MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY OVERVIEW Construction is a critical sector for Economic Co-operation and Development (OECD) because it builds the blueprint on which almost every other industry depends. Unfortunately, the construction industry has also suffered from cartel activity, as shown by a spate of well- published recent matters from around the world. Further the Construction sector is expected to witness a turnaround from the turbulent past following the initiatives taken by the government to boost the infrastructure and the announcements made in the Budget. It is being forecasted that the Construction sector will grow at 7-8 percent each year over the next decade. With the new government, the country is expected to see increased economic growth and the removal of barriers for foreign investment that will "spur demand for construction" over the coming 12 to 18 months. Make in India' campaign is one of the major national programs which has been designed to facilitate investment and establish India as a global manufacturing hub. The campaign will push for necessary policy reforms which will make it easier for prospective investors, both domestic and international, to explore India as a br-business destination. STRATEGY The Company will pursue its growth by expanding its activities in constructing projects for clients in the residential, industrial, commercial, and institutional market sector. The Company will continue to utilize a range of contract formats. The Company's long-standing record of providing a quality product to its clients on time and standing behind that product after completion of construction has provided the opportunity for the Company to work with many clients on a repeat basis. The Company will also continue to emphasize operational excellence as a means for generating new opportunities, and thereby creating value. The Company is also planning to work with brcast technology and steel structures. This technology delivers high efficiency and controls wastage because dozens of labors or skilled resources are not required to erect the structure along with the added benefit of a short turnaround time. OPPORTUNITIES AND THREATS OPPORTUNITIES Like any other sector the Indian construction sectors is expecting some reforms from the new government. The announcement made by the government to create new smart cities and bring housing for all will act as catalyst for further development and growth. FDI regulations in India were relaxed in late 2014, making it easier for international companies to invest in the nation's construction industry. Now foreign firms can contribute to any projects with a minimum built area of 20,000 sq m, whereas before that threshold was 50,000 sq m. Similarly, the minimum capital investment by foreign firms has been halved from $10 million to $5 million. Further, Initiative taken by the Government in the Renewable energy sector will offer more opportunities to develop our skills and capacity in new markets. RBI has reduced the base rate and further announcements are expected for reduction which again will attract the residential buyer, in turn increasing construction activities. THREATS 1. inadequacy of regulatory institutions for land reforms; land clearance issues, insufficient compensation, unclear regulations and erratic and changeable decisions, stamp duties, conveyancing and standard specification for the construction; collectively all of them have caused delays in the concerted development and growth of the Construction Industry. 2. Lack of adequate skilled and quality manpower along with its migrant nature. 3. Liquidity, financing and demand concerns associated with the Real Estate Industry. 4. The Company is dependent on various sub-contractors and/or specialist agencies to construct and develop projects. 5. Absence of Industry status. 6. The sector is investment-led and therefore susceptible to economic downturns. 7. Rising manpower and material cost. 8. Global Economic conditions. In addition to this, the high operation costs and management costs incurred in this sector have also hindered the growth of the sector. The cost of purchasing construction materials and machinery is quite high and as such the profit margins have been greatly reduced. OUTLOOK There is a sign of recovery in the overall market sentiments and this positive trend is expected to continue over the next couple of years. Big demand for hotels and office buildings are the primary driver of growth in the commercial/industrial sector and the most significant driver that will fuel greater expansion in the marketplace is the revival of the institutional sector, especially with growing demand for new healthcare and education facilities, which alone traditionally account for a third of spending on new building construction. The Company is continue to strive towards securing high value contracts in terms of profitability, so as to increase the focus and improve on operating margins and is consciously making efforts to win new projects with in-built clauses for price escalation to protect the margins and mitigate the impact of inflations and such other rates. Your Company, with its healthy order book, expertise, execution capabilities and commitment to adopt quality, safety, and environmental policies, has the capability to be a more prominent player in the future. RISK AND CONCERNS Any organization needs to ensure that it has a proper risk identification and management process. This process will generally involve the following steps: • Identifying, ranking and sourcing risks inherent in the organization's strategy (including its overall goals and appetite for risk); • Selecting the appropriate risk management approaches and transferring or avoiding those risks that the business is not willing to manage; Implementing controls to manage the remaining risks; • Monitoring the effectiveness of risk management approaches and controls; • Learning from experience, industry best practices and making improvements. Since the Company's site locations are sbrad PAN India, the Company is following site-wise approach to risk management, laying emphasis on identifying and managing key operational/ strategic risks. There is a constant endeavor to assimilate/disseminate the cross-worksite learning, so as to avoid repeat of troubleshooting requirements from one site to other site, through an integrated risk mitigating Committee meetings. The risks associated with the business of the Company are reviewed periodically by the top management to take suitable measures for mitigating risks relating to Operations, Regulatory Affairs, Finance, Information Technology and Human Resources. Necessary resources have been deployed in terms of technology, professional and processes to monitor, evaluate and manage the principal risks including credit, liquidity, operational, legal and reputational risks. Some of the risks that are potentially significant in nature and require careful monitoring are listed hereunder: 1. Our profitability and cost effectiveness may be affected due to change in the price of raw materials and other inputs. 2. Any downtrend in Government Spending could impact company's performance. 3. Longer delay than expected in the credit expansion by the banks. 4. Fluctuation in Interest rate could impact financial performance of the Company. INTERNAL CONTROL SYSTEMS AND ADEQUACY The Company has a proper and adequate system of internal control to ensure the timely and accurate recording of financial transactions and adhere to applicable accounting standards including safeguarding and protecting its assets against any loss from unauthorized use or disposition. All transaction are properly documented, authorized and reported correctly. The systems are reviewed continuously and its improvement and effectiveness is enhanced based on the reports from various fields. Internal Audit & Internal control systems are being reviewed, modified & strengthened to meet changing requirements. FINANCIAL PERFORMANCE (CONSOLIDATED) Income from Operations : During the year under consideration, the Company has recorded consolidated turnover of Rs. 834.33 Crores, decrease by 38.15% as compared to brvious year. Losses after taxes were Rs. 57.85 Crores as against Losses of Rs. 84.96 Crores in 2013-14. Fixed Assets: The Consolidated Gross Block of the Company's fixed assets as on 31st March 2015 was Rs. 401.42 Crores. The Net Block as on 31st March 2015 was Rs. 219.29 Crores. Other Income : Other Income for the year was Rs. 31.06 Crores. Other Income comprises of Interest, Dividend Income, and other miscellaneous income. Expenditures Cost of Material Consumed: Expenditure towards Cost of Material Consumed was Rs. 410.67 Crores. This rebrsents cost of various raw materials consumed during the year. Employee's Benefit Expenses : The Employee's Benefit Expenses decreased fromRs. 242.74 Crores to Rs. 171.80 Crores. Sub Contract Work Expenses : Expenses towards sub contract works decreased from 239.69 Crores to Rs. 157.08 Crores Finance Cost: During the Financial year 2014-2015, the Finance Cost decreased from Rs. 97.30 Crores to Rs. 80.55 Crores, due to interest relief given under Corporate Debt Restructuring Scheme to B.L. Kashyap and Sons Limited Debrciation: During Financial Year 2014-2015, debrciation increased from Rs. 22.83 Crores to 46.85 Crores, due to change in lifecycle of assets in terms of Schedule II of Companies Act, 2013. Provision for Taxation: The Provision for taxes was (Rs. 19.87 Crores) mainly due to creation of deferred tax asset. HUMAN RESOURCES The significant role of human capital, particularly in the current competitive scenario cannot be understated. We have created a favorable work environment and the Company has managed to keep attrition rate well under control by imbibing a sense of ownership and pride. The Company will continue its efforts to attract and retain a highly skilled professional work force to increase its capacity to deliver increasing revenues and earnings in the future. The Company prides itself in providing a working environment for its employees based on the principles of honesty, integrity, excellence and professionalism. Strong HR initiatives are also geared to nurture talent and to unlock the power of the intellectual capital. CORPORATE DEBT RESTRUCTURING The Company had applied for restructuring of its debts under Corporate Debt Restructuring (CDR) mechanism, through SBI with 1st April, 2014 as the cut-off date. The Company has received the approval of CDR-EG vide letter of approval dated 31st December, 2014. The scheme inter-alia includes restructuring of re-payment schedule, reduction / adjustment in interest rates, pooling of securities, pledge of shares by promoters and personal guarantees of Promoter. The Company has executed the Master Restructuring Agreement (MRA) on 31.12.2014 with the CDR Lende Rs. The Company has operationalised the Trust and Retention Account with State Bank of India, the Monitoring Institution on 03.01.2015. The members of the Company have approved implementation of CDR package through a postal ballot and the result of the said postal ballot was declared on 13th March, 2015. In terms of the CDR package, the Company has mortgaged / hypothecated its assets in favour of SBICAP Trustee Company Limited acting as Trustee for the CDR lende Rs. The Promoters have pledged their unencumbered shareholding in the Company in favour of SBICAP Trustee Company Limited acting as Trustee for the CDR lenders and have also furnished their personal guarantees. The Company has met its debt service obligations during the year, in line with the CDR package. THE SALIENT FEATURE OF OUR RESTRUCTURING PROPOSAL IS AS UNDER In terms of LOA and MRA, the company's debts have been restructured with longer repayment schedule stretching up to FY 2019-20 with lower interest rates. Out of total Funded Interest Term Loans ( FITL) of Rs. 54.71 Crores, FITL on : -interest on Term Loan of Rs. (135.80 Crores) will be funded for the period April 2014 to March 2016. -interest on Working Capital Term loans (WCTL - Rs. 62.56 crs) is funded up to June 2015. -interest on working capital borrowings (Amounting to Rs. 324.67 crs) was funded upto September 2014. Further fresh term loan (Corporate loan) of Rs. 27.63 crs has also been sanction as per CDR package. brSENT STATUS ON IMPLEMENTATION OF CDR PACKAGE: • The Company and the CDR lenders have executed Master Restructuring Agreement (MRA). Accordingly, the terms and conditions of MRA shall be binding upon and effective between the borrower and the lender. • Some Non-CDR lenders have also executed the MRA. • Entire Cash flow of the Company is routed through Trust & Retention Account (TRA) maintained with State Bank of India. • Promoters have brought in their contribution amount. • 1st tranche of Corporate loan amounting to Rs. 10.03 Crores has been disbursed and utilized. CAUTIONARY STATEMENT Statements in Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be "forward looking" within the meaning of applicable laws and regulations. Actual results may differ materially from those exbrssed herein or implied. |
