Anand Credit Ltd Management Discussions

ANAND CREDIT LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS Global and Indian economy and realty sector in India in FY 2011-12 The infrastructure development story in India has been plagued with issues of implementation. As a result, the pace of growth has simply been much slower than the needs of an economy intending to maintain a sustained growth rate of close to 9%. And in 2011-12, there has been a considerable slowdown in development in the infrastructure sector. The Planning Commissions Xlth Five-Year Plan (2007- 2012) had already identified that inadequate infrastructure was a major constraint on the countrys rapid growth. The Plan had, therefore, emphasized the need for massive expansion in investment in infrastructure based on a combination of public and private investment, the latter through various forms of public- private partnerships (PPP). In the last few years, substantial progress has been made in this respect. The total investment in infrastructure, which includes roads, railways, ports, airports, electricity, telecommunications, oil gas pipelines and irrigation, is estimated to have increased from 5.7% of GDP in 2007 to around 8.0% by 2012. The real estate market in India witnessed a stupendous growth over the past few years, with average residential capital values more than doubling between 2005 and the first half of 2009. In the Union Budget 2011-12, the Government has also presented various initiatives for real estate sector. These factors coupled with a favorable political environment are likely to boost the economy as well as the real estate sector in the coming years. Your company has sustained growsth and aspires to do so in the coming years. (A) Review of Annual Operations: During the year 2011-12 the total income of the Company was Rs. 569,632 as compared to total income Rs. 2,093,527 during the year 2010-11. Capital Structure : During the year under review, there is no change in the Capital Structure of the Company. Reserve and Surplus : In 2011-12, the reserve stands at Rs. 426,863 against Rs. 2,505,346 in 2010-11. (B) Opportunities and Threats: Opportunities: Urbanisation has emerged as a key policy and governance challenge in India in recent years. Cities and towns contribute to more than 60 percent of GDP. Urbanisation is concomitant to economic growth. The strong correlation between urbanization and economic development is well-known. While urbanization can be an engine of economic development and inclusion, unless managed properly, it can create serious socio-economic consequences and disastrous outcomes which would be difficult or impossible to fix. With the rapid growth of urban population, expected to occur as the structural transformation of the Indian economy matures and as India moves to double- digit growth, the backlog, current and growth needs of urbanization need to be addressed comprehensively. We have to not only arrest the deteriorating conditions in cities, but also take advance action for commodating urbanisation in a planned manner as India moves from a level of 31 percent to more than 50 percent urbanisation in the next few decades. Projections suggest that India will have more than 700 million urban populations by the 2040s. There is an urgent need to address the lack of consistent and coherent urban development policy, faulty and improper urban planning, coupled with poor implementation and regulation overload in Indias cities. These factors have transformed many of our cities into chaotic entities that are unlikely to be able to meet the demands of Indians vision of development in the 21st century. Since faster, sustainable and more inclusive growth is the major objective of 12th plan, a well planned urban development can be a key vehicle for achieving this objective in a more inclusive manner. The Management is confident of achieving good business in the current year by enhancing the strengths in the areas of core-competency. Threats: Continuing to harden interest rates by RBI could have a short-term dampening impact on the Real Estate Sector. The reason behind this hike is the financial measures applied by RBI to hold and tame inflation. The increased prices of the essential Raw Material like Cement, Bricks and Steel and increase in labour cost led to the rise of the overall construction cost. The hike in interest rates may have a ripple effect on the Real Estate Sector with construction cost going up. Due to significant increase in Land and Construction cost it become difficult for the Builder and Developers to reduce the prices of finished products to absorb the impact of the increased EMI as a result of rise in the rate of interest. One more difficulty that the developers may face can be delay in getting approvals from the State and Central Government and various other authorities. Fluctuations in operating costs can often lead to spiraling costs and overshooting budgets. This can lead to delays in the completion of Projects. Remedy: Accordingly, the Company has well defined, rigorous policies and processes designed to identify, mitigate and control risks. The regulatory framework particularly in the real estate space is evolving. The recent years have seen the sector exhibiting a trend towards greater organization and transparency through various regulatory reforms, giving an overall positive boost to the industry. The Management continues to remain optimistic about the future regulatory and policy framework. (C) Internal Control Systems: Considering the size of the company, your company has adequate system of Internal Control to provide reasonable assurance that assets are safeguarded and protected from unauthorized use or disposal and commercial transactions are authorised, recorded and reported correctly. (D) Outlook: There exists a huge demand for housing and infrastructure in the Indian scene. The gap between demand and supply for urban housing is growing. This is has due to the high population growth, especially in urban areas. Studies reveal that the population in the five most populous cities of India, namely Mumbai, Kolkata, New Delhi, Chennai & Hyderabad is set to increase at a scorching pace of more than 100% between 2010 and 2025. The huge demand-supply gap for residential housing, favorable demographics, rising affordability levels, availability of financing options as well as fiscal benefits available on availing of home loan are the key drivers which will continue to fuel the growth in the residential market. Apart from the huge demand, India also scores on the construction front. A Mckinsey report reveals that the average profit from construction in India is 18% which is double the profitability for a construction project undertaken in the US. The importance of the Real Estate sector, as an engine of the nations growth, can be gauged from the fact that it is the second largest employer next only to agriculture and its size is close to US $ 12 billion and grows at about 30% per annum. 5% of the countrys GDP is contributed by the housing sector. In the next three, four or five years this contribution to the GDP is expected to rise to 6%. Given the various stimulation measures and economic revival, Indias real estate and construction sector is beginning to improve. An economic revival and strong demand for budget housing are driving the upturn in the residential segment. Transaction volumes in housing have picked up as developers launched projects at prices which are lower than market value. The response to recent mid-income housing launches, too, has been positive. There is also a strong revival of interest among corporate for commercial space. Moreover, as developers have delayed projects, the vacancy levels have reduced, thus reducing the demand-supply gap. The Management believes that the Companys prominent and highly respected presence in the real estate space in Ahmedabad will enable it to develop strategies to respond effectively to the challenges and opportunities ahead. The performance of the Company is expected to remain encouraging and the company looks for the better future. (D) Environmental Issues: As the company is not in the field of manufacture, the matter relating to produce any harmful gases and the liquid effluents are not applicable. (E) Cautionary Statement: The report contains forward looking statements containing words such as, expects, anticipates, estimates, believes, plans, intends, will projects seen to be and so on. All statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these are accurate and will materialise in the said order or manner or realised. The Companys performance and results or achievements could thus differ from those projected in any forward looking statements. The Company assumes no responsibility to publicly amend modify or revise such statements based on subsequent events or developments.