INFRASTRUCTURE SECTOR IN INDIA
India is expected to become the third-largest construction market
globally by 2022. The private sector is emerging as a key player across various
infrastructure segments, ranging from roads and communications to power and airports. The
infrastructure sector has seen some major developments, investments and support from the
government in the recent past.
In Union Budget 2022-23, the Union Government has given a massive push
to the infrastructure sector by allocating H 10 lakh crore to enhance the infrastructure
sector. The government has allocated H 134,015 crore to National Highways Authority of
India (NHAI) and H 60,000 crore to the Ministry of Road Transport and Highways. Therefore
the future outlook of the infrastructure sector looks on track with pandemic easing out
and Government spending is growing in infrastructure sector.
YOUR COMPANY
Gayatri Projects Ltd (GPL), founded in 1963, is one of the oldest &
most experienced pure-play EPC companies within the Indian Infrastructure space. It has
over five decades of experience in execution of major civil works and is diversified
across geographies & infrastructure segments. The company has pan India operations
within several infrastructure verticals like roads, irrigation works, water distribution
works, mining works & industrial construction projects. Gayatri Projects works largely
with State Government entities, NHAI, MORTH and other companies & mostly executing the
EPC projects.
Due to changes in business conditions on account of the Covid-19
pandemic, there has been a delay in recovery of Trade Receivables, increase in materials
cost and increase in cost of services, non-availability of adequate working capital to
execute the contract works on hand, non-awarding of fresh contract works due to lenders
reluctant to provide bank guarantee or other facilities, etc., have severely affected the
business operations and billing cycle of the company. This has triggered default in
repayment of dues to its lenders and devolvement of significant Non-Fund based facilities.
In view of this and most of the lenders have recalled their financial facilities extended
to the company.
Your company has appointed a leading consultant as Corporate Debt
Advisors for Debt Restructuring proposal / amicable debt settlement proposal in the best
interest of the company and the lenders. Your company is also discussing with various
financial investors to raise the equity to overcome the present crisis. The management is
confident to resolve all these issues at the earliest in the best interest of the
companys affairs, business operations, and lenders business interests.
OPERATIONAL & FINANCIAL REVIEW
Your Company, Gayatri Projects has achieved revenue of H 3102.34 crores
in FY2022 as against H 3900.52 crores in the previous year on a standalone basis. However,
the revenue from operations has declined by 20.46% in FY2022 when compared to the last
year due to working capital stress on account of Covid pandemic, countrywide lockdown and
delay in receivables from the State Government Departments.
Your Company has incurred losses of H 788.37 crores before exceptional
items/taxes for the current financial year as against profit of H 51.22 crores in the
previous year. The main reasons for incurring the losses are on account of increase in
materials cost, increase in cost of overheads, non-availability of adequate working
capital to execute the works on hand, non-awarding of fresh contract works due to lenders
reluctant to provide bank guarantee etc., have severely affected the business operations
of the company. As a result the Company has defaulted in repayment of dues to its lenders
and devolvement of significant Non-Fund based facilities has happed and most of the
lenders have recalled their financial facilities extended to the company. The loans and
other facilities sanctioned to the company have been classified by the lenders as
Non-Performing Assets (NPA).
During the current financial year, the National highways Authority of
India (NHAI) has unilaterally and arbitrarily invoked the bank guarantees given in favour
of it in respect of mobilization advances given by NHAI for
Varanasi road project. The NHAI has also charged huge interest on the
mobilization advance which is contested by the company. In the similar manner, Ministry of
Road Transport & Highways (MORTH) has charged interest on mobilization advance which
was contested by the company. In order to follow prudence concept of accounting, the said
interest amount of H 140.51 crores, which was otherwise recoverable from the NHAI &
MORTH has been charged to the profit & loss account as exceptional item in the current
financial year. The management of the company, is confident to recover the interest
charged by the above clients in future claims.
FUTURE PLANS
The company is focusing on the execution and completion of the current
order book to improve the cash flows and to meet the expenses. Your Company is proposing
for restructuring of the debt or any other settlement with lenders to overcome the present
financial crisis. The Company is also aiming to raise the equity to settle the lenders
dues and infuse the working capital to complete on-going works. Your Company is also
expediting the monetisation and realisation process of its arbitration claims and use the
proceeds to de-leveraging of its balance sheet and to improve working capital margin.
RISKS & CONCERNS
Construction Industry faces risks such as increase in construction cost
risk, delays in completion risks, quality and standard of the work risks. Further,
Construction sector also faces operating risks includes increase in raw material cost
risks, labour availability risks, changes in political and regulatory risks and capital
cost risks etc. Most of the above risks are manageable and risks can be mitigated by close
monitoring of the projects and better contract management.
Significant Changes in Key Financial Ratio
The following are significant changes in key financial ratios of FY
2021-22 as compared to previous year FY 2020-21 and reasons for such changes:
| S.No |
Ratio |
FY 2021- 22 |
FY 2020-21 |
% of Change |
Explanations for Significant Changes |
| 1 |
Current Ratio |
0.79 |
1.15 |
-31.25% |
The Company has defaulted in repayment of dues to its lenders
and devolvement of significant Non-Fund based facilities h as h apped and most of th e
lend ers have recalled their financial facilities extended to the company. The loans and
other facilities Therefore entire debt of the lenders is classified as current assets and
hence the current ratio has been deteriorated in FY 2021-22. |
| 2 |
Debt-Equity Ratio |
36.58 |
1.98 |
1750.45% |
During the current financial year 2021-22, the company has
incurred loss of H 92,629.16 Lakhs and there has been substantial erosion in the net worth
of the company on account of huge losses incurred during the current financial year.
Further the fund based limits of the company has increased substantially due to
devolvement of Non-Fund based facilities. As a result of the erosion of net worth and
increase in FB debt, the DE ratio has increased substantially during FY 2021-22. |
| 3 |
Debt Service Coverage Ratio |
-0.19 |
0.23 |
-180.24% |
Due to substantial losses incurred by the company and
increase in fund based limits of the company during the current financial year due to
devolvement of Non-Fund based facilities, the Debt Service Coverage Ratio deteriorated in
FY 2021-22. |
| 4 |
Return on Equity Ratio |
-1218.60% |
5.66% |
-21648.11% |
Due to substantial losses during the current financial year,
the return on equity ratio has deteriorated. |
| 5 |
Net profit ratio |
-29.86 |
1.45 |
-2158.40% |
The company has suffered losses are on account of increase in
materials cost, increase in cost of overheads, non-availability of adequate working
capital to execute the works on hand, non-awarding of fresh contract works due to lenders
reluctant to provide bank guarantee etc. |
| 6 |
Return on Capital employed |
-0.17 |
0.13 |
-233.91% |
Due to substantial losses during the current financial year,
the return on equity ratio has deteriorated. |
Equity Share Capital: There is no changes in the equity share
capital of the company during the year under review.
Other Equity: In line with the Companys stated plan to concentrate
on core business ofconstruction and reduce the group debt, the company has sold the
investment in the power company Sembcorp Energy India Limited (SEIL) for an amount of INR
406.77 Crores. Out of Sale Consideration of H 406.77 Crores, an amount of H 100.29 crores
is repaid the margin advance along with interest to SEIL, cleared loan of INR 220 crores
to ECL Finance Ltd sanctioned to subsidiary company, H 6.00 Crores is utilised for
redemption of Optionally Convertible Debentures issued by subsidiary company. The
remaining amount ofH90.37 Crores is to our company to clear the bank dues/working capital
requirements. The above transaction result an exceptional loss of H 445.34 Crores in the
books of our company. The exceptional loss on account of sale of investment is onetime and
mandatory adjustment as per Accounting Standards of ICAI, hence the same is provided.
As a part of consideration, the Purchaser (SEIL) will pay to the Seller
(GEVPL) the "Earnout", if any, which will be calculated using the formulas as
set out in the Share Purchase Agreement upon the occurrence of the "First Secondary
Sale of Equity Shares" of the Company (SEIL) for Cash Consideration to any unrelated
third party. The prospect of getting the upside by GEVPL is high and the present loss can
be set off from the gains of the above Earnout, if any.
The profits from the "Core Operations" of the Company
(Construction) are positive and in line with the past and also in line with the peers.
HUMAN RESOURCES
The companys processes and systems are designed to empower employees
and enable innovation within the workplace. Gayatri Projects is committed to providing an
environment that encourages employees to perform to full potential and allows them to grow
professionally as well as personally. The company continuously invests in the development
of its human resources through measures aimed at talent acquisition, development,
motivation and retention. As a supportive gesture, the company has also taken personal
accident insurance for all its employees. As on March 31, 2022, the Company has 2390
employees.
INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS
The company has a well-defined and elaborate Risk Management procedure,
which is based on three pillars: Business Risk Assessment, Operational Controls Assessment
and Policy Compliance processes. The Risk Management Committee monitors the key risks in
the various business segments and evaluates strategies to mitigate these. It also reviews
each tender carefully for any potential risks before the bidding process begins. The
Companys internal control systems are commensurate with the nature of its business. They
are tested periodically and certified by Statutory as well as Internal Auditors. The Audit
Committee reviews the adequacy and effectiveness of our internal control environment and
monitors the implementation of audit recommendations. The company has a qualified and
independent audit committee, where majority of directors are independent.
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