Gayatri Highways Ltd Management Discussions.

COMPANYS OVERVIEW

Gayatri Highways Limited - GHL ("the Company") (Formerly Gayatri Domicile Private Limited - GDPL) was incorporated during the year 2006 in accordance with the provisions of Companies Act, 1956. The Company on its own and through its jointly controlled entities is in the business of construction, operations and maintenance of carriageways on toll and annuity basis pursuant to the development agreements with the National and State Governments and makes investments in companies engaged in the construction, operations and maintenance of roads, highways, vehicle bridges and tunnels and toll roads. The registered office of the Company is located at 1st Floor, 6-3-1090, TSR Towers, Rajbhavan Road, Somajiguda, Hyderabad-500082, Telangana.

Industry Analysis:

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling Indias overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development. In 2016, India jumped 19 places in World Banks Logistics Performance Index (LPI) 2016, to rank 35th amongst 160 countries.

According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 24.28 billion in the period April 2000-December 2016. The housing sector alone contributes 5-6 per cent to the countrys Gross Domestic Product (GDP).

The Government of India is taking every possible initiative to boost the infrastructure sector.

The Government of India is working to ensure a good living habitat for the poor in the country and has launched new flagship urban missions like the Pradhan Mantri Awas Yojana (Urban), Atal Mission for Rejuvenation and Urban Transformation (AMRUT), and Swachh Bharat Mission (Urban) under the urban habitat model, according to Mr Hardeep Singh Puri, Minister of State (Independent Charge) for Housing.

Opportunities and Threats

In view of more and more competition in construction industry, the opportunities for securing contracts needs continuous innovation in its various core functions. The Company has emerged as a significant Infrastructure Company with diversification in Roads and Expressways. The Company is poised to seize every opportunity to expand the existing line of business. The Company is well equipped to handle threats of competition and challenges or the Companys ongoing execution of Projects.

Road Ahead

Indias national highway network is expected to cover 50,000 kilometres, with around 20,000 km of works scheduled for completion in the next couple of years, according to the Ministry of Road Transport and Highways.

The Government of India is devising a plan to provide wifi facility to 550,000 villages for an estimated cost of Rs 3,700 crore (US$ 577.88 million), as per the Department of Telecommunications, Government of India.

India and Japan have joined hands for infrastructure development in Indias north-eastern states and are also setting up an India-Japan Coordination Forum for Development of North East to undertake strategic infrastructure projects in the northeast.

Business outlook:

The Government of India is taking every possible initiative to boost the infrastructure sector. The sector is highly responsible for propelling Indias overall development and enjoys intense focus from the Government. The present Projects and the opportunities in the Indian infrastructure sector provides good visibility towards a sustainable and profitable growth going forward.

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling Indias overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development.

Your company is steadfast in adopting modern technologies for better execution and improving the margins going forward.

RISKS AND CONCERNS

Inadequate risk management is a primary cause of concern indicated by most organizations in India. To be in a position to have fully identified all risks associated with a project and have a response plan for each; that is clearly a benchmark most organizations acknowledge, nevertheless, do little about it. Risk Management by its very nature is flawed because it only identifies the things project managers know; it fails to appreciate the "unknown", "unknowns", the "un-controllable". That said, the more risks identified and planned for, the better position the project team is in to deliver a successful project. Risk Management has been identified as a best practice by most respondents. Moreover, there is a growing concern among Organizations about inaccurate risk identification. The project will yield continuous flow of revenue for the Company.

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

The Company has adequate Internal Control Systems and Procedures with regard to purchase of Stores, Raw Materials including Components, Plant and Machinery, equipment, sale of goods and other assets. The company has clearly defined roles and responsibilities for all managerial positions and all operating parameters are monitored and controlled.

The Company designs and maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing financial statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure providing division of responsibilities, careful selection and training of qualified personnel, and a program of internal audits.

FINANCIAL PERFORMANCE & OPERATIONALPERFORMANCE:

A. FINANCIAL CONDITION:

Capital Structure:

The Paid-up Share Capital of the Company as on 31st March, 2020 is Rs. 2,156,306,800 divided into 239,651,900 Equity Shares of Rs.2/- each fully paid up and 167,700,300 9% Non convertible Cumulative Redeemable Preference shares (NCRPS) of Rs. 10/- each.

Other Equity:

The retained earnings in other equity of the company as on 31st March, 2020 stand at Rs. (75,58,24,272) as compared to Rs. (55,46,71,199) in the previous year. The major share of increase in loss is due to the borrowing cost on 9% Non-convertible cumulative redeemable preference shares amounting to Rs.15,09,30,272/- which is provided for the FY 2019-20 and interest expense of Rs. 16,56,49,268/- on term loan borrowings for the FY 2019-20.

The capital reserve in other equity of the company is decreased as on 31st March, 2020 is Rs. 46,62,79,827/ - when compared to previous year as on 31st March 2019 is Rs. 46,62,79,827/- These changes in capital reserve are due to the Goodwill has been adjusted to Capital Reserve, which derived from the result of application of Composite Scheme of Arrangement.

Fixed Assets:

During the financial year 2019-20, the Company purchased Vehicle Rs. 7,91,386/-.

Sundry Debtors:

Sundry debtors decreased to Rs.11,625/- as on 31st March, 2020 as against Rs.5,96,79,959/- debtors in the previous year. These debtors are considered good and realizable.

Cash and Bank Balances:

Cash and Bank balances with Scheduled Banks stood to Rs.12,97,250/- as against Rs.1,59,51,334/- in the previous year.

Loans and Advances:

Long Term Loans and Advances is Rs.28,54,31,035/- as against Rs.24,60,61,237/- in the previous year. Short Term Loans and Advances is Rs.31,31,73,310/- as against Rs.29,51,39,995/- in the previous year.

Current Liabilities:

Current Liabilities as on 31st March, 2020 is Rs. 401,70,61,219/- as against Rs. 382,28,02,225/- in the previous Year.

B. OPERATIONAL RESULTS:

Turnover:

During the financial year 2019-20 the turnover of the Company was Rs.4,63,53,020/- and income from other sources as on 31st March, 2020 was Rs.8,86,39,931/-, compared to the turnover of the company was Rs.15,04,23,716/- and income from other sources was Rs.10,57,50,563/-, in the previous financial year.

Depreciation:

The Company has provided for depreciation of Rs.3,21,306/- during the financial year 2019-20 whereas depreciation of Rs.1,04,036/- provided in the previous financial year as all the assets of the company were fully depreciated in the previous years.

Provision for Tax:

The Company has not provided for tax in the financial year 2019-20 and in the previous financial year since there were no profits.

Net Profit:

The Net loss of the Company after tax is Rs.20,11,53,073/- as against Rs.20,12,99,137/- in the previous year.

Earnings per Share:

The Earnings(Losses) per Share of the Company as on 31stMarch,2020 is Rs. (0.84) per share for Face Value of Rs.2/- as against Rs. (0.84) per share for Face Value of Rs.2/- in the previous year.

HUMAN RESOURCE DEVELOPMENT AND INDUSTRIALRELATIONS:

The Company believes that the Companys growth and future success depend largely on the skills of the Companys workforce, including executives and officers, as well as the designers and engineers and the attraction of critical skills. The loss of the services of one or more of these employees could impair the Companys ability to continue to implement its business strategy. The Companys success also depends, on its continued ability to attract and retain experienced and qualified employees. The Company is committed to building the competencies of its employees and improving their performance through training and development. The Company focus is on identifying gaps in its employees competencies and preparing employees for changes in competitive environments, as well as to meet organizational challenges. Some of the focus areas in training in the last year centered on leadership, innovation management and internationalization besides other training programmes to drive a change in the Companys employees outlook as it continue to develop as a global competitor.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS, ALONG WITH DETAILED EXPLANATIONS

Key financial ratios on standalone basis including significant changes (more than 25%) are shown in the table below:

Ratio FY 2019-20 FY 2018-19 Change Note
Debtor Turnover (days) 80.70 93.24 13.45% A
Interest Coverage Ratio 0.36 0.40 9.86% B
Current Ratio 0.18 0.24 24.63% C
Debit Equity Ratio 2.00 1.70 (17.33%) D
Operating Profit margin % 0.86 0.53 (60.22%) E
Net profit margin % (1.49) (0.79) (89.63%) F
Return on Net Worth (0.42) (0.42) 0.07% G

A. Debtor collection is improved when compared to the previous year.

B. There is slight decrease in the interest coverage ratio as the revenue is decreased compared to previous financial year.

C. Due to increase in the short term borrowings taken for the repayment of IL&FS Term loan, the current liabilities is increased and hence the current ratio is decreased (refer note no.12).

D. Due to the loss incurred during the year, the total equity been reduced. Hence debt equity ratio is increased.

E. Due to control in the operating and maintenance expenses, the operating profit margin is increased when compared to the previous financial year.

F. Due to shortfall of revenue during the year, the net profit margin is decreased when compared to the previous financial year.

G. There is no change in the return on net worth when compared to previous financial year.

CAUTIONARY STATEMENT:

Statements in the Management Discussion and Analysis describing the Companys objective, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, economic conditions affecting demand / supply and price conditions in the domestic and overseas markets in which the Company operates changes in the Government regulations, tax laws and other statutes and incidental factors.