Introduction
Simplex Projects Limited (SPL) is Indias one of the premier Construction and
Engineering Companies, straddling over two decades in all departments of civil, mechanical
and engineering construction activities with pan India presence. SPL has constructed over
70 Road and Rail-over-Bridges, over half a million square feet of residential and
commercial buildings, power plants to chemical factories, multiplexes to shopping malls
and emerged as a reputed player in Piling and Foundation, Transportation Engineering,
High-rise Buildings, Residential Housing Complexes, Commercial Complexes and Shopping
Malls, Hospitals and Educational Institution Buildings, Irrigation, Water Supply &
Sewerage Schemes and Installation & Operation of Multi-level Car Parking systems.
We always strive for innovative ideas in the field of civil and mechanical engineering
and thereby adding several milestone achievements in the field of civil construction.
Having a strong foothold in the Indian Construction industry, SPL also forayed into
International market for mega projects.
Macroeconomic Review
The estimates for FY2020 released by the Central Statistics Office (CSO) in May 2020
put Indias real gross domestic product (GDP) growth rate at 4.2% compared to 6.1% for
FY2019 the lowest since FY2009. In fact, last year CSO had reported FY2019 growth estimate
at 7.2%, which was revised downwards to 6.1%. The GDP growth decelerated consecutively for
the five quarters with Q4, FY2020 at 3.1% - the lowest since 2004. The CSO also revised
downwards growth estimates of the preceding three quarters for FY2020. The revision
confirmed fears of a deeper economic slowdown that existed prior to COVID-19s impact on
the economy. Sharp growth deceleration during FY2020 reflected the impact of the recession
in the manufacturing and construction sectors and further weakening of private consumption
demand, which grew only by 5.3% during FY2020, as against 7.2% in FY2019. The marginal
rise in government expenditure was not enough to compensate for overall weak demand.
On the GDP growth front, the worst is yet to come. Core sector industries contracted
38% in April and are expected to worsen . For the first time in decades, the economy is
predicted to contract, with some forecasts predicting a staggering 5% decline in FY2021
due to the unprecedented crisis brought on by COVID-19. By global standards, Indias
lockdown has been among the longest and most strict. The International Monetary Fund (IMF)
in its latest World Economic Outlook update pared down Indias GDP forecast to negative
4.5% in FY2021 compared to its projection of 1.9% growth made in April. The sharp forecast
revision is due to a prolonged lockdown and slower recovery than anticipated in April with
factors such as social distancing, etc. affecting both demand and supply side of economic
activity.
The government has responded to the recessionary challenge by announcing a large
stimulus package of Rs, 20.9 lakh crore or 10% of the nominal GDP. While providing support
to various targeted segments, such as MSMEs, banking, trade, farmers, and so on, the
stimulus package also aimed at reforms in select segments to make India self-reliant as
articulated by the PM. The reform measures included an easing of limits on foreign direct
investment in defense manufacturing, privatization of six more airports, opening of more
air space, and allowing the private sector in commercial coal mining. State governments
such as in MP, UP and Karnataka have also announced reforms in land and labour laws to
attract business investment. While the intent of the stimulus package is laudable, many
experts remain sceptical as the package implies limited direct public spending. The
package has a large monetary component (Rs. 8 lakh crore) in the form of extra liquidity
through reductions in cash reserve ratio and repo rate by the RBI and push for lending by
the banking system. The RBI measures alone are expected to release Rs.3.75 lakh crore of
additional liquidity in the system. However, in a scenario where the non-food credit
continues to be sluggish and risk-averse banks continue to park Rs.5.2 lakh crore funds
with RBI (figure as on mid-May 2020), this additional liquidity may not result in the
revival of output growth and employment.
The Rs.3 lakh crore collateral free and automatic loans for businesses including micro,
small and medium enterprises, are expected to help this segment. Under this, businesses
with borrowings of up to Rs.25 crore and turnover of up to Rs.100 crore would be able to
borrow up to Rs.5 crore additionally.
Further Rs.2.4 lakh crore is provided for MSMEs, NBFCs, electricity distribution
companies, etc. No doubt, some of these measures would help MSME activities, however, the
stimulus leaves scant relief to a large part of the industry, which was already reeling
under recessionary pressures well before COVID-19 related disruptions.
Any consequent additional borrowings to finance government expenditure in a lower
growth environment would maintain upward pressure on interest rates, inflation rate and
could result in depreciation of the rupee. Already, retail inflation, measured by the
year-on-year change in the Consumer Price Index (CPI), rose to 5.84% in March 2020
compared to 2.86% in March 2019, signalling the presence of inflationary pressures. It
remains to be seen how the Indian economy fares amidst recession the world has seen since
World War II. The latest IMF report estimates World GDP to contract by 4.9% and global
trade volume by 11.9% in 2020. The report is optimistic about a GDP growth recovery in
2021 to about 5.4%, predicated on the spread of the virus and timing for a vaccine.
Infrastructure Plan, the COVID-19 pandemic hit the global economy in March 2020. In
India, the lockdowns and their extensions, which have been among the most stringent in the
world, had a triple whammy effect on the Construction Industry due to: a) Stoppage of all
Project execution activity; b) Slowdown in fresh orders; c) Compounding of working capital
woes of the industry.
Though Government has announced that COVID-19 will be treated as Force Majeure and
accordingly, project duration will be suitably extended to account for these delays,
project execution in near term is likely to face problems on account of labour shortage,
supply change disruption, onset of monsoons and liquidity issues hampering project
re-mobilisation. The industry will require working capital support and swift
reimbursements from Clients, without which normalisation of activity will be hampered.
Indias Construction and Infrastructure Sector
Construction is the third largest sector in India, next only to agriculture and
services. It accounts for 8% of Indias GDP and offers direct and indirect employment for
nearly 40 million people. India is also among the fastest growing economies in the world
with a growth rate of 6.8% in 2018 and 6.1% in 2019.
Though the economy has experienced slowdown in 2019, India has a huge demand for
Infrastructure projects in Power, Roads, Railways, Ports, Airports, Water Supply &
Irrigation. The Government of India has announced several Infrastructure Development
programs such as Bharatmala, Sagarmala, Smart Cities, Housing for all etc. to strengthen
the countrys infrastructure. Budgetary allocations to the sector have also been increased
over the years to support infrastructure led growth in India. Investments in
Infrastructure totalled Rs.24 lakh crore in the 11th five-year plan (FY2007-12) and Rs.36
lakh crore in the 12th five-year plan (FY2012-17). Investments of Rs.10.2 lakh crore and
Rs.10 lakh crore were made in fiscal years FY18 and FY19, respectively. Power, Roads,
Railways, Water Supply & Irrigation were the main beneficiaries of this investment.
Despite higher budget allocations and investments, the sector has been facing significant
challenges on account of land acquisition, MOEF clearances, conflicts between central
& state acquisition, MOEF clearances, conflicts between central & state and
dispute resolution bottlenecks, especially mechanical challenges of arbitration payments
stuck in courts for years have stretched the balance sheets of almost all companies in the
Sector.
Consequently, these unresolved legacy issues coupled with the inability of the banking
system and regulatory bodies to structure flexible solutions have resulted in a vicious
cycle of further systemic stress leading to a heightened risk aversion by financial
institutions to fund infrastructure projects in the country. This is one the largest
bottlenecks the construction sector faces today.
Over a period, Government of India has been focusing on reforms and laws to improve the
regulatory framework and speed up dispute resolution. GOI has brought about important
amendments in Arbitration Act and announced initiatives through the Cabinet Committee on
Economic Affairs (CCEA) to address the issue being faced by the Contracting community.
Though these changes have given some relief to the Industry, the regulatory framework
needs to ensure much swifter measures for contract enforcement and dispute resolution.
This will in turn attract greater and less expensive financing that will address the huge
infrastructure gap being faced by the nation.
Government of India has set a target to become a $5 trillion (Rs.375 lakh crore)
economy by 2025. It is estimated that India would need to spend $4.5 trillion (Rs.338 lakh
crore) on infrastructure by 2030 to realise the vision of a $5 trillion economy by 2025.
Construction halt, revocation of toll collection, labour crunch and severe working
capital pressure these nightmares for any infrastructure company have now become a
reality. The infrastructure sector is one of the worst-hit on account of COVID-19.
The Infrastructure Sector recovery in FY21 will be slow and is expected to be visible
from Q3 onwards. While calculating earnings, downgrade of COVID-19 remains challenging,
but FY21 revenue estimates to (-)10 % year on year (YoY) revenue decline for all companies
and a 100-150bps YoY fall in margins for all in FY21.
The more imminent challenge for the construction players remains working capital
management. In the wake of COVID-19 pandemic, the focus of state and central Govt has
shifted to the welfare of citizens and health care measures, hence infrastructure activity
has taken a backseat.
Infrastructure players are facing a severe liquidity crunch and as bills and dues from
Govt are not being honoured in time on one hand and on the other hand companies are
striving to maintain steady salary flows to contract labour and employees. The same has
resulted in a stark mismatch in fund inflow and outflow, putting pressure on balance
sheets.
The banking system has come to support the corporate sector with COVID-19 loans upto
10% of the Fund Based Limits enjoyed by Corporates, as directed by RBI. This is a big
relief for Corporates.
Government of India has announced Atmanirbhar Bharat Abhiyan Economic Relief Package of
20 lakh crore to tide over the COVID-19 Crisis:
Key Highlights of the Atmanirbhar Bharat Abhiyan
? This special economic package, along with earlier announcements made during the COVID
crisis and decisions taken by RBI, is to the tune of Rs 20 lakh crore, which is equivalent
to almost 10% of Indias Gross Domestic Product (USD 2.72 lakh crore(2018)).
? The package will also focus on land, labour, liquidity and laws.
? It will cater to various sections including cottage industry, MSMEs, labourers,
middle class, Industries, among others.
Opportunities & Threats
The Company has a well diversified business portfolio viz., Buildings & Housing,
Roads, Bridges, Tunnels, flyovers, Electrical, Irrigation, Power, Water & Environment,
Mining and Railways.
The Company has more than years of experience in all departments of civil, mechanical
and engineering construction activities with pan India presence and is recognized as one
of the key construction players in the country. The Company has successfully executed
complex engineering projects across the country and also in international geographies. The
Company is recognized for timely completion of projects within budgets. Our core strength
is our people who carry several years of industry experience in various domains including
engineering, design, construction, procurement, planning, etc. We are continuously
exploring business opportunities in other segments of the Industry and the business mix of
the Company is determined taking all the factors into account. There are several
constraints which affect the smooth functioning of the industry, besides the recent global
economic downturn. The Construction industry has always been adversely affected by high
volatility in prices of major inputs, delays in approval by Authorities and lack of
availability of skilled laborers. Natural calamities like poor weather conditions and
manmade disruptions like encroachment, disruption of supply chain etc. continue to be a
major constraint in project completion. The outburst of unprecedented political unrest in
Libya and other North-African countries has restricted the emergence of new opportunities
there, until the stability is restored.
Opportunities:
? Demand for world class infrastructure in India
? Make in India initiative would demand good infrastructure specifically roads,
railways, etc thus offerings opportunities for construction companies
? Governments 100 Smart Cities initiative .
? Higher budgetary allocation for infrastructure sector
? Pro-industry policies and initiatives such as lowering of corporate tax, setting up
of REITs and Infrastructure Investment Trusts would drive investment in infrastructure
sector, etc.
? Good construction opportunities in the new state of Andhra Pradesh.
Threats:
? Currently the biggest threat is Covid-19 and its impact. It is expected that overall
business will be severely affected.
? Financing is a major challenge-the infrastructure projects are highly capital
intensive and funding had been one of the major impediments in achieving the
infrastructure goals. Land acquisition, need for clearances from numerous agencies across
the project cycle at every stage, right from the pre-tendering stage to post construction,
protracted procedure for securing approvals are often considered serious disincentives for
developers and contractors.
? Most of the measures taken up by the Government are yet to translate into development
work on the ground.
? Recognised Industry leader in large civil construction and infrastructure projects.
? Revival of stalled projects which have accumulated due to the freeze in decision
making over the years.
? Infusion of liquidity into the entire infrastructure and construction sector which is
highly cash strapped as long as these issues exist, there is very little scope of revival
in the sector as most of the companies do not have the financial strength to absorb the
past losses & simultaneously continue financing new projects.
? Ensuring quality and timely completion of the projects without cost overturns.
? Diversified business portfolio and strong order book.
? Enduring relationships built on mutual trust and respect with our clients,
sub-contractors, financial institutions and shareholders.
? Pan India presence.
? Large pool talented and skilled employees with low attrition rate.
Outlook
The Indian Economic growth is projected to remain robust in the years to come. The
Public investment has picked up and we also envisage faster clearance of key projects;
better infrastructure and greater ease of doing business. We believe that the governments
fiscal policy will remain supportive and investments in the energy, transport,
infrastructure and core areas would be promoted. The Company remains confident on the
prospects of the business however an upside to its performance would directly correlate to
the way overall economy performs. If the overall capex activity picks up in India, the
Company may have a quicker translation of orders into sales and thus a better performance.
The Company believes that the government is taking effective measures to take care of
economic activity revival. Sooner than later, it should see the momentum coming back in
the economy.
The domestic economy is expected to steadily improve in the current year on the back of
Structural reforms and supportive monetary policy. The Government has reiterated its
emphasis on Infrastructure build-out in the areas of transportation, augmentation of water
resources, power, affordable housing and smart cities. Increased private sector
participation in the Defence business affords strong business opportunities for your
Company. Various upcoming projects provide the Company with a broad perspective of the
opportunity basket opening up in 2020-21.
Risk and Concerns
The Company is exposed to uncertainties, owing to the sectors in which it operates. The
key issues like shortage of qualified workers and labours, technology adoption,
Environment sustainability and project complexity were challenging during the year.
However, your Company has surpassed all the internal challenges like, technology upgrades,
lack of skilled labour, supply chain, etc. to continue the momentum in business
operations. The external challenges can be met as economic reforms will get in placed
because of a stable government.
The Company has continuous project monitoring system in terms of quality, time and cost
parameters. These are being further upgraded through greater use of modern technologies
and also adopted a policy on the same which enables the Company to proactively manage
uncertainties from changes in the internal and external environment and also capitalize on
the opportunities.
Internal Control System and their adequacy
The Company has in place adequate system of Internal Controls commensurate with the
size and nature of operations which ensure that the resources of the Company are used
efficiently and effectively, all assets are safeguarded and protected against loss from
unauthorized use or disposition and the transactions are authorised, 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. Significant audit observations and corrective actions
thereon are presented to the Audit Committee. Based on the report of Internal Audit,
corrective actions are undertaken in the respective areas, thereby strengthening and
maintaining a healthy Internal Control System.
In compliance with Section 143(3)(i) of the Companies Act, 2013 the Statutory Auditors
have issued a report on Internal Financial Controls forming part of this Annual Report.
Financial Performance
From a financial perspective, On Consolidated basis, for the financial year ended March
31, 2020, your Company has achieved a Gross Turnover of Rs. 17,657.61 Lacs as against Rs.
24871.95 Lacs for the previous period (figures reclassified due to applicability of IND
AS). Therefore there has been a decline in the turnover of the Company of 29.05%.
On Standalone basis, your Company has achieved a Gross Turnover of Rs.17,657.61 lacs
for the financial year 2019-20 against the previous year figure of Rs 24680.40 lacs,
resulting in a decline of Rs 28.45% over the last year. Our focus area continues to be the
execution of civil engineering projects with specialization in piling, building, roads,
cannal, bridge, jetties and flyovers. Further your Company had been successful in bagging
various contracts for execution of Infrastructure Projects. Our order book position as on
31st March 2020 was in tune of Rs. 204.29 Crores. The Company expects substantial increase
in the order book position in next financial year.
Human Resources (HR)
The Company did a lot of consolidation in the area of Human Resource. Human Resource
continues to be one of the biggest assets of the Company. Your Companys business is
managed by a team of competent and passionate leaders, capable of enhancing your Companys
standing in the sector. External hiring was done for junior & senior levels in the
organization. Efforts have been made to induct fresh talent inducing more and more
professionalism. The management is paying special attention to various aspects like
training, welfare and safety and thereby further strengthening the human resources.
Learning and Development continued to be a focus area. Safety related training also
remained as one of the primary focus areas.
Cautionary Statement
Statement in this Management Discussion and Analysis describing the Companys
objective, projections, estimates and expectations are forward looking statements within
the applicable laws and regulations.
Such forward-looking statements involve risks and uncertainties that may cause actual
events, results or performances to differ materially from those indicated by such
statements. Simplex Projects Limited disclaims any obligation to update these
forward-looking statements to reflect future events or developments.
| For |
SIMPLEX PROJECTS LIMITED |
|
Sudarshan Das Mundhra |
| Place: Kolkata |
Managing Director & CFO |
| Date: 21st January, 2021 |
(DIN 00013158) |
+91-9892691696
