Management Discussion
In additional, the Company has signed Memorandum of Understanding with Government of
Madhya Pradesh for setting up a 2640 MW power plant in the State and another Memorandum of
Understanding with the Government of Jharkhand for a 1320 MW plant. In the Hydropower
space, in keeping with its commitment to renewable energy, the Company has signed
Memorandum of Understanding with Government of Arunachal Pradesh for 167 MW of hydropower
projects. Overall, the Company has an additional 4,127 MW of power projects in pipeline
beyond its 6,600 MW projects under construction.
STRENGTHS
The Company's principal competitive strengths are set forth below:
High Quality Development Projects
The Company is currently developing commercial and residential projects in Tier 1
locations and three SEZs in the state of Maharashtra. The Company's commercial
developments are located in areas that are attractive to corporate and multi-national
clients. The size and location of the Company's projects allows it to respond more
effectively to changes in regulatory environment and market conditions. These projects
will provide a strong basis for its core property-development business and a platform from
which it can further expand its related business, such as project management and
investment advisory services.
Land Reserves
The Company believes that sizeable land reserves are the most important resource for a
property developer. The Company, through acquisitions and government allotments, has
established a sizeable land bank in preferred locations at competitive prices. The Company
has sufficient land to meet its development plans. The size and location of the Company's
land reserves allows it to respond more effectively to changes in market conditions and
demand.
Execution Capabilities
The Company has assembled an experienced team that has strong capabilities in the
various aspects of project execution and strong relationships with corporate, government
and financial institutions, as well as in-depth knowledge of the localities in which the
Company is developing projects. It has the personnel and internal systems to successfully
manage large construction projects that take several years to complete.
Strong Portfolio of Power Generation Projects
The four coal-fired thermal power projects proposed to be developed by the Company in
Amravati (Phase I and Phase II), Nasik in Maharashtra, Bhaiyathan in Chhattisgarh and
Chhatisgarh Power Project are expected to have a combined installed capacity of 6,600 MW.
The Company has also signed MoUs for developing coal-fired thermal power projects for an
additional 3,960 MW with the State Governments of Jharkhand and Madhya Pradesh. The
Company has also signed a MoU with the Government of Arunachal Pradesh for developing four
hydroelectric projects of an aggregate capacity of 167 MW. These hydroelectric projects
are proposed to be run-of-the-river projects.
Strategic Partnership with High-quality Investors
The Company has brought in strategic foreign investors, including, among others, FIM
Limited and Karrick in certain of its real estate projects, whilst, FIM Limited and LNM
India Internet Ventures Limited have invested in the Company's power business. The Company
believes that teaming with high-quality co-investors allows the Company to obtain
financing for its projects at an early stage in their development and diversify the
Company's overall risk.
Strong Brand Recognition
The Company shares a common brand with Indiabulls Financial Services Limited (IBFSL),
from which the Company demerged in 2006. IBFSL is among the largest non-banking financial
services companies in India, and enjoys a strong brand recognition and customer
acceptance. The Company believes that the brand recognition and trust associated with the
Indiabulls name will carry over into the Company's growing real estate and power
businesses.
STRATEGY
The key elements of the Company's strategy include:
Real Estate Business:
Planned Expansion of Geographic Scale and Asset Classes
The Company plans to undertake real estate development projects beyond its operating
area in Mumbai and Delhi across the commercial and residential sectors based on its
experience to date and opportunities that become available in the market. Whilst the
Company will continue to develop its existing projects in Tier 1 locations, the Company is
focused on developing residential and commercial projects in Tier 2 locations primarily
due to limited availability of quality residential and commercial property. The Company
plans to focus on the development of mid to high-end residential projects in Tier 2
locations, as well as opportunities to develop townships on the outskirts of major cities.
Focus on Generating Increasing Cash Realisations from Projects under Development
The Company intends to focus on exploiting its existing land bank to develop its future
projects in order to improve the cash realisations from its projects. Whilst Company seeks
to turn over its land as soon as possible by adding value through its developments and
then selling the properties or holding them for rental income, the Company intends to
concentrate its construction and development activities towards projects that are pre-sold
or pre-leased. The Company intends to continue developing its land reserves, replacing its
developed land as and when required for new developments. The Company believes that in
following this strategy, it will be able to maximize its earnings per share and return on
capital.
Engage in SEZ Development
SEZs provide attractive fiscal incentives for both developers and tenants. The Company
views the development of sector-specific as well as multi-product SEZs as a major growth
area for the Company. It is in varying stages of developing three SEZ projects and has
received the formal approval from the government for 3,000 acres for a multi-product SEZ
in Nashik in Maharashtra; the Company has received an in-principle approval for a 6,000
acres multi-product SEZ in Raigarh and Thane in Maharashtra respectively. The Company has
also received formal approval for development of two IT SEZs Maharashtra and an IT SEZ in
Gurgaon.
Increased Focus on the Affordable Housing Segment
The Company intends to focus on affordable housing, as it believes that the demand for
such properties will continue to increase with the growth in the Indian economy and the
corresponding increase in urbanization. To enable it to provide housing at affordable
prices, the Company will strive to reduce its costs of development in order to keep its
cost structure low, maintain reasonable profit margins and decrease the area of the units
in each project. The Company believes that its operational and execution capabilities will
provide it with a competitive advantage in this segment of the housing market.
Participate in Large Scale Opportunities with Low Carrying Costs
The Company intends to participate in opportunities in the real estate sector which
have low carrying costs. For example, the Company partnering with the US based Shea Homes
has been short-listed as one of the bidders for the Dharavi Redevelopment Project in
Mumbai. The Company was also one of the highest bidders for the CIDCO Integrated
Commercial Complex at the Seawoods Railway Station in Navi Mumbai, Maharashtra.
Power Business:
Capitalize on the growth of the Indian power generation sector
The power sector in India has historically been characterized by power shortages that
have consistently increased over time. According to the Central Electricity Authority, the
total peak shortage was 15,175 MW as of December 31, 2008. As per the IEP Report, the
Expert Committee on Power, in the XI Plan (2007-2012), a capacity addition of 73 GW and 86
GW, assuming an 8.0% and 9.0% GDP growth rate, respectively, would be required by 2012 to
meet the peak demand supply gap. Although recent reports indicate that the GDP growth rate
is likely to be lower, the Company believes that the demand for power is likely to remain
unchanged. The Company will continue to look at further opportunities to set up power
projects in various locations across India.
Realize the opportunities presented by power sector reforms and benefits extended by
the Government of India
In 1991, the Indian power sector began a process of deregulation that is continuing
today. The Electricity Act of 2003 and subsequent reforms have generated significant
opportunities in the power sector. These changes include the following:
• Liberalization and de-licensing in the power generation sector, and doing away
with the requirement of techno-economic clearances for thermal power projects, which
expedites the thermal power project development process;
• Power trading recognized as a distinct activity;
• Distribution licensees can now procure power by developing power projects
through a process of international competitive bidding; projects are no longer awarded on
a cost-plus basis. The Company believes that competitive bidding presents attractive
opportunities for efficient generation of power;
• Power generation companies can now sell power to any distribution licensees, or
where allowed by the state regulatory commissions, directly to consumers. The market has
evolved for merchant sales, which allows for the supply of peak power at premium rates;
• Power generation companies have open access to transmission lines, which
facilitates the direct sale of power to distribution and trading licensees;
• Improved payment security mechanisms, which the Company believes will improve
sector stability and enhance its ability to obtain financing for its projects;
• No distinction between foreign and domestic investor under electricity laws; and
• 100% FDI allowed in the power sector.
The Company's projects are positioned and structured to take advantage of these
benefits and also applicable benefits under the SEZ and Mega Power Project policy of the
Government of India. Future power sector reforms may present additional opportunities for
the Company and it intends to capitalize upon these opportunities as they arise.
Leverage project execution skills
The demand for power in India to support its growing economy has in recent years
exceeded supply. Per capita consumption of power in India, despite significant increases
in recent years, continues to lag behind other developed and emerging economies by a large
margin. India has large thermal coal resources and the coal industry is in the process of
government deregulation that is expected to increase the availability of coal for power
generation among other uses. The Company believes these factors make the commercial power
generation business an attractive growth opportunity in India and that by leveraging its
project execution skills the Company can compete successfully in this business.
Focus on a structured approach to expand and diversify portfolio of power generation
assets
The Company intends to pursue a structured approach to achieve growth by capitalizing
on its strengths and synergies. As part of this approach, the Company believes the
following are key factors in determining the expansion of its generation assets:
• Location: either near a fuel source or near a load center, to be able to
supply power competitively;
• Power deficits and network constraints: take advantage and profit from
regional demand and supply patterns, capacity shortages, transmission constraints
throughout India;
• Fuel sourcing: opportunistically source fuel for the Company's generating
assets from various locations; and
• Diversity: diversify the Company's generating asset and fuel mix
portfolios.
Ensuring fuel security
The Company's strategy has been to establish dedicated fuel lines prior to setting up a
power project. Establishment of a dedicated, cost-efficient and established fuel supply
line for a power project will be fundamental to the success of the Company's power
business. The Company seeks to ensure that it has adequate supplies of cost-efficient fuel
through captive fuel sources or coal linkages to meet fuel requirements for its power
projects. The Company will continue to explore other options and sources for procuring and
strengthening its fuel supplies.
The Company is considering building generation assets based on other forms of energy
sources including non-conventional and renewable energy resources.
Optimize operational efficiency through deployment of super-critical technology
The Company proposes to procure technology which will enable it to achieve operational
efficiency. For example, the Company's current portfolio of power projects under various
stages of development will deploy super-critical technology (except Nashik Power Project),
to reduce the amount of coal consumed to generate power. The efficiency of steam
generation through super-critical technology is higher than that from the conventional
sub-critical technology. Higher steam generation efficiency is expected to lead to lower
coal consumption and hence increase overall efficiency.
Further, the Company expects that its experienced management team will enable it to
achieve high operational efficiencies in its power projects.
Engage in an optimal mix of off-take arrangements with state-owned and industrial
consumers
The Company believes that state-run utility companies will require substantial amounts
of power in order to meet their power demand and to cope adequately with power shortages
in their respective states. The Company intends to utilize its marketing and trading
capacities to secure off-take arrangements with state-run utility companies and industrial
consumers as well as carry out merchant sales of power at market rates. The Company
intends to maintain an appropriate mix of off-take arrangements. The Company believes that
secure off-take arrangements will provide a level of committed revenues whilst short-term
arrangements will enable the Company to realise higher tariff rates from time to time. The
Company entered into a long-term power off-take agreement with TPTCL and CSEB in
relation to the Amravati Phase I Power Project and the Bhaiyathan Power Project
respectively. The Company has also entered into a power off-take MoU with MSEDCL in
relation to the Amravati Phase I Power Project.
Build project management capabilities
The Company has incorporated a subsidiary, EPIL, as an entity that will focus on
developing project management capabilities which will aid the Company in development of
its power projects. Whilst EPIL itself does not have prior experience in development of
power projects, EPIL has been staffed with personnel from the Company who have established
track records in development of power project development. Additionally, the Company also
has access to personnel of the Indiabulls group who have prior experience in execution of
projects. The Company has entered into an arrangement with EPIL for undertaking
procurement of equipment for Amravati Phase I Power Project. For the Bhaiyathan Power
Project, the Company has entered into agreements with EPIL for supply of equipment from
India and abroad. EPIL has contracted with third parties including CNTIC-ZJ Energy
Consortium, China and SEPCO for supply of various equipment in relation to the Amravati
and Bhaiyathan Power Projects. The Company proposes to develop EPIL as a project
management company and will also seek to bid for project management operations in relation
to power projects that may be developed by third parties.
RISKS
In the course of its business the Company is exposed to stiff competition from other
developers in the market. In addition, it is exposed to certain market related risks such
as increase in interest rates and foreign currency rates, customer risks and changes in
the government policies.
HUMAN RESOURCES
Your Company's multi-business context posses unique challenges to the Human Resource
function. The Company's businesses are managed by a team of competent and passionate
leaders, capable of enhancing your Company's standing in the competitive market. The
Company's employees have a defining role in significantly accelerating its growth and
transformation, thereby enhancing its position as one of the largest corporate houses. The
Company has a structured recruitment process, the focus is on recruiting people who have
the right mindset for working at Indiabulls, supported by structured training programmes
and internal growth opportunities.
During the year, even while the economic meltdown impacted the financial health of the
organizations across the globe, the Company's focus has been on unlocking the people
potential and further developing their functional, operational and behavioral
competencies. The Company has also launched Employee Stock Option Scheme for its employees
with the basic objective of ensuring the employee participation in the growth and progress
of the Company. The belief "great people create great organization" has been at
the core of the Company's approach to its people.
INTERNAL CONTROLS AND THEIR ADEQUACY
The Company has a proper and adequate system of internal controls commensurate with the
size of the Company and the nature of its business to ensure that all the assets are
safeguarded and protected against loss from unauthorized use or disposition and that
transactions are authorised, recorded and reported correctly and adequately.
The Company's internal controls are supplemented by internal audits, review by
management and documented policies, guidelines and procedures. The system has been
designed to ensure that financial and other records are reliable for preparing financial
information and for maintaining accountability of assets. All financial and audit control
systems are also reviewed by the Audit Committee of the Board of Directors of the Company.
Cautionary Statement
Statements in this report on Management's Discussions and Analysis describing the
Company's objectives, estimates and expectations may be forward looking statements based
on certain assumptions and expectations of future events. Actual results might differ
substantially or materially from those expressed or implied.
The Company assumes no responsibility nor is under any obligation to publicly amend,
modify or revise any forward looking statements on the basis of any subsequent
developments, information or events developments.