BS Ltd Management Discussions.

World Economy

Global growth has eased but remains robust and is projected to reach 3.1 percent in 2018. It is expected to edge down over the next two years as global slack dissipates, trade and investment moderate, and financing conditions tighten. steps being undertaken Growth in advanced economies is forecast to decelerate toward potential rates as monetary policy is normalized and the effects of U.S. fiscal stimulus wane.

In emerging market and developing economies (EMDEs), growth in commodity importers will remain strong, while the rebound in commodity exporters is projected to mature over the next two years.

For the first time since 2010, the long-term (10-year-ahead) consensus forecast for global growth appears to have stabilized. Although this development could signal that the legacies of the global financial crisis are fading, past experience cautions that long-term forecasts are often overly optimistic. While well below levels expected a decade ago, these forecasts also remain above potential growth estimates.

Moreover, risks to the outlook are tilted to the downside. They include disorderly financial market movements, escalating trade protectionism, and heightened geopolitical tensions.

EMDE policymakers should rebuild monetary and fiscal policy buffers and be prepared for rising global interest rates and possible episodes of financial market turbulence. In the longer run, adverse structural forces continue to overshadow long-term growth prospects implying that EMDEs need to boost potential growth by promoting competitiveness, adaptability to technological change, and trade openness. These steps will help mitigate an expected growth slowdown over the next decade, especially if long term growth forecasts fall—once again short of expectations.

(Source: http://www.worldbank.org/en/publication/global-economic-prospects)

Indian Economy

After registering GDP growth of over 7 per cent for the third year in succession in 2016-17, the Indian economy is headed for somewhat slower growth, estimated to be 6.5 per cent in 2017- 18, as per first Advance Estimates released by CSO.

This is slightly lower than the range of 6.5 per cent to 6.75 per cent being currently projected based on recent developments. Even with this lower growth for 2017-18, GDP growth has averaged 7.3 per cent for the period from 2014-15 to 2017-18, which is the highest among the major economies of the world. That this growth has been achieved in a milieu of lower inflation, improved current account balance and notable reduction in the fiscal deficit to GDP ratio makes it all the more creditable. In addition to the introduction of GST, the year also witnessed significant resolution of problems associated with non-performing assets of the banks, further liberalization of FDI, etc., thus strengthening the momentum of reforms. After remaining in negative territory for a couple of years, growth of exports rebounded into positive one during 2016-17 and strengthened further in 2017-18. There was an augmentation in the spot levels of foreign exchange reserves to close to US$ 414 billion, as on 12th January 2018.

(Source: http://mofapp.nic.in:8080/economicsurvey/pdf/001-027_ Chapter_01_Economic_Survey_2017-18.pdf)

Indian Power Sector

FINANCIAL YEAR 2017-18

The low demand scenario is still a concern with plant load factors (PLFs) leading to piling up of stranded capacity of around 25-30 GW due to various reasons including the low paying capacity of financially distressed Discoms and last mile connectivity to all consumers yet to be achieved.

This has, in turn, led to a heavy financial burden in the form of NPAs to the banking sector.

Average PLFs declined for all thermal power generation utilities across sectors. Nevertheless, the Central Public Sector Undertakings continued to be the best performers, followed by private sector. Key reason for the declining PLFs was shortage of demand from the SEBs.

Energy deficit (difference between requirement and availability) was the lowest ever as numbers improved tremendously during the year.

It has been a land mark year for renewable energy, as 14,410.9 MW capacity was added during the year.

As far as the Transmission & Distribution space is concerned, there has been rapid growth in the transmission sector. However, the financial health of state electricity utilities in retail distribution continues to remain the most critical issue for the sectors viability. To resolve the challenge in the distribution business, the Government of India launched the Ujwal DISCOM Assurance Yojna (UDAY) to reduce the financial burden on state DISCOMs by transferring 75% of accumulated losses/debts of the DISCOM to the state in a 2-step phased manner over financial years 2016-2018. Nevertheless, the country continues to reel under the pressure of higher T&D losses with the government going slow with the reforms process in these segments. Financial turnaround of the distribution sector is essential for commercial viability of the entire sector.

PROSPECTS

Recognising that electricity is one of the key drivers for rapid economic growth and poverty alleviation, the government and the industry has set itself the target of providing electricity access to all households over the next few years. As per government reports, about one third of the households do not have access to electricity. Hence, meeting the target of providing universal access to is a daunting task requiring significant generation capacity and expansion of the transmission and distribution network.

Restoration of the financial health of SEBs and improvement of their operating performances continue to remain the critical issue for the sector. As such, effective implementation of the restructuring package remains the key. While the power distribution space has been a loss-making business in India on an overall basis, the investments in T&D are expected to improve with privatisation coming in.

Going forward, it is expected that the demand will grow to cater to the continued economic growth of the country, creating more volume in the power market with strengthening of financials of Discoms. The demand is also likely to come from shift of usage from fuel to electricity in transport and agriculture sector in particular from distributed generation with solar installations.

Trading of solar power is one segment that has not picked up yet risk areas due to assessments and adequacy ofaggressive tariffs, however, this also maybe an opportunity in future from the perspective of stronger payment security mechanism. Efficiency improvement measures in the sector especially through the IT enablement, promotion of environment-friendly renewable technologies and energy efficiency solutions in the coming future are expected to provide business opportunities to various stakeholders.

BS Limited Challenges & Strategy

Your Company has been facing a host of financial issues with regard to its accumulation of unrealized debtors / receivables and the resultant overdue position of all its bank accounts. It is to be noted that your company did take a number of steps to bring back the financial stability to the company by way of settling its bank overdues.

Company negotiated with a number of investors, who were interested in investing into your company either under ARC route (Asset Reconstruction Company) or OTS route (Onetime settlement). Though the lead bank showcased a bid for our account outstanding, there could not be many bids which are complying with the terms and conditions of the bank.

Similarly your company discussed with the bank for OTS and made two offers of settlement but they too failed since the respective banks could not obtain the required approval from its authorities.

These resulted to challenging unforeseen circumstances like execution bottlenecks, rising interest cost and delays in payments from customers. With this, revenue and profits suffered creating imbalance between the Companys ability to generate cash and service debt.

During the past two years, accessibility to adequate working capital accelerated delay in execution, erosion of margin, reduced profitability and availability of cash for operations leading to debt accumulation.

Apart from the above, the lenders also initiated a case against the company with the DRT (Debts Recovery Tribunal) for recovery of their overdues of the company. Banks also invoked the provisions of The SARFEASI Act against the company for recovery and for taking symbolic possession of the assets that are charged to the banks.

Today, the Company is focused on optimizing its strategy and operations to overcome the present economic and financial challenges.

Risks Management and Internal Control

As an EPC contracting company with global presence your Company is exposed to various risk associated with turnkey projects. The Company has set up risk management system to understand, measure and monitor the various risks to which it is exposed and to ensure that it adheres, as far as possible, to the policies and procedures established by it to mitigate these risks. The Company has in place effective systems safeguarding the assets and interest of the Company and ensuring compliance with law and regulations. The Companys internal control systems are supplemented by an extensive programme of internal audit conducted by external auditors to ensure adequate system of internal control. Audit plans, internal auditors observations and recommendations, significant controls are also periodically reviewed by the Audit Committee.

Cautionary Statement

Statements made in the Management Discussion and Analysis Report describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the companys operations include global and domestic supply and demand conditions affecting selling prices of the finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations. Statements in this document that are not historical facts are forward-looking statements. These forward-looking statements may include the companys objectives, strategies intentions, projections, expectations and assumptions regarding the business and the markets in which the Company operates. The statements are based on information which is currently available to us and the company assumes no obligation to update these statements as circumstances change. There may be material difference between actual results and those expressed herein. The risks, uncertainties and important factors that could influence the Companys operation and business are global and domestic economic conditions the market demand and supply for products, price fluctuations, change in the governments regulations statutes and tax regimes and other factors not specifically mentioned herein but those that are common to the industry.