IRB Infrastructure Developers Ltd Management Discussions.

Management Discussion and Analysis

1. INFRASTRUCTURE INDUSTRY OVERVIEW & OUTLOOK

In FY 2017-18, Indias infrastructure industry, including the road sector, propelled overall development of the Indian economy. 17,055 kms of roads contract were awarded in FY 2017-18, of which, 8,652 kms were awarded by the Ministry of Road Transport & Highways (MoRTH), 7,397 kms were awarded by NHAI and 1,006 kms by National Highways & Infrastructure Development Corporation Limited (NHIDCL). FY 201718, NHAI achieved all time high target of awarding 7,400 km NH projects consisting of 150 road projects worth 1,220 billion. Majority of these projects were awarded on Hybrid Annuity Mode (HAM) followed by Engineering Procurement Construction (EPC) mode, Build Operate Transfer (BOT) & Toll Operate Transfer (TOT) mode. Most of the bids for the road projects saw good participation than the earlier years. NHAI has been focusing on addressing land acquisition and environmental clearances for its upcoming projects. As a result 9,829 Kms of National Highways were constructed during 2017-18, 20% growth over the last year, when 8,231 km were constructed. The pace of construction of National Highways stood at 27 Kms per day in the FY 2017-18. It forms part of the Government initiatives to improving and strengthening the Highway network in the country. The fiscal year also witnessed focused approach of the Government towards construction, and the awards were more than last year. Government also initiated monetization of existing highway asset by way of new model i.e. Toll Operate Transfer (TOT), which was very successful and Governments maiden attempt raked in 1.5 timesthe indicated base priceforitsfirstTOT project.The fiscal year also saw continuity in the focused approach of the Government by introduction of conciliation and settlement mechanism through Independent Experts of the contractual disputes pending either before the arbitral tribunals or before the Courts as the litigation between the parties, whether at the level of Arbitral Tribunals or before the Courts, is not only time consuming but often leads to delays in execution of road infrastructure projects in the country. As a result of these decisions, there has been a renewed interest among the Developers towards investment into the Road Sector.

This fiscal year also witnessed the launch of Indias first InvIT backed by operational road projects, sponsored by your Company.

2. SECTOR OVERVIEW: ROADS AND HIGHWAYS

The Government has launched a new umbrella program called Bharatmala for the highway sector that focuses on optimizing efficiency of road traffic movement across the country by bridging critical infrastructure gaps. Special attention has been given to fulfill the connectivity needs of backward and tribal areas, areas of economic activity, places of religious and tourist interest, border areas, coastal areas and trade routes with neighboring countries underthe programme.

Bharatmala will give the country 50 national corridors compared to the 6 we have at present. With this, 70 - 80% of freight would be expected to move along National Highways as against the 40% at present. The programme will help to connect 550 districts in the country through National Highways linkages. Currently, only around 300 Districts have National Highway linkages.

A total of around 24,800 kms are being considered in Phase I of Bharatmala. In addition, Bharatmala Pariyojana Phase-1 also includes 10,000 kms of balance road works under NHDP, taking the total to 34,800 kms at an estimated cost of Rs. 5 trillion. Bharatmala Phase I is to be implemented over a period of five years i.e. 2017-18 to 2021-22. This increases target of awarding works for around 20,000 kms length of National Highways during the FY 2018-19 which is about 25% more than the length of National Highways awarded during FY 2017-18. The construction target for FY 2018-19 have been set at 16,420 km, of which 9,700 km will be constructed by MoRTH, 6,000 km by NHAI and 720 km by NHIDCL. Per day construction target has been set at 45 kms perdayfor FY 2018-19.

Though number of road projects awarded on BOT (Toll) mode remained lowest during FY 2017-18, the Governments efforts to evolve new, flexible policies to create investor-friendly highway development initiatives have already started by way of introduction of monetization of highway assets under Toll - Operate - Transfer (TOT) mode. The next fiscal year is likely to witness increase in award of contract under HAM and TOT mode.

3. COMPANY AND BUSINESS OVERVIEW

A. Company Overview

IRB Infrastructure Developers Ltd. (IRB), incorporated in 1998, has strong in-house integrated project execution

capabilities in both its business verticals viz. Construction and Operation & Maintenance of Highways. It is the first mover and pioneer in the road BOT business and is one of Indias largest road BOT operators with a rich portfolio of 17 Road BOT/ HAM projects. It also has approximately 20%1share of the Golden Quadrilateral Highway Network under various stages of development, operations and maintenance.

IRBs construction business complements its BOT vertical by executing the Engineering, Procurement and Construction (EPC) and Operation and Maintenance (O&M) aspects of BOT concessions. Over the years, IRB has developed rich in-house expertise in both EPC and O&M verticals.

At present, out of IRBs 17 road projects, 11 are operational and balance 6 are under various phases of implementation. The Companys major clients are government agencies, such as NHAI/ MoRTH and State Road Development Authorities, which engage in the development of the countrys highways. In the last few years, IRB has been strategically expanding its footprint in states other than Maharashtra and Gujarat. Its road assets portfolio is across seven states. On a per lane kilometers basis, its geographic spread is 28% in Maharashtra, 23% in Rajasthan, 15% in Uttar Pradesh, 13% in Gujarat, 9% in Karnataka, 8% in Haryana and 4% in Tamil Nadu.

Your Company has been selectively bidding for HAM projects in last year. Out of total 31 bids submitted, your Company won 3 HAM projects (two in Tamil Nadu and one in Gujarat) totalling 119 kms and 55,080 Millions. IRB also won the BOT (Toll) Project of six laning of Hapur Bypass to Moradabad section of NH-24 in Uttar Pradesh, worth 34,200 Millions. In aggregate, your Company won Projectsworth 89,280 Millions during this fiscal.

In addition to the above, IRB being the Sponsor of the IRB InvIT Fund, operates and maintains 7 BOT projects transferred to IRB InvIT Fund in FY18.

B. Business Overview

(I) Construction and development (EPC)

IRB has successfully constructed more than 7,399 lane kms of highways on BOT basis of which IRB operates 3,344 lane km and IRB as a Project Manager maintains 4,055 lane kms of highways under InvIT Assets while 5,401 lane kms is under construction. This includes improvement of National Highway

inclusive of projects transferred to IRB InvIT Fund for which IRB is responsiblefor Maintenance activities.

and sections of the Golden Quadrilateral Highway Network.

IRBs integrated approach towards project execution involves in-house constructing as well as operating and maintaining activities with least outsourcing. Its large pool of equipment and skilled and experienced manpower help IRB to complete projects within budget and in time. This experienced manpower also helps the Company to manage the entire tolling and maintenance functions in-house during operations phase. An evolving IT infrastructure set up provides finesse to these integrated methods of conducting business.

The Companys total order book as on March 31,2018 stands at approx. 150,800 Millions to be executed over the next two to three years. Udaipur-Rajasthan/ Gujarat Border, Kaithal-Rajasthan Border, Chittorgarh- Gulabpura, Kishangarh-Gulabpura and Solapur-Yedeshi projects have commenced tolling in 2017-18.

The Company has forayed into HAM by winning 3 HAM highway projects i.e. Padra to Vadodara Section of Vadodara Mumbai Expressway in Gujarat, Puducherry to Poondiyankuppam & Poondiankuppam to Sattanathapuram in Tamil Nadu. The Company has also won a BOT (Toll) project i.e. Hapur Bypass to Moradabad in Uttar Pradesh.

For projects under implementation, work is progressing largely as per schedule and the same are expected to be completed within their stipulated timelines.

(II) Toll Operations and Maintenance (O&M)

IRB has 18* projects under operations and maintenance. IRB has in-house expertise in handling the operation and maintenance of BOT road projects. The Company routinely carries out maintenance of toll roads, including periodic and major maintenance. Its O&M work has won many accolades in the past. IRB has been awarded CNBC TV18 Essar Steel Infrastructure Excellence Award in the Highways and Flyovers category for its Mumbai - Pune section of National Highways (NH-4) in FY 2009-10 and Bharuch-Surat Section of NH-8 in FY 2010-11. Construction Times awarded Ahmedabad-Vadodara Project of IRB as the best executed Highway project oftheyearin FY 2017-18.

* Includes 7 projects transferred to IRB InvIT Fund in FY18 in respect of which IRB is responsible for Operations and Maintenance.

(III) Sponsor of IRB InvIT Fund

IRB launched the first InvIT of the country, IRB InvIT Fund, in May 2017 and continues to be the Sponsor of the same. The Company transferred 6 assets at the time of IPO, receiving 16,775 Millions as cash consideration and 8,882 Millions worth of units. With subsequent transfer of seventh asset in September 2017, the Company received 5,436 Millions as consideration. This led to reduction in consolidated debt by 42,917 Millions and net debt to equity improving from 2.87:1 at the beginning of the year to 1.87:1 at end of FY18, resulting in a rating upgrade by two notches to A+, further leading to reduction in interest cost. IRB owns approx. 16% stake in the Trust as on March 31, 2018. For the period of 318 days during the fiscal, the Company received total distribution of 674 Millions of which 487 Millions were received in the form of interest and 187 Millions as Return of Capital.

4. FINANCIAL ANALYSIS BOT Assets

Net block in BOT Assets, both operational as well as under construction, have grown significantly from 26,736 Millions in FY 2007-08 to 218,976 Millions in FY 201718, registering a Compound Annual Growth Rate (CAGR) of 23%.

As its the norm for financing Highway BOT projects, debt funds from project lenders have been the major source of funding these projects. The project lenders have reposed trust in the Companys financial strength, demonstrated by healthy growth in internal accruals and net worth. Besides, they have also shown faith in the Companys project execution capabilities. This trust of the project lenders has played a primary role in helping IRB to achieve required financial closures.

Since the initial public offering (IPO) in 2008, net worth grew at 13% CAGR from 16,207 Millions in FY 2007-08 to Rs. 56,925 Millions in FY 2017-18. This growth was driven by healthyearningsduringthis period.

Consequently, net Debt Equity Ratio (DER) touched 1.87 in March 2018. IRB invested in projects that were under construction and are now in operation. With this, it has augmented capacity to invest in new projects that may be secured on a diligent evaluation of their risks and commercial viability.

During the year, IRB has made project investments of Rs. 39,412.77 Millions in BOT Assets under Construction.

This was funded by project debt including creditors of Rs. 26,782.03 Millions, Grant of Rs. 5,440.25 Millions and the balance out of Internal Accruals and Equity.

These projects require a further investment of approx. Rs. 144,950 Millions across the next two to three years, before they can commence commercial operations. The investments will be funded largely through Project Debt of Rs. 86,383 Millions, Grant/Equity Support of Rs. 24,326 Millions and the balance out of Internal Accruals and Equity.

Internal accruals are robust even after providing for debt repayments as well as dividend payouts in line with its dividend policy.

The total consolidated income for FY18 has marginally reduced to Rs. 58,628 Millions from Rs. 59,691 Millions in FY17. The consolidated toll revenues for FY18 have declined to Rs. 18,297 Millions from Rs. 23,512 Millions for FY17, decline of 22% due to transfer of 7 assets to Trust. The consolidated construction revenues for FY18 has increased to Rs. 38,644 Millions from Rs. 34,948 Millions registering a growth of 11% over FY17.

EBITDA for FY18 has decreased by 10% to Rs. 28,480 Millions from Rs. 31,715 Millions over FY17, primarily due to transfer of 7 assets to Trust.

Interest costs has decreased by 27% to Rs. 9,667 Millions in FY18 from Rs. 13,327 Millions in FY17.

Depreciation has also gone down by 36% to Rs. 5,440 Millions in FY18 from Rs. 8,548 Millions in FY17.

Profit before exceptional items and tax has increased to Rs. 13,373 Millions in FY18 from Rs. 9,839 Millions, increased by36%overFY17.

Profit before tax after exceptional items has increased to Rs. 14,640 Millions in FY18 from Rs. 9,839 Millions, increased by49%overFY17.

Post minority interest PAT excluding exceptional income for FY18 has gone up to Rs. 7,930 Millions, increased by 11% from Rs. 7,154 Millions in FY17.

Post minority interest PAT including exceptional income for FY18 has gone up to Rs. 9,197 Millions, increased by 29% from Rs. 7,154 Millions in FY17.

Earnings per share on basic and diluted basis after exceptional income is Rs. 26.17 for FY18 as against Rs. 20.36 in FY17 registeringagrowthof29%.

The Company declared interim dividends aggregating to 5/- per equity share of 10 each for financial year 2017-18.

The Companys various Special Purpose Vehicles (SPVs) have raised project-term loans to meet ongoing construction cost of BOT projects. IRBs consolidated debt on net basis, as on March 31, 2018, is 106,711 Millions, compared to 151,498 Millions a year ago. This decrease was primarily on account of repayment of debt of seven operational projectstransferred tolRB InvITFund.

5. KEY COMPETITIVE ADVANTAGE

The following key advantages enabled IRB to emerge as one of the market leaders:

• Proven track record of successfully accomplishing all phases of BOT Projects in the highway sector within timeline.

• Robust order book of approximately 150,800 Millions (as on March 31,2018).

• Market leader with largest domestic BOT project portfolios in the Roads and Highwaysector.

• 24* BOT/HAM projects, out of which 18* are operational.

• Strong financial track record and healthy banking relationship with leading banks/financial institutions.

• Integrated and efficient project execution capabilities, supported by comprehensive equipment bank.

• Professionally-managed Company with qualified and skilled employee base.

‘Includes 7 projects transferred to IRB InvIT Fund in FY 2017-18 in respect ofwhich IRB is responsiblefor Maintenance activities.

6. RISKS AND CHALLENGES

The Companys ability to foresee and manage business risks is crucial in its efforts to achieve favourable results. While management is positive about the Companys long term outlook, it is subject to a few risks and uncertainties, asdiscussed below.

Competition Risk

Attractive growth opportunities exist in the construction sector, especially with the Government going full throttle on infrastructure creation with its program of Bharatmala Pariyojana. This may increase the number of

players operating in the industry. Notwithstanding these challenges, backed by its industry leading experience in the road and highway sector, the Company is confident of meeting present and future competition. Further, the Company has carved a niche position for itself in the BOT vertical. Higher competencies including financial strength required for this segment create entry barriers for new entrants, thereby reducing competition in the Companys area of operation. In addition, as a prudent and strategic measure, the Company will continue to bid for projects based on their financial, operational and execution viability.

Availability of capital and interest rate risk

Infrastructure projects are typically capital intensive and require high levels of long-term debt financing. IRB intends to pursue a strategy of continued investment in infrastructure development projects. In the past, the Company was able to infuse equity and arrange for debt financing to develop infrastructure projects on acceptable terms for the projects. However, IRB believes that its ability to continue to arrange for capital requirements is dependent on various factors. These factors include: timing and internal accruals generation; timing and size of the projects awarded; credit availability from banks and financial institutions; the success of its current infrastructure development projects. Besides, there are also several other factors outside its control.

However, your Companys track record has enabled it to raise funds at competitive rates. Credit rating of your Company has improved by two notches from A- to A+ which has helped to reduce the interest rate burden. Consequently, your Companys average cost of debt has come down to 10.15% p.a.

Additionally, your Company had transferred shares of 7 Project SPVs to IRB InvIT Fund. Subsequently, your Companys net Debt: Equity Ratio has reduced substantially to approx. 1.87:1, which led to credit rating upgrade for your Company. This would help the Company to reduce the cost ofdebtinfuture.

Also, your Company has executed the ROFO/ROFR Deed and the Future Assets Agreement with IRB InvIT Fund by which your Company has provided the InvIT rights of first offer and first refusal with respect to its existing eligible toll-road assets which are owned or which may be acquired or developed by your Company. Incase the InvIT would agree to acquire assets from your Company from time to time, your Company would be able to realise value of its investments which it would re-invest in upcoming opportunities in the Highway development and/or part will

be utilised for payment of dividend. Hence, your Company believes that this will be an important source of capital to fund the growth opportunities for your Company in future.

Traffic growth risk

Toll revenue is a function of the toll rates and traffic growth.

Toll rates: The Government has been implementing a policy of linking toll rates increase to change in Wholesale Price Index (WPI). The toll rates of the Companys projects awarded after 2008 are decided according to a formula, which is 3% fixed plus 40% of WPI published for December month. The Companys all other projects including state highway projects have fixed annual or periodical increase in their toll rates, according to their Concession Agreement.

Traffic

Rapid economic development increases traffic growth while low economic activity has a negative impact on traffic volume. Mostofthe Companys projects are part oflndias Golden Quadrilateral corridor or are key connectors between Indias busiest highways or economic/social hubs and carries long distance freight traffic.

This includes road projects such as Ahmedabad - Vadodara, Kishangarh-Gulabpura, Gulabpura-Chittoragarh,

Udaipur-Rajasthan/Gujarat Border, Mumbai-Pune and many others. For their strategic connectivity, industrial growth, development of Delhi-Mumbai industrial corridor along these projects are expected to record continued momentum in traffic growth in the coming years, which negates the risk of slowdown in traffic growth to a considerable extent. Moreover, the pickup in economic activity and implementation of Bharatmala program by Government of India will act as connector route to main corridor will led to higher traffic growth in the roads sector. With passage of time, even road projects which have been witnessing muted traffic growth can be expected to benefit from the uptick in economic growth.

Input cost risk

Raw materials, such as bitumen, stone aggregates, cement and steel, need to be supplied continuously to complete projects. There is also a risk of cost escalation or raw material shortage.

The Companys extensive experience, its industry standing and bulk purchases have helped it to plan and procure raw materials at competitive rates. Moreover, the Company procures stone aggregates from its self-operated leased mines which ensures quality and lowers the cost, as

compared to bought out aggregates. Besides, it also reduces supplydisruptionor price escalation.

Labour risk

The timely availability of skilled and technical personnel is one of the key industry challenges. The Company maintains healthy and motivating work environment through various measures. This has helped it recruit and retain skilled workforce and, in turn, complete the projects intime.

7. HUMAN RESOURCE MANAGEMENT

IRB has a large pool of experienced and skilled technical manpower, with which IRB executes world-class projects and delivers excellent quality which has become synonymous with IRB. IRB aims to keep its employees continuously updated with the technical knowledge and emerging technologies relating to construction of roads and structures, toll operation, collection processes and road maintenance activities. Hence, IRB nominates its executives to attend seminars and symposiums conducted by professional bodies of global repute. Employees are also nominated to attend other professional skill-building programmes.

IRBs reputation of providing a congenial work environment that respects individuals and encourages professional growth, innovation and superior performance, acts as a strong pull to attract new industry talent. Human resources continue to be one of the core focus areas of the Company. Respect for individual, open work culture, effective communication, fair and equitable treatment and welfare of employees are significant value propositions, which help IRB to retain a highly engaged talent pool and generate high level of trust among its employees. IRB remains the employer of choice with one of the lowest attrition rates in the infrastructure sector.

8. INTERNAL CONTROL SYSTEMS

IRB maintains adequate internal control systems including internal financial control systems, which provide, among other things, reasonable assurance of recording the transactions of its operations in all material aspects. This system also protects against significant misuse or loss of Company assets. IRB has a strong and independent internal audit function. The Internal Auditor reports directly to the Chairman of the Audit Committee. Periodic audits by the professionally qualified, technical and financial personnel of the internal audit function ensure that the Companys internal control systems are adequate and are complied with.

CAUTIONARY STATEMENT

"IRB", "the Company," "IRB Group," "the Group" are interchangeably used and mean IRB Group or IRB Infrastructure Developers Ltd. as may be applicable.

This Annual Report contains certain forward-looking statements, and may contain certain projections. These forward-looking statements generally can be identified by words or phrases such as "aim", "anticipate", "believe", "expect", "estimate", "intend", "objective", "plan", "project", "will", "will continue", "will pursue", "seek to" or other words or phrases of similar import. Similarly, statements that describe strategies, objectives, plans or goals are also forward-looking statements.

All forward-looking statements and projections are subject to risks, uncertainties and assumptions. Actual results may differ materially from those suggested by forward-looking statements or projections due to risks or uncertainties associated without expectations with respect to, but not limited to, regulatory changes pertaining to the infrastructure sector in India and the Companys ability to respond to them, the Companys ability to successfully implement its strategy and objectives, the Companys growth and expansion plans, technological changes, the Companys exposure to market risks, general economic and political conditions in India which have an impact on the Companys business activities or investments, the monetary and fiscal policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic laws, regulations and taxes and changes in competition in the infrastructure sector. Certain important factors that could cause the Companys actual results to differ materially from expectations include, but are not limited to, the following:

• the business and investment strategy of the Company;

• expiry or termination of the Project SPVs respective concession agreements;

• future earnings, cash flow and liquidity;

• potential growth opportunities;

• financing plans;

• the competitive position and the effects of competition on the Companys investments;

• the general transportation industry environment and traffic growth; and

• regulatory changes and future Government policy relating to the transportation industry in India.

By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual gains or losses could materially differ from those that have been estimated. Forward looking statements and projections reflect current views as of the date hereof and are not a guarantee of future performance or returns to investors. These statements and projections are based on certain beliefs and assumptions, which in turn are based on currently available information.

Although the Company believes the assumptions upon which these forward-looking statements and projections are based which are reasonable, any of these assumptions could prove to be inaccurate, and the forward-looking statements and projections based on these assumptions could be incorrect. The Company and their respective affiliates/advisors does not have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition.

There can be no assurance that the expectations reflected in the forward-looking statements and projections will prove to be correct. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements and projections and not to regard such statements to be a guarantee or assurance of the Companys future performance or returns to investors.