HEC Infra Projects Ltd Management Discussions

OVERVIEW OF GLOBAL ECONOMY:

In 2023, the global economy grew by 3.2% exhibiting resilient growth with signs of improved global outlook. The impact of tighter monetary conditions continues. As per the IMF, global growth in 2024 and 2025 is estimated to remain persistent at 3.2% supported by robust government and private spending in several economies. Emerging markets and developing economies grew by 4.1% in 2023 and are expected to continue this consistent growth rate at 4.1% in 2024 and 4.2% in 2025. Meanwhile, the growth in advanced economies slowed down from 2.6% in 2022 to 1.6% in 2023. It is anticipated to stabilize at around 1.5% in 2024 and increase to 1.8% in 2025.

The global economy remains remarkably resilient with the growth holding steady as inflation returns to the target. Global growth is projected to hold steady at 2.6% in 2024 before edging up to an average of 2.7% in 2025-26. That is well below the 3.1% average in the decade before COVID-19. The forecast implies that over the course of 2024-26 countries that collectively account for more than 80% of the worlds population and global GDP would still be growing more slowly than they did in the decade before COVID-19.

OVERVIEW OF INDIAN ECONOMY:

As per the latest World Banks Global Economic Prospect (GEP), January 2024; economic growth projection for India is at 6.4% for FY2025. India grew at 6.3% in FY2024 mainly on account of strong domestic demand, rising public infrastructure spending and strong private sector credit growth. However, World Bank projected that the private consumption growth might taper off due to high food inflation and diminishing pent-up demand. India will remain

the fastest-growing major economy with FY2026 real GDP growth rate forecasted at 6.5% as per World Bank.

Gross value-add in the construction sector increased from INR 7.8 trillion in FY2012 to INR 12.4 trillion in FY2023. Construction Gross Value Added (GVA) witnessed growth of 10% in FY2023. It is expected to grow at 9-11% in FY2025 owing to the governments emphasis on infrastructure development and a robust order book. Emerging markets in the region will lead growth in the region with India, Indonesia, Vietnam, Philippines and Bangladesh amongst markets that will see the highest growth rates in the region over the coming decade. Mainland Chinas construction growth will also continue to play a strong role in shaping growth trends in the region.

OUTLOOK:

The global Power EPC market was valued at USD 690 billion in 2023 and growing at a CAGR of 4.8% from 2024 to 2033. The market is expected to reach USD 1,103 billion by 2033.

The companies face a multidimensional challenge on this front as they adapt to evolving market trends and environmental regulations and meet customer demands for greener buildings, while also preventing construction costs from accelerating too rapidly.

The Engineering Procurement Construction (EPC) Market report combines extensive quantitative analysis and exhaustive qualitative analysis, ranges from a macro overview of the total market size, industry chain, and market dynamics to micro details of segment markets by type, application and region, and, as a result, provides a holistic view of, as well as a deep insight into the Engineering Procurement Construction (EPC) market covering all its essential aspects.

OVERVIEW OF EPC ELECTRO-MECHANICAL SECTOR:

The EPC sector is considered the second largest segment in the Indian Economy, which is playing a big role in introducing more employment opportunities in the nation. EPC companies and Indias smart city mission are connected to help the nation reap outstanding benefits. India is puttng up a very fast-paced call for boosting urbanisation and taking it to the next level through the introduction of smart cities.

The engineering sector in India attracts immense interest from foreign players as it enjoys a comparative advantage in terms of manufacturing cost, technology, and innovation. The above, coupled with favorable regulatory policies and growth in the manufacturing sector, has enabled several foreign players to invest in India.

The Indian engineering sector is of strategic importance to the economy owing to its intense integration with other industry segments. The sector has been de-licensed and enjoys 100% FDI. With the aim to boost the manufacturing sector, the Government has relaxed the excise duties on factory gate tax, capital goods, consumer durables and vehicles.

ENGINEERING SERVICES:

• HEC is a prominent EPC (Engineering, Procurement, and Construction) company specializing in Electro-Mechanical systems, Solar Projects, Lighting, and ELV Systems. We provide comprehensive solutions and full-service capabilities encompassing design, supply, installation, and commissioning. Our expertise spans overhead transmission lines, substations, underground cable laying, switchyards, water pumping stations, lighting systems, industrial and commercial electrification, solar PV plants, battery energy storage systems, as well as mini/micro grid solar projects.

• TRANSMISSION & DISTRIBUTION PROJECTS:

HEC specializes in EPC solutions for transmission projects, leveraging its core strengths in engineering across procurement and construction services. Our expertise encompasses switchyards, overhead transmission lines, and cable laying within the transmission sector.

In the substation domain, HEC offers turnkey solutions for high voltage air insulated substations tailored for utilities and power plants. We also excel in EHV cable and communication backbone networks, as well as providing comprehensive electrical and instrumentation solutions for various infrastructure projects.

With extensive experience, HEC undertakes turnkey projects for switchyards up to 220 KV, overhead transmission lines up to 220 KV, and underground cable laying up to 66 KV. Additionally, our capabilities extend to air insulated substations up to 220 KV and the implementation of SCADA systems.

Since last financial year, the company has decided to focus and boo projects majorly in this sector only as this type of project type has 3 contractual advantages namely faster completion time, lesser duration of performance guarantee and zero dependence on other contractors for securing orders unlike building projects.

• WATER PUMPING STATIONS:

HEC excels in providing turnkey solutions to clients seeking a streamlined approach to project design and implementation. Our extensive expertise in water pumping stations connects us with globally renowned companies capable of executing comprehensive package projects. The company undertakes diverse projects on a turnkey basis, encompassing mechanical, electrical, and instrumentation aspects across government, private, and industrial pumping schemes.

With in-house manufacturing capabilities through affiliated companies, HEC produces HT panels, LT panels, and Distribution Boards (DB), offering significant advantages to our clients. Our portfolio includes successfully executed pumping projects featuring HT Motors up to 6.6 KV, integrated with advanced PLC, SCADA, and Automation systems, ensuring efficient and reliable operations.

During the year the company has received and executed Electro-Mechanical & instrumentation works along with Operation and Comprehensive repair & Maintenance work for Ahmedabad Municipal Corporation and also that of Augmentation work for Supply of HT panel and transformer of different size for various sewage & storm water pumping station and also that of dismantling of existing old HT panel & transformer of AMC. Moreover, new orders for the coming year have also been booked. This sector provides us greater margins and minimal involvement of manpower and resources.

• LIGHTING:

The Company specializes in providing comprehensive EPC solutions for both indoor and outdoor lighting requirements across various sectors such as airports, hotels, industrial plants, and hospitals. Our dedicated EPC team possesses exceptional expertise and efficiency in executing projects, particularly in outdoor lighting installations.

We offer a wide range of outdoor lighting solutions, including Solar Lighting, Smart Street Lighting, Industrial Plant Lighting, River Front Lighting, and Highway Lighting, among others. These solutions are designed to enhance safety, visibility, and aesthetic appeal while ensuring energy efficiency and sustainability.

During the year under review, the company has received and executed work for construction of Street lighting projects from Ahmedabad Municipal Corporation.

RISK AND CONCERN:

The Company recognizes that risk is inherent in every business activity. Effectively managing these risks is key to achieving our strategic objectives and the long-term sustainable growth of the business. At industries, risk management encompasses an organized and coherent process of identifying, assessing and managing the existing and potential risks in a planned manner. The Company has framed a comprehensive Risk Management Policy which inter-alia lays down detailed process and policies in the various facets of the risk management function.

The management strives hard to balance business risks and opportunities and analyses potentially negative or positive outcomes. The risk management function is integral to the company and its objectives includes ensuring that critical risk is identified continuously, monitored and managed effectively in order to protect the companys business.

However, the changes in the tax laws, Government policies and regulatory requirement might affect the companys business. Uncontrolled variation in price of input materials could impact the companys profitability to the extent that the same are not absorbed by the market through price increase and / or could have a negative impact on the demand in the market.

The company has started being selective towards its project and client selection. The majority of the growth story in companys overall portfolio is now attributed majorly to its project selection and Indias growing economy.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:

The Company implemented suitable controls to ensure its operational, compliance and reporting objectives. The Company has adequate policies and procedures in place for its current size as well as the future growing needs. These policies and procedures play a pivotal role in the deployment of the internal controls. They are regularly reviewed to ensure both relevance and

comprehensiveness and compliance is in grained into the management review process.

The Board has adopted policies and procedures for ensuring that all transactions are authorized, recorded and correctly reported, all assets are safeguarded and protected against loss from unauthorized use or disposition, reducing wastage and maintenance of proper accounting records for ensuring accuracy and reliability of its financial information. The Board has constituted an Audit Committee which meets periodically to review the financial performance and the accuracy of financial records and accordingly appropriate actions are taken by the management. The significant findings, along with management response and status of action plans are also periodically shared with and reviewed by the Audit Committee.

Adequacy of controls of the key processes is also being reviewed by the Internal Audit team. Suggestions to further strengthen the process are shared with the process owners and changes are suitably made. Significant findings, along with management response and status of action plans are also periodically shared with and reviewed by the Audit Committee. It ensures adequate internal financial control exist in design and operation financial disclosures. When found necessary, the Committee also gives suggestions on this matter. The audit committee regularly evaluates the execution of the Audit plan, the relevance and impact of the internal audit systems, oversees the implementation of internal audit recommendations including those which help reinforce the companys risk management policies and systems.

FINANCIAL PERFORMANCE:

Particulars	For the year ended on (^ In Lakhs)
	March 31,2024	March 31,2023
Revenue from Operations	7378.95	5173.39
Other Income	334.84	134.20
Total Revenue	7713.79	5307.59
Purchase of Stock-in-Trade	3003.27	2356.45
Changes in Inventories of Finished Goods, WIP and Stock-inTrade	569	(20.93)
Employee Benefit Expenses	340.02	333.29
Other Expenses	2940.77	2173.76
Total Expenditure	7051.93	5187.29
EBIDT	860.73	465.02
Finance Cost	182.23	322.68
Depreciation and Amortization	16.64	22.04
Profit Before Extraordinary Item and Tax	661.86	120.30
Extraordinary Items	0.00	0.00
Profit Before Tax	661.86	120.30
Current tax	189.72	38.50
Taxation in respect of earlier year	--	2.74
Profit for the year	471.64	78.83

Senior Management:

During the year 2023-2024 the particulars of senior management and changes there in as under:

Name of Senior Management Personnel	Designation
Pannalal Surti (upto 31/12/2023)	C.F.O
Arvind Kumar Patel (with effect from 4th Jan 2024)	C.F.O
Sunil Nair	Vice President
Nitin Patel	Senior Project Manager - Water pumping and Lighting division
Nilesh Pansariya	Senior Project Manager - Water pumping and Lighting division
Khushi Bhatt	C.S

KEY FINANCIAL RATIOS:

Details of significant changes (i.e., change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios and any changes in return on net worth of the Company (on standalone basis) are given below:

Particulars	March 31,2024	March 31,2023	Changes
Debt service coverage ratio (in times)	3.45	0.86	-300.02
Current ratio	3.60	2.34	-53.98
Return on equity ratio(%)	0.47	0.03	-1679.03
Inventory turnover ratio (in times)	2.76	1.49	-85.33
Trade receivables turnover ratio (in times)	3.14	1.75	-79.41
Trade payables turnover ratio (in times)	1.83	1.17	-56.82
Net capital turnover ratio (in times)	1.47	1.17	-25.46
Net profit ratio (in %)	0.06	0.02	-219.58

OPPORTUNITY AND THREATS OPPORTUNITY:

• Strategic Joint Venture strengthening business

• Entering in to a new project

• Favorable contract terms

• Reliable Investors

• Favorable financing method according to the advance rate and payment dynamics

• Developing a Functional and coordinated Project team THREAT:

• Economic Uncertainty

• Rise in cost of material, cost of transportation may affect the margin

• Changes in Government Policies

• Intense competition may reduce profitability

• Act of God

• Client Dissatisfaction

• Customers inability to pay

HUMAN CAPITAL:

Our Company believes that the human capital is key to bring in progress. The Company believes in maintain cordial relation with its employees which is one of the key pillars of the Companys business. The Companys HR policies and practices are built on core values of Integrity, Passion, Speed, and Commitment. The Companys focus is on recruitment of good talent and retention of the talent pool. The Company is hopeful and confident of achieving the same to be able to deliver results and value for our shareholders. Our company is having on roll 41 employees as on March 31,2024. Company maintains smooth relations with whole of the workforce and incentives are provided from time to time to ensure that employees remain devoted to the organization for a long term.

SEGMENT GROWTH DRIVERS:

The major and material activities of the company are restricted to only one segment i.e., EPC Engineering Designing & Construction, hence the secondary segment disclosures are not applicable.

DISCLOSURE OF ACCOUNTING TREATMENT:

The Company adopted Indian accounting standard ("Ind as") prescribed under section 133 of the companies act, 2013 read with relevant rules issued there under and in terms of Regulation 33 of the SEBI (LODR) Regulations, 2015 and the Companies (Indian accounting Standards) (Amendment) Rules, 2016. Beginning April 1, 2021, the company has for the first time adopted IND AS with the transition date of April 1, 2020.

CAUTIONARY STATEMENT:

Certain statements in the reports of the Board of Directors and Managements Discussions and Analysis may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results may vary from those expressed or implied depending upon economic conditions, Government policies and other incidental factors. Taxation laws, economic