Your Directors have pleasure in presenting the Management Discussion and Analysis
Report for the year ended on 31st March, 2020.
INDUSTRY STRUCTURE & DEVELOPMENTS
The Covid-19 pandemic impact has led to the stalling of activity in the construction
sector and this disruption will have a negative impact on the operating income,
profitability, and liquidity position of construction companies in the short term to
medium term. The Jan-March period is most crucial for construction companies as most of
their orders fructify. June onwards, the monsoon hinders building activities. In the long
term, the constructor sector will witness significant opportunities as it is one of the
important drivers of the Indian economy.
RERA (REAL ESTATE REGULATION ACT)
RERA has moved through the legislative contours to finally becoming a regulation. The
sector had become huge in terms of large number of transactions and its contribution to
the overall GDP of the country. Lately, due to non-standardised and unregulated practices,
the fragmented sector has been in the limelight for all the wrong reasons, further
impacting its image. There was a dire need of a supervisory body to oversee the operations
of the sector. Construction companies have suggested that Covid-19 needs to be declared
‘force majeure under Section 6 of the Real Estate (Regulations and Development) Act
(RERA) that provides extension of project registration granted to developers.
Impact on real estate developers:
The Real Estate Regulation Act (RERA), introduced in 2016, has brought uniformity in
the residential real estate market, increased transparency in real estate deals, improved
accountability of builders, and protected the interests of buyers from the malpractices of
unfair builders, which in turn has led to increased demand. It will be good to highlight
the work done by organisations like CREDAI, NAREDCO, FICCI, among others, who are
constantly working with the community and creating awareness about the long-term benefits
of this act. However, its a great opportunity for the developers to completely change the
perception of all the stakeholders towards the sector and in particular, the developer
fraternity.
Impact on the government
Its been a shaky start for the state governments, wherein different governments are at
the different stages of RERA implementation in their respective states. While on one hand,
developers need to align their systems/processes to comply with the law. The same is
applied to the government as well. There is a significant gap in terms of the as is and to
be situation of the various regulators of different states for effectively
managing/monitoring RERA requirements by the developers. They have only come up with the
first step of project registrations and once the new launches start and recurring
compliances kick in, there would be a need to move to a more scalable, tech-enabled
platform to manage (and monitor) humongous data filed with various regulators.
The real impact of the law will be felt in the years to come, when the new launches are
announced and developers commit timelines under the new regime on carpet area, provide
complete transparency on the project approvals, its stage of construction, etc. one would
be able to say that realty has been RERAfied.
GOOD & SERVICES TAX (GST)
Real Estate sector under GST
Since inception, this sector has been in the limelight due to various levy of taxes,
restriction of credits, lack of transparency, etc. GST will have sizable impact on real
estate sector. It is expected to bring in transparency and simplicity. While the prices of
residential real estate may not come down in the short term, GST will certainly help in
improving the perception of the sector on the back of a simplified tax structure and
accountability being fixed at every stage.
Benefits under GST
The highlight of the GST regime for the realty sector is the seamless availability of
Input Tax Credits (ITC) paid on inputs, capital goods and input services. Under the
erstwhile regime, builders would end up paying a multitude of taxes such as VAT, Central
Excise, Entry Tax, LBT, Octroi, Service Tax, etc., the credits of which were not freely
available against the output tax liability. However, the GST regime provides for full ITC
eligibility to construction service, thereby eliminating the inefficiency ushered in by
the cascading effect of taxes.
Under the GST regime, owing to the removal of state barriers, construction sector will
experience a considerable relief in terms of transportation of material, machinery etc.
from one state to another.
Issues under GST
In case of the realty sector, GST is not the only indirect tax payable by a customer.
Depending on the state, levies such as stamp duty, registration charges, etc. shall also
be payable. Since these charges are not subsumed within GST, the same adds up to the cost
of the final consumer.
Transfer of consumables, inputs, capital equipment, etc. from one site to another is
quite common in this sector. In case such goods are transferred between two locations
having separate registrations, the same shall be treated as ‘supply and GST shall be
payable. This leads to an increased effort in terms of valuation, invoicing, compliance,
etc. Not to mention, this will mean blocking of working capital for the company. Under the
previous regime, such ‘branch transfers could be done without the payment of taxes.
Due to the concept of decentralized registration under GST, every realty player will be
required to obtain registration in every state where construction projects have been
undertaken. It will be an arduous and a tedious task for the companies to execute with the
compliance requirements such as returns, maintenance of separate records, etc. for each
state.
Anti-profiteering developers will have to rework their costing from scratch in order to
ensure that the benefit of reduced costs is passed on to the customers to avoid defaulting
under the anti-profiteering rules. This could prove to be a hassle for many developers
especially in case of projects that are ongoing as on the appointed day of GST roll-out.
AFFORDABLE HOUSING
The affordable housing initiative is aimed at homes with a value of approximately INR
20 lakh. Homes in this range are typically located on the outskirts of metros and Tier-1
cities. They are aimed at first-time homebuyers in the middle to lower income category.
The government rolled out various incentives to boost affordable housing. To begin
with, the GOI designated this vital sector as a favored segment under its Housing for All
by 2022 initiative. The most recent Union Budget provided direct tax relaxation to the
lowest income earners, along with much-needed clarity on the designated beneficiaries
under the Pradhan Mantri Awas Yojana (PMAY).
Given the housing demand of the country, the real demand lies in the mid segment (which
is now being described as affordable housing). While the governments will keep on pushing
reforms, it is critical that more developers get into this segment and with RERA getting
stabilised, consumers will get attracted to the lower interest rates, along with tax
benefits attached to it.
SMART CITIES
Smart Cities initiative was launched in 2015 with the prime agenda to promote core
infrastructure and a sustainable life for citizens. This will mean using smart solutions
and technologies. This initiative will further get Tier II and III cities - where Indias
tremendous talent pool resides - up to speed with metros bringing these cities into the
main stream. Development of these identified cities will initiate from area-based themes
to redevelop slums and other unorganised areas into planned spaces, thus enhancing the
overall livability. Below is the representation of the status of smart cities so far.
Outlook
IMF has stated that India would remain among the fastest growing major economies
despite the setback of the contagion. India is one of the only two major economies, the
other being China, to have a projected positive growth rate in 2020.
Opportunities & Threats:
The construction industry ranks third among the 14 major sectors in terms of direct,
indirect and induced effects in all sectors of the economy. One of the opportunities for
business growth is e-marketing in the current scenario. More than ninety percent of people
use the internet before purchasing real estate, and brokers have embraced online marketing
with pictures of properties and virtual tours in order to prime their potential customers.
Better educated purchasers can also speed up the sales cycle by knowing what they want and
need. With increasing corporate, expanding their business demand for office space would
continue to be high in the key 8 metros. Retail space in shopping malls cross the key
cities is projected to double in this year.
the Indian real estate needs to be provided with requisite government and institutional
support to ensure its long term and sustainable growth in a manner that is beneficial to
all segments of society and it should be pronounced at par with other sectors such as
electricity, water, roads and highways within the scope of infrastructure sector.
The Indian real estate sector at present is facing challenges like increased land cost,
delay in approvals, lack of availability of funds both at buyer and developers level,
under-developed infrastructure and skilled manpower. The other concern for the company is
Real estate developers are required to comply with a number of laws and regulations,
including policies and procedures established and implemented by local authorities in
relation to land acquisition, transfer of property, registration and use of land. These
laws often vary from state to state. The delay in obtaining approvals could warrant
revised scheduling of project time lines.
ORGANIZATION PROFILE:
Financial Performance:
Ours is an Ahmedabad based company engaged in real estate business. The company
operates in developing residential schemes. The Company has taken initiative and has
focused on consideration of projects.
Segment wise performance:
The companys operations are mainly focused in the areas of Real estate and
construction. Company is primarily engaged in the business of real estate, hence there is
only one primary segment.
Risk and concerns:
Our primary source of gross income during the year under review was from selling of
residential apartments. There exists revenue risk, legal risk, planning permit risk, etc.
To mitigate all this risks, research is essential in assessing all kinds of risks. The
risk of surprises and wrong assumptions made during the process need to be mitigated.
These will be made during the development process as the design will evolve towards final
specifications and will have to take into account inflation levels, price increases as a
result of increasing demand etc. The Indian retail realty sector is projected to grow at
around 15 per cent year-on-year over the next few years.
During the year under review, the company engaged the risk management system to
identify and evaluate elements of business risk. The risk management framework defines the
risk management approach of the company. Just like any other industry; the real estate
sector has some threats involved; which are
• Increasing cost of construction
• Availability of accomplished and trained labour force
• Unanticipated delays in project approvals
• Increased cost of manpower
• Growth in auxiliary infrastructure facilities
Adequacy of Internal Financial Control systems:
The board has adopted the policies and procedures for ensuring the orderly and
efficient conduct of its business. The company has the system of internal controls to
ensure accuracy of accounting records and compliance with various, laws, rules and
regulations. It has well-defined systems and procedures covering all financial and
operating functions. These controls have been designed to provide an assurance with regard
to maintaining proper accounting records, controls, monitoring of operations, protecting
assets from unauthorized use or losses, compliances with regulations and for ensuring
reliability in financial reporting.
Material Developments in Human Resource:
The management believes that the people working in the organization play significant
role in the performance of the services and as such relations with the employees continued
to be cordial and satisfactory. The Company lays strong emphasis on attracting and
retaining the best talent. Personal development initiatives including training, both
technical and managerial level are regularly conducted to enhance human potential
Cautionary Statement:
Statements in the Management Discussion and Analysis describing the Companys
objectives, expectations, predictions and assumptions may be ‘forward looking within
the meaning of applicable Securities Laws and Regulations. Actual results may differ
materially from those expressed herein. Important factors that could influence the
Companys operations include global and domestic economic conditions affecting demand,
supply, price conditions, change in Governments regulations, tax regimes, the laws and
other factors such as litigation and industrial relations.
| Place: Ahmedabad |
Arvind Patel |
Shailesh Vaishnav |
| Date: 3nd December, 2020 |
Director |
Director |
|
DIN: 08519927 |
DIN: 08178493 |
+91-9892691696
