Bhanot Construction & Housing Ltd Management Discussions

INDIAN ECONOMY

Indias economy grew at its slowest pace in a decade during 2012-13. The economy grew by 5% over the year, after having grown at an annual pace of 4.8% in the January to March quarter. India was recording annual growth of 9% until two years ago, but in recent time it has seen a sharp decline blamed on a slowdown in its manufacturing and service sectors. According to the latest figures released by the Ministry of Statistics, Indias manufacturing sector grew at an annual pace of 2.6% during the latest quarter while farm output, rose by just 1.4%.

Low business confidence, slumping investment, high inflation and weak export demand from western countries are blamed for the bleak performance which comes ahead of national elections scheduled for next year. Foreign investors have also kept away due to delays in key reforms.

According to global ratings agency - Standard and Poors, India faces at least "a one-in-three" chance of losing Its prized sovereign grade rating amid new threats to economic growth and reforms.

Indias BBB-minus investment rating is already the lowest among its BRICS peers - Brazil, Russia, China and South Africa and cutting it to "junk status" would raise the countrys hefty borrowing costs.

The Organization for Economic Cooperation and Development (OECD) lowered its projection of Indias GDP to 5.3 percent in 2013, from 5.9 percent earlier.

REAL ESTATE SECTOR

The real estate sector in India has come a long way by becoming one of the fastest growing markets in the world. It is not only successfully attracting domestic real estate developers, but foreign investors as well. The growth of the industry is attributed mainly to a large population base, rising income level and rapid urbanization. The cities and towns in India are expanding and the space requirement for housing, education, healthcare and tourism provides opportunities in the real estate sector. This Industry, in India, contributes about five percent to the countrys Gross Domestic Product and, in the next few years, this contribution is expected to rise to six per cent. After undergoing corporatization and professionalization, today real estate Is recognized as .one of the key sector contributing to the countrys economic development. The Union Budget 2013 is looking forward to improving the sector sentiment further and at the same time re-stimulate its growth. Real estate plays an important role in the Indian economy, as it is the second largest employer after agriculture. The size of the Indian real estate market is expected to touch 180 billion USD by 2020.

Some of the initiatives taken by the Government of india include -

FDI up to 100 per cent is allowed under the automatic route in townships, housing, built-up infrastructure and construction development projects to increase investment, generate economic activity, create new employment opportunities and add to the available housing stock and built-up infrastructure.

The Ministry of Housing & Urban Poverty Alleviation has planned to introduce a single-window system for clearance of all real estate projects across the country. The system could bring down the average approval time from the current 196 days to 45-60 days.

The Government of India has sanctioned projects worth Rs 41,723 crores for building of 1,569,000 houses/dwelling units for economically weaker/lower income group sections under the Ministrys flagship Jawaharlal Nehru National Urban Renewal Mission (JNNURM) program.

Housing finances are becoming feasible with the housing loan limit being raised for priority sector lending. Some of the initiatives taken in the union budget 2013-14 include:

For homes and flats with a carpet area of 2,000 square feet or more or of a value of Rs.1.00 crore or more, which are high-end constructions, where the component of services is greater, rate of abatement reduced from 75 to 70 percent. Rs 6,000 crore were given to Rural Housing Fund.

National Housing Bank plans to set up Urban Housing Fund. Rs 2,000 crore will be provided to the fund in the current financial year

HOSPITALITY SECTOR

India is said to be one of the most potential markets in the world for tourism. It Is a multi billion Industry In India. Tourism can also be stated as the most vibrant activity. India has been always known for its historical, cultural dimensions. Tourism in .India is highlighted for Its immense business opportunities. Tourism industry has a lucrative linkage, with transport and Hotel industry.

The increasing demand for hospitality sector has proved its mettle and today it serves as one of the major employers in India. The sector has widely spread into tourism, accommodation, entertainment and several emerging new sectors like airlines, tours, travels, transport, education, medical tourism etc. Several global players are attracted towards the hospitality sector in India for major investment as it is a big giant among the countries in the Asia Pacific region. Tremendous growth in Hotel and Tourism industry personifies the same.

For more than a decade an upward swing is seen in the domestic tourists. The downfall in the value of the Indian rupee made the foreign travels more expensive for the nationals. Due to the rise in the income coupled with increase in the disposable income of middle class, the Hotel and Tourism industry in India has been showing a positive growth rate with immense opportunities.

A rise in foreign tourists arrivals in the nation also shows an upward trend In Increasing forex reserves and a positive GDP growth. Hospitality sector has also registered a sea change in the employment opportunities vis-a-vis increase in demand for professional employees. The tourism Industry in India has an annual growth rate of 8.9% in the foreign tourist arrivals.

Infrastructural growth and improvement in the country will lead to rapid increase in Hotel and Tourism industry.

Rise in demand for 4 and 5 star hotels justifies the same. In view of the great opportunities, India has attracted a lot of Foreign Direct Investors which in turn benefits the economy and helps maintain a favorable Balance of Payments.

In a nutshell the hospitality industry has been recording a favorable growth rate and also the anticipated growth rate reflects a positive trend.

INFRASTRUCTURE SECTOR

Infrastructure in any country plays a vital role for the economys growth and development. The Indian economy is getting bigger and better with every passing year. Needless to say, Infrastructure, which include - air, sea and surface transports, airports, ports, railways, roads highways, power and water supply etc. will contribute significantly to the countrys overall development. The Indian Government has earmarked US$ 1 trillion for investment in the development of the countrys infrastructure.

The Shipping Ministry has decided to aggressively pursue port development in India and has set an ambitious target to award 42 such port projects for a total worth of Rs. 15,000 crore in 2013. These new ports will add a capacity of 250 MT. The ministry intends to achieve a capacity of 3,200 MT at Indian ports by 2020 and around 2,600 MT of It all is planned by 2016-17.

Meanwhile, India and Spain have inked an MoU on Technical Co-Operation in the Field of Railway-Sector. As per the agreement signed, both the countries will co-operate and exchange information in the areas of High Speed Railway, upgradation of speed of passenger trains on existing lines, improving safety of train operations, modernisation of Rolling Stock, construction and maintenance technologies for fixed infrastructure (Track, Bridges, Tunnels, OHE, Power Supply Systems, Signaling and Telecommunications) and other cooperation In railway related technology developments.

Additionally, the Union Cabinet has recently approved proposals for two highway projects entailing an outlay of over Rs.5,000 crore. One project proposal, to be executed in Bihar, would be Implemented with financial assistance from Japan, while the other is to be executed In Odisha..

Cargo traffic at major Indian ports is expected to grow by 4 per cent in 2013-14, according to a study by the Centre for Monitoring Indian Economy (CMIE). The study states that the major reason behind the upsurge would be an Increase in the cargo volumes of commodities Including petroleum, oil & lubricants, container, coal and fertilisers. Hence, cargo traffic handled by major ports is anticipated to Increase to 568.5 MT in 2013-14.

Alongside, a recent study has stated 18,637 km of expressways need be built by the end of the 13th Five-Year Plan period, i.e. 2022. Infrastructure development (for expressway projects alone), on such a massive scale would require about Rs.4,50,000 crore, according to the study.

Meanwhile, the Government, under NHDP-VI, has already given nod for constructing four expressways of more than 1,000 km length at a financial outlay of Rs. 16,680 crore. The administration is contemplating on public-private partnership avenues for these new developments.

BUSINESS AND FINANCIAL PERFORMANCE & OUTLOOK

The Companys business activities include Real Estate, Infrastructure, Hospitality, Construction and Trading. The Company is endeavoring to focus mainly on commercial and residential projects In Delhi & NCR. It has also constructed Roads In Faridabad (Haryana). The Company has successfully completed some of Its projects Including premium quality residential flats and a Hotel at Dwarka, New Delhi.

Slowdown in economy and fierce market completion, has adversely impacted performance of the Company during the year 2012-13, in terms of operational and financial parameters over the previous year. As compared to the previous year, the there is decline during the year in -Turnover by 52%; Profit Before Tax by 95%; and Net Profit by 94%. The important balance sheet figures are given below to gauge the financial health of the Company:

PARTICULARS	FY 2012-13 (Rs./ Lacs)	FY 2011-12 (Rs./lacs)
Total Turnover	5,958.38	12,290.27
Depredation	143.44	121.64
Total Expenditure	5,933.32	11,815.47
Profit before Tax (PBT)	25.06	474.80
Provision for Tax	3.56	129.06
Profit After Tax	21.50	345.74
Equity Capital	2,039.82	2,004.82
Reserve & Surplus	1,176.03	1,021.50
Fixed Assets (Net Block)	3.022.50	3,208.35

The Company is focusing on opportunities in Delhi and NCR in Real Estate, Infrastructure, Hospitality and construction business. Further the Company also plans to develop commercial/hospitality projects in hill stations especially in Dehradun and Mussoorie where the Company Is having its own land. Besides this the Company has in hand some infrastructure projects including laying of concrete roads in Faridabad (Han/ana). The management is making all its efforts to achieve a reasonable growth during the current financial year.

RISKS & CONCERNS

The Companys business is impacted by, interalia regulatory and monetary polides and investment outlook. The Companys operations and its ability for future development has to be viewed in light of the above and resultant factors such as the availability of real estate finandng, uncertainty on monetary and fiscal policy actions, changes in government regulations, foreign direct Investments, approval processes, and actions of government land authorities. Further the fierce market completion in construction sector, squeezing profit margins ability to compete effectively in regional markets, over-dependence In a particular market/region, input price increases, interest rate hikes in the economy, liquidity/availability of credit and various other risks that may be attributable to construction business.

INTERNAL CONTROL SYSTEM

The Company has adequate infernal control procedure and systems. Internal control system plays a great role in achieving the targets of any organization. Your Company gives top priority to establish a capable internal control system. The present internal control system of the Company is capable of facing the challenges and threats arising from the outside environment

The Companys internal control system aims to ensure that:

- Laws and regulations are complied with;

- The instructions and directions issued by the Board and Management are complied and implemented. The Companys internal processes are funcboning correctly, particularly those implicating the security of its assets;

- Financial information is reliable and generally, contributes to the control over its activities, to the efficiency of its operations and to the efficient utilization of its resources.

- To prevent fraud, irregularity, misappropriation of Companys resources and early detection thereof.

HUMAN RESOURCES

The Company believes that the human capital is the key engine for its growth and competitiveness. It continues to focus on HR practices, systems and people development initiatives that encourage continuous learning on the job and meritocracy and which enhance the organisations capability. The Company has Nine employees as on 31st March, 2013. The Companys objective going forward would be to nurture and harness core management teams and explore outsourcing which will enable us to enhance management bandwidth and focus. In this direction we have already successfully outsourced our construction activities to "best-in-dass" contractors for all our current and upcoming projects. The changing business scenario necessitates continuous development of employees in terms of skills and competencies in line with the Companys requirements.

RISK MANAGEMENT

Risk management is the identification, assessment and taking pro-active measures to face the impact of various risks. Risks may arise from uncertainty in financial markets, project failures, legal liabilities, credit risk, accidents, natural causes and disasters etc. The Company has adopted appropriate procedure and policies to safeguard the company against business and other risk to mitigate its impact to the extent possible. The Risk management plans & policies are periodically monitored, reviewed and evaluated and Updated from time to time.

CAUTIONARY STATEMENT

The Management Discussion and Analysis contains certain forward looking statements. These statements pertain to the Companys future business prospects and business profitability, which are subject to a number of risks and uncertainties and the actual results could materially differ from the forward looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties, fluctuations in earnings, our ability to manage growth, competition, economic growth in India, ability to attract and retain highly skilled professionals, time and cost over runs on contracts, government policies and actions with respect to Investments, Fiscal deficits, regulation etc. and other factors which cannot be anticipated.