p b a infrastructure ltd Management discussions

1. Company Overview:

PBA Infrastructure Limited (PBA) (formerly Prakash Building Associates Ltd.) Company, was founded by Wadhawan family in 1974. Over the last five decades the Company had established itself as a highly disciplined, professional and quality conscious organization capable of undertaking and successfully completing any major project in all parts of India. The Company specializes in construction of Highways, Bridges, Runways, Heavy RCC Structures and other Infrastructure projects. The Company became a Public Limited Company in November 2005 and is listed on BSE, Mumbai. The Company has consistently been declaring dividends to its shareholders since IPO, the last being 10% in 2010.

The Company started facing financial crisis from 2010 due to slow down in the infrastructure industry, high level of Working Capital requirements, huge interest cost and Blockage of receivables at government level and forcefully cancelled the work order (awarded and put into operation) at various sites for not obtaining the required land by the Government in those areas resulting all the matters were referred to "Arbitration" for claim for huge amount, which has direct impact on the growth of the Company, consequences of which the Company has to face so many legal issues including the financial crisis. Due to continuous irregularity in operation, our consortium Bankers had stopped to further finance, extension of guarantees, issue of new guarantees, etc. and also declared our account as NPA since 2013.

2. Industry Review Introduction

India has the second-largest road network in the world, spanning a total of 5.89 million kilometres (kms). This road network transports 64.5% of all goods in the country and 90% of Indias total passenger traffic uses road network to commute. Road transportation has gradually increased over the years with improvement in connectivity between cities, towns and villages in the country.

In India, sale of automobiles and movement of freight by roads is growing at a rapid rate.

Market size

Highway construction in India increased at 17.00% CAGR between FY16-FY21.Despite pandemic and lockdown, India has constructed 10,457 km of highways in FY22. Under the Union Budget 2023-24, the Government of India has allocated Rs. 2.7 lakh crore (US$ 33 billion) to the Ministry of Road Transport and Highways. InFY23 (until December), the Ministry of Road Transport and Highways constructed national highways extending 6,318 kms.

In October 2020, the foundation stone was established for nine National Highway projects—with a total length of ~262 kms—worth >Rs. 2752 crore (US$ 371.13 million) in Tripura.

The Government of India has allocated Rs. 111 lakh crore (US$ 1.4 trillion) under the National Infrastructure Pipeline for FY 2019-25. The roads sector is likely to account for 18% capital expenditure over FY 2019-25. In October 2020, the National Investment and Infrastructure Fund (NIIF) is making progress towards integrating its road and highway portfolio. The NIIF has acquired Essel Devanahalli Tollway and Essel Dichpally Tollway through the NIIF master fund. These road infra-projects will be supported by Athaang Infrastructure, NIIFs proprietary road network, assisted by a team of established professionals with diverse domain expertise in the transport field.

Key Investments/Developments

The Union Minister of State for Road, Transport and Highways has stated that the Government aims to boost corporate investment in roads and shipping sector, along with introducing business-friendly strategies, which will balance profitability with effective project execution. According to the data released by Department for Promotion of Industry and Internal Trade Policy (DPIIT), Cumulative FDI inflows in construction development stood at US$ 26.3 billion between April 2000-December 2022. In FY22 (until November 2021), the private sector invested Rs. 15,164 crore (US$ 1.98 billion) in roads.

Government Initiatives

Some of the recent Government initiatives are as follows:

• NHAI plans to construct 25,000 kilometres of national highways in 2022-23 at a pace of 50 km per day.

• Indias Gati Shakti program has consolidated a list of 81 high impact projects, out of which road infrastructure projects were the top priority. The major highway projects include the Delhi-Mumbai expressway (1,350 kilometres), Amritsar-Jamnagar expressway (1,257 kilometres) and Saharanpur-Dehradun expressway (210 kilometres). The main aim of this program is a faster approval process which can be done through the Gati shakti portal and digitized the approval process completely.

• As of March 2022, the government plans to spend Rs. 10,565 crore (US$ 1.38 billion) on the Trans-Arunachal Highway and Kaladan Multi-Model Transport Project, as well as other roads development projects such as capital connectivity, district connectivity, connectivity to the international border, and improvement and strengthening of roads in the region of Sikkim.

The Indian government launched Gati Shakti-National Master Plan, which will help lead a holistic and integrated development of infrastructure generating immense employment opportunities in the country.

• In October 2021, the government issued a notice related to concessions under the Vehicle Scrapping Policy (effective from April 2022) to encourage vehicle owners towards discarding old vehicles which have higher fuel consumption costs.

• In October 2021, the government launched a conversion project for 15 major roads in the Agartala smart city, the project will convert these roads to weather-resilient ones, and further strengthen development of the region.

• In October 2021, the government announced rules to improve road safety, such as fixed driving hours for commercial truck drivers and a mandate to install sleep detection sensors in commercial vehicles.

• In FY22 (until October), the Ministry of Road Transport and Highways constructed national highways extending 4,450 kms compared with 4,956 kms in FY21 (until October).

• In October 2021, the government announced a plan to install charging stations every 40 to 60 kilometres on national highways to strengthen wayside amenities; in line with this, ~700 e-vehicle charging stations are expected to be installed by 2023, covering 35,000 to 40,000 kms of national highways.

• In September 2021, the Ministry of Road Transport and Highways constructed national highways extending 3,824 kms compared with 3,335 kms in August 2021.

• To transform road infrastructure in Punjab, Haryana and Rajasthan, the Indian government has planned to construct roads extending 313 kms for Rs. 11,000 crore (US$ 1.48 billion).

• In September 2021, the Indian government announced road projects worth Rs.1 lakh crore (US$ 13.48 billion) to develop road infrastructure in Jammu and Kashmir. The region has also witnessed growth in national highways, from 7 in 2014 to 11 in 2021.

• In September 2021, the Ministry of Road Transport and Highways allocated Rs. 7,270 crore (US$ 980.9 million) for road safety programmes in 14 states that constitute 85% of the total road fatalities in India.

• 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). A network of 35 Multimodal Logistics Parks are planned to be developed as part of Bharatmala Pariyojana, with a total investment of about Rs. 46,000 crore (US$ 5.55 billion), which can handle around 700 MMT of cargo.

• The government also aims to construct 23 new national highways by 2025.

• The Minister for Road Transport & Highways and Micro, Small and Medium Enterprises, Mr. Nitin Gadkari, is targeting to construct 40 kms per day in FY22.

• In August 2021, the Union Minister of Road Transport and Highways, Mr. Nitin Gadkari, announced to launch 1,080-km (road construction) projects worth Rs. 25,370 crore (US$ 3.4 billion) in Gujarat under the Bharatmala Pariyojana—the ambitious road and highways project that aims to build highways from Maharashtra, Gujarat,Rajasthan, Punjab, Haryana and then cover the entire string of Himalayan territories

• In August 2021, the Ministry of Road Transport & Highways extended certain relief measures provided earlier in view of the second COVID-19 wave. The following relief measures have been extended:

• Relaxation in Schedule H/G with effect from July 01, 2021, until September 30, 2021, to improve liquidity of funds available with contractors and concessionaire.

• Arrangement regarding direct payment to the approved sub-contractor through an escrow account can be continued until September 30, 2021, or completion of work by the sub-contractor, whichever is earlier.

• In August 2021, the Union Minister of Road Transport and Highways, Mr. Nitin Gadkari sanctioned Rs. 100 crore (US$ 13 million) to restore roads affected by heavy rains in Konkan and Western Maharashtra. This includes Rs. 52 crore (US$ 7.0 million) for temporary restoration and Rs. 48 crore (US$ 6 million) for permanent restoration.

• In August 2021, the central government sanctioned >Rs. 600 crore (US$ 81 million), of the Central Road and Infrastructure Fund (CRIF), for construction of 42 roads and bridges in Uttarakhand.

Road Ahead

The Government, through a series of initiatives, is working on policies to attract significant investor interest. A total of 600+ sites are planned to be awarded by 2024-25 of which 144 Wayside Amenities (WSAs) have already been awarded. In the next five years, National Highway Authority of India (NHAI) will be able to generate Rs. 1 lakh crore (US$ 14.30 billion) annually from toll and other sources.

References: Media Reports, Press Releases, Ministry of Road Transport and Highways, NHAI website, Press Information Bureau (PIB), Union Budget 2023-24

Robust Demand

• As on November 30, 2022, the total length of National Highways in the country was 144,634 km.

• Passenger vehicle (PV) wholesales rose by 23% year-on-year in the December 2022 quarter of FY23. The total passenger vehicle dispatches increased to 9.34 lakh units.

Attractive Opportunities:

• The Government aims to construct 65,000 kms of national highways at a cost of Rs.5.35 lakh crore (US$ 741.51 billion) by 2022.

• Andhra Pradesh will spend US$ 296.05 million to build 8,970 kms of roads.

• A network of 35 Multimodal Logistics Parks are planned to be developed as part of Bharatmala Pariyojana, with a total investment of about Rs. 46,000 crore (US$ 5.55 billion, which can handle around 700 MMT of cargo

Higher Investments

• Transfer from National Investment Fund (NIF) was estimated at Rs. 20,000 crore (US$ 2.61 billion) as of March 2022.

• Under the Union Budget 2023-24, the Government of India has allocated Rs. 2.7 lakh crore (US$ 33 billion) to the Ministry of Road Transport and Highways.

Policy Support

• 100% Foreign Direct Investment (FDI) is allowed under the automatic route in the road and highways sector.

• In October 2021, the government issued a notice related to concessions under the Vehicle Scrapping Policy (effective from April 2022) to encourage vehicle owners towards discarding old vehicles which have higher fuel consumption costs.

3. Opportunities and Threats: Opportunities

Basis its strengths and effective Government initiatives towards development of Indian Infrastructure, your Company is realistically optimistic and finds immense opportunity in acquiring new orders with helps Joint Ventures for construction of roads, bridges

Threats

Political instability, Wars, Terrorism, Multinational conflicts, Natural disasters, Heavy fluctuation in prices of cement and sand

4. Announcements in the 2023-24 Budget Speech

An Infrastructure Finance Secretariat will be established to assist stakeholders and encourage private investment in infrastructure such as roads, railways and power.

Particularly vulnerable tribal groups (PVTGs) will be provided with facilities such as road and telecom connectivity, safe housing, and clean drinking water under the Pradhan Mantri PVTG Development Mission. Critical transport infrastructure projects for last and first mile connectivity for coal, steel, fertilizer and food grain sectors have been identified. They will be taken up on priority with investment of Rs 75,000 crore, of which Rs 15,000 crore will come from private sources.

5. Discussion on financial performance with respect to operational performance:

This discussion covers the financial results and other developments during April 2022 to March 2023 in respect of the Company. Published result is as prepared on Indian Accounting Standards (IND AS). Highlights below given only for comparison:

(Amount in Lakhs)

Particulars	2022-2023	2021-2022	2020-2021
Revenue from Operations	1322.47	892.45	1881.74
EBITDA	-12390.53	489.80	491.23
PBT	-12828.16	-16.95	-31.06
PAT	-13447.31	-16.95	171.13

• Revenue from Operations- During the year under review, there has been Increase in Income from Operations.

• Project – The Companys income has slightly increased by increase in work of Omerga Project started at Solapur entrusted by NHAI on account of their concessionaire.

• Claims – The Company had gone into arbitration for some projects and also had received the awards in their favour. The authorities have appealed in the Courts and the matters are pending.

• One Time Settlement - One Time Settlement with consortium Banks, in continuation to the meetings with the Consortium Bankers from time to time, wherein it was suggested by the Consortium Bank to revise the One Time Settlement (OTS) amount, However, said revise offer was not accepted by the Management.

6. Risks and concerns

Our strategic focus on the Infrastructure sector and the high growth trajectory exposes the Company to a variety of risks. The Company is exposed to different types of risks such as credit risk, market risk (including liquidity risk, interest rate risk and foreign exchange risk), operational risk and legal risk.

The Companys aims is to ensure that we proactively understand measure and monitors the various risks and develop and implement appropriate risk treatment plans to deal with them by establishing a suitable balance between harnessing opportunities and containing risks.

Infrastructure projects are highly capital intensive, and such run the risks of:

Longer development period than planned due to delay in statutory clearances, delayed supply of equipment or non-availability of land, non-availability of skilled manpower, etc.

• Financial and Infrastructural bottlenecks.

• Execution delay and performance risk and

• Cost over-run

• Pandemic Risk

• Competition Risk

• Inadequate/changes in regulatory framework

7. Internal Control Systems & Their Adequacy

PBA has an adequate system of internal control to ensure that the resources of the Company are used efficiently and effectively, all assets are safeguarded and protected against loss from unauthorized use disposition and the transactions are authorized, recorded and reported correctly, financial and other data are reliable for preparing financial information and other data and for maintaining accountability of assets.

The internal control is supplemented by extensive programme of internal audits, review by management, documented policies, guidelines and procedures.

8. Material developments in Human Resources / Industrial Relations front, including number of people employed

Your Company will continue to improve HR related processes, practices and systems in sync with the organizational objectives. As on 31st March 2023 there were 52 permanent employees of the Company

9. Outlook

The infrastructure sector is starting to gain heat due to Government support as it is the backbone to economic and social prosperity. Last year the Government extended their support through the announcement of NIP and this year it reinforced confidence in the sector as highlighted in the Union Budget 2022-23 announcement. PBA is committed to face the challenges by virtue of its strengthened business model and motivated personnel. We are confident of leveraging global opportunities, while adhering to our cherished mission, vision and values.

10. Social Commitment

PBA believes that business success is not an end in itself; rather it is means to achieve higher socio-economic goals. The Company is committed to its stakeholders to conduct its business in a responsible manner. Managements commitment, work ethics and business processes at Company encourages all its employees and other participants to ensure a positive impact and its commitment towards corporate social responsibility.

11. Details of Key financial Ratios:

Sr.No.	Ratios	31-03-2023	31-03-2022	% Change
1	Current Ratio	0.284	0.50	-43.57%
2	Debt- Equity Ratio	-3.37	26.75	-112.58%
3	Debt Service Coverage Ratio	-3755.61	5.75	-37595.45%
4	Return on Equity Ratio	1.12.59%	-1.13%	-10088.33%
5	Inventory Turnover Ratio	0	0	-98.19%
6	Trade Receivables turnover Ratios	0.16	0.08	92.82%
7	Trade Payable turnover Ratios	0.68	0.88	-23.13%
8	Net Capital turnover Ratio	-0.06	-0.04	29.07%
9	Net Profit Ratio	-1016.86%	-1.90%	53431.23%
10	Return on Capital Employed	218.04%	0.75%	28918.41
11	Return on Investment	-42.35%	-0.75%	112842.18%

*Previous years Figures have been regrouped / rearranged wherever necessary

12 . Details of any change in Return on Net Worth as compared to the immediately

Previous financial year along with a detailed explanation thereof:

As on 31st March 2023 the Net Worth of the company stood at Rs.(119) Crores as compared Rs.15.03 Crores as on 31st March 2022.

13. Social Commitment

PBA believes that business success is not an end in itself; rather it is means to achieve higher socio-economic goals. The Company is committed to its stakeholders to conduct its business in a responsible manner. Managements commitment, work ethics and business processes at Company encourages all its employees and other participants to ensure a positive impact and its commitment towards corporate social responsibility.

14. Cautionary Statement:

Statements in this Management Discussion and analysis describing the Companys objectives, projections, estimates and expectations may be ‘forward looking statements within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Companys operations include a downtrend in the infrastructure sector, significant changes in political and economic environment in India, exchange rate fluctuations, tax laws, litigations, labour relations and interest costs.