Industry Structure and Development
Infrastructure sector is a key driver for the Indian economy. The sector is highly
responsible for propelling Indias overall development and enjoys intense focus from
Government for initiating policies that would ensure time-bound creation of world class
infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads
and urban infrastructure development. In 2018, India ranked 44th out of 167 countries in
World Banks Logistics Performance Index (LPI) 2018.
Foreign Direct Investment (FDI) received in Construction Development sector (townships,
housing, builtupinfrastructure and construction development projects) from April 2000 to
March 2019 stood at US$ 25.05 billion, according to the Department of Industrial Policy
and Promotion (DIPP). The logistics sector in India is growing at a CAGR of 10.5 per cent
annually and is expected to reach US$ 215 billion in 2020.
Opportunities and Threats.
The global economy and growth is gathering pace, and the momentum in global trade is
expected to continue in 2018-19 as well. This should buoy Indian exports, and other
manufacturing and infra activities.
The financial sector is going through a phase of stress, which needs appropriate
measures to ensure that the sector continues to play the financial role that it had been
for the India growth story to remain uninhibited.
From a global perspective, however, there are certain concerns. First, under stress
from worsening domestic economic conditions, there are growing protectionist tendencies in
some countries especially the USA, and it remains to be seen as to how the situation
unfolds.
India is also going through a difficult phase related to its banks and non-performing
assets (NPA).
INFRASTRUCTURE AND CONSTRUCTION IN INDIA
Over much of the last decade, infrastructure in the country has been characterized by
massive under-investment. There are several reasons for this. Primarily, this includes the
collapse of Public Private Partnership (PPP), especially in power and telecom projects;
stressed balance sheet of private companies; and issues related to land and forest
clearances. The need is to fill the infrastructure investment gap by bringing back
investor confidence in the sector and promoting financing from private investment,
institutions dedicated for infrastructure financing like National Infrastructure
Investment Bank (NIIB) and also global institutions like Asian Infrastructure Investment
Bank (AIIB), New Development Bank (erstwhile BRICS Bank), which focus more on sustainable
development and infrastructure projects. With the entire infrastructure development
ecosystem under stress in India since 2012, there has been a considerable slowdown in
construction activities. The growth momentum achieved between 2007-08 and 2011-12 has
completely subsided.
PRATIBHA INDUSTRIES LTD: STRATEGIC DEVELOPMENTS
As one of the leading players in the Indian construction industry, the company has been
exposed to the vagaries of the external business environment faced by the industry in
India. The Company has continuously recrafted its strategic positioning and calibrated its
business objectives in line with the evolving business environment.
Since many years, the company was under acute financial distress. Due to which the
Company was unable to repay the bank loans and was not able to grab new projects and all
that has resulted into initiation of the Insolvency Resolution Process of the Company
w.e.f. 01.02.2019.
RISKS AND CONCERNS continue as an HINDRANCE stopping the GROWTH
Following are the major risks and concerns associated with infrastructure sector:
- High debt and high cost of finance
- High Capex with no sustained business cycle
- Delay in realization of receivables
- Equal Level Playing Field
- Increasing cost of raw materials
- Delay and Cost Overruns
- Complexities of structures
- Regulatory compliance
- Delay in hand over possession of the site
- Shortage of skilled labor
PERFORMANCE REVIEW
The Financial Year 2018-19 (‘FY2019 or ‘year under review) was a
challenging year for the Company. There was a sharp decline in the turnover and net profit
of the Company. Further due to fund crises, the Company was not able bid for the new
projects and resultantly there was no new revenue generation during the year under review.
All the above factors have resulted in Corporate Insolvency Resolution Process of the
Company.
The business developments in the subsidiaries are as below:
Prime Infrapark Pvt. Ltd
Prime Infrapark, a wholly owned subsidiary has entered into a concession Agreement with
DMRC for construction of a Multilevel Car Park cum Commercial Complex named Konnectus. The
asset is fully developed. This property is strategically located above the first station
of the Airport Express Line of DMRC and is opposite Ajmeri Gate Railway Station and in
close proximity of Connaught Place. The duration of the Concession Agreement is till March
2040. Due to sluggish market and even after resorting to aggressive selling directly and
via brokers, the company could lease out only around 65% of the leasable area. Due to the
short fall, the company has negative cash flow leading to erosion of net worth of the
company.
Due to above condition there was default in servicing the annuity fees as per
concession agreement promptly, DMRC has encashed performance bank guarantees, and
terminated the contract on 1/09/2017, and the matter is being followed closely with the
client for amicable settlement or initiation of arbitration.
Muktangan Developers Pvt. Ltd
This is a wholly owned subsidiary of the Company which is in the process of developing
a commercial property in the vicinity of Chembur Station in Mumbai. The approximate area
of development will be nearly 468 sq. mtrs and is expected to be completed at the
earliest.
Bhopal Sanchi Highways Pvt. Ltd
This subsidiary was set up to execute the project relating to construction, operation
and maintenance of 2 lane highways with paved shoulders of Bhopal-Sanchi Section of about
54 kms on DBFOT model at an estimated cost of Rs 210.oo crores which was expected to
generated total cash flow of Rs. 335. oo Crores.
However, due to non-availability of work front coupled with other procedural issues for
considerable period and resultant cost overruns & disputes during the course of the
execution of project, the company has opted for termination of the contract with NHAI.
However, NHAI has disputed the termination and referred the matter to Arbitration.
Arbitration procedure has started in January, 2017 and the arbitrator has passed an award
30th November 2018, which is being challenged by the Bhopal Sanchi Highways Pvt. Ltd.
Foreign Subsidiaries
Pratibha Holding (Singapore) Pte Ltd is set-up as a holding company for holding the
stake in the overseas operating companies as per optimum corporate structure. It holds
100% stake in the Pratibha Infra Lanka (Private) Limited. Pratibha Infra Lanka (Private)
Ltd is yet to commence its operation.
RISK MANAGEMENT
The company operates a fully integrated Enterprise Risk Management (ERM) framework in
place for identification, assessment, treatment & reporting of risks. The Companys
risk management processes ensure that the Company accepts risks as per the boundary
conditions based on the risk appetite of the organization.
The Audit Committee of the Board oversees the efficacy of the risk management
processes. Business level risks for each vertical are discussed in detail in the
respective Top Management/ Board meetings. The Risk Management Committee is informed on
the critical risks impacting the Company for their review and suggestions. Mitigation
plans are drawn up and implemented as appropriate within the overall ERM framework of the
Company. The Company is predominantly in project business and has developed robust project
risk management processes. The key processes of risk reviews include country clearance in
case of venturing into a new country, pre-bid risk reviews, execution risk reviews and
project close out risk reviews. Pre-bid reviews are carried out based on a bid
authorization matrix as determined by the Risk Management Committees. Execution risk
reviews of the projects are held at regular intervals for tracking the project
performance, movement of risks in the project and effectiveness of mitigation measures.
Close out risk reviews are held to capture key learnings from the projects and what
went right/wrong analysis which helps in factoring the learnings in future bids.
HUMAN RESOURCES DEVELOPMENT
The company in present senario has substantially reduced its Human Resources and is
working on bare minimum essential staff on both fronts, viz. in HO as well as at site
level. The Company is also having a well-defined policy for environmental safety.
Occupational Health, Safety and Environment Management are given the utmost importance in
your Company. The relations between the Company and the employees were stressed due to
delayed payment of salaries throughout the year.
INTERNAL CONTROL AND AUDIT
The Company believes that a strong internal control framework is an important pillar of
Corporate Governance. It has established internal control mechanisms commensurate with the
size and complexity of its business. A strong Internal Control framework is established
through right tone at the top for good corporate governance which serves as a foundation
for excellence and same is embedded in operations through its policies and procedures.
Employees of the Company are guided by the Companys ‘Code of Conduct. As a part of
good governance, the Companys ‘Whistle Blower policy enables the employees to have
direct access to the Chairman of the Audit Committee without interference from other
levels of management. Whistle Blower policy has also been implemented for Vendors &
Channel partners as well to facilitate expression of genuine concerns about unethical
behaviour, improper practice, any misconduct, any violation of legal or such requirements,
actual or suspected fraud by any official of the Company without fear of punishment or
unfair treatment. Senior Management and the Audit Committee of the Board is periodically
apprised on the internal processes of the Company with respect to Internal Controls,
Statutory Compliances and Assurance.
FORWARD LOOKING STATEMENTS
Statements in this report, particularly those which relate to Management Discussion and
Analysis, describing the Companys future plans, projections, estimates and expectations
may constitute "Forward Looking" statements, within the meaning of applicable
laws and regulations. Actual results might differ materially from those either expressed
or implied.
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