Athena Constructions Ltd Management Discussions.


Real Estate business was one of the key drivers of growth before we witnessed the present economic slowdown. Now with companies trying to consolidate their positions and finding effective means of sustaining growth. The management of real estate has merged as one of the key challenges for the corporate sector. The economic slowdown in the market have resulted in increasing pressures on the margins of companies operating out of India, which in turn has led to the companies looking to cut cost through reducing expenditure on the real estate segment. The real estate sector in India assumed greater prominence with the liberalization of the economy, as the consequent increase in business opportunities and labour migration lead to rising demand for commercial and housing space. At present, the real estate and construction sectors are playing a crucial role in the overall development of India’s core infrastructure.

Industry Structure & Development

Indian infrastructure and construction industry has grown exponentially, in part due to massive government impetus and in part due to high market sentiments. The country, which has initially targeted the low-hanging fruits, is now poised to take up more complex and technologically intense projects. The focus has moved from cost efficiency to time and competence. This has created excellent opportunities for foreign construction companies to conduct business in India. The Indian regulatory environment is expected to further boost the construction industry in order to provide the basic physical infrastructure for the nation. The Indian economy has witnessed considerable progress in the past few decades. Most of the infrastructure development sectors moved forward, but not to the required extent of increasing growth rate up to the tune of 8 to 10 per cent. The Union Government has underlined the requirements of the construction industry. With the present emphasis on creating physical infrastructure, massive investment is planned in this sector. The Planning Commission has estimated that investment requirement in infrastructure to the tune of about Rs.14,500 billion or US$320 billion during the 11th Five Year Plan period. This is a requirement of an immense magnitude. Budgetary sources cannot raise this much resources. Public Private Partnerships (PPP) approach is best suited for finding the resources. Better construction management is required for optimizing resources and maximizing productivity and efficiency.

Opportunities and Threats A. Opportunity :

Real Estate sector is not only the biggest contributor to Gross Domestic Product (‘GDP’) of the country but is also the fifth largest sector in terms of Foreign Direct Investment (‘FDI’) inflows in the country. Real Estate Sector in India Contributes to 6.20% of the nation’s GDP, and this number is projected to increase to 7.1% in the next five (5) years.

Further, Non-resident Indians and foreign citizens of Indian origin are now allowed to purchase property in India for residential or commercial purposes. Also, Proposed Real Estate (Regulation and Development) Bill to enhance transparency and accountability in real estate transactions, restoring confidence of the public in the industry.

Besides infrastructure, the construction industry in India has seen sustained demand from the Industrial Sector and Real Estate Sector. Demand from Real Estate has currently plateaued after unprecedented boom in the last decade. The real estate developers have traditionally employed contractors for construction of projects. However, several large contractors are now transitioning towards becoming real estate developers.

The Indian Construction sector offers quite an attractive proposition for foreign developers. The Indian Government has decided to allow 100% Foreign Direct Investment (FDI) in the real estate industry, thereby stimulating construction activities throughout the country. Further, the boom in demand for private sector housing and commercial building provide an opportunity to tap into a lot of the nascent demand in this sector.

B. Threats :

The real estate market in India has been exposed to much changes in government regulations, especially in recent years. An example is the upcoming Real Estate (Regulation and Development) Bill 2012, which may dictate that developers have to compensate land owners with twice the value of the land in urban areas and four times the value in rural areas. Developers will also not be able to begin executing a housing project until it had acquired all the necessary clearances and submitted them as proof before a regulatory authority. The bill also restricts developers from collecting any proceeds from buyers until permission to start on the project had been obtained. Such regulations cause uncertainty, cost overruns and delays in the execution of projects, and hence affect the cash flow of the company.

Construction majors are currently experiencing liquidity constraints due to tightening funding norms being employed by institutional financers. The industry is also facing squeezing margins due to increasing commodity prices. Recent trends show that this is primarily due to increase in international prices and are thus unlikely to go down in the near future. Nevertheless, industries based in India producing materials such as cement, steel and glass have shown strong growth of around 10% per annum, indicating sustained demand. Further, availability of skilled labour at key locations is also becoming increasingly challenging for the construction majors.

Financial Performance

INCOME: The total income of the company increased by approx. 8 percent from 52.52 lacs in 2015-16 to 57.00 lacs in 2016-17.

EBITDA: The EBITA of the company increased by approx. 33.19 percent from 3.45 lacs in 2015-16 to 5.16 lacs in 2016-17.

PAT: The profit after tax of the company decreased by 42.75 percent from 2.35 lacs in 2015-16 to 1.64 lacs in 2016-17.

Segment wise Performance and reporting

The Company is engaged in construction, hence the segment wise reporting is not applicable. Financial Performance of the Company for the year under review has already covered under the Directors’ Report.

Cautionary Statement

Statements in this report describing the Company’s objectives, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Because such statements deal with future events, they are subject to various risks and uncertainties and company’s expectation actual results for fiscal years as shown above could differ materially from company’s current expectation. The Company undertakes no obligation to revise or update forward - looking statements as a result of new information since, these statements may no longer be accurate or timely.