IVRCL Ltd Management Discussions.

Industry Overview

Indian growth often receives global attention because of its economy, which is not only huge but also reasonably stable. While the global average growth rate of economies is about 2.7 percent, India clocked an impressive 7 per cent last year. 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 World Bank forecast Indian economy to grow at 7.0 per cent in 2016 and at 7.6 per cent in 2017 respectively according to its January 2017 reports. The numbers released by the India Central Statistics Office (CSO) seem to flock around these predictions though a corrective picture post demonetization in Nov 2016 is awaited in the subsequent revisions of the GDP statistics. As per the last reports, our annual gross domestic product (GDP) growth for the October-December period came in at 7.0 per cent, a bit slower than 7.4 per cent in the previous quarter but also much faster than the 6.4 per cent growth forecast by economists in a Reuters poll. 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 has slowed down due to a variety of reasons. The Governments reduced pace of awarding new projects; delays in execution of projects, lack of environmental clearances and delays in land acquisition have been significant contributors.

The problems of the sector as 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 been launched for a second round after the initial twenty cities. 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 three to four 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, stopped in 2012.

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) and continues to march as a leader in this sector.

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

1. MCGM, Underground Water Tunnel: This is a one-of-a- kind project involving the construction of a water supply Tunnel between Kapurbawdi and Bhandup. The tunnel is Indias deepest and longest water tunnel - 8.3 km long, 6.3m diameter and 128m deep tunnel, carrying drinking water from Thane to Mumbai. Innovative cutting-edge technology using Tunnel Boring Machine (TBM) and GPS Tunnel Alignment System were used for the project. Despite challenging ground conditions, the TBM bored through the basalt rock to deliver production rates of 870m a month. Both the daily and monthly progress made are records for TBM tunnelling in India - Value 521 Cr

2. Krishna Phase -III: The project involves manufacturing, supplying, lowering, laying, jointing, testing and commissioning of 2375mm dia MS pumping main with cement mortar inlining and outcoating from CWR at Nasarlapally to CWR at Godakondla (along Nagarjunasagar - Hyderabad road from Km.82/2 to 59/6 Km) including Manning, Operation & Maintenance for a period of 2 years - Package-II - Value 164 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 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 - 408 Cr.

3. Purandar Lift Irrigation Scheme: Construction of Project on Turn Key basis which includes construction of Lift Irrigation scheme and appurtenant works (Dist. Pune), Constructing Pump Houses at 6 stages, M.S Raining mains, Pumping machinery at different stages, storage weir and closed canal - Value 321 Cr.

4. 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 - 310 Cr.

5. 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: 300 Cr.

6. 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 - 280 Cr.

7. Chambal - Dholpur - Bharatpur Water Project: Work of Regional water supply schemes of 283 villages and their NRVs & dhanies, of Deeg & Nagar Tehsils of Distt. Bharatpur, under CDBP WS project and Augmentation of UWSS of Deeg & Nagar towns on Single responsibility turnkey basis i.e. Design, Build and Operation & Maintenance during defect liability period up to 1 year after completion of work & thereafter for 10 years. Value - 263 Cr.

8. NC 28: Bulk water Transmission main 2000 mm dia (FID) - Navda to Budhel- Swarnim Gujarat Surastra-Kutch Water Grid- NC-28. EPC Contract for Providing, Supplying, Lowering, Laying, Jointing & Commissioning of Bulk Water Transmission main 2000 mm dia (FID) M.S.pipeline from Navda - Budhel including Civil, Electro-Mech work for Navda-Budhel & Navda-Botad scheme along with 10 years O & M (NC-28). Value: 261 Cr.

9 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 255 Cr.

10 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 249 Cr.

11. 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 - 183 Cr.

The new 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. The twelfth five-year plan (2012-17) has focused attention on all of these issues putting great emphasis on aquifer mapping, watershed development, involvement of NGOs, and efficiency in developing irrigation capacity.

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. Your company continues to forge ahead with these strong pre-qualifications.

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

1. Punasa Lift Irrigation Scheme: Distribution network by pipelines, reservoirs - Value 419 Cr.

2. Mid Manair Reservoir Project: Construction of balance work of formation of Mid Manair Reservoir near Manwada (V), Boinpally (m) , Karimnagar (dist.) with all associated components such as: Formation of Earth bund from 2.00 to 10.4 km and its allied works - Value 268 Cr.

3. Narsapur Canal, Pkg-1: Pkg No. 19 Modernization of Godavari Delta System Narsapur Canal and its distributory system - Value 132 Cr.

4. Honnavalli - Tumkur branch canal under Hemavathy Project - Turnkey: design, supply, installation, testing & commissioning of pumping machineries Value - 76 Cr.

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

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 - 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 - 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 - 603 Cr.

4. HNSS -Stage-1, Phase-1- Main Canal: Investigation, Design, Estimation & Construction of Pumping Stations - Value - 558 Cr.

5. 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 - 522 Cr.

6. 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 - 478 Cr.

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

8. 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 360 Cr.

9. Lower Goi Project: Execution of Lower Goi Project including construction of Earthen Dam, composite dam. Value - 283 Cr.

10. Birpur Project: All works including (Canal Systems & Buildings) under ERM (Extension, Renovation and Modernization) of Eastern Kosi Canal System including settling basis, repairing and construction of building, Airport under Chief Engineer, Water Resources Department, Birpur, Bihar. involving building and irrigation canal modernization works. - Value - 267 Cr.

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

With several state governments, especially the recently elected ones, 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, 2005, 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). There would be a well-known building complex by IVRCL in most of the cities in India.

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

1. Secretariat Building at Naya Raipur (NRDA): Construction of state SECRETARIAT Building at Naya Raipur (NRDA) - Value 179 Cr.

2. Telcon Factory at Kharagpur - Phase II, III: Construction of Factory Buildings in TELCON Factory-KHARAGPUR-PH- II (WEST BENGAL) - Value 85 Cr.

3. ONGC Mangalore Petrochemical Ltd: Construction of internal roads, stormwater drains, fire Water & raw water reservoirs, pump houses, hose station and allied civil works in ONGC Area in Maglore - Value 45 Cr.

4. Satsang hall at Bandra: Construction of Meditation Hall at Bandra, Mumbai. Value - 29 Cr.

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 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 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 290 Cr.

4. DSIIDCL - Rehabilitation: DSIIDC / Delhi Govt. constructed cost-effective houses with essential services like electricity, water and sewage disposal, besides other infrastructural facilities required to make them habitable to be allotted to economically weaker groups. The project is to be implemented using eco-friendly materials and conservation of natural resources (i.e. Fly Ash Brick) and the houses are also to be compatible with earthquake. Value - 243 Cr.

5. 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 - 182 Cr.

6. 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 163 Cr.

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

8. Bihar Vidhan Sabha and Secretariat Complex Extension, Patna: Extension of Bihar Vidhan Sabha and Secretariat Complex (additional buildings) at Patna includes civil work like Earthwork, Pile work, Prestressed Concrete work, Water Proofing work, Finishing works & Misc works, water supply & sanitation works, Internal Electrification & Firefighting works. - Value 131 Cr.

9. CIDCO Exhibition Centre: CIDCO Exhibition Centre including CIVIL, Interior & Site Development work - Value 114 Cr.

10. 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 75 Cr.

11. International Cricket Stadium - Vijayawada: Construction of International cricket stadium including water supply, Sewage lines, Internal Electrification, internal roads etc. - Value 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. Given its pre-qualification, your company is well poised to capitalize these opportunities.

POWER

Your company concentrates on Power Transmission Lines and Rural Electrification. The central government is planning to award transmission projects worth 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, 2015. These match the industry best.

A selective list of completed works by the Power Division 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 - 61 Cr.

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

• HVPNL: 132 kV S/C line on D/C towers from 220 kV S/ Stn. Batta to 132 kV S/Stn. Rajound, 132 kV D/C line from 400 kV S/Stn. Deepalpur to 132 kV S/Stn. Tajpur, 132kV S/C Line from 220 kV S/Stn., Batta to Dhanouri, 132kV S/C Line from 220 kV S/Stn., Batta to Padla, 132 kV S/C line on D/C towers from Dhudianwali to Kariwala Transmission Line (Total length = 89.78 kms. Value - 29 Crores).

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 as of March, 2015.

A selective list of completed works by the Transportation Division during the year includes:

• Karanji - Wani - Ghuggus - Chandrapur Road:

Development of Four-laning and Improvement of Karanji

- Wani - Ghuggus - Chandrapur Road under MSH 6&7 in Yavatmal & Chandrapur dist. - Value 692 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 - 1314 Cr.

• TN-08: Design, Construction, Development, Finance, Operation and Maintenance of Km 102/020 (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). Value - 921 Cr.

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

• Byappanahalli Station - phase-1 - BMRCL: Construction of two metro stations - CMH Road, Byappanahalli Station

- phase-1 - BMRCL includes Piles / Piers / RCC frame / Structural dome roof / HVAC/ Lighting/ track bed - Value 102 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.

Your company continues to leverage its strong pre-qualification for bagging and executing the upcoming projects in the transportation sector.

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) Factory, Nagpur, Maharashtra

Your companys TLT factory 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.

OVERSEAS

Kingdom of Saudi Arabia (KSA)

For a Residential Housing Project, your company has received a large order from Kingdom of Saudi Arabia (KSA). The EPC project includes construction of 513 apartment buildings and villas, administrative buildings, kinders, schools, masjid, recreation buildings, fire-fighting buildings, clinic buildings, shopping centres, playgrounds, operation and maintenance buildings, warehouses, water treatment buildings, fuel stations and sewage treatment buildings in three locations in KSA.

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.

Rwanda

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

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 decided to enter into value added services, including O&M. An O&M Division has been set up in FY14-15. In the initial 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.

The advantages of IVRCL Technical Services & Solutions mainly include:

• Reduced operational cost and improved systems and processes

• Access to a large team of experienced engineers and technicians spread across the country

• Increased Assets Turnover

• Increased Asset life

• One point of contact

RISKS AND CONCERNS

In view of the current environment and the CDR package, 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.

INTERNAL CONTROL SYSTEMS AND THEIR 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.

The internal control system is managed through a continuous internal audit by outside professionals, duly supported by our in-house internal audit team, which is empowered to examine the adequacy and compliance of our systems and processes with the policies, plans and statutory requirements. The internal audit team also conducts regular audits across the companys operations in all key business areas as per the predrawn audit plan.

All significant audit observations and follow-up actions are reported to the Audit Committee along with Internal Audit Reports and Management responses/replies thereon. The minutes of the Audit Committee are reviewed by the Board for its suggestions / recommendations to further improve the internal control system. The Audit Committee periodically reviews audit plans, observations and recommendations of the Internal Auditors with reference to significant risk areas and adequacy of internal controls.

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. Almost 50% of the employees, out of a total headcount of 1708 (as of Mar 31, 2017), are Engineers. 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 re-training. 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 company has had a prolonged period of Debt Restructuring under CDR followed by SDR. During this period, the company has tightened its financial control systems and cash flows and costs are prudently controlled.

The recent passage of the IBC (Insolvency & Bankruptcy Code) has been a major change in the environment for the company. The banks have been empowered to negotiate the best possible avenues for revival and restructuring of the company. The possibility of getting an investor has been made attractive by the GoIs positive attitude to the same.

The company is actively looking at divestment of its BOOT assets and to get Strategic Investment for itself. The environment for Civil & Contracting companies has become more clear and positive.

The NHAI, Metro Construction and Electrical Transmission to name three sectors are progressing well. There is a cautious upturn in all other areas of Contracting. With all these changes, we see a better future emerging.

Financial Review

The following table sets forth the income statement for the financial year ended March 31, 2017 and March 31, 2016. The components of expenses have been expressed as a percentage of total income for the period indicated.

(Rs. in million)

March 31, 2017 March 31, 2016
Net Income from operations 20,153 23,617
Other income 389 235
Total income 20,542 23,852
Construction expenses 17,932 24,317
Construction expenses as a percentage to total income 87.30% 101.90%
Employee Benefit expenses 1,324 1,526
Employee Benefit expenses as a percentage to total income 6.44% 6.40%
Other Expenses 4,620 1,764
Other expenses as a percentage to total income 22.49% 7.40%
EBITDA (3,335) (3,755)
EBITDA - percentage to total income (16.23%) (15.70%)
Finance cost 6,848 6,776
Finance cost as a percentage to total income 33.34% 28.40%
Depreciation 720 802
Depreciation as a percentage to total income 3.50% 3.40%
Profit/(loss) before tax (PBT) (10,902) (11,333)
PBT - percentage to total income (53.07%) (47.50%)
Profit/(loss) after tax (PAT) (1,295) (10,679)
PAT - percentage to total income (6.30%) (44.80%)

The order book position of the Company stood at 74,600 million as on March 31, 2017.

Revenue from operations:

The Company achieved a net turnover of 20,153 million for the financial year ended March 31, 2017, which is 14.7% lower than the turnover for the previous financial year. The major factor contributing to reduction in turnover is liquidity crunch in the system and unavailability of additional banking facilities. The Companys operations, execution of projects got adversely affected due to unavailability of liquid fund and resulted in lower turnover.

Profitability:

The Company maintained gross margin of 12.6% in spite of lower income from operations. However, EBITDA level was negative due to higher percentage of administrative cost primarily by way of provision for doubtful debts. The negative net margin (PAT) is reduced to 1,295 million as compared to 10,679 million in the previous year primarily because the Company accounted for deferred tax asset in the current financial year.

The Company is in continuous engagement with its clients to realize the claims filed to the extent of around 46,200 million towards deviation in design, idle time charges etc. out of which claims to the extent of 30,400 million are already under arbitration. The claims would be accounted for as and when certainty as regards acceptance of claims are established.