High Ground Enterprise Ltd Management Discussions

A] BUSINESS OUTLOOK INFRASTRUCTURE SECTOR (EPCM)

Introduction

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

Market Size

Foreign Direct Investment (FDI) received in Construction Development sector (townships, housing, built up infrastructure and construction development projects) from April 2000 to December 2017 stood at US$ 24.67 billion, according to the Department of Industrial Policy and Promotion (DIPP). The logistics sector in India is expected to increase at a Compound Annual Growth Rate (CAGR) of 10.5 per cent, from US$ 160 billion in 2017 to US$ 215 billion by 2020.

Investments

India has a requirement of investment worth Rs 50 trillion (US$ 777.73 billion) in infrastructure by 2022 to have sustainable development in the country. India is witnessing significant interest from international investors in the infrastructure space. Some key investments in the sector are listed below.

• In June 2018, the Asian Infrastructure Investment Bank (AIIB) has announced US$ 200 million investment into the National Investment & Infrastructure Fund (NIIF).

• Private equity and venture capital (PE/VC) investments in the infrastructure sector reached US$ 3.3 billion with 25 deals during January-May 2018.

• Indian infrastructure sector witnessed 91 M&A deals worth US$ 5.4 billion in 2017

• In February 2018, the Government of India signed a loan agreement worth US$ 345 million with the New

Development Bank (NDB) for the Rajasthan Water Sector Restructuring Project for desert areas.

• In January 2018, the National Investment and Infrastructure Fund (NIIF) partnered with UAE-based DP World to create a platform that will mobilise investments worth US$ 3 billion into ports, terminals, transportation, and logistics businesses in India.

Government Initiatives

The Government of India is expected to invest highly in the infrastructure sector, mainly highways, renewable energy and urban transport, prior to the general elections in 2019.

The Government of India is taking every possible initiative to boost the infrastructure sector. Some of the steps taken in the recent past are being discussed hereafter:

• A new committee to lay down standards for metro rail systems was approved in June 2018.

• Rs 2.05 lakh crore (US$ 31.81 billion) will be invested in the smart cities mission. All 100 cities have been

selected as of June 2018.

• Contracts awarded under the Smart Cities Mission would show results by June 2018 as the work is already in full swing, according to Mr Hardeep Singh Puri, Minister of State (Independent Charge) for Housing and Urban Affairs, Government of India.

• 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

• The Government has decided to introduce Hybrid Annuity Model (HAM) to revive PPP (Public Private

Partnership) in highway construction. At present, three different models -PPP Annuity, PPP Toll and EPC (Engineering, Procurement and Construction) were followed by the government while adopting private sector participation. Launch of the new model is due to the many problems with the existing ones. Large number of stalled projects are blocking infrastructure projects and at the same time adding to NPAs of the banking system. In this context, the government has introduced Hybrid Annuity Model (HAM) to rejuvenate PPP. By features the HAM is a mix between the existing two models - BOT Annuity and EPC.

Road Ahead

Indias national highway network is expected to cover 50,000 kilometres by 2019, 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 by March 2019 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.

Your Company has appointed a focused team to expand in following diversified sectors under EPCM division:

1) Exploring opportunities under Govts initiative for Power & Renewable Energy to produce and sell only Electric Vehicles by 2030. Leveraging on our relationship with IOCL and HPCL our established clients HGEL is in advance talk with these Oil companies to set-up the Infrastructure and logistics for charging stations across their outlets in the country under the sustainable business venture on (PPP) model, also talking to several local government bodies / municipality and development authorities discussing the viability of establishing the infrastructure for charging stations & facilities in malls, public offices, parking lots, etc.

2) Exploring opportunities to collaborate with leading players on their ongoing projects in airport development, road construction, maintenance and large-scale supply and installation activities.

3) Exploring work encompassing operation and maintenance of transmission sub-stations; illumination of power substation switchyards and roads/bridges; erection, testing and commissioning of transmission lines and switchyards up to 400KV; erection, testing and commissioning of power transformers up to 500 MVA; and fabrication of airducts, tanks, etc.

4) Exploring opportunities - Namami Gange Centre to spend Rs 200 bn till 2020 on cleaning the river, opening up a huge potential for the company. The company is exploring various alternatives to capitalise on this opportunity.

5) Telecom: Consolidation and improvement/up gradation of services by operators

Under the expansion plan Company has stepped forward to take advantage of the new government initiative wherein The Government has decided to introduce Hybrid Annuity Model (HAM) to revive PPP (Public Private Partnership) in highway construction. At present, three different models -PPP Annuity, PPP Toll and EPC (Engineering, Procurement and Construction) were followed by the government while adopting private sector participation. Launch of the new model is due to the many problems with the existing ones. Large number of stalled projects are blocking infrastructure projects and at the same time adding to NPAs of the banking system. In this context, the government has introduced Hybrid Annuity Model (HAM) to rejuvenate PPP. By features the HAM is a mix between the existing two models - BOT Annuity and EPC.

Our Company in Consortium / JV with KMC Constructions and some other established entities in the sector has been bidding under the above scheme to target 1000 crore of work orders in the next 2 years.

The Company has received approval from the Government authority for setting up a Unit in the Arshiya Ltd SEZ at Mumbai. The continuous effort of the management of the company has resulted in entering into an Agreement for development of SEZ Work of Rs. 40 Crores (Forty Crores Only) for the FY 2017-18. This

Agreement shall boost the Companys overall revenue and also help the Company to diversify the business scope to procurement and supply in EPCM sector.

MEDIA AND ALLIED ACTIVITIES:

Introduction

The Indian Media and Entertainment (M&E) industry is a sunrise sector for the economy and is making high growth strides. Proving its resilience to the world, the Indian M&E industry is on the cusp of a strong phase of growth, backed by rising consumer demand and improving advertising revenues. The industry has been largely driven by increasing digitization and higher internet usage over the last decade. Internet has almost become a mainstream media for entertainment for most of the people.

The Indian advertising industry is projected to be the second fastest growing advertising market in Asia after China. At present, advertising revenue accounts for around 0.38 per cent of Indias gross domestic product.

Market Dynamics

Indian media and entertainment (M&E) industry grew at a CAGR of 12.25 per cent from 2011-2017; and is expected to grow at a CAGR of 11.6 per cent to touch Rs 2,032 billion (US$ 31.53 billion) by 2020 from Rs 1,308 billion (US$ 19.46 billion) in 2016.The industry provides employment to 3.5-4 million people, including both direct and indirect employment in CY 2017.

The number of newspaper readers in India has increased by 38 per cent between CY 2014 and CY 2017 to reach 407 million.

India is one of the highest spending and fastest growing advertising market globally

Recent development/Investments

The Foreign Direct Investment (FDI) inflows in the Information and Broadcasting (I&B) sector (including Print Media) in the period April 2000 - September 2017 stood at US$ 6.86 billion, as per data released by Department of Industrial Policy and Promotion (DIPP).

• The Indian digital advertising industry is expected to grow at a Compound Annual Growth Rate (CAGR) of 32 per cent to reach Rs 18,986 crore (US$ 2.93 billion) by 2020, backed by affordable data and rising smartphone penetration.

• India is one of the top five markets for the media, content and technology agency Wavemaker where it services clients like Hero MotoCorp, Paytm, IPL and Myntra among others

• After bagging media rights of Indian Premier League (IPL), Star India has also won broadcast and digital rights for New Zealand Cricket upto April 2020.

• Total number of Mergers and Acquisition deals increased to 63 in FY17 from 58 in FY16

Government Initiatives

The Telecom Regulatory Authority of India (TRAI) is set to approach the Ministry of Information and Broadcasting, Government of India, with a request to fastrack the recommendations on broadcasting, in an attempt to boost reforms in the broadcasting sector. The Government of India has agreed to set up the National Centre of Excellence for Animation, Gaming, Visual Effects and Comics industry in Mumbai. The Indian and Canadian Government have signed an audio-visual co-production deal to enable producers from both the countries exchange and explore their culture and creativity, respectively.

The Government of India has supported Media and Entertainment industrys growth by taking various initiatives such as digitising the cable distribution sector to attract greater institutional funding, increasing FDI limit from

74 per cent to 100 per cent in cable and DTH satellite platforms, and granting industry status to the film industry for easy access to institutional finance.

Road Ahead

The Indian Media and Entertainment industry is on an impressive growth path. The industry is expected to grow at a much faster rate than the global average rate.

Growth is expected in retail advertisement, on the back of factors such as several players entering the food and beverages segment, e-commerce gaining more popularity in the country, and domestic companies testing out the waters. The rural region is also a potentially profitable target.

The Initiatives taken by your Company to expand in the sector of Media and Allied Activities is as follows:

1. 1. Your Company has added the equipments and expanded the facilities and services of its digital postproduction studio in India, catering to its domestic and export market.

2. Your company has streamlined a dedicated Development team to process and develop in-house creative content for the new media digital platforms like Netflix, Amazon Prime, Zee5, Hotstar, Applause, etc.

3. To set-up a marketing and line production streams to not only market its own content but also to integrate external libraries and IPR of varied content for advertising, internet/IPTV, broadcast and other digital platforms.

Your Company always strive to satisfy the Niche demands of the market and its clients, the Company has been making constant efforts to negotiate dynamic deals to integrate suitable content & Intellectual Property Rights (IPR) and has successfully cracked a deal of Rs. 25 Crores (Twenty Five Crore) of Selective Rights of 41 Films produced by Eros International for a period of 3 (Three) years. This shall add a greater value to the M & A segment of your company.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has adequate internal control systems to commensurate with the nature and size of business. The system ensures authenticity of authorization and execution of business transactions. Safeguarding of Assets from unauthorized usage forms the core principle of the Companys internal control system. The organizational structure of the Company is designed to establish increasing responsibility with increasing authority. Duplication in decision making and reporting is avoided.

HUMAN RESOURCES/INDUSTRIAL RELATIONS

The Company strives to create a working ambience that nurtures the talent and enterprise of its workforce. The Management believes that the growth and fulfillment of individual ambitions are necessary for the overall growth of business. The HR policy of the Company is reviewed, revised and updated from time to time to make it relevant, effective and useful to the employees and also to the company. The basic objective is to facilitate the smooth execution of transparent policies. As of March 31,2018, the Company had around 90 employees on the pay roll of the Company. However, the Company, including its subsidiary companies, keeps on hiring workmen (Skilled and Un-Skilled) on contractual / sub-contractual basis, who assist the on-site engineers and supervisors in EPCM and M&E division.

FINANCIAL ANALYSIS OF OPERATIONS OF THE COMPANY

Results of Operations

Table 1: Summarized Financial Results

(Rs. In Lacs)

Particulars	Year ended March 31, 2018 (Rs. In Lacs)		Year ended March 31,2017 (Rs. In Lacs)
	Consolidated	Standalone	Consolidated	Standalone
Net Revenue from operations:
Engineering Procurement Construction Management (EPCM)	41,924.86	41,924.86	27,275.07	25,865.02
Media, Consulting and allied services	11,810.12	11,805.27	4,972.53	4,887.86
Total Revenue from operations	53,734.98	53,730.13	32,247.60	30,752.88
Other Income	84.23	78.82	11.72	11.58
Total expense other than Finance Cost, Depreciation and amortization	50,443.96	50,412.75	29,871.70	28,248.25
Earnings before Finance Cost, Depreciation, amortization and tax (EBIDTA)	3,375.25	3,396.20	2,387.62	2,516.21
Depreciation & amortization	176.72	176.42	116.10	115.38
Earnings before Finance Cost and Tax	3,198.53	3,219.78	2,271.52	2,400.83
Finance costs (net)	679.86	679.37	483.89	483.63
Profit before tax (PBT)	2,518.67	2,540.41	1,787.63	1,917.20
Tax expenses	910.67	910.67	665.19	663.50
Profit after tax (PAT)	1,608.00	1,629.74	1,120.60	1,251.61
Basic earnings per share ()	1.39	1.42	0.98	1.09
Diluted earnings per share	1.39	1.42	0.98	1.09

Turnover

During the year ended March 31, 2018 the Companys total revenue is Rs. 53,730.13 Lacs as against Rs. 30,752.88 lacs in the previous period.

Analysis of Income from Operations

During the year under review, income from Engineering Procurement and Construction Management was Rs. 41,924.86 Lacs as compared to Rs. 25,865.02 Lacs during the previous year. During the year under review, income from Media consulting and allied services was Rs. 11,805.27 Lacs as compared to Rs 4,887.86 Lacs during the previous year.

Other Income

Other income for the year is Rs. 78.82 Lacs against Rs. 11.58 Lacs in the previous year. As was the case last year, for the year under review, Income from foreign exchange fluctuations and interest income are major contributors to other income of the Company.

Other expenses

During the year, other expenses were Rs. 1,054.16 Lacs as against Rs. 846.79 Lacs in the previous period. Earnings before Interest, Depreciation, Tax and Amortization (EBIDTA)

The EBIDTA increased for the year to Rs. 3396.20 Lacs as against Rs. 2516.21 Lacs in the previous period.

Finance Costs

Comparative increase in interest expense was due to higher interest rates and increase in loans. Depreciation & Amortization

The depreciation for the year is Rs. 176.42 lacs as against Rs. 115.38 lacs in the previous period. Increase in depreciation cost is on account of fixed assets of Rs. 499.98 lacs purchased by the Company.

Tax Expenses

In view of increased profits, the current tax expense increased from Rs. 900.47 Lacs incurred by the Company during the previous financial year to Rs. 663.50 Lacs incurred by the Company for the current financial year.

Balance Sheet

The summarized Balance Sheet as at March 31,2018 is given in this annual report.

Summarized Balance Sheet

(Rs. In Lacs)

Particulars as at	March 31, 2018	March 31,2017
EQUITY AND LIABILITIES
Shareholders Fund:
Share capital	1,151.16	1,151.16
Share / Warrant Application Money	-	-
Reserves and surplus	10,666.60	9,216.56
Sub total	11,817.76	10,367.72
Non-current liabilities
Long-term borrowings	-	-
Deferred Tax Liabilities (net)	3.06	-
Sub total	3.06	-
Current liabilities
Short-term borrowings		-
Trade payables	13,715.27	8,378.60
Other current liabilities	1,112.03	774.42
Bank Borrowing	5,988.14	4,888.79
Short-term provisions	1,138.42	853.08
Sub total	21,953.86	14,894.90
TOTAL	33,774.67	25,262.62
ASSETS
Non-current assets
Net Fixed Assets	868.17	544.60
Non- Current Investments	7.45	2.49
Other Non- Current Assets	-	-
Deferred Tax Assets (Net)	-	7.15
Sub total	875.62	554.24
Current assets
Inventories	1,175.21	1,234.95
Trade receivables	23,783.15	15,928.25
Cash and bank balances	398.75	129.32

 

Particulars as at	March 31, 2018	March 31,2017
Other current assets	2,091.16	1,183.65
Loans and advances	5,450.77	6,232.21
Sub total	32,899.04	24,708.38
TOTAL	33,774.67	25,262.62

Share Capital

The entire share capital of the Company is listed and traded on BSE Limited and National Stock Exchange of India Limited.

Reserves and Surplus

For the period under review, the Company has transferred Rs. 10,666.60 Lacs to General Reserve as compared to Rs. 9,216.56 Lacs transferred for the previous year.

Fixed Assets

Gross Block has increased to Rs. 1,390.03 Lacs from Rs. 890.04 Lacs on account of purchase of assets. Cautionary Statement

Some of the statements in this management discussion and analysis describing the Companys objectives, projections, estimates and expectations may be ‘forward looking statements within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Companys operations include a downtrend in industry, significant changes in political and economic environment in India and abroad, tax laws, import duties, litigation and labour relations.