Authum Investment & Infrastructure Ltd:Annual Report 2023-24 Analysis

Authum Investment & Infrastructure Ltd.: A Comprehensive Overview #

About the Company #

• Year of Establishment and Founding History: Established in 2017, Authum Investment & Infrastructure Ltd. was founded with the aim of investing in and developing infrastructure projects across diverse sectors.

• Headquarters Location and Global Presence: The company is headquartered in Mumbai, India. Currently, their primary operational focus is within India.

• Company Vision and Mission: While a specific publicly stated vision and mission are not readily available, their actions suggest a focus on contributing to India’s infrastructure development through strategic investments and efficient project execution.

• Key Milestones in Their Growth Journey: Authum has demonstrated significant growth in recent years, marked by increased investment activity, expansion into new sectors, and improved financial performance. Key milestones include successful project acquisitions and significant improvement in financial ratios.

• Stock Exchange Listing Details and Market Capitalization: Authum Investment & Infrastructure Ltd. is listed on the Bombay Stock Exchange (BSE) with the code 542060. As of October 26, 2023, the market capitalization is around INR 2100 crores.

• Recent Financial Performance Highlights: The company has reported significant revenue and profit growth in recent years, driven by increased investment activity and successful project execution.

• Management Team and Leadership Structure: The company is led by a board of directors and a management team with experience in finance, investment, and infrastructure development.

Primary Customers #

• Target Industries and Sectors: Authum primarily focuses on infrastructure projects across various sectors, including:

  • Roads and Highways
  • Energy (Renewable and Traditional)
  • Real Estate
  • Financial Services
  • Education
  • Healthcare

• Geographic Markets (domestic vs. international): Predominantly focused on the Indian market.

Major Competitors #

• Direct Competitors in India and Globally: Identifying direct competitors requires a more in-depth analysis of specific investment projects and sectors where Authum operates. Potential competitors could include other infrastructure investment firms, private equity funds, and larger infrastructure development companies active in the Indian market.

• Competitive Advantages and Disadvantages:

  • Advantages: Strong financial backing, focused investment strategy, experienced management team, successful track record in project execution.
  • Disadvantages: Relatively young company compared to established players, reliance on specific sectors, and potential vulnerability to economic fluctuations.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue Growth: Consolidated revenue increased by 544.53% to ₹2412.01 crores in FY 2023-24, up from ₹374.22 crores in FY 2022-23. FY22 Revenue was 907 Cr.
• Profit After Tax (PAT) Growth: PAT exhibited a increase, rising by 1117.19% to ₹2923.68 crores in FY 2023-24 from ₹240.20 crores in FY 2022-23. FY22 PAT was 669 Cr.
• EBITDA Growth: EBITDA for FY 2023-24 was ₹2990.20 crores, an 794.81% growth over FY 2022-23. FY22 EBITDA was 240.20 Cr.
• Assets Under Management (AUM) Growth: AUM grew by 176.43% to ₹10682.22 crores in FY 2023-24, from ₹3,902.89 crores in FY 2022-23. FY22 AUM was 4,004.35 Cr.
• EBITDA Margin: Increased by 794.81% in FY 2023-24 compared to the previous financial year.
• Return on Capital Employed (RoCE): Increased by 2115 bps in FY 2023-24, driven by higher profits from the investment portfolio and recovery from NPA accounts.
• Debt-Equity Ratio: Improved from 0.32x in FY 2022-23 to 0.04x in FY 2023-24.
• Interest Cover: Increased to 45.99x in FY 2023-24, compared to 7.26x in FY 2022-23.
• Net Worth: Increased from ₹3,416 crores as of March 31, 2023, to ₹10,345 crores as of March 31, 2024. FY22 Net worth was 3,121 Cr.

Business Segment Performance #

• Diversified Revenue Streams: FY 2023-24 achieved a 50:50 revenue split between investment inflows and credit/lending, shifting from 100% investment revenue previously.
• NBFC Operations: There was the successful acqusition of Reliance Commercial Finance Limited and Reliance Housing Finance Limited after emerging as the highest bidder and resolved a debt of H 20,000 crore.
• Credit Business: Collections from existing debt book, and redeployment in structured credit/real estate.
• Lending Business: The lending business of RCFL has been transferred to the Company with effect from the Appointed date i.e. October 01, 2023.

Major Strategic Initiatives and Their Progress #

• Acquisition and Integration: The acquisition and resolution of Reliance Commercial Finance Limited and Reliance Home Finance Limited are key strategic moves. Debt of over ₹20,000 crores with a consortium of banks and financial institutions has been resolved.
• Operational Integration: The Company is integrating the acquired businesses by leveraging synergies and implementing operational efficiencies.
• Corporate Restructuring: A demerger scheme was approved by the NCLT in May 2024, transferring the identified business of RCFL into Authum Investment & Infrastructure Limited.
• New Subsidiary: Authum Asset Management Company Private Limited was incorporated on January 11, 2024, and Authum Real Estate Private Limited was acquired on February 21, 2024.
• Capital Allocation Strategy: The Company will allocate a sizable part of equity holdings in building a credit business, and transfer gains from its equity to credit business.

Risk Landscape Changes #

• Increased Credit Risk Focus: Entry into the credit restructuring business introduces increased exposure to credit risk, managed through a specialized team and a focus on security-backed loans.
• Operational Risk: Integration of acquired businesses (RCFL and RHFL) presents operational risks. A growing environment for mortgage companies to sell their debt (securitization).
• Regulatory Compliance Risk: The Company emphasizes strong compliance with RBI and SEBI regulations, as well as strong governance.
• Market Risk: Remains relevant, particularly for the equity investment segment, but is mitigated by a diversification strategy.

ESG Initiatives and Metrics #

• Governance Clarity: The Company has deepened its governance commitment with a focus on transparency, safety, liquidity, and ethics.
• Stakeholder Relevance: Prioritizes the well-being of all stakeholders, including employees, investors, communities, and the government.
• Board Composition: Transformation of the Board to include individuals with diverse understanding and experience, with 5 out of 9 Board members being independent during the year under review.
• Social Responsibility: CSR obligation for Financial Year 2023-24 is Rs. 8,46,88,648/- and the amount spent on CSR activities is Rs. 8,98,00,000/-.

Management Outlook #

• Growth Trajectory: The management is positive and expects continued growth in FY 2025.
• Equity Investment Returns: While exceptional percentage growth in equity investments may not be sustainable, the Company aims for compounded returns in the high-teens percentage range.
• Book Value Approach: Growth aspirations are indexed around Book Value.
• Business Turnaround: The Company aims to demonstrate its capacity to turn businesses around following debt and equity restructuring.
• Financial Powerhouse Aspiration: The Company aims to evolve into a full suite financial services company, targeting a Return on Equity of 16-20% across all platforms.

Detailed Analysis #

Authum Investment & Infrastructure Limited: Financial Analysis #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

(Rs. in Crores)

Significant Changes in Major Line Items (>10% YoY) #

• Investments: Increased significantly (152%) from FY23 to FY24.
• Loans: Decreased (32.5%) from FY23 to FY24.
• Cash and Cash Equivalents: Decreased by 43% from FY23 to FY24.
• Property, Plant and Equipment: Decrease of 95% from FY23 to FY24.
• Borrowings: Decreased substantially (67%) from FY23 to FY24.
• Other Payables: Decreased by 100%.
• Other Equity: Increased dramatically (203%).

Working Capital Trends #

• Current Assets (Approximation): Cash and Cash Equivalents + Bank Balance + Trade Receivables + Loans (a portion might be long-term) + Other Financial Assets + Current Tax Assets.
• Current Liabilities (Approximation): Trade Payables + Other Payables + Borrowings (short-term portion) + Other Financial Liabilities.

The increase in cash and investments suggests a focus on long-term assets, while the decrease in borrowings suggests improved liquidity.

Asset Quality Metrics #

• Gross Non-Performing Assets (GNPA) Ratio: Data indicates an increase in NPAs, but a specific GNPA ratio is not directly calculable.
• Provision Coverage Ratio: Decreased in 2024.

Debt Structure and Maturity Profile #

• Borrowings: Decrease reflect a strategic shift, reduction in debt, or refinancing activities.
• Subordinated Liabilities: Decrease of 47%.
• Contractual Debt Obligation: Increased from 0 to 491.25 crores.

Off-Balance Sheet Items #

• Contingent Liabilities: Guarantees to banks and financial institutions amount to Rs. 0.65 crores. Claims against the Company not acknowledged as debt amount to Rs. 14.69 crores.
• No securitization.

Operating Performance Analysis of Authum Investment & Infrastructure Limited #

Revenue Breakdown #

• Segment (FY 2023-24): Total revenue was Rs. 2433.09 Crores, with Investment generating 63.74%, Trading in Equity & Stock Markets 9.67%, and Lending Business 26.59%.
• Segment (FY23): Investment was 100%.
• Geography: All operations and revenue are based within India.

Cost Structure Analysis #

• Finance costs for FY 2023-24 were Rs. 65.02 Crores.
• Employee benefit expenses were Rs. 26.03 Crores for FY 2023-24.
• Fees and commission expense for FY 2023-2024 was Rs. 2.17 Cr.
• Impairment on financial instruments presented a net credit of Rs. (652.57) Crores.
• Other expenses, including rent, repairs, and professional charges, totaled Rs. 67.25 Crores.

Margin Analysis #

• Gross Margin: Not directly calculable due to the nature of investments and lending business.
• Operating Margin (EBITDA Margin): A 794.81% increase in EBITDA margin was reported in FY 2023-24 compared to the previous financial year.
• Net Profit Margin: The consolidated net profit margin for FY 2023-24 was 121.21%, a significant increase from 64.19% in FY 2022-23.

Non-Recurring Items #

• During FY 2023-24, Exceptional items (Net) had a value of Rs. 57.59 Crores.

EPS Analysis #

• Basic EPS: For FY 2023-24, basic EPS was Rs. 252.28, compared to Rs. 253.41 in FY 2022-23 on a consolidated basis.
• Diluted EPS: For FY 2023-24, diluted EPS was Rs. 252.28, compared to Rs. 253.41 in FY 2022-23 on a consolidated basis.

Cash Flow and Liquidity Analysis of Authum Investment & Infrastructure Limited (FY 2023-24) #

Operating, Investing, and Financing Cash Flow Components (Consolidated, in Rs. Crores) #

Operating Cash Flow (OCF) #

• Profit before tax: 4,225.56
• Adjustments (Non-cash and timing differences) : (1,300.80) includes interest expenses.
• Changes in Working Capital: 2,357.12
• Cash generated from operations : 3,324.76
• Income Tax Paid (net): (45.60)
• Net OCF: 3,279.16

Investing Cash Flow (ICF) #

• (Purchase)/Sale of Investments: (2,246.54)
• (Purchase)/Sale of Property, Plant & Equipment: (1.75)
• (Purchase)/Sale of Intangible assets under development: (0.40)
• (Purchase) / Sale of other Intangible Assets : 1.72
• Rent Income: 3.99
• Movement in other bank balances : 25.24
• Net ICF: (2,265.55)

Financing Cash Flow (FCF) #

• Proceed/(Repayment) of Redeemable Preference Shares: (138.07)
• Proceeds/(Repayment) of Borrowings: (1,020.82)
• Proceeds/(Repayment) of Debt Securities : (5.03)
• Interest Expenses : (65.22)
• Net FCF: (1,163.92)

Capex Analysis #

• Total additions to property, plant and equipment, intangibles including under development for FY 2023-24 were 3.45 Cr.

Dividend and Share Buyback #

• The company did not recommend any dividend for FY 2023-24.
• No share buyback information provided.

Debt Service Coverage #

• Debt to equity Ratio improved from 0.32x to 0.04x
• Interest coverage ratio improved from 7.26x in FY 2022-23 to 45.99x in FY 2023-24, signifying an enhanced capacity to cover interest expenses.
• Specific DSCR metric is not present in the report.

Liquidity Position #

• Cash and Cash Equivalents (Consolidated, as of March 31, 2024): Rs. 199.78 Crores.

Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

(Consolidated Figures)

• Return on Equity (ROE):
  • FY24: 41.40%, FY23: 126.01%, FY22: 21.43%. ROE saw an extreme fluctuation, and later decreasing to 41.4%, but still indicating value creation for shareholders.
• Return on Assets (ROA):
  • FY24: 25.28%, FY23: 62.38%, FY22: 16.65%. ROA drastically increased in the current year and later reduced, indicating a reduced efficency in using its assets to generate profit.
• Return on Capital Employed (ROCE):
  • FY24,21.15%,FY23:6.06%, FY22:26.07% Increased, showing efficient generation of profits.
• EBITDA Margin:
  • FY24: 123.95%, FY23: 72.96%, FY22: 92.13%. The EBITDA margin significantly increased in FY24, indicating strong operating profitability.
• Net Profit Margin:
  • FY24: 121.21%, FY23: 64.19%, FY22: 73.74%. Net margin experienced an extreme upward shift.

Liquidity Metrics #

(Consolidated Figures)

• Current Ratio:
  • FY24: 11.09, FY23: 3.73. The ratio has significantly improved, indicating a highly strong ability to cover short-term obligations.

Efficiency Ratios #

• Receivable tunover ratio is 54.36

Leverage Metrics #

(Consolidated Figures)

• Debt-to-Equity Ratio:
  • FY24: 0.04x, FY23: 0.32x, FY22: 0.29x. The company is almost debt free, and reduced its reliance on debt financing.
• Interest Coverage Ratio:
  • FY24: 45.99x, FY23: 7.26x, FY22: 30.14x. The very high ratio demonstrates an exceptional ability to cover interest expenses with earnings.

Comparison with Industry Averages & Deviations: #

• Profitability: The Company outperforms any industry average.
• Leverage: The company has near to zero debt, making it extremely low-leveraged.
• Liquidity: The company is highly liquid

Authum Investment & Infrastructure Limited: Business Segment Analysis #

Segment Performance Overview #

Authum Investment & Infrastructure Limited experienced significant growth in FY 2023-24. Key highlights include:

• Overall Revenue: Increased by 544.53% to ₹2412.01 crores.
• Profit After Tax (PAT): Grew by 1117.19% to ₹4,284.83 Crore.
• EBITDA: Increased by 794.81% to ₹2990.20 crores.
• Investment Inflows vs. Credit/Lending: Achieved a 50:50 revenue split in FY 2023-24, with the credit segment contributing 58%.

Market Share and Competitive Positioning #

The company is strategically shifting its focus:

• Transitioning from equity investments to credit, particularly credit restructuring and distressed asset acquisition.
• The credit business is considered “relatively uncompetitive.”
• The company reports a net worth of ₹10,345 crore and zero leverage.
• Acquired Reliance Commercial Finance Limited and Reliance Housing Finance Limited, resolving over ₹20,000 crore of debt.

Key Products/Services Performance #

Performance across segments:

• Equity Investment Business: Portfolio grew by 155%, reaching ₹8,940 crores.
• Credit Business: Generated 58% of total revenue in FY 2023-24, including the legacy book from RCFL and PTC assets.
• Securitized Loan Pools: Growth is driven by security-backed loans and the acquisition of NPAs at discounts.

Geographic Distribution and Market Penetration #

• Headquartered in Mumbai with 25 branches and over 425 employees.
• Vendor network extends the reach to approximately 170 locations within India.

Segment-wise CAPEX and ROIC #

• ROCE: Increased by 2115 bps in FY 2023-24, driven by higher profits.

Operational Efficiency Metrics #

Improvements in operational efficiency:

• Transitioning to digital compliance processes.
• Investments in technology (SAP and data analytics).
• Employee base increased from 22 to 328 and total compensation from ₹2.20cr to ₹28.73cr from FY 2022-23 to FY 2023-24.

Growth Initiatives and Challenges #

Strategic direction and potential hurdles:

• Growth Strategy: Focus on long-term value creation and active investment engagement.
• Strategic Shift: Moving toward a 60:40 (equity to credit) asset mix.
• Institution Building: Aiming to become a full-suite financial services company.
• New Business: Developing a fully integrated credit platform, including a proposed asset reconstruction company and an asset management company.
• Challenges: Sustaining the high growth rate of the equity investment business.
• Demerger scheme was approved by the NCLT in May 2024, de-merging the identified business of RCFL into its parent company Authum Investment & Infrastructure Limited.

Risk Framework #

Segment-Wise Financial Analysis (FY 2023-24 vs. FY 2022-23) #

Strategic Risks #

• Severity: High, due to the company’s significant shift from equity-led business to credit business.
• Likelihood: Moderate. The credit business is described as “relatively undiscovered” and “less competitive,” reducing the likelihood of immediate strategic failure, but the transition itself presents inherent risks.
• Trend: Increasing. The company’s revenue split shifted to 50:50 between investment inflows and credit/lending in FY 2023-24, up from 100% investments. Projected 60:40 (equity to credit) in the foreseeable future.
• Mitigation Strategies: Diversification into credit restructuring, leveraging equity investment gains for credit business capital, building a specialized team, and focusing on turning around acquired credit portfolios (RCFL and RHFL).
• Control Effectiveness: Partially effective. The acquisitions of RCFL and RHFL demonstrate an initial success, but the long-term effectiveness depends on successful operational integration and portfolio management.
• Potential Financial Impact: Material. Could range from loss of invested amount to potential loss of 50:50 split between Investment and Credit/Lending.

Operational Risks #

• Severity: Moderate to High. The company’s rapid expansion in the credit business, including the integration of acquired entities, poses operational challenges.
• Likelihood: Moderate. The growth in employee count (from 22 in FY 2022-23 to 328 in FY 2023-24) and remuneration payout (from ₹2.20 Crore to ₹28.73 Crore) indicates a significant operational scale-up.
• Trend: Increasing. Operational risks are heightened due to the integration of RCFL and RHFL’s operations, systems, and personnel.
• Mitigation Strategies: Increased investment in talent, development of a credit collection team (120+ professionals), use of IT systems (SAP, E-collect mobile application), and focus on process digitalization.
• Control Effectiveness: Moderate. Systems are in place (LOS, LMS, E-collect), but their effectiveness in the expanded operational context needs further evaluation.
• Potential Financial Impact: Moderate. Expenses related to Employee cost increased to H 28.73 crore from H 2.20 crore.

Financial Risks #

• Severity: Low to moderate.
• Likelihood: Low.
• Trend: Decreasing. The company’s debt-equity ratio improved significantly (0.32x in FY 2022-23 to 0.04x in FY 2023-24).
• Mitigation Strategies: The company is currently debt-free, funded by proprietary resources. A “low-to-moderate leverage outlook” is maintained, with a target leverage ratio of under 0.5 times.
• Control Effectiveness: High. The company’s strong financial position (net worth of ₹10,345 Crore, zero leverage) and conservative financial policies contribute to effective control.
• Potential Financial Impact: Low.

Compliance/Regulatory Risks #

• Severity: Moderate. Non-compliance with RBI guidelines for NBFCs could lead to penalties or operational restrictions.
• Likelihood: Low.
• Trend: Stable. The company states compliance with RBI directions.
• Mitigation Strategies: Implementation of digital compliance framework, regular reporting, and engagement with regulatory bodies.
• Control Effectiveness: Moderate. While the company states compliance, the reliance on manual engagement in sticky loan resolution could present future compliance challenges.
• Potential Financial Impact: Penalty notice amounting to 3,77,081.

Emerging Risks #

Artificial Intelligence (AI) and Data Analytics #

• Severity: Moderate.
• Likelihood: Increasing. Growing role of AI and data analytics could transform the financial services sector.
• Trend: Increasing.
• Mitigation Strategies: Investments in digitalization and data analytics.
• Control Effectiveness: The effectiveness is to be determined based on the Company’s capability of handling AI.
• Potential Financial Impact: Moderate.

Credit Risk #

• Severity: High.
• Likelihood: Growing environment for mortgage companies to sell their debt (securitization).
• Trend: Increasing, especially in the context of securitized pools.
• Mitigation Strategies: The company has created a team to engage actively with defaulters, impressing upon them the long-term advantage of an unimpaired CIBIL score. The company brought loan portfolios of moderate size with the objective to moderate the impact of underwriting mismatches or errors.
• Control Effectiveness: Moderate
• Potential Financial Impact: High.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• Authum aims to transition from a business primarily focused on equity investment gains to a more sustainable, niche-focused model.
• Authum is diversifying from proprietary investments to NBFC operations, aiming for larger and enduring stakeholder value.
• A demerger scheme was approved in May 2024, transferring the identified business of RCFL into Authum, indicating progress toward operational integration and focus on the credit platform.
• The Company is Diversifying revenue streams , achieved a 50:50 revenue split between investment inflows and credit/lending in FY 2023-24.
• The stated aspiration is to evolve into a full-suite financial services company and generate a Return on Equity of 16-20% across all platforms by FY 2026-27.

Competitive Advantages and Market Positioning #

• Authum leverages a “double-barreled” approach, using equity market investment gains to fund a credit business, creating an internal resource pipeline.
• The company is focusing on relatively under-addressed opportunities in both equity and credit businesses, indicating a niche market strategy.
• Authum’s credit business is focused on a relatively undiscovered space (acquiring and restructuring distressed debt), providing a potential competitive edge.
• Zero-debt status and substantial net worth (Rs. 10,345 crore as of March 31, 2024) offer financial flexibility and a competitive advantage in acquiring credit portfolios.
• Specialization in bad loan procurement and recovery is presented as a deepening competitive advantage.
• The company’s approach to collection, prioritizing manual engagement and focusing on borrowers, indicates a focus on long-term client relationships and value creation, that can be the key differentiation.

Innovation Initiatives and R&D Effectiveness #

• Authum is investing in build-out strategies, with a focus on talent.
• The company is prioritizing digitalization for efficiency and aims to leverage data analytics. Investments in systems like SAP are mentioned.
• The document is emphasizing an “owner-manager framework” and a “contrarian mindset”.
• The document also mentions its focus on “Building sustainability in our credit business”.

M&A Strategy and Execution #

• Authum has acquired Reliance Commercial Finance Limited (RCFL) and Reliance Home Finance Limited (RHFL), resolving over Rs. 20,000 crore of debt.
• The acquisitions were executed outside the IBC process, with high approval rates from lenders (90% for RCFL and 99% for RHFL), suggesting successful negotiation and deal structuring.
• The acquisitions represent a strategic shift towards a credit-focused business model, diversifying revenue streams.
• A demerger scheme transferring the identified business of RCFL to Authum has been executed.

Management’s Track Record in Execution #

• The company reported a 544.53% increase in revenues and a 1117.19% increase in profit after tax in FY 2023-24, suggesting effective execution of its investment strategy.
• Net worth increased from Rs. 3,416 crore (March 31, 2023) to Rs. 10,345 crore (March 31, 2024), indicating substantial value creation.
• The acquisitions of RCFL and RHFL and the subsequent debt resolution demonstrate management’s capability in complex financial restructuring.
• Significant increase in employee count (from 22 in FY 2022-23 to 328 in FY 2023-24) and remuneration payout (from Rs. 2.20 crore to Rs. 28.73 crore) demonstrates company’s commitment.
• The Company is demonstrating the management’s focus to institutionalize and professionalize.

Capital Allocation Strategy #

• Authum is strategically allocating capital between equity investments and the credit business, signaling a shift from a predominantly equity-focused model.
• The company aims for a 60:40 equity-to-credit allocation ratio in the foreseeable future.
• The company is using equity gains to provide growth capital to the credit business, creating a self-funding mechanism.
• The company is maintaing zero debt.

Organizational Changes and Their Impact #

• Significant increase in employee count (from 22 in FY 2022-23 to 328 in FY 2023-24), particularly in the credit business, indicating rapid scaling of operations.
• A demerger scheme was approved in May 2024, transferring RCFL’s lending business to Authum, streamlining operations.
• The creation of new business platforms (asset reconstruction, asset management, servicing, and advisory) indicates organizational expansion and diversification.
• Authum Investment & Infrastructure Ltd. has established wholly owned subsidiary companies Authum Asset Management Company Private Limited and Authum Real Estate Private Limited during the year under review.

ESG Analysis #

Social Responsibility Programs #

• The Company spent Rs. 8.98 Crores on CSR activities in FY 2023-24 against its obligation of Rs 8.46 Crores.
• CSR initiatives were implemented via contributions to various projects mainly TATA Memorial Centre, Jito Society, Prashanti Balamandira Trust, Sheth G M Jain Trust, The Calcutta Medical Research Institute and Ashirvad foundation.

Governance Structure and Effectiveness #

• The Board of Directors comprises 9 members, with 5 Independent Directors.
• The Board has established nine committees: Audit, Nomination & Remuneration, Corporate Social Responsibility, Stakeholders Relationship, Investment, Risk Management, Corporate Governance, Securities Allotment and Redemption, and Asset Liability.
• The report indicates compliance with SEBI Listing Regulations and the Companies Act, 2013 concerning board composition and committee structures.

ESG Ratings #

• Authum received a credit rating of A-minus from CRISIL.

Regulatory Compliance #

• The financial data incorporates accounting of demerged undertaking of RCFL for period 1st Oct 2023 to 31st March 2024.
• The Company asserts compliance with all applicable laws, rules, circulars, and regulations, including RBI Directions for NBFCs.
• The Company has prepared a Business Responsibility and Sustainability Report (BRSR) in accordance with SEBI Listing Regulations.
• The Company maintains a Vigil Mechanism Policy and a policy on Prevention of Sexual Harassment in line with regulatory requirements.
• There were no penalties imposed by the RBI or other regulators during the year.
• The Company stated there has been an approval of Scheme of Arrangement with it’s subsidiary under the Companies Act, 2013
• The Company complied with Secretarial Standards issued by The Institute of Company Secretaries of India

Authum Investment & Infrastructure Limited: Financial Analysis & Outlook #

Management Guidance and Assumptions #

• Management aims for sustainable compounded returns in the high-teens percentage range from its equity investment business.
• A book value approach is used for growth, focusing on net worth rather than speculative equity values.
• The lending business is being funded primarily through internal resources, mainly gains from the equity business.
• The credit business should increase its AUM based on the acquisition and turnaround of distressed credit portfolios.
• Demerger will allow an increase in the company’s scale of operations.

Market Growth Forecasts #

• India is projected to become the world’s third-largest economy by the end of the decade, creating significant linear and lateral capital market opportunities.
• NBFC operations will present a material opportunity given the expected growth of the Indian economy, in which many companies are likely to struggle with debt and provide Authum an opening in the field of credit restructuring.
• The global economy is forecasted to grow at 3.2% in CY 2024 and CY 2025.

Planned Strategic Initiatives #

• The Company has plans to diversify its operations into, among other things, asset reconstruction.
• Continuous reassessment of investment categories and criteria.
• Organizational building, deepening compliance, and improving processes in line with regulatory and business needs.
• Establishing an asset reconstruction company to complement the credit business.
• Building the credit business by buying impaired debt and restructuring.
• Planned foray into launching of Alternate Asset Fund with focus on renewable energy and turnaround assets.

Capital Expenditure Plans #

• The company intends to balance the allocation of funds to the equity and credit businesses.
• The allocation to the credit business is from gains in the equity portfolio.
• Transition projected from 100% equity exposure towards a 60:40 equity to credit ratio in the future.

Efficiency Improvement Targets #

• Targeting a Return on Equity (RoE) of 16-20% across all platforms by FY 2026-27.
• Improvement in liquidity is indicated by the higher interest cover ratio.
• The company has stated that it’s cost of operations is low, indicating an interest in cost reduction measures.

Potential Challenges and Opportunities #

Challenges #

• Sustaining the high percentage growth achieved in the equity investment business.
• The complexity of credit restructuring, requiring financial, legal, managerial, administrative, accounting, and statistical capabilities.

Opportunities #

• Capitalizing on the projected growth of the Indian economy and its increasing role in the global economy.
• Addressing relatively under-explored areas within India’s capital market, particularly in credit restructuring.
• Leveraging the company’s debt-free status to make strategic investments.
• Utilizing the experience and management capability for turnarounds.
• Expanding operations due to approved scheme of arrangement and the setting up of wholly owned subsidiaries.

Scenario Analysis and Sensitivity to Key Assumptions #

Scenario: Adverse Market Conditions in Equity Investments #

• Sensitivity: The equity portfolio’s growth rate is a key assumption. A significant downturn in the equity markets could reduce the gains available for reinvestment in the credit business, slowing down its planned expansion.
• Mitigation: The company’s focus on a diversified investment approach, including listed and unlisted companies, private equity, real estate, and debt instruments, may provide a degree of risk mitigation.

Scenario: Higher-than-Expected Defaults in the Credit Portfolio #

• The company uses securitisation as a risk mitigation mechanism.
• Sensitivity: Profitability in the credit business depends on the ability to acquire distressed loans at a discount and successfully recover a higher amount. Higher-than-expected defaults or lower recovery rates would impact profitability.
• Mitigation: The company has a robust collection team, and its strategy includes persuasive manual engagement with defaulters. The company also has a zero-debt strategy.

Scenario: Regulatory Changes #

• Sensitivity: Changes by RBI to policies related to NBFC’s, securitized loan pools, and the credit market could materially impact the company’s operation.
• Mitigation: Continuous monitoring of regulatory changes and proactive adaptation of business practices. The company’s focus on governance and compliance should increase its flexibility to do this.

Audit and Regulatory Analysis #

Auditor’s Opinion and Qualifications #

• The auditors issued an unmodified opinion on the standalone and consolidated financial statements, indicating a true and fair view in conformity with generally accepted accounting principles in India.
• Auditors mentioned that the consolidated financial statements did not contain any audit qualifications.
• Auditors have reported about non-maintenance of records for loan amount of Rs. 4,979.89 given to bodies corporate in earlier years.

Key Accounting Policies and Changes #

• The financial statements are prepared under the historical cost convention, with some financial instruments measured at fair value.
• The Company presents its balance sheet in order of liquidity.
• The Company uses the accrual basis of accounting, except when there are significant uncertainties.
• Revenue recognition follows a five-step approach as per Ind AS 115.
• Interest income is calculated using the effective interest rate method.
• Impairment losses on financial assets are recognized using the Expected Credit Loss (ECL) model.
• There were amendments to Ind AS 1, Ind AS 107, Ind AS 8, Ind AS 34, and Ind AS 12, with Ind AS 1 and 107 amendments having no material impact, and ongoing assessments for the impact of the others.

Internal Control Effectiveness #

• The auditor’s report, referencing Section 143(3)(i) of the Companies Act, 2013, provides an opinion on the adequacy of the internal financial controls over financial reporting.
• The management asserts responsibility for establishing and maintaining internal financial controls.

Regulatory Compliance Status #

• The Company is compliant with RBI Master Direction related to non-deposit-taking systemically important NBFC.
• The Company asserts adherence to all applicable laws, rules, circulars and regulations, including RBI directions.
• The Company has complied with the conditions of Corporate Governance as per the Listing Regulations.

Legal Proceedings and Their Potential Impact #

• Pending litigations and their potential financial impact are disclosed in the financial statements.
• Claims against the Company not acknowledged as debt amounted to Rs. 14.69 Crores.

Related Party Transactions #

• The Company formulates a policy on Related Party Transactions, and all transactions during the year were reviewed and approved by the Audit Committee on a quarterly basis, and were found to be in the ordinary course of business with arm’s length basis, and the complete disclosure is provided in the Director’s Report and financials.
• Details of transactions and balances with related parties (Mentor Capital Limited, Berix Bearing Private Limited, Geetanjali Infosystems Pvt. Ltd., Rumi Grown Diamonds Private Limited, and others) are disclosed.

Subsequent Events #

• The National Company Law Tribunal (NCLT) approved a scheme of arrangement for the demerger of the lending business of Reliance Commercial Finance Limited (RCFL) into the Company, effective October 1, 2023. The certified copy of the order was obtained after the date of signing the financial report.

Analysis of Accounting Quality #

• The adoption of Ind AS and compliance with RBI guidelines suggest a high standard of accounting quality.
• Use of fair value measurements and ECL models for impairment indicates sophisticated accounting practices.
• The reporting of related party transactions shows a good level of accounting quality and transparency.

Regulatory Risk Assessment #

• The Company is subject to regulations by the RBI, SEBI, and the Companies Act, 2013, indicating high regulatory oversight.
• Non-compliance with any of these regulations could lead to financial penalties and reputational damage.
• The Company being an NBFC is a part of the financial sector. The sector is subject to extensive scrutiny from the regulator.