Directors’ Report

To the Members,

Your Directors have pleasure in presenting the Eight Annual Report of IIFL Wealth Management Limited (“the Company”) together with the Audited Financial Statements for the year ended March 31, 2015.

1.      Financial Results - The highlights of the financial results for the year under review are as under:

Standalone Financial Results -

2.      Review of Business and Operations:

During FY 2014-2015, the Company has made considerable progress in all its business segments. Under its distribution business, the Company achieved the highest gross sales in equity mutual funds among all distributors in the mutual fund Industry, garnering more than Rs.10,000 Crore.

The Company has aggregated a 327% growth in equity fund AUM’s and 25% growth in debt AUM’s, which is highest in the industry. Under the pooled investment platform (Asset Management Company), the Company through its subsidiary; manages one of the largest Alternative Investment Fund platforms, managing a total AUM of Rs. 1829 Crore.

The Company’s Net Profit (before tax) has increased 121% from Rs. 74.32 Crore to Rs. 164.19 Crore.

3.      Macroeconomic Overview:

FY 14-15 has seen a significant improvement in macro-economic fundamentals of India. From a phase of low growth and high inflation we are slowly transitioning to a period of low inflation and improving growth. During the year twin deficit (fiscal deficit and current account deficit) came under control, inflation (both CPI and WPI) fell substantially allowing RBI to cut rates during the second half of the year. Growth rate also improved over FY 2013-14 reversing 3 year trend of flat to declining growth rates.

Equity

FY 14-15 has been a good year for equities. Improving macro-economic fundamentals, falling commodity prices and hopes of reforms from a stable Modi government has lead to a significant rally in stocks over the year. However, the same hasn’t been accompanied by improvement in earnings environment. We expect earnings to improve from 2H FY16 onwards led by easing monetary policy stance, lower commodity prices and improvement in growth. Cyclical upturn in earnings is likely to provide the next leg of growth for the markets and sustain the returns seen in the equity markets.

Debt

FY 14-15 saw interest rates drifting downwards for majority of the year. A sharp moderation in both consumer and wholesale inflation and improving data on the twin deficit front, allowed RBI to cut Repo rates twice during the year resulting in fall in the interest rates. We expect RBI to maintain its easing bias as growth environment is weak and inflation is under control. However, the pace of cuts is likely to be slower than initially expected as uncertain outlook on monsoon has raised concerns on the inflation front.4.      Future Outlook of the business:

A recent report from Capgemini on the Indian Wealth Management industry pegs the growth of HNI Wealth at 27.5% to INR 257.4 trillion (US$4.1 trillion) in 2014. HNI & UHNI families currently are estimated to make up less than 0.05% of the total population of the country. With improving Macro Economic fundamentals and robust capital flows Indian wealth is estimated to double over the next five years. With a rapidly growing market we expect to further increase our presence and share of investible client assets by providing clients access to innovative investment ideas at competitive fee structures.

Positive Changes in AIF provisions in the Union Budget have clarified the pass through status for Category I & II AIF Funds. Further NRI’s & foreign institutions will now be permitted to invest into these funds. We believe this will result in tremendous growth in the Asset Management business in the coming year.

Imposition of service tax on Mutual fund commissions along with the cap on upfront commissions payable to distributors may have a temporary impact on revenue growth in the coming year. However we feel that in the long run this will result in higher yielding annuity incomes for the business.

5.      Dividend:

During the period under review, your Company has declared an interim dividend of Rs.4.50 per equity share on September 09, 2014. The same is considered as final.

6.      Corporate Social Responsibility (CSR):

During the financial year, your Company deployed 0.92% of its average net profits (computed as per the relevant provisions of the Companies Act, 2013) of the preceding three years on CSR projects. Refer point no. 6 of the Annual Report on CSR activities annexed with this report.

All CSR efforts have been directed towards identifying and undertaking projects that hold the potential to create long-term social impact, to empower marginalized communities and enhance their quality of life. In alignment with this objective, in FY15, the Company undertook a number of projects in the core areas of healthcare and education.

To ensure that CSR projects undertaken are implemented and monitored in a systematic manner, during the year, efforts were focused on establishing systems and processes for the same. Going forward, your Company seeks to broaden the scope of CSR projects and employ more funds towards a larger number of projects.

The Annual Report on CSR activities by the Company is annexed as Annexure – V.

7.      Transfer to Reserves:

During the FY 2014-2015, the Company has transferred an amount of Rs. 59,52,381/- to Debenture Redemption Reserve.

8.      Share Capital:

The total share capital of the Company has been increased from Rs.11,48,45,000/- to Rs.11,72,37,240/- during the year under review, pursuant to allotment of 11,96,120 equity shares of Rs.2/- each to eligible employees of the Company under the Company’s Employee Stock Option Scheme.

9.      Deposits:

During the period under review, your company has not accepted/ renewed any deposit within the meaning of Section 73 of the Companies Act, 2013 read with applicable rules thereto.

10.  Details of Subsidiaries:

During the period under review, the Company has acquired 6 (six) overseas subsidiaries from IIFL Holdings Limited (holding company), namely IIFL Private Wealth (Suisse) SA, IIFL Private Wealth (Mauritius) Ltd., IIFL Inc., IIFL Private Wealth Management (Dubai) Limited, IIFL Private Wealth Hongkong Limited and IIFL (Asia) Pte. Limited. The Company currently has 6 (six) Indian subsidiaries and 8 (eight) overseas subsidiaries. In accordance with Section 129(3) of the Companies Act, 2013, we have prepared consolidated financial statements of the Company and all its subsidiaries, which form part of the Annual Report. You may refer to the Annexure to the consolidated financial statements of the Company, which contains the statement containing the salient features of the financial statement of our subsidiaries in the prescribed format AOC-1.

11.  Directors and Key Managerial Personnel:

a.      Directors:

The Board consists of Mr. Karan Bhagat, Mr. Yatin Shah being Executive Directors of the Company, Mr. Nilesh Vikamsey and Ms. Geeta Mathur being Independent Directors of the Company and Mr. Nirmal Jain, Mr. R. Venkataraman and Mr. Amit Shah being non-executive Directors of the Company.

Mr. Nilesh Vikamsey and Ms. Geeta Mathur have submitted their declaration under section 149(6) of Companies Act, 2013 and are independent directors of the Board.

Mr. R. Venkataraman is liable to retire by rotation and being eligible, offers himself for re-appointment.

Mr. Mukesh Kumar Singh has ceased to be the Director of the Company.

                                      i.      Meetings of the Board of Directors -

The Board met five times during the year to discuss and approved various matters including financials, appointment of auditor, declaration of Interim Dividend, appointment of KMP, review of audit reports and other board businesses. 

                                    ii.      Committees of the Board -

During the year, in accordance with the Companies Act, 2013, the Board constituted following Committees as per the applicable provision of Companies Act, 2013. There are currently three Committees of the Board, as follows:

(i)     Audit Committee.

(ii)   Nomination and Remuneration Committee.

(iii) Corporate Social Responsibility Committee.

(i)     Audit Committee:

The Audit Committee comprises of Mr. Nilesh Vikamsey, Ms. Geeta Mathur and Mr. Karan Bhagat.  The role, terms of reference and powers of the Audit Committee are in conformity with the requirements of the Companies Act 2013 & internal policies. The Committee met five times during the year under review and discussed on financials, audit issues and appointment of auditors. During the period under review, all the recommendations of the Audit Committee were accepted by the Board of Directors of the Company.

The terms of reference of audit committee, inter alia, includes;

a.      approval of quarterly and annual financials and recommend the same to the Board;

b.      review and approval of related party transactions;

c.       review and comment on observation(s) of Internal Auditors and Statutory Auditors;

d.      approve appointment and remuneration of internal and statutory auditors; and

e.      any other requirements as per the Companies Act, 2013.

(ii)   Nomination And Remuneration Committee:

The Nomination and Remuneration Committee comprises of Mr. Nilesh Vikamsey, Ms. Geeta Mathur and Mr. Nirmal Jain. As per the provisions of Section 178 of the Companies Act, 2013, the Committee has formulated a nomination and remuneration policy, which is appended as Annexure - II to this Report. 

(iii) Corporate Social Responsibility Committee:

As per the provision of Section 135 of the Companies Act, 2013, the Company has constituted a Corporate Social Responsibility (CSR) Committee on May 7, 2014, consisting of Mr. Nilesh Vikamsey, Independent Director, Mr. Nirmal Jain, Non-Executive Director and Mr. Karan Bhagat, Executive Director. The Committee has approved CSR Policy of the Company. The group has set-up India Infoline Foundation (referred as “IIFL Foundation”) a Section 8 Company under the Companies Act, 2013, which will act as the principal arm to undertake CSR initiatives on behalf of the IIFL Group.

                                  iii.      Annual Evaluation of the Board -

Pursuant to the provisions of the Companies Act, 2013, the Board has carried out the annual performance evaluation of its own performance, the Directors individually as well as the evaluation of the working of its Committees.

b.      Key Managerial Personnel:

Mr. Karan Bhagat is the Managing Director of the Company and Mr. Yatin Shah is the Whole Time Director of the Company. During the year, Mr. Pankaj Fitkariwala was appointed as the Chief Financial Officer of the Company and Ms. Jasdeep Kaur was appointed as Company Secretary. However, pursuant to her resignation, she ceases to be an employee of the Company and in her place Mr. Ashutosh Naik has been appointed as the Company Secretary, w.e.f. April 30, 2015.

12.  Managerial Remuneration:The information required pursuant to Section 197 of the Companies Act, 2013 read with Rule 5 (2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company for the financial year 2014-15 is available for inspection at the registered office of the Company. Any shareholder interested in obtaining a copy of the said information may write to the Company Secretary at the registered office of your Company.

13.  Employee Stock Option/ Purchase Scheme:

During the financial year, the Company under its IIFL Wealth Employee Stock Option Scheme allotted 11,96,120 equity shares to eligible employees and in terms of the scheme.  The details of allotment are as follows:

The Board of Directors and Shareholders of the Company approved grant of employee stock option(s) under IIFL Wealth Employee Stock Option Scheme – 2015. On July 2, 2015, the Company granted 69,65,945 option(s) to its employees at a grant price of Rs. 282/- per share.

14.  Risk Management Policy and Internal Adequacy:

The Company has in place a mechanism to identify, assess, monitor and mitigate various risks to key business objectives. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis. These are discussed at the meetings of the Audit Committee and the Board of Directors of the Company.

The Company’s internal control systems are commensurate with the nature of its business and the size and complexity of its operations. These are routinely tested and certified by Statutory as well as Internal Auditors. Significant audit observations and follow up actions thereon are reported to the Audit Committee and Board of Directors. The Company has laid down set of standards, processes and structure which enables to implement internal financial control across the Company and ensure that the same are adequate and operating effectively.

15.  Extract of Annual Return:

The details forming part of the extract of the Annual Return in form MGT 9 is annexed herewith as Annexure - IV.

16.  Significant and Material Orders Passed by the Regulators or Courts or Tribunals Impacting the going concern status of the Company:

There are no significant and material orders passed by the Regulators or Courts or Tribunals which would impact the going concern status and the Company’s future operations.

17.  Material changes and commitments affecting the financial position of the Company:

There have been no material changes and commitments, if any, affecting the financial position of the Company which have occurred between the end of the financial year of the Company to which the financial statements relate and the date of the report.

18.  Auditors:

M/s. Sharp & Tannan Associates, Chartered Accountants, (Firm Registration No: 109983W), existing Statutory Auditors have intimated to the Company that they would not be able to continue as the statutory auditors of the Company, due to other pre-occupations.  Pursuant to the provisions of Section 139 of the Companies Act, 2013 read with Rule 3 of the Companies (Audit and Auditors) Rules, 2014, the Board recommends to shareholders the appointment of M/s. Deloitte Haskins & Sells LLP, Chartered Accountants (Firm Registration No.: 117366W/W-100018), as the Statutory Auditors of the Company, to fill the casual vacancy caused due to other pre-occupations of M/s. Sharp & Tannan Associates, Chartered Accountants, from the conclusion of the ensuing Annual General Meeting (AGM), until the conclusion of the 6th AGM of the Company to be held in the year 2020 (subject to ratification of their re-appointment at every AGM). M/s. Deloitte Haskins & Sells LLP, Chartered Accountants, have expressed their willingness and confirmed their eligibility for being appointed as Statutory Auditors of the Company, in accordance with the provisions of Section 139 and 141 of the Companies Act, 2013.

19.  Comments on auditors’ report:

There are no qualifications, reservations or adverse remarks or disclaimers made by the auditors, in their report. The Statutory Auditors have not reported any incident of fraud to the Audit Committee of the Company in the year under review.

20.  Secretarial Audit:

During the year under review, the Secretarial Audit was conducted by M/s. Vinod Kothari & Company, Practicing Company Secretaries. The report of the Secretarial Audit is annexed herewith as Annexure - III. There are no qualifications, reservations or observations in the Secretarial Audit report.

21.  Particulars of loans, guarantees or investments under section 186:

The details of loans, guarantees or investments made are provided in the standalone financial statement (Please refer Note No. 13, 15 & 16).

22.  Particulars of contracts or arrangements with related parties:

The Company has in place RPT Policy, which has been approved by the Board of Directors. The RPT Policy provides for the identification of RPTs, necessary approvals by the Audit Committee/Board/Shareholders, reporting and disclosures in compliance with the Companies Act, 2013.

You may refer to Note no. 31 to the financial statement, which contains related party disclosures. All related party transactions entered into by the Company were on an arm’s length basis.

The particulars of contracts or arrangements with related parties referred to in Section 188(1), as prescribed in Form AOC - 2 of the rules prescribed under Chapter IX relating to Accounts of Companies under the Companies Act, 2013, is appended as Annexure - I.

23.  Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo:

The information on energy conservation, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is appended below:

Conservation of energy:

The Company is engaged in providing financial services and as such its operations do not account for substantial energy consumption. However, the Company is taking all possible measures to conserve energy. Several environment friendly measures were adopted by the Company such as:

·         Installation of capacitors to save power,

·         Installed Thin Film Transistor (TFT) monitors that saves power,

·         Light Emitting Diode (LED) lights,

·         Automatic power shutdown of idle monitors,

·         Creating environmental awareness by way of distributing the information in electronic form,

·         Minimising air-conditioning usage,

·         Shutting off all the lights when not in use, and

·         Education and awareness programs for employees.

The management frequently puts circulars on corporate intranet, IWIN for the employees educating them on ways and means to conserve the electricity and other natural resources and ensures strict compliance of the same.

Technology absorption and inn0ovation:

The management understands the importance of technology in the business segments it operates and lays utmost emphasis on system development and use of best technology available in the industry. The management keeps itself abreast of technological advancements in the industry and ensures continued and sustained efforts towards absorption of technology, adaptation as well as development of the same to meet the business needs and objectives.

The management invested considerable resources in deploying the latest technologies in the areas of wide area networking using MPLS, video communications, VoIP, automated dialers and other customer relationship management (CRM) tools and software. The Company also made significant strides in using cloud technology for customer-facing servers providing rapid and inexpensive ramp-up or down of capacity in line with business requirements.

The management is aware of increasing threats in the Information Security domain and has taken several steps to ensure that the Company is safe guarded against hacking attacks, data leakage and security breaches. IT and certain business processes have been recertified for ISO 27001 systems for practicing industry standard security implementations and processes. The management has invested resources in implementing controls and continuously monitoring violations, if any.

Foreign exchange earnings/outgo: Refer Note No. 32 to the financial statements.

Research and Development (R & D):  The Company is engaged in distribution of various financial products and advising clients on wealth management through mutual fund and alternative investment fund platform, which entails internal research of investment products, sectors and markets.

24.  Disclosures   under   Sexual   Harassment   of   Women   at   Workplace (Prevention, Prohibition & Redressal) Act 2013:

The Company is committed to provide a work environment that ensures every woman employee is treated with dignity and respect and afforded equitable treatment. The Company is also committed to promote a work environment that is conducive to the professional growth of its women employees and encourages equality of opportunity. The Company will not tolerate any form of sexual harassment and is committed to take all necessary steps to ensure that its women employees are not subjected to any form of harassment.

      Your Directors further state that during the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

25.  Directors Responsibility Statement:

Pursuant to the requirement under Section 134(5) of the Companies Act, 2013, it is hereby confirmed that:

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

b)      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 at the end of the financial year and of the profit and loss of the Company for that period;

c)      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;

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

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

26.  Acknowledgements:

Your Directors take this opportunity to thank Securities and Exchange Board of India, Association of Mutual Funds of India, financial institutions, banks, and all other stakeholders for their continued support and assistance during the period under review. Your Directors would also like to thank the employees for their dedication towards the growth of the Company.

27.  Annexure(s) forming part of this Report of Directors:

      The Annexure(s) referred to in this Report and other information which are required to be disclosed are annexed herewith and form a part of this Report of the Directors:

·         Details of Related Party Transactions – Form AOC-2 – Annexure – I.

·         Nomination and Remuneration Policy – Annexure – II.

·         Secretarial Audit Report for the financial year ended March 31, 2015 – Annexure – III.

·         Form No. MGT-9 – Extract of Annual Return as on the financial year ended March 31, 2015 – Annexure – IV.

·         Annual Report on Corporate Social Responsibility (CSR) activities for the financial year 2014-15 – Annexure - V.

For and on behalf of the Board of Directors

Karan Bhagat                         Yatin Shah

Managing Director                Director

DIN: 03247753                        DIN: 03231090

Date: July 21, 2015

Place: Mumbai

1. Review of Business and Operations: During FY 2014-2015, the Company has made considerable progress in all its business segments. Under its distribution business, the Company achieved the highest gross sales in equity mutual funds among all distributors in the mutual fund Industry, garnering more than Rs.10,000 Crore. The Company has aggregated a 327% growth in equity fund AUM’s and 25% growth in debt AUM’s, which is highest in the industry. Under the pooled investment platform (Asset Management Company), the Company through its subsidiary; manages one of the largest Alternative Investment Fund platforms, managing a total AUM of Rs. 1829 Crore. The Company’s Net Profit (before tax) has increased 121% from Rs. 74.32 Crore to Rs. 164.19 Crore.

1. Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo: The information on energy conservation, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is appended below: Conservation of energy: The Company is engaged in providing financial services and as such its operations do not account for substantial energy consumption. However, the Company is taking all possible measures to conserve energy. Several environment friendly measures were adopted by the Company such as: · Installation of capacitors to save power, · Installed Thin Film Transistor (TFT) monitors that saves power, · Light Emitting Diode (LED) lights, · Automatic power shutdown of idle monitors, · Creating environmental awareness by way of distributing the information in electronic form, · Minimising air-conditioning usage, · Shutting off all the lights when not in use, and · Education and awareness programs for employees. The management frequently puts circulars on corporate intranet, IWIN for the employees educating them on ways and means to conserve the electricity and other natural resources and ensures strict compliance of the same.

Technology absorption and inn0ovation: The management understands the importance of technology in the business segments it operates and lays utmost emphasis on system development and use of best technology available in the industry. The management keeps itself abreast of technological advancements in the industry and ensures continued and sustained efforts towards absorption of technology, adaptation as well as development of the same to meet the business needs and objectives. The management invested considerable resources in deploying the latest technologies in the areas of wide area networking using MPLS, video communications, VoIP, automated dialers and other customer relationship management (CRM) tools and software. The Company also made significant strides in using cloud technology for customer-facing servers providing rapid and inexpensive ramp-up or down of capacity in line with business requirements. The management is aware of increasing threats in the Information Security domain and has taken several steps to ensure that the Company is safe guarded against hacking attacks, data leakage and security breaches. IT and certain business processes have been recertified for ISO 27001 systems for practicing industry standard security implementations and processes. The management has invested resources in implementing controls and continuously monitoring violations, if any.

Foreign exchange earnings/outgo: Refer Note No. 32 to the financial statements.

1. Directors Responsibility Statement: Pursuant to the requirement under Section 134(5) of the Companies Act, 2013, it is hereby confirmed that: a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; b) 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 at the end of the financial year and of the profit and loss of the Company for that period; c) 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; d) the directors had prepared the annual accounts on a going concern basis; and e) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such system were adequate and operating effectively.