Garnet Construction Ltd Management Discussions.


An outbreak of Coronavirus (COVID-19) was first reported in Wuhan, China on December 31st, 2019 and impacted the whole world. The World Health Organization (WHO) declared the virus outbreak a pandemic in the second week of March 2020. Most of the countries are facing this pandemic and are into lockdown during this period. Everyone is facing extraordinary challenging times, this has impacted businesses and economies at large. The outbreak of COVID-19 has disrupted peoples lives and is expected to result in significant adverse economic impacts across the world. The global health crisis sparked by the outbreak of the COVID-19 is projected to shrink global economy dramatically. As a result of the pandemic, the global economy is projected to contract sharply by -3 percent in 2020 as per the IMF report.

Indias GDP growth was slowing down for the current fiscal and it was to an 11 year low of 4.2% in 201920. For the Indian economy there would be both supply and demand side disruptions. The COVID-19 outbreak came at a time when Indias economy was already slowing, due to persistent financial sector weaknesses. India is likely to record its worst growth performance since 1991 liberalization in the financial year 2020-21. The World Bank projects Indias economy to contract 3.2% in FY21.

Indias fiscal deficit in 2020-21 may be up to 6.2 percent of GDP from 3.5 percent Government estimate as a fallout of the COVID-19 economic stimulus package as per Fitch Solutions. The real estate sector is a critical sector of our economy. It has a huge multiplier effect on the economy and therefore, is a big driver of economic growth. It is the second-largest employment generating sector after agriculture. This sector has been contributing about 6-7% to Indias GDP. Not only does it generate a high level of direct employment, but it also stimulates the demand in over 250 ancillary industries such as cement, steel, paint, brick, building materials, consumer durables and so on.


The Real estate sector is expected to reach a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017. The Real estate sector contributes 6-7% of the national GDP and likely to rise 13% by 2025. It is the second largest employer in the country and has a direct effect on around 250 allied industries. The year 2019 has been another difficult year for the real estate sector, which continues to struggle with a liquidity crisis. The situation has been exacerbated by the economic slowdown resulting in poor housing demand. Currently, the real estate sector has huge unsold inventory of around 4.5 lakh housing units, even while the overall housing requirement in the country remains high. Emergence of nuclear families, rapid urbanisation and rising household income are likely to remain the key drivers for growth in all spheres of real estate, including residential, commercial and retail. Rapid urbanisation in the country is pushing the growth of real estate. More than 70 per cent of Indias GDP will be contributed by the urban areas.

Real estate attracted around Rs. 43,780 crore (US$ 6.26 billion) investment in 2019. The retail segment in Indian realty attracted PE (Private Equity) investment of around US$ 1 billion in 2019. Institutional investment into Indian real estate sector stood at US$ 712 million during the quarter ended March 2020. Housing sales reached 2.61 lakh units in 2019 across seven major cities.

Residential and commercial real estate was already struggling to overcome major policy reforms, structural changes and the liquidity crisis, the spread of COVID-19 is set to heavily impact real estate sector and it is likely to see more liquidity pressure, as new sales and residential demand could take a hit because of the pandemic. The covid-19 pandemic and the consequent disruption to businesses has been

brutal for the real estate sector which has been going through a rough patch for the last few years. The sector is now staring at a bleak near term, with sentiment at an all-time low.

The Govt has set up a Special Window in the form of alternate investment fund (AIF) with Rs. 25000 crore to provide priority debt financing for the completion of stalled housing projects. The fund is to provide last mile funding required to complete construction of stalled, brown field, RERA registered residential developments that are in the affordable housing / mid-income category, are net worth positive.

Country wide lock down for more than two months has halted all activities, Project sites are shut and no construction activities has impacted sales. Real estate sector is labor intensive and migrant workers form a major chunk of the workforce, these workers have gone back to their hometowns and this will result in slow-down in real estate construction activity.

Residential real estate

The residential sector has been grappling with subdued demand for the past few years. Demand in residential has shifted mostly to end users as against investors and end users are looking for ready to move in projects to avoid any kind of risks related to delay in project completion or default of builders.

The Government has been pushing for the affordable housing segment (less than 45 lacs). As a result of this during the year around 50% of the total residential sales accounts from this segment. Many new developers have entered in this segment. Affordable housing became popular for new launches and around 40% of new launches in top 7 cities was in affordable segment. Sales across top 7 cities in 2019 improved by 9% over the previous year. In 2018 unsold inventory was declined by 7% while it declined by 4% in 2019.

The COVID-19 has severally hit real estate and the sector has come to standstill and it is going to be tough time for the next few quarters. Reduction in the availability of labour for project execution, together with the disruption in material supply chains, are expected to result in a slow-down in real estate construction activity. Housing sales in the first quarter of 2020 plunged by 42% over the corresponding period in 2019.

Commercial real estate

The commercial real estate sector has been showing good traction. Sustained robust demand for office space has pushed leasing activity across the country in 2019 to a new high record. Total office space absorption was at a new high of over 60 leasing volume touched 69.4 million sq.ft. in 2019, compared to 49.5 million sq.ft. a year ago, according to Cushman and Wakefield. The office space gained traction in most cities with IT/ITeS players contributing to majority of the leases. The IT sector in India is moving towards high value segments like artificial intelligence, data analytics and product development, supporting the rise in demand. The growth of co-working spaces has been very sharp, with the segment accounting for around 13 per cent of the total office transactions in 2019 from 5 per cent in 2017. Small start-ups as well as large IT players are finding this an attractive model.

The office segment has been growing over the last three years, net absorption in top 7 cities was recorded at 40 Mn. sq. growing by 19% over 2018 as per Anarock report. Amidst the pandemic and the global health crisis, the demand for office space may suffer significant contraction. The US companies take on lease almost 40-50% of the office space in India but in the coming period there may be drop in demand from these companies because of the pandemic impact on the US economy. As the demand for commercial space may be slow due to sluggish business environment post the COVID-19, it will put rentals under pressure and the existing occupiers may also be looking for reduction in rentals. Demand for office space will be affected as the net absorption are likely to drop by 17% to 34% in 2020 from the pre covid-19 projections as per a report of Anarock.

Retail space

The retail sector was already reeling under the contrast of vacant space at a few unsuccessful malls and no or low occupancy in successful malls and tepid consumer demand resulting into dropping sales for the retailers. On line shopping has been in trend for some time and now it has reached out from metro to tier II or tier III cities and people have moved from malls to ecommerce platforms where products are available with many benefits compared to the offers from retailer. COVID-19 has built pressure on retailer with all cities are under lock down and this has brought retail business to standstill and it may take time to recover from the pandemic impact. Presently malls across top 7 cities have an overall vacancy rate of around 14%. Amidst the COVID-19 pandemic, leasing activities in retail might be slow down significantly considering the business will remain muted for the next few months following decline in footfall.


The governments Housing for All initiative aims to build 20 million affordable homes for the urban poor by 2022. Affordable housing will be a sector that will continue to be a key driver for the real estate market and provide a big opportunity for both developers as well as investors in the next few years.

The government has been pushing for affordable housing to achieve the mission of Housing for All. For this sector the government has been giving incentives like lower GST, tax benefits to the builder and additional deduction of interest upto 1,50,000/- to the first time purchaser of affordable house, Credit Linked Subsidy Scheme (CLSS) etc. Almost 95% of the countrys population consists of the striving middle class, and the demand in this sector is still huge while supply is limited and there are only a handful dedicated developers.

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:

• Under Pradhan Mantri Awas Yojana (Urban) [PMAY (U)], 1.12 crore houses have been sanctioned in urban areas creating 1.20 crore jobs.

• Government has created an Affordable Housing Fund (AHF) in the National Housing Bank (NHB) with an initial corpus of 10,000 crore (US$ 1.43 billion) using priority sector lending short fall of banks/financial institutions for micro financing of the HFCs.

• We believe that our proactive steps in providing innovative solutions to our customers and implementation of our strategies have prepared us for next leg of growth.


The Indian real estate sector is still highly unorganized with lots of middle men and depressed demand, together with increased construction costs - both material and labour which has been putting pressure on the cost of projects and profit margins.

• Non-availability of land within city limits along with rising land and construction costs, making affordable housing projects unviable.

• The lengthy and complex approval process leads to a high gestation period which eventually results in project cost escalation by 20-30 percent.

• The level of unsold inventory has increased to manifold due to stagnancy in the market.

• Finance plays an imperative role in the construction industry, liquidity crisis or any adverse move by the banking sector towards the lending policy on the real estate loans may adversely impact the execution of the projects and increase the cost of borrowing.


The Company is engaged in construction and sale of industrial as well residential plots only, hence the segment wise reporting is not applicable. Financial Performance of the Company for the year under review has already covered under the Directors Report.


The Company has proper and adequate system of internal control procedure commensurate with its size and nature of the business so as to ensure that all assets are safeguarded from loss, damage or disposition and ensure that all transactions are authorized, recorded and reported correctly and adequately.

All operations parameters are periodically monitored and strengthened. The Company continuously upgrades these systems in line with best accounting practices. The internal control system is further supplemented by a programme of internal audit conducted by an independent firm of Chartered Accountants.

The Audit Committee of the Board of Directors reviews the effectiveness of internal controls and suggests improvements for strengthening them whenever required.


Employees are the key to achieve the Companys objectives and strategies. The Company provides to the employees a fair equitable work environment and support from their peers with a view to develop their capabilities leaving them with the freedom to act and to take responsibilities for the tasks assigned. The Company strongly believes that its team of capable and committed manpower, which is its core strength, is the key factor behind its achievements, success and future growth. We are continuously working to create and nurture an organization that is highly motivated, result oriented and adaptable to the changing business environment.

The industrial relations remained cordial during the year.


The company recognizes that effective risk management is crucial to its continued profitability and longterm sustainability of its business. The company is committed to adopt good corporate governance, which promotes the long-term interests of all stakeholders, creates self-accountability across its management and helps built trust in the Company. A robust internal financial control system forms the backbone of our risk management and governance. In line with our commitment to provide sustainable returns to our stakeholders, your company has formalized clearly defined systems to manage its risks within acceptable limits by using risk mitigating techniques and have framed policies for timely addressing key business challenges and leveraging of business opportunities.


Management Discussion and Analysis detailing the Companys objectives, outlook and expectations have "forward looking statement" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied depending upon global and Indian demand supply conditions, changes in Government regulations, tax regimes and economic developments within India and overseas.

For and on behalf of the Board
Kishan Kumar Kedia
Managing Director
Place: Mumbai
Date: August 31, 2020