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.