MANAGEMENT DISCUSSION AND ANALYSIS
The objective of this report is to share and keep you abreast with the happenings and
transformations occurring within the Company, that in the industry and economy, its
technology and its overall business strategies.
Among other things, the MD & A provides an overview of the previous year of
operations and how the company fared in that time. It also provides the report on the
upcoming year, outlining future goals and approaches to new Project. We begin with a
general review of the industry, macro economy followed by the operational and financial
details of the company including details of its human resources.
Cautionary statement
Statements in the Management Discussion and Analysis describing the Companys
objectives, projections, estimate expectations may be "forward looking
statements" within the meaning of applicable securities laws and regulations. Actual
results could differ materially from those expressed or implied. Important factors that
could influence the Companys operations include economic developments within the country,
demand and supply conditions in the industry, input prices, changes in government
regulations, tax laws and other factors such as litigation and industrial relations.
Review of Indian Economic Scenario
The Indian economy recorded its GDP growth rate at 4.7% in financial year 2013-14 that
witnesses how the economy has been going through challenging times culminating in lower
than 5% growth of GDP at factor cost at constant prices for two consecutive years, i.e.
2012-13 & 2013-14. Two successive years of sub-5 percent growth is witnessed for the
first time in 25 years. Reason for such slowdown in growth is due to domestic structural
and external factors. In this backdrop, construction output has almost stagnated and
further contributed to low business confidence. Fixed Investment rate, private corporate
investment and savings rate declined in financial year 2013-14. Slowdown in industry rate
was reflected in lower sales growth in the corporate sector. Growth of Credit flow to
industry was lower in financial year 2013-14. Moreover, the economy has been under serious
fiscal pressure. The stressed exchequer of the Government has prevented government backed
investment impetus to infrastructure. Despite some measures undertaken by the Government
and outlining of priorities for reviving growth which includes investment revival,
strengthening of macro-economic stability, creation of non-agricultural jobs,
strengthening of infrastructure and boost to agricultural development, reversion to a
growth rate of around 7 - 8 percent looks to be after financial year 2015-16.
Even if it is the case that the business cycle has bottomed out, it is equally true
that the upswing will be gradual, especially in infrastructure. Moderation in inflation
would help ease the monetary policy stance and revive the confidence of investors. With
expectation of better performance in manufacturing & construction, improved balance of
payments situation and modest global growth revival, the economy can look forward to
better growth prospects in 2014-15 and is expected to grow around 5.5% in financial year
2014-15.
Industry Structure and developments
Infrastructure including roads and highways, ports, railways, power, irrigation and
urban infrastructure is key for the growth of Industry and services. The need for
infrastructure development and global integration cannot be overemphasized. This sector
have strong backward linkages for core sector industries like steel, cement and other
construction materials, it creates investment opportunities across various related
sectors. The sector is labor-intensive and includes indirect jobs and thus it is the
second largest employer in economy next only to Agriculture.
The Financial year 2013-14 has witnessed underachievement in many of the infrastructure
sectors. Main reasons for this underachievement were delays in regulatory approvals,
problems in land acquisition and rehabilitation, environmental clearances, time overruns
in the implementation of projects. Lack of infrastructure not only results in reduced
economic output, it also translates into additional costs in terms of time, effort and
money for accessing essential services. There is an urgent need for significant
improvement in Indias infrastructure; otherwise it will continue to be bottleneck for
countrys economic growth. In order to ensure strong, sustainable and balanced development
through integration of economies with environmentally sustainable development of
infrastructure and to ensure accelerated growth in infrastructure sector, the government
has taken several initiatives in the recent past including the following:-(i) Setting up
of the Cabinet Committee on Investment under the chairmanship of the Prime Minister to
expedite clearances and decisions on large infrastructure projects.
(ii) According tax free status to infrastructure bonds for addressing the specific
needs of infrastructure deficit, especially in sectors such as roads, ports, airports and
power which are essential for economic growth in any country.
(iii) The Government has conceptualized infrastructure debt funds (IDF) for sourcing
long-term debt for infrastructure projects
(iv) With a view to promote public-private partnerships (PPPs) as an effective tool for
bringing private sector efficiencies in creation of economic and social infrastructure
assets and for delivery of quality public services:-
(a) 178 projects have been granted approval with a total project cost of Rs. 88,697/-
Crores and Viability Gap Funding support of Rs. 16,894 Crores.
(b) 53 projects so far have been approved with India Infrastructure Project Development
Fund (IIPDF) assistance.
(c) 160 training programmes have been conducted (since National PPP Capacity Building
Programme was launched in 2010) to train over 5000 public functionaries who deal with PPPs
in their domain.
(v) The Government has put in place a liberal foreign direct investment (FDI) under
which FDI upto 100% is permitted under the automatic route in most sectors/activities.
Significant changes have been made to ensure that India remains an increasingly attractive
investment destination. As a result, total FDI inflows into major infrastructure sectors
registered a growth of 22.8% in 2013-14 as compared to a contraction of 60.9% in 2012-13.
(vi) Enhancing present corpus of pooled municipal debt obligation facility with
participation of several banks to finance infra projects in urban areas on shared risk
basis of Rs. 50,000 Crores.
(vii) On strengthening road infrastructure Rs. 37,800 Crore investment in National
Highways Authority of India and State Roads.
(viii) Scheme for development of new airports in Tier I and Tier II will be launched
for implementation through Airport Authority of India or PPPs.
(ix) To start work on select expressways in parallel to the development of the
Industrial Corridors and for project preparation NHAI will set aside Rs. 500 Crores.
Opportunities
According to 12th plan projections, during the plan period i.e. 2012-17, an investment
of US $ 1 trillion is required in the infrastructure sector in India. About half of this
is expected to come from the private sector.
The construction sector is likely to see a turnaround in second half of financial year
2014-2015, as key hurdles - order slowdown due to policy inaction and clearance delays,
high interest rates and debt / equity funding constraints - are expected to ease.
Positives include the expected recovery in industrial capex, an equity market revival led
by higher FII inflows, improved debt available due to higher infra lending.
Buoyancy in orders is likely in financial year 2014-15 and financial year 2015-16, led
by greater impetus on infra investments and government action to revive stalled projects
and ensure fast-track approvals for new ones. The pressure of elections in various states
is likely to boost the launch pipeline of infrastructure projects, resulting in a pick-up
in order flows. Thus the overall look of the Indian construction Industry looks positive
in view of the current economic scenario. Given the economic fundamentals and committed
efforts of the government, the future of the Indian economy in particular the construction
industry appears to be optimistic.
Business Overview
We are an infrastructure project development company and provide engineering,
procurement and construction services for infrastructure projects in India. In addition,
we are also executing several real estate development projects. Our project expertise is
primarily in transportation engineering projects including roads, bridges, flyovers,
airport runways, tunnels and also mining, building construction, land development /
embankment / Flood Protection.
We have a strong presence in the Northern, Eastern and North-Eastern parts of India
such as Delhi-NCR, Punjab, Rajasthan, Uttar Pradesh, West Bengal, Bihar, Assam, Meghalaya,
Mizoram and Arunachal Pradesh. These North-Eastern areas are relatively less penetrated in
terms of infrastructure development and hold potential for more business. The Union Budget
also has increased allocation for the North Eastern sector and State Governments have
increased focus on building infrastructure facilities on priority basis. With a presence
in these areas, the Company holds an edge over its peers for future projects. We execute
infrastructure projects independently and in joint ventures. To meet technical and
prequalification requirements, we enter into strategic alliances / Joint Ventures with
entities operating in the same segment of business. Over the years, We have built a
reputation of being a competent and trusted company in the Construction Industry. The
company has built a strong organizational base, with vital infrastructure set-up and
executes projects by adopting modern techniques. Minute details are taken into
consideration at BIL from the bidding stage right up to successful timely completion of
the Project.
Threats, Risks and concerns
Stepping up infrastructure investment, improving productivity and quality of
infrastructure spending, removing procedural bottlenecks, improving governance and
consistency in governments infrastructure policies are some issues that need to be
urgently addressed.
Long term finance for infrastructure projects is one of the issues that need to be
addressed in the context of the limitation of banks to finance such projects.
Infrastructure projects, given their long pay-back period, require long term financing in
order to be sustainable and cost effective. However, banks which have been the main source
of funding for such projects are unable to provide long term funding, given their asset
liability mismatch and the ceiling on their exposure limits. To address the problem of
asset liability mismatch, banks have tendency to lend on floating rate basis which more
often than not results in escalation of project cost because of interest rate
fluctuations. Absence of well-developed corporate bond market has put additional burden on
banks to meet the funding requirements of corporate sector.
We may encounter problems relating to the operations of our Joint Ventures, which could
impose additional financial and performance obligations resulting in reduced profits or in
some cases, significant losses from the Joint Venture. We are jointly and severally liable
for credit facilities availed with respect to our Joint Ventures.
Besides, cost escalation could affect profitability. EBITDA margins would be stable if
there is an escalation clause in the contracts. However, those with a higher proportion of
fixed-price EPC contracts may see a contraction in margins if there is a substantial
movement in material prices.
The use of heavy machinery carries safety risks, which could endanger worker well-being
and project progress.
Delays associated with the collection of receivables from our clients may adversely
affect our business, results of our operations, cash flows, and financial condition. We
require certain approvals or licenses in the ordinary course of business and the failure
to obtain or retain them in a timely manner, or at all, may adversely affect our
operations.
The timely and cost effective construction of our projects is dependent on the adequate
and timely supply of key raw materials. Non availability can badly impact our operations.
Delays in the completion of current and future construction and development projects could
have adverse effects on financial condition, cash flows and operating results.
Our business is significantly dependent on various Government entities and could be
materially and adversely affected if there are adverse changes in the policies of such
government entities. Delays in the acquisition of land and/or eviction of encroachments
from Government or State Government owned land by the Government or State Governments may
adversely affect the timely performance of our contracts leading to disputes with the
Government or State Governments. Demand for our services in India depends on domestic and
regional economic Growth. Natural calamities could have a negative effect on the Indian
economy and cause our business to suffer.
Outlook
Our strategic objective is to continue to improve and consolidate our position as a
leading construction Company and we aim to achieve this by implementing the following
strategies:
(i) Maintain performance and competitiveness of existing business.
(ii) Develop and maintain strong relationships with our clients and strategic partners
(iii) Leverage our experience in the infrastructure sector to further our real estate
development business.
The company is going through tough phase where there is strained liquidity due to
stretched working capital cycles and restrained lending by banks. While Top-line has
witnessed fall, EBITDA margins have fallen too and debt levels continue to remain
constant, leading to deterioration in credit metrics. There has been delayed receipt of
payment from the client. This has ultimately affected the payment to the creditors. The
situation of debtor and creditor days has further worsened in the current year due to
tremendous slowdown in the project schedule. Persistent efforts are being made by the
company to collect claims and over dues. However in view of present economic scenario, the
progress is slow and the claims and over dues continue to remain at higher levels. Serious
measures have been taken up for cost management, cash flow management, realization of
receivable and bidding of projects is on a selective basis. Order execution will continue
to be sluggish in financial year 2015 due to reduced ability of companies to fund working
capital and delays in realization of receivables. The outlook is revised to stable in the
light of governments measures to strengthen the infrastructure sector, initiatives to
speed up execution of projects through policy action and implementation of CDR. However,
this is expected only in the later part of the financial year 2014-15. We shall keep
trying to increase our overall presence in the industry with increased market share.
Internal Control Systems and their Adequacy
The Company has a satisfactory system of internal control corresponding with its size
and the nature of its operations. These have been designed to provide reasonable assurance
& accuracy with regard to recording & reporting and providing reliable financial
and operational information complying with applicable statutes, safeguarding assets from
unauthorized use or losses, executing transactions with proper authorization and ensuring
compliance of corporate policies.
Human Resource / Industrial relations
Human capital has continued to be the key engine for our growth and aspirations. The
Company has been constantly reviewing its HR policies and practices to keep abreast with
the market changes and has embarked upon several initiatives to focus on creating a
positive work environment that provides employees with ample growth and development
opportunities as well as ensuring high levels of motivation and engagement. Industrial
relations have continued to be cordial throughout the year. Measures for safety of
employee, scientific training, welfare, performance based appraisal system, compensation,
career growth and social security schemes continued to remain key priority of the Company.
Financial performance and results
The Financial statements have been prepared in compliance with the requirements of the
Companies Act and the Accounting Standards issued by the Institute of Chartered
Accountants of India.
1. Turnover: The Company’s turnover during the F.Y. 2013-14 was Rs.
25670.60 Lacs as against Rs. 31173.21 Lacs in previous year.
2. Finance costs: Finance costs for the F.Y. 2013-14 accounted for Rs.
4470.77 Lacs as against the previous year of Rs. 4113.85 Lacs.
3. Depreciation: The current year depreciation amounted to Rs. 2447.90 Lacs
as against Rs. 2687.29 Lacs of previous year.
4. Profit/(Loss):
a) Profit/(Loss) before Depreciation and Taxation amounted to Rs. (362.70) Lacs as
against the previous year of Rs. 2856.47 Lacs.
b) Provision for taxation & deferred tax for the year amounting to Rs. (742.87)
Lacs as against the previous year of Rs. 40.36 Lacs.
c) Profit / Loss after Tax - During the F.Y. 2013-14, the Company suferred net loss
after tax of Rs. 2067.74 Lacs as against net profit after tax of Rs. 128.82 Lacs in the
previous year.
5. Fixed Assets: During the year the net fixed assets of the company reduced
from Rs. 11891.44 Lacs to Rs. 9824.69 Lacs.
6. Inventories: Inventories amounted to Rs. 31477.03 Lacs as against Rs.
28044.07 Lacs of previous year.
7. Trade Receivables: Trade receivables amounted to Rs. 13129.28 Lacs as
against Rs. 13371.40 of previous year.
8. Long term Loans and Advances: Long term Loans and advances represent Rs.
4817.24 Lacs as against Rs. 4835.83 Lacs in previous year.
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