1. Introduction:
IL&FS Engineering and Construction Company Ltd (IECCL) has more
than three decades of experience in the engineering and construction business with
capabilities in providing integrated Engineering, Procurement, and Construction (EPC)
services. With engineering experience in several infrastructure segments and trained and
qualified manpower, IECCL has been primarily executing infrastructure projects across
India. IECCL has been delivering projects in the sectors of Power, Oil and Gas, Roads,
Railways and Metros, Water and Irrigation, Ports, and Buildings & Structures.
Indian Infrastructure Industry:
India has emerged as the fastest-growing major economy in the world and
is expected to be one of the top three economic powers in the world over the next 10-15
years, backed by its robust democracy and strong partnerships. Indias high growth
imperative in 2023 and beyond will significantly be driven by major strides in key sectors
with infrastructure development being a critical force aiding the progress.
The infrastructure sector which includes power, bridges, dams, roads,
and urban infrastructure development is a key enabler in helping India become a US$ 26
trillion economy. The sector is highly responsible for propelling Indias overall
development and enjoys intense focus from the Government for initiating policies that
would ensure time-bound creation of world-class infrastructure in the country. The
infrastructure sector acts as a catalyst for Indias economic growth as it drives the
growth of the allied sectors like townships, housing, built-up infrastructure and
construction development projects.
Government Initiatives
The Government of India has invested highly in the infrastructure
sector, mainly highways, renewable energy, and urban transport and reasonably in other
sectors to have all round sustainable growth in the economy. Some of the recent government
initiatives and investments in the Infrastructure sector are:
• The government has given a massive push to the infrastructure
sector by allocating Rs. 10 lakh crore (US$ 130.57 billion) to enhance the infrastructure
sector.
• The government allocated Rs. 134,015 crore (US$ 17.24 billion)
to National Highways Authority of India (NHAI).
• The government announced an outlay of Rs. 60,000 crore (US$ 7.72
billion) for the Ministry of Road Transport and Highways.
• The government announced Rs. 76,549 crore (US$ 9.85 billion) to
the Ministry of Housing and Urban Affairs.
• The total revenue expenditure by Railways is projected to be Rs.
234,640 crore (US$ 30.48 billion)
• 100 PM-GatiShakti Cargo Terminals for multimodal logistics
facilities will be developed over next three years.
• Focus was on the PM GatiShakti - National Master Plan for
multimodal connectivity to economic
zones. Everything, from roads to trains, from aviation to agriculture,
as well as many ministries and departments, will be integrated under the PM GatiShakti
National Master Plan.
Road Ahead:
India is currently one of the fastest-growing economies in the world
and is perfectly poised to be the global epicenter for engineering and manufacturing in
the future. The construction sector is the sixth-largest economic sector in India. It is
the second-biggest employer (after agriculture) and the second-largest recipient of FDI
after the services sector. The Government of India is taking several initiatives to push
for infrastructure development like allocating ten lakh crores in union budget 2023-2023,
focusing on Prime Minister Gati Shakti program (a National master plan for multi-modal
connectivity to economic zones), relaxation in FDI norms across certain infrastructure
sectors, and setting up of National Bank for Finance Infrastructure and Development
(NaBFID).
India is increasingly seen as a rising marketplace for large- scale
investments in megaprojects. All these developments are opening up great opportunities and
heavy capital investments in the Indian construction industry. The construction industry
is referred to as the engine of a countrys socio-economic growth on account of activities
related to the promotion of infrastructure investment, job-creations, consumption of
intermediate products, and related services in other industries. Its growth is a key
measure of a countrys progress and prosperity in various sectors.
Roads Sector:
• In 2023-24, NHAI is allocated Rs 1,62,207 crore, all of which is
budgetary support.
• Under Phase-I of Bharatmala Pariyojana, the Ministry has
approved implementation of 34,800 km of national highways in 5 years with an outlay of Rs.
5,35,000 crore (US$ 76.55 billion). Under this scheme, 22 greenfield projects (8,000 kms
length) are being constructed; this is worth Rs. 3.26 lakh crore (US$ 43.94 billion).
• The government also aims to construct 23 new national highways
by 2025.
• The national rail plan aims to increase the share of freight
traffic from the current 27% to 45% by 2030.
Power Sector:
• The announcements made during the Budget 2023-24 are progressive
in nature and will help transform the power sector, bring in efficiency and provide energy
access to all.
• The budget outlay of ^ 12,071 Crores for Reform Linked
Distribution Scheme will help to improve the financial viability of the power sector, lead
to reduction in Aggregate Technical and Commercial Losses (AT&C) through efficiency
measures and smart meters, will modernize and strengthen the power supply infrastructure.
• Further, the budget outlay of Rs 1000 Crores for Power system
development fund will create necessary new transmission systems for de-congesting the
Inter-
State Transmission Systems (ISTS) and Intra-State System as well as
Renovation and Modernization (R&M) of already available transmission systems.
• The Governments announced investment of Rs 20,700 crores for
grid integration of 13 GW renewable energy from Ladakh to strengthen the power grid.
• The announcement of infusing Rs 10 lakh crore in capital
expenditure will create power demand and the capital investment of Rs 35,000 crores in
energy transition will help bring the power reforms envisioned for the sector.
Railways Sector:
• Under the Union Budget 2023, Indian Railways has been allocated
a highest ever capital outlay of INR 2.4 lakh crore ($29 Bn).
• The enhanced outlay will provide funding for projects to
modernise rail infrastructure (including laying of new lines, gauge conversion,
electrification, signaling, etc.). This will improve station infrastructure, increase rail
connectivity and investment in modern rolling stock and technology.
• The government has allocated a total of Rs 19,518 crore to all
metro projects across India in the Union Budget 2023-24
• Focus on freight with an investment of ^75,000 crore under the
National Rail Plan (NRP)
• This will enable improvement of cost competitively and on-time
delivery of bulk transportation of goods and services. Additionally, this will aid in
completion of projects that have been held up due to various reasons.
Oil & Gas Sector:
• India is the 3rd largest energy & oil consumer in the world
and 4th largest importer of liquefied natural gas (LNG).
• India has set a target to raise the share of natural gas in the
energy mix to 15% by 2030 from about 6.7% now.
• A total of 88% of the nations geographical area covering 98% of
the population has been authorized for the development of City Gas Distribution network.
Natural Gas Infrastructure:
• A total of 22,335 km of the natural gas pipeline is operational
and about 12,995 km of the gas pipeline is under construction as of December 2023.
• Target to increase the pipeline coverage by ~54% to 34,500 km by
2024-25 and to connect all the states with a trunk pipeline by 2027.
• As on 31.01.2023, 10.5 million domestic PNG connections and
5,118 CNG stations have been established.
• As per Minimum Work Programme, the authorized CGD entities
authorized have to provide 123.3 million PNG connections and establish 17,700 CNG stations
by 2030.
Real Estate Sector:
• The construction development sector of the Indian economy
comprises three segments including real estate construction, infrastructure, and
industrial construction.
• Real estate sector in India is expected to reach $1 Tn in market
size by 2030 and contribute 13% to the countrys GDP by 2025.
• Residential, commercial, and retail are the three key asset
classes, which have primarily been contributing to the sectors growth.
• 100 % FDI through automatic route is allowed in
construction-development projects.
Ports Sector:
• Ministry of Shipping under the Sagar-Mala scheme is developing
inland waterways network throughout the country under the PPP model to promote shipping
and facilitate trade. As per the latest progress report Standing Committee on Transport,
Tourism and Culture, almost 56 port connectivity projects have been completed and 69 are
under implementation along with the completion of 33 port- led industrialization projects.
(Source: India Union Budget, India Brand Equity Foundation Analysis
Reports, News Reports etc)
2. Performance during the year:
Business Performance:
As in the past, your company is executing various EPC and Item Rate
projects with both Government and Private clients in the sectors of Power, Oil & Gas,
Railways & Metros, Water & Irrigation, Buildings & Structures, and Roads
situated pan India. The various projects being executed by the Company are mostly on the
verge of Completion. Even though reeling under severe stress, your Company has been
successful in completing various projects of national importance.
The Sector-wise Order Book of the Company is as follows:
|
|
(Rs. in Crore) |
| Sector |
On hand as on 31-3-2023 |
On hand as on 31-3-2022 |
| Roads |
347.33 |
342.00 |
| Railways & Metros |
364.01 |
47.00 |
| Buildings |
0.00 |
0.00 |
| Irrigation |
0.00 |
0.00 |
| Power |
10.55 |
28.00 |
| Oil & Gas |
7.46 |
7.00 |
| Total |
729.36 |
424 |
Developments at IL&FS and its adverse impact on IECCL:
The development at the IL&FS Group has had an adverse impact on
IECCL. The immediate and direct impact was stopping payments to financial creditors
pending the successful implementation of an acceptable Resolution Plan. Payments against
liabilities to operational creditors prior to 1st October 2018 are also deferred till the
resolution process is complete. IL&FS Group support to IECCL in the form of Corporate
Guarantees/ Bank Guarantees are also stopped. Because of all these deferment of Payments /
support, subcontractors and suppliers stopped supply of their services / materials which
affected the projects progress and Projects came to stand still for three months.
Evidencing no progress in the Projects and news about IL&FS group defaults, few
clients terminated the Projects.
Your Company is undergoing a Resolution Process under the aegis of
NCLT/NCLAT. There are doubts about the ability of the Company to continue as a "Going
Concern". The future is solely dependent upon the outcome of the Resolution Process.
Discussion on Financial Performance:
The adverse developments at the IL&FS Group have had a significant
direct impact on IECCLs business plans for revenue and profit growth. This has a
significant impact on its present revenue and future order book. In spite of adverse
situations, all out efforts have been made for making the organization a sustainable
basis.
In order to contain the adverse impact, the Company has effected
stringent cost rationalization measures. These measures included manpower rationalization,
skill enhancements for facilitating inter-function transfers, and special efforts for
early realization of long pending claims and receivables.
Overall Financial Performance:
(Rs. in Crore)
| Description |
Amount |
Remark |
| Revenue |
177.10 |
Reduction due to many projects getting completed and no new
order book. |
| EBITDA |
(85.63) |
Same as above |
| PAT |
(124.00) |
Includes exceptional items of Rs.5.12 Cr |
| EPS |
(9.46) |
Same as above |
| Share Capital |
131.12 |
|
| Debt |
2,668.54 |
|
| Net Worth |
(3,102.28) |
|
| Fixed Assets |
|
(Gross Block - Acquisition value of Assets) |
| Inventory |
10.36 |
Major change in inventory due to impairment |
| Debt Equity Ratio |
- |
Due to negative net worth the ratio not calculated |
| Current Ratio |
0.16 |
|
| Return on Equity |
- |
Due to negative PAT the ratio not calculated |
| Interest Coverage Ratio |
|
Interest expenses are not recognized due to the moratorium |
Highlights of the financial year 2022-23
1. Although the Company is experiencing turbulent times, the Company is
making all-out efforts in responding to these challenges.
2. Operating costs have been kept under a tight leash and the cash
flows were managed efficiently, thus resulting in a breakeven before provisions and
extraordinary items and cash flow remaining comfortable throughout the year.
3. The Non-fund liabilities were reduced by Rs.82.49 Crore in Financial
Year 2022-2023
3. Risks and Concerns:
There are adequate opportunities for infrastructure and construction
business in India in the coming years as mentioned under the heading Indian
Infrastructure Industry. IECCL is seeing good opportunities in the sectors of Power, Oil
& Gas, Metros, Roads, and Housing. However, the Company is unable to bid for any new
projects due to negative net worth and other financial constraints such as Bank
Guarantees. The adverse developments at IL&FS Group have significantly impinged
IECCLs business plans for revenue growth. The newly constituted Board has been working on
a resolution plan for IL&FS Group and this would enable IECCL to resume its bidding,
win new projects, and continue its business operations as earlier. The period of business
realignment is expected to take few more months, during which period the Company would
have to deal with a large degree of uncertainties. However, IECCL has the ability to
undergo this metamorphosis.
Risk Management:
IECCL has an integrated Enterprise Risk Management (ERM) framework in
place for identification, assessment, mitigation and reporting of risks. Risk Management
Committee / the Audit Committee/ the Board of Directors oversee the function by
periodically reviewing the Critical Risks of the Business and its mitigation plans.
The critical enterprise level risks of the Company and the mitigation
measures being taken are submitted below:
Liquidity Risk:
The debt burden is not commensurate with the size of its operations and
there has been severe stress in terms of cash flows. Your Company is also in discussion
with Vendors for extending credit period support in the execution of current projects.
Order Book Risk:
IECCL has not garnered any new works for the last three years, except a
subcontracting work from a Contractor to Gujarat Metro Rail in connection with Surat Metro
Rail Works. The Company cannot bid on new projects at present due to negative net worth
and inadequate fund and nonfund support from Banks. Your Company is also in discussion
with other financially sound contracting agencies to form Joint Ventures for bidding for
new works.
Reputation and Brand Risk:
The overburdened debt in IL&FS group, its default in debt
servicinganddiscussionof itscorporate governancepractices in public affect the impact of
IL&FS group companies including IECCL. This negative reputation will affect IECCL in
winning new EPC Projects, in getting new borrowings at lower interest rates, and in
getting project services from vendors with credit facilities. Your Company, with its
proven track record in providing qualitative delivery of EPC Projects and making timely
payments as per the contract terms, will rebuild confidence in clients and vendors
Operational Risks:
In order to mitigate operational risks in Project execution, due care
is exercised in the preparation of design and drawings, selection of sub-contractors,
selection of suppliers, recruitment of technical and non-technical staff, utilization of
resources, insurance coverage etc. The Company has documented and implemented Standard
Operating Procedures for all important operations of the Company, Delegation of Authority,
periodical business monitoring mechanism and risk identification and mitigation mechanism
Political Risk:
Your Company is operating in multiple States with different political
environments and is consequently subject to Political risks. Appropriate and adequate
mitigation strategies are in place to mitigate these risks.
Contractual Risks:
The Company is exposed to several contractual risks with clients,
subcontractors, suppliers, and lenders in its day- to-day operations. In order to mitigate
these risks, the Company has an exclusive Contracts and Claims Department to oversee
contract documentation, major claims and arbitrations.
Subcontractors Risk and Joint Venture Risks:
The Company is associated with several subcontractors and joint
ventures for the execution of their projects. Their non-performance may affect the revenue
and profitability of the Company. The Company has a robust system for the selection of
back-to-back subcontractors and Joint Venture Partners and monitors their performance
regularly.
Material Risk:
Materials lying at completed/foreclosed/terminated projects could not
be utilized as there were no new projects won by the Company. The materials lying at some
projects could not be sold out as projects face hindrances from old creditors who are yet
to be paid the long outstanding pre-Oct 2018 dues. Due to this, these materials are being
deteriorated and are prone to theft/ pilferages. With the approval from Justice D.K. Jain
(Retd.), the company successfully completed the sale of materials at certain projects in
batch-1; and has also now undertaken the sale of the balance of materials as batch-2.
4. Internal Control System and their Adequacy:
The Companys internal financial control framework, established in
accordance with its nature of operations, is commensurate with the size and operations of
the business and is in line with requirements of the Companies Act 2013. M/s. TR Chadha
& Co., LLP, an external independent audit firm carries out the internal audit of the
Company and reports its findings to the Audit Committee on a quarterly basis as per the
Audit Plan approved. Internal Audit provides assurance on functioning and quality of
internal controls along with adequacy and effectiveness through periodic reporting.
Internal Risk & Control function also evaluates organizational risk along with
controls required for mitigating those risks. Apart from the above, the Company has
institutionalized internal controls in the form of Delegation of Authority (DoA) and
standard operating procedures (SOP) with an objective of orderly and efficient conduct of
its business, safeguarding the Companys assets, prevention and detection of frauds,
accuracy and
completeness of accounting records and compliance with applicable
statutory requirements. The Company is having Oracle e-Business Suite as Enterprise
Resource Planning (ERP) System for recording transactions in an integrated way with
complete audit trail.
5. Human Resources & Industrial Relations:
For IECCL Management, the Health and Safety of its employees is of the
most importance. During the pandemic, the Management took decisions in line with Central
and State Government Guidelines and provided the best possible hygienic working
environment to all its employees. Periodically HR Department reviews its policies and
makes changes matching with best practices of the Industry for having a competitive edge.
It circulates renewed policies to all its Employees through email and training.
IECCL continues to maintain harmonious relations with all its employees
across all its Project Sites and Offices in India and as on March 31, 2023, the Company
had 221 Employees on rolls.
Cautionary Statement:
Statements in this Annual Report, describing the Companys outlook,
projections, estimates, expectations, or predictions may be "Forward-Looking
Statements" within the meaning of applicable laws or regulations. Actual results
could differ materially from those expressed or implied. Several other factors could make
a significant difference Companys operations which include economic conditions affecting
demand and supply, Government Regulations, taxation, natural calamities, and so on, over
which the Company does not have any control.
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