GPT Infraprojects Ltd Management Discussions

Global economy

Overview

The global economy witnessed several headwinds in the reported year. While volatility in commodity prices weighed on economic growth, geopolitical disequilibrium further strained the supply chains. On the other hand, central banks resorting to calibrated interest rate hikes further impacted economic activity. Furthermore, tightening global financial conditions exacerbated fiscal and debt vulnerabilities in developing nations. These factors cumulatively declined global growth from 3.4% in CY22 to 3.2% in CY23. However, the global economy still remained resilient while navigating the tumultuous CY23.

Over 85% of central banks resorted to calibrated interest rate hikes to rein in inflation. While the tight monetary policies weighed upon global growth, it successfully prevented an economic downturn.

Projections indicate modest growth of approximately 2.8% for economies such as Ghana and around 1% for South Africa. These estimations are expected to enhance productivity and ensure better services in these regions. As the Company is looking forward to expanding its operations into these markets, the Company stands to gain from these favourable forecasts.

Outlook

Global growth is expected to hold steady at 3.2% in CY2024 and maintain this rate into CY2025. Inflation is projected to decline in most regions owing to unwinding of supply-side pressures and easing of restrictive monetary policies. Global headline inflation is also anticipated to decline to 5.9% in CY24.

For advanced economies, growth is projected to decline slightly from 1.6% in CY23 to 1.7% in CY24, before rising to 1.8% in CY25. This highlights the impact of restrictive monetary policies and withdrawal of fiscal support. On the other hand, the world trade is estimated to grow to 3.0% in CY24 and 3.3% in CY25. However, the projection is expected to stay persistently below the historical average of 4.9%.

(Source: IMF, Deloitte 2024 economic outlook)

Indian economy

Overview

The Indian economy maintained its positive growth trajectory despite a sluggish global economy. In FY24, Indias GDP touched 8.2% with Current Account Deficit (CAD) at 1.9% of GDP. There have been various primary drivers for GDP growth. Strong domestic demand and continuous government spending, coupled with rising exports, substantial increase in private consumption, growing focus on infrastructure development and a positive investing environment have augured well for the Indian economy.

India, one of the fastest growing major economies in the world, is an attractive destination for foreign investments. Moreover, the governments proactive stance to implement favourable fiscal policies have lend stability to the Indian economy. The introduction of flagship programmes like ‘Make in India, ‘Aatmanirbhar Bharat, Smart City Mission, Digital India and the PLI scheme have enabled growth across different sectors.

Outlook

Several high-performance indicators point towards robust growth in the Indian economy. Increasing capex, strong tax revenue collections, growing domestic demand and surging capacity utilisation across sectors, coupled with a thriving food industry have bolstered the growth of the industry. Furthermore, stable repo rates, government bond yields and healthy foreign exchange reserves indicate towards macroeconomic stability in the forthcoming years.

The Government of India has allocated 3.3% of its GDP to the infrastructure sector in FY24, focusing on the transport and logistics segments. The aim of these initiatives is to augment economic growth of the country. The total budgetary outlay for infrastructure-related ministries has increased from around INR 3.7 Lakh crores in FY23 to INR 5 Lakh crores in FY24, offering investment prospects for the private sector across various transport sub-segments.

(Source: Deloitte India economic outlook, April 2024, investindia.gov.in)

Indias infrastructure sector

In the 2023-24 Budget, there was a notable 33% increase in capital investment for infrastructure, reaching Rs. 10 lakh crores (US$ 122 billion), representing 3.3% of the GDP. Particularly, the Railways receive a record capital outlay of Rs. 2.40 lakh crores (US$ 29 billion), marking a significant increase from previous years.

The National Infrastructure Pipeline (NIP) has undergone substantial expansion. It now encompasses 9,142 projects covering 34 sub-sectors, a notable increase from 6835 projects. Among these, 2,476 projects are in various stages of development, requiring a collective estimated investment of US$ 1.9 trillion. Nearly half of these projects are concentrated in the transportation sector, particularly allocated to roads and bridges. The Indian Railways anticipates total revenue to reach Rs. 2,64,500 crores (US$ 31.81 billion) by the end of 2023-24.

(Source: pib.gov.in)

Roads: India has the worlds second-largest road network spanning approximately 66.71 lakh km. The extensive road network encompasses national highways, state highways, district roads and rural roads, ensuring connectivity across the nation.

National Highways (NH) play a crucial role in Indias economic and social progress. The highways not only facilitate efficient movement of goods and people but also enhance market accessibility. The National Highways constitute 2% of the total road network and manage over 40% of the total traffic. The Indian Government has been actively investing in road infrastructure development and has introduced various initiatives.

(Source: investindia.gov.in)

Railways: India takes pride in having the worlds fourth-largest railway system, surpassing the United States, Russia and China. The Indian Railways (IR) spans a total track length of 126,366 km and encompasses 7,335 stations. There was a significant expansion of track length achieved during 2022-23 as it increased from 2,909 km to 5,243 km. This indicates that on an average 14.4 km of track was laid each day, marking the highest-ever commissioning rate.

(Source: investindia.gov.in)

Roads and bridges: The government allocated a budget of H71563.42 crores for construction works under the roads sector and a budget of H 2679.1 crores was specifically allocated for the construction of bridges and roads.

(Source: indiabudget.gov.in)

Union budget FY24-25 provisions

The Union Budget for FY24-25 introduced significant provisions aimed at enhancing infrastructure development and increasing employment generation. Notably, an increase of 11.1%, amounting to Rs. 11,11,111 crores, have been allocated for capital expenditure, marking 3.4% of the GDP.

(Source: pib.gov.in)

Company overview

GPT Infraprojects Limited operates across various segments including the construction and maintenance of railway bridges (utilising steel superstructures, structured steel fabrication, and large-span steel superstructure), road construction and railway track installation. The Company leverages state-of-the-art equipment and advanced technologies to design, plan and execute projects. With its headquarter in Kolkata, India, the Company has steadily expanded its global footprint. The Company has been catering to Ghana, Namibia and South Africa markets as well. Segment wise performance

The Company operates under two segments, namely construction and concrete sleepers being the major ones. Their segment wise performance is shown below:

Particulars (in E crores)	Infrastructure division	Concrete sleepers division
Revenue	925	93
Earnings before tax and interest	110	15

Financial performance of the Company

Particulars	Standalone		Consolidated
	FY24	FY23	FY24	FY23
Total Income	1009.8	797.8	1024.9	813.7
EBITDA	127.9	96.4	127.6	92.1
PAT	60.7	34.6	57.8	31.4
EPS Basic and diluted	10.44	5.94	9.94	5.4

Key financial ratios (Consolidated)

	FY24	FY23	% change
Debtors turnover ratio	20.31	14.76	37.56%
Inventory turnover ratio	9.83	8.98	9.46%
Debt service coverage ratio	1.81	1.66	9.51%
Current ratio	1.45	1.3	11.68%
Debt-equity ratio	0.64	0.95	(32.63%)
EBITDA margin (%)	12.9	12.1	80 bps
Net profit margin (%)	6.1%	4.38%	172 bps
ROCE	34.75%	27.78%	25.09%
ROE	20.89%	13.86%	50.70%

Company outlook

The Company is strategically shifting its focus towards pursuing larger and more complex projects which are less susceptible to competitive pressures. GPT Infraprojects is aiming to strengthen its margins, volumes and cash flows to sustain its positive growth in the coming years. The Company is relentlessly investing in recruiting skilled workforce, leveraging advanced technologies and prioritising timely project execution.

GPT Infraprojects Ltd. is committed to enhancing its project execution capabilities, productivity, competitiveness and liquidity. The Company aims to fortify its position in the market and capitalise on emerging opportunities in the infrastructure sector.

Human resources

GPT Infra recognises the importance of its workforce. The Company fosters a safe work environment that nurtures a diverse workforce, maintains high service standards and incorporates industry-leading HR policies. The Company attracts top talent, promotes cross-functional collaboration and cultivates inclusivity. Through training programmes and engagement sessions, employees receive comprehensive development opportunities.

Furthermore, GPT Infra utilises HR analytics to ensure smooth leadership transitions, accelerating career growth and promoting work-life balance. Long-term incentives and competitive compensation are provided to retain top talent.

Internal control system and their adequacy

The Company maintains robust internal financial controls over its financial statements, utilising SAP to manage critical business functions and ensure operational efficiency through process integration and automation. Throughout the year under review, these controls underwent assessment, with no significant material weaknesses detected in their design or operation. Internal audits, conducted in adherence to auditing standards, aimed to achieve objectives such as ensuring policy and procedure compliance, assessing risk management procedures, and reviewing the effectiveness of the internal control systems design and operation. Additionally, the Companys systems are regulated by independent auditors to ensure compliance and integrity. The Audit Committee which is completely independent oversees the implementation of the audit plan, evaluating the relevance and impact of internal audit systems.

Cautionary statement

Certain statements made in this report relating to the Companys objectives, projections, outlook, expectations, estimates, among others 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 a significant difference to the Companys operations. These include climatic conditions, economic conditions affecting demand and supply, government regulations and taxation, natural calamity, currency rate changes, among others over which the Company does not have any direct control.