D S Kulkarni Developers Ltd Management Discussions.

Economic Overview

The Indian Government is on the fast track of financial reforms. The Reserve Bank of India ("RBI") with its helping hand is supporting the Government to bring down inflation. It is perceived that the Government and

RBI are working in tandem with each other to accelerate the tempo of development. Economic development benefits everyone.

The public and private sector projects which were stalled are now seeing the light at the end of a dark tunnel. Government is quickly moving towards the era of ‘Minimum government and maximum governance’ by digitisation, simplification of procedures, shortening various forms, leveraging technology, transparency in public interface, etc. The Government has also taken a number of initiatives for improving ‘Ease of Doing

Business’. The emphasis has been on simplification and rationalization of the existing rules and introduction of IT (information technology) solutions to make governance more proactive, efficient and effective. All these measures shall have the effect of bringing back the confidence of the industry and society as a whole. as against 7.3% of the earlier year Indianeconomygrew at76%duringfiscal . It is expected that the Indian economywillgrowbetween7to7.75%ofGDPinfiscal2016-17. The fiscal deficit target for FY 2016-17 has been kept at 3.5% and the Government seems to be on track to achieve it though albeit it being challenging.

Though steps have been taken to keep inflation at sub 5, confidence in price stability has to be improved.

The Government’s encouragement towards start-ups is remarkable as it creates entrepreneurs, employment, new product/service lines, new investment avenues, etc. It is expected that the Government takes steps to sustainability of reforms initiated; otherwise their impact are negative for employment, and economy. Also certain political events are expected to strengthen the Government’s power to pass GST and other crucial legislations. For the last two years, India in general and important states like Maharashtra in particular faced drought situation. Agriculture was much affected, pushing inflation up. However, IMD has given a favourable monsoon forecast for the current year. Normal monsoon will certainly give confidence to the industry and agricultural and economy as a whole can achieve its set targets.

Real Estate Sector Overview and Outlook

It may be noted that the Central Government passed the Real Estate Regulation and Development Act, 2016 which got notified on 26th March, 2016. The Central Real Estate Regulatory Authority and the Rules under the said Act are yet to be notified.

Tepid home sales, rising inventory levels and weak sentiment pulled down India’s property markets in 2015. The sector awaits the return of investors and customers, who seem to be waiting for prices to stabilize and developers to honour project delivery schedules before they take the plunge. Many steps by the Government/regulators have been seen to stabilise real estate sector, be it in the form of formation of REITs and InvITs, regulatory changes, reduction in interest rates or easing FDI norms. Real estate has always been an attractive sector for private equity providers and NBFCs. The Union Budget of 2016-17 saw heavy provisioning for real estate and infrastructure. The Real Estate (Regulation and Development) Act, 2016 is expected to boost the sentiments in the real estate sector as it will bring in more transparency and organised working which in turn will benefit every stakeholder.

The Government’s policy steps and RBI’s reduction in rates are helping recovery in many sectors of economy. In a recuperating economy, real estate sector takes time to recover, be it a housing, commercial or retail real estate. In the short term and long term, lot of investment is expected in the Tier I and II cities such as Bengaluru,

Pune, Ahmedabad, Chennai, Delhi, etc. Also a major investment can be seen in the cities which have been included in Government’s "Smart City Mission". The real estate sector that suffered much pain in the past two years is moving towards a more rational regime. Developers are focusing on project execution and delivery. 2016 is expected to gradually move towards better home sales and see a spurt in launches in some locations. The year will also see the sector moving from an investor-driven to an end-user driven cycle. Home prices, which declined to some extent in 2015, may see further correction as customers are still delaying home-buying decisions. Prices may stabilize within a band.

Overall, there is an improvement in the sentiments for the residential sector. The benefits provided to buyers in the Union Budget 2016 are also expected to generate the further demand. Stakeholders are quite optimistic about residential sales.

With the Government’s efforts in pushing start-ups, new projects and overall economic growth, commercial real estate seems to be better placed than residential real estate. Stakeholders are optimistic about the office space, especially in terms of leasing volumes and rental appreciation.

Opportunities

With the Government’s and RBI’s steps for economic reforms, the industry is positive for revival of economic growth across all sectors. Be it regulation or execution, government is trying to be transparent and at the same time vigilant. The Government’s ‘Smart City Mission’ will help to revive real estate in the cities which have been recognised in Smart City project. Also under Sardar Patel Urban Housing Mission, 30 millions housing will be built in India by 2022 for economically weaker sections and low income group. The concept of smart township is now shaping the concept in which company has been operating for a long time. The start-ups boost and ease of doing business will lead to more entrepreneurs and new projects which may lead to development of new industrial corridors and as such development of residential avenues. The relaxation of FDI norms for real estate will see boost in investment in real estate sector. This move should boost affordable housing projects and smart cities across the country.

Since the number of new launches have reduced, developers are concentrating on completing the existing projects. It is giving confidence to the buyers that the launched projects will be completed and as such it is expected to boost demand.

Threats, Risks & Concerns

With the Real Estate Regulator being appointed under the Real Estate (Regulation and Development) Act, 2016, it will lead to one more ‘table’ for approval of a real estate project which is already reeling with the longest list of approvals required.

The regulatory initiative to bring about orderly development of Real Estate Sector (which is tipped to benefit the organised sector player like your Company), inter alia, is construed by the home buyers to mean likely softening in residential (dwelling) unit prices which assumption need not hold good.

Government’s projects like "Smart City Mission", "House for all by 2022", may lead to increase in land prices. With infrastructure being penetrated in rural India, availability of labour will be scarce who may defy from migrating to urban areas. Though RBI is reducing rates, banks were not willing to pass on the whole of the reduction to the customers as such customers are waiting further for reduction in rates by banks.

Though land is considered to be the principal raw material for real estate developers, bank finance is not available for land purchase and as such developers have to resort to dearer finance. This leads to increase in project cost and resultant sale price. The major factor to determine selling price is costs which are going up. There are many townships are expected to come up in the vicinity of the Company’s township. It may pose sales threat. The Real Estate sector is seeing a lot of technological innovations used in construction. The ability of their technologies is a question but the Company has to adopt these to match customer’s choices.

Investments in real estate are relatively illiquid. The Company may not be able to liquidate its inventory at the pace it is required to do so for the reasons of economic slow down and depressive general real estate market.

As such it may resort to higher borrowing impacting its cash flows and profitability.

In substance there has been a continuing slow down in the Real Estate Industry which the Company believes will last for sometime. The Company may have to resort to further borrowings to tide over the financial mismatches.

Risk Mitigation

After implementation of RERA, the Real Estate Regulator is being appointed, many of the obligations of the said Act are already being taken care of by the Company.

Though the Company has existing land bank acquired at the historical costs, innovative, cost effective methods for new land acquisitions and construction have to be adopted so that the projects become viable.

Cost effective and aggressive execution of project and out of the box marketing efforts are needed. Aggressive marketing and new marketing strategies are required to sell products at faster rate.

Invention and innovation in technology for execution of project is inevitable as labour is scarce. It will also lead to faster completion of project. Since the real estate market is now moving from a seller’s market to a buyer’s market, continuous market research is important to understand the changing tastes of customers and ensure that the residential units become marketable.

Cash flows and financials have to be managed judiciously so thatthere is not much stress on cash flows.

Internal Control Systems and their adequacy

An ERP system is now implemented in almost all the spheres of the organisation which helps in controlling the internal processes. Each of the construction stage and each activity is monitored and controlled by the internal control system. The existing internal control system supports the internal financial controls also. Internal control systems are audited regularly by the Internal auditors within the scope defined by Audit Committee.

Customer Care and Satisfaction

Customer care and satisfaction is given prime importance in the business culture of the company by maintaining healthy relationship with them. At the start of the project, "Bhumipujan" is done at the hands of those who have booked flats. Customer meets are organised at the project site to inform the flat owners about the progress of their dream homes and they are educated at various intervals about the maintenance of home and society. At the closure of the site, grand function is organised to hand over flats to the owners.

Financial Performance and Accounting Treatment

During the year under report the projects under construction showed progress. Though the performance on the sales domain was sluggish, the Company managed to achieve the construction targets. Total Income was increased by 23% for FY 2015-16 as compared to FY 2014-15. Profit before tax was decreased by 16% for FY

2015-16 as compared to the FY 2014-15. EPS stood at Rs.5.44 for FY 2015-16 as compared to Rs.7.17 for FY 2014-15. Consolidated income rose by 23% for FY 2015-16 as compared to FY 2014-15 but PBT fell by 31% dragged by the subsidiaries’ poor performance. The Company has made a provision for impairment of investment in subsidiaries in the USA. The Company’s accounts are prepared as per the Accounting Standards and there is no treatment different from that prescribed in an Accounting Standards.

Development of Human Resources

Efforts are always made to keep employees morale high and motivate them. The extra-ordinary work performed by the employees is appraised monthly and the employees are awarded. Training needs are identified for the employees with the help of their seniors and are provided with theoretical as well as practical training. Even the Directors of the Company are provided with the training of legal updates of the Companies Act, SEBI Regulations and other laws from time to time. The employees’ active participation is ensured in various events organised by the Company for their personality development. The number of people employed by the Company during the FY 2015-16 were 156.

Environmental and Health Safety Policy

In each of the project importance is given to the environment protection by giving amenities of a Sewage Treatment Plant (STP), rain water harvesting, solar panels, etc. Care is also taken for minimization of occupation health and safety risks. Not only employees of the Company but contractors and their labourers are also given training for safety practices to be followed at sites.

Cautionary Statement

Certain statements in the Management Discussion and Analysis Report relating to the Company’s objectives, projections, outlook, expectations, estimates, etc. may constitute ‘forward looking statements’ within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections, etc. whether express or implied. Several factors could make significant difference to the Company’s operations. These include climatic conditions, global and local economic conditions affecting demand and supply, government regulations and taxation, natural calamities and other force majeure conditions, etc. over which Company does not have any control.