IVRCL Ltd Management Discussions.

Industry Overview

India continues to receive global attention because of its economy, which is not only huge but also reasonably stable.

Now, while China is slowing down, India continues to march ahead as one of the fastest growing economies of the world. IMF predicts that it will crack eight percent GDP growth in 2021.

The IMF Economic Outlook has forecasted a growth rate of 7.4% in 2018 and 7.8 % in 2019. Our economy is "lifted by strong private consumption …and implementation of the GST. Over the medium term growth is expected to rise with continuous implementation of structural reforms. We expect India to continue being one of the fastest growing big global economies in the world.

The Infrastructure Industry is a key sector in a developing economy. It gives very large employment running into crores of people and also has a multiplier effect on other economic sectors. In the last few years, the Infrastructure industry had slowed down due to a variety of reasons. The Governments new intiatiatives have reversed the trend and sectors like Roads and Metro Railways are doing well. Large schemes have been announced for River transport upgradation and a Bullet Train is proposed between Mumbai and Ahmedabad with Japanese support.

The problems of the infrastructure which have been adequately written about and highlighted earlier have been addressed by the Central Government. New funding mechanisms under Smart City and NMCG have started being implemented. In the Roads BOOT as a method of awarding jobs has been stopped and new orders are based on the cash contract system / EPC system or Hybrid – Annuity.

The Central Governments AMRUT (Atal Bihari Mission for Rejuvenation and Urban Transformation) scheme to finance infrastructure in the areas of water, sewerage, roads, waste management and smart cities in most of the towns in India has started taking off in select states. In addition, the Smart Cities scheme has moved to tendering. The Government is also proposing some big- ticket investments in new areas like long-distance high-speed trains, metro train networks in cities and inland waterways development.

In our country, nearly 226 million people do not have access to safe drinking water and more than 100 million people live in places where water is severely polluted. About 54% of India faces high to extremely high water stress. When the annual per capita of renewable freshwater in a country or a region falls below 1700 cubic metre, it is held to be a situation of water stress. According to recent studies, per capita availability of water is likely to fall down to 1140 cum. in 2050 suggesting that were heading towards serious water crisis, if timely steps are not taken to tackle it. Once surface water is exhausted, people dig to find more water. Groundwater levels across 4,000 wells have receded by 54% in the last seven years.

Falling groundwater levels shows that water is moving further away from the surface and becoming less accessible.

Over the years, increasing population, growing industrialization, expanding agriculture and rising standards of living have pushed up the demand for water. Efforts have been made to collect water by building dams and reservoirs and creating ground water structures such as wells. Recycling and desalination of water are other options but the cost involved is very high.

With all this, it is expected that outlook in this sector will continue to improve in the next two or three years. Order Books of key players have started to burgeon.

VERTICAL-WISE PERFORMANCE WATER

The water sector has seen a significant downturn in the last few years. The many projects required to make water available to all, have not yet been ordered. One instrument of change, the JNNURM scheme, which had created many water projects, finished in 2012. Under the new and more comprehensive AMRUT scheme many new Water and Sewage Treatment schemes are planned and tenders will be forthcoming in 2018-19. For the Ganga cleanup investments have started under the Namami Ganga scheme.

In the Water segment, your company has completed 25,000 km of pipeline installation, 1300 MLD of WTP and 100 MLD of Desalination Water Supply (the first and largest of its kind in India).

A selective list of projects completed in Water Sector during the year includes:

1. SSNNL - KBC Pumping Station 1: Kutch Branch Canal (KBC), a man-made 360-km long river, the longest one among all the 96 rivers running through Kutch will irrigate more than 2.78 lakh acres of land in 182 villages of seven talukas of Kutch district. The project will ensure the gravity-based flow of Narmada water in the entire district. For this, three pumping stations will lift water to a height of 60 meters, equivalent to a 20-storeyed building. Value – Rs.183 Cr.

2. Nagpur Peri Urban 10 village RR Water Supply scheme, Tah Naghpur Dist Nagpur – Construction of Approach channel, jack well with overhead pump house, approach bridge, approach road, Raw water pumping machinery, Raw water rising main, conventional water treatment plant, Pure Water Gravity Main, Construction of RCC ESRs Distribution System Data Communication System Trial Run O & M of the scheme for one year etc. Value – Rs. 95.59 Cr.

A selective list of ongoing projects in Water Sector during the year includes:

1 Narmada FR Project: Execution of Works related to Narmada FR Project based Cluster Water Supply Project of 267 villages of District Jalore viz 33/11/0.415 KV Switch Yard, P, L&J of DI/BWSC/uPVC pipeline, Construction of RCC Clear Water and Overhead Reservoirs Pumping Stations Complete Job as per Scope & Specifications on Single point Responsibility basis Turnkey Job contract including necessary design and Operation & Maintenance for 10 years followed by 1 year of defect liability period – Value Rs. 526 Cr.

2. RWSS RGLC Panchala - Ghewra Cherai Project: Works related to RWSS RGLC Panchala-Ghewra Cherai of Tehsil Osian, District Jodhpur on Single Point Responsibility Basis Turnkey Job Contract including Operation & Maintenance for 10 years after one year of defect liability period. Value – Rs. 408 Cr.

3. JALORE District construction of RWR Water treatment plant: Execution of Works related to Supply of Water from Narmada Canal (Jalore District) for Jalore Town and 281 villages through various off-take on Single point Responsibility basis turnkey job contract including necessary Design, Operation & Maintenance for 5 years. Value – Rs. 310 Cr.

4. Bhubaneswar sewerage district VI: The complete sewerage project of Bhubaneswar aiming at creating an integrated sanitation improvement is divided into six Sewerage Districts and the Sewerage District-VI is covered under the JICA-assisted Odisha Integrated Sanitation Improvement Project. The work requires design and establishment of a full build-out sewerage network for about 150-km long sewer pipeline. Value: Rs. 300 Cr.

5. OWSSB- Additional Construction of sewer: The scope of work involves for the project involves Earth work excavation in ordinary soil, Soft Rock & Hard Rock of around 3,60,000 cum; Supplying, laying, Testing & commissioning of different dia. RCC Pipes of 1,50,000 Rmt; Supplying, laying, Testing & commissioning of different dia. Of DI rising main of around 5,000 Rmt; Construction of RCC & Brick Manholes of around 5550 nos.; Construction of Sewer connection chamber of 8,323 nos.; Inspection chambers of 33,000 nos.; House sewer of around 99,000 Rmt; Road Restoration works. Value – Rs. 280 Cr.

6. Sanchore Water Supply: Execution of works related to Narmada DR Project based Cluster Water Supply Project of 138 Villages and Sanchore Town of District Jalore on Single point Responsibility basis Turnkey Job contract including necessary design and operation & Maintenance for 10 years followed by 1 year of defect liability period. - Value Rs. 255 Cr.

7. Chambal - Bhilwara Water Supply Project Phase-II:

Work of Cluster Scheme of 205 Villages of Asind Tehsil along with Augmentation of UWSS of Asind Town from Haripura Chouraha Headworks under Chambal-Bhilwara Water Supply Project Phase-II, Operation & Maintenance for 10 years on single responsibility turnkey basis. Value Rs. 249 Cr.

The government has unveiled a plan to provide water for all. Signs of water industry order revival are coming in from some of the recently elected state governments. The central government proposes to treat polluted water (sewage) for cities on Ganga basin through schemes like Clean Ganga. AMRUT (Atal Mission for Rejuvenation and Urban Transformation) Scheme aims at doing the same for the other cities of India not on the Ganga or Yamuna basin. With these plans getting implemented, the sector will see better years.

Irrigation

The agriculture sector gives livelihood to 45% of our population but contributes only 16% to our GDP. One way to increase the incomes of the agrarian population is to convert poor precipitation rain-fed areas to one where an assured supply of water is available, through irrigation schemes.

Of the 140 million hectares (mh) of net cultivated area in India, only around 60mh are irrigated. For Indian agriculture to grow around 4% per year, it needs to increase the area irrigated, introduce new high-yield technology and expand cultivable land. Emphasis on aquifer mapping, watershed development, involvement of NGOs, and efficiency in developing irrigation capacity and all other measures using water more judiciously. This will require substantial investments in this sector to achieve these goals.

Your company has completed several large lift irrigation projects - 2300 km of Canals, 2.5 million cum/hr of pumping, 476.8 MW total pump capability and 104 km of tunnels (4-18 m dia.) as of March 2015.

A selective list of ongoing projects in the Irrigation sector include :

1. Pranahita Chevella LIS Package - 20: Pranahita-Chevella Lift Irrigation Scheme - Link-VII - Package No.20 - Investigation, Designs and execution of Lift Irrigation Scheme for drawing and lifting of 25.00 TMC of water from foreshore of SRSP Reservoir to Balancing Reservoir near Masani (V), Nizamabad Mandal & District by water conveyor system with all associated components such as approach channel, Gravity lined canal, lifts, pressure main, CM & CD works, distributory system and all other allied works. Value – Rs. 893 Cr.

2. Pranahita Chevella LIS Package - 9: Pranahita-Chevella Lift Irrigation Scheme - Link-III - Package No.9 - Investigation, Designs and execution of Lift Irrigation Scheme for drawal and lifting of 6.00 TMC of water in 120 days from Mid Manair Reservoir at Siricilla Village to Ypper Manair Reservoir at Narmal Village, Karimnagar District by water conveyor system. Formation of new reservoirs, Improvements and enhancement the capacities of existing tanks en route and their distributory system, Distributory network with lining for a new ayacut of 60000 Acres with minors and sub-minors and stabilization of 20,000 Acres under Upper Manair Reservoir. Value – Rs. 715 Cr.

3. Sripada Sagar Project Stage – II, Phase – I : Lifting of 12.00 TMC of water from Sripada Sagar Project to Madaram and to Gangadhara, Vemulavada, Potharam, Kodimyal, Bavusaipet tanks, which includes construction of pump houses, erection and supply of pipelines, pumps, motors and allied electro-mechanical and hydro-mechanical works on engineering, procurement and construction (EPC) turnkey contract basis and Operation and Maintenance of the project for 2 years after successful testing and commissioning of the project. Canals 20.0 km; pipeline MS 3000mm dia to 1200mm dia-60kms; Tanks- 7nos pump houses- 2 nos. Value – Rs. 603 Cr.

4. KNNL - Tubachi – LIS: Package - 5 for Survey, Investigation, Design, Supply, Installation, Testing and Commissioning of Head works including all appurtenant structures, Pipe lines, motors with pumps and Electro mechanical works including providing power supply with 5 years Operation and maintenance under "Tubchi-Bableswar LIS" on Turnkey basis. (Including desilting of intake canal every year). Value – Rs. 522 Cr.

5. Canal system of Indira Sagar Project main canal:

Execution of Canal system of Indira sagar Project Main Canal from RD 155.000 Km to 206.000 Km including distribution network up to 40ha chalk for irrigation command area of about 20700 ha on turnkey basis. Main canal: 46.00kms; structures on main canal: 95 nos; tunnel-5.1km; Distributory system- 325 kms. – Value – Rs. 478 Cr.

6. Yetinahole Package-5: Package-5: construction of weir no 3, 4, 5 and lift head works - intermediate pumping station (dc-3)-Yetinahole. Value – Rs. 435 Cr.

7. Thotapally Reservoir to Gouravelly Reservoir including Tunnel – Karimnagar: Flood Flow Canal from SRSP Phase II - Investigation, Design & Execution of Lift irrigation Scheme from Thotapally Reservoir to Gouravally Reservoir including Tunnel and other Allied works near Regonda (V), Husnabad (M) of Karimnagar District. Scope: approach canal excavation including lining-4 km; tunnel excavation & lining- 11.98 km – Value Rs. 360 Cr.

8. Lower Goi Project: Execution of Lower Goi Project including construction of Earthen Dam, composite dam. Value – Rs. 283 Cr.

9. Kaleswaram Lift Irrigation Scheme: Execution of Kaleshwaram Lift Irrigation Scheme with allied works Lifting of 4.5 TMC of water - Value Rs. 250 Cr.

Several state Governments, having made ambitious plans for lift and canal projects, the irrigation sector shows good prospects. This sector should be a steady performer with business from central India, which is primarily catered to by rain-fed rivers having substantial sea run off.

BUILDINGS & INDUSTRIAL STRUCTURES

Rapid urbanization has emerged as an undeniable global trend which India too is now following. It demands todays city leaders to make tough decisions about infrastructure that will impact generations to come. With 410 million city dwellers, India has the worlds second largest urban population. It is estimated that by 2030, about 600 million people will reside in cities in India and account for 70% of Indian GDP, according to a McKinsey report. As more and more people migrate from rural to urban areas, the existing urban cities would soon be crunched on resources and infrastructure.

The central government has announced various mega schemes aimed at transforming urban India - 100 Smart Cities, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) for 500 cities, and Housing-for-All by 2022. These projects envision smart cities as part of a sustainable society in which people live, work and play in safety and comfort while also coexisting in harmony with the environment.

The last few years did not see any significant downturn as Buildings are a key requirement for economic growth. The market, however, has been very competitive. Demands on material availability have also become a major concern, for instance, sand is now very difficult to get.

Your company continued its trend and market presence. As of Mar 31, 2018, about 51.6 million sft have been constructed using 1.8 million cum of concrete, 30,600 MT of structural steel, and 3.43 lac mtrs of piling (500-1600 mm dia).

A selective list of major completed works in Buildings & Industrial Structures (B&IS) during the year includes:

1. Construction of National Institute of Securities Markets at Patalganga: Construction of National Institute of Securities Markets at Patalganga, Maharashtra. Construction of 3 blocks of students Hostel, 1 block of MDP & Executive Hostel, 42 Nos. Staff Quarters including Internal Services like Sanitary Installation, Water supply and Internal EI – Value Rs. 75 Cr.

2. Construction of Computer Centre and Computer Science & Engineering Complex including Internal PH Works & PVC Conduit System for Electrical works for IIT Bombay, Powai, Mumbai 76. Value Rs.33.49 Crores

A selective list of ongoing projects in the Sector during the year includes:

1 Chitrapuri Colony, Hyderabad: Construction Group Housing Project for Cine Workers at Chitrapuri colony- Hyderabad. - Value Rs. 580 Cr.

2. Mouda Super Thermal Power Project stage -II (6x660 MW): Main Plant, CW, Offsite, AHP Civil Works Chimney & Chimney Elevator package for Mouda Super Thermal Power Project, Stage-II (2X660 MW) located at Mouda, District Nagpur, State of Maharashtra, India. – Value Rs. 299 Cr.

3. Solapur Super Thermal Power Project stage -II (2x660 MW): Main Plant, CW, Offsite Civil Works & Chimney & Chimney Elevator Package for Solapur Super Thermal Power Project( 2X660 MW) – Value Rs. 290 Cr.

4. New Civil Hospital building at Valsad: The Entire project includes construction of Seven storied Building of approx 8,65,000 sq ft area. The Hospital is fully equipped with all necessary Electrifications, Fire Alarm Systems, Medical gas pipeline system, Lifts & Elevators, Nurse Call System, CCTV System and Digital Video Recorder system. The New Hospital Building will have a capacity of 512 Beds, whereas the total capacity of the New and Existing Hospital combined would be 750 bedded Hospital with state of art facilities. Value – Rs. 182 Cr.

5. DAE Township at Anupuram: Construction of 120 type- 111-c, 165 numbers of type IV-D and 135 numbers of V-E residential quarters. Value Rs. 163 Cr.

6. Old MLA Quarters, Hyderabad: Construction of 120 Flats for the Honble MLAs in Phased manner at Old MLA Quarters, Hyderguda, Hyderabad. – Value Rs. 131 Cr.

7. International Cricket Stadium - Vijayawada : Construction of International cricket stadium including water supply, Sewage lines, Internal Electrification, internal roads etc. - Value Rs. 64 Cr.

With increasing needs for urbanization and all-round development, this sector will see sustained investment. The new building complexes will also be well integrated with climate control, recyclable building materials, CCTVs and smart controls.

POWER

Your company concentrates on Power Transmission Lines and Rural Electrification. The central government is planning to award transmission projects worth Rs. 1 lakh crore in a years time, thus giving a good push to the expanding electricity transmission across the country.

Your company has got 7 lac BPL connections provided, 11000 villages electrified, 1460 km of transmission line (132, 220, 400 & 765 KV) erected, and 60 track kms of traction and OHE works done as of March 31, 2018. These match the industry best.

A selective list of major ongoing works in Power during the year includes:

CIDCO Kharghar Power Supply : Development of power supply infrastructure distribution network including construction of 33/11kV & 11/0.4kV HT Substations & allies electrical works in sector-25 to 45, Kharghar Node, Navi Mumbai (Phase-I) – Value – Rs. 109.70 Cr.

TRANSPORTATION

It is no secret that big economies poised for rapid growth need robust infrastructure, with roads forming a major part of it. India has the second highest road network in the world, spanning over 4.7 million km carrying over 60% of the countrys total freight traffic and about 85% of the passenger traffic. However, only half of the country is paved, and less than a quarter of the national highways meet required standards. While road freight volume and the number of road vehicles have been growing at a compounded annual growth rate of 9.1% and 10.8% respectively, the growth rate of length of roads lags behind at 4%.

Indian rail network is the 4th longest and the most heavily used system in the world. The present suburban railway services in India are limited and are operational only in the metros. The sector needs speedy investments which have not been forthcoming in the last ten years.

On the Transportation front, your company has completed 3402 lane km of Highways, 75 km of railway track, and 1963 lane km of highway concession projects under operation and development .

In the last three years the national Road building programs under NHAI has revived after resolving legacy problems. There is a fillip to Road building and completion is upwards of 25 km per day. EPC Cash contracts or the Hybrid Annuity Model (HAM) are now the chosen payment methods.

A selective list of completed works by the Transportation

Division during the year includes:

• TN-08: Design, Construction, Development, Finance, Operation and Maintenance of Km102/020(Chengapalli) to 183/010 (Walayar) excluding Coimbatore Bypass on NH-47, in the State of Tamil Nadu on Design, Finance, Build, Operate and Transfer (DFBOT). Six laning from Km 102.035 to Km 144.74 and four laning from Km 170.94 to Km 183.06 . Project Value – Rs. 901 Cr.

• Major bridge no: 161 (62x18.30M) Viramgam - Samkhiyali BG section for Western Railway: Construction of Major bridge with PSC Girders on pile foundation including substructure, protection work and other related works etc., between stations Indiranagar and Surbarai in connection with Doubling of Viramgam - Samkhiyali BG section of Western Railway - Value – Rs. 89.26 Cr.

A selective list of ongoing projects in the Sector during the year includes:

• Indore - Jhabua - Gujarat/MP BOT: 4-laning of Indore - Jhabua - Gujarat/MP border section of NH 59 from KM 9.50 to KM 171.0 on BOT (Toll) basis under NHDP phase III in the State of Madhya Pradesh. Value – Rs. 1314 Cr.

• Bijapur- Hubli National highway - Widening to two lane with paved shoulder form Km 4.40 to 56.00 of NH-218 . Bijapur- Hubli Section under EPC mode in the State of Karnataka Value – Rs. 172.38 Cr Construction of Cement Concrete Road from Tadali Sakharwahi Ghuggus Road in KM 0/00 to 13/500 (Actual 0/00 to 12/00) Ta. & Distt. Chandpur (CRF) Rs. 37.15 Cr

• CMC Karwar: Execution of road and drain improvement works. Rs. 110 Cr.

The government has announced the National Highway Development Programme, aiming to upgrade 54,000 kilometres of highways. On the rail network front, the government aims to build 25,000 kilometres of new lines by 2020, as against about 2500 kilometres added between 2006 and 2014. Recent announcements by the government showing a quantum rise in transportation infrastructure do provide us good hope of the sector getting improved in the coming years.

MINING

The Mining industry in India is a major economic activity which contributes significantly to the economy of India. In recent years, it has been facing issues of large-scale displacements, resistance of locals, human rights issues like indentured labour and environmental issues like pollution, deforestation and dangers to animal habitats.

Your company has been treading carefully in the mining sector and has a sophisticated and prestigious project.

• Malanjkhand Underground Project, Madhya Pradesh:

The project aims to develop an underground mine and is planned to extract 5 Million TPA of copper ore in Malanjkhand, Balaghat, Madhya Pradesh. It involves sinking 4 vertical shafts to depths ranging from 665m to 695m, for lifting ore, carrying men & material and for ventilation. A total of 2 Declines at 1 in 7 gradients, reaching up to a depth of 660m have to be constructed. The excavation of declines, drives, crosscuts, passes, raises etc. would go to a total length of 55.40 km. The project would use sophisticated mining machinery - two Friction Winders of capacity 4500 kW & one Service Winder of capacity 2300 kW for hoisting of 100 workers as a part of the job.

India has vast minerals potential with mining leases granted for longer durations of 20 to 30 years. The demand for various metals and minerals will grow substantially over the next 15 years. The power and cement industries also aid growth in the metals and mining sector. The economy growth of more than 7% in the years to come will provide a major thrust to the demand of minerals like coal and iron ore.

Transmission Line Tower (TLT), Nagpur

Your companys subsidiary M/s. IVRCL TLT Private Limited business at Butibori, Nagpur, Maharashtra manufactures and supplies Transmission Towers. With a manufacturing capacity area of 23 acres and an installed capacity of 36,000 MT per annum, it is a vital support for the EPC Transmission Line business. It is certified by International Standards Certifications Pty. Ltd (ISC) for Integrated Management System (IMS). Of late, the factory caters to other EPC players in the transmission sector as a quality vendor.

The business has done well as a standalone merchant producer and clocked 17600 t in 2017-18 , a 50 % growth. All key blue chip EPC customers in the field are its customers.

OVERSEAS Afghanistan

Reconstruction and Rehabilitation of Ring Road Project Civil Works for the Reconstruction and Rehabilitation of Ring Road Between Qaisar and Laman Section I Km 110+000 to Km 144+000 (34 km) Value : USD 36.59 Million

Rwanda

Lake Victoria Water Supply and Sanitation Program, Phase-II: The project is envisaged to supply Drinking water to Nyagatare, Nyanza and Kayonza Towns.

Kenya

Bura Irrigation and Settlement Scheme Rehabilitation Project: The objective of the project is to augment water from Tana river through Gravity process by covering 5500-hectare irrigable land.

Tanzania

Lindi Drinking Water Supply Project: The project aims to supply drinking water to Lindi and nearby Villages.

IVRCL TECHNICAL SERVICES & SOLUTIONS

The industry customers are now trying to find newer ways for efficient and effective use of their assets constructed under EPC orders. As a policy, government customers are now combining capex (EPC) orders with O&M (Operations & Maintenance). The O&M could typically be for five years. This is being felt in all the companys business sectors of Water, Irrigation, Power, Transportation and Mining.

Your company has noticed this trend and entered into value added services, including O&M three years back. In the first phase, the O&M business will focus on the existing EPC lines of business, and leverage the companys pre-qualification and technical manpower talent.

India has a severe shortage of trained technical talent. This service division will provide gainful employment and meaningful work to thousands of qualified youngsters across the country. The companys training capabilities will be deployed to bring raw recruits quickly to the desired competence level. The first set of services relate to the Water sector.

The offerings of IVRCL Technical Services and Solutions include:

Comprehensive O&M

Retrofit & Revamp

Analysis Reports

Plant Performance Audits

Asset performance & efficiency in a cost-effective manner is instrumental in running a business profitably over time. Every aspect of Assets undertaken by IVRCL Technical Services and Solutions is handled by highly trained and seasoned industry professionals.

An outsourced O&M allows the customer to :

Reduce operational cost and improve systems and processes

Have access to a large team of experienced engineers and technicians spread across the country

Increased Assets Turnover & life

Operation & Maintenance Projects

1. Comprehensive O&M of 270 MLD CWSS stage IV Phase I pumping stations at TK Halli, Harohalli and Tataguni including 220/66/6.6 KV substations at Harohalli and Tataguni for a period of 7 years – Rs.27.08 Crores

2. Comprehensive Operation, maintenance and monitoring contract for multi village Piped Water Supply Scheme, Mouzampur, Block-Barhara, District- Bhojpur including running of laboratory, providing adequate manpower, spare parts, chemicals of 60 months to ensure regular & potable water supply from the scheme to all the 39 villages benefited from the scheme- Rs.5.18 Crores

3. Operation & Maintenance of Sewage Treatment Plant (12 MLD) at Khajakunta Division No.122 in Kukatpally Division-14, West Zone, GHMC - Rs.0.52 Crores

4. Supply of contract workers for maintenance of singh nagar 40 MLD sewage treatment plant in Circle II area for the period of Oct 2016 to Mar 2017 for VMC - Rs.0.13 Crores

RISKS AND CONCERNS

In view of the current environment and the CDR/SDR packages and having been referred to the NCLT subsequently, IVRCL has enhanced its focus on risk management. Project execution overview has been significantly strengthened by adding more experienced and senior persons to the PMC (Project Monitoring Cell). Reviews are conducted regularly to understand the cost profile of the original bid and the effect of time on costs.

Risks are also faced in the new jobs which have to be bid for and the market is very price competitive. IVRCL has put in place much stronger cost review mechanisms for jobs to be bid and has increased the benchmark rate at which the job will be bid for.

The concerns for the company are the delay in sorting out the cases pending for extra claims, delays with some of the jobs relating to the land acquisition and environmental clearances, and very slow progress on arbitration. The concern is also that customers who delay from their side have no decision-making powers at the Executive levels to pass on the compensation for this.

The Resolution Professional has invited Expression of Interest from the prospective bidders for submission of Resolution Plans for revival of the Company. The future of the Company depends on the outcome of the Resolution plans submitted and approved by the Committee of Creditors.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

IVRCL continues to maintain an effective system of internal control for facilitating accurate, reliable and speedy compilation of financial information, safeguarding the assets and interests of the company and ensuring compliance with all laws and regulations.

The companys internal control systems are commensurate with the nature of its business and the size and complexity of its operations, which provide, among other things, reasonable assurance of authorization, recording and reporting of the transactions of its operations in all material respects and of providing protection against significant misuse or loss of the assets of the company.

OPPORTUNITIES & THREATS

IVRCL has assiduously built an enviable list of pre-qualifications across several areas of competence in the EPC domain over the past two decades. The infrastructure sector with its low growth in the last few years has been in a conservation mode and has focused more on its survival and not so much on growth. The opportunities that will arise relate to fresh investments being proposed all over the country. All of these will ask for new technologies like new methods of sewage treatment, urban transportation and long-distance rail transport. It will also require new methods of project execution and techniques such as the use of prefabricated elements.

The much greater concern being there for the environment, opportunities would arise in remediation works such as treating lakes, dredging rivers and restoring water bodies. In urban solid waste management, there will be many opportunities to collect and segregate waste, process waste and generate energy from waste. With the rising pressure of population in cities and the shortage of public space, software and IT hardware with sensors will be used to improve public asset use such as in parking management, delivery of citizen services, traffic management and so on.

The threats that would prevail relate more to the individual company and its ability to handle the municipality and the Government customer expectations. At the outset, the financial and bidding capability norms could get tougher. The large opportunities and the active government interest combined together is likely to bring in global players to India and they would probably be allowed to use their foreign pre-qualifications. The customers would also expect timely execution and would not be considerate for time extensions. In general, these customers might also be reducing the planned execution time for various tenders.

The Government proposes to use new techniques like Swiss Challenge, which allows a company with new capabilities and technologies to offer a solution and this will enable new parties and competitors to enter the fray and set a benchmark. Last but not the least, the market is expected to continue being price competitive. Design for frugal material usage, strong cost skills for procurement and good contracting skills are required to ensure the promised profits.

HUMAN RESOURCE MANAGEMENT

IVRCL has a proud record of people retention and its brand equity with the customers has risen because of this. The current focus of the company is to improve productivity at each project site and in each central function, to that effect; the manpower deployment has been carried out based on competency rating programmes, transfers, re-skilling and retraining. The more frequent and dynamic reviews are carried out to see the competence deployed in a given situation and when the human resource becomes surplus in a given project. As a result of this, the company has retained and kept the faith of a good number of long-serving employees, who are the vital connection to the customers.

FUTURE OUTLOOK

The recent passage of the IBC (Insolvency & Bankruptcy Code) has been a major change in the environment for the company. State Bank of India filed an application before the Honble National Company Law Tribunal (Hyderabad) for initiation of Corporate Insolvency Resolution Process ("CIRP") under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") against the Company. The NCLT Hyderabad Bench admitted the said application vide its order dated February 23, 2018 ordering the commencement of CIRP against the Company and thereby automatically suspending the powers of the existing Board of Directors of the Company as per Section 17 of the IBC and vesting with Mr. Sutanu Sinha, Resolution Professional. The CIRP period will be for 180 days initially from the date of the order which could be extend for a further period of 90 days.

The Resolution Professional has invited Expression of Interest from the prospective bidders for submission of Resolution Plans for revival of the Company. The future of the Company depends on the outcome of the Corporate Insolvency Resolution Process

Financial Review

The following table sets forth the income statement for the financial year ended March 31, 2018 and March 31, 2017. The components of expenses have been expressed as a percentage of total income for the period indicated.

( Rs in million)
March 31, 2018 March 31, 2017
Net Income from operations 14,135 20,153
Other income 865 389
Total income 15,000 20,542
Construction expenses 16,576 17,932
Construction expenses as a percentage to total income 110.5% 87.3%
Employee Benefit expenses 1,013 1,324
Employee Benefit expenses as a percentage to total income 6.8% 6.4%
Other Expenses 1,825 4,620
Other expenses as a percentage to total income 12.2% 22.5%
EBITDA (4,414) (3,334)
EBITDA - percentage to total income (29.4%) (16.2%)
Finance cost 14,893 6,848
Finance cost as a percentage to total income 99.3% 33.3%
Depreciation 646 720
Depreciation as a percentage to total income 4.3% 3.5%
Profit/(loss) before tax (PBT) (19,953) (10,902)
PBT - percentage to total income (133.0%) (53.1%)
Profit/(loss) after tax (PAT) (19,912) (1,295)
PAT - percentage to total income (132.7%) (6.3%)

The order book position of the Company stood at Rs 79,100 million as on March 31, 2018.

Revenue from operations:

The reduction in the turnover of the Company by 29.9% is primarily due to limited working capital deployment in projects. The Company is facing acute fund shortage, resulting in slow progress of projects.

Profitability:

During the year, margins in some of the projects have been revised downwards, which has adversely affected the gross margin.

The lenders of the Company exited from CDR during the year and have withdrawn all benefits including charge of concessional interest rates with effect from November, 2013. The higher finance cost is attributable to such reversal of lower interest charge with retrospective effect.

The Company is in continuous engagement with its clients to realize the claims filed with clients towards deviation in design, idle time charges etc. Claims to the extent of around Rs 35,000 million are already under arbitrations/disputed in courts. The claims would be accounted for as and when certainty as regards acceptance of claims are established.