MANAGEMENT DISCUSSION AND ANALYSIS REPORTEconomy Overview
India, an emerging economy, after global meltdown experienced two years back, haswitnessed comfortable levels of economic expansion along with countries like China,Russia, Mexico and Brazil. India, being a cost effective and labour intensive economy, hasbenefited immensely from outsourcing of work from developed countries and a strongmanufacturing and export oriented industrial framework. With the economic pace picking up,global commodity prices have staged a comeback from their lows and global trade has alsoseen healthy growth over the last two years. India witnessed early revival of economicgrowth.
Year 2009 started on the gloomy note, however the trend reversed from the first quarterof the year. Financial markets posted strong gains fueled by huge amount of capitalinflows which was set-aside during the economic downturn. In Economic Survey 2009-10tabled by Union Minister of India, a disinvestment target is of Rs. 25,000 crores. Thiswill provide private sector in India with opportunity to venture into areas and projectskept with Government and in turn will reflect in healthy competition leading to handsomeoutcomes.
Industry Overview
On even date, Infrastructure, Realty and Construction sector is second largest sectorin Indian Economy. This sector accounts for a gross annual business volume of Rs.2,300billion and accounts for 5 per cent of India’s GDP.
Historically, the government has played a key role in supplying and regulatinginfrastructure services in India and private sector did not play a major role ininfrastructure development. However, due to the public sector’s limited ability tomeet the massive infrastructure funding requirements, private sector investment ininfrastructure is critical. Therefore, the Indian government is actively encouragingprivate investments in infrastructure. The World Bank opines that India needs to invest anadditional 3-4 per cent of GDP on infrastructure to sustain its current levels of growthin the medium term and to spread the benefits of growth more widely.
Segment Overview
India leads the pack of top real estate investment markets in Asia for 2010 - accordingto a study by Pricewaterhouse Coopers (PwC) and Urban Land Institute, a global non-profiteducation and research institute. The government has introduced many progressive measureslike release in FDI limits, allocation of increased funds, introduction of new schemes, tounlock the potential of the sector and also to meet the increasing demand levels.
Indian Real Estate Overview Residential
The residential segment of real estate industry in India has experienced upwardmovement even in the tough global economic conditions. The main reason for growth isrising number of low and mid-income group in the country’s tier I, II and III cities.These households have potential to make investments in the affordable houses as theirpurchasing power meet the value of average affordable homes. To add on, the mid-incomehouseholds observed the fastest year-on-year growth in the last fiscal year. According tothe report of the Technical Group on Estimation of Housing Shortage, an estimated shortageof 26.53 million houses during the Eleventh Five Year Plan (2007-12) provides a biginvestment opportunity. It has prompted many prominent developers to come up with newinvestment plans.
BSEL is looking out for constructive and decent opportunities to invest in undoubtedlyflourishing residential real estate segment.
Commercial Retail and Entertainment
There was a smart pick up of the economy during 2003-04 to 2007-08 and the averageannual GDP growth rate was recorded at 8.9 per cent. Once the economy attained highmomentum, the Indian retail trade witnessed a robust growth of around 11 per cent duringthis period. But the upsurge witnessed during 2003 to 2007 was contained during last twoyears because of the economic meltdown. The liquidity crunch followed by the globalmeltdown resulted in numerous evictions, foreclosures and prolonged vacancies in thesegment. Both market-based and regulatory solutions have been implemented or are underconsideration, while significant risks remain for the sector over the 2010–2011periods. Of late, signs of economic recovery are observed which is likely to put theretail segment in India again on a reasonably high growth trajectory.
BSEL, while going through this critical situation, took strategic decisions in regardswith the projects with huge investment carrying too long gestation period which may harmliquidity position of the Company. Thus BSEL exited from six joint venture projects inNagpur and one project in Goa. BSEL will be grabbing convincing and sustainableopportunities in the retail, commercial and entertainment segments as it did in itslandmark project BSEL Tech Park at Navi Mumbai.
Hotel, Hospitality and Tourism
As per the Travel and Tourism Competitiveness Report 2009 by the World Economic Forum,India is ranked 11th in the Asia Pacific region and 62nd overall,moving up three places on the list of the world’s attractive destinations. To pushthis phase up, the Government of India has taken numerous initiatives to boost up domesticas well as foreign investments in the even field, which will ultimately, along witheconomic development, add up the social and cultural values to the Nation. Combiningunparalleled growth prospects and unlimited business potential, the hotel and tourismindustry is certainly on the foyer towards being a key player in the Nation’schanging face.
BSEL is putting its footholdings in hotel, hospitality and tourism sector. BSEL ishaving hotel and hospitality project at Gujrat. BSEL Narmada Nihar Resort is an attractivetourist destination located just nine kilometres away from scenic beauty - Saradar Sarovardam. Narmada Nihar resort is privileged with extensive water front and fantastic beauty ofnature which bestows a visitor with utmost relaxation and fulfilled experience of beingwith nature. BSEL Narmada Nihar is consisting of 72 rooms facility with added amenitieslike restaurant, shopping and entertainment. This project is operational in last year andBSEL is expecting it to attain break even by second quarter of the financial year2010-2011.
Apart from Narmada Nihar Resort, BSEL has 18 rooms with budget accommodation facilityat Rewa Bhavan near Narmada Nihar. BSEL has 25 acres of waterfront at Y junction, twentykilometres away from Ahemadabad City.
Dubai - Ajman
Upto year ago, Dubai was a quite attractive destination for real estate andinfrastructure investment. The driving factor for this investment was the boom bust policyof Central Bank of Dubai with a view to make a Dubai the trade and tourism hub of theworld’s biggest oil-exporting region with sprawling malls, skyscrapers and luxuryvillas that would attract celebrities and the super-rich, which ultimately will result inhandsome revenue recognition.
The government of Dubai along with Central Bank designed and implemented variousliberal financial plans and policies. But the maturity mismatches of short term loans andlong gestation period of the projects, allowed rollover risk to emerge. As a result, theeconomy of Dubai witnessed disastrous collapse. The flagship firms of Dubai – DubaiWorld and Nakheel were on the surge of debt crisis which led them to halt a repayment tothe creditors and there, the warning alarm buzzed for the economy of Dubai.
The waves of this crisis spread through an international economy leading to significantchange in attitude of international as well as domestic investor, making him much morecautious and reserved, may be sometimes resistant, while investing in real estate andinfrastructure in Dubai. It led to straight downfall in the demand for investment in realestate and infrastructural projects in Dubai.
BSEL in Dubai
BSEL, as a piece and parcel of real estate developers’ group in Dubai, justcouldn’t escape from grave consequences of the situation. BSEL is having project ofseven residential towers in Ajman. Sudden downfall in bookings compelled BSEL to halt afurther construction to avoid liquidity crunch.
These all are fifty storied - centrally air conditioned towers comprising of around5000 residential apartments, arrangement for commercial shops, adequate car parking place,play parks and all the crucial amenities one will desire to have for a fulfilled life.
One of the remarkable advantages of these towers is its strategic location. The land onwhich these towers are being build is strategically located alongside the main emiratescity road and is well connected with Dubai and Sharjah. All these features let thisproject appeal first off and persuade the potential investors to prefer it to invest in.
As the Government of Dubai and Ajman has initiated the recovery of it’s Economy,BSEL is looking up for new efficacious and persuasive strategies which will help out theCompany to revive the investors’ support. Instead of being only a real estate player,BSEL would also like to grab opportunities into infrastructure - contracting business.
Malaysia
BSEL through its 100% - sub-subsidiary BSEL Waterfront Sdn. Bhd., Malaysia has beenawarded 8.5 acres of land with 9- storey waterfront shopping mall of 400,634 sq feet area.The maximum permissible floor area ratio is ranging from 5-9 in the same area so the landeffectively has potentials for further development of at least 2-3 millions sq feet forresidential/apartments development. The total price of the land along with shopping mallis RM 67 Millions (Rupees 87 Crores). The project is planned to have high rise apartmentswith 3 side waterfront view with just 25 minutes drive from Central Business District ofSingapore. This project will be part of the IRDA project of Malaysia.
Financial Performance
The consolidated performance of BSEL during the year is as follows:
| | (Rs. in Lakhs) |
| Financial Snapshot | March 2010 | March 2009 |
| Income from Operations | 3,123.25 | 11,835.00 |
| Operating Profit (OP) | 492.54 | 4,146.12 |
| OP Margin | 15.77% | 35.03% |
| Profit After Tax | 86.87 | 4,063.51 |
| Net Profit Margin (%) | 2.78% | 34.33% |
| EPS | 0.11 | 4.92 |
| Return on Shareholders’ Fund | 0.17% | 7.21% |
| Dividend | NIL | NIL |
| Return on Capital Employed (%) | 0.17% | 7.06% |
Operational Performance
| | (Rs. In Lakhs) |
| Operational Highlights | Consolidated | Stand alone |
| Income from Operations | 3,123.25 | 141.28 |
| Other Income | 166.72 | 126.50 |
| Total Income | 3,289.97 | 267.78 |
| Less: Total Expenditure | 2,631.95 | 361.48 |
| Profit/(Loss) Before Interest, Tax and other items for the year | 658.02 | (93.70) |
| Less: Interest | 113.88 | 86.76 |
| Less: Depreciation | 51.60 | 10.84 |
| Less: Prior period items (Income) / Expenses | 16.74 | 16.74 |
| Less: Extra-ordinary Items | 379.90 | 296.89 |
| Profit /(Loss) Before Tax (PBT) | 95.90 | (504.93) |
| Provisions for Taxation (Net) | 9.03 | 9.03 |
| Profit/(Loss) After Tax | 86.87 | (513.96) |
Consolidated Financial Analysis for the year 2009 – 2010
Balance Sheet Analysis
Equity Share Capital:
The total paid up Equity Share Capital of the Company is Rs. 82.61 crores, consistingof 82,616,840 shares of Rs. 10/- each. There has been no change in paid up capital of theCompany during this year.
Reserves and Surplus
The reserves and surplus for the year are Rs. 443.04 crores compared to Rs. 480.98crores last year. The reserves have declined by 8% during this year.
Loans
During the year under review, the BSEL – India has managed to pay off 100% of itsdebts and its a debt free Company on even date. The management took this initiative to cutdown cost of Company by narrowing down component of interest.
Fixed Assets
The fixed assets of the Company stood at Rs. 198 lacs for the year 2009 -2010.
Current Liabilities
The Company has maintained its current liabilities at almost same level. It stood atRs. 19.8 crores for the financial year 2009-10.
Investments
During the year under review the Company has strategically disinvested from variousprojects with a view to save the Company to get into the liquidity crunch. BSEL has exitedfrom seven Joint Venture Projects namely, (1) DG Malls Multiplex Pvt. Ltd., (2) GP ConceptHotel & Mall Pvt. Ltd., (3) JP Shopping Mall and Hotel Pvt. Ltd., (4) PP Shoppers Malland Hotel Pvt. Ltd. (5) SB Concept Hotel Malls Pvt. Ltd., (6) SB Shopping Mall and HotelPvt. Ltd. and (7) Goa Tech Parks Pvt. Ltd.
One of step down subsidiaries of BSEL, BSEL Infrastructure Realty Pte. Ltd., has beenclosed down during this financial year. This also has its impact on contraction in thesize of investment. BSEL is looking for constructive and feasible opportunities to investin.
Profit and Loss Analysis
Income from Operations
The total consolidated income from operations in the financial year 2009-10 is Rs.3,123.25 lacs as compared to Rs.11,835 lacs last year. There was a sharp decline inoperational income due to exit from joint venture projects and closure of one subsidiaryin UAE.
Total Income
Total consolidated income of BSEL in this year is Rs. 3,289.97 lacs as against Rs.12,337.41 lacs previous year.
Profit before Interest, Tax and Extra-ordinary Items
Profit before interest, tax and extra-ordinary items is Rs. 590 lacs for the financialyear 2009-10.
SWOT Analysis
Strengths
Untouched Liquidity
The economy of India has turned up into recovery phase. The Economy of Dubai, to whichconsiderable share of operations of BSEL belongs to, just witnessed a disastrous collapsein late 2009. The prominent challenge in this state of affairs is to maintain liquidityposition intact and save a Company from cash crunch at any point of time. BSEL, with itsmeticulous planning and strategic decision making, succeeded in being in a liquidposition.
Zero Debt Company
The Company has paid off all its secured debts in the year under consideration and hasbecome a debt free or zero debt Company. Thus now a BSEL is better armed to grab theopportunities of investments in the realty market and will not at any time be stuck backby obligations and concerns being carried by heavy debts and liabilities.
Professional Team
Human resources continue to be the biggest asset of the Company. Your Company aims atcreating a corporate culture that respects people, develops and trains them to deliverhigh quality performance and rewards talent and performance with growth opportunities. Thestaff strength of the Company comprises of highly qualified and experienced professionalsfrom various faculties. Employee relations continue to be cordial.
Unstinted support of investors
BSEL with its transparency and accountability in its functioning has earned the trustand faith of stakeholders globally and at this hour of crisis has been able to get themuch needed, valuable and unstinted support of the investors.
Weakness
UAE debt crisis was a lesson to all real estate developers. The need of the day is tobe cautious while taking up every further step. This may lead to quite a conservativeapproach while exposing Company to new investment opportunities.
Opportunities
Disinvestment Initiatives by Government
In an Economic Survey 2009-10 tabled by Union Minster, disinvestment target of Rs.25,000 crores has been set up. This will provide constructive opportunities especially toindustries and projects requiring huge capital investment.
Downturn in Overall Price Level
The recent downtrend led to a considerable correction of prices across locations,including some established as well as under developed locations. Due to our intactliquidity and zero debt position, we will be able to acquire land at these locations atattractive prices.
Legal Framework
The global economic meltdown, UAE debt crisis and some other critical issues have theirimpact on legal and regulatory framework. The regulatory authorities have suitably formedor amended their rules and regulations, though sometimes quite stringent, to bring outmore transparency in procedures. This will ensure authentic furtherance of legal andadministrative procedures.
Threats
The pace of recovery of economy from the global meltdown and initiatives to be taken byUAE Government to phase out liquidity crisis in UAE will be determinant for future courseof action of the BSEL, both in India and abroad.
Forward Looking Statement
Statements which are based on and describe about management’s expectations,estimates, projections, objectives, intentions and assumptions are forward lookingstatements. Words such as "expects," "anticipates," "plans,""believes," "scheduled," "estimates" and variations of thesewords and similar expressions are intended to identify forward-looking statements, whichinclude but are not limited to projections of revenues, earnings, segment performance,cash flows. Forward-looking statements are made pursuant to the Companies Act, 1956,securities laws and all other applicable acts, statues, rules and regulations as amendedfrom time to time. These statements are not guarantees of future performance and involvecertain risks and uncertainties, which are difficult to predict. Therefore, actual futureresults and trends may differ materially from what was forecasted in forward-lookingstatements, expressed or implied.
All forward-looking statements speak only as of the date of this report or, in the caseof any document incorporated by reference, the date of that document. All subsequentwritten and oral forward-looking statements attributable to the Company or any personacting on the Company’s behalf are qualified by the cautionary statements in thissection. The Company does not undertake any obligation to update or publicly release anyrevisions to forward-looking statements to reflect events, circumstances or changes inexpectations after the date of this report.
STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT,1956 RELATING TO SUBSIDIARY
| Sr. No. | Name of the Subsidiary | BSEL Infrastructure | BSEL Waterfront Realty FZE Sdn. Bhd. | BSEL Infrastructure Realty Sdn. Bhd. |
| 1 | Reporting Currency | AED | MYR | MYR |
| 2 | Exchange Rate as on 31st March, 2010 | 12.25 | 13.76 | 13.76 |
| 3 | Share Capital | 367,491,000 | 27,527,420 | 1,376,371 |
| 4 | Reserves & Surplus | 1,640,860,777 | (519,993) | (429,152) |
| 5 | Total Assets | 4,519,413,726 | 96,150,883 | 28,826,673 |
| 6 | Total Liabilities (other than 3 and 4) | 2,511,061,948 | 69,143,456 | 27,879,454 |
| 7 | Investments other than in subsidiary | 13,138,648 | NIL | NIL |
| 8 | Name of the Holding Company | BSEL Infrastructure Realty Limited | BSEL Infrastructure Realty Sdn. Bhd. | BSEL Infrastructure Realty FZE |
| 9 | % of Holding | 100% | 100% | 100% |
| 10 | Sale and other income | 302,488,518 | NIL | NIL |
| 11 | Profit/(Loss) before Tax | 60,505,507 | (183,333) | (238,704) |
| 12 | Provision for Tax | NIL | NIL | NIL |
| 13 | Profit/(Loss) after Tax | 60,505,507 | (183,333) | (238,704) |
| 14 | Dividend | NIL | NIL | NIL |
M/s. BSEL Infrastructure Realty Pte Ltd., Singapore is a wholly owned subsidiary ofM/s. BSEL Infrastructure Realty FZE Sharjah, United Arab Emirates. M/s. BSELInfrastructure Realty Pte. Ltd. is liquidated during the year and its name has been struckoff from the directory of registered entities, Singapore Government. Therefore, the abovestatement does not reflect data related to Singapore Company.