Kaushalya Infrastructure Development Corpn Ltd

ECONOMIC OVERVIEW

The Indian economy in the year 2011-12 faced a very challenging environment. The yearwitnessed turmoil as the GDP growth rate came down to 6.5%, the lowest in the last 5years. This was a result of the various macro-economic factors, global economy being atthe brick of a recession, financial turmoil in the Euro zone and slows down in theeconomic decisions by the Government and the 13 consecutive rates hikes announced byReserve Bank of India. The year was characterized by sustained rise in inflation, as aresult of a sharp increase in the prices of commodities. This was further exacerbated bythe supply side constraints and increased borrowing costs. The Reserve Bank of India tooka cautious monetary stance resulting in sacrificing growth as it tried to controlinflation. With demand and affordability getting impacted, the economic growth enginewitnessed signs of a significant slowdown.

Over the near term, unless the Government initiates a series of reforms and boldeconomic measures. The macro economic scenario is expected to remain similar to the pastyear.

INDUSTRY STRUCTURE & DEVELOPMENT

The Economies across the World witnessed numerous events like USA's raising debt andunemployment, Euro zone crisis impacting sovereign debt overall growth. However, adeveloping nation like India on the other hand showed the sign of resilience and emergedas a ray of hope to the rest of the world despite slow down in growth. The year has been achallenging one for the Indian Economy too. The Economy faced challenges like highinflation, tightening monetary policy, weakening industrial growth and investment,depreciating Rupee and high crude oil prices, which led to slowdown of overall growth. Thereal estate sector has been playing an integral role in the Indian economy. The sector haddemonstrated unparalleled growth over the years and accounts for almost 5% of thecountry's GDP. However the current year severe stagnation in this sector as global housingmarket struggled for sustainance.

The construction sector is characterized by mix of both organized and unorganizedentities. More than half of construction activity is generated from infrastructuresectors, followed by industrial, commercial and residential sectors.

OVERALL OUTLOOK

Looking at your Company as a whole the management feels that there are several areasrequiring focus. Investment of time and resources in key areas in the infrastructure tradecan yield sustained long term growth at reasonable rates. The Company's focus is primarilyon incubating and developing such growth initiatives that impact overall strength of theorganization and set it on firm ground for growth in the future.

The real estate sector witnessed a sharp decline in the absorption rate in the FY2011-12. The sentiment of buyers during the year was cautious. New launches moderatedduring the year due to lower demand and regulatory hurdles. In the coming year the sectoris expected to execute projects and foresees increase in sales across the market due toexpected lowering of interest rates, improving affordability resulting in uptick in thissector.

RISKS AND CONCERN

The construction industry everywhere faces problems and challenges. However, indeveloping countries like India, these difficulties and challenges are present along sidea general situation of socio-economic stress, chronic resource shortages and institutionalweaknesses. Compared with many other industries, the construction industry is subject tomore risks due to the unique features of construction activities such as long gestationperiod, delays due to external factors, complicated approval and supervision processes,uncertain environment, extended working capital, design variations, coordination delaysbetween project participants, shortage of unskilled/semi-skilled & skilled labour,land acquisition problem, occurrence of disputes, local political agitation and priceinflation of construction inputs. These risks pertain to contractors, clients, evengovernment bodies, subcontractors, suppliers and external issues. We endeavor to work fromthe feasibility phase onwards to address potential risks in time and also deploy peoplewith construction and management knowledge from the inception to make sound preparationfor carrying out safe, efficient and quality construction activities. To minimize risk,your Company chooses its projects prudently, diversifies in various sectors, expands ingeographies and strategically deploys men, machinery and capital. Your Company is alsoundertaking fast-track short duration projects to avoid the risk associated with longgestation projects. It has put in place risk management policies, which is periodicallyreviewed and revamped by the Audit Committees as well as Board of Directors.

HUMAN RESOURCES DEVELOPMENT AND INDUSTRY RELATIONS

Human Resource in your Company continues to be core strength and it always strives toalign the Company's objectives towards optimum utilization of the manpower, continuoustraining of the employees and increase in employee aspirations by rewarding them for theirtalent and ensuring their developments.

Income

For the financial year ended March 31, 2012, Income from contracts stood at Rs. 105Crores, up 14.27% YOY. Growth rate was higher than previous years due to uptick ininfrastructure spending and execution of projects on hand. Contract bids, however, wereslower than normal to materialise as bidding procedures became more complex, competitiveand lengthy as well as successful bids saw delays in award procedures. Hotel income forthe year was down 6.58% as tourism related activity slowed down to a near halt for aperiod in the area due to political turmoil in the district where the hotel is located.Net Total Income for the year stood at Rs. 104 Crores.

PBT/PAT/EPS

Profit Before Tax stood at Rs. 461.76 Lacs down 6.21% YOY due to higher cost of debtand slower realization cycles as client payments got extended substantially due to overallliquidity issues in the industry. Profit After Tax for the year stood at Rs. 312.03 Lacsup 8.97% YOY as prior year included prior period tax payments. Weighted Average EPS forthe year stood at Rs. 1.59 per share compared to Rs. 1.46 per share in the prior year.

CAUTIONARY STATEMENT

Statements in this management discussion and analysis describing the Company'sobjectives, projections, estimates and expectations may be 'forward looking statements'within the meaning of applicable laws and regulations. Actual results may differsubstantially or materially from those expressed or implied. Important developments thatcould affect the Company's operations include a downtrend in the industry -global ordomestic or both, significant changes in political and economic environment in India,Government regulations, tax regimes applicable statues, litigations, labour relations andinterest costs.

AUDITORS' CERTIFICATE REGARDING COMPLIANCE OF CONDITIONS OF CORPORATE GOVERNANCE

To

The Members of

Kaushalya Infrastructure Development Corporation Limited

We have examined the compliance of conditions of Corporate Governance by KaushalyaInfrastructure Development Corporation Limited (the company) for the year ended 31st March2012, as stipulated in Clause 49 of the Listing Agreement of the said Company with stockexchange.

The compliance of conditions of the Corporate Governance is the responsibility of thecompany's management. Our examination was carried out in accordance with the Guidance Noteon Certification of Corporate Governance (as stipulated in clause 49 of the listingagreement) issued by the Institute of Chartered Accountants of India and was limited toprocedures and implementation thereof, adopted by the company for ensuring the complianceof the conditions of the Corporate Governance. It is neither an audit nor an expression ofopinion on the financial statements of the company.

In our opinion and to the best of our information and according to the explanationsgiven to us, we certify that the company has complied with the conditions of CorporateGovernance as stipulated in the abovementioned listing Agreement.

We state that such compliance is neither an assurance as to the future viability of thecompany nor the efficiency or effectiveness with which the management has conducted theaffairs of the company.