Management Discussion and Analysis Under LODR: What Schedule V Requires and How to Draft One Worth Reading

Every listed company in India writes a Management Discussion and Analysis, and most of them write it the same way: open last year's file, update the numbers, add a paragraph on the macro environment, send it to the printer. The result is the section of the annual report that readers skip and regulators rarely question, which is a pity, because it's the only place where management is required to explain performance in its own voice. This is what the rules actually ask for, where the traps are, and how to draft one that earns its pages.

Where the requirement comes from

The Companies Act, 2013 doesn't require an MD&A. It requires a Board's report under section 134, which is a compliance document with a prescribed list of contents. The MD&A is a SEBI creation. Regulation 34(2)(e) of the LODR Regulations says the annual report shall contain a "management discussion and analysis report - either as a part of directors report or addition thereto", and Regulation 34(3) requires the annual report to carry the disclosures in Schedule V. Part B of Schedule V is the MD&A.

Two consequences follow. The MD&A can sit inside the Board's report or stand alone, and both are common: ITC titles one document "Report of the Board of Directors and Management Discussion and Analysis", while Reliance, TCS and most large companies run a separate MD&A. And the obligation is on listed entities only. Unlisted companies, including large unlisted subsidiaries, have no MD&A requirement, though those preparing for a listing usually start one early.

The ten items in Schedule V Part B

Paragraph 1 of Part B opens with the only qualifier in the whole requirement: the section "shall include discussion on the following matters within the limits set by the listed entity's competitive position". Then the list.

(a) Industry structure and developments. What the industry looks like, who the players are, what changed this year. The trap is generic macro commentary: GDP growth, monsoon, interest rates, copied from a broker note. The test is whether a reader could tell which company wrote it.

(b) Opportunities and threats. Usually two bullet lists, usually written so as to be unfalsifiable. A threat that isn't specific enough to have a mitigation elsewhere in the report isn't a threat, it's furniture.

(c) Segment-wise or product-wise performance. This should reconcile to the segment note in the financial statements (Ind AS 108) and use the same segment names. The MD&A is where the numbers get a story: which segment drove growth, which margin compressed and why. Reliance's MD&A does this well, taking each segment in turn with net debt, capex and standalone numbers given their own paragraphs (our review).

(d) Outlook. The item most often reduced to a sentence of optimism. It needs to be forward-looking and specific enough to be checked against next year's MD&A, which is exactly why it usually isn't. A cautionary statement at the end of the section covers the legal exposure; it doesn't excuse having nothing to say.

(e) Risks and concerns. Since the LODR requires a risk management committee for the top 1,000 and the Board's report must describe the risk management policy, this item tends to be cross-referenced. The MD&A version should be shorter and sharper than the policy: the three or four things that could actually move the numbers this year.

(f) Internal control systems and their adequacy. A paragraph stating that controls are adequate and commensurate with the size of the business, tested by internal audit and reviewed by the audit committee. It's boilerplate everywhere, and it should be, since the substantive statement is the auditor's report on internal financial controls under section 143(3)(i). Keep it to a paragraph.

(g) Discussion on financial performance with respect to operational performance. The heart of the section. Revenue, margins, profit, cash, debt, capex: what moved, by how much, and the operational cause. Bharti Airtel's MD&A financial summary is a model of completeness, giving revenue, EBITDAaL, profit before exceptional items and tax, profit before tax and profit after tax each with the prior year and the change (our review). The trap is the opposite: a highlights page that leads with an adjusted metric while the statutory profit fell, with the MD&A left to carry the reconciliation quietly. L&T's FY 2025-26 report leads with recurring PAT up 26% while overall PAT fell 42% after an exceptional item; the MD&A gives both, adjacent, which is right, but the corporate overview doesn't (our review).

(h) Material developments in human resources and industrial relations, including number of people employed. Headcount is a hard number and must be stated. Attrition, hiring, wage settlements, any industrial action. Companies in the top 1,000 will have most of this in the BRSR; the MD&A version should be a summary with a cross-reference, not a second copy.

(i) Key financial ratios. Inserted by the 2018 amendment with effect from 1 April 2019, and worth quoting in full:

"details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor, including: (i) Debtors Turnover (ii) Inventory Turnover (iii) Interest Coverage Ratio (iv) Current Ratio (v) Debt Equity Ratio (vi) Operating Profit Margin (%) (vii) Net Profit Margin (%) or sector-specific equivalent ratios, as applicable."

(j) Return on net worth. Same amendment: "details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof." Note the absence of a threshold. Any change, explained.

Paragraph 2 of Part B adds a disclosure of accounting treatment: where the financial statements follow a treatment different from an accounting standard, the fact and management's reasons must be disclosed. In practice this is a one-line "none" for almost every company, and it belongs in the notes rather than the MD&A, but the schedule puts it here.

Key number: 25% — the threshold that triggers a "detailed explanation" for each of the seven key ratios. There is no threshold for return on net worth; any change must be explained.

The two numeric items, and the Schedule III overlap

The ratio rule is where compliance reviews find the most gaps, for three reasons.

The wording asks for explanations only where a ratio moved 25% or more, so a company could in principle print nothing in a stable year. Almost nobody does that, because a table with seven ratios and two years is the cheapest way to show that nothing crossed the line, and because analysts expect it. The gap is the second half of the sentence: "along with detailed explanations therefor". The common finding is a table where the interest coverage ratio has fallen from 8.1 to 4.9 and the explanation column says "due to higher borrowings". A detailed explanation says why borrowings rose, what they funded, and whether the ratio is expected to recover.

The second reason is the phrase "or sector-specific equivalent ratios, as applicable". Banks and NBFCs don't have inventory turnover; they substitute net interest margin, capital adequacy, gross and net NPA, return on assets. That's permitted, but the substitution should be stated, and the same set should be used every year.

The third is Schedule III. Since financial years beginning 1 April 2021 (MCA notification G.S.R. 207(E) of 24 March 2021), Division II of Schedule III to the Companies Act (for Ind AS companies) requires eleven ratios in the notes to the financial statements (current ratio, debt-equity, debt service coverage, return on equity, inventory turnover, trade receivables turnover, trade payables turnover, net capital turnover, net profit ratio, return on capital employed, return on investment), each with numerator, denominator and an explanation for any change above 25%. Seven of the MD&A ratios overlap with that list under slightly different names. The notes are audited; the MD&A isn't. If the current ratio in the notes says 1.32 and the MD&A says 1.29, because one used gross and the other net of something, a reader who checks will stop trusting both. The MD&A ratios should be lifted from the audited note, with the same definitions, and the MD&A should say so.

Return on net worth deserves its own line. Companies compute it on closing net worth, on average net worth, on profit after tax, on profit attributable to owners, with and without other comprehensive income. Schedule III's "return on equity" note uses a defined basis; the MD&A should use the same one, state it, and explain the movement in a sentence that names the cause (margin, leverage, a one-off, a capital raise) rather than restating the arithmetic.

"Within the limits set by the competitive position"

This is the one carve-out, and it's narrower than it's often read. It allows a company to withhold detail that would hand competitors an advantage: pricing plans, customer-level data, unannounced capacity. It does not allow a company to skip an item. An MD&A with no outlook section, or with segment performance that stops at revenue, isn't protected by competitive position; it's just incomplete. The phrase is best read as permission to be brief on specifics, not permission to be silent.

Where the MD&A goes, and how long it should be

Nothing in the regulation prescribes placement or length, and Indian practice has diverged widely. The FY 2025-26 reports we reviewed show the range. ITC folds the MD&A into a 90-page Board's report set in two-column Companies Act prose (review). L&T runs a 146-page MD&A before the integrated report begins, so the reader who wants strategy passes through every business vertical first (review). Reliance, TCS and HDFC Bank put a compact MD&A in the statutory section after an integrated front section that carries the strategy. ICICI Bank puts the ten-year key financial indicators next to it, which is where they belong.

The sensible pattern for a company with an integrated report is to let the front section carry strategy, business model, capitals and outlook at the level of the whole company, and let the MD&A carry the segment analysis, the financial-versus-operational discussion and the ratio explanations, each cross-referencing the other by page. A company without an integrated section has the MD&A as its only narrative, and should give it the space and the design attention the front section would otherwise get.

On length, a working rule from the reports that get read: the financial summary in one table, the segments in a page or two each, the ratios in one table with a real explanation column, and the rest in a few paragraphs apiece. Thirty pages is generous for a diversified group; ten is plenty for a single-segment company. Beyond that the MD&A is being used to store material that belongs in the BRSR, the risk policy or the investor presentation.

In practice: draft the MD&A after the financial statements are near-final and the segment note and ratio note are agreed. An MD&A written before the numbers settle gets rewritten, and the rewritten version is where inconsistencies with the notes creep in.

A drafting order that works

Companies that produce a good MD&A tend to write it in roughly this sequence, which is not the order the items appear in Schedule V.

1. Numbers first. Lift the segment note, the ratio note and the consolidated P&L summary from the near-final accounts. Build the financial summary table and the ratio table with the audited definitions. Identify every ratio that moved 25% or more and the return on net worth movement.
2. Explanations second. For each flagged ratio and for RONW, write the detailed explanation with the finance controller in the room: cause, quantum, expected persistence.
3. Segment story third. For each segment, one page: what the numbers show, why, what management did, what it expects. This is item (c) and most of item (g).
4. Industry and outlook fourth. Now that the company's own story is written, the industry section can be specific to it, and the outlook can follow from what the segments said. Items (a), (b), (d).
5. Risks, controls, people fifth. Short, cross-referenced to the risk policy, the auditor's ICFR report and the BRSR. Items (e), (f), (h).
6. Cautionary statement and accounting treatment last. Boilerplate, but check that the cautionary statement covers the specific forward-looking claims the outlook actually makes.
7. Reconcile. Every number in the MD&A against the accounts; every segment name against the segment note; every ratio against the Schedule III note. Then read it once as a shareholder who owns 200 shares and has fifteen minutes.

The order matters because it produces an MD&A whose narrative is built from the numbers rather than decorated with them. It also means the most-questioned items, the ratio explanations, are written by the people who understand the movement, early, rather than filled in by the secretarial team the night before the Board meeting.

What the reader is checking

A last point on audience. The MD&A's readers are analysts checking the segment numbers against their models, proxy advisers checking the ratio explanations against the governance narrative, lenders reading interest coverage and debt-equity, and increasingly rating agencies and ESG data providers scraping headcount and risk disclosures. None of them read it front to back. Each goes to one table or one paragraph. The MD&A that serves them is the one where each required item is findable under its own heading, the numbers agree with the accounts, and the explanations say something a competitor's MD&A could not.

That is also, as it happens, what Schedule V asks for.