Kotak Mahindra Financial Services Limited. Bigger. Bolder. Better.

Transcription

1 Kotak Mahindra Financial Services Limited Bigger. Bolder. Better.

2 Directors Report To The Members of, Kotak Mahindra Financial Services Ltd. Your Directors are pleased to present the 4th Annual Report of your Company together with the Audited Statement of Accounts and the Auditors Report of your Company for the financial year ended, 31st March, The summarized financial results for the year ended 31st March, 2014 are as under: FINANCIAL HIGHLIGHTS Particulars FY Amount in USD Amount in INR Gross Income 1,602,284 96,806,154 Less : Expenses 2,140, ,343,327 Profit/(Loss) Before Tax (538,538) (32,537,173) REVIEW OF OPERATIONS The Company is mainly in the business of investment advisory services. The Company is registered with the DIFC and has got a Category IV license, and is governed by the rules/bye laws of the DFSA (being the regulatory body of the DIFC). The Company advises its clients on investments in various financial instruments after assessing their risk profile and arranges for these investments to be made with various Fund houses/financial Institutions. Our predominant customer base consists of NRIs. Our product offering includes, INR Mutual Funds, Long Term Insurance, Platform products etc. Our endeavor has always been to position ourselves as one stop shop for all the requirements of an NRI customer. The year was marked by 2 significant events. The first was the steep and sudden depreciation of the Indian Rupee against the US Dollar in August The second came on the back of this event where the RBI introduced a scheme to encourage NRI investors to remit funds to India in FCNR(B) deposits, offering attractive rates to depositors and discounted hedging costs to banks. The scheme generated a lot of interest and the country garnered foreign currency deposits of USD 34 billion under this scheme. While this resulted in NRI expatriates from the region also remitting funds into FCNR(B) deposits, the sharp rupee depreciation clearly made the NRI investors reluctant to take INR exposure. Given that the firm does not offer leverage, it was not able to capitalize on the FCNR opportunity. The firms focus was to offer international fixed income products and platform investments to clients and to work with partners to meet the client s leveraged bond and long term insurance needs. Towards the end of the year, the firm also absorbed a nascent interest by clients in local private equity funds. DIVIDEND In view of the losses incurred by the Company the board of Directors has not recommended any dividend. SHARE CAPITAL The Company started with a capital of USD 1.49 Mn as on 1st April and subsequently allotted further capital of USD 0.20 Mn. The Authorized Share capital is at USD 2 Mn (2 Mn Shares of USD 1 /- each) against which USD 1.69 Mn has been Issued, Subscribed and Paid up. The Company s shares were subscribed and Paid up by Kotak Securities Ltd (India) (73.36%) and by Kotak Mahindra (International) Limited (26.64%). BUSINESS OUTLOOK UAE is a key financial market in the GCC region and has roughly an expatriate population of 88.5% across various nationalities with the highest percentage having Indian expatriates. By virtue of having present in the DIFC, the firm is competing with some of the market leaders in the private banking space, offering a much wider suite of financial services. The strategy is, therefore, to match them in terms of the international product basket and to provide additional benefits in terms of India specific solutions. In addition the firm is also fostering partnerships with leading international banks and financial institutions. The UAE has recently been awarded the right to host the Expo 2020 which has created a lot of buoyancy in the market. Capital Markets and the realty sector have rallied significantly and the outlook continues to remain very positive. The NRI community is also favorably inclined towards investing in the local market. Annual Report

3 Over the last 12 months Japan, America and Europe markets witnessed a rally and a double digit return was made by investors. The investors are still bullish on these economies. With the elections around the corner in India all investors including the NRI are adopting a wait and watch approach to further increase their allocation into India. The firm continues to carefully monitor suitability assessment of investment products for its clients and keep them regularly updated and engaged on market developments across geographies and sectors. DIRECTORS As on the date of this Directors Report, Mr. K.V.S. Manian, Mr. Somer Massey and Mr. Gijo Joseph are the Directors of the Company. COMMITTEES The Company has a Governance Risk and Audit committee (GRAC). The constitution of the said committee is as follows: 1. Somer A Massey 2. Samit Saigal 3. Srinivasa Rao Nandiraju AUDITORS The Board had appointed M/s Ernst & Young, Chartered Accountants UAE as the auditors for the financial year ending The Company s auditors retire at the ensuing Annual General Meeting and are eligible for re-appointment. DIRECTORS RESPONSIBILITY STATEMENT Based on representation from the management, the Directors state, I. the Company has, in the preparation of the annual accounts for the year ended 31st March 2014, followed the applicable accounting standards along with proper explanations relating to material departures, if any; II. III. IV. the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March 2014 and of the loss of the Company for the financial year ended 31st March the Directors have taken proper and sufficient care to the best of their knowledge and ability for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and the Directors have prepared the annual accounts on a going concern basis. ACKNOWLEDGEMENTS The Directors wish to thank the Dubai International Financial Corporation, Dubai Financial Services Authority, Dubai Government and the Company s Bankers for the assistance, Co-operation and encouragement they extended to the Company. The Directors commend the employees of the Company for their dedicated efforts. For and on behalf of the Board of Directors Somer A Massey Place: Dubai Dated: 23rd April, Kotak Mahindra Financial Services Limited

4 Independent Auditor s Report To The Members of Kotak Mahindra Financial Services Limited. The financial statements of Kotak Mahindra Financial Services Limited as at 31st March, 2014, being a company registered in the United Arab Emirates (UAE), are audited by Ernst &Young, Dubai, United Arab Emirates and we have been furnished with their audit report dated 20th April, We are presented with the accounts in Indian Rupees prepared on the basis of aforesaid accounts to comply with requirements of section 212 of the Companies Act We give our report hereunder: Report on the Financial Statements We have audited the accompanying financial statements of Kotak Mahindra Financial Services Limited which comprise the Balance Sheet as at 31st March 2014, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements The Company s Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ( The Act ) read with the General Circular 15/2013 dated September 2013 of the ministry of corporate affairs in respect of Section 133 of the Companies Act, 2013 and in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March 2014; (b) (c) in the case of the Statement of Profit and Loss, of the loss for the year ended on that date; and in the case of the Cash Flow Statement, of the cash flows for the year ended on that date. Report on Other Legal and Regulatory Requirements In view of the facts specified in Para 1 and 2 herein above, the requirements of Companies (Auditor s Report) Order, 2003, report under section 227(3) of the Act, report on directors disqualification in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956 and payment of cess under section 441A of the Companies Act, 1956 are not applicable. For V.C. Shah & Co. Chartered Accountants Firm Registration No W A.N. Shah Place: Mumbai Partner Date: 23rd April, 2014 Membership No.: Annual Report

5 Balance Sheet as at 31st March, 2014 Particulars Note No. I. EQUITY AND LIABILITIES 1 Shareholders funds () (a) Share capital ,455,743 72,298,243 (b) Reserves and surplus 3.2 (77,690,075) (49,059,495) 2 Non-current liabilities (a) Long-term borrowings ,974,500 16,285,500 (b) Long-term provisions , ,172 3 Current liabilities (a) Trade payables 8,911,275 7,141,947 (b) Other current liabilities 3.5 5,911,643 5,548,204 (c) Short-term provisions 3.6 9,130,160 5,858,969 TOTAL 49,641,175 58,943,540 II. ASSETS 1 Non-current assets (a) Fixed assets Tangible assets 3.7 3,169,251 4,855,479 (b) Long-term loans and advances 3.8 3,952,186 3,691,750 2 Current assets (a) Trade receivables ,987,891 8,553,022 (b) Cash and bank balance ,366,875 27,727,231 (c) Short-term loans and advances ,102,190 7,655,874 (d) Other current assets ,062,782 6,460,184 TOTAL 49,641,175 58,943,540 Significant Accounting Policies and Notes to Accounts 2 & 3 In terms of our report of even date For V. C. Shah & Co. For and on Behalf of the Board of Directors Chartered Accountants A.N. Shah KVS Manian Somer Massey Partner Director Senior Executive Officer & Director Mumbai Dated: April 23, 2014 Dated: April 21, Kotak Mahindra Financial Services Limited

6 Statement of Profit and loss for the year ended 31st March 2014 Particulars Note No. For the year ended I. Revenues from operations For the year ended Income from services 96,806,139 79,452,353 II. Other income ,515 III. Total Revenue 96,806,139 79,512,868 IV. Expenses: Employee cost ,103,874 80,786,913 Finance cost , ,919 Depreciation and Amortization 3.7 2,539,888 2,238,054 Other expenses ,415,729 11,518,258 Total expenses 127,931,268 95,343,144 V. LOSS BEFORE TAX (31,125,129) (15,830,276) VI. Tax expense: - - VII. LOSS FOR THE PERIOD (31,125,129) (15,830,276) VIII. Earnings per equity share: Basic and Diluted 3.19 (20.84) (12.26) Significant Accounting Policies and Notes to Accounts 2 & 3 In terms of our report of even date For V. C. Shah & Co. For and on Behalf of the Board of Directors Chartered Accountants A.N. Shah KVS Manian Somer Massey Partner Director Senior Executive Officer & Director Mumbai Dated: April 23, 2014 Dated: April 21, 2014 Annual Report

7 Cash Flow Statement for the year ended 31st March, 2014 Particulars For the Year ended 31st March, 2014 Cash Flow from Operating Activities For the Year ended 31st March, 2013 Net Loss before taxation (31,125,129) (15,830,276) Adjustments for: - Exchange Adjustments 3,661,560 1,980,958 - Depreciation 2,539,888 2,238,054 - Interest on borrowing 725, ,728 Operating Profit before Working Capital Changes (24,198,670) (10,958,536) Adjustments for: (Increase) / Decrease in Trade receivables (2,434,869) (400,143) (Increase) / Decrease in Short-term loans and advances (446,316) (366,237) (Increase) / Decrease in Long-term loans and advances (260,436) (190,316) (Increase) / Decrease in Other current assets 1,397, ,931 Increase / (Decrease) in Trade payable 1,769,328 (6,804,478) Increase / (Decrease) in Short-term provisions 3,271,191 1,292,197 Increase / (Decrease) in Other current liabilities 445,030 4,807,548 Increase / (Decrease) in Long-term provisions 77, ,365 Cash Generated from Operations (20,379,583) (11,874,669) Direct taxes paid - - NET CASH FLOW (USED IN)/ FROM OPERATING ACTIVITIES (A) (20,379,583) (11,874,669) Cash Flow from Investing Activities Purchase of fixed assets (331,671) (48,649) NET CASH FLOW (USED IN) / FROM INVESTING ACTIVITIES (B) (331,671) (48,649) Cash Flow from Financing Activities Proceeds from Issue of Share Capital 12,157,500 15,074,158 Interest paid on borrowings (806,602) - NET CASH FLOW (USED IN) / FROM FINANCING ACTIVITIES (C) 11,350,898 15,074,158 Net Increase in Cash and Cash Equivalents (A + B + C) (9,360,356) 3,150,840 Cash and Cash Equivalents at the beginning of the year 27,727,231 24,576,391 Cash and Cash Equivalents at the end of the period 18,366,875 27,727,231 Notes: (9,360,356) 3,150, The Cash Flow Statement has been prepared under the Indirect Method as set out in the Accounting Standard -3 on Cash Flow Statements notified pursuant to the Companies (Accounting Standards) Rules, 2006, as amended 2. Figures in brackets indicate cash outflow. 3. The previous year s figures have been re-grouped, wherever necessary in order to conform with this year s presentation. In terms of our report of even date For V. C. Shah & Co. For and on Behalf of the Board of Directors Chartered Accountants A.N. Shah KVS Manian Somer Massey Partner Director Senior Executive Officer & Director Mumbai Dated: April 23, 2014 Dated: April 21, Kotak Mahindra Financial Services Limited

8 1 Organisation and Nature of Business Kotak Mahindra Financial Services Limited (the Company ) is a Company limited by shares registered and incorporated in the Dubai International Financial Centre in Dubai, United Arab Emirates. The Company s shareholder is Kotak Securities Limited ( shareholder or parent ), an entity incorporated in India, Kotak Mahindra International Limited ( shareholder ),an entity incorporated in Mauritius and their ultimate holding Company is Kotak Mahindra Bank Limited, an entity incorporated in India and publicly listed on the Bombay Stock Exchange (BSE), National Stock Exchange of India (NSE) and the Luxembourg Stock Exchange. The Company has been granted a prudential category 4 license by the Dubai Financial Services Authority (DFSA) and is engaged in arranging credit or deals in investments, advising on financial products or credit and arranging custody as per provisions of the DFSA Prudential Rulebooks. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 2 Significant Accounting Policies: 2.1 Basis of Preparation The Financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notified under Section 211(3C) of the Companies Act, 1956 ( the 1956 Act ) (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 ( the 2013 Act ) in terms of General Circular 15/2013 dated 13 September, 2013 of the Ministry of Corporate Affairs) and the relevant provisions of the 1956 Act/ 2013 Act, as applicable. 2.2 Conversion to Indian Rupees For the purpose of accounts, all income and expense items are converted at the average rate of exchange applicable for the period. All assets and liabilities are translated at the closing rate as on the Balance Sheet date. The Share Capital is carried forward at the rate of exchange prevailing on the transaction date. The resulting exchange difference on account of translation at the year end is transferred to Translation Reserve Account and the said account is being treated as Reserves and Surplus. 2.3 Use of estimates The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. 2.4 Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when payment is being made. Revenue is measured at the fair value of consideration received or receivable, taking into account contractually defined terms of payment, excluding discounts, rebates and sales tax or duty. Commission income is recognised when the services have been rendered or in accordance with the terms of the contracts. 2.5 Fixed Assets Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the expected useful lives of such assets as estimated by the Management. The estimated useful lives over which assets are depreciated are as follows Furniture and Fixtures Computers Equipments Office Equipment s Leasehold Improvements 4 years 4 years 4 years 4 years 2.6 Leases Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term. 2.7 Cash and cash equivalent For the purposes of the cash flow statement, cash and cash equivalent consists of cash in hand, bank balances and short-term, deposits with an original maturity of three months or less, net of outstanding bank overdrafts, if any. 2.8 Earnings per share Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the period. Annual Report

9 For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares. 2.9 Provisions and Contingencies Provision is recognised when there is a present obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent Liabilities are not recognized but are disclosed in the notes unless the outflow of resources is remote. Contingent assets are neither recognised nor disclosed in the financial statements Employee s end of service benefits The Company provides end of service benefits to its expatriate employees. The entitlement to these benefits is based upon the employee s final salary and length of service, subject to the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment Employee Share based payments Cash-settled scheme: The cost of cash-settled scheme (stock appreciation rights) is measured initially using intrinsic value method at the grant date taking into account the terms and conditions upon which the instruments were granted. This intrinsic value is amortised on a straightline basis over the vesting period with a recognition of corresponding liability. This liability is remeasured at each balance sheet date up to and including the settlement date with changes in intrinsic value recognised in the statement of profit and loss under Employee Cost. 8 Kotak Mahindra Financial Services Limited

10 3 Notes to accounts 3.1 (a) Share capital Share Capital Authorised shares 2,000,000 (Previous year 2,000,000) Ordinary shares of USD 1 each $2,000,000 $2,000,000 Issued, Subscribed and fully Paid up 1,689,000 (Previous year 1,489,000) Equity Shares of USD 1 each 84,455,743 72,298,243 Total 84,455,743 72,298,243 (b) Equity shares Reconciliation of equity share capital Share capital outstanding at the beginning of the year 31 March Quantity Quantity 1,489,000 72,298,243 1,214,000 57,224,085 Issued during the period * 200,000 12,157, ,000 15,074,158 Share capital outstanding at the end of the year 1,689,000 84,455,743 1,489,000 72,298,243 * During the year, additional 200,000 shares of USD 1 each were issued at par(2013: 275,000 shares of USD 1 each). (c) Terms/rights attached to equity shares The Company has only one class of equity shares having a par value of USD 1 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in US dollars. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders. (d) Shares held by holding/ultimate holding company and/or their subsidiaries/associates Out of equity shares issued by the company, shares held by its holding company, ultimate holding company and their subsidiaries/ associates are as below: Number of equity share Kotak Securities Limited 1,239,000 1,239,000 Kotak Mahindra (International) Limited 450, ,000 (e) Details of shareholders holding more than 5% shares in the company Equity shares of USD 1 fully paid up Kotak Securities Limited, subsidiary of Kotak Mahindra Bank Limited Kotak Mahindra (International) Limited, subsidiary of Kotak Mahindra Bank Limited number % holding number % holding 1,239, % 1,239, % 450, % 250, % Annual Report

11 3.2 Reserves and Surplus a. Translation Reserve Opening Balance 2,770,697 1,370,296 Additions/(deductions) during the period 2,494,549 1,400,401 Closing Balance 5,265,246 2,770,697 b. Surplus in the statement of profit and loss Opening balance (51,830,192) (35,999,916) Net Loss For the current year (31,125,129) (15,830,276) Closing Balance (82,955,321) (51,830,192) Total (77,690,075) (49,059,495) 3.3 Long-term borrowings Unsecured Loans and advances from related parties 17,974,500 16,285,500 Total 17,974,500 16,285,500 Loan from a Related Party During 2012, the Company obtained a loan of 15,262,500 from a related party, now a share holder, Kotak Mahindra International limited (Mauritius). The loan carries an interest rate at 4% per annum (Previous Year - 4% per annum) and is repayable on either party giving a notice of 5 years, to the other party. This loan has been subordinated as a tier 2 capital in the calculation of the Company s capital resources and can be repaid only after approval of the DFSA. Accordingly, the loan has been classified as non-current in the Balance Sheet as at. During the year, the Company incurred a finance cost of 725,001 in respect of this loan (Previous year 652,728). 3.4 Long-term provisions Provision for employee benefits Stock Appreciation Rights (refer note 3.24) 947, ,172 Total 947, , Other current liabilities Interest accrued and due 659, ,656 Expenses payable to group companies 5,252,578 4,807,548 Total 5,911,643 5,548, Short-term Provisions Provision for employee benefits: Provision for Stock Appreciation Rights (refer note 3.24) 1,519, ,896 Provision for Gratuity 7,610,183 5,291,073 Total 9,130,160 5,858, Kotak Mahindra Financial Services Limited

12 3.7 Tangible assets Fixed Assets Gross Block Accumulated Depreciation Net Block Tangible Assets Balance as at 1 April 2013 Additions Deductions / Adjustments* Balance as at 31 March 2014 Balance as at 1 April 2013 Depreciation charge for the year Deductions / Adjustments* Balance as at 31 March 2014 Balance as at 31 March 2014 Balance as at 31 March 2013 Leasehold Improvement 7,945, ,043 8,769,925 3,582,005 2,210, ,013 6,145,901 2,624,024 4,363,877 Office equipment 246, ,151 24, , ,561 99,672 11, , , ,970 Furniture and Fixtures 4,739, ,494 5,230,520 4,700,050 25, ,253 5,213,084 17,436 38,976 Computers 2,257, , ,663 2,673,168 1,932, , ,707 2,334, , ,656 Total 15,189, ,671 1,572,522 17,093,617 10,333,945 2,539,888 1,050,533 13,924,366 3,169,251 4,855,479 Previous Year 14,189,788 48, ,987 15,189,424 7,591,601 2,238, ,290 10,333,945 4,855,479 * Deductions / adjustments include effect of translation reserve 3.8 Long Term Loans and Advances Unsecured, considered good Deposits 3,952,186 3,691,750 Total 3,952,186 3,691, Trade Receivables Unsecured, considered good Outstanding for a period less than six months from the date they are due for payment 10,987,891 8,553,022 Total 10,987,891 8,553, Cash and bank balances Cash and cash equivalent Balances with banks: On Current accounts 18,268,547 27,650,394 Cash on hand 98,328 76,837 Total 18,366,875 27,727, Short-term Loans and Advances Unsecured, considered good Prepaid expenses 7,614,871 6,912,402 Staff Loan 487, ,472 Total 8,102,190 7,655, Other current assets Unsecured, considered good Receivable from group company 5,062,782 6,460,184 Total 5,062,782 6,460,184 Annual Report

13 3.13 Other Income For the year ended 31st March, 2014 For the year ended 31st March, 2013 Foreign Exchange Gain - 60,515 Total - 60, Employee Cost Salaries, bonus and allowances 104,456,844 76,671,740 Reimbursement of employee stock option expenses 162, ,138 Expenses on stock appreciation rights 3,484,856 3,857,035 Total 108,103,874 80,786, Finance cost Bank Charges 146, ,191 Interest on borrowings 725, ,728 Total 871, , Other expenses Rent, rates & taxes 10,297,993 9,217,932 Advertising, Business Promotion and Entertainment 292, ,235 Professional and legal fees 1,928,262 1,646,924 Communication expenses 3,474,041 3,169,434 Printing and stationery 188, ,422 Recruitment Expenses 765, ,061 Repairs and maintenance - others 689, ,108 Travel expenses 2,457,404 2,365,895 Insurance 8,643 7,781 Electricity expenses 153, ,639 Other Membership Fees 1,882,083 1,937,791 Auditor s remuneration Audit fees 1,056, ,663 Foreign Exchange loss 335,525 Miscellaneous expenses 49,319 51,015 Less: Recovery of Expenses (7,163,330) (10,341,642) Total 16,415,729 11,518, The Company s shareholder is Kotak Securities Limited ( shareholder or parent ) and Kotak Mahindra International Limited ( shareholder ) The ultimate holding Company is Kotak Mahindra Bank Limited, Company incorporated in India. The accounts have been prepared and audited for the purpose of attachment to the accounts of the holding Company to comply with the provisions of the Indian Companies Act, The transactions are in local currency (US Dollars), which have been converted into Indian Currency (Indian Rupees) for reporting and the rate applied is as per para 2.2 of the significant accounting policies. 12 Kotak Mahindra Financial Services Limited

14 3.19 Earnings per equity share Particulars Earnings / (loss) used in the computation of basic and diluted earnings per share (A) (31,125,129) (15,830,276) Weighted average number of equity shares used in computation of basic earnings per share (B) 1,493,384 1,291,534 Nominal value of Equity shares $1 $1 Basic and diluted earnings / (loss) per share () A/B (20.84) (12.26) 3.20 Employee Stock Option Scheme Kotak Mahindra Bank Limited, the Ultimate Holding Company of Kotak Mahindra Financial Services Limited has formulated and adopted the following Employee Stock Option Schemes (ESOS) in accordance with the SEBI (Employee Stock Option Scheme) Guidelines, 1999 issued by the Securities and Exchange Board of India (SEBI). Kotak Mahindra Equity Option Scheme 2007 In accordance with SEBI (Employees Stock Option Scheme and Employee Stock Purchase) Guidelines, 1999 and the guidance note on Accounting for Employee Share-based Payments issued by the Institute of Chartered Accountants of India, the excess, if any, of the market price of share preceding the date of grant of the option under ESOPs over the exercise price of option is amortised on a straightline basis over the vesting period. The Company has reimbursed Kotak Mahindra Bank 162,174 (Previous year 258,138) during the year on account of such cost and the same is forming part of employee cost and included under the head Employee Cost Leases The total annual commitments of the Company under non-cancellable operating leases are as under: Operating leases which expire : Within one year 9,586,100 8,879,940 Between one to five years 19,341, Contingencies and other commitments Capital expenditure contracted for at the reporting date is NIL (Previous Year NIL) which relates to expenditure on leasehold improvements Employee s End of Service Benefits Movements in the provision recognised in the statement of the financial position are as follows: At 1st April 5,291,050 4,194,135 Provided during the year 2,740,656 1,471,412 Paid during the year (955,444) (653,979) Exchange difference 533, ,482 At 31st March 7,610,183 5,291,050 Annual Report

15 3.24 Stock appreciation rights (SARs) During the year, the Management had approved (SARs) to be granted to eligible employees as and when deemed fit. The SARs are to be settled in cash and will vest in the manner as provided in the scheme / grant letters to employees. The contractual life (which is equivalent to the vesting period) of the SARs granted during the year ranges from 0.25 years to 2.75 years Detail of activity under SAR is summarized below: Particulars For the year ended 31st March, 2014 No. of SARs For the year ended 31st March, 2013 Outstanding at the beginning of the year 4,487 3,380 Granted during the year 4,931 7,390 Lapsed during the year Exercised during the year 3,664 5,457 Outstanding at the end of the year 5,754 4,487 Effect of share based payment to employees on the profit and loss account and on its financial position Year ended March 31, Total Employee Compensation Cost pertaining to share-based payment plans 3,647,030 4,115,173 Closing balance of liability for cash-settled options 2,467,906 1,438,068 Had the company recorded the compensation cost computed on the basis of fair valuation method instead of intrinsic value method, employee compensation cost would have been higher by 1,412,089 (Previous year higher by 931,278) and the loss after tax would have been higher (Previous year higher) by the same amount Related Party Transaction Related parties represent associated companies, shareholder, directors and key management personnel of the Company, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Company s management. Particulars Related Parties Kotak Securities Limited Kotak Mahindra (UK) Limited Kotak Mahindra Bank Limited Kotak Mahindra (International) Limited Nature of relationship Holding Company Investment Manager Ultimate Holding Company Fellow Subsidiary Nature of transactions Recovery of Expenses Subscription to Share Capital Investment Manager Income For the year ended 31st March, 2014 Transaction for the year For the year ended 31st March, 2013 Receivable Payable Transaction for the year Receivable 42,267,830 5,062,782 62,577,589 6,460,184 1,333,283 1,035,193 70,164 1,910,346 55,952 Payable ESOP 10,921 58,431 Mutual Fund Commission Income Transfer of assets & deposits Interest on Borrowing 7,652, ,530 8,714, ,015 34,438,032 19,581,840 2,171,400 5,241,657 4,749, Kotak Mahindra Financial Services Limited

16 Particulars For the year ended 31st March, 2014 For the year ended 31st March, 2013 Related Parties Nature of relationship Nature of transactions Transaction for the year Receivable Payable Transaction for the year Receivable Payable Subscription to Share Capital 725, , , ,656 Investment Manager Income 12,157,500 13,740,875 Loan from subordinate debt 17,974,500 16,285, Previous years figures have been regrouped, reclassified wherever necessary to conform to figures of the current year. In terms of our report of even date For V. C. Shah & Co. For and on Behalf of the Board of Directors Chartered Accountants A.N. Shah KVS Manian Somer Massey Partner Director Senior Executive Officer & Director Mumbai Dated: April 23, 2014 Dated: April 21, 2014 Annual Report

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