rpp infra projects ltd Management discussions


INDIAN ECONOMY

India maintained its growth momentum, with the country recording an estimated 7.2% GDP growth, as compared to 7% growth projected in 2022-23. With this growth trajectory, India is expected to become the 3rd largest economy in the next few years.

India has to enhance its infrastructure sector to reach its target of US$ 5 trillion economy. For this, connectivity and robust infrastructure are crucial and programs like the National Infrastructure Pipeline provides the required boost to the sector.

The construction market is expected to reach US$ 1.42 trillion by 2027, expanding at a CAGR of 17.26% during the 2022-2027 period.

Highlights of Union Budgets 2023-24:

? C apital investment outlay for infrastructure is being by 33% to H10 lakh crore, which would be 3.3% of GDP and almost fix the outlay in 2019-20

? I nfrastructure Finance Secretariat is being established enhance opportunities for private investment in infrastructure

? C ontinuation of 50-year interest-free loan to state for one more year to spur investment in infrastructure and to incentivize them for complementary policy actions, with a significantly enhanced outlay of H1.3 lakh crore

? U nder the National Infrastructure Pipeline (NIP), worth H108 trillion are currently under various stages of implementation

? I n November 2022, National Investment and

Fund (NIIF) has been set up as a collaborative investment platform between the government, global investors, multilateral development banks and domestic financial institutions to facilitate investment across multiple sectors in India through an India Japan Fund

INDUSTRY STRUCTURE AND DEVELOPMENTS

Infrastructure is essential for economic prosperity. In the 25 years (Amrit Kaal) following Indias 75th anniversary of independence in 2021, as the country endeavours for sustainable and inclusive progress, infrastructure development becomes even more crucial.

Investments in infrastructure yield numerous benefits, such as job creation, enhanced global competitiveness, attraction of Foreign Direct Investment (FDI), seamless economic integration, and enhanced living standards. After the pandemic, shifting geopolitical landscape and diversification of the global value chain present an opportunity for India to emerge as a significant global economic hub.

Infrastructure development is crucial to achieve the India 2047 vision for a $40 trillion economy and be reclassified from a developing economy to a developed economy.

India is experiencing a significant infrastructure renaissance, driven by increased government investment and development initiatives. There are significant advancements in Indias transportation network, including roads, railways, aviation and waterways. These developments aim to enhance connectivity, reduce logistics costs, and position India as a global economic powerhouse.

The government has launched many positive schemes, which will give a boost to the construction sector.

? J al Jeevan Mission that envisages providing a functional household tap connection to every rural household in the country by FY2024. The outlay for this scheme is H3.6 lakh crore between FY2020-24.

? A MRUT 2.0 scheme envisions providing tap water connection to to every household and sewerage/septage services in 500 cities at an outlay of H2.99 lakh crore.

? S wachh Bharat Mission - Urban 2.0 has an ambitious target of creating garbage free cities by focusing on solid waste management. The scheme has an outlay of H1.41 lakh crore.

? P arvatmala Pariyojana or National Ropeway Development

Program was launched to improve connectivity for commuters in hilly areas and decongest urban areas. The scheme envisages development of 250+ ropeway projects at an investment of H1.25 lakh crore over a period of five years.

? R evamped Distribution Sector Scheme (RDSS) of the government seeks to improve operational efficiencies and financial sustainability of DISCOMs for strengthening of power supply infrastructure. The scheme will be implemented between FY2022-26 with an outlay of H3.03 lakh crore.

OPPORTUNITIES AND THREATS

The infrastructure sector is a key driver of the Indian economy. The sector is responsible for propelling Indias overall development and enjoys focus of the government for initiating policies that would ensure time-bound creation of world-class infrastructure.

The government is expected to invest heavily in infrastructure sector, mainly in highways, renewable energy and urban transportation. Further, recent decision and push of government for ‘Atmanirbhar Bharat and push for only local tenders up to specific size of contract and local purchases is expected to have a positive impact for the Company. Government aims to strengthen infrastructure with its focus on four priorities of: PM Gati Shakti Inclusive Development

Productivity Enhancement & Investment, Sunrise opportunities, Energy Transition, and Climate Action.

Your Company is conscious of the importance laid by the government to the sector and sees the following as an opportunity:

Projects

Name of New projects

Other Works

Roads

Bharat Mala, Pradhan Mantri Gram Sadak Yojna

Four-laning of national highways; upgradation of state highways into national highways

Urban infra

Schemes such as Swachh Bharat, Smart City, green transportation

Mass rapid transit, water supply and sanitation projects, modernization and upgradation of railway stations under Amrit Bharat Station Scheme

Irrigation and river linking

River interlinking, canal/ irrigation for cultivation

Governments aggressive river linking targets

Management of your Company has put effort to make a firm presence in a few states of India. Further, your management also keeps exploring profitable growth opportunity in neighbouring countries and also takes up suitable joint venture partners or engages in subcontracting work. Looking at the size, suitability and effective execution, your Company has concentrated in the high growth areas of operation, yet developing new territories.

Your Company has maintained its focus on three business segments, i.e. infrastructure, water management and buildings and at the same time retaining its focus and being a frontrunner in the field of irrigation and water supply, civil construction works, national highways, rural roads and other infrastructure works.

The major threat the infrastructure industry is facing is the impact of global economic conditions. Further, your Company is increasingly moving towards larger projects which has stringent pre-qualification requirements and as such faces intense competition. Your Company has undertaken international projects and is exploring further international opportunities, which has strict timelines and lower margins. Also, the entry of foreign construction companies into the Indian market have reduced margins. All these are likely to lead to significant challenges to our historical growth rates and acceptable profit and margins.

SEGMENT WISE / PRODUCT WISE PERFORMANCE

Your Company is engaged in infrastructure development. The company has internally identified and created the following three segments:

? Buildings

? W ater Management

? Infrastructure

These segments are very totally different and are not identifiable segments for reporting. Revenue contribution during the financial year 2022-23 of each of the business segment is given below:

Business segments

Revenue in D cr Percentage of revenue
Buildings 59.61 5.93%
Water Management 764.33 76.03%
Infrastructure 181.30 18.04%

The Company has carefully carved a niche and continues to remain focused on its geographical presence as well as operating verticals/ ventures to capitalise on emerging opportunities. Your Company has decided to stay engaged in short-term projects of less than 24 months, with small and medium project size of less than H250 crore, which gives it superior profitability.

ORDER BOOK POSITION

Your Company has robust order book of H3,200 crore at end of financial year 2023. It continues its strategy to maintain optimum margin and enhanced profitability and at present, its complete order book is from government agencies. The order book size in the financial year 2022-23 is as below:

Business Amount segment (in D cr)

Percentage order book Embedded EBITDA margin
Buildings 234 7.31 10-12%
Water Management 1,406 44.34 15-18%
Infrastructure 1,560 48.75 12-14%

Following were the major work order inflows in 2022-23:

Name of Work

Amount (D cr) Segment State

Repair and construction works of old buildings for reopening of Old District Jail in Bareilly, Uttar Pradesh, on EPC basis

148 Building Uttar Pradesh

Major upgradation of Lucknow Railway Station of Northern and North Eastern Railways on EPC basis

399 Infrastructure Uttar Pradesh

Construction/re-modelling of primary, secondary drains, culverts/bridges and all other allied works of SWD spread out at various locations in Jayanagar in Koramangala

22.06 Infrastructure Karnataka

Construction of Integrated Storm Water Drain Works in M1&M2 components in Kovalam Basin in expanded areas in Greater Chennai Corporation Package

70.50 Infrastructure Tamil Nadu

Widening the East Coast Road (ECR) to six-lane from km 15/700 - 22/300 at Neelangarai, Injambakkam and Sholinganallur villages

104.79

Infrastructure Tamil Nadu

Implementation of Ground Water Based Mini Piped Water Supply Schemes for 295 villages

104.54

Water West Bengal

Jal Jeevan Mission – CWSS to 2 Municipalities, 5 Town Panchayats and 2,306 rural habitations in 11 Panchayat Unions

491.33 Water Tamil Nadu

FINANCIAL PERFORMANCE/ OPERATIONAL PERFORMANCE

The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013, guidelines issued by the Securities and Exchange Board of India and Ind AS. The management of Company accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in true and fair manner, the form and substance of transactions and reasonably present the state of affairs on the Balance Sheet and Profit of the Company for the year ended on the date.

Standalone Performance:

Your Company has posted total revenue of Rs. 1,005.25 crore in 2022-23 as compared to Rs. 779.82 crore in 2021-22. Total cost increased to Rs. 988.62 crore in 2022-23, vs. Rs. 779.82 crore in 2021-22.

EBITDA for 2022-23 increased to Rs. 61.20 crore, as compared to Rs. 36.14 crore in 2021-22. Profit after tax for 2022-23 increased to Rs. 25.99 crores, vs. Rs. 8.36 crore in 2021-22. The Company achieved operational efficiency and earned higher profit during the period.

Consolidated Performance:

During the year in report, none of the subsidiary was material subsidiary. Operation in all subsidiaries is nominal and mostly comprised of minimal expenses. A new subsidiary has been incorporated during the financial year and details for same has been appropriately provided.

Total consolidated revenue stood at Rs. 1,040.33 crore in 2022-23, vs. Rs. 801.68 crore in 2021-22. Total consolidated expenses increased to Rs. 1,024 crore in 2022-23, against Rs. 804.78 crore in 2021-22. Profit after tax stood at Rs 28.96 crore, against Rs. 5.36 crore in 2021-22. Company achieved operation efficiency and earned higher profit during the financial year 2022-23.

BUSINESS OUTLOOK

Looking ahead, Indias infrastructure industry offers enormous growth potential. As India seeks to become a USD 25-30 trillion economy by 2047, an extra USD 18-20 trillion in infrastructure investment would be required over the next 25 years.

Currently, the government and the public sector finance the majority of infrastructure, but due to limited financial flexibility, there is a need to stimulate private participation to bridge the infrastructure investment gap. It is critical to create an enabling landscape for the private sector through suitable regulatory frameworks and finance sector reforms.

The PPP model, as well as financial tools such as Viability Gap Funding (VGF) and Special Purpose Vehicles (SPVs), as well as the creation of Infrastructure Investment Trusts (InvITs), provide options for private sector engagement. The National Monetization Pipeline (NMP), which seeks to monetize under-utilised brownfield infrastructure investments will increase private sector participation even further.

Furthermore, there has been a shift in recent years towards sustainable investment that incorporate environmental, social, and governance (ESG) factors. Corporations, investors and financial institutions are becoming more concerned about long-term growth. As a result, it is critical for Indias infrastructure development to prioritise sustainable, equitable and green growth.

Looking ahead, RPP is well-positioned to capitalise on the infrastructure pipeline, especially with the governments focus on infrastructure, expecting continued momentum in contracts translating into healthy order inflows and revenue. The company expects a robust order inflow during FY2024.

RISKS AND CONCERNS

Risk management is an integral part of the business process. The risk management process provides for review of risk assessment and mitigation procedure and enables timely report to the management and supports review of identified risks at periodic intervals to assess the progress of control measures. The Audit Committee of the Board reviews the risk management efforts periodically.

The company follows the below mentioned risk management framework:

? Ri sk identification

T his function involves pre-emptive strategies to identify potential risks and evolve a framework for mitigation

? R isk assessment and analysis

R isk assessment is the objective evaluation of the quantitative and qualitative value of risk related to the uncertainties of a specific situation

? R isk governance

T his requires the organization to ascertain action plans to address identified issues and forestall potential damage

? C omprehensive risk reporting

R ecord the causes and mitigation measures for future reference

The reporting systems ensure precise monitoring for quick decision making and smooth running of the operations. Prompt attention is drawn to any risk related function which is then closely monitored to enable appropriate decision making to avoid problems/ regain stability within the shortest possible time.

INTERNAL CONTROLS AND THEIR ADEQUACY

Your Company has adequate internal control systems to monitor business processes, financial reporting and compliance with applicable regulations. It has documented procedures covering all financial, operating and management functions. These controls have been designed to provide a reasonable assurance with regard to maintaining proper accounting controls, monitoring of operations, protecting assets from unauthorized use or losses, compliances with regulations and for ensuring reliability of financial reporting. The Company has continued its efforts to align all its processes and controls with best practices in these areas as well. Thesystems are periodically reviewed for identification of control deficiencies and formulation of time bound action plans to improve efficiency at all the levels.

Company conducts internal audit through a firm of independent firm of qualified chartered accountant who are given access to all records and information. The Audit committee of the Board reviews internal control systems and their adequacy, significant risk areas, observations made by the internal auditors on control mechanism and the operations of the company, recommendations made for corrective action and the internal audit reports. The committee reviews with the statutory auditors and the management, key issues, significant processes and accounting policies. The company continues its efforts in strengthening internal controls to enable better management and controls over all processes.

Your Company have a proper Whistle Blower Policy and proper vigil mechanism for Directors and Employees.The policy enablesdirector and employees to report their genuine concerns, generally impacting / affecting business of our Company, including but not limited to improper or unethical behavior / misconduct / actual or suspended frauds / violation of code of conduct. The policy provides adequate safeguard against victimization to make easy for employee/ director to report any issue.

HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS

Our capacity to retain and attract key employees with suitable skills, talent and experience will be critical to our continuing success. We recognise the challenges in attracting and retaining desirable personnel in the industry. All our human resources policies and practices are in line with the overall organisational plan.

Currently, our company employs 1,112 people at various levels. We have a well-crafted HR policy in place, as well as a working environment that encourages innovation, cost savings, and project completion on time, as well as initiatives aimed at emerging as a merit-driven organisation with adherence to diversity and inclusion. The HR division has emphasised on many elements, such as staff training, welfare and safety in order to strengthen our human resources.

DETAILS OF SIGNIFICANT CHANGES

(i) D ebtors Turnover: 5.34 (ii) I nterest Coverage Ratio: 3.90 (iii) C urrent Ratio: 1.64 (iv) D ebt Equity Ratio: 0.23 (v) N et Profit Margin (%):0.03

CHANGE IN RETURN ON NET WORTH

The Company achieved a 7.59% return on net worth during 2022-23, as compared to 2.63% during the previous financial year.

DISCLOSURE OF ACCOUNTING TREATMENT

The Company has followed generally accepted accounting standards in preparation of its financial statements, as applicable to it.

Forward-looking statements

The report may contain forward-looking statements, like ‘plans, ‘expects, ‘will, ‘anticipates, ‘believes, ‘intends, ‘projects, ‘estimates and so on. Any statements that address expectations or projections about the future, but not limited to the Companys strategy for growth, market position, expenditures, and financial results, are forward-looking statements. Since these are based on certain assumptions and expectations of future events, the Company cannot guarantee that these are accurate or will be realized. The Companys actual results, performance or achievements could thus differ from those projected in any forward-looking statements. The Company assumes no responsibility to these statements and also not liable to publicly amend, modify or revise any such statements on the basis of subsequent developments, information or events. Further, the economic data has been taken from various source and hence the correctness is based on publication made about the same and company assumes no responsibility towards the correctness of same.