AJR Infra & Tolling Ltd Management Discussions.

ECONOMIC OVERVIEW

Global Economy

The year 2020 was marked with massive shock and severe contractions onto the world economy due to unprecedented shutdowns to contain the coronavirus pandemic. As per the International Monetary Fund ("IMF"), the global economy contracted sharply by negative 3.5 percent in 2020, much worse than during the 2008–09 Financial Crsis.

More than a year into the arrival of the COVID-19 pandemic, the worlds population is gradually being vaccinated, thanks to the discovery and production ingenuity of the global scientific community. Notwithstanding the resurgence of second and third waves, coupled with more infectious variants of the COVID-19 virus, the steady progress in gradual immunisation is expected to lessen the need for social restrictions and power recoveries in many countries during the latter half of CY2021. Despite reduced mobility, economies continue to adapt to new ways of working, leading to a stronger-than-anticipated rebound across regions. Even while growing vaccine coverage lifts sentiment, the global economic outlook is still regionally unequal and overall uncertain. Nevertheless, a way out of this health and economic crisis is becoming increasingly visible.

According to IMFs World Economic Outlook April 2021, after witnessing a contraction of 3.3% in CY2020, the global economy is estimated to grow at 6% in CY2021 and moderate to 4.4% in CY2022. In some economies, occasional regional restrictions will likely be necessary at times to stem the progression of new waves and strains of the virus. As the more vulnerable segments of the population get vaccinated, contact-intensive activities are expected to steadily resume.

Furthermore, the divergent recovery paths are likely to create wider gaps in living standards across countries compared to pre-pandemic expectations. As per IMF projections, the average annual loss in per capita GDP over CY2020–24, relative to pre-pandemic forecasts, is projected to be 5.7% in low-income countries and 4.7% in emerging markets, while in advanced economies the losses are expected to be smaller at 2.3%. Such losses are reversing gains in poverty reduction, with an additional 95 million people expected to have entered the ranks of the extreme poor in CY2020 compared with pre-pandemic projections.

The global growth forecast remains uncertain due to factors that are difficult to predict, including the pathway of the pandemic, the intensity and efficacy of containment efforts, supply disruptions, the repercussions of the dramatic tightening in global financial market conditions and shift in spending patterns. Moreover, although recent vaccination drives have raised hopes of a turnaround in the pandemic later this year, renewed waves and new variants of the virus could cause a reassessment of this outlook. The IMF also highlights that the strength of the recovery projected may vary significantly across countries, depending on access to medical interventions, effectiveness of policy support, exposure to cross-country spillovers, and structural characteristics entering the crisis.

Indian Economy

Prior to the pandemic of 2020, India had become the worlds fifth largest economy as per the IMF. When ranked by nominal GDP, the country had leapfrogged both France and the UK. However, CY2020 saw unprecedented disruptions to lives and livelihood across the country due to the pandemic and caused a detrimental impact on the economy as well. The pandemic induced challenges into industries and businesses and the country had to shift into low gear, if not standstill. It has caused unprecedented output losses in the Asia Pacific Region. Losses varied widely across economies, as a function of the stringency and effectiveness of containment policies, dependence on tourism and contact intensive services, and the degree of policy support. Although recovery is now underway, the pandemic is receding in some countries. Elsewhere, second and third waves of infections are raging, notably in India and some of the ASEAN economies.

The IMFs World Economic Outlook – April 2021, forecasts Indias GDP trajectory sliding down by 8% over the preceding year, with an expected rebound growth of 11.5% in FY2022. However, there is a permanent residual loss that will take quite some time to recover. Assessing the impact of the pandemic on Indias informal economy is still very much a work-in-progress, given data collection challenges as well as the data collation lag.

The upsurge in new infections, as seen starting mid of February 2021, is bending up the pandemic curve, inducing further restrictions on mobility and a greater sense of urgency in expanding vaccine availability and faster immunisation rollout. While the availability of vaccines, gradually reducing infections, and increased mobility will be key to economic and industrial revival, different industries will likely see different rebound paths until the pandemic is truly over.

In the meantime, the impact of the pandemic may lower potential growth in the short term, due to eroded human capital and investment growth. Furthermore, output may also remain below pre-pandemic trend through the medium term, while returning to full capacity might take longer than anticipated. Given these recent development, one can likely expect IMFs growth projection for India to get revised once again to be more conservative.

A return to tighter financial conditions could exacerbate pre-pandemic vulnerabilities (such as highly leveraged public and private sector balance sheets), tip struggling corporations and small and medium enterprises into bankruptcy, worsen credit risk and financial stability, and aggravate debt overhangs.

Similar to the stimulus plans introduced by the major economies, the Indian government too has decided that an expenditure-led budget can help trigger strong recovery for the Indian economy. To fight Covid-19 pandemic in India, the Government introduced an aggressive calling for kick-starting its Atmanirbhar Bharat Abhiyaan (Self-reliant India campaign). The government is also planning to take several bold makeovers through measures such as supply chain reforms for agriculture, rational tax systems, simpler & clearer Laws, capable Human Resource, and a Stronger Financial System.

The Union Budget FY2022 was also designed to focus on being socially inclusive and growth-augmenting. Higher Government spending and supportive policies announced in this budget are expected to help sustain corporate recovery and improve longer-term prospects.

INDUSTRY REVIEW

Roads

According to India Brand Equity Foundation (IBEF), India has the second-largest road network in the world, spanning a total of 5.89 million kilometres (kms). This road network transports 64.5% of all goods in the country and 90% of Indias total passenger traffic uses road network to commute. Road transportation has gradually increased over the years with improvement in connectivity between cities, towns and villages in the country.

Highway construction in India increased at 17.00% CAGR between FY16-FY21. Despite pandemic and lockdown, India has constructed 13,298 km of highways in FY21. The Government of India has allocated Rs. 111 lakh crore (US$ 1.4 trillion) under the National Infrastructure Pipeline for FY 2019-25. The roads sector is likely to account for 18% capital expenditure over FY 2019-25.

Some of the recent Government initiatives are as follows:

• The government aims to construct 23 new national highways by 2025.

• The Minister for Road Transport & Highways and Micro, Small and Medium Enterprises, Mr. Nitin Gadkari, is targeting to construct 40 kms per day in FY22.

• Under the Union Budget 2021-22, the Government of India has allocated Rs. 108,230 crore (US$ 14.85 billion) to the Ministry of Road Transport and Highways.

• The NHAI awarded 1,330 km of highways in the first half of FY21, which was 1.6x of the total awards in FY20 and 3.5x of the FY19-levels. NHAI, the nodal authority for building highways across the country, has set a target of awarding 4,500km of projects in FY21.

The Government, through a series of initiatives, is working on policies to attract significant investor interest. A total of 200,000 km of national highways is expected to be completed by 2022. In the next five years, National Highway Authority of India (NHAI) will be able to generate Rs. 1 lakh crore (US$ 14.30 billion) annually from toll and other sources.

Ports

According to India Brand Equity Foundation (IBEF), According to the Ministry of Shipping, around 95% of Indias trading by volume and 70% by value is done through maritime transport. In November 2020, the Prime Minister, Mr. Narendra Modi renamed the Ministry of Shipping as the Ministry of Ports, Shipping and Waterways. India has 12 major and 205 notified minor and intermediate ports. Under the National Perspective Plan for Sagarmala, six new mega ports will be developed in the country. The Indian ports and shipping industry play a vital role in sustaining growth in the countrys trade and commerce. India is the sixteenth-largest maritime country in the world with a coastline of about 7,517 kms. The Indian Government plays an important role in supporting the ports sector. It has allowed Foreign Direct Investment (FDI) of up to 100% under the automatic route for port and harbour construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports.

Indias key ports had a capacity of 1,534.91 million tonnes per annum (MTPA) in FY20. In FY21, all key ports in India handled 672.60 million tonnes (MT) of cargo traffic.

Some of the major initiatives taken by the government to promote the ports sector in India are as follows:

• In Union Budget 2020-21, the total allocation for the Ministry of Shipping was Rs. 1,702.35 crore (US$ 233.48 million).

• The key ports are expected to deliver seven projects worth more than Rs. 2,000 crore (US$ 274.31 million) on a public-private partnership basis in FY22. Private sector investments in ports have steadily increased over the last five years, touching an all-time high of US$ 2.35 billion by 2020.

• The Finance Minister proposed to double the ship recycling capacity of ~4.5 million light displacement tonnes (LDT) by 2024; this is expected to generate an additional ~1.5 lakh employment opportunities in India.

• In Union Budget 2021, the government announced subsidy funding worth Rs. 1,624 crore (US$ 222.74 million) to Indian shipping companies to encourage merchant ship flagging in the country.

• In February 2021, the Major Port Authorities Bill, 2020 was passed by the Parliament of India. The bill aims to decentralise decision-making and reinforce excellence in major port governance.

Increasing investment and cargo traffic point towards a healthy outlook for the Indian ports sector. Providers of services such as operation and maintenance (O&M), pilotage and harbouring and marine assets such as barges and dredgers are benefiting from these investments. The capacity addition at ports is expected to grow at a CAGR of 5-6% till 2022, thereby adding 275-325 MT of capacity. Domestic waterways have found to be a cost-effective and environmentally sustainable mode of freight transportation. The government aims to operationalise 23 waterways by 2030. As part of the Sagarmala project, more than 574 projects worth Rs. 6 lakh crore (US$ 82 billion) have been planned for implementation between 2015 and 2035. In Maritime India Summit 2021, the Ministry of Ports, Shipping and Waterways identified a total of 400 projects worth Rs. 2.25 lakh crore (US$ 31 billion) investment potential. Indias cargo traffic handled by ports is expected to reach 1,695 million metric tonnes by 2021-22 according to a report by the National Transport Development Policy Committee.

Indian Power Sector

Power Demand

India is the worlds third-largest energy consuming country, thanks to rising incomes and improving standards of living. According to World Energy Outlook 2021 (WEA 2021), energy use has doubled since 2000, with 80% of demand still being met by coal, oil and solid biomass. On a per capita basis, Indias energy use and emissions are less than half the world average, as are other key indicators such as vehicle ownership, steel and cement output.

According to WEA 2020, an expanding economy, population, urbanisation, and industrialisation mean that India sees the largest increase in energy demand of any country to 2040. Indias economic growth has historically been driven mainly by the services sector rather than the more energy-intensive industrial sector, and the rate at which India has urbanised has also been slower than in other comparable countries. But even at a relatively modest assumed urbanisation rate, Indias sheer size means that 270 million people are still set to be added to Indias urban population over the next two decades. This leads to rapid growth in the building stock and other infrastructure. The resulting surge in demand for a range of construction materials, notably steel and cement, highlights the pivot in global manufacturing towards India. As India develops and modernises, its rate of energy demand growth is three times the global average.

While India recovers from a Covid-induced slump in 2020, it is re-entering a very dynamic period in its energy development. Over the coming years, millions of Indian households are set to buy new appliances, air conditioning units and vehicles. India will soon become the worlds most populous country, adding the equivalent of a city the size of Los Angeles to its urban population each year. To meet growth in electricity demand over the next twenty years, India will need to add a power system the size of the European Union to what it has now.

Thermal Energy: Coal

India has a large relationship with coal, behind only the U.S. and China. According to IEEFA estimates, over 50% of the countrys installed generation capacity of 370 GW is comprised of the fossil fuel, and policy tailwinds could prompt another 70 GW to come online by 2026, which would increase the installed base by +35%.

Despite this, coal will have a diminishing future in India as the country propels its own energy transition, which will rapidly increase the amount of renewables available to provide power. According to WEA 2021, Coals hold over Indias power sector is loosening, with industry accounting for most of the increase in coal demand to 2040. Once the coal-fired power plants currently under construction are completed over the next few years, there is no net growth expected in Indias coal fleet. Coal-fired generation was most exposed to the dip in electricity consumption in 2020. It picks up slightly as demand recovers since renewables do not cover all the projected increase in electricity demand. However, coal suppliers looking for growth increasingly have to turn to Indias industrial consumers rather than the power sector. The share of coal in the overall energy mix is expected to steadily decline, from 44% in 2019 to 34% in 2040.

Moreover, a majority of Indias coal plants are increasingly less commercially viable, and nearly a hundred billion dollars of bad debts loaned to the thermal power generation sector are reported to exist on banks books. Even though renewable energy reflects 10-12% of power generated in India today, the average utilisation factor of ~60% for most the countrys coal plants signals another reason to move away from coal. The quality of coal made in India is of lower stock and higher ash content, which means the lower relative calorific value and higher associated emissions will simply not be worth it in a world with a higher price for carbon.

Renewable Energy: Hydro

According to WEA 2021 report, hydropower is expected to expand, with total capacity doubling over the next two decades to about 100 GW in 2040. Most of this growth is in the form of large hydro projects, which manage to overcome significant hurdles such as land access and permitting challenges. Government initiatives to improve project viability, including HPOs and financial support for enabling infrastructure, enable these new projects to tap a significant share of the remaining hydro potential in India.

Hydropower is the second-largest source of supply and demand-side flexibility in India today with a total capacity of nearly 50 GW, mostly located at large reservoirs. There are also close to 5 GW of pumped hydro storage facilities in India, with significant potential for more that remains largely untapped to date due to regulatory and environmental constraints and to economic factors. Additional hydropower capacity will play an important part in expanding Indias power system flexibility. Installed hydro capacity increases by about 50% to 2030, and hydropower remains the second-largest flexibility source in India.

COMPANY OVERVIEW

AJR INFRA AND TOLLING LIMITED (formerly Gammon Infrastructure Projects Limited) is an infrastructure project development company participating in the development of infrastructure projects on a public private partnership (PPP) basis.

Strong Foundations with New Possibilities.

PROFICIENCY PORTFOLIO SECTORAL AGILITY TRACK RECORD
PRESENCE
The Company has over two decades of rich industry experience and expertise in infrastructural development. Company has the experience of executing more than 18 projects including 8 road projects, 3 bridge projects, 5 power projects and 2 port projects. The Company has a diverse infrastructure presence across multiple business verticals. These include highways, bridges, power transmission and ports. This varied exposure de-risks the business from the risk of having a singular dependence on a sector. The Company can respond swiftly to the emerging opportunities. This agility has been derived from the fact that it qualifies as per the norms of NHAI, other statutory corporations and government companies to bid for OMT and tolling projects, Port and Power Projects. The Company is a well-recognised player in the Indian Infrastructure space sector with a proven record of successful completion, operations, and efficient project execution (post all authoritative clearances).

 

ENDURING RELATIONSHIPS FINANCIAL CAPABILITY BUSINESS STRATEGY REACH
The Company enjoys longstanding customer relationships marked by repeat engagement on account of strong execution capabilities. The Company has proven capability in achieving financial closure in its past projects. The Company selects locations and projects enjoying attractive revenue visibility. This strategy has helped the Company to build a portfolio of assets, which generates assured and market driven returns. The Company is a service provider with a terrain experience of having executed infrastructure projects across Maharashtra, Andhra Pradesh, Uttar Pradesh, and Bihar, among others.

 

Details PHPL RGBL SSRPL
Location Bihar Andhra Pradesh Madhya Pradesh
Client NHAI APRDC MPRDC
Project Length / Capacity 63.17 Kms 14.715 Kms 105.587 Kms
Annual Annuity Rs. 189.2 crores NA NA
(Rs. in Crores)
Concession Period 15 years 25 years 30 years
Project Cost Rs.1,466.39 Crores Rs. 1,071 crores Rs. 1,159.72 Crores
Project Stage PCOD obtained for 39.30 Operational Terminated
Kms, 23.87 Kms under
construction
Revenue Model Annuity Toll Toll

 

*PCOD: Provisional Commercial Operations Date
PHPL Patna Highway Projects Limited (under #CIRP) VSPL Vizag Seaport Private Limited
RGBL Rajahmundry Godavari Bridge Limited (under #CIRP) ICTPL Indira Container Terminal Private Limited
SSRPL Sidhi Singrauli Road Project Limited (terminated) PREL Pravara Renewable Energy Limited
SHPVL Sikkim Hydro Power Ventures Limited (under #CIRP)
#CIRP – Corporate Insolvency Resolution Process

 

Duburi Chandikhole VSPL ICTPL PREL SHPVL
Odisha NHAI Andhra Pradesh Visakhapatnam Port Trust Maharashtra Mumbai Port Trust Maharashtra Padamshree Dr. Vithalrao Vikhe Patil Sahakari Sakhar Karkhana (PDVVPSSK) Sikkim Energy & Power Department of Government of Sikkim
39.4 Kms 9 MMTPA Capacity 1.2 Million TEUs Capacity 30 MW Capacity 66 MW Capacity
NA NA NA NA NA
2 years 30 years 30 years 25 years post COD 35 years post COD
(construction)
Rs. 577 Crores Rs. 349 Crores Rs. 1,233 Crores Rs. 274 Crores Rs. 496 Crores
Under Construction Operational Alternate interim RORO and steel operations Operational Under Construction
EPC Revenue Share Revenue Share Sale of power, steam IPP
17.111% 35.064% to client; surplus power to MSEDCL

Operational Projects

Vizag Seaport Private Limited

Vizag Seaport Private Limited (VSPL) is the Special Purpose Vehicle (SPV) formed by the Company to operate Two Multi-Purpose Berths EQ-8 & EQ-9 Berths in the Northern Arm of the Inner Harbour at Visakhapatnam Port on a Build, Operate and Transfer (BOT) basis for a period of 30 years under a Concession Agreement dated 28th November 2001 signed with VSPL with Visakhapatnam Port Trust with a Terminal capacity of 9 MTPA. The Terminal offers its customers the berthing & handling facilities up to Baby Cape Size Vessels arriving with a Draft of -14.5 m. While the commercial operations commenced in July 2004, the Terminal has been handling about 7 MTPA at present and for the Financial Year 2020-21 handled 6.34 Million Tons.

VSPL controls the road movement of the cargo with digital challans for effective turn-around time of fleet on the field. The recent electrification of VSPL railway sidings are providing cost effective operation of Locos that is being passed onto major clients.

The Covid-19 pandemic and the resultant lockdowns ordered by the Central and State Governments, adversely affected the operations during 2020-21.

The constant improvements to the terminal are paving way to improve the EBIDTA and profitability of the VSPL to benefit the stakeholders and the financial performance is as under:

(Rs. in Lakhs)

FYE – March 2021 FYE – March 2020
Total Revenue 17,975.45 18,974.97
EBIDTA 14,328.15 8,104.90
Profit after Tax (3,813.69) 771.41
Equity Share Capital 8,719.13 8,719.13
Reserves and Surplus (360.62) 3,445.99

The project has been capitalized at Rs. 34,869.77 Lakhs.

Pravara Renewable Energy Limited

Pravara Renewable Energy Limited (‘PREL) is a Special Purpose Vehicle (SPV) formed by the Company to set up 30 MW co-generation power project on Built, Own, Operate and Transfer (BOOT) basis with Padmashri Dr. Vitthalrao Vikhe Patil Sahakari Karkhana Limited (Karkhana) in Pravara Nagar, Tal. Rahata, Dist. Ahmednagar in Maharashtra for the concession period of 25 years. The Karkhana is a co-operative sugar factory registered under the provisions of the Maharashtra Co-operative Societies Act, 1960.

PREL project had commenced operations on 6th November 2015 and successfully operated over five crushing seasons.

During the Financial Year 2020-21, PREL had exported 18.44 million units of power to Maharashtra State Electricity Distribution Company Limited (‘MSEDCL) and 5.58 million units of power to Karkhana and generated total revenue of Rs. 32.29 Crores from operation. However, the revenue for the FY 2020-21 has been lower compared to previous financial year on account of breakdown in turbine resulted into no power export to MSEDCL for a period of almost two and half month and supplied steam & power to Karkhana by operating boiler through ‘Pressure Regulating Desuper-Heater and importing power from MSEDCL and also due to shortage in supply of bagasse by Karkhana during the financial year and use of alternate fuel like coal was not a viable option for operating the plant during non-bagasse season, as the price of coal was not economical to generate power. The bagasse season is expected to be good during the financial year 2021-22 and the revenues are expected to be better compared to FY 2020-21.

The total capitalisation of the project is Rs. 274 Crores as on March 31, 2021.

Financial Performance of PREL is as under:

( Rs. in Lakhs)

FYE – March 2021 FYE – March 2020
Total Revenue 3,145.74 3,865.40
EBIDTA 373.48 1,453.91
Profit after Tax (3,675.71) (2,471.98)
Equity Share Capital 4,792.00 4,792.00
Reserves and Surplus (11,933.52) (8,259.25)

Projects under Construction

Sidhi Singrauli Road Project Limited

Sidhi Singrauli Road Project Limited (SSRPL) is a Special Purpose Vehicle (SPV) incorporated by the Company for design, construction, finance and maintenance of a 102.6 kms long, four-lane dual carriageway on NH-75E, which includes the construction of new bypasses of Kauchwahi,

Behri, Karthua, Bargawa and Gorbi and re-alignment of certain stretches (SSRPL Project).

SSRPL Project is located in the State of Madhya Pradesh and is under development on Build, Operate and Transfer (BOT / Toll) basis. The Concession period is 30 years, including the construction period of 2 years. SSRPL will be entitled to collect toll in the entire operation period in lieu of its investment for development of the SSRPL Project. The total project cost is estimated at Rs. 1,14,972 Lakhs. The construction activities on the project started in September 2013.

SSRPL Project has achieved about 78.21% completion as on 31st March 2020.

The total capitalisation for the SSRPL Project was done at Rs. 97114.01 Lakhs as on 31st March 2020. The entire debt for the Project has been tied up and financing documents have been executed for the same. The Project is in its last phase of construction work to achieve Provisional Commercial Operation Date (PCOD). The extension of time has already been granted by MPRDC due to delay on their part. The achievement of PCOD was attempted by October 2021. SSRPL is also working on getting the Change of Scope approved by MPRDC, which will translate to additional works aggregating to approximately Rs. 72 Crores.

SSRPL has received notice of intention to issue termination notice for the project vide letter dated July 17, 2020 from MPRDC.

The Company has strongly objected the illegal termination solely due to the Concessionaires Default. The Company has initiated Arbitration process in the month of February, 2021 and preparing to submit "Statement of Claims" shortly.

Financial Performance of SSRPL is as under:

(Rs. in Lakhs)

FYE – FYE –
March 2021 March 2020
Total Revenue 2.46 64.69
EBIDTA (29.50) (33.38)
Profit after Tax (7,737.63) (2,453.06)
Equity Share Capital 17,041.00 17,041.00
Reserves and Surplus (2,988.22) 4749.41

Indira Container Terminal Private Limited

Indira Container Terminal Private Limited (ICTPL) is a Special Purpose Vehicle promoted by the Company, AJR Infra And Tolling Limited, formerly known as Gammon Infrastructure Projects Limited, Gammon India Limited and Noatum Ports Sociedad Limitada Unipersonal SLU, formerly known as Dragados SPL, Spain.

ICTPL and the Board of Trustees of the Port of Mumbai (MbPT) entered into a License Agreement (LA) dated 3rd December 2007 for the construction and development of an Offshore Container Terminal on Build, Operate and Transfer (BOT) basis in the Mumbai Harbor (OCT Project) and to carry out container operations from the existing Ballard Pier Station Container Terminal (BPS) of MbPT for a period of 5 years from the date of award of the License or 2 years from the commissioning of the OCT Project whichever earlier.

As per the LA, both MbPT and ICTPL were required to fulfill obligations to ensure that the OCT Project commences operations within 3 years of date of award of the License. However, MbPT has till date did not fulfill its obligations of completing even the critical activities of capital dredging, filling of Princes and Victoria Docks, permission for procuring equipment and other facilities for enabling ICTPL to complete its share of obligations and commence operations from the OCT Project.

As the delay in commencing the operations were beyond the limits set by Reserve Bank of India, the Lenders classified the account as Non-Performing Asset. As a result the Lenders halted further disbursals of loans resulting in the construction work coming to a complete standstill.

ICTPL had constructed the two offshore berths and a connecting link between the offshore berths and the mainland, a Y shaped trestle. ICTPL requested MbPT to allow it to use the completed berths for handling vessels that do not require large draft as in case of the container vessels. After much discussions with officials of MbPT, ICTPL was allowed to handle Roll On and Roll Off (RORO) vessels and Steel cargo vessels from its OCT Project terminal from July 21, 2015 on alternative interim basis. The Gross Revenue earned from these interim alternative operations was shared between MbPT, ICTPL and Lenders in the ratio of 55:20:25.

The Covid 19 pandemic has adversely affected the port operation. During the current Financial Year, ICTPL has handled 89 RORO vessels and 2 Passenger vessels with 106,428 units earning revenue of Rs. 70.58 Crores.

For reviving the OCT Project, joint discussions were held between ICTPL MbPT and the Lenders of the Project. Based on these discussions and active support from the Ministry of Shipping (MoS), a settlement agreement was drafted which was sent to the MoS for their approval. Recommendations from Niti Ayog as well favourable opinion was received from the Attorney Generals office of Government of India. Inspite of this the draft settlement agreement could not be implemented as the same did not receive final approval from the Government of India.

The Lenders attempt of invoking the Substitution Clause under Common Agreement (CLA) executed by ICTPL with them were not successful.

ICTPL has invoked the Dispute Resolution Clause under the LA. An Arbitral Tribunal has been formed and the arbitration process is underway. Both ICTPL and MbPT has submitted Statement of Claims and Statement of Counter Claims to the Arbitral Tribunal.

ICTPL has initiated a fresh attempt to resolve and revive the stalled Project. A One Time Settlement proposal has been submitted by ICTPL to its Lenders and the same is under consideration by the Lenders.

MbPT has approached ICTPL to settle all the disputes which are pending for adjudication by the Arbitral Tribunal. ICTPL has agreed to participate in the conciliation process subject to the condition that the same would be completed in a time bound manner.

Financial Performance of ICTPL is as under:

(Rs. in Lakhs)

FYE – FYE –
March 2021 March 2020
Total Revenue 3,370.85 4,149.88
EBIDTA 2,503.47 3,135.71
Profit after Tax (12,835.41) (11,135.89)
Equity Share Capital 10,156.60 10,156.60
Reserves and Surplus (47,543.76) (34,709.65)

Projects Under Development

Youngthang Power Ventures Limited

Youngthang Power Ventures Limited (YPVL) is a Special Purpose Vehicle formed by the Company for development of a 261 MW run-of-the-river hydro-electric power project on the River Spiti in Himachal Pradesh on a Build, Own, Operate and Transfer (BOOT) basis at an estimated cost of Rs.2,500 Crores, awarded by the Government of Himachal Pradesh (GoHP). The concession period of the Project is 40 years, post commencement of commercial operations.

YPVL has not been able to proceed with the studies to prepare the Detailed Project Report (DPR) due to opposition from local farmers to the Project on environmental grounds. The Company has sought the State Government of Himachal Pradeshs (GoHP) intervention in the matter to take necessary actions, including seeking of necessary consents from the gram panchayat so as to enable YPVL to take up site investigation work and preparation of DPR. However, there is no progress in this regards.

YPVL had invoked arbitration on 19th February 2018 and nominated an arbitrator on 16th March 2018 against the GoHP to protect the Companys interest in YPVL. GoHP on 4th September 2018 has intimated that they are in the process of appointment of arbitrator and will intimate shortly. Due to delay in appointment of arbitrator by GoHP, YPVL is considering further legal options. Since, there was no response to our reminder YPVL has duly filed an application under section 11(4) of the Arbitration and Conciliation Act, 1996 before the High Court of Himachal Pradesh and the matter is pending to get listed.

Tidong Hydro Power Limited

Tidong Hydro Power Limited (THPL), a Special Purpose Vehicle formed by the Company has signed an agreement with the Government of Himachal Pradesh (GoHP) for developing a 60 MW Tidong – II hydroelectric project in Himachal Pradesh. The pre-feasibility report for the project has been prepared and submitted to the GoHP, which has since been approved.

Geo-Technical Studies, Detailed Project Report (DPR) and Environmental Impact Assessment Studies by THPL are under progress. The preparation of DPR is delayed due to local villagers dispute, inadequate access to site and road blockages, unfavourable weather conditions due to high altitude and issues beyond the control of THPL. THPL has requested GoHP for the resolutions of the issues.

Cochin Bridge Infrastructure Company Limited

Cochin Bridge Infrastructure Company Limited (CBICL) is a Special Purpose Vehicle promoted by the Company, which constructed the New Mattancherry Bridge at Cochin in Kerala on a Build, Operate and Transfer (Toll) basis. The 480-metre long bridge along with the 200-metre approach road on both ends connects Fort Kochi to Willingdon Island in Cochin Port Trust area. It was operational for 14 years from October 1999 to April 2014. The total capitalisation of the Project was done at Rs. 879.45 Lakhs.

The original concession period of CBICL was valid till 27th April, 2014, which was extended by the Government of Kerala (GOK) by six years till 27th April, 2020 by its Government Order dated 24th January 2005. The extension happened because CBICL has not revised the toll rates based on WPI as per the terms of the Concession and other compliance deficiencies on the part of GOK with reference to the Concession Agreement. However, instead of entering into a supplementary agreement to amend the original concession agreement, as agreed, GOK choose to unilaterally cancel its Government Order dated 24th January 2005 by passing the Government Order dated 26th December 2008. CBICL had referred the issue to arbitration and the Arbitral Tribunal had passed orders permitting CBICL to collect the toll fees till further notice. However, the Greater Cochin Development Authority (GCDA) has on 27th April 2014 (on the last day of the original concession period), without compensating CBICL and in disregard of the Arbitral Tribunal orders, chose to unilaterally seal the toll booths of CBICL at the Mattancherry Bridge at Kochi.

The GoK showed inclination / willingness to settle the matter through mutual negotiations. Hence, CBICL has put the arbitration proceedings on hold pending settlement discussions with the GoK. Further, CBICL has approached Honble High Court of Kerala for seeking directions to the GoK to conclude its decision on settlement discussions expeditiously. The Honble High Court of Kerala was pleased to direct the GoK to decide the matter within a period of 3 (three) months, which period was further extended till 23rd June 2017.

On the directions of Honble High Court of Kerala, the GoK decided to pay about Rs.16.23 Crores to CBICL, however, the same is yet to be received due to some representation from local resident. Therefore, CBICL has recently moved Interim application before the Honble High Court of Kerala and has filed fresh writ in the matter before the Honble High Court of Kerala for necessary legal relief.

The Honble High Court of Kerala has passed an order in August 2019 on the fresh writ petition filed by CBICL allowing the revival of the arbitration proceedings, and informed Greater Cochin Development Authority (GCDA)/ GoK in January, 2020 for revival of the Arbitration proceedings which was earlier kept in abeyance. GCDA response is awaited in the matter.

Duburi – Chandikhole

The Company, in joint venture with Gammon Engineers and Contractors Private Limited (GECPL) as the Lead member of the Joint Venture (JV), had made successful bid and received the Letter of Award dated 31st January, 2018 from the National Highways Authority of India (NHAI) for "Rehabilitation and Up gradation of existing 2-lane to 4-lane standards from Duburi to Chandikhole Section of NH 200 (New NH 53) from km. 388.376 to km 428.074 in the State of Odisha under NHDP Phase - III on EPC Mode (Pkg- III)".

The JV signed EPC Agreement with NHAI followed by Settlement Agreement in January 2020 for a quoted bid price of Rs. 577 Crores (Rupees Five Hundred And Seventy Seven Crores only) for executing the entire scope of work within the contract period of 30 months from 11th February, 2020 ("the Appointed Date. The JV has commenced the EPC work at site.

Projects under Insolvency

Rajahmundry Godavari Bridge Limited

Rajahmundry Godavari Bridge Limited (RGBL) is a Special Purpose Vehicle (SPV) incorporated by the Company for design, construction, finance, operation and maintenance of a 4.15 kms long four-lane major bridge across river Godavari along with 10.34 kms of total approach roads on either side of the bridge, which connects Kovvur and Rajahmundry in the State of Andhra Pradesh on Build, Operate and Transfer (BOT/Toll) basis (the RGBL Project). The concession period for the project is 25 years, including a construction period of three years. RGBL commenced operations in November 2015 on achieving the Provisional Commercial Operations Date (PCOD).

In July 2018, RGBL had served a notice to Andhra Pradesh Road Development Corporation (APRDC) communicating intent of termination of the Concession Agreement (CA) on account of several breaches of the said CA by APRDC. Upon service of Termination Notice in terms of the said CA, Termination payments to the extent of Rs.1,123.37 Crores had become due and payable by APRDC within 15 days from the date of the Termination Notice.

RGBL has served a dispute notice to APRDC and Arbitration was invoked against APRDC under the provisions of the CA seeking compensation payment aggregating to Rs.460.06 Crores. The parties to the arbitration have nominated their arbitrators and the Arbitral Tribunal has been formed.

Preliminary hearing was held in July 2019, wherein directions were passed for filing Statement of Claims (SoC). RGBL has filed its SoC and APRDC has filed its Statement of Defense (SoD). RGBL has filed its rejoinder in November 2019.

The matter was last listed in February 2020 for filing Affidavit Evidence of witnesses, which RGBL has been filed. The next meeting of tribunal was scheduled in April 2020. However, the same was cancelled due the CoVID-19 lockdown situation prevailing in the country. Further directions in the above said matter is awaited from the Ld. Tribunal.

On the same day, Union Bank of India (UBI), one of the Lenders for the RGBL Project had initiated and filed an application for Corporate Insolvency Resolution Process against the Company before the Honble National Company Law Tribunal, Mumbai Bench (NCLT). The

Company had requested UBI to reconsider moving the proceedings before NCLT and explore better options in the interest of the Project, the Lenders and all other stakeholders.

On 31st October, 2018, Canara Bank, Lead Bank of the Consortium of Lenders to RGBL, had invoked pledge of 10,40,19,039 equity shares of Rs.10/- each constituting 51% of the paid up equity capital of RGBL held by the Company in RGBL, through the Security Trustee.

Pursuant to the Buy-back Agreement between the Company and IFCI Limited (IFCI) dated 16th December, 2010 and Share Subscription Agreement between RGBL and IFCI dated 16th December, 2010 and modifications approved by IFCI from time to time, the Company had paid Rs.30 Crores by demand draft to IFCI on 31st January, 2020 towards the full and final settlement of total debt due for buyout of 4,99,80,000 equity shares of RGBL and release of pledge created on 3,65,00,000 equity shares of RGBL and 4,60,00,000 equity shares of Sidhi Singrauli Road Project Limited from IFCI.

Accordingly, the beneficial shareholding of the Company in RGBL stands at 99.78%.

In accordance with Section 7 of the Insolvency & Bankruptcy Code, 2016, (IBC Code) the Corporate Insolvency Resolution Process of RGBL was initiated by the National Company Law Tribunal, Mumbai on 27th February, 2020 and pursuant to Section 17 of the IBC Code, powers of the Board of Directors of RGBL is suspended and such powers are vested with Mr. Vishal Ghisulal Jain, Interim Resolution Professional. Subsequently, Mr. Sanjay Mishra is appointed as Resolution Professional in August 2020.

RGBL is in the process of submitting an application for settlement under Section 12A of the IBC Code.

Patna Highway Projects Limited

Patna Highway Projects Limited (PHPL) is the Special Purpose Vehicle (SPV) incorporated by the Company for design, construction, finance and maintenance of a 63.17 kms long four-lane dual carriageway on NH 77. This includes new bypass of 16.87 kms connecting NH-28 in the State of Bihar on Build, Operate and Transfer (Annuity) basis. The Company has an equity stake of 100% in PHPL. The Concession period is 15 years, including a construction period of 30 months. PHPL will receive annuity payments of Rs.9,460 Lakhs semi-annually from NHAI during the entire operations period. The total project cost is estimated to be Rs.146,639 Lakhs.

PHPL project has been delayed on account of non-availability of Right of Way (RoW) over certain stretches of the Project highway. The Provisional Commercial Operation date was obtained on 1st September 2016 for the Project stretch from Km. 1.000 to Km. 41.500 excluding stretch from Km. 9.400 to Km 10.600. PHPL has received 4 annuity payments since PCOD amounting Rs. 378.40 Crores.

In accordance with Section 9 of the Insolvency & Bankruptcy Code, 2016, (IBC Code) the Corporate Insolvency Resolution Process of PHPL was initiated by the National Company Law Tribunal, New Delhi by their order dated 3rd January, 2020 and pursuant to Section 17 of the IBC Code, powers of the Board of Directors of PHPL is suspended and such powers are vested with Mr. Sutanu Sinha, Resolution Professional. PHPL has submitted a proposal under Section 12A of the IBC code to the Resolution Professional.

Sikkim Hydro Power Ventures Limited

Sikkim Hydro Power Ventures Limited (SHPVL) is the Special Purpose Vehicle incorporated for developing Rangit II Hydroelectric Power Project in Sikkim on BOOT basis (SHPVL Project). SHPVL Project involves the development of a 66 MW run-of-the-river Hydroelectric Power Project on Rimbi River, a tributary of River Rangit.

The Concession period for the SHPVL Project is 35 years from the Commercial Operations Date (COD), which expired in December-2015. SHPVL has requested the Government of Sikkim for extension of time to achieve COD. The financial closure for the SHPVL Project was achieved in January 2014, which requires validation. The Project cost is estimated to be Rs. 49,644 lakhs.

SHPVL Project has received all clearances and approvals including environmental clearances from the Ministry of Environment and Forest (MoEF). Resettlement and Rehabilitation of the affected persons has been completed, except for additional land which was acquired by the Government of Sikkim later on. All major contracts for the SHPVL Project have been awarded. All the initial infrastructure works including river diversion works are completed. The excavation of 65.5m deep Surge Shaft is completed, 624m Head Race Tunnel (HRT), 267m of Pressure Shaft (PS) is also completed and further excavation of HRT, PS and Dam is in progress.

SHPVL has been exploring the market to sign Power Purchase Agreement (PPA) with various State Electricity Boards, but has faced challenges with respect pricing in the current demand/supply scenario due to which the construction activity of the Project has slowed down.

One of the operational creditor had filed an application before the Honble National Company Law Tribunal, Delhi Bench (‘NCLT) and same was admitted on 30th July, 2021. Accordingly, Resolution Professional (RP) was deputed by Honble NCLT who had formed the Committee of Creditors. Subsequently, the claims of the operational creditor have been settled and accordingly, the creditor has withdrawn from his claims before the Hobble NCLT. The Company has approached Honble National Company Law Appellate Tribunal challenging the admission order passed by Honble NCLT, Delhi.

Risk Management

Your Company is in the business of infrastructure development and it undertakes projects in multiple infrastructure segments. The nature of the business is complex, and your Company is exposed to multiple sector specific and generic risks. Public-Private-Partnership (PPP) projects, which your company bids and undertakes from the Government Authority are capital intensive and have gestation periods ranging between 3 to 5 years; coupled with longer ownership periods of 15 to 35 years. Given the nature of the segments in which the Company operates, like the Road sector, Power sector, Ports or Urban development, it is critical to have a robust, effective and agile Risk Management Framework to ensure that your Companys operational objectives are met and continues to deliver sustainable business performance.

Over the years, several initiatives have been taken by your Company to strengthen its risk management process. An enterprise-wide comprehensive risk management policy including risk appetite, tolerance and risk limits for more effective, informed, and measurable risk management has been developed and it continues to evolve. Your Company consciously engages with third party Engineering, Procurement & Construction (EPC) contractors apart from its associate company as a part of its risk diversification process.

Your Company has an established process to study the risk profiles of potential vendors and contractors and an internal vendor risk rating mechanism is in place. This is to ensure smooth construction of projects and to avoid risks due to any third party dependencies. The review mechanism of all the projects, which your Company undertakes at multiple stages from construction to implementation, is also being streamlined and strengthened.

Your Company understands the Risk environment encompassing its business and has an enterprise risk management framework in place for identification, assessment, mitigation and monitoring of various risks. These risks are classified broadly into three major categories, which are given below with some illustrations to describe the risks.

(I) Operational Risks: Risks arising out of inefficiencies and / or internal failures in regular operations such as:

1. Project Opportunity Risk through erroneous omission and inadequate or inappropriate assessment of a project opportunity available for development.

2. Bidding Risk on account of inadequate or erroneous assumptions made while arriving at the Financial Bid Variable.

3. Financing Risk on account of not achieving a financial closure or achieving a financial closure at a cost higher than assumptions.

4. Ownership and Maintenance Risk on account of several risks faced during the operations and maintenance phase of a project.

Mitigation Efforts:

Careful selection and thorough evaluation of the Projects minimise the chances of getting into ‘Non- Bankable – Non-Profitable projects. Your Company follows a robust ‘Two Tier approach of Project Feasibility (Technical Review) and Project Financial Viability (Financial Review). Further, the Company follows a risk specific bid / project risk assessment framework to identify key risks associated with various opportunities and projects along with their mitigation planning and continuous monitoring.

Your Company has laid down standard operating procedures at sectoral, functional, and departmental levels to ensure business process productivity, responsibility, and accountability at various levels. The standard operating procedures are further being strengthened and supported by adequate checks and balances including risk based internal audit and document management systems on an integrated basis. This has helped in establishing a culture of proactive risk management, which is imbibed at all levels of the organisation with required support systems in place.

Your Company is constantly strengthening its internal checks and controls to identify and reduce / mitigate operational risks. It is also enhancing its system of reviews and reporting to ensure that risks are spotted early, and steps are taken to control losses, if any.

Being an infrastructure developer, cashflow management and treasury management are two areas towards which your Company has the highest level of focus from a seamless business continuity perspective. Considering this, risk review and reporting also focuses on cashflow and treasury-based risks on projects, sectors and at a company level through an integrated risk assessment technique.

(II) External Risks – Risks arising out of changes in the external environment such as:

1. Regulatory Risk on account of changes in the Regulatory Framework

2. Interest Risk on account of volatility experienced in the Interest Rates in Capital Markets on the outstanding project debts

3. Competition Risk on account of strategies applied by existing and new entrants in the infrastructure development business

4. Political Risk on account of lack of stable governance and frequent changes to the Development Plans and projects with a corresponding change in the Government.

5. Natural Calamities (Act of God), Civil Disturbance and others.

Mitigation Efforts:

Your Company proactively identifies each significant ‘change and attempts to adapt to it with foresight. Your Company has a keen understanding of the regulatory environment enveloping its business. It continues to build strategies not only to sustain, but thrive owing to its ‘Early Warning Systems, and meticulous processes and Business Intelligence (BI) initiatives. Your Company understands its competition and keeps an update of its contemporaries to stay a notch above them. Your Company has a robust and focused strategy for client, partner, vendor, and contract management to avoid various possible external risks. Though your Company cannot avoid a natural calamity, it is adequately geared up with appropriate insurance covers and its Disaster Management and Recovery Plans to minimise losses and restore normalcy within a short time.

(III) Strategic Risks – Risks arising out of strategic decisions taken by the Company such as:

1. Market Risk (Sector, Geography) inadequate assessment of a sector, geography.

2. Secondary Acquisition Risk on account of inappropriate acquisitions made in alignment with the Growth Plans of the Company.

3. Ventures and Alliances (Partnering) Risk on account of inappropriate selection of a joint ventures, offshore agents, and others.

4. Capital risk on account of improper allocation or utilisation of capital.

Mitigation Efforts:

Before attempting a secondary acquisition or entering into a new geographical market, infrastructure sector, your Company mandates a thorough research and analysis. These result in an in depth understanding of the business potential and the prevailing socio-political, regulatory, and economic set up. These go through several rigorous layers of discussions, reviews and sensitivity analysis before decisions are taken for implementation.

The Risk Management Team reviews systems, processes and projects on a regular basis and provides an independent view to the management. Further, the Audit Committee provides separate internal audit reports on processes and SPVs to the Management. The Internal Audit function looks at each and every process within the organization from two perspectives: one, from a Risk Based Internal Audit approach (RBIA) and secondly, from a transactional control adequacy approach. Thus, the Board, Management and SPVs are regularly updated on key risks and mitigation measures. All decision making within the organisation, irrespective of the level of importance and significance, involves the explicit consideration of risks and the application of appropriate risk management techniques and tools. Further, Policies are regularly approved by the Board of Directors/ Committees of the Board form the governing framework for each type of risk. The business activities are undertaken within this policy framework.

The Management is in constant pursuit of evolving the Risk Management framework.

In this regard, your Company is dedicated to review and strengthen its bid risk management framework, business continuity planning and disaster recovery planning framework, enterprise risk policy and other policies on an ongoing basis. Your company plans to strengthen the culture of risk awareness among its employees through Risk Newsletters, regular updates on risks, case studies and training programs. Your Company believes that these measures will prepare it to take on the challenges to be confronted at the ‘Next Level of Growth approved from time to time by the Board of Directors / Committees of the Board form the governing framework for each type of risk. The business activities are undertaken within this policy framework.

Internal Control Systems

The Companys internal control system is commensurate to the nature and size of its business. It is adequate to safeguard and protect from losses, unauthorised use or disposition of its assets. Internal Financial Controls, wherever applicable and as required by the relevant statutes and laws, be it at the SPV levels or otherwise, are already in place and the same is reviewed by the Audit Committee of the Board at regular intervals. All transactions are properly authorised, recorded and reported to the management. The Company is following all the Accounting Standards for proper maintenance of its books of accounts and reporting of financial statements. Your company has engaged external audit firms to conduct periodic audit of various areas of operations from time to time based on the annual audit plans, which are duly reviewed by the Management and the Audit Committee of the Board.

Safety Measures

Safety is a matter of continuous evaluation and utmost priority at AJRITL. Assurance and management of safety is essentially aimed towards protecting our operating staff, general public and the environment. Our HR strives to provide a safe working environment not only to our corporate staff, but also the workers at each project site. We ensure that safety is maintained across all the stages of project development – design, construction, commissioning, and operations & maintenance.

Cautionary Statement

Statements in this Management Discussion and Analysis may deem to be ‘forward looking statements within the meaning applicable securities laws and regulations. As ‘forward looking statements are based on certain assumptions and expectations of future events over which the Company exercises no control, the Company cannot guarantee their accuracy, nor can it warrant that the same will be realised by the Company. Actual results could differ materially from those expressed or implied. Significant factors that could make a difference to the Companys operations including domestic and international economic conditions affecting demand, supply and price conditions, changes in government regulations, tax regimes and other statutes.