steel strips infrastructures ltd Management discussions

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 order to boost the construction of buildings in the country, the Government of India has decided to come up with a single window clearance facility to accord speedy approval of construction projects.

Being one of the most resilient sectors, it plays a crucial role in accelerating Indias overall development, thereby driving its economic growth. India has to enhance its infrastructure to reach its 2025 economic growth target of US$ 5 trillion. Increased government spending on more extensive scale projects offers strength to Indias competitiveness across the globe. Infrastructure is a key enabler in helping India become a US$ 26 trillion economy.

Investments

India is witnessing significant interest from international investors in the infrastructure space. Emphasizing the importance of investment for creating modern infrastructure, seven engines of growth have been identified roads, railways, ports, airports, mass transport, waterways and logistics infrastructure, Indian government has given the much-needed push to the infrastructure sector. As per the Department for Promotion of Industry and Internal Trade (DPIIT), FDIs in the construction development and construction sector stood at US$ 26.17 billion and US$ 26.30 billion, respectively, between the period of April 2000 and December 2021. The logistics sector in India is rising at a CAGR of 10.5% annually which shows that both in terms of investments and revenue the infra game is going strong.

Govt. Initiatives for the Sector

India is looking at a US$ 5 trillion economy dream. Union Budget 2023 reflects continuing strong commitment of the Government to boost economic growth by investing in infrastructure development leading to an increase in capital expenditure by 37.4 per cent over RE 2022-23. Announcements in Union Budget 2023-24:

The governments focus on building infrastructure of the future has been evident given the slew of initiatives launched recently. The US$ 1.3 trillion national master plan for infrastructure, Gati Shakti, which is a Rs.100 lakh-crore project has been a forerunner to bring about systemic and effective reforms in the sector, and has already shown a significant headway.

Capital investment outlay for infrastructure is being increased by 33% to Rs.10 lakh crore (US$ 122 billion), which would be 3.3% of GDP and almost three times the outlay in 2019-20.

Budget complemented with continuation of the 50-year interest free loan to state governments for one more year to spur investment in infrastructure and to incentivize them for complementary policy actions, with a significantly enhanced outlay of Rs.1.3 lakh crore (US$ 16 billion).

Infrastructure Finance Secretariat is being established to enhance opportunities for private investment in infrastructure that will assist all stakeholders for more private investment in infrastructure, including railways, roads, urban infrastructure, and power.

In June 2022, Minister of Road Transport and Highways, opened 15 national highway projects worth Rs.13,585 crore (US$1.7 billion).

OPERATIONAL PERFORMANCE

The revenue from operations during the year under review has marginally increased to Rs.111.30 lakh as against Rs.110.87 lakh during the previous year. The net loss from operations after tax worked out to Rs.136.64 lakh as compared to net loss of Rs.154.16 lakh in the previous year. Company is continuously striving to strengthen its operations in near future.

The Company has effective and robust system of internal controls to help management review the effectiveness of the financial and operating controls and assurance about adherence to companys laid down systems and procedures. Proper controls are in place, which are reviewed at regular intervals to ensure that transactions are properly authorized & correctly reported and assets are safeguarded. The Audit Committee periodically reviews the findings and recommendations of the Auditors and takes necessary corrective actions as deemed necessary.

RISKS AND CONCERNS

The Company has a robust Enterprise Risk Management process in place, which is a holistic, integrated and structured approach to manage risks with the objective of maximizing shareholders value.

The risk management process broadly consists of identification, assessment, mitigation, prioritization and monitoring of risks. The ERM process allows the Company to:

Enhance confidence in achieving its desired goals and objectives

Effectively restrain threats to acceptable levels

Take informed decisions about exploiting opportunities

Owing to the nature of the industry the Company operates in, it is exposed to a variety of risk factors which are broadly categorized into technical, physical, construction, performance and legal risks.

A tight risk process is carried out from pre-bid to project completion stage to manage, mitigate and monitor these risks by adopting specific risk mitigation measures. During the year, the Board has reviewed the process and the Risks that have been identified for the business. Some of these key risks that the Company faces along with their mitigation strategies adopted are listed below:

Risk Type	Key Risks	Risk Impact	Risk Mitigation Strategy
	Incomplete Design	High	Carrying out extensive due diligence during the project bid phase
			Bidding for those works which are closely aligned with our core strengths
	Inadequate Specifications	High	Carrying out exhaustive due diligence before and during the bid phase
Technical Risks			Incorporating contingency for inadequate specifications in the price bids
			Engaging with clients and their representatives on a regular basis
	Insufficient Resources of Construction Materials	Medium	Strong and efficient resources planning, both at the corporate and project levels.
			Strong management of vendors and subcontractors Carrying out due diligence on vendors and sub -contractors before entering into agreements with them
	Equipment Damage/ Failure	Medium	Own a sizeable equipment base, specifically those, which are frequently used in our operations thus reducing dependence on equipment vendors
			Following a strict preventive and corrective maintenance schedule
			Strong relationship with equipment vendors for renting equipment
Physical Risks			Strong management of equipment vendors including rating their performance
	Labor Injuries	Low	Strong implementation and monitoring of health and safety protocols to prevent injuries
			Designated safety personnel at sites.
			Periodical reporting on safety and health issues Conducting training programs on health and safety issues
	Labour Productivity	Medium	Ensure safe, clean and hygienic work environment at all work locations.
			Strong track record in maintaining labour.
Construction Risks			Regular monitoring and ensuring strong controls to ensure adherence to timelines and quality
	Theft	Low	Strong monitoring and control to prevent theft Penalizing defaulters without exception

 

Risk Type	Key Risks	Risk Impact	Risk Mitigation Strategy
	Achieving Required Quality	Medium	Regular inspection of works and reporting to clients
			Strong adherence to specifications and timelines
			Constant engagement with clients and their representatives
Performance Risks			Reliable Quality assurance programs
	Meeting Client Expectations	Medium	Experienced workforce, Regular engagement with clients
			Response mechanisms to address issues raised by clients and their representatives
Legal Risks	Claims, Disputes & Litigations	Medium	Engagement with clients to capture and address litigious issues upfront
			Proper and thorough documentation on each project from the pre bid stage
			In-house Contracts and Claims team.
			Legal firm onboard to handle pre-legal claims and/or litigations Keeping ourselves abreast on regulatory issues

Road Ahead

The infrastructure sector has become the biggest focus area for the Government of India to fulfill its US$ 5 trillion economy dream The Government has suggested investment of Rs.50,00,000 crore (US$ 750 billion) for railways infrastructure from 2018-30.

(References: Media Reports, Press releases)