management and Trustee Company respectively of L&T Mutual Fund from L&T Finance Limited.

During the year, L&T Infrastructure Finance Company Limited, a subsidiary of the Company, has incorporated L&T Infra Debt Fund Limited in its capacity as sponsor, along with the Company and a few of its other subsidiaries with a view to carry on the business of an Infrastructure Debt Fund - Non Banking Financial Company post application & receipt of the requisite regulatory approvals.

The Company has incorporated a wholly owned subsidiary, L&T Capital Markets Limited, on February 07, 2013, for the purpose of carrying on the business of Wealth Management.

During the year, most of the office premises owned by L&T Finance Limited, a subsidiary of the Company, have been transferred to L&T Unnati Finance Limited, another subsidiary of the Company to align the balance sheet of L&T Finance Limited in line with its core business.

The above acquisitions and initiatives are intended to broad base the Company''s offerings to its clientele through various subsidiaries and de-risk the Company''s business from exposure to a single business, or concentration in one or more sectors as well as enhance the understanding of the performance and balance sheet of the various subsidiaries.

Consolidated Financial Statements

Your Directors have pleasure in attaching the Consolidated Financial Statements pursuant to Clause 32 of the Listing Agreement entered into with the Stock Exchanges and prepared in accordance with the Accounting Standards prescribed by the Institute of Chartered Accountants of India in this regard. The Auditors'' Report to the Shareholders thereupon does not contain any qualification.

* Total Income grew by 33% from Rs. 300,730.14 lakhs in FY 2011-12 to Rs. 400,645.79 lakhs in FY 2012-13.

* Profit Before Tax (PBT) grew by 44% from Rs. 68,424.64 lakhs in FY 2011-12 to Rs. 98,860.87 lakhs in FY 2012-13.

* Profit After Tax (PAT) grew by 61% from Rs. 45,479.51 lakhs in FY 2011-12 to Rs. 72,918.71 lakhs in FY 2012-13.

During the year, the net loan portfolio grew from Rs. 2,485,080.87 lakhs to Rs. 3,216,025.74 lakhs reflecting a healthy growth of 29%.

Assets under management of the Mutual Fund grew by 266% from Rs. 310,856.85 lakhs as at March 31, 2012 to Rs. 1,138,849.67 lakhs as at March 31, 2013.

Raising of Capital

In order to fund the acquisitions and the capital requirements of the subsidiaries from time to time, the Company has issued 4,490 Unsecured, Redeemable, Non-Convertible Debentures aggregating to Rs. 44,900.00 lakhs and 7,50,00,000 Unlisted 8.75% Cumulative Compulsorily Redeemable Preference Shares aggregating to Rs. 75,000.00 lakhs.

The issue of Cumulative Compulsorily Redeemable Preference Shares aggregating to Rs. 100,000.00 lakhs was earlier approved by the Shareholders through Postal Ballot, the results whereof were published on March 12, 2013.

During the year, the Company has issued in total 1,998,920 Equity Shares to the employees of the subsidiary companies pursuant to their exercise of stock options under ESOP Scheme - 2010.

Pursuant to the above issue of Preference Shares and allotment of Equity Shares pursuant to exercise of employee stock options, the paid-up capital of your Company increased to Rs. 246,676.05 lakhs (including Preference Share Capital of Rs. 75,000.00 lakhs) as at March 31, 2013 from Rs. 171,476.16 lakhs as at March 31, 2012.

Credit Rating

During the year, Credit Analysis and Research Limited (CARE) has accorded a rating of ''CARE AA '' [Double A Plus] for the issue of Non-Convertible Debentures (NCDs) for an aggregate amount of Rs. 75,000.00 lakhs. The aforesaid NCDs were also rated by ICRA Limited (ICRA) as ''ICRA AA '' [ICRA Double A Plus]. The rating indicates that the NCDs carry very low credit risk and are considered to have high degree of safety regarding timely servicing of financial obligations and further indicating "Stable" outlook.

Further, Credit Analysis and Research Limited (CARE) has accorded a rating of ''CARE AA '' [Double A Plus] for the issue of Cumulative Compulsorily Redeemable Preference Shares for an aggregate amount of Rs. 75,000.00 lakhs during the year. The rating indicates that the aforementioned instrument carry very low credit risk and are considered to have high degree of safety regarding timely servicing of financial obligations.

Divestment of Investments

During the year, in order to raise funds for its operations, the Company has divested 7,995,619 Equity Shares held by it in Federal Bank Limited, by means of a block deal on the BSE Limited. It has also divested 24,712,337 Equity Shares held by it in City Union Bank Limited to a subsidiary.

Fixed Deposits

The Company being a Non Deposit Accepting NBFC, has not accepted any deposits from the public during the year under review and shall not accept any deposits from the public without obtaining prior approval of the Reserve Bank of India.

Directors

During the year, the Company has appointed Mr. R. Gopalakrishnan as an Additional Director of the Company. Mr. Gopalakrishnan holds office up to the date of the ensuing Annual General Meeting of the Company and notice under Section 257 of the Companies Act, 1956 as been received from a member proposing his appointment as Director of the Company.

In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Company, Mr. R. Shankar Raman retires by rotation at the ensuing Annual General Meeting and is eligible for re-appointment.

In accordance with the provisions of the Companies Act, 1956, and the Articles of Association of the Company, Mr. Subramaniam N. and Mr. M. Venugopalan, retire by rotation at the ensuing Annual General Meeting. The Company has received intimation from them that due to prior commitments, they do not offer themselves for re-appointment. Considering that the business of the Company is being carried out substantially through its subsidiaries and the Company being a holding company, it is proposed that the vacancies arising from Mr. Subramaniam and Mr. Venugopalan not seeking re- appointment be not filled up at the current juncture.

Employee Stock Option Scheme

The disclosures required to be made under the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, as ammended from time to time, together with a certificate obtained from the Statutory Auditors, confirming compliance thereto, are provided in Annexure A forming part of this Report.

Corporate Governance

Pursuant to Clause 49 of the Listing Agreement entered into with the Stock Exchanges, a report on Corporate Governance and a certificate obtained from the Statutory Auditors confirming compliance thereto, is given as Annexure B to this Report.

Management Discussion and Analysis

Management Discussion and Analysis Report is given in an earlier part of the Annual Report.

Auditors

The Auditors, M/s. Sharp & Tannan (S&T), hold office until the conclusion of the ensuing Annual General Meeting and are recommended for re-appointment. Certificate from the Auditors has been received to the effect that their re-appointment, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956. S&T has submitted the Peer Review Certificate dated September 21, 2010 issued to them by the Institute of Chartered Accountants of India (ICAI).

Particulars of Employees

The Board of Directors wishes to express its appreciation to all the employees for their outstanding contribution to the operations of the Company during the year. The information required under Section 217(2A) of the Companies Act, 1956, and the Rules made thereunder, is provided in the Annexure forming part of the Report. In terms of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report and Accounts are being sent to the Shareholders excluding the aforesaid Annexure. Any shareholder interested in obtaining a copy of the same may write to the Company Secretary. None of the employees listed in the said Annexure is related to any Director of the Company.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo

In view of the nature of activities being carried on by the Company, Rules 2A and 2B of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, concerning conservation of energy and technology absorption respectively, are not applicable to the Company.

There were no foreign exchange earnings during the year (Previous year Rs. Nil); the foreign exchange used by the Company during the year was Rs. 168.11 lakhs (Previous year Rs. 527.69 lakhs) towards professional fees, Directors'' sitting fees and travelling expenses.

Depository System

As the Members are aware, the Company''s equity shares are compulsorily tradable in electronic form. As on March 31, 2013, 0.013% of the Company''s total equity paid-up capital representing 220,613 shares is in physical form and the remaining capital is in electronic form. In view of the numerous advantages offered by the Depository system, the Members holding shares in physical form are advised to avail of the facility of dematerialization.

Subsidiary Companies

During the year, the Company has made strategic investments amounting to Rs. 54,575 lakhs in its wholly owned subsidiaries, to provide capital to these companies for their continued business growth.

The Ministry of Corporate Affairs, vide its Circular No. 2/2011 dated February 08, 2011, has granted general exemption under Section 212(8) of the Companies Act, 1956, for not attaching annual reports of subsidiary companies subject to certain conditions being fulfilled by the Company. As required under the said circular, the Board of Directors has, at its meeting held on April 25, 2013, passed a resolution giving consent for not attaching the Balance Sheet of the subsidiary companies. The Company has also given the required information on subsidiary companies in this Annual Report. The Shareholders who wish to have a copy of the full report and accounts of the subsidiaries will be provided the same on receipt of a written request from them. These documents will be placed on the Company''s website viz. www.ltfinanceholdings.com and will also be available for inspection by any shareholder at the Registered Office of the Company, on any working day during business hours.

The group structure is shown in the diagram below, indicating the direct and indirect subsidiaries of the Company.

Directors'' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors, based on the representations received from the Operating Management, and after due enquiry, confirm that:

1) in the preparation of the annual accounts, the applicable accounting standards have been followed and there has been no material departures;

2) the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2013 and of the profit of the Company for the year ended on that date;

3) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

4) the annual accounts have been prepared on a going concern basis; and

5) proper systems are in place to ensure compliance of all laws applicable to the Company.

Auditors'' Report

The Auditors'' Report is unqualified. The notes to the Accounts referred to in the Auditors'' Report are self- explanatory and therefore do not call for any further clarifications under Section 217(3) of the Companies Act, 1956.

Reserve Bank of India Regulations

The Company has complied with all the applicable regulations of the Reserve Bank of India as on March 31, 2013.

Acknowledgement

The Board of Directors would like to thank Reserve Bank of India and other Regulatory / Government authorities and Stock Exchanges for their support and stakeholders for their continued co-operation and support.

For and on behalf of the Board of Directors

Y. M. Deosthalee N. Sivaraman

Chairman & Managing President &

Director Whole-time Director

Place : Mumbai

Date : April 25, 2013

 
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