CMM Infraprojects Ltd Management Discussions.
Indian Economic Overview
India continues to be one of the fastest growing major economies in the world and is expected India is forecast to overtake the UK to become the worlds fth largest economy in 2019.
The Indian economy decelerated at a faster pace in the fourth quarter to 5.8% - the lowest in five years. As per the Central Statistics Office (CSO), GDP growth stood at 6.8 per cent in FY19, lower than 7.2 per cent in FY18. The GDP growth was slowest since 2014-15, the previous low was 6.4 per cent in 2013-14. The countrys fiscal deficit in 2018-19 stood at 3.4 per cent of GDP, roughly in line with the Interim Budget estimate. Indias industrial output declined by 0.1% in March 2019, hitting a 21-month low, due to contraction in manufacturing, capital goods and consumer durables.
According to the CSO, factory output growth was at a three year low of 3.6% in FY19, down from 4.4% in FY18. Consumer durables output, an indicator of urban demand, fell 5.1% in March 2019, compared with a growth of 6.2% in March 2018. The liquidity constraint on nonbanking finance companies (NBFCs) sparked by the default at Infrastructure Leasing &financial Services (IL&FS) also hit consumer demand and further contributed to the slowdown.
India has recorded a jump of 23 positions against its rank of 100 in 2017 to be placed at 77th rank among 190 countries assessed by the World Bank in 2018. Indias leap of 23 ranks in the Ease of Doing Business ranking is significant considering that last year India had improved its rank by 30 places, a rare feat for any large and diverse country of the size of India. Because of continued efforts by the Government, India has improved its rank by 53 positions in last two years and 65 positions in last four years.
Construction industry in India is one of the fastest growing industry and is said to be second largest industry in India after agriculture. The sector also makes significant contribution to the national economy, around 11% of GDP, along with providing employment to the large number of people. The construction industry is broadly categorised into three segments Infrastructure (Roads, Railways, Irrigation etc.), Industrial (Re neries, Power Plants, Factories etc.) and Real Estate (Residential, Commercial, Institutional etc.).
The Indian construction industry regained its growth momentum in 2018-19, helped by positive developments in economic conditions, improvement in investor con dence and investments in transport infrastructure, energy and housing projects. As infrastructure is highly responsible for propelling growth of other sectors and Indias overall development, Government of India is giving huge impetus for development of infrastructure and construction services through focused policies such as open FDI norms, large budget allocation to infrastructure sector, housing for all, smart cities mission etc. India has become a large market for infrastructure and construction activities.
The Government of India along with the governments of the respective states has taken several initiatives to encourage the development in the sector. The Smart City Project, where there is a plan to build 100 smart cities, is a prime opportunity for the real estate companies. Below are some of the other major Government Initiatives:
1. Under the Pradhan Mantri Awas Yojna (PMAY) Urban, more than 6.85 Million houses have been sanctioned up to December, 2018.
2. In February 2018, creation of National Urban Housing Fund was approved with an outlay of Rs. 60,000 Crore.
Union Budget Highlights 2019-20
Going with the momentum created over the last five years, the government apportioned a budgetary support of approximately Rs. 4.56 Lakhs Crores under the union budget for the infrastructure sector for financial year 2019-20. This includes roadways, railways, shipping and aviation.
Roads and Highway
With the governments increased focus on expanding the road network, the road sector has become one of the top contributors to the construction industry. Mega projects such as Bharatmala, Setu Bharatam and Char Dham connectivity will be the biggest investment drivers in the sector. Phase I of the Bharatmala Pariyojana alone offers an investment opportunity of Rs. 5.35 trillion. Assuming a construction intensity of around 60%, the sector offers construction opportunities of about Rs. 3.21 trillion.
Further, although the launch of new innovative implementation models, such as the hybrid annuity model (HAM) and the toll-operate-transfer (TOT) model have attracted substantial interest from industry players, the engineering, procurement and construction (EPC) model is likely to remain the dominant mode in the near to medium term. The Ministry of Road Transport and Highways (MoRTH) has set a construction target of about 12,000 km and an award target of around 20,000 km for 2018-19. Meanwhile, major policy initiatives, such as a bonus of 10% of the project cost to the contractor upon completing highway projects before the deadline, single-window clearance facility to accord speedy approvals etc., are likely to attract players into the sector.
In addition, the government is planning to develop nearly 2,00,000 km of national highways by 2022. It has plans to invest around Rs. 1.45 trillion in road infrastructure in the north east region between 2018 and 2020. As per India Infrastructure Research, a pipeline of around 352 projects at the state level spanning a length of over 19,160 km at an estimated cost of over Rs. 2 trillion presents vast opportunities for construction players. Based on these estimates and the strong pipeline, opportunities worth over Rs. 1.2 trillion are expected to be available for the construction segment.
Railways: Budget 2018-19 had set a capital expenditure for the Ministry of Railways at Rs 1.58 lakh Crores, which is highest ever. The budget has allocated Rs. 7,255 Crores for construction of new lines, Rs. 2,200 Crores for gauge conversion, Rs. 700 Crores for doubling of tracks, Rs. 6,114.82 Crores for rolling stock and Rs. 1,750 Crores for signalling and telecom.
Airports: The finance ministry allocated Rs. 4500 Crores for 2019-20 as compared to Rs. 9700 Crores last year. The Ministry of Aviation plans to revive Air India and support UDAN, the regional connectivity scheme. The third phase of this scheme which was launched recently also proposes to start ights to international destinations from regional hubs. There are 100 operational airports in India and the domestic air passenger traf c has doubled. Pakyong Airport in Sikkim was the 100th airport to be commissioned.
The company is poised to achieve a good growth into the present scenario. We intend to achieve the past growth rate despite a bleak economy. During the year the Company has successfully completed the projects as per annexed list.
During the year under review Company has made a turnover of Rs. 1,00,52,26,515/- and a profit after tax of Rs. 78,85,815/- .
By reviewing the performance of the company on the basis of regional performance, we understand that we are performing as per expectations and are poised for growth in line with economy.
The Cash Flow summary for the financial year 2018-19 under indirect cash flow method is as follows:
|(Amount in Rs.)|
|1.||Operational Cash Out flow||(1,43,83,365)|
|2.||Investing Cash In flow||6,72,033|
|3.||Financing Cash Out flow||(2,62,79,624)|
As India awaits policy reforms to pick up speed, your Company firmly believes that the demand for Real Estate in a country like India should remain strong in the medium to long term. Your Companys well accepted brand, contemporary architecture, well designed projects in strategic locations, strong balance sheet and stable financial performance even in testing times make it a preferred choice for customers and shareholders. Your Company is ideally placed to further strengthen its development potential by acquiring new land parcels.
Challenges faced by the Indian Construction Sector
The key challenges faced by the construction industry in India can be summed up as under:
Increased Material Costs: Over the past few years, increases in material costs have led to increase in labour cost and unavailability of concrete products such as aggregates and cement. Material costs have risen by 10-12% over the past year and future costs are likely to rise even more.
Lack of Skilled Workforce: At the end of 2018, there were roughly 2,90,000 open construction industry jobs, re ecting the dearth of qualified workers in the industry. Due to smaller and less qualified workforce, projects are coming in over budget because of change orders resulting from failure to properly assess and perform the project. This also results in increased labour cost and delay in completion of projects.
Technology Adoption: Technology has been a major differentiator in the Indian construction industry. Technologically efficient builders are attracting collaborations in the higher end and businesses that follow traditional means are lagging behind. Elements like Virtual Reality, Arti cial Intelligence (AI) and Building Information Modelling (BIM) are transforming the market trends today both in commercial and housing sector. It is essential for the competitors to get technologically efficient to avoid certain technological challenges.
Project Complexity: Modern construction projects becoming advanced, both in terms of design and functionality. Availability of skilled labour and latest technology further adds to the challenge.
Natural Hazards: Being a tropical nation, India is prone to natural disasters, especially oods. Big cities like Mumbai and Chennai have witnessed natural calamities in the past years and this has become a huge constraint
Threat, Risk and Concerns
The Company works in an environment which is affected by various factors, some of which are controllable while some are outside the control of the Company. The Company does not perceive any major technological, operational, financial or environmental risk in the near future.
Construction industry is highly risk prone, with complex and dynamic project environments creating an atmosphere of high uncertainty and risk. The industry is vulnerable to various technical, socio-political and business risks- errors caused on account of adoption of improper methodology of construction, carrying out improper market survey, improper data input, extraordinary hike in the cost of construction materials, uctuation in the exchange rates involving transactions in foreign currency, improper assessment of the locational hazards and assessment of taxes/duties in the operation of the contract are being independently assessed/analyzed by various Cells like tendering, operations, procurement, finance, banking, HR and IT Cells and mitigation procedures/plans are being formulated and monitored to reduce, if not totally eliminate, the risks associated with the above
|(Rs. in Lakhs)|
|Balance Sheet||As at March 31, 2019||As at March 31, 2018|
|Reserve & Surplus||3,984.97||3,906.12|
|Non- Current Liabilities||2,083.27||2,521.85|
|Non- Current Assets||3,448.95||3,807.87|
|(Rs. in Lakhs)|
|Pro t & Loss Account||For the year 2018-19||For the year 2017-2018|
|Pro t/ (Loss) before interest, depreciation, amortization and taxes (EBITDA)||1,119.52||2,167.47|
|Depreciation and amortisation||274.27||270.90|
|Pro t after tax||78.86||900.90|
|Earning Per Share||0.50||6.80|
Human Resources Policy
Human Resource is the biggest assets of the Company and it remains one of the core focus areas of the Company. The Management of the Company lays special emphasis on the welfare and safety measure are undertaken on a regular basis. The Company has a well qualified and experienced team of professionals with dedicated human resource department, which is competent to deliver when needed. The Company aims to provide the congenial work environment that respects individuals and encourage professional growth, innovation and superior performance.
The industrial relations of the Company continue to remain harmonious and cordial with focus on improving productivity and quality.
This management discussion and analysis contain forward looking statements that re ects your Companys current views with respect to future events and financial performance. The actual results may differ materially from those anticipated in the forward looking statements as a result of many factors.