MANAGEMENT DISCUSSION AND ANALYSIS

Setting-up the stage, for the economy to perform!

The brvious year FY2015 saw the Union Elections deliver a décisive mandate - the first-ever after 30 years. During FY2016, the new government launched several initiatives to drive growth, investments and competitiveness, despite internal and external challenges. Initiatives like Make in India, Digital India, Smart Cities and Financial Inclusion would help improve the access and affordability of products, while giving a boost to domestic production. The GDP growth for FY2017 is expected to be aided by the uptick in the manufacturing / infrastructure sections, apart from services. Infrastructure has received a big push. Road projects are focusing on developing a win-win hybrid model for funding, which could accelerate the construction from 18 km per day to 30 km per day. The inland waterways projects, Sagarmala port project, railway station redevelopment and groundwork for 20 smart cities are other initiatives.

Urban consumption, rural consumption and exports would fuel the incremental demand of the economy's production of goods and services. The rural economy has been badly hit as successive years of drought impacted crop revenues. Even MNREGA is yet to take off in a big way, since its wages otten lagged the wages in the construction sector. However, expectation of normal monsoon in FY2017 should augur well for a revival of the rural fortune. Increased allocation of federal monies to the states should also give a fill-up to rural development projects, fuelling jobs and incomes. While merchandise trade deficit narrowed to a 5-Year low owing to a dip in imports, the sluggish growth in exports remains a key concern. The slowdown in India's traditional export destinations impacted the export demand for light engineering goods and readymade garments. India has to build competiveness in further segments in order to capture export flows to new destinations where demand and monies are ample. Urban consumption remains a rejuvenating story, although the consumer base in India is sill a small portion of its 1.20 bn population. This base has to expand further if the incremental growth to GDP has to be added. Moreover, shitts in the nature of consumption can impact business sectors. For example: increased digitalization transformed sectors like retail, media and telecom. So innovation will hold key, if businesses have to remain relevant.

Control over inflation has been one of the positives this year, especially food inflation. There was a spike around the third quarter as prices of key food items shot up, but these were successfully controlled from Jan 2016 onwards. Resultantly, the Reserve Bank of India reduced policy rates by more than 1% during the year, and remains accommodative based on inflation trends. The transmission of the rate cuts is yet to be done in a meaningful way by banks, such that it can revive the sluggish capex investment cycle. As it is, many banks are facing asset quality issues, which might just result in slowing down the speed of decision-making for loans. The government is also working on other initiatives like single-window clearances for approvals as well as easing the criteria for FDI in certain sectors, since rate cuts alone cannot revive the investment cycle. Till the ime private sector pushes its investment cycle, public expenditure projects will be the main source of incremental jobs and incomes, although it means the government has to continue walking the fiscal tight-rope.

The priority areas for the Government have been highways, railways, energy, financial inclusion and defense. A thrust to rural spends, infrastructure and social programmes should help boost the rural economy, which remains largely untapped from India's growth story. Overall, India now looks better off amongst its BRICS peers. The commodity slump created widesbrad unemployment and social instability in Brazil and South Africa, economic sanctions by the West negaively impacted Russia, and the Chinese engine slowed down as it finds its new normal as a consumption-driven economy. India's GDP growth in FY2017 can be expected to accelerate further if certain key reforms come on-ground. Developing political consensus between the government and opposition on such critical policy reforms will hold key to their success. In short, a lot will depend on how the reforms, jobs, capex and exports take-off in coming months.

The Equity Markets in FY2016

The large-cap benchmark, Nitty 50, was down 8.86% YoY in FY2016 (in INR terms). The multi-cap benchmark, Nitty 500, was down 7.54% for the year. The dips were seen across almost all the quarters of the year. Pull-out of FII monies due to profit booking, migration towards safer assets and geographies, reduction in emerging market exposure following the commodity slump and dip in invesible surplus were some challenges that impacted the markets. However, strong macro situaion, growth expectaions and reducing rates in fixed income led to inflows of DII monies, which helped counter the FII outflow to some extent. The markets also saw increased volaility this year. Market valuaions had moved upwards ever since the May 2014 election, and which coninued till mid-FY2016. However, damp performance of the market led to a dip in valuations towards their 5-Year historical averages. Nitty 50's average P/E in FY2016 was 21.78x, while the 5-Year historical average is 19.51x. Similarly, Nitty 500's average P/E in FY2016 was 23.54x with a 5-Year historical average of 19.71x. The gap between the large-cap and mid-cap P/Es had widened during FY2016, as compared to brvious years. As and when corporate earnings pick up, valuations should re-rate. NSE market capitalization stood at Rs. 93.10 tn, as of 31st March, 2016. This was down 6.24% for the year (in INR terms). However, the long-term performance in market capitalization remains strong, with the 10-Year CAGR at 12.71%.

On a relative basis, the Nitty outperformed most Emerging Market peers in US$ terms on a 10-Year basis, except for China. Apart from emerging market peers, India also outperformed the Fronier Markets index in the long-term. Short-term returns in India lagged its peers owing to pull-out by FIIs in Q4 FY2016. The year FY2016 was a rough one for all the major markets, as multiple global challenges impacted investor sentiments. Hence, India was not the only casualty in the lot.

Business Streams and Outlook:

Motilal Oswal Financial Services Limited (MOFSL) is a non-banking financial company (NBFC), registered under the Reserve Bank of India Act, 1934. The company's standalone operaions have two critical elements:

(i) Build on a financing infrastructure that can best customize risk adjusted products, have simple and compliant documentation, and prompt loan approval procedures; and

(ii) A strong structure in place that can most efficiently source funds and manage resources.

There is a defined set of procedures for evaluating the creditworthiness of customers that extends from initial evaluation to loan approval. Funds are advanced after due process of evaluation and upon providing the necessary documentation. MOFSL's objecive is to ensure appraisal and disbursement within the shortest possible ime, without compromising on asset quality. During the year, Crisil Limited reaffirmed the Credit Rating of "CRISIL A1+" the Commercial Paper Programme of Rs. 2.50 bn of the Company. ICRA Limited assigned the credit rating of [ICRA] AA" Rating with a stable outlook to the NCD Programme of Rs. 1.50 bn of the company. Crisil Limited also reaffirmed the Credit Rating of "CRISIL A1+" to the Commercial Paper Programme of Rs. 7.00 bn of Motilal Oswal Securities Limited, a subsidiary of the Company. The ratings indicate a strong degree of safety regarding timely servicing of financial obligations.

Broking Business Industry Facts

Equity market average volumes (ADTO) were Rs. 3.01 tn in FY2016, down 9.97% YoY. Cash market volumes dipped 5.56% YoY to Rs. 201.50 bn. Within cash, delivery declined 6.35% YoY to Rs. 60.71 bn. However, cash volumes were still 50.13% higher than the average seen between FY2012-2014 and delivery volumes were still 55.43% higher than the FY2012-2014 average. Within derivatives, futures dipped 2.18% YoY to Rs. 502.08 bn. This year, options were down 11.86% YoY to Rs. 2.30 tn, a reversal from recent years when options led the growth in the overall market volumes. Cash volumes clocked a low of Rs. 178.94 bn and a high of Rs. 235.14 bn, in terms of the MoM trend during FY2016. Amongst cash market paricipants, retail and prop saw declines of 8.33% and 7.46% YoY respectively. DII cash volumes increased 1.93% YoY, led by renewed interest in equity mutual funds from retail/HNI investors. The proportion of retail within cash volumes decreased from 50.36% to 48.88% YoY while that of DII increased from 8.04% to 8.67% YoY. However, retail cash volumes still remain 49.55% higher than the FY2012-2014 average despite this YoY dip. With primary market seeing some activity since the last two years, the incremental number of demat accounts this year has increased slightly as compared to brvious years. As primary issues pick up further, the incremental accounts should also gather pace.

FIIs registered net outflows this year, after six consecutive years of strong net inflows. However, this was hardly an India-specific situation, as FIIs scaled back their investments in riskier asset classes such as emerging market equities following the uncertainties surrounding the recent commodity slump, challenges in many larger emerging economies and expectations of rate hikes by the US Fed. Many sovereign wealth funds withdrew their global investments as the decline in oil prices reduced their net investible surplus.

However, the FII outflow was countered to some extent by renewed inflows by DIIs, who saw record net inflows into equity mutual funds after five consecutive years of net outflows. This was led by a healthy rise in retail and HNI investor folios over the last year.

In terms of consolidation of NSE cash market volumes amongst the top brokers, consolidation of volumes within the Top-25 members has increased steadily since the last few years, especially in FY2015 when the market rallied. Top-25 brokers controlled 43% of NSE cash volumes in FY2011, which increased to 46% ill FY2014, and to 48% in FY2015. This shows that volumes consolidate mostly with the market-leaders as the broking market volumes take off

Our Broking Business

Research and advisory form the foundation of the company's broking services. Brokerage serves participants across FIIs, domestic institutions, HNIs and retail. This business comprises of two distinct units - Retail Broking & Distribution and Institutional Equities.

Retail Segment: Services offered include equities, derivatives, commodities, currency, depository services, distribution of portfolio management services, mutual funds, primary equity offerings and insurance products As of 31st March, 2016, Motilal Oswal Securities Ltd (MOSL) had more than 788,000 retail broking and distribution clients with over 716,000 having depository accounts. The run-rate in retail client addition was stronger this year, as compared to recent years.

The focus was on building scale and competitiveness through high-quality advisory, digital initiatives, assets-based product distribution, system-driven trading products and network expansion. Our advisor count was up 64.68% YoY, following continued investments into dedicated advisory desks for mass-retail and affluent clientele. Advisor quality has been improved through training modules, certification processes and productivity monitoring. Research-call quality is also being monitored. We ramped up our sales-force across both our own branch and the franchisee channels.

With digital transformation at its inflection, we invested into several digital initiatives across delivery and engagement touch-points to increase speed of service, enable access and convenience for clients and reduce the cost of servicing. We launched India's 1st and Fastest 15-Minute Trading & Demat Account, using Paperless-eKYC Aadhar-Integrated account opening process. This would enable clients to start trading instantly. We revamped our Mobile Trading App with new features like superfast trading, multi-asset watch-list, one-time login and operational ease, and launched our all-new broking portal with single sign-on to trade, track and review, quick order-execution window, instant portfolio restructuring and actionable recommendations. We also became India's 1st broker to launch the Smart Watch App, providing access to market updates, portfolio, etc. We launched our "Business Partner App" to enable our partners to monitor their business across metrics while on the move. Our digital business has gained traction. ~21% of clients traded online in FY2016, up from ~14% in the brvious year. The contribution of online business to total was ~21% in FY2016, up from ~15% last year. The new mobile app saw ~70,000 downloads within 5 months. The contribution of the mobile app to total brokerage crossed ~6% in the fourth quarter of FY2016, up from ~4% in the brvious quarter.

Our product team developed system-driven trading products, to offer strategies to our clients across market cycles. It released a state of the art quantitative tool - MOSt Quant Option Writer, which can forecast volatility, test feasibility on existing long/ short exposure and brsent option wring opportunities in a single click.

Third-party products were given a boost this year, in a bid to develop a more assets-based product distribution approach towards our clients instead of just a pure-equity broking approach. The commodity business saw active interest as brcious metals rallied and base metals bounced. Currency and interest rate futures business also saw traction.

The Pan-India distribution network increased from 1534 outlets in Mar 2014 to 2000+ in Mar 2016.

Engagement continued through broking industry business programs and business development seminars for sub-brokers and investor awareness seminars for clients. Our new initiative, School of Trading and Investing Research (STIR), has seen healthy interest in its Plainum Trader Pro Program. STIR now covers Mumbai, Chennai, Hyderabad, Ahmadabad, Bangalore and Delhi.

Proactive investments and focus into this business drove a meaningful traction in our retail equity market share, across both cash and F&O segments. The monthly addition to retail clients in FY2016 was 1.3X of FY2015, and 2.2X of FY2014. Our investments into our advisory, sales and leadership teams and the online channel and technology offerings means that the capacity is in place to handle the increased business volumes as investor interest pick up further.

Institutional Broking: The company offers broking services in cash and derivatives to institutional clients in India and abroad. As on 31st March, 2016, it was empanelled with 594 institutions, up from 582 last year. We continued to strengthen our competitive positioning through research offerings, corporate access outreach and sales and trading capabilities. The focus during the year was to introduce new research/thematic products, such as Voices (a ready-reference of insights from earning conceals) and And-AS (report detailing the implications of the new accounting standard across sectors). The research team also made significant strides in leveraging technology, by offering Videos summarizing all key reports. The research coverage was ramped up from 230 to 251 during the year. During the year, corporate access conducted several outreach events. The 11th Annual Global Investor Conference saw participation from 120+ companies and 500+ global investors, resulting in 4,000+ corporate - investor meetings.

The quality of our services was recognized at various award forums during the year. At the AsiaMoney Awards 2015, we were ranked Best in Events/Conferences, ranked amongst Top-2 for Overall Sales Services and Best Road shows/Company Visits and amongst the Top-3 in Best Local Brokerage, Best Execution and Sales Trading Visits. We won as many as 11 awards at the Research Bytes Investor Communication Awards 2015, including Favourite Research House, Head of Research, Consumer Staples, Industrials, Utilities, Consumer Directory, Financial, Materials, Energy and Multi Sector. We won 3 research awards at Zee India Best Market Analyst Awards and the Best Broking House - Institutional Segment award at D&B Equity Broking Awards 2015.

Investment Banking Industry Facts

As per a Business Standard report, India was ranked among the Top-6 countries in terms of number of IPOs globally in the quarter-ending March 2016. BSE was featured amongst the Top-6 global exchanges in terms of funds raised. Divestments of government-owned PSUs, listings of the insurance majors, microfinance, payments banks, e-commerce, life sciences and automotive are expected to lead the IPO pipeline in coming months. QIP issuances remained on the lower side, although few large deals in the last quarter pushed up the aggregate amount raised and average deal value on a YoY basis. As per Business Standard, M&A deal tally in India declined by 17.87% YoY to US$30.43 bn in CY2015, although the number of transactions saw an uptick from 569 to 600 - the highest in the last three years. This increase in deal count was led largely by the domestic deals segment, as global uncertainties restricted outbound transactions. As per Grant Thornton, cross-border deals increased 16% YoY in CY2015, on the back of 11 deals valued over US$500 mn each. The positive news is that India was the largest receiver of foreign direct investments in H1-2015 with US$ 31 bn, and the Make in India initiative and posiive macro environment should augur well for inbound transactions, going forward.

As per a Livemint report, funds raised through debt capital markets in CY2015 declined by ~28% YoY to US$ 37.5 bn. This is the lowest ever since 2009. The freeze on domestic capex plans by companies is one of the reason for the muted acivity in the debt capital markets. In fact, most of the borrowings have been to refinance old loans rather than for new capex, as companies seek to lower the cost of borrowing. Funds raised from the offshore bond market declined from US$ 35 bn in CY2013 and US$ 18.8 bn in CY2014 to a low of US$ 8.9 bn in CY2015, while domestic fund raising declined by 9% YoY to Rs. 1.82 tn. However, bond arrangers remain hopeful that domestic issuances may rise in coming months as borrowing through bonds still works out cheaper than domestic banks.

Our Investment Banking Business

The company's M&A deal pipeline remained robust, despite the current market volatility delaying transaction closures. It successfully concluded one cross-border M&A transaction for an Indian engineering company. It also successfully advised two cement companies in raising structured credit of more than Rs. 7.50 bn to refinance part of their debt and fund capital expenditure, thereby setting them up to capitalize on the improving fundamentals in the sector. During the year, it tied up with IMAP Inc., a global provider of M&A services, as its India partner. This would allow it to undertake transactions across 30+ countries wherever IMAP has a partner network.

In FY2015, the company had invested into building the Equity Capital Markets team to capitalize as IPO, FPO and QIP issuances gathered steam in the market. The IPO pipeline has gained traction, with participation in issues like Pennar and Powermech. It also received clearance from SEBI for the upcoming IPOs of Parag Milk Foods, Nihilent Technologies and SP Apparels, wherein MOIAPL is a book running lead manager. It has been mandated for a QIP placement by a PSU bank, which is expected in Q1 FY2017. The team is also in advanced stage discussions for raising private equity for companies in the technology, consumer and services sectors.

Wealth Management Industry Facts

As per Karvy Private Wealth Report 2015, the total wealth held by individuals in India grew by 8.94% YoY to Rs. 280.44 tn in FY2015, of which physical assets comprise Rs. 119.89 tn and financial assets comprise Rs. 160.55 tn. During the year FY2015, individual wealth in financial assets grew by 19.17% YoY, led by equities, insurance and PF. Conversely, physical assets de-grew by 2.35% YoY owing to muted performance in gold and real estate during FY2015. Direct equity notched the largest share within individual wealth in financial assets - up from 19.79% in FY2014 to 21.40% in FY2015. Fixed deposits and bonds, which had comprised the largest share in FY2014 at 21.83%, dipped to 20.70% in FY2015. FY2015 saw a trend-reversal in the investment of the new addiional money, with ~54% of the new money in FY2015 invested in financial assets as compared to ~35-40% in the brvious years. The proportion of financial assets held in debt and real estate in India is largely in line with those seen globally. Moreover, rapid growth in equities coupled with muted growth in gold during the coming years can push their proportions in India too in line with those seen globally.

Our Wealth Management Business

The business saw traction in assets under management, as assets picked up from Rs. 42.35 bn to Rs.64.43 bn during FY2016, up 52.14% YoY. The number of client families increased by 59.19%. This traction was largely a result of continued ramp up of the Relationship Manager (RM) base and in our advisory capabilities. The business had a 77-member RM and advisory team as on 31st March, 2016, up from 49 last year. The brsence has been expanded to eight metro cities, to capitalize on the ensuing growth prospects in these regions. Few large clients were added during the year, which helped boost AUM despite challenging markets. Such large clients should help push the traction in AUM further, going forward.

The business's client-centric focus can be seen in its unique product offering, which combines an open-architecture with strong manufacturing capabilities in higher-yield products like public market equities and real estate. This business contributed significantly to the fund-raising of IREF III, the latest real estate fund from Motilal Oswal Private Equity. During the year, the business built a Family Office offering to cater to HNI families holistically. It has been working towards deepening relationships by supporting clients through life events. The real estate broking and advisory team held the Real Estate Expo in Jan 2016, showcasing projects of marquee developers. A differentiated equity strategy was launched for clients with one of our equity partner AMCs, which will benefit from the impending economic recovery. The business turned profitable in the brvious year itself. The blended yield earned remains better than most of its peers in the industry due to the higher proportion of equity assets within the AUM mix. It also won the UTI-MF CNBC Financial Advisor Award in HNI Wealth Management category in 2015, in its very first year of participation.

Asset Management Industry Facts

Overall mutual fund AUM was up 13.86% YoY to Rs. 12.33 tn in FY2016. Equity mutual funds, whose AUM had grown 78.70% YoY during the brvious year, increased by 14.55% YoY during FY2016. The slower growth this year was largely owing to the lack of market performance, since the net sales of equity funds at Rs. 739.84 bn has actually increased from last year's Rs. 710.29 bn. The strong net inflows into equity funds seen this year have been a major positive. The proportion of equity fund AUM within the overall AUM mix grew from 25.19% in FY2014 to 34.31% in FY2015, and further to 34.52% in FY2016. Apart from the consistent net inflows into equity mutual funds this year, another encouraging sign was that redemptions did not reflect its typical herd mentality this year when market performance was not forthcoming. In earlier years, the lack of market performance would have seen a domino-effect of investors exiing the market. While there was some redempion from existing investors this year, it did not spiral like in earlier years. Gross sales remained strong at Rs. 1.65 tn, higher than the Rs. 1.48 tn clocked last year.

These inflows into equity funds were led by the number of new folios created by retail and HNI investors in equity funds this year. Between March 2015 and Dec 2015, the growth in HNI and retail equity folios was 32.79% and 9.39%, respectively (HNIs is defined as individuals who invest Rs. 0.50 mn and above). In absolute terms, the incremental folios created in HNI and retail equity was 0.24 mn and 3.07 mn, respectively. At an overall level, HNI and Corporate investors each clocked a 20.33% growth in their respective folio counts, during the nine months ended Dec 2015.

Our Asset Management Business

Motilal Oswal Asset Management (MOAMC) operates PMS and mutual funds, and this has helped bring in a source of regular annuity-fee income. Our public market equities AUM at Rs. 104.78 bn was up 71.82% YoY. Within this, the mutual fund AUM was up 109.79% YoY to Rs. 50.66 bn, and the PMS AUM was up 46.93% YoY to Rs. 54.12 bn. The open-end mutual funds with an AUM of Rs. 47.14 bn comprised the major chunk within the mutual fund bouquet.

We clocked a healthy growth in terms of net sales, and were amongst the fastest growing equity AMCs in India this year. Our net sales (equity mutual funds + PMS) increased from Rs. 22.67 bn in FY2015 to Rs. 51.86 bn in FY2016. Our market share of average AUM in the open-end equity mutual funds space increased from 0.33% in FY2015 to 0.88% in FY2016. Our market share of net sales in the open-end equity mutual funds increased from 2.10% to 3.79% in the same period. Our products have been empanelled as an approved product across channels like banks, wealth platforms, national distributors and IFAs. We are building an Investment-focused B2B sales organization rather than Sales-focused investment organization, and the mix of the staff strength in Investing vs Sales was ~1:2. We deepened our relationship with existing large distributors, and are in the early stages of roll-out with few more large distributors. Our distributor count is up 51.75% YoY. These distributors showed results through increased mobilizations. During the year, the new investor folios created in equity mutual funds were up 5X YoY. Our PMS has gained flavour as an alternate product with several distributors. We continue to build relationships with offshore intermediaries for our offshore India Zen fund.

Our rank in the Equity AUM industry (equity mutual funds + PMS) improved to #12 as of Mar 2016, as compared to #18 in Mar 2014. Significant investments have been made in recent quarters in brand promoion to build a strong recall & positioning amongst the investor and distributor fraternity. Our maiden marketing campaign "Sirf Ek Sawaal: Why not Motilal Oswal" was launched across Digital, Print and TVC media channels. To simplify the investing process further for our investors, we updated the portal, www.Motilaloswalmf.com with useful features for B2B & B2C audience.

Private equity deal values picked up from Rs. 736.21 bn in FY2015 to Rs. 1.16 tn this year. Just like last year, this year too saw large-value transactions from the e-commerce space. The average deal value picked up from Rs. 1.22 bn in FY2015 to Rs. 1.72 bn in FY2016. In terms of sectors dominating the deal values, IT/ITeS, BFSI, Healthcare, Energy and Manufacturing continued to dominate this year. Absolute deal value clocked by the IT/ITeS sector was larger in FY2016, than in FY2015. This was led by Flipkart, Ola, Snap deal, Intel net, etc. The share of energy sector in overall deal value picked up this year, following the large transactions of Senvion, ReNew and Greenko in the renewables space. Conversely, the share of BFSI sector dropped this year, since the brvious year had included the larger sized deals of Kotak, Shriram and Bandhan. Other sectors that saw their share pick up this year included Manufacturing (due to Crompton Greaves deal) and Telecom (due to ACT Broadband transaction). While exits largely remain a challenge, a few IPOs and secondary sales were seen in the market during the year.

Our Private Equity Business

MOPE Investment Advisors manages five funds - two in the growth capital space and three in the real estate space. The growth funds focus on themes that may benefit from structural changes like domestic consumption, domestic savings, infrastructure, etc. The India Business Excellence Fund I (IBEF I) is a growth capital fund which has ~US$ 125.00 mn invested across 13 companies. It has returned ~120% capital (in INR terms) from 3 full-exits and 6 partial exits in 4 companies till-date. The fund is in advanced stages for 2 exits in the next few months, which may allow it to return an additional ~50-55% capital. The fund expects to divest the balance companies in FY2017. We hope to earn a meaningful carry as well as profit on Sponsor commitment in FY2017. India Business Excellence Fund II (IBEF II) is the second growth capital fund which raised AUM of Rs. 9.54 bn from investors in India and overseas. This includes some marquee institutional investors like IFC Washington, Squadron Capital and Axiom. This fund has made 8 investments so far.

The India Realty Excellence Fund I (IREF I) is a real estate fund with AUA of Rs. 2.00 bn. IREF has made investments across 7 deals. Following full/partial exits from 6 projects till date, the fund has returned ~86% of capital to its investors. India Realty Excellence Fund II (IREF II), the second real estate fund, raised assets of Rs.4.9 bn, of which it has committed ~83% across established developers in 8 deals following a stringent due diligence process. India Realty Excellence Fund III (IREF III) is the third real estate fund which was launched in Q3FY2016 with an AUM target of Rs. 10 bn. It announced its first close within only 4 months in Feb 2016, raising commitments of Rs. 6 bn. This fund has made 1 investment so far.

Housing Finance

Affordable Housing finance: A promising opportunity

As per an ICRA report, the total housing credit in India stood at Rs. 11.90 tn as on Dec 2015, of which HFC housing credit comprised Rs.4.30 tn and bank housing credit was Rs. 7.60 tn. Growth in housing credit growth picked up from Q2FY2016 onwards, supported by the affordable housing segment in Tier II/III towns and primary sales during the festive season. HFCs accounted for 36.13% of total housing credit as of Dec 2015, up from 35.63% in Mar 2014 and 28.89% back in Mar 2010. Conversely, the proportion of banks within total housing credit dipped from 71.11% in Mar 2010 to 63.87% in Dec 2015. Between Mar 2014 and Dec 2015, HFCs housing credit grew by 20.56% CAGR as compared to 19.07% in the case of banks. Regulatory changes like lowering of risk weights from 50% to 35% for ticket-size less than Rs. 3 mn, may enable lenders to disburse more loans to the smaller-ticket home segment with the capital in hand. Granting of Sarfaesi license to several HFCs is a positive from the recovery perspective. The higher cap on lending sbrads set by the National Housing Bank from 2% to 3.5% can be another positive for HFCs operating in the small ticket housing segment.

However, the entry of a number of new entrants into this industry has YoY trend in housing credit in India (R Tn) intensified competition further. A number of banks have also renewed their 12focus on the home loan segment as it is deemed safer than other lending avenues, where many banks have burned fingers in the recent past. Sucha competitive situation may result in high demand for quality manpower, lowering of price-point, incentives like waiver of brpayment penalty and relaxing loan-to-value ratios. Such a prolonged situation may impact scalability and profitability for the incumbent players in the industry.

The ICRA report estimates good profitability indicators for HFCs, with ROE of 18.8% in 9MFY2016. However, sbrads are expected to decline marginally, given the competitive scenario in the industry. Non-interest income may also be expected to reduce in case processing fees are lowered to lure clients.

Our Housing Finance Business

During FY2015, we had invested into building a new housing finance company - Aspire Home Finance Corporation Limited. Aspire has exclusive focus on pure-retail affordable housing loans. During FY2016, it sanctioned Rs. 23.60 bn, up ~4.5X from FY2015, and disbursed Rs. 18.18 bn, up ~5X YoY. As of 31st March, 2016, the HFC loan book stood at Rs. 20.9 bn across ~21,000 families. The average ticket-size of loan has held constant at around the Rs. 1 mn level on a YoY basis. Maharashtra comprised ~73% of the loan book, with Gujarat, Madhya Pradesh and Telangana making up the rest. The investments we made into expanding the branch network (up 14 to 51 YoY) and hiring key people (~150 to ~500 YoY) should push the traction in volumes, going forward. Strong risk assessment, underwriting and file-audit practices should help maintain asset quality.

In terms of liability profile, Aspire has term-loan drawdown from 22 banks and 1 NBFC as of 31st March, 2016, up from 7 in FY2015. Approximately 50% of the borrowings are from the capital markets, in the form of NCDs. The year FY2016 saw both Crisil and ICRA upgrading their ratings to Aspire - Crisil upgraded its rating to CRISIL A+/Stable while ICRA upgraded its long-term rating to [ICRA] AA- (Stable)). The cumulative capital infusion by the Sponsors till-date is Rs. 3.00 bn.

During the year, Aspire had been notified under Sarfaesi Act, which would facilitate in smooth recovery of dues. During FY2016, it became a Primary Lending Institution (PLI) under Pradhan Mantri Awaas Yojana (part of Government of India's mission of "Housing for All by 2022" for the urban poor). As a PLI, it has provided subsidy to 78 clients under Credit Linked Subsidy Scheme (CLSS) of Pradhan Mantri Awas Yojana (PMAY). Total subsidy of Rs. 16.00 mn transferred to borrowers under CLSS.

Despite its vintage, Aspire has already won several accolades at award forums. It was awarded "India's Most Admired and Valuable Housing Finance Company" at India Leadership Conclave 2015, "Financial Services Institution of the Year" by ASSOCHAM at ICT 4 Development Awards 2015 and "Agency Innovation of the Year (BFSI Sector)" at the Brand Excellence Awards 2015. It also won the Finnoviti 2016 award for the 'MALA' (Mahila Awaas Loan) product from Banking Frontiers & Deloitte. MALA focuses on working women in the low-income segment with an objective of "By Women - For Women".

Aspire has been profitable from its very first year of operations. In its second year, it contributed Rs. 400 mn to the group's profits. For FY2016, RoA is 3.3%, RoE is 16.0%. As of Mar 2016, GNPL is 0.2%, NIM is 389 bp and D/E ratio is 5.1X

Fund based activities focusing on enhancing Return on Equity

In line with the long term strategy to grow RoE sustainably to 20%+, MOFSL had made strategic allocation of capital to long term RoE enhancing opportuniies like Aspire Home Finance, sponsor commitments to excising mutual fund and private equity funds of MOFSL group and utilizing borrowings to run the NBFC loan book (as a sbrad business). As of 31st March, 2016, our investments in Motilal Oswal's mutual fund products stood at Rs. 5.89 bn and the unrealized gain on these investments was Rs. 1.17 bn. The same is not reflected in the profit and loss account for the year. Our investments in Motilal Oswal's alternative investment products (private equity and real estate funds) stood at Rs. 1.98 bn, as of 31st March, 2016. The cumulative capital infusion made in Aspire ill-date is Rs. 3.00 bn. The NBFC loan book stood at Rs. 2.58 bn. The LAS lending business, earlier done from equity capital, is now being run as a sbrad business. In line with this, MOFSL had raised long-term NCDs of Rs. 1.5 bn at annualized cost of 10.05% (payable annually).

Opportunities and Threats Opportunities

• Long-term economic outlook positive, will lead to opportunity for financial services

• Growing Financial Services industry's share of wallet for disposable income.

• Regulatory reforms would aid greater participation by all class of investors

• Leveraging technology to enable best practices and processes

• Corporate looking at consolidation / acquisitions / restructuring opens out opportunities for the corporate advisory business

Threats

• Execution risk

• Short term economic slowdown impacting investor sentiments and business activities

• Slowdown in global liquidity flows

• Increased intensity of competition from local and global players

• Market trends making other assets relatively attractive as investment avenues

Strengths

• Strong Brand Name

'Motilal Oswal' is a well-established brand among retail and institutional investors in India. MOFSL believes that its brand is associated with high quality research and advice as well as corporate values like integrity and excellence in execution. The company has been able to leverage its brand awareness to grow its businesses, build relationships and attract and retain talented individuals.

• Experienced Top Management

The promoters, Mr. Motilal Oswal and Mr. Raamdeo Agarawal are qualified chartered accountants with over two decades of experience each in the financial services industry. The top management team comprises qualified and experienced professionals, with a successful track record. The company believes that its management's entrebrneurial spirit, strong technical experise, leadership skills, insight into the market and customer needs provide it with a competitive strength, which will help to implement its business strategies.

• Integrated Financial Services Provider

The broad range of offerings under Broking and Distribution, Institutional Equities, Asset Management, Wealth Management, Investment Banking, Private Equity and Housing Finance business, helps to foresee client requirements and provide full-fledged services under single platform. The production and distribution of all financial products and services helps the company's advisors and clients to attain client's financial objectives with best in class services.

• Independent and Insightful Research

MOFSL believes that its understanding of equity as an asset class and business fundamentals drives the quality of its research and differentiates it from its competitors. The research team is focused on equities, derivatives and commodities.

• One of Largest Distribution Network - 2,000+ outlets across 511 cities

MOFSL's financial products and services are distributed through a pan-India network. The business has grown from a single location to a nationwide network sbrad across 2,000+ business locations operated by business associates or directly through own branches in 511 ciies. This extensive network provides opportunities to cross sell products and services, particularly as the company diversifies into new business streams. In addition to the geographical sbrad, MOFSL also offers an online channel to service customers.

• Established Leadership in Franchisee Business

One of the key strengths has been the successful establishment of the franchisee business. The company's relationship with the franchisees has become stronger as they grew. MOFSL has muliple business partner models in franchising and is strongly committed to enhance growth and profitability of each of its franchisee.

• Strong Risk Management

Risk exposure is monitored and controlled through a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems. Risk management department analyses this data in conjunction with the company's risk management policies and takes appropriate action where necessary to minimize risk.

• State of Art Infrastructure

MOFSL has consolidated its businesses under one Corporate Office - Motilal Oswal Towers. The integration of multiple MOFSL businesses provides a great opportunity to brsent a holistic solution to client needs and facilitates the "One Firm" philosophy. The infrastructure has been extensively leveraged upon to build deeper connect with our customers, business partners and corporate.

• Financial Prudence

MOFSL's operating margins continue to remain stable despite the fluctuations in market volumes and revenues. This is a result of creating a robust business model that can withstand the cyclical fluctuations in business volumes and simultaneously capture the opportunities provided by the structural growth of India. During the year, Crisil Limited reaffirmed the Credit Rating of "CRISIL A1+" the Commercial Paper Programme of Rs. 2.50 bn of the Company. ICRA Limited assigned the credit rating of [ICRA] AA" Rating with a stable outlook to the NCD Programme of Rs. 1.50 bn of the company. Crisil Limited also reaffirmed the Credit Raing of "CRISIL A1+" to the Commercial Paper Programme of Rs. 7.00 bn of Motilal Oswal Securiies Limited, a subsidiary of the Company. The ratings indicate a very strong degree of safety regarding timely servicing of financial obligations.

Risks and Concerns

The company is primarily exposed to credit risk, interest rate risk, liquidity risk and operaional risks. Internally, it has consituted the Asset Liability Management Committee to manage these risks. This team identifies, assesses and monitors all principal risks in accordance with defined policies and procedures. The committee is headed by the Chairman & Managing Director.

The Board Level Committees viz. Audit Committee and Risk Management Committee oversee risk management policies and procedures. It reviews credit and operaional risks while the Asset Liability Management Committee reviews policies in relation to investment strategy and other risks like interest rate risk and liquidity risk.

Internal Control Systems and their Adequacy

The company's internal control systems are adequate and provide, among other things, reasonable assurance of recording transactions of operations in all material respects and of providing protection against significant misuse or loss of company assets.

Internal audit is conducted by Morzaria and Associates, to assess the adequacy of the internal controls procedures and processes, and their reports are reviewed by the Audit Committee of the Board. Policy and process corrections are undertaken based on inputs from the internal auditors.

Financial Performance Standalone Financials

During the year under review, the standalone revenues for the year were Rs. 1.11 bn, a decline of 14.20% as compared to Rs. 1.29 bn last year. Interest income declined by 18.50% to Rs. 0.54 bn, in line with the decrease in the NBFC loan book. Dividend income from subsidiary companies was Rs. 0.14 bn, as compared to Rs. 0.42 bn in the brvious year. Dividend income from short-term investments was Rs. 8.41 mn, as compared to Rs. 22.27 mn in the brvious year. Profit on sale of investments was Rs. 0.28 bn, as compared to Rs. 0.11 bn last year. Rent income was Rs. 0.13 bn in FY2016, up 63.34%. Other operating income was Rs. 3.08 mn in FY2016, while Other income was Rs. 9.63 mn.

Total expenses (before debrciation, interest and exceptional) decreased during the year, from Rs. 0.26 bn a year back to Rs. 0.20 bn this year. Profit before debrciation, interest, exceptional item and taxation (EBITDA) decreased by 11.69% this year, from Rs. 1.03 bn to Rs. 0.91 bn. Interest and finance charges decreased marginally from Rs. 295.78 mn to Rs. 295.26 mn.

Reported net profit decreased by 23.09% to Rs. 465.26 mn. MOFSL Standalone's commitments to our own mutual fund products stood at Rs. 3.07 bn, as of 31st March, 2016. The unrealized gain on these investments is Rs. 0.52 bn as of 31st March, 2016. The same is not reflected in the profit and loss account for the year.

Long-term investments increased to Rs. 4.90 bn, from Rs. 3.57 bn last year mainly on account of our investments in Motilal Oswal's funds. Current assets mainly comprise of stock in trade, cash and bank balances, and other current assets. As of 31st March, 2016, these decreased to Rs. 3.83 bn from Rs. 5.47 bn last year. The cash and bank balances were Rs. 1.12 bn. Total loans and advances decreased to Rs. 2.71 bn as of 31st March, 2016, from Rs. 5.47 bn a year back. Current liabilities were Rs. 3.19 bn as of 31st March, 2016, from Rs. 3.30 bn a year back.

Consolidated Financials

The consolidated revenues for the year were Rs. 10.93 bn for the year under review, an increase of 40.98% as compared to the brvious year. Broking revenues increased by 3.93% to Rs. 5.09 bn. Market activity remained muted this year, especially in the high-yield cash segment. Asset management fees also saw significant traction, increasing 76.55% to Rs. 2.24 bn as compared to last year. Total assets under management/advice across mutual funds, PMS and private equity businesses was Rs. 132.74 bn, up 60.78% YoY. Within this, the mutual fund AUM was Rs. 50.66 bn, PMS AUM was Rs. 54.12 bn and private equity AUA was Rs. 27.96 bn. The company saw increased mobilizaion into its open-end equity mutual fund products and PMS products. In the private equity business, the 3rd real estate fund - India Realty Excellence Fund III, achieved its first close. Investment banking fee at Rs. 0.24 bn saw a 25.19% growth over the brvious year. The IPO pipeline has gathered steam, following the investments made into an ECM team. Housing finance related income increased by 853.62% to Rs. 2.18 bn as the business gained traction this year in terms of clients, network, banking lines and loan book. It has received raing upgrades from both Crisil and ICRA, which should bode well for future fund-raising. Fund based income increased by 2.06% to Rs. 1.12 bn. In line with the long term strategy to grow Return on Equity sustainably, MOFSL has made strategic allocation of capital to long term RoE enhancing opportunities like Aspire Home Finance and sponsor commitments to existing mutual fund and private equity funds of MOFSL group. The NBFC loan book, brviously run from equity capital, is now being run as a sbrad business with borrowed funds. The brvious year had also included profit earned on partial exits in few investments of the Private Equity fund in which MOFSL made sponsor commitments. Other income decreased by 20.03% YoY to Rs. 0.05 bn.

Total expenses (before interest and debrciation) for the year at Rs. 6.46 bn registered a 25.38% jump over last year. People cost increased by 31.97% to Rs. 2.51 bn. This was largely owing to an increase in hiring in the retail broking & distribution and housing

finance businesses. Operating expenses increased by 19.51% to Rs. 2.32 bn. Other costs were Rs. 1.63 bn, an increase of 24.53% over last year. The profit before debrciation, interest, exceptional items and taxation (EBITDA) increased by 71.97% to Rs. 4.46 bn.

Reported net profit for the year after minority interest stood at Rs. 1.69 bn, an increase of 17.74%. MOFSL group's commitments to our own mutual fund products stood at Rs. 5.89 bn, as of 31st March, 2016. The unrealized gain on these investments is Rs. 1.17 bn as of 31st March, 2016. The same is not reflected in the profit and loss account for the year. MOFSL group's commitments to our alternative investment products stood at Rs. 1.98 bn, as of 31st March, 2016.

Long-term investments increased from Rs. 7.94 bn to Rs. 10.56 bn on a year on year basis. Current assets mainly comprise of sundry debtors, stock in trade, cash and bank balances, and other current assets. Short-term investments increased from Rs.0.20 bn to Rs. 1.76 bn on a year on year basis. As of 31st March, 2016, the cash and bank balances were Rs. 2.87 bn, from Rs. 2.72 bn a year back. Total loans and advances were Rs. 24.61 bn, from Rs. 9.61 bn a year back. Current liabilities mainly consist of current liabilities in connection with margin monies deposited by customers to facilitate trading on their behalf and amounts payable to customers on whose behalf we undertake trades as well as amounts payable to exchanges. It was Rs. 19.12 bn as of 31st March, 2016, from Rs. 13.20 bn a year back (including short-term borrowings). Total provisions were Rs. 0.91 bn as of 31st March, 2016.

Human Resources

At MOFSL, it has been our attempt to create an employee-centric culture. We ensure that we take-up new engagement initiatives year on year to take our employee engagement to another level. Like every year, the response for the Annual Cricket Tournament was tremendous, with 24 teams participating in the event. The Foundation Day was celebrated with Sharib and Toshi gracing the occasion for the function with a theme of Desi beats. In our endeavor to recognize and reward exceptional employee performance, the Annual Associate Awards were brsented across various categories at the function. It was followed by an entertainment program to make it a fun evening for all. Other events included Independence Day, Diwali Mela and Christmas Celebrations.

We organized various camps which included the; Eye camp; Health check up camp & Blood Test camp. As CSR activity we conducted blood donation drive to contribute towards social cause.

As a new initiative Radio Masti was introduced - Radio platform for MOFSL. Aired on 3rd August 2015 for the first time, Radio Masti was greeted with an overwhelming response by the employees. Since then, it is played on a daily basis post market hours. We run many shows under its umbrella like Gud Gudi through which we share jokes, Naya Taaza under which we share the latest updates and achievement of the organization. We share shayaris under the tile Sher market and we have ip of the day which come with a daily health tip. To get maximum involvement of the employees, we have Friday Farmaaish in which the employee can dedicate songs for their friends/ colleagues.

Employee Engagement Survey was conducted this year with "Hay Group", a leading international management consultancy to benchmark our company with external industries. This year, we had an overall participation of 87%. Key highlights:- (a) 89% of participants feel proud to work for MOFSL as an organization, and (b) 86% of participants feel that their job provides them the opportunity to do challenging & interesting work.

The biggest highlight from HR was the Competency Rollout, which Identified 7 competencies for the organization, categorized & mapped employees into Individual Contributor (IC), Manager (M) and Manager of Manager (MOM). Senior promotions were conducted on the basis of competency rollout. The talent framework was created to develop talents within the organization. As a part of Talent framework, the following programs were launched:

• MOLD (Motilal Oswal Leadership Development) Program

• PACE (Professional and Career Enhancement) Program

• CEO Coaching

These programs focus on developing the talents through IDP. The Sourcing team had various programs/Initiatives:

• SPARK Management Trainee Program 2016 - 17

• Virtual Interview

• iRecruit- Recruitment Sotware

• Employee Referral Gasification

• Social media engagement with potential hires

Since it is the era of digitalization, HR also digitalized some of its processes, including:-

• Online reimbursement system

• Online payment module

• Telehelp automation

• Heritage system

• Automated emails for confirmation, attendance, clearance, etc