arihant superstructures ltd share price Management discussions

Global economy overview

Exactly two years back, the world had plunged into a mammoth crisis with the sudden outbreak of the covid pandemic. Though the major risk is behind us, the global community still faces intermittent disruption as new Covid-19 mutations and variants continue to disrupt economic activities. Steady deployment of vaccination programs across economies and relaxation of pandemic-related lockdowns in many countries helped boost demand. The global economy was on the path of a recovery in 2021 as the economy?s started opening up and travel restrictions were relaxed post the pandemic. Post the first wave of covid, the recovery was led by pent-up demand on a lower base. However, labour market challenges with persistent disruptions in the global supply chain network caused inflationary pressures to build up across all major economies. The global economic output grew 6.1% in 2021 against a contraction of 3.1% in 2020, the credit of which goes to the world central banks for foresight and policy support.

However, the global growth prospects have weakened significantly owing to the onset of the Russia-Ukraine war in early 2022. The war in Ukraine has upended the fragile recovery from the pandemic, triggering a devastating humanitarian crisis in Europe, pushing up food and commodity prices and exacerbating inflationary pressures worldwide. According to economists in most countries, excess demand is driven mostly by constrained supply, not strong demand, resulting in the dominance of cost-push inflation. This is a type of inflation that is not being welcomed as it squeezes profit margins, erodes actual household income, and tends to self-correct when demand is weak. Geopolitical and economic uncertainties are dampening business confidence and investment and further weakening short-term economic prospects. Owing to these fresh sets of challenges, crude and commodity prices sky-rocketed to new highs, resulting in a new set of challenges for the economies. Further, the sanctions against Russia again set the supply chains in a quandary which was further sti_ed by frequent and severe lockdowns in China because of Covid, and this included it?s key manufacturing hubs leading to further bottlenecks. As a result, the IMF has slashed the global growth forecast to 3.2% for 2022 from its earlier forecast of 3.6%, while the growth rate for 2023 has been projected at 2.9%, down from 3.6% earlier.

The global economic output grew 6.1% in 2021 against a contraction of 3.1% in 2020, the credit of which goes to the world central banks for foresight and policy support.

Emerging market and developing economies (%)

(Source: https://www.imf.org/en/Publications/WEO/Issues/2022/07/26/ world-economic-outlook-update-july-2022) [*Projected]

The rise in food and fuel prices has resulted into instability in weaker economies, as seen in the case of Sri Lanka. Further, monetary policies are being tightened to reign in the inflation. The higher interest rates regime will also make borrowing more expensive globally, further straining the public finances. The increased debt burden will be a challenge going ahead. Thus, the global growth outlook, therefore, remains susceptible to a lingering pandemic, persistent labour market challenges, ongoing supply chain disruptions, rising inflation, and the outcome of the Russia-Ukraine war. As an ongoing economic impact of the war, rising crude oil prices are likely to have a significant toll on the oil-importing nations. We are in for challenging times globally, but India seems to be moving into a sweet spot.

Overview of the Indian economy

One of the reasons for a robust recovery of the Indian economy and was the pick up in vaccination with nearly 200 crs vaccine doses covering more than 90% of the eligible population. The booster precautionary doses too are being administered to the eligible population.

The RBI like other major central banks, was proactive in it?s policy measures to control inflation as well support the rupee from any major depreciation. This also resulted in the INR outperforming peers, though depreciated against the USD. There has been a strong rebound in economic activity, despite a significant impact of the second and third waves of the pandemic, the National Statistical Office (NSO) pegged India?s real GDP growth for FY22 at a robust 8.7%. RBI has hiked the repo rate by 140 bps since May 2022 and currently stands at 5.4%. It is expected that this upward trajectory will continue in this financial year with repo rates touching 6.0% by the end of FY23. To help the economy recover from the shocks of the pandemic, the government of India introduced several favourable policies and prioritised investment in infrastructure, privatisation of state-owned businesses, and tax reforms to drive growth. Further, the government introduced the ‘Make in India? initiative to boost the manufacturing sector, increase the purchasing power of an average Indian consumer, and drive the demand, making it a self-sustainable model. The government?s push for the manufacturing is line with GOI?s aim to enhance the contribution of manufacturing sector in the GDP from 17% to 25%. The Government also came up with a Digital India initiative, which focuses on three core components: the creation of digital infrastructure, delivering services digitally and increasing digital literacy. To boost the economy and the infrastructure of the nation, the government also announced PM GatiShakti Master Plan. Under this scheme, the government plans to enhance the National Highway Network by another 25,000 kms by FY 2022-23. Increased government expenditure is expected to attract private investments, with a production-linked incentive (PLI) schemes providing excellent opportunities across sectors. India has the third largest unicorn base in the world with over 100 unicorns valued at U S $ 333bn and expected to shoot up to 250 unicorns by 2025, thus creating a huge employment as well as investment opportunity. The GST collection has been over _1.4 trillion per month for the last few months, reconfirming that the businesses are growing and compliance has improved sharply.

The Indian economy emerged as one of the fastest growing economies, as India continued to make remarkable economic progress since 2000. The COVID -19 pandemic led India?s economy into a contraction in 2020, despite well-crafted fiscal and monetary policy support. Following the deadly ‘second wave,? growth in FY22 is expected to be around 8.7%. According to IMF, India?s economic growth projection for calendar year 2022 is expected to be around 7.4% from the previously forecasted 8.2% earlier, citing high inflation. India is on the path to a sustained economic recovery, thanks to the vigorous countrywide drive to deliver safe and wide-reaching Covid-19 vaccinations, which helped reduce the severity of the third pandemic wave with minimal disruptions to mobility and economic activity. However, owing to the onset of the Russia-Ukraine conflict, the crisis has clouded India?s growth outlook. Rise in crude oil prices, food and fertilizer prices is likely to weigh on household finances and spending in the months ahead. Further, rate hike to prevent energy and food inflation from becoming more generalized is expected to slow the demand recovery?s momentum. India imports vegetable oils, machines, fertilizers, chemicals from Ukraine and is the largest importer country for Ukraine. It imports crude oil, precious metals and stones, mineral fuels, weapons etc. from Russia. Due to present conflict various items which had been imported from Russia and Ukraine will be seriously impacted. Consumption demand, which has been a concern as the pandemic dented consumer finances and confidence, grew by 8.6% (YoY) – an enormous boost for the Indian economy.

Indian GDP growth (% annual growth)

(Source: National Statistics Office (NSO) and https://www.republicworld. com/india-news/economy/imf-pegs-indias-2022-gdp-growth-at-8-dot-2-percent-us-at-3-dot-7-percent-china-at-4-dot-4-percent-and-russia-at-8-dot-5-percent-articleshow.html)

India?s short-term outlook looks challenging owing to the global headwinds, rates hikes and rising inflationary pressure because of external supply shocks and geopolitical tension. However, we believe the government is proactively tackling the situation to ensure a sustainable growth trajectory for the country. Indian economy now has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.

Indian real estate industry

Contributing ~7% to the Indian GDP, the Indian real estate industry is one of the key barometers of the economic growth. The second highest employment generator, after the agriculture sector, the Indian real estate sector is expected to reach US$1 trillion in market size by 2030 up from US$200 billion in 2021, and contribute 13% to the country?s GDP by 2025. Comprising of four sub-sectors - housing, retail, hospitality, and commercial, the Indian real estate sector is likely to be driven by the emergence of nuclear families, rapid urbanisation and rising household income. The real estate industry ranks third among the 14 major sectors in terms of direct, indirect, and induced effects in all sectors of the economy.

Today, the Indian real estate sector stands at an interesting juncture. In the past few years, it has witnessed a slew of changes — be it demonetisation, RERA, the introduction of GST, or the fallout from the COVID-19 pandemic. All these measures, reforms, and scenarios have triggered an evolution in this industry. The sector has always been in focus for the Government. It has been an eventful decade for the sector – starting with NGT issues obstructing many approved and under- construction projects in their tracks, followed by demonetization, implementation of GST and RERA, rising input and compliance costs.

As the sector was just recovering, the NBFC crisis led to a severe liquidity squeeze and then finally the COVID-19 pandemic arrived, putting a question mark on the overall survival of the sector. Although the industry went through a slump during the pandemic period, it witnessed a healthy growth momentum ever since the opening up of the economy post the first covid wave. The recovery in the sector was majorly driven by increased house sales, new project launches, and increasing demand for new office and commercial spaces. Further support was driven by strong policy support by the government, with policies such as the Real Estate Regulatory Act (RERA). The government also provided a boost to the affordable housing construction with interest subsidy for home buyers and reduced stamp duties for limited period in many states, among others. Despite the pandemic?s challenges, the real estate industry rebounded strongly in 2021, with residential sectors surpassing others sub segments as the uncertainty caused by the pandemic has reinstated the importance of home ownership. New trends emerged as a result of the pandemic such as preference for larger sized apartments, inclination towards reputed developers and a rising demand for township projects. Rapid urbanisation would be another reason for sustainable demand, considering the number of Indians living in urban areas is expected to reach 52.5 crores by 2025 and 60 crores by 2036.

The demand picked up well with a rising number of launches and declining inventory across Tier-1 cities. While the residential segment witnessed strong revival, the recovery for the commercial sector has been moderate. The slow commercial space demand has been due to work from home trend, while local restrictions

Rapid urbanisation would be another reason for sustainable demand, considering the number of Indians living in urban areas is expected to reach 52.5 crores by 2025 and 60 crores by 2036.

and delay in consumption recovery have been a challenge for the retail real estate sector. However, that too has been reverting to normal in the past few months. In line with the changing market trend, the realtors also had to invent their business model to ensure minimal disruption and higher customer connect. Most players in the industry adopted to digital sales and focused on greater adoption of technology to mitigate the labour shortages. Further, higher focus on technology helped efficiently use resources and helped mitigate the steep increase in input costs, especially steel, polymer, electrical, paints, and cement, among others. However, the Government of India?s ‘Housing for All? initiative is expected to bring US$1.3 trillion investment in the housing sector by 2025 and is likely to drive growth of the sector. Construction is the third-largest sector in FDI and, with India?s Global Real Estate Transparency Index ranking improving steadily, the flow of funds is expected to accelerate. Though the interest rates are on an upward trend, the interest rates are still historically low. This coupled with the steady increase in income levels over the years has made it extremely affordable for homebuyers to own a home. This has created a huge demand for quality residential spaces, along with the realisation of the need for a better home during the lockdown. Further, the rupee-dollar exchange rate and the ever-changing stock market have furthered Non-Indian Residents? (NRI) interest in investing in real estate in India.

Budget impact on the Indian real estate sector

A number of initiatives have been undertaken by the Government of India with the hope of incentivizing real estate purchases. The announcements made in the Union Budget 2022-2023 will help in creating a thriving atmosphere in the real estate sector. The government continues to prioritize the affordable housing segment and, parallelly looking at ways to strengthen the existing financing systems to provide liquidity to stuck real estate projects. In the first week of December, the Government of India extended the deadline to provide pucca houses to all families in rural India to 2024. The Cabinet decided that the flagship rural scheme, Pradhan Mantri Awas Yojana-Gramin, will be provided _2.17 lakh crore in additional Central and State funding to achieve its target of building 2.95 crore houses

Housing for All

As per the recent budget announcement, the Government allocated _48,000 crore under the Pradhan Mantri Awas Yojna (PMAY) initiative. Under this scheme, the government plans to complete the construction of ~80 lakh houses and allocate to persons eligible under the scheme.

Urban development plan

The government also announced reforms to accommodate rising urbanization, including modernization of development bylaws,

Town Planning Schemes (TPS), and Transit Oriented Development (TOD) which will facilitate reforms for people to live and work closer to mass transit systems. The government formed a committee consisting of urban planners, economists, and institutions to make recommendations on the urban sector policies, capacity building, planning, implementation, and governance.

Residential real estate sector

The torchbearer for the recovery of the Indian real estate industry. The pandemic has re-afirmed that residential real estate is one of the safest asset classes to invest in. The continued appeal of this sector enabled it to weather the storm thrown by the pandemic and continued to drive steadily on the growth path. Supported by a healthy economic recovery and state governments? stimulus, the residential real estate sector quickly picked up the growth momentum and continued to ramp up sale into 2022. In 2022, the sector expects to see an increase in sales momentum as potential homebuyers elect to invest in larger homes with high-end amenities and increase in capital values. Many of the supply and demand-side factors that have gotten assessed over the last decade have begun to put upward pressure on house prices. Residential sales momentum is expected to gain traction in 2022-23, as prospective homebuyers? preferences for larger homes, better amenities, and competitive pricing keep them eager to close deals.

According to the Knight Frank a_ordability matrix, a_ordability for the top eight cities has improved over the last few years with rising income levels and time correction in the housing sector. Also, a_ordability has increased dramatically since 2015 due to declining interest rates. An EMI/income ratio of over 50% is considered una_ordable according to the matrix and most cities have witnessed a dramatic increase in a_ordability because of decadal low interest rates. According to the Anarock report, new supply in the residential sector increased by 27% between January and September 2021, compared to 2020, and sales increased by 5%. Further, according to property research report released by Knight Frank, the total sales volume in India?s top eight cities enhanced by 51% in 2021 to 232,903 units. The pandemic-infused trends, combined with low-interest rates and a_ordability, have expanded real estate growth even in Tier II and Tier III cities. This led to the expansion of the sector and is likely to drive the growth of the segment. Backed by the evolving trends and new emerging markets. The housing sector was also quick to embrace digitalization and innovation. There was also a demand shift in which offerings with best-in-class amenities became the most desired choice of buyers. Large-sized homes emerged as a preferred choice in residential township projects and will continue to drive real estate growth in the years ahead. The coming year will be a significant one for the real estate sector.

Mumbai Metropolitan Region (MMR)

Being one of the least affected regions during the first covid wave, the Mumbai Metropolitan Region (MMR) was amongst the few residential markets which recorded a healthy recovery in 2021. Government incentives such as stamp duty waivers and reduction of home loan interest rates, along with developers becoming more consumer friendly and proper product positioning, helped improve demand as well as launch momentum in the MMR residential market. The MMR market contributed nearly 24% and 32% of new launches and sales by unit during CY2021 on an All . India Basis per Anarock Research. On account of higher launches compared to the annual sales, the unsold inventory shot up by 5% y-o-y to 153,950 units in CY2021.

Sales in MMR rose by 29% y-o-y to 62,989 units, while launches increased by 39% y-o-y and stood at 70,023 units in CY2021. The sales and launch momentum picked up in the second half of 2021, even after discontinuation of the stamp duty waiver and a minor - blip during the second wave. MMR real estate market is estimated to more than double by FY27 to absorption volume of 99 million sq. ft. and the majority of the growth is likely to be driven by _30 . to _60 lakh segment as per Liases Foras.

MMR market sales (in million sq.ft)

(Source: Liases Foras) [* Expected]

Opportunities

The real estate sector in India has gone through "baptism by fire" in the last few years, thanks to the NBFC crisis, demonetisation, introduction of RERA and GST, and lately the pandemic. The industry witnessed substantial consolidation in the last few years and several marginal players got wiped out. As most customers in the affordable segment puts their net worth in this once in a lifetime purchase, customers expect timely delivery and promised quality. This gave the listed, branded and reputed players a big opportunity, and helped gain traction in the regional markets.

Threats & Challenges

Though we believe that we are in a multi-year upcycle, especially in affordable housing, it?s always prudent to keep a watch on the threats and challenges which may emerge suddenly. The pandemic has taught us to "expect the unexpected" and be quick to react to any situation. While we are confident of creating and exploiting the opportunities, the following challenges can derail the momentum:

Company overview

Arihant Superstructures Limited (ASL) is one of India?s growing real estate developer with a deep routed presence in the Mumbai MMR and Jodhpur region. Till date ASL promoters have delivered over 60 projects with about 8 million sq. ft. of development across various formats in a cost-e_ective manner backed by strong execution skill and deep understanding of the consumer expectation. In addition, it has approximately 4.5 million sq. ft. currently under development and further 8.5 million sq. ft. to be developed in future.

The company?s operations today span across all the aspects of real estate development, from the identification and acquisition of land, obtaining approvals, to the design, planning, execution and marketing of projects. Mirroring the population matrix of the region, we have established a strong brand image and a successful track record in the MMR and Jodhpur region thanks to our commitment to developing high-quality projects and products that meet the exacting standards and expectations of our customers.

Pioneering the concept of affordable housing in the regions of our presence, we have developed a deep-rooted presence in the attractive real estate markets of MMR and Jodhpur regions backed by our customer centric approach. We believe that our continued engagement with customers, even after the sale of units and delivery of possession, has resulted in further strengthening our brand and customer goodwill. Our customer goodwill and strong brand presence translated into significant customer referrals and

ASL has nearly 51% share in the supply of its projects in the _30 lacs – _1 crore segment and 58% share in the supply of projects below _5,000 per sq. ft. segment in extended suburbs of MMR.

further strengthening of our sales network, resulting in increased sales. With a greater focus on the affordable segment, we seek to create mid-income and mass housing projects that help elevate the life of people.

Our growing presence in this segment is in response to the increasing demand for value-for-money and affordable housing in India and are aimed largely at first-time home buyers. We focus on developing projects that have small to medium unit sizes, largely priced from below _ 5,000/- per sq. ft. to _ 10,000/- per sq. ft. of saleable area, these come with a complete suite of amenities and facilities, such as swimming pools, clubhouses and multipurpose halls. Our projects may not be in the city centre but are strategically located in the growing regions of the state on the periphery of the city centre. These regions are situated in some of the most developing regions of the state, both economically and infrastructure wise, and are supported by public transportation connectivity and social infrastructure in the catchment. We can offer these projects to our customers within a pre-determined price range, which we have been able to achieve by applying innovative construction techniques and efficient designs that result in both cost and time savings, without sacri_cing the quality that the brand represents.

A large and experienced team of engineers, designers, architects and technical specialists coupled with long-term relationship with some of leading architects and town planners, provides ASL with an experience, capability and expertise that has helped ASL stay ahead of competition.

As India policy reforms pick up speed, we believe that the demand for affordable homes would remain strong in the longer term as the country moves from a low-income economy to a mid-income economy. Arihant is a leader in most of the micro markets it operates in. Along with this, the financial performance has been steadily improving, backed by very experienced promoters and a professional team, which has always delivered.

Today, ASL has nearly 51% share in the supply of its projects in the _30 lacs – _1 crore segment and 58% share in the supply of projects below _5,000 per sq. ft. segment in extended suburbs of MMR.

Awards and recognitions

ASL has been honoured with several awards over the years in recognition of being one of the most trusted builders and real estate developers, and delivering quality apartments to its customers. A few of the awards bestowed upon us in the last year for our contribution to the real estate and construction industry are

Key strategic priorities for ASL moving forward

Build an asset light model Optimize input costs by leveraging our network	We focus on building an asset light model by regularly entering into JD, JV or DM arrangement in Mid-income segment. We target redevelopment opportunities primarily in the Navi Mumbai region for high-income housing projects, which presents a huge opportunity post implementation of UDCPR. Currently, 35% of our ongoing projects are being developed on an asset-light model. Over the years, our procurement & engineering teams have developed an extensive sourcing network through strategic tie-ups with leading manufacturers of the various ancillary industries. This enables us to source our key raw materials of desired quality at a stable price and also helps us in offering our customers competitive price at quality.
Maintain our low-cost land acquisition strategy	When it comes to building our land bank, we follow a policy of acquiring land directly from the landowners and at on an outright basis for affordable housing projects. This strategy has helped us to bring down our average cost of land acquisition is less than _500/sq. ft.
Build on our in-house capabilities	We are one of the few players to have the required capabilities to execute the end-to-end functionalities of a project with the help of an in-house team. From land acquisition planning to designing to construction management, including quality assurance, is managed in-house at ASL. This helps us execute projects with speed, keep the cost under control and be competitive.

Business segment review P&L analysis

Particulars	FY21	FY22	Growth
	(_ in crore)	(_ in crore)	(change in %)
Revenue from operations	272.3	332.5	22%
Land development and construction cost	149.2	289.1	94%
Employee Benefits Expense	11.9	16.4	38%
Interest cost	28.1	21.0	-25%
EBITDA	50.2	71.3	42%
PBT	20	48.5	143%
PAT	15.7	41.4	164%
EPS (in _)	2.71	10.02	270%

During the year, we completed the development of 328 units and sold 1,628 units. We sold 1.38 million sq. ft. at an average realization of ~_5,500 per sq. ft with a total sales value _764 crore.

Our revenues for the year stood at _332.5 crore compared to _272.3 crore in FY21, an increase of 22%. Growth in revenue was largely driven by high demand for affordable housing in the regions of our presence. We recorded a 91% growth in units sold in FY22 and 59% growth in area sold in FY22.

Construction and development costs increased during the year substantially as we scaled up construction activities and commenced new towers/phases in the existing projects. Our construction and development cost for the year stood at _289.1 crore compared to _149.2 crore in FY21, an increase of 94%, indicating high traction on construction sites.

Employee benefit expenses increased 38% from _11.9 crore in FY21 to _16.4 crore in FY22. This increase was on account of increments and an increase in the number of employees to support future growth.

Our EBIDTA in FY22 stood at _71.3 crore compared to _50.2 crore in FY21, an increase of 42%. EBITDA margins increased by 300 basis points (bps) from 18.4% in FY21 to 21.4% in current year under review. Increase in EBITDA margin was on account of higher realisations from the units sold. Profit After Tax (PAT) increased from _15.7 crore in FY21 to _41.4 crore in FY22. PAT was reflective of the EBITDA trend and was also because of the reduced interest cost.

Key financial ratios

Ratios	FY21	FY22	Reason for change
Trade Receivables Turnover Ratio	8.84	7.71	Reduction in Trade Receivable Turnover ratio is due to increase in average trade receivable as compared to last year
Inventory Turnover Ratio	2.30	5.21	Improvement in Inventory Turnover ratio is due to reduction in average finished inventory as comapred to the previous year
Debt Service Coverage Ratio	0.17	0.24	Improvement in DSCR is due to an increase in profit before tax as compared to last year
Current Ratio	2.31	1.68	Reduction in the Current Ratio is due to an increase in current liabilities.
Debt-Equity Ratio	1.66	1.68	Increase in the debt ratio is due to increase in debt as compared to previous year
Return on Equity Ratio	0.10	0.23	Improvement in Return on equity is due to an increase in profit after tax as compared to last year
Net Profit Ratio	0.06	0.12	Improvement in Net Profit ratio is due to a drastic increase in profit after tax as compared to previous year
Return on Capital Employed	0.10	0.15	Improvement in Return on Capital Employed ratio is due to an increase in profit before finance cost & tax as compared to the previous year

Analysis of Balance Sheet

Particulars	FY21	FY22	Growth
	(_ in crore)	(_ in crore)	(change in %)
Total equity	163.3	203	24%
Long-term borrowings	249.9	175.2	-30%
Short-term borrowings	45.6	124.1	172%
Total non-current assets	52.2	54.9	5%
Trade receivables	26.0	59.8	130%
Advances from Customers	170.1	277.0	63%
Cash and cash equivalents	12.0	14.7	23%
Land	199.8	219.5	10%

As on March 31st March, 2022, the Company?s Equity Capital stood at _203 crores compared to _163 crores as of 31st March, 2021. This is because of a 41% increase in reserves and surplus during the year.

Total borrowings of ASL as of 31st March, 2022 stood at _299.3 crores vis-?-vis _295.5 crores as on 31st March, 2021. Advances from Customers rose 63% to _277.0 crores as of 31st March, 2022 signifying higher collection efficiency.

Our land asset as of 31st March, 2022 stood at _219.5 crore vis-?-vis _199.8 crore as on 31st March, 2021, an increase of 10%.

Our ESG focus

We are conscious of our environmental impact and are committed to working responsibly towards our ESG focus. Over the years, we have consistently adopted various initiatives which helped us in minimizing our environmental footprint by prudent use of resources such as fuel, electricity, water, and raw materials. ASL engages in sustainable development of the environment, society, and governance.

Environment

As a part of our green initiative, we have installed sewage treatment plants, rain-water harvesting facilities, and solar power & heating facilities across our projects. We use aerated autoclave blocks across our projects, having lower embodied energy and much higher insulation value.

We focus on using environment friendly products, such as energy efficient lighting system and low VOC paints & adhesives, to minimise environmental impact.

Social

Besides executing projects responsibly, we have invested in education, environment sustainability, economic empowerment, rural development, health care and sanitation.

We focus on social development by undertaking rural development projects, rural infrastructure and livelihood enhancing projects. We strongly believe in giving back to the society by doing our part. We focused on social development by promoting education in the regions of our presence. Education involves special education and employment enhancing vocation skills.

We engage in disaster management by involving in relief, rehabilitation and reconstruction activities.

Governance

We believe that good governance contributes to value creation in the short, medium and long term and retains the trust and confidence of the Company?s stakeholders. Backed by an experienced management team, the Board has inculcated a culture of accountability, transparency, and integrity in its working.

Our Board comprises 4 Non-Executive and Independent Members, out of the total 6-member board.

The Company has adopted governance framework in accordance with the applicable SEBI regulations.

Risk management

Given the nature of our business, we are often exposed to various risks owing to the changing marketing dynamics and volatile external environment. Risk management at our company has enabled us to protect and enhance value, and is designed to deliver upon its short-and long-term objectives. A consistent and comprehensive risk management process has helped prepare an organisation better for future eventuality.

Here are some of the key risks and mitigation strategies adopted by the company:

Risk type	Risk impact	Mitigation measures
Industry risk	Reduction property	A_ordable housing segment has been an area of focus for the government and is one of the most dynamic sectors in the Indian real estate industry
Slump in the real estate market may lead to a significant decline in property prices	Impact on demand for properties	The affordable segment is expected to see demand of 40 million units
		We have a firm presence in the affordable housing segment and over 60% of our project are in this segment
		Vast majority of our affordable segment projects are in the range of below $5000 per sq. ft to 10,000 per sq. ft.
		Flexibility in pricing has enabled the Company to mitigate price risk Low land acquisition costs and integrated process enables us to have better control on cost
Economy risk	Reduced sales owing to low purchasing power	Despite the covid, India is still one of the fastest growing economies in the world
Slump in the economic growth may result in slowdown across industries	Lower demand for big ticker investments	India is expected to clock more than 7% GDP growth in FY23
Policy risk	Decreased demand for properties	Backed by adequate policy support from the government, the Indian residential real estate industry is currently in it?s upcycle period
Declining a_ordability because of an increase in loan interest rates, withdrawal of tax benefits and decrease in availability of home loans		House loan interest rates are at record low
Geography risk	Reduced sales	The Company has project presence in some of the growing micro markets
Multiple projects in one area or projects in areas with timid demand may affect the performance of the company	Decline in profitability	The Company follows the population matrix of the region to develop project, ensuring steady demand for the homes across different income groups
Cost escalation risk	Project cost exceeding the planned cost may lead to higher per sq. ft. cost and reduced sales	Strong procurement team to efficiently source raw material at competitive price
In ability to control cost may lead to loss of reputation and customer		Developed a network vendor providing raw material at various price points and of desired quality
		Use ASL?s brand image for attracting good vendors Enter into long-term contracts or project-based contracts with the vendors to mitigate price rise
Land acquisition risk	May lead to a decrease in profitability. Further, a drop in the land prices may erode the book value carrying cost of land.	Our land acquisition strategy focuses on acquiring agricultural land and directly from the land owners to keep our acquisition costs low.
Unavailability or shortage of suitable land parcels, required for development, may lead to escalation in land prices.		Further, we venture into lesser exploited territories to acquire land.
Contract labour risk	May result in an increased project cost.	To decrease our dependence on human labour we enhanced the usage specialized machine equipment?s.
Shortage of skilled manpower could result in the delay project completion.		We have supply of labour outsourced to different sub-contractors, therefore we don?t have excessive dependence on any one contractor.
		Further, our dedicated planning and execution team enters into contracts with the contractors with penalty clauses for delay in agreements with contractors.
		We also have an in-house team of skilled labour to help mitigate the shortage.
Input costs risk	Increase in construction costs (raw-materials), repair and maintenance costs, sub-contracted service costs and labour costs may lead to higher operating expenses.	We create a master vendor list based on product quality and price and source raw materials from them on a long-term basis
Fluctuating raw material cost is a risk inherent to the real estate industry.	Increased operating expenses may affect profit margins as the prices of properties sold cannot be altered.	Have contracts multiple vendors with approved products
	Correspondingly, if the selling price of unsold properties rises, sales and demand may get adversely impacted.	We emphasize on using branded materials to attarct vendors with a credible track record
		We enter into long-term and full project contracts with our vendors to mitigate the cost fluctuations and to ensure uninterrupted delivery
Competition risk	Lower demand for the developed projects may negatively impact the revenue of the company. Also competition may force to reduce margins as the fiats may be sold at lesser price.	Experienced, trained, and skillful of sales team.
In ability to compete with other players in the market.		Enhanced channel partner engagement to connect with customers.
		Planned marketing and branding initiatives across different media platform.
		Enhanced our digital marketing initiatives to connect with the new age customers
		Track the schemes introduced by competitors, better the competitor schemes with innovative offerings.
Environment risk	Any delay in approval from the environment committee would result in hampering the launch of the project	Improve relationship with the government departments
		Associate with the government ministry at platforms
		Use Industry associations platform to raise appropriate concerns and resolve issues
Funding Risk	Tightening of liquidity in the market may result in issues in funding. Issues in funding may delay payments to vendors, which may impact day- to-day operations of the projects.	We have ensured that we maintain a good relationship with our bankers & financiers, resulting in steady availability of finance and at low cost.
Inability to provide for the funding required for smooth operation of the business		Further, we adopted a strategy of construction linked payment with the customer with maximum payment for finishes ensures self- financing of the project and non-diversion of funds.
Government Regulation	New regulations may slow down approvals and impact approvals, resulting in cost escalation	Anticipate the impact and prepare for the contingencies
Risk		Adopt the policies in advance for new regulations
Change in government regulations may lead to delay or stalling of projects
Product Selection Risk	Any mismatch in gazing the demand of the product may result in no buyers or less response to the project launched	We undertake detailed market research, project feasibility study, demand analysis before commencing a project
Receivable Risk	A decline in the economy or the salaries of the people can have a negative impact on the receivables from the customers	Maximise sales via home loans and various schemes
Not receiving the receivables in due time		Book sales of customers who have a steady source of income or who are backed by proper finance facilities
		Have a team in place to keep in regular touch with the client and help them with advance reminders via letters, SMS & call
Natural Disaster Risk	Natural calamities may result in financial loss or may emerge as a roadblock to complete the project on schedule	Appropriate insurance policies are undertaken to safeguard from the loss arising out of natural calamities
Loss due to natural calamities		Our projects are planned and executed in a phased manner.
		Hence, helps us with a better control in terms of limited selling and developing
		With a pre-launch strategy, we get at least 15% booking amount and it helps us take care of the initial construction cost
		Strategy of collection of major amounts from customers only when a project building structure is ready ensures self-financing and completion of project
Price risk	Decline in property prices may lead to decline in profitability	Land acquired at historically low prices, which have helped us reduce cost and don?t hurt even in recession
Slump in the real estate market / significant decline in property prices		Arihant has 60% of its portfolio in the ‘A_ordable housing? segment of _3,000 to _5,000 per sq ft, 37% of portfolio falls in the MIG housing from _5,000 to _8,000 per sq ft.
		Achieved economies-of-scale due to in-house integrated capabilities which ensures low cost of construction & minimizes overhead costs.
		Working in phase wise on a project gives flexibility to start / stop of the project
Acquisition Risk	Delay in project completion	Review of city infrastructure plan/ possibility of future expansion of roads considered
Compulsory land acquisition	Exposure to legal disputes and related costs	Take required NOC?s from government prior to purchase of land
by government owing to development of infrastructure projects	Exposure to additional costs if changes are required to be made to the master plan	Project commenced only after receipt of sanctions from the relevant authorities
Land Bank Risk	May affect sustainability and stem business growth	Arihant brand, has ensured land owners prefer dealing with Arihant
Inability to grow existing land bank as desired due to inability/delay in procuring contiguous land for large projects, inability to build land bank at strategic locations at low costs, among others.		JV / Development model being received from land owners
		We currently have more than 2.6 million sq. ft. of area under development

Human Resources

At ASL, our employees across our projects are core towards delivering on our shared mission, vision and growth of the organization. ASL?s unique caring culture has a combined focus on customer experience where listening and empathy are emphasized, with employee experience where people express themselves to find meaning and feel fulfilled, which results in achievement outcomes where ownership, meritocracy, & excellence are our guiding stars. All employees play vital roles in delivering quality residential projects for our customers. Our diverse and integrated teams are the core factors which helped in sustained success of the company. We are an equal opportunity employer & strive to build diverse teams. ASL drives a high-performance culture through continuous learning & development interventions focused on organizational wide capability building and professional growth for our people.

We believe that a self-motivated workforce is a well-functioning workforce. The company appraises the performance of individual imployees and provides recognition & rewards to outstanding performers. This has helped us build a productive work culture and has aided the company in achieving its growth targets. As of March 31, 2022, the Company and its subsidiaries has workforce strength of 265 across various functions.

Internal control systems and their adequacy

The Management has laid down internal financial controls to be followed by the Company. The Company has adopted policies and procedures for ensuring orderly and efficient conduct of the business, including adherence to the Company?s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial disclosures.

The internal control system is commensurate with the nature of business, size and complexity of operations and has been designed to provide reasonable assurance on the achievement of objectives, effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations.

The internal control framework is supplemented with an internal audit program that provides an independent view of the efficacy and effectiveness of the process and control environment and supports a continuous improvement program.

The Company has put in place function wise Standard Operating Procedures (SOPs) to help better manage project. It has in place internal controls covering all fields across all financial and operating functions. Further, the Company appointed independent auditors to conduct periodical audits to ensure adequacy of internal control systems, adherence to management policies, and compliance with the applicable laws and regulations. The key findings of the audit backed by a well thought out implementation plan are recommended or discussed with the senior management and also the Audit Committee. The Audit Committee of the Board reviews the adequacy and effectiveness of the internal control systems and suggests improvements for strengthening them.

Cautionary statement

Certain statements in the Management Discussion and Analysis section concerning future prospects may be forward-looking statements which involve several underlying identified / non-identified risks and uncertainties that could cause actual results to differ materially. Besides the foregoing changes in the macro-environment, a global pandemic like COVID-19 may pose an unforeseen, unprecedented, unascertainable and constantly evolving risk(s), inter alia, to the Company and the environment in which it operates. The results of these assumptions made, relying on available internal and external information, are the basis for determining certain facts and figures stated in the report. Since the factors underlying these assumptions are subject to change over time, the estimates on which they are based are also subject to change accordingly. These forward-looking statements represent only the Company?s current intentions, beliefs or expectations, and any forward-looking statement speaks only as of the date on which it was made. The Company assumes no obligation to revise or update any forward-looking statements, whether because of new information, future events, or otherwise.

The risk management report discusses various dimensions of our enterprise risk management. The risk–related information outlined in this section may not be exhaustive. The discussion may contain statements that are forward-looking in nature. Our business is subject to uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. If any of these risks materialize, our business financial conditions or prospects could be materially and adversely affected. Our business, operating results, financial performance, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. Readers are advised to refer to the detailed discussion of risk factors and related disclosures in our regulatory filings, and exercise their own judgment in assessing the risks associated with the company.

For and on behalf of the Board of Directors
	Arihant Superstructures Limited
	Ashokkumar Chhajer
Place: Navi Mumbai	Chairman & Managing Director
Date: 23rd July, 2022.	DIN: 01965094
Registered Office:
"Arihant Aura", 25th Floor, B-Wing, Plot No. 13/1,
TTC Industrial Area, Thane Belapur Road,
Turbhe, Navi Mumbai – 400 705
CIN: L51900MH1983PLC029643
Tel: 91 22 62493333 Fax: 91 22 62493334
E-mail: info@asl.net.in, investor@asl.net.in, cs@asl.net.in
Website: www.asl.net.in