IndusInd International Holdings Ltd and its subsidiaries CHAIRMAN S MESSAGE Dear Shareholders, I have great pleasure in communicating with you at the AGM of your Company which has grown from strength to strength in the last twenty-three years and is expanding the horizon of its activities incessantly. I have been elected as the Chairman of the Board as my elder brother Mr. S. P. Hinduja, affectionately known as SP, has stepped down from the Board with effect from 29 th June 2017. As you are aware, the Company is the brainchild of SP who with his invaluable wisdom and foresight conceived the idea of IndusInd as a global platform to mobilize contributions of Sindhi and other NRI investors. In his endeavour to concretise this idea, SP was ably supported by leading NRI businessmen, who have shared their experience and knowledge, sparing their valuable time to serve on the Board of the Company. It was a unique and proud moment for the Founders of the Company when the amount of US$ 36 Mn was contributed as capital by NRIs in no time so as to establish IndusInd Bank in a newly liberalized India. Reinforced by the faith reposed by you on the Directors, they steered the Company to success through challenging times and the initial shareholder equity has grown to US$ 2.1 Bn as on 31 st March 2017. The Company has consistently paid dividend over the years. Bonus bonds have been issued periodically in addition to annual dividends. Cumulative cash returns over the years amount to 230% of the original investment. IndusInd Bank promoted by the Company has a network of 1,210 branches, 2,090 ATMs and overseas banking unit in GIFT City, Gujarat with a market capitalization over US$ 15 Bn. At the BW Business World Magna Awards 2017, IndusInd Bank was given the Best Mid-Sized Bank award and Mr. Romesh Sobti, Managing Director & CEO of the Bank was honoured with the Best Banker award. Another proud moment for the Company was when the shareholders reiterated their faith in the Company by over-subscribing to the Rights Issue of US$ 120 Mn allotted in December 2016. The economic and social reforms being implemented by the NDA Government headed by Hon ble Prime Minister Narendra Modi will ensure that India remains the fastest growing economy and attractive destination for foreign investments in the world. In addition to investment in IndusInd Bank, the Company has also invested in two other Indian companies which are growing in value. The Directors are now engaged in the task of making the Company more vibrant through mergers and acquisitions in the financial sector and listing the Company in an international stock exchange as early as possible. 4
Annual Report 2016-17 CHAIRMAN S MESSAGE (continued) At this critical juncture, we will be missing the sage advice and inspiring guidance of SP but his ideals of rectitude and good corporate governance and transparency will be our guiding star. He will be the Emeritus Chairman of the Company. My fellow Directors and I look forward to the support from each of you in the continuation of our journey in making the Company discover its true value and potential through stock market. The Company and IndusInd Bank have stood tall in the most challenging business environments in the past with resilence. Both the institutions have now size, scale, and tenacity to take bold strides towards a bright future. With all best wishes, Ashok P. Hinduja Chairman 5
Annual Report 2016-17 DIRECTORS REPORT The Directors are pleased to present their twenty-third report on the business of IndusInd International Holdings Ltd. (the Company ) along with the consolidated and separate financial statements of the Company and its subsidiaries, IndusInd Ltd, IndusInd Capital Ltd, IndusInd Finance Ltd and IndusInd Ventures Ltd (together the Group ) for the year ended March 31, 2017. PRINCIPAL ACTIVITY The principal activity of the Company and its subsidiaries is that of holding investments. RESULTS AND DIVIDENDS For the year under review, the Company posted a net profit of USD 37,852,877 as against USD 47,123,740 for the year ended 31 March 2016. The profit for the financial year 2016 was higher because of the large capital gains arising out of the sale of major portion of the Company s investments in Hinduja Leyland Finance Ltd (HLFL) and IndusInd Media and Communications Ltd (IMCL) for subscribing to the Preferential Allotment of equity by IndusInd Bank Ltd (IBL) as part of its capital raising program during the year. The Company s stand-alone profit of USD 37,852,877 for the year will come down to USD 3,202,164 at the Group level after netting of profit arising out of sale of a part of IBL shareholding to the subsidiary IndusInd Ltd. The Directors recommend a dividend of 6% for financial year 2016-17 to the shareholders. The last instalment of bonus bond will be paid to the existing ordinary equity shareholders of the Company in September 2017 along with the dividend giving them USD based return of 18.5%. RIGHTS ISSUE In October 2016, the Company offered 6,017,896 New Ordinary Equity Shares by way of Rights to the existing shareholders at the issue price of USD 20 for each New Ordinary Equity Shares which includes face value of USD 1 and premium of USD 19. We are happy to report that the issue was over-subscribed evidencing the faith of the shareholders in the Company. As against the issue amount of USD 120.36 Million, the subscription received was USD 132.215 Million and the excess amount has been refunded to the shareholders. The New Ordinary Equity Shares will be eligible to receive the dividend for 2016-17. The Company also plans to raise second tranche of Rights Issue sometime in 2018 to meet the expansion of its business. VALUE OF COMPANY S INVESTMENTS At 31 st March 2017, the Company s investment in IBL, HLFL, IMCL, IndusInd Information Technology Limited (IITL) and IndusInd Ltd., as summarised in the table below have grown over US$ 2.1 Bn. Sr. Entity Holding Cost (US$) Value as of No. March 31, 2017 1 IBL 14.98%* 119,803,260 1,911,869,752# 2 HLFL 19.59% 91,124,358 130,659,175 3 IMCL 12.14%** 76,775,870 72,407,565 4 IITL 49.99% 248,930 1,647,133 Total 287,952,418 2,116,583,625 * IIHL together with its subsidiary IndusInd Ltd holds 14.98% in IndusInd Bank Ltd. # This includes 94.36% of the value of total shareholder equity of IndusInd Ltd. and the market value of shares held in IBL directly. **IIHL will hold 10.06% post the merger of IMCL with Grant Investrade Ltd. 11
IndusInd International Holdings Ltd and its subsidiaries DIRECTORS REPORT (continued) The Book Value of the share of the Company as of March 31, 2017 is USD 69 per share. Performance of the Investee Companies IBL Net profit of the Bank for 2016-17 was Rs. 28,678.9 Million (USD 442.23 Million) as against Rs. 22,864.5 Mn (USD 345.54 Million) in the previous year, showing a growth of 25%, one of the best in the banking industry. The stake of IIHL and its subsidiary IndusInd Ltd. in the equity of the Bank as promoters is maintained at the level of around 15% permitted by Reserve Bank of India. The market capitalization of the Bank at present is about USD 15 Billion. Value of the stake of promoters is now around USD 2.1 Billion. The Bank was recognized as a Symbol of Excellence in the Banking category, at Economic Times Best BFSI Brands 2016. HLFL The net profit of HLFL for 2016-17 was Rs. 1680 Million (USD 25.89 mn), showing a growth of 14%. The Company, a vehicle finance company, is diversifying into housing finance, loan against property and portfolio buyouts and has a bright future. For 2017-18, it has projected a profit of Rs. 2300 Million (USD 35.44 mn) with a rise of 38% over 2016-17. The value of the investment of IIHL in the Company has risen from USD 91 Million to USD 130 Milllion. HLFL has after 31 March 2017, raised equity via Rights Issue at a price of INR 94 per share, which was subscribed to by the Company. The Board of HLFL approved price per share lower than the fair market value for the benefit of its shareholders. The fair valuation conducted by an independent valuer has as of March 31, 2017 given a price of INR 105 per share to HLFL. The average cost of the Company s holdings is INR 75.89 per share. IMCL The value of IIHL holding in IMCL is about USD 72.41 Million.. IMCL and its associate subsidiary Grant Investrade have agreed through a Scheme of Arrangement pending with National Company Law Tribunal to merge the Head End in the Sky (HITS) business of Grant Investrade with IMCL and this will give a competitive edge to the merged entity in the Media and Entertainment Industry and enhance the valuation of the Company. HITS was launched primarily to cater to the digitization in the Phase III and Phase IV markets. The expansion of IMCL in these markets will ride on the infrastructure provided by HITS thereby reducing the capex requirements. IMCL completed a Rights Issue towards the end of March 2017 to which the Company subscribed, amongst other shareholders. While the fair value per share stands at about INR 340 as of March 31, 2017, the Rights were issued at INR 205. The Board of IMCL approved price per share lower than the fair market value for the benefit of its shareholders. The average cost of the Company s holdings is INR 372 per share. IITL IIHL is holding about 50% of the paid-up share capital of IITL and its networth as on 31 st March 2017 was Rs. 213.8 Million (USD 3.29 mn). It earned a net profit of Rs. 14.2 Million for 2016-17. The inter-corporate deposits at the end of the year were Rs. 214.7 Million (USD 3.31 mn). Various options for IITL are under consideration for effective utilization of its surplus funds. 12
Annual Report 2016-17 DIRECTORS REPORT (continued) THREE NEW SUBSIDIARIES The Company has set up three new subsidiaries with a capital of US$ 10,000 each. The purpose is to attract strategic investors in different lines of business in the future. FUTURE OUTLOOK The Board, since the closure of the first tranche of the Rights Issue, has been evaluating several jurisdictions viz., Singapore, Dubai, Mauritius and such other countries for listing of the Company within the time as stipulated in the Offer Document. The Directors are also considering a merger with and / or acquisition of a company in the banking / financial services sector for listing. This will change the nature of the Company from a mere holding company to an operating company, thus getting a better valuation at the time of listing. The Board now intends to hire a full-time Chief Executive Officer (CEO) and is looking at acquiring an office space in Mauritius. The CEO and his team will devote full time in assessing various mergers and acquisition opportunities and under the guidance of the Board will take the Company for listing. STATEMENT OF DIRECTORS RESPONSIBILITIES IN RESPECT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS The directors are responsible for the preparation of the financial statements for each financial year, which present fairly the financial position, financial performance and cash flows of the Company. In preparing those financial statements, the directors are required to: Select suitable accounting policies and then apply them consistently; Make judgements and estimates that are reasonable and prudent; Select suitable accounting policies and then apply them consistently; and Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors have confirmed that they have complied with the above requirements in preparing the financial statements. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements are prepared in accordance with the International Financial Reporting Standards and in compliance with the requirements of the Mauritius Companies Act. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors have made an assessment of the Company s ability to continue as a going concern and have no reason to believe the business will not be a going concern in the year ahead. SIGNIFICANT DEVELOPMENTS AFTER 31 ST MARCH 2017: 1. The Board appointed ENSafrica Fiduciary Ltd as the new Management Company & Secretary for the Company and its subsidiaries as from the 7 th April 2017 in replacement of HBS Trust Services (Mauritius) Ltd. ENSafrica Fiduciary Ltd through their law firm has an accomplished law practice in Mauritius and the African subcontinent. Given that the Company is looking to list in the near future, ENSafrica would be suited to take over the reins of the Company to pave the way for a smooth listing. 2. The Directors regret to report that the Chairman Mr. Srichand P. Hinduja (SP) resigned from the Board with effect from the 29 th June 2017. By a written circular resolution of the Board recorded the appreciation of the sterling contribution of SP in conceiving the idea of IndusInd and making the Company grow from strength to 13
IndusInd International Holdings Ltd and its subsidiaries DIRECTORS REPORT (continued) strength. The Board decided to send a letter of appreciation to SP signed by Mr. Lal Tolani, Director on behalf of the Board expressing profound appreciation of his transformative leadership and great vision and assurance that the Company will continue to follow his path of rectitude and highest level of corporate governance and transparency. A copy of the letter dated the 27 th July 2017 sent by Mr. Lal Tolani to SP is attached to this report. 3. The Directors also decided to appoint Mr. Ashok P. Hinduja as Chairman of the Board and continue the Company s association with SP as Emeritus Chairman. AUDITORS KPMG has been the Auditors of the Company since inception. As periodic change in the auditors will be in line with the principles of good corporate governance, the Directors recommend to the shareholders that the audit work for 2017-18 be given to Deloitte Mauritius. By order of the Board Sd/- Director August 4, 2017 14