Capital Structure of Indiabulls (NBFC)

Name:      Neha Sethi (2008 – 2010)
Title:         Capital Structure of Indiabulls (NBFC)

Summary
The purpose of this report is to literally act as a window to the projects Undertaken as a part of the Internship with the Organization INDIABULLS FINANCIAL SERVICES, that aims to define the breadth depth and scope of the Capital Structure that actually synthesized the project undertaken.
The objective of the project was to understand the working environment, culture and offerings of the company..
The project proved to be a great learning experience which taught me that it is not only our offerings but also our attitude, flexibility and innovation seconded by right amount of aggression which is important for sales.
I would like to sincerely thank my guide Mr. Ashish Jain, whose constant guidance and support have been instrumental in this endeavor.

Observation and Findings:
Top-rated NBFCs have not only been successful in managing their market share but also in protecting their profitability. A combination of the factors cited earlier had helped these NBFCs earn better returns on their deployment. In fact, almost all the top-rated NBFCs enjoy a return on total assets that is higher than HDFC Bank's, one of the better-run banks. The higher return on assets was despite their operating cost ratio being similar to that of HDFC Bank. For example, operating expenses as a proportion of net margin worked out to 68 per cent for HDFC Bank. On an average, this was not significantly higher than the ratio for most top-rated NBFCs. If return on assets were still superior, then it was because of the higher return on their funds. For top NBFCs, the interest income worked out to 17-21 per cent of their total assets for the year ended FY.
The liquidity in the banking system also helped these finance companies. Spreads over government securities for AAA rated corporate sector debt instrument are now only 50 basis points. In other words, if the cost of funds for banking companies has declined sharply, then top-rated NBFCs have also benefited from such a decline in interest rates. Some of these companies are now raising funds at 7-8 per cent.

Also, these companies have displayed the ability to manage their portfolio without large incidence of non-performing assets. For instance, Ashok Leyland Finance, Cholamandalam Finance and Bajaj Auto Finance boast of net non-performing assets to net advances ratio of less than 1 per cent. It was higher at around 2.4 per cent only in the case of Sundaram Finance. This again has helped them lower the overall cost of operations and, thereby, protect their profitability. Higher profitability and innovative financing options, such as securitisation, have also helped in boosting the capital adequacy ratio of these NBFCs. Sundaram Finance, Ashok Leyland Finance, Bajaj Auto Finance and M&M Financial Services, among others, boast of capital adequacy ratios upwards of 15 per cent. In other words, their balance sheets continue to be strong to accommodate further growth in disbursements.

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The above article is a summary extract from the dissertation projects of the MBA and BBA students of Skyline College. Skyline, situated in Delhi and Gurgaon (NCR) is a premier institute providing management education specialising in MBA and BBA degrees and specialist courses for travel and tourism as well as mass communication.