Indian Economy:

The year 2016 has clearly been one of the most eventful years for the Indian economy. In the most unpredicted move of 2016, Prime Minister Narendra Modi on November 8 demonetized Rs. 500 and Rs. 1,000 currency notes, which made up 86% of the currency in circulation by value, as part of his Governments fight against black money, The currency crunch that followed the demonetization of high-value notes was widely believed to have impacted consumption, driving down economic growth.

In a unanimous decision on August 4, 2016, the Rajya Sabha approved the crucial 122nd Constitutional amendment to turn the Goods and Services Tax Bill into a law. The Goods and Services Tax (GST), the landmark tax reform to be implemented from 1 July 2017, is expected to create a common Indian market, improve tax compliance and governance, and boost investment and growth. The Economic Survey 2016-17, tabled in the Parliament on January 31, 2017, by Mr Arun Jaitley, Union Minister for Finance, Government of India, forecasts that over the medium run, the implementation of the Goods and Services Tax (GST), follow-up to demonetisation, and enacting other structural reforms should take the economy towards its potential real GDP growth of 8 per cent to 10 per cent.

Indias Gross Domestic Product (GDP) grew at a healthy rate of 7% in the October-December quarter of the fiscal year 2016-17. The pace of growth did, however, slow from the growth of 7.4% logged in the second quarter of 2016-17. The growth was expected to slow down due to the impact of the demonetization drive carried out by the Government.

The Central Statistics Office (CSO) has retained its projection that the economy will grow 7.1% in 2016-17, slowing from 7.9% in the previous financial year, The International Monetary Fund (IMF), in its biannual World Economic Outlook (WEO), increased Indias growth estimate for 2016-17 to 6.8%, from 6.6% estimated in January 2017, while maintaining that economic activity had slowed primarily because of the temporary negative consumption shock induced by cash shortages and payment disruptions from the currency exchange initiative. It retained its GDP growth projection of 7.2% for 2017-18 on the back of a pick-up in consumption demand and higher public investment. According to the estimates, India will continue to be the fastest growing major economy, with China estimated to have grown at 6.7% during 2016.

CONSTRUCTION & INFRASTRUCTURE SECTOR:

Indian construction industry is the second largest employer and contributor to economic activity, after agriculture sector. Construction activities contribute more than 8% of Indias GDP. It is estimated that 50% of the demand for construction activity in India comes from the infrastructure sector and the rest comes from industrial activities, residential and commercial development etc.

Present levels of urban infrastructure are inadequate to meet the demands of the existing urban population, there is need for regeneration of urban areas in existing cities and the creation of new, inclusive smart cities to meet the demands of increasing population and migration from rural to urban areas. It is estimated that USD 650 Billion will be required for urban infrastructure over the next 20 years. Construction sector in India will remain buoyant due to increased demand from real estate and infrastructure projects.

Finance minister Arun Jaitley announced in his Union Budget 2017 that India will invest as much as Rs. 3.96 lakh crore in creating and upgrading infrastructure in the financial year 2017-18. As part of the new integrated infrastructure planning paradigm comprising roads, railways, waterways and civil aviation, the Government has made an allocation of Rs. 2.41 lakh crore for roads, railways and ports in 2017-18.

100 Smart Cities and 500 AMRUT Cities will invite investment of 2 Trillion Rupees in the next five years, The introduction of GST will ease tax-related complexities in the construction sector and bring with it a major spurt in activity and growth. Increased impetus to the creation of affordable housing mission, along with quicker approvals and other supportive policy changes will soon result in an increase in construction activity.

Real Estate Sector:

With 2016 being the year of landmark decisions for the Indian real estate industry, the sector saw concentrated efforts by the Government to bring in transparency as well as boost consumer sentiment in the sector, especially in the residential market. The industry has been facing a series of radical and transformational reforms with passing of Real Estate Regulator

Bill (RERA) and Benami Transactions (Prohibition) Amendment Act, Demonetization and implementation of GST. Policy initiatives undertaken by the Government are expected to bring transparency into the sector and enhance consumer and investor confidence, The larger objective continues to be to boost the supply of rural housing and augmenting affordable housing in urban areas.

Affordable housing

With a clear focus on affordable housing and homebuyers, the Union budget 2017 proposed to assign infrastructure status to affordable housing projects and facilitate higher investments, in line with the Governments aim to provide housing for all by 2022.

Finance minister Arun Jaitley proposed various measures and improvements to make affordable housing more wide-reaching -

• The National Housing Bank will refinance individual housing loans worth Rs. 20,000 crore in 2017-18

• Qualifying criteria for affordable housing revised to 30 sq.m, and 60 sq.m, on carpet from saleable area earlier, in the four main metros and non-metros respectively; bringing more projects under its ambit

• Allocation under the Pradhan Mantri Aawas Yojana-Gramin (PMAY) increased to Rs. 23,000 crore from Rs. 15,000 crore

• Extension of tenure of loans under Credit Linked Subsidy Scheme (CLSS) of PMAY to 20 years from 15 years and introduction of a new CLSS for middle income group with a provision of Rs. 1,000 crore in 2017-18

• Tax break of 1 year post receipt of the completion certificate, for the unsold stock

Investments in Real Estate

The Securities and Exchange Board of India (SEBI) has notified final regulations that will govern Real Estate Investment Trusts (REITs) and infrastructure Investment Trusts (InvITs). this move will enable easier access to funds for cash-strapped developers and create a new investment avenue for institutions and high net worth individuals, and eventually ordinary investors. Indian real estate is expected to witness an investment of USD 7 billion this year on likely revival in the sector, according to property consultant CBRE.

According to a report by JLL India, private equity (PE) inflows into real estate in the year 2016 grew 62% year-on-year, with total inflows at Rs. 38,000 crore. Equity instruments gained traction, growing by 29% year-on-year. Most PE inflows into real estate happened in the second half of 2016. this was despite the struggles of demonetization and US presidential elections. Plough the historic high of 2007 in terms of total PE inflows into real estate is yet to be achieved; 2016 proved to be the second-best year so far. this signals fresh optimism in the sector.

With the easing of regulatory bottlenecks and several positive signs emerging on the horizon, the sector is likely to witness renewed momentum and grow much faster this year.

With a healthy balance sheet and experience of decades to back us, we are well placed to capture the incremental opportunities in the Housing space.

Mumbai Real Estate

Real estate sales momentum has started slowly improving across key markets after initial sharp fall witnessed post the Governments demonetization move, there has been a steady recovery in the sales and launches showing healthy levels in Q4 in FY17.

According to the Real estate advisory firm PropTiger.coms findings, around 51,700 units were sold in Q4 FY17 as compared to 43,500 units during the preceding quarter, The report further highlights that the surge in the volume was primarily driven by Mumbai, Pune and Bengaluru, which together accounted for 57% of total sales across top-nine cities in Q4 FY17. Mumbai contributed nearly 23 % to the total sales during the quarter, followed by Pune at 18% and Bengaluru at 16 %.

Our core sector is the Mumbai/MMR Real estate market. Currently, our Company has ongoing/upcoming projects in Ghatkopar, Mulund, Sion and Dahisar in Mumbai/MMR.

Source: PropTiger DataLabs Mar17 Port Infrastructure:

Over the last two years, the major ports have started showing remarkable performance in terms of capacity and volume growth. The 12 major ports under the Shipping Ministry handled 647.43 million tonnes (MT) of traffic in 2016-17. they registered an annual growth rate of 6.79%, as compared to 4.32% in 2015-16, outperforming private ports for the second consecutive year, which clocked a traffic growth rate of 4% for the last financial year, The major ports also recorded the highest ever capacity addition of 100.37 million tonnes (MT) during 2016-17.

As part of Sagarmala, 415 projects, at an estimated infrastructure investment of more than Rs. 8 lakh crore, have been identified across the areas of port modernization & new port development, port connectivity enhancement, port-linked industrialization and coastal community development over the period 2015 to 2035. these projects will be implemented by relevant Central Ministries, State Governments, Ports and other agencies primarily through the private or PPP mode, The details are as below -

Projects under Sagarmala program

No. of projects Project Cost (Rs. Crore)
Port Modernisation 189 142,828
Connectivity Enhancement 170 230,576
Port-Linked Industrialisation 33 420,881
Coastal Community Development 23 4,216
Total 415 798,500

Port Modernization & Mew Port Development:

Master Plans have been finalized for the 12 major ports. Based on the same, 142 port capacity expansion projects (total cost: Rs. 91,434 crore) have been identified for implementation over the next 20 years. Out of this, 30 projects (total cost: Rs. 11,612 crore) have been proposed for implementation starting FY 2016-17.

Phasing of Projects from Major Port Master Planning

No. of projects Project Cost (Rs. Crore) MTPA
Under Implementation 42 23,263 310
2016-17 30 11,612 138
2017-18 12 2,103 30
2018-19 11 4,703 15
2020-25 26 21,588 151
2026-35 21 28,165 240
Total 142 91,434 884

We have been early entrants in the Port space with our proven execution across multiple projects within India at various locations such as Mumbai, Gujarat, Cochin. In financial year 2016-17, we received a major order for executing port infrastructure work at JNPT Terminal 4; worth approximately Rs. 756 crore. We believe we can benefit from the Infrastructure construction opportunities being generated in the port sector.

Operational Review:

Man Infraconstruction Ltd. (Man Infra) is an integrated EPC (Engineering, Procurement and Construction) company with five decades of experience and execution capabilities in Port, Residential / Commercial and Industrial & Road construction segments, The Company increased its focus as a Real Estate developer since 2013. The current portfolio of the Group includes 4 ongoing and 3 upcoming residential development projects in Mumbai/MMR with an approximate saleable area of 7.5 million sq. ft. The Company has significant experience in construction management and has inherent skills and resources to develop and deliver Real estate projects.

During the year, Man Projects Limited (a subsidiary of Man Infra) received a major order for executing port infrastructure work at JNPT Terminal 4; worth approximately Rs. 756 crore. The work has to be executed in a tight timeframe of 24 months, The total outstanding EPC order book stood at Rs. 590 crore as on March 31, 2017. Out of the total order book, 86% was contributed by Infrastructure segment and balance 14% was contributed by EPC for Residential and Commercial Buildings.

Man Infra continued to focus on expediting its Real Estate Development Projects as well as scout for new opportunities, The Group completed its third Real Estate Project Aaradhya Nalanda in November 2016; before the scheduled delivery timeframe, The construction work on 2 Residential projects, Aaradhya Residency and Aaradhya Signature which was commenced in FY2016 is progressing as per the delivery schedule.

Man Groups project "Atmosphere" having a potential saleable area of 2.3 million sq.ft, approximately is being developed in joint venture with The Wadhwa Group and Chandak Developers, The construction of the project is being executed by Man Infra. Phase 1 of the project is estimated to get completed by October 2018, within the scheduled delivery timeline. It is considered as one of the fastest developing projects in Mulund.

In April 2017, MICL Realty LLP (where Man Infra holds 46.0% stake) pre-launched the first phase ofa sizeable MHADA Redevelopment project in Ghatkopar East, Mumbai, The project, Aaradhya Nine received an overwhelming response with more than 50% inventory being booked at the pre-launch, this project has a potential of developing approximately 0.2 million sq. ft. of saleable area.

The Group has three upcoming residential projects which include -

(i) The Phase II of the MHADA Redevelopment project which is being developed by Man Realtors and Holdings Pvt. Ltd. (where Man Infra holds 75.75%). this project is located at Ghatkopar East, Mumbai and has a potential of developing approximately 1.0 million sq.ft, of saleable area.

(ii) Man Vastucon LLP (where Man Infra holds 99.9%) is developing a Residential project near Dahisar, thane which is currently under the Approval Stage, this project has a potential of developing approximately 3.8 million sq.ft, of saleable area.

(iii) MICL Developers LLP (where Man Infra holds 99.0%) is developing a MHADA redevelopment project at Vikhroli, Mumbai having a potential of developing approximately 0.2 million sq.ft, of saleable area.

The Companys financial performance for the year 2016-17 was robust with consolidated Profit aftertax growing by 201% year-on- year. In accordance with the Accounting Standards, the Company started recognizing revenue for two residential development projects in the said financial year. Also, the Company partly executed the large port infrastructure order received during the year. As on March 31, 2017, the holding company, Man Infra continues to remain debt free with a cash & cash equivalent of Rs. 212 crore approximately.

The Company is expecting to start recognizing revenue for 2 ongoing Real Estate projects in FY2018. In addition to this, the Company plans to launch the Phase II of the MHADA project in Ghatkopar and the residential project near Dahisar after receiving all the necessary approvals.

Going ahead, the Company will focus on expediting the launch of its upcoming projects and completing the ongoing projects in time, The Company will continue to explore opportunities to add prudent EPC and Real Estate projects to its portfolio.

Financial Performance - Consolidated

• Total Income stood at Rs. 49,919.72 lakhs for FY17

• Profit after tax and minority interest stood at Rs. 5,301.40 lakhs in FY17 as compared to Rs. 1,758.55 lakhs in FY16

• The Company achieved a PAT margin oflO.62% in FY17 Financial Performance - Standalone

• Total Income stood at Rs. 22,501.27 lakhs for FY17

• Profit after tax stood at Rs. 5,962.15 lakhs in FY17 as compared to Rs. 4,305.95 lakhs in FY16

• The Company achieved a PAT margin of26.50% in FY17 Risk Management:

The Company works in an environment which is affected by various factors, some of which are controllable while some are outside the control of the Company. At Man Infra, we have developed a robust risk management framework that reduces the volatility due to unfavorable internal and external events, facilitates risk assessment and mitigation procedure, lays down reporting procedure and enables timely reviews by the management, The following section discusses some of these risks and steps taken by Man Infra to mitigate such risks.

1. Economic Risk

a. Risk: An unexpected development in any of the macroeconomic variables that may adversely impact the Companys profitability or viability. Both Infrastructure and Real estate are cyclical industry and they get impacted more by the changes in macroeconomic variables like interest rate, GDP Growth, purchasing power, inflation, among others.

b. Mitigation Plan: Man Infra continues to be conservative and follows well defined internal prudential norms, The Company has attempted to hedge against the inherent risks of Real Estate business by following joint development model. It maintains a low debt equity ratio, high liquidity and strong clientele with broadly timely payment track-record which helps in minimizing the impact of any downturn in economy.

2. Policy Risk

a. Risk: Maharashtra finalized the rules under the Real Estate Regulation and Development Act (RERA), 2016; its Housing Regulatory Authority has started operating from May 1, 2017. The Authority has been setup to bring in more transparency and accountability from developers, protect the interests of the buyer and also penalize the non-compliant builders. RERA seeks to address issues like delays, price, quality of construction and title among others.

Any such non-compliance with RERA regulations or delay in project delivery may result in cost overruns and impact the Companys operations unfavorably.

b. Mitigation Plan: Man Infra has put in place processes that include milestone based time & quality checks that help to ensure adherence to quality, cost and delivery as per the plan, The Company maintains financial discipline with regards to the investment and subsequent cash flow generation from a project, The Company has a past track record of delivering the projects before time and maintaining high quality standards.

3. Execution Risk

a. Risk: Real Estate and construction projects are subject to various execution risks like regulatory hurdles, delay in receipt of approvals, availability of labour and raw material, etc. Any such delay may result in cost overruns and impact the Companys operations unfavorably.

b. Mitigation Plan: The Company deploys a well-defined standard operating procedure - from project planning to delivery - and adheres to internal checks and balances with regard to every project. Extensive diligence is carried out before entering into partnerships for joint development.

4. Liquidity Risk

a. Risk: The Real estate business has significant initial outflow with staggered and long-term inflows. As per RERA, the developer is required to set aside 70% of the funds received for a particular project, in a dedicated escrow (bank) account and can only be used for construction activities. Delays in project cycle; inadequate funding resources may have an impact on the liquidity position of the Company.

b. Mitigation Plan: Man Infra has a sound liquidity position with approximately Rs. 212 crore in cash & cash equivalent as on March 31, 2017. On the consolidated level, the Groups balance sheet is low geared with a Debt:Equity ratio of 0.45x as on March 31, 2017. The Company maintains financial discipline with regards to the investment and subsequent cash flow generation from a project. Moreover, the Company has also been taking adequate measures to manage working capital cycles like monitoring and closely following up with debtors. For the EPC business, the Company also receives mobilization advances, which aids liquidity management.

5. Input Price Risk

a. Risk: The Groups Real estate operations as well as EPC contracts are subject to cost overruns due to increase in material cost or labour cost, The Companys earnings may be affected from the volatility in the price of input.

b. Mitigation Plan: For EPC projects, Man Infra has a price escalation clause where the increase in the input cost is directly passed to the client. For development projects, Man Infra takes this risk into account at the time of launch. Also, the Company usually sells the projects in a phased manner which aids in covering the rise in cost of construction in subsequent sale.

6. Sales Volume

a. Risk: The performance of the Company may be affected if there is substantial difference between the estimated and actual sales volume of the Real Estate development projects.

b. Mitigation: The volume of sales in the Real Estate business depends on the nature and location of the project, design & layout and the reputation of the developer. Man Infra strives to build a worthy reputation in the industry by delivering superior quality product and maintaining long-binding relationships with all its clients and stakeholders, The Company constantly focuses on deploying latest technologies for projects and cost effective measures to enhance operational efficiency resulting in timely delivery. Man Infra also strives to offer distinctive features in its projects to stand out from competition.

Human Resources

The Company believes that its capability to preserve and continue its growth depends largely on its strength of developing, motivating and retaining talent. It firmly believes that highly motivated and empowered employees are its best assets to maintain a competitive edge in the market, The management is committed to continuously upgrading skills and competency at all levels with the aid of extensive training, The Company has obtained certifications for both Safety - OHSAS 18001, and Environment ISO 14001 underlining its commitment to employees safe working conditions and social awareness. Man Group has a team of more than 600 employees as on 31st March, 2017.

The Companys employees possess requisite qualifications and technical expertise to execute projects across the Real Estate and construction services domain, The Companys HR will continue to focus on maintaining excellent work culture, employee development and competitive compensation to ensure a motivated and empowered workforce.

Internal Control Systems

The Company has an adequate internal control system to safeguard all assets and ensure their efficient productivity, The Company practices quality management system for design, planning and construction that complies with International quality standards, The Company has a suitable internal control system for the business processes, operations, financial reporting, compliance with applicable laws and regulations. Enterprise Resource Planning Software is in implementation for Head Office and most of the Sites, The Internal Audit firm conducts periodical audits to ensure adequacy of internal control systems and adherence to management policies. Wherever deemed necessary, internal control systems are also reassessed and corrective action is taken, if required.

Cautionary Statement

This management discussion and analysis may contain forward looking statements that reflects your Companys performance with respect to future events, The actual results may differ materially from those anticipated in the forward looking statements as a result of many factors.