Dhruv Consultancy Services Ltd Management Discussions

Global Economic Overview

(Source: Global Economic Prospects June 2024, World Bank Report)

The global economy is stabilizing, following several years of overlapping negative shocks. Global growth is projected to hold steady at 2.6 percent this year, despite flaring geopolitical tensions and high interest rates, before edging up to 2.7 percent in 2025-26 alongside modest expansions of trade and investment. Global inflation is expected to moderate at a slower clip than previously assumed, averaging 3.5 percent this year.

Sources: Bloomberg; Consensus economics; Fitch ratings; International Monetary Fund; Moodys Analytics; World Bank

Note: f = forecast; AEs = advanced economies; EMDEs = emerging market and developing economies.

To meet development goals, policies are needed to raise productivity growth, improve the efficiency of public investment, build human capital, and close gender gaps in the labor market.

Although the economic outlook differs among emerging market and developing economy regions, it remains challenging for all, with growth projected to soften in most of them in 2024. The slowdown this year in East Asia and Pacific (EAP) mainly reflects moderating growth in China. Growth in Europe and Central Asia (ECA), Latin America and the Caribbean (LAC), and South Asia (SAR) is also set to decelerate as activity in their largest economies slows down. Growth is expected to pick up this year in the Middle East and North Africa (MNA) and Sub-Saharan Africa (SSA), albeit less robustly than previously forecast. In 2025, growth is projected to weaken further in EAP and ECA, and firm or remain stable in other regions. While somewhat more balanced than in January, risks to the outlook remain tilted to the downside for all regions, owing to the possibilities of intensified conflict and geopolitical tensions and further trade fragmentation. Tighter- than-expected global financial conditions and unexpected fiscal consolidations could also weigh on growth. Weaker- than- expected growth in China and natural disasters-including those associated with climate change-pose additional downside risks. On the upside, global inflation could moderate more quickly than assumed, enabling faster monetary policy easing, and growth in the United States could be stronger than expected.

Central banks in both advanced economies and emerging market and developing economies (EMDEs) are likely to remain cautious in easing policy. As such, markedly higher interest rates than prior to the pandemic are set to sustain for an extended period. Despite some improvement, the outlook remains subdued. Global growth over the forecast horizon is expected to be nearly half a percentage point below its 2010-19 average, with a slower pace of expansion in economies comprising over 80 percent of the global population. EMDE growth is projected to moderate from 4.2 percent in 2023 to 4 percent in 2024. Amid heightened conflict and violence, prospects remain especially lackluster in many vulnerable economies-over half of fragile and conflict- affected economies will still be poorer in 2024 than on the eve of the pandemic. Risks have become more balanced but remain tilted to the downside. Escalating geopolitical tensions could lead to volatile commodity prices. In a context of elevated trade policy uncertainty, further trade fragmentation risks additional disruptions to trade networks. More persistent inflation could lead to higher-for-longer interest rates. Other risks include weaker-than- anticipated activity in key economies and disasters related to climate change. Against this backdrop, policy makers face daunting challenges. Global efforts are needed to safeguard trade, support green and digital transitions, deliver debt relief, and improve food security. Still-pronounced inflation risks underscore the need for EMDE monetary policies to remain focused on price stability. High debt and elevated debt-servicing costs will require EMDE policy makers to balance sizable investment needs with fiscal sustainability.

Sources: Haver Analytics; World Bank

Note: f = forecast; EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; MNA = Middle East and North Africa; SAR = South Asia; SSA = Sub-Saharan Africa.

Although risks to the outlook have become somewhat more balanced for all EMDE regions since January, they remain tilted to the downside. An escalation of conflict or geopolitical tensions, or further trade fragmentation could have widespread adverse repercussions. To varying degrees, weaker-than-expected growth in China could drag on growth in all regions, as could unexpectedly tighter global financial conditions.

More frequent and severe climate-change-related natural disasters pose a further downside risk. In contrast, a faster decline in global inflation, enabling a more rapid global monetary easing, and faster-than- expected growth in the United States, present upside risks to EMDE regions. After slowing to 3.8 percent in 2023, growth in low-income countries (LICs) is projected to recover to 5 percent in 2024 and improve further to an average of 5.4 percent in 2025-26. Nevertheless, these figures represent substantial downward revisions from January projections, primarily due to an ongoing high level of conflict across LICs and a consequent delay in improvements in some heavily conflict- affected LICs. Gross domestic product (GDP) per capita growth in 2024-25 is projected to be less than half the rate of GDP growth. This means that improvements in average living standards are expected to be limited and the number of people struggling with extreme poverty and food insecurity will remain high. Public debt burdens and their servicing costs have risen, while access to financing has become more challenging for many LICs. Economic activity has also been disrupted by extreme weather events in some LICs. Against this backdrop, risks to the LICs outlook remain tilted to the downside. They include intensifying insecurity and violent conflict, weaker growth in China, increased debt distress, and more frequent or more intense extreme weather events.

Global Economic Overview

(Source: Economic Survey 2023-24)

In response to the pandemic, India has responded in three components: first, by focusing on public spending on infrastructure; second, by a natural response of business enterprise and public administration amidst adversities, i.e., digitalization of service delivery; and third, by Atmanirbhar Bharat Abhiyan in terms of targeted relief to different sectors of the economy and sections of the population, and structural reforms that assisted a firm recovery and increased the medium- term growth potential.

Indias real GDP grew by 8.2% in FY 24, posting growth of over 7% for the 3rd consecutive year driven by stable consumption demand and steadily improving investment demand. Gross value added (GVA) at 2011-12 prices grew by 7.2% in FY24, with growth remaining broad-based. Net taxes at constant (2011-12) prices grew by 19.1% in FY24, aided by reasonably strong tax growth, both at the centre and state levels and rationalisation of subsidy expenditure. This led to the difference between GDP and GVA growth in FY24. The shares of the agriculture, industry and services sectors in overall GVA at current prices were 17.7%, 27.6% and 54.7%, respectively in FY24. Within the industrial sector, manufacturing GVA grew by 9.9% in FY24 as compared to FY23. Construction activities displayed increased momentum and registered a growth of 9.9% in FY24 due to the infrastructure buildout and buoyant commercial and residential real estate demand.

Indias Infrastructure Overview

(Source: Invest India: Indias push for Infrastructure Development)

In the Union Budget 24-25, capital investment outlay for infrastructure has been increased by 11.1% to Rs. 11.11 lakh crore (US$ 133.86 billion), which would be 3.4% of GDP. India intends to enhance its infrastructure to reach its 2025 economic growth

to enhance its infrastructure to reach its 2025 economic growth target of US$ 5 trillion. Indias population growth and economic development require improved transport infrastructure, including investments in roads, railways, aviation, shipping and inland waterways.

Indias journey towards becoming a developed nation by 2047 hinges significantly on improving its infrastructure a cornerstone for fostering liveable, climate-resilient and inclusive cities that drive economic growth. The governments commitment is evident through its allocation of 3.3% of GDP to the infrastructure sector in the fiscal year 2024 with particular focus on the transport and logistics segments.

Roads and highways account for the highest share, followed by Railways and Urban Public Transport. The government has set ambitious targets for the transport sector, including development of 2 lakh kilometer National Highway network by 2025 and expanding airports to 220. Additionally, plans include operational zing 23 waterways by 2030 and developing 35 Multimodal Logistics Parks (MMLPs). The total budgetary outlay for infrastructure related ministries increased from around INR 3.7 Lakh crore in FY 23 to INR 5 Lakh crore in FY 24, offering investment prospects for the private sector across various transport sub segments. As the transport sector gears up to address sustainability challenges in the private sector stands poised to capitalise on the conducive policy environment to accelerate infrastructure investments. Public private partnerships (PPPs) have served as a vital mechanism for private sector engagement across various infrastructure domains, notably in the construction of airports, ports, highways and logistic parks throughout India. Besides support from the central government and states across various schemes, India needs a significant push from Public-Private Partnerships to achieve its goal of reaching a $5 Trillion economy by 2025.

Major Plans of Indian Infrastructure

• Roads: The Bharatmala Pariyojana is progressing with Phase I focusing on developing 34,800 kilometre of national highways. It emphasises corridor-based development and is set to conclude by 2027-2028, covering 31 States/UTs over 550 districts. Additionally, the government targets building 22 new Greenfield expressways, signalling significant advancements in Indias transportation infrastructure.

• Airports: The Ministry of Civil Aviations flagship Regional Connectivity Scheme UDAN (Ude Desh Ka Aam Nagarik) aims to enhance connectivity to regional airports in small towns. Launched in 2016, UDAN focuses on making flight services accessible to common citizens by developing infrastructure and air connectivity. In its first 5 years, UDAN served over 1 crore passengers, inaugurating 425 new routes and 58 airports. The budget for 2023-24 allocated INR 1244.07 crore to UDAN, doubling the previous years budget, with plans to revive 22 airports. Additionally, the government outlined the revival of 50 additional airports, heliports, water aerodromes, and advanced landing grounds.

• Railways: Indias railway sector is undertaking ambitious projects such as the Mumbai-Ahmedabad Speed Rail Corridor, the worlds highest pier bridge under construction, and the Chenab bridge in Jammu & Kashmir - the worlds highest railway bridge. With the total broad gauge network of 61,508 kilometre electrified as of December 2023, the sector has also introduced 35 indigenously designed Vande Bharat express trains, with 6 more set to launch soon. These trains serve up to 247 districts across the country. Indian Railways aims to become a Net Zero Carbon Emitter by 2030 with 211 MW of solar plants and 103 MW of wind power plants commissioned as of October 2023 along with 2150 MW of renewable capacity tied up.

• Ports: Indian Ports "Turn Around Time" has reached 0.9 days which is better than USA (1.5 days), Australia (1.7 days), and Singapore (1.0 days), as per the World Bank Logistics Performance Index (LPI) Report 2023. Sagarmala, the flagship Central Sector Scheme of the Ministry of Ports, Shipping and Waterways, promotes port-led development in the country through harnessing Indias 7,500 km long coastline, 14,500 km of potentially navigable waterways and strategic location on key international maritime trade routes. The Union Minister for Ports, Shipping and Waterways said that the countrys total port capacity will increase from the existing 2,600 MTPA (Mn tonnes per annum) to more than 10,000 MTPA in 2047. From April to November 2023 cargo of 86.47 MMT moved through waterways as compared to 8.44 MMT during April to November 2022 that is an increase of 7.49%. The government also aims to operationalize 23 waterways by 2030.

Private sector participation is vital for financing key infrastructure projects in India, given the governments fiscal constraints and the need for prudent spending. India launched the National Infrastructure Pipeline (NIP), in 2020 which envisages an investment of INR 111 Lakh Cr over 2020 to 2025 i.e., an annual average investment of almost INR 22 Lakh Cr. Public Private Partnerships (PPP) have been identified as a valuable instrument to speed up infrastructure development and investments envisaged under NIP. Involving the private sector promotes industry competitiveness, enabling access to a wider talent pool and enhanced resource utilization. There are several PPP projects currently in pipeline across sectors such as the development of Pune metro line 3, Hyderabad and Bengaluru metro extensions, development of multi modal logistics park in Chennai, and more.

It is essential for India to prioritize the development of both urban and rural areas to ensure overall national progress. By 2030, it is projected that 40% of Indias population will reside in urban areas, contributing significantly to the countrys GDP. However, rapid urbanization poses challenges in managing infrastructure and delivering services effectively. The Smart Cities Mission is a key initiative aimed at addressing these challenges efficiently.

As of February 2024, 6,753 projects out of a total of 7,991 have been completed under the Smart Cities Mission, showcasing tangible progress. Moreover, India has made significant strides in digital infrastructure development, with rural areas expected to contribute significantly to new internet user growth, with around 56% of total new internet users coming from rural India by 2025, according to a report by TransUnion CIBIL. This trend underscores the increasing connectivity between rural and urban regions in the country.

Company Overview

Dhruv Consultancy Services Ltd. is a leading Indian infrastructure consultancy firm that has been instrumental in the development of the nations infrastructure for over two decades. Established in 2003, the Company specializes in providing comprehensive infrastructure solutions, including design and engineering, project management consultancy and supervision, technical audits, asset management, pre-bid engineering, and value engineering.

Starting with a single project in Maharashtra, Dhruv Consultancy has expanded its operations across India, undertaking iconic projects such as the Missing Link for the Mumbai-Pune Expressway, the new Savitri River Bridge in Mahad, the Delhi- Vadodara Expressway, and border roads in the northeastern states of Manipur and Arunachal Pradesh. Currently, we are working on 10 major expressway projects, serving a diverse range of clients in both the private and government sectors.

In a strategic move towards international expansion, we have incorporated a subsidiary in the UK, Dhruv International Private Limited, to manage all our global operations. We are also in discussions with private contractors in Sri Lanka, Saudi Arabia, Ethiopia, and Tanzania to undertake detailed design and project management consultancy (PMC) assignments. Our international projects aim to replicate our domestic success and deliver world- class infrastructure solutions globally.

Company Overview Order inflow and Order Book

As of March 31, 2024, the Companys unexecuted order book stands at Rs. 343 Crore. During FY 24, the companys strategic focus was on greenfield expressway projects and successfully secured 27 projects worth INR 130 crore. Also, the company bagged its first assignment in the railway sector marking its step towards diversification in varied sectors.

Revenue from operations

The Companys revenue from operations witnessed growth, reaching 8150.10 lakh during FY 2023-24, compared to 8117.96 lakh in FY 2022-23, indicating a slight increase of 0.4%. The main reason for its stability is completion of MORT&H 2-lane assignments as well as the 4-laning of Solapur Sangli HAM project. In addition to this, the Code of Conduct in Central Government owing to Lok Sabha elections brought a slow down in the revenue recognition.

Total expenses

Our total expenses decreased by 1.4% to INR 7556.1 lakh in FY 2023-24 from INR 7663.3 lakh in FY 2022-23. The expenses related to employee benefits witnessed a growth of 18.7% in FY 2023-24, reaching INR 2272.7 lakh, as compared to INR 1913.9 lakh recorded in FY 2022-23. This increase can be attributed to higher expenditures in salaries and wages, staff welfare expenses and employee statutory contributions.

Depreciation and amortisation expenses

Depreciation and amortisation expense stood at INR 492.2 lakh in FY 2023-24, an increase of 71.8%, from INR 286.4 lakh in FY 2022-23.

Finance Cost

Finance costs increased by 70%, to INR 297.8 lakh in FY 202324 from INR 175.12 lakh in FY 2022-23. This was mainly due to increase in borrowings and lease financing.

Profit after tax

The profit after tax demonstrated a substantial surge of 22.2% in FY 2023-24, reaching INR 589.5 lakh, as compared to the amount of INR 482.2 lakh achieved in FY 2022-23 due to the factors stated above.

Earnings per share

Basic Earnings per share for the FY 2023-24 stood at Rs. 3.88 as compared to Rs. 3.28 during FY 2022-23.

Networth, Capital Employed and Returns

The networth of the shareholders stood at INR 6627.4 lakh as at 31st March 2024 as compared to INR 5704.2 lakh as at 31st March 2023.

Capital employed increased to INR 8180.9 lakh as at 31st March 2024 as compared to INR 7046.3 lakh as at 31st March 2023.

Return on equity for the FY 2023-24 increased to 8.9% as compared to 8.45% in FY 2022-23.

Liquidity and gearing

Cash and cash equivalents balances decreased to INR 652.41 lakh in FY 2023-24 as compared to INR 708.62 lakh in FY 2022-23.

Net debt to equity ratio has improved to 0.23 times as at 31st March 2024 compared to 0.24 times as at 31st March 2023.

The total borrowings as at 31st March 2024 stood at INR 1553.6 lakh as compared to INR 1342.1 lakh as at 31st March 2023.

Human Capital

At Dhruv Consultancy, our employees are our most important asset. We have a combination of young as well as experienced professionals across the organization from the government and private sector. Over the years, the company has a record of the lowest attrition rate in the industry which is as low as 3-4%. We take immense pride in it. We are dedicated towards investing in the overall training and development of the employees in all areas of their life including personal and career goals, skills and knowledge and most important of all mental and emotional wellbeing. We have provided a detailed insight on Page- "Human Capital".

Outlook

The Indian government has been emphasizing infrastructure development through various initiatives such as the National Infrastructure Pipeline (NIP) and the Pradhan Mantri Gati Shakti plan. Continued investments in the Infrastructure sector are creating opportunities for consultancy firms. Rapid urbanization is increasing the demand for robust infrastructure in cities and towns, leading to more projects in transportation, housing, and utilities. As the Indian economy grows, there is a parallel increase in the need for improved infrastructure to support industrial growth, logistics, and transportation. Stricter environmental regulations are pushing for more sustainable and eco-friendly infrastructure solutions, providing opportunities for consultants specializing in sustainable practices. Increased foreign direct investment (FDI) in the infrastructure sector is leading to more projects and partnerships, creating a favorable environment for consultancy firms. Collaborations with international firms are bringing in advanced technologies and practices, enhancing the scope and scale of projects. Navigating complex regulatory frameworks and obtaining necessary approvals can be challenging. Firms that can navigate the regulatory landscape, leverage technology, and build strong partnerships are likely to thrive in this dynamic environment.

Innovation and Technological Advancement

Dhruv Consultancy leverages state-of-the-art equipment such as MBIU, FWD, ATCC, and Retro Reflectometer for highway inspection and maintenance. Our in-house design team employs advanced software, including G-Star CAD, MIDAS Civil, STAAD Pro, Open Roads, and Open Bridge, combining both Make in India and international technologies.

For finance and accounts, we have implemented SAP Business One to ensure robust systems. Our HR and administrative activities are streamlined through Spine Software. Currently, we are integrating all these systems into a single ERP solution on the Mendix platform, which will enhance our ability to manage multiple projects efficiently.

Sustainability Initiatives

Sustainability is a core principle at Dhruv Consultancy. We consult with professional horticulture experts for tree plantation, use recycled materials in construction, design less congested road networks to reduce vehicle emissions, and incorporate renewable energy sources. Our landscaping strategies effectively manage runoff water, prevent soil erosion, and promote water conservation. By sourcing materials locally, we support local economies and reduce our carbon footprint.

Community Engagement and Corporate Social Responsibility

Our CSR initiatives focus on education, health, and sustainable development. We have established partnerships with colleges in tier 2 and tier 3 cities of Maharashtra to foster academic-industry collaboration, providing students with practical knowledge and training opportunities. Additionally, we organize health workshops for our employees to ensure their well-being.

Key financial ratios

Particulars	FY 2023-24	FY 2022-23	Change(%)
Operating margin (%)	12.06%	9.14%	+31.95%
Debt/Equity Ratio	0.23	0.24	-4.16%
Return on equity (%)	8.9%	8.45%	+5.33%
Earnings per share (Rs.)	3.88	3.29	+17.93%
Debtors Turnover (in times)	93.77	70.00	34%
Interest Coverage Ratio	6.37	7.79	22%
Current Ratio (in times)	2.27	2.06	10%
Net profit ratio (%)	7.23%	5.94%	22%

Reasons for Increase in

1) Operating Margin - The current period ratio is higher due to improved project profitability.

2) Debtors Turnover ratio - The current period ratio is higher due to increased average receivables.

Risks and Concerns

Operating as a leading infrastructure consultancy firm in India, Dhruv Consultancy Services Ltd. faces various risks and concerns that could impact its operations, financial performance, and overall growth. These risks are inherent in the dynamic and complex infrastructure sector. Here, we outline some of the key risks and concerns:

Risk	Risk Definition	Risk Mitigation Measures
Regulatory and Policy Risks	Changes in government policies, regulations, and tax laws can significantly impact the infrastructure sector in India.	Continuous monitoring of regulatory changes and proactive engagement with policymakers to ensure compliance and mitigate risks.
Economic and Market Risks	Economic downturns or fluctuations can lead to reduced government spending on infrastructure projects, affecting our order book and revenue.	Expanding our portfolio across various sectors and geographies to reduce dependency on specific markets and mitigate risks associated with market volatility.
Project Execution Risks	Delays in project approvals, land acquisitions, and clearances from various authorities can lead to project delays and cost overruns. Dependence on JV partners and third- party vendors for various aspects of project execution can pose risks related to quality, timeliness and reliability.	Building strong relationships with clients, subcontractors, and communities to ensure smooth project execution and address any concerns proactively.
Financial Risks	Variability in cash flows due to delayed payments from clients, particularly from government entities, can impact liquidity and working capital management.	Robust financial planning and management practices to ensure liquidity, manage costs, and mitigate financial risks.
Operational Risks	Ensuring the availability of skilled manpower and maintaining efficient project management practices are critical to successful project delivery. Any disruptions can impact project timelines and quality.	Investing in advanced technologies, training programs, and efficient project management practices to enhance operational efficiency and quality.
Competitive Risks	The infrastructure consultancy sector is highly competitive, with both domestic and international players vying for market share. Increased competition can lead to price wars, reduced margins, and loss of market share.	Our ability to differentiate through innovation, quality, and timely delivery is crucial to maintaining our competitive edge.
Geopolitical Risks	Political instability, changes in government, or geopolitical tensions in regions where we operate can disrupt business operations and project execution. Expanding into new international markets exposes us to risks related to differing legal, regulatory, and business environments.	Diversification in markets and projects, forming strategic local partnerships, conducting regular risk assessments, ensuring legal compliance, adapting operations flexibly, obtaining political risk insurance, and engaging actively with local communities and stakeholders.
Environmental Risks	Environmental challenges, such as climate change and natural disasters, can disrupt project execution and increase costs.	Integrating sustainability practices into our operations to mitigate environmental risks and promote long-term resilience.

Internal Control Systems and their adequacy

The companys system of internal policies and controls is commensurate with the size and nature of the business, ensuring his adherence to prevailing legal and corporate governance norms as well as strategic and financial objectives and providing reasonable assurance against the same. A key element of this includes encouraging employees to adopt compliant and ethical practices. The system is also regularly reviewed and updated by the board of directors to ensure its relevance and comprehensiveness.

Cautionary Statement

This annual report contains certain forward looking statements, and may contain certain projections. These forward looking statements generally can be identified by words or phrases such as aim, anticipate, believe, expect, estimate, intend, objective, plan, project, will, will continue, will pursue, seek to or other words or phrases of similar import. Similarly, statements that describe strategies, objectives, plans or goals are also forward looking statements.

Such statements are subject to numerous risks and uncertainties and are not necessarily predictive of future results. Actual results may differ materially from those expressed or implied in the statements. Crucial factors that could make a difference to the companys operations include economic conditions affecting demand and supply and price conditions in the market in which the company operates, changes in government regulations, tax laws and other statutes other incidental factors.