IVRCL Assets & Holdings Ltd Merged Directors Report

IVRCL ASSETS AND HOLDINGS LIMITED ANNUAL REPORT 2010-2011 DIRECTORS REPORT To The Members, The Directors have pleasure in presenting the Fifteenth Annual Report together with the Audited Accounts of the Company for the year ended March 31, 2011. The performance of the Company for the financial year ended March 31, 2011 is summarised below: 1. FINANCIAL RESULTS: (Rupees in Lakhs) Year ended Year ended 31.03.2011 31.03.2010 Operational Income 68210.98 14311.04 Other Income 273.91 197.14 EBITDA 3866.67 1121.97 Less: Interest & Financial Charges 7223.71 1868.54 Less: Depreciation/Amortization 160.88 180.05 Profit/(Loss) Before Tax (PBT) (3517.92) (926.62) Provision for Tax 1155.06 (286.76) Profit/(Loss) After Tax (PAT) (4672.98) (639.86) Balance brought forward from previous year 16179.26 16819.12 Profit available for appropriation 11506.28 16179.26 Appropriation: Transfer to General Reserve NIL NIL Proposed Dividend NIL NIL Corporate Dividend Tax NIL NIL Balance carried to Balance Sheet 11506.28 16179.2 Paid-up capital 19704.83 12361.36 Reserves and Surplus 219323.22 216486.15 2. REVIEW OF PERFORMANCE: 1. Standalone: Your Company achieved a turnover of Rs. 68210.98 Lakhs with Earnings before Interest, Depreciation, Tax and Amortisation (EBITDA) of Rs. 3866.67 Lakhs for the financial year ended 31.03.2011. The corresponding figures for the previous financial year were Rs.14311.04 Lakhs and Rs. 1121.97 Lakhs respectively. The Company incurred a net loss of Rs. 4672.98 Lakhs for the year as against Rs. 639.86 Lakhs for the previous year. The loss is mainly due to interest costs on the loans taken by the Company for funding its subsidiaries(SPVs) executing various projects on BOT/BOOT basis. 2. Consolidated: The Company achieved a consolidated turnover of Rs. 87612.73 Lakhs with Earnings before Interest, Depreciation, Tax and Amortisation (EBITDA) of Rs. 13558.53 Lakhs for the financial year ended 31.03.2011. The corresponding figures for the previous financial year were Rs.1 5903.17 Lakhs and Rs. 2538.69 Lakhs respectively. The Company incurred a consolidated net loss of Rs. 15330.58 Lakhs for the year as against Rs.3116.96 Lakhs for the previous year. The loss is mainly attributable to Depreciation/Amortisation and Interest costs. 3. DIVIDEND: Your Directors regret their inability to recommend any divided for the financial year 2010-11. 4. CAPITAL STRUCTURE. During the year under review, the share capital of the Company was altered by allotting 6,18,06,786 equity shares as bonus shares on 22.05.2010 to the then existing shareholders and 1,16,27,906 equity shares on 04.11.2010 to Unit Trust of India Investment Advisory Services Limited A/c. Ascent India Fund III by way of preferential allotment. Consequent to the said allotments the paid up capital of the Company increased to Rs. 19704.82 Lakhs. 5. SUBSIDIARY COMPANIES The Company has 60 subsidiaries (excluding step down subsidiary companies) as on 31st March, 2011 and the details of investments made by the company in its various subsidiaries during the year and the value of the investments as on 31st March, 2011 have been furnished in Para 13 of Schedule 20 Notes to Accounts. Pursuant to section 212(8) of the Companies Act, 1956 the Balance Sheet, Profit and Loss Account and other documents of the said subsidiary companies are required to be annexed to the accounts of the holding Company. Ministry of Corporate Affairs vide its General Circular dated February 8, 2011 has granted general exemption for companies from complying with the provisions of section 212 of the Companies Act, 1956 subject to certain conditions being fulfilled by the Company. Accordingly, the Board of Directors at it meeting held on May 28, 2011 has given consent for not attaching the Balance sheet, profit and loss account and other documents of the subsidiary companies by way of passing the resolution and the financial information relating to the said Subsidiary companies as required in the said circular are disclosed in the Consolidated Balance Sheet forming part of this Annual Report. The annual accounts of the said subsidiary company and relevant information shall be made available to the shareholders seeking such information and are also available for inspection by any shareholder at the Registered Office of the Company, on any working day during business hours. Copy of the said details will be provided upon receipt of written request from the shareholders. Shareholders can also have access to the said details on the Companys website viz. www.ivrclah.com. 6. CONSOLIDATED FINANCIAL STATEMENTS In terms of the clause 32 of the Listing agreement with the Stock Exchanges, the Consolidated Financial statements of the Company and its subsidiaries, prepared in accordance with the Accounting Standard 21 and 23, form part of this Annual Report. 7. ISSUE OF UNSECURED REDEEMABLE NON-CONVERTIBLE DEBENTURES During the year under review, the Company has raised Rs. 10,000 Lakhs by issuing 1,000 Unsecured Redeemable Non-convertible Debentures of Rs.10 Lakhs each, on private placement basis, pursuant to SEBI (Issue and Listing of Debt Securities) Regulations 2008. The securities have been listed on NSE under the Whole-sale Debt Market Segment (WDM). 8. FIXED DEPOSITS The Company has not accepted has any fixed deposits and as such there is no amount outstanding as on the Balance Sheet date. 9. DIRECTORS: In accordance with the provisions of the Companies Act, 1956, Mr. R.Balarami Reddy and Mr. P.R.Tripathi, Directors retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for re-appointment. During the year under review, Mr.G. Ananth Sena Reddy had resigned as Director of the Company w.e.f 01.10.2010. The Board places on record its appreciation of the services rendered by Mr. G. Ananth Sena Reddy during his tenure as a Director. The Board of Directors appointed Mr.T.R.C.Bose as an Additional Director of the Company w.e.f. February 12, 2011. Mr.T.R.C.Bose holds the office upto the date of ensuing Annual General Meeting of the Company and is eligible for appointment as director. The Board of Directors recommends the reappointment of Mr. R.Balarami Reddy and Mr. P.R.Tripathi and appointment of Mr.T.R.C.Bose, as Directors. Mr. E. Sunil Reddys term as Managing Director expired on March 1, 2011. The Board of Directors of the Company at their meeting held on May 28, 2011 upon recommendation of the Compensation Committee and subject to approval of the members appointed Mr. E. Sunil Reddy as Managing Director of the Company for the further period of five years with effect from March 2, 2011, for which a resolution is proposed. 10. AUDITORS M/sChaturvedi & Partners, Chartered Accountants and M/s. S.R.Batliboi & Associates, Chartered Accountants, were appointed as Joint Statutory Auditors of the Company to hold the office from the conclusion of previous Annual General Meeting till the ensuing Annual General Meeting. It is proposed to re-appoint M/s Chaturvedi & Partners, Chartered Accountants and M/s. S.R.Batliboi & Associates, Chartered Accountants at the ensuing Annual General Meeting to hold the office from the conclusion of the ensuing Annual General Meeting until the next Annual General Meeting. The Company has received confirmation from M/s Chaturvedi & Partners, Chartered Accountants and M/s. S.R.Batliboi & Associates, Chartered Accountants to the effect that their re-appointment, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956. The Board of Directors recommends the re-appointment of M/s Chaturvedi & Partners, Chartered Accountants and M/s. S.R.Batliboi & Associates, Chartered Accountants, appointed as Joint Statutory Auditors of the Company. 11. PARTICULARS OF EMPLOYEES In terms of provisions of Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, there were no directors who were in receipt of remuneration of Rs.60,00,000/- or more per annum or Rs.5,00,000/- or more per month during the year under review. 12. MANAGEMENT DISCUSSION AND ANALYSIS REPORT. The Management Discussion and Analysis Report as stipulated under clause 49 of the Listing Agreement with the Stock Exchanges, is annexed as Annexure-A hereto and forms part of this report. 13. CORPORATE GOVERNANCE REPORT Your directors adhere to the requirements set out in Clause 49 of the Listing Agreements with the Stock Exchanges. Report on Corporate Governance as stipulated in the said clause is annexed as Annexure - B hereto and forms part of this Report. The Chairmans declaration regarding the compliance of Code of Business Conduct and Ethics for Board Members and Senior Management personnel forms part of Report on Corporate Governance. Certificate from D.Hanumantha Raju & Co, practicing Company Secretaries, confirming the compliance of conditions of Corporate Governance as stipulated under Clause 49, is also annexed to the Report on Corporate Governance. 14. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS, AND OUTGO Conservation of Energy, which is an on going process in the companys activities. However, no information is furnished as the relative Rule is not applicable to your Company. There is no information to be furnished regarding Technology absorption as your Company has not undertaken any research and development activity in any manufacturing activity nor any specific technology is obtained from any external sources which needs to be absorbed or adapted. The Particulars of expenditure/Earnings in Foreign currency is furnished in item No. 24 of Schedule 20 Notes to Accounts. 15. ENVIRONMENT LAWS The Company is taking all steps to be compliant with all Environmental Laws. 16. INSURANCE The Company has insured all its properties to the extent required. 17. DIRECTORS RESPONSIBILITY STATEMENT Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors Responsibility Statement, It is hereby declared and confirmed that: I. In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanations relating to material departures; II. The directors have selected such accounting policies and applied them consistently and made judgment and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as on 31st March, 2011, and the profit of the Company for the financial year ended on that date; III. The directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and IV. The directors have prepared the annual accounts of the Company on a going concern basis. 18. QUALIFICATIONS IN THE AUDITORS REPORT ON FINANCIAL STATEMENTS. Pursuant to Section 217(3) of the Companies Act, 1956, the Board of Directors of the Company provides here under, the explanations with regard to Qualifications in the Auditors Report on Financial Statements. Standalone Financial Statements: 1. Clause No 4 refers to the carrying value of investments aggregating to Rs 1252.17 crores (including advances of Rs. 175.79 crores) in three subsidiaries of the Company (acquired through amalgamation at fair value determined based on the future projected cash flows of toll collections) in the backdrop of their toll collections during the year under review, being lower than the projections. Management believes that the lower toll collections achieved during the year are only a temporary phase and accordingly, no provision in respect of diminution in the value of investments is considered necessary. The matter has also been referred to in the Auditorst Report on the consolidated financial statements (clause no.5) 2. Clause No. iv & v(b) of the Annexure to the Report refer to some of the contracts entered which were of special nature and in respect of which suitable alternative sources were not readily available for obtaining comparable quotations. In case of such contracts, the terms were based on the best possible estimates which are not prejudicial to the interests of the Company. 3. Clause No ix (a) of the Annexure to the Report: The Company has generally been regular in depositing statutory dues on time with appropriate authorities, but for slight delays in a few cases. As a part of internal control system, the compliances as to accurate and timely remittance of statutory dues are regularly monitored for adherence. 4. Clause No x of the Annexure to the Report refers to the cash loss incurred by the Company. The cash loss is mainly on account of interest costs on the amounts borrowed by the Company for meeting its investment and sponsor loan obligations towards their subsidiaries which are SPVs executing BOT/BOOT Projects. Consolidated Financial Statements: Clause No 4 refers to the inclusion of financial statements of a subsidiary based on Management certified accounts. As statutory audit of the subsidiary viz., Chennai Water Desalination Limited is in progress, unaudited financial of the company as certified by its Management have been considered for preparing consolidated financial statements. 19. GREEN INITIATIVE IN CORPORATE GOVERNANCE. The Ministry of Corporate Affairs has recently taken Green Initiative in the Corporate Governance by allowing paperless compliances by the Companies and permitted the service of documents to shareholders through electronic mode The new arena of interface with the members is a welcome step as it would not only help to save the environment and facilitate fast communication but will also lead to cost saving for your Company, apart from avoiding losses/delays in postal transit. The Notices of General meetings, Annual Reports and all communications henceforth will be sent to the shareholders in electronic mode to the email address provided by them. The same will be sent in physical mode if they desire. The shareholders can have access to the documents through the Companys website viz, www.ivrclah.com. Acknowledgements The Directors wish to express their appreciation of the support and cooperation extended by the State Government, financial institutions, banks, suppliers, clients and the holding company. The Directors also wish to thank all the employees for their contribution and continued cooperation throughout the year. For and on behalf of the Board E. Sudhir Reddy Chairman Registered Office: M-22/3RT, Vijaynagar Colony, Hyderabad-500057, Andhra Pradesh Date: 28.05.2011 MANAGEMENT DISCUSSION AND ANALYSIS ANNEXURE A TO THE DIRECTORS REPORT Introduction IVRCL Assets & Holdings Limited has completed its second year of operation post amalgamation which was carried out for the purposes of having a focus on the ever increasing opportunity in the Public Private Partnership (PPP) sector of our country. The Company has successfully made efforts to transform its image from being a Real Estate Development Company to a Comprehensive Infrastructure Asset Development Company. The Company has devised its growth strategy on the pillars of Vision, Management, People and Resources. To achieve the vision, Company has put in place business verticals headed by the experienced professionals to establish the business strategy and mobilise the people and resources to drive the efficiency of the project implementation and management thereby improving the savings of the project and timely completion of the assets under development. The Company presently has projects under the business verticals of Highways, Environment & Water, Oil & Gas, Urban Infrastructure and Housing. The Company has currently under its fold about Rs. 11,000 crore of assets {Economic Share) under various stages of operation, construction and development. The Operational asset -portfolio consists of three road projects, one water project and one environment project. The under construction asset portfolio consists of four road projects and one oil tankage project. The projects which are under initial stages of development consists of two road projects, one urban infra project and one housing project in Colombo, srilanka. During the year the Company received Letter of Award (LOA) for two state highway projects, one National highway project and one pertaining to development of Fully Automated Multi Level Car Parking Facility in the heart of the Chennai at Broadway Bus stand. During the year the Company has begun its journey of spreading its wings overseas with the first building infrastructure project by bagging the award for construction of 4100 houses for Urban Development Authority (UDA), in the city of Colombo, Sri Lanka for the total contract value of USD 90 million. Indian Economy & Infrastructure During 2010-11, the Indian economy showed a growth of 8.6% compared to 8% in 2009-10. The period under review has shown a remarkable resilience to both external and internal shocks. The medium to long-run prospect of the economy, including the industrial sector, continues to be positive. However, rising inflation has caused a concern for the growth of economy. The economic survey projected that the economic growth for the year 2011- 2012 would be between 8.75% - 9%. With the RBI making it clear that it would maintain its anti-inflationary stance, some amount of growth will have to be sacrificed if inflation is to be brought under control in a more sustainable manner. Besides the tight monetary policy stance and risk of global events, particularly upward movement in prices of commodities like crude oil remain, posing the downside risk to GDP growth in 2011-12. Inspite of the above the economy is poised to further improve and consolidate in terms of key macroeconomic indicators during the medium to long term. One of the major requirements for economic growth is an extensive and efficient infrastructure network. The key to global competitiveness of the Indian Economy lies in building a high class infrastructure. To accelerate the pace of infrastructure development and reduce the infrastructure deficit, the Govt, has initiated a host of projects and schemes to upgrade physical infrastructure in all crucial sectors. This has not only enabled access to quality and efficient infrastructure, but also permitted the Govt, to target inclusive growth through higher spending in social sector. The XIth Five year plan (2007-2011) has estimated an investment of Rs.21,000 billion in infrastructure. The XIIth Five Year plan is expected to focus on governance, infrastructure and inclusive growth. The projected estimates of infrastructure investment during the XII Five year plan stand at approximately Rs. 41,000 billion. The overall contribution of construction industry in India to the GDP decreased marginally to 8.1% compared to 8.2% last year. With plans to enhance infrastructure investment the construction sector is all set to become one of the growth engines of the Indian Economy in the foreseeable future. In 2010-11, the infrastructure industry had faced challenges in the form of increased competitive bidding, rise in cost of debt due to tightening of monetary policy by the RBI to check the inflationary pressures. These challenges had resulted in reduced operating margins, slow down in capex activity and further impacted the net earnings of the infrastructure companies. The Company being the diverse infrastructure asset developer had to raise money to fund the equity at the downstream Special Purpose Vehicles (SPV) which implements the assets under various stages of construction and initial development and its earnings are subjected to the impact of increased cost of debt. The Company further believes that increased competition and extremely high interest rates will take its toll on the relatively inexperienced and new players over a period of time which in turn will result in market for PPP to be exploited by the large and stable infrastructure developers. The current scenario can only be summed up as a difficult period for the infrastructure developers which can only get better going forward in the medium term. Sector Review HIGHWAYS India has an extensive road network of 4.24 million km, the second largest in the world. The National Highways have a total length of 70,934 km and serve as the arterial road network of the country. It is estimated that more than 70% of freight and 85% of passenger traffic in the country is handled by roads. National Highways, which comprise only 2% of the total network, carry 40% of the traffic, and the state roads, which comprise 13% of the total road network, carry another 40% of the traffic. Only about 23% of the total Highways in India are 4/6 lane, about 54% of the national highways, 22% of the state highways are currently two-lane and the sheer potential for investments in this sector is likely to create opportunities in the core construction industry. More than 60% of the projected investment requirement for the National Highway Development Programme (NHDP) (more than USD 60 billion) is expected to be privately financed, primarily through the BOT/DBFOT (Toll) route, offering enormous opportunities. The opportunities for private players in the road sector can be broadly categorised into Infrastructure Development and Logistics and Services. By the end of the NHDP in 2015-16, over 40% of the national highways will be at least four-lane. The NHDP, involving the development of 50,000 km of national highways, is the largest road development programme in the country till date. Launched in 1999, the NHDP is also one of the biggest public-private partnership initiatives. The implementation of the programmes is entrusted to the National highways Authority of India (NHAI). The entire project is planned to be completed by 2015 spanned across seven phases by December 201 5. Around 34,000 km of national highways will be developed under the programme over the 3 year period including the current financial year in a phased manner. Built Operate Transfer (BOT) concession contracts with an estimated Total Project Cost of approximately USD 25 million (Toll & Annuity) have been awarded under various packages till May 11, 2011 and these projects are expected to be fully operational by 2015-16. The NHAI plans to give out construction contracts for 7,300 kms of roads in the current financial year. This is likely to turnout an opportunity of more than Rs.65, 000 crores for the developers. According to NHAI, it will put 10,000 km out to tender for guaranteeing the award target of 7,300 kms, which is 44% more than the last years 5,059 km of work. In the recent times, NHAI has taken various initiatives of fast tracking the award of projects to achieve the ambitious target of construction 20km/a day as against 6km/day achieved during the previous financial year. The initiatives include among others, a. Annual pre-qualification aiming to evaluate the Technical and Financial Capacity of Applicants and deciding their eligibility of qualification for a specified threshold of project cost valid till December 2011 or such date as may be decided by the NHAI. b. Calling for NHAI tenders from August through e-tendering mechanism in a phased manner. c. Apex committee has been constituted to carry forward the process of Electronic Tolling Collection (ETC) which will facilitate thorough movement of vehicles, save fuel and time and plug revenue leakages and to improve better level of service to the commuters. d. Updating the existing CIS & Road Information System (RIS) based satellites imagery for planning and monitoring of national highways. e. 4000 km roads will be covered by March 2012 under Operation, Maintenance and Tolling (OMT) through PPP Concessions. The list of initiatives mentioned above will yield encouraging results for speedy award of the projects and thereby resulting in timely construction of the projects. This further requires NHAI to be efficient in clearing regulatory issues like land acquisition, utility shifting and environmental clearances which still remain a concern for project execution. With the encouraging participation and active role of the Ministry of Road, Transport and Highways in bringing changes to improve the efficiency of project award and completion, it paves the way for profitable partnership with the private sector to bridge the gap in the Road Infrastructure. State Level Initiatives The majority of the states including Andhra Pradesh. Gujarat, Karnataka, Maharashtra & Madhya Pradesh have recorded increased development of roads to keep in pace with the need for integrating its state road infrastructure aligned with that of the record number of road projects awarded under the NHDP. The pace of activity has also increased in state roads and some state governments have recorded good performance. ENVIRONMENT & WATER India to sustain its robust economic growth, it needs to address its growing water challenges and the private sector has an important role to play. The reforms in the water sector includes improving the efficiency of water usage in agriculture, industrial water and its reuse and urban water projects and decentralised distribution for rural areas by financing small water treatment plants. Over the next two to three years more participation from the private sector is expected to increase. The 11th Plan planned outlay for the water and sanitation sector was Rs.l.44 lakh crore which is an increase of 122 percent over the outlay for the 10th Plan of Rs. 0.65 lakh crore. As per the High-powered Expert Committee (HPEC) estimates on Indian Urban Infrastructure and Services, the share for water supply, sewerage, and storm water drainage and solid waste management sectors will be Rs. 8.04 lakh core for the 20 year period from 2012 to 2031. This is more than the 11th Plan outlay. In addition, the committee has separately estimated another Rs. 10.92 lakh crore for operation & maintenance during the period. RAILWAYS The Indian Railways (IR) is one of the largest railway systems in the world under a single management and manages more than 64,000 km of railway tracks. Railway infrastructure development includes new lines, doubling, gauge conversion and electrification works, rolling stock, safety works and information and communication technology (ICT) projects. It also involves development of stations, terminal, multi functional complexes, logistics parks and cold storage facilities. The projected investment in railways, including metro railways in the Eleventh Plan is expected to be about Rs.200.8 billion. The railway ministry has identified 50 stations to be promoted as world class stations. It is expected that the Indian Railways will shortly initiate projects worth Rs. 10 billion to kick-start one of Indias most ambitious infrastructure projects to build dedicated freight corridors to connect North India with Mumbai and West Bengal. The freight corridor is integral to Highway Development Programme (NHDP) (more than USD 60 billion) is expected to be privately financed, primarily through the BOT/DBFOT (Toll) route, offering enormous opportunities. The opportunities for private players in the road sector can be broadly categorised into Infrastructure Development and Logistics and Services. By the end of the NHDP in 2015-16, over 40% of the national highways will be at least four- lane. The NHDP, involving the development of 50,000 km of national highways, is the largest road development programme in the country till date. Launched in 1999, the NHDP is also one of the biggest public-private partnership initiatives. The implementation of the programmes is entrusted to the National highways Authority of India (NHAI). The entire project is planned to be completed by 2015 spanned across seven phases by December 2015. Around 34,000 km of national highways will be developed under the programme over the 3 year period including the current financial year in a phased manner. Built Operate Transfer (BOT) concession contracts with an estimated Total Project Cost of approximately USD 25 million (Toll & Annuity) have been awarded under various packages till May 31, 2011 and these projects are expected to be fully operational by 2015-16. The NHAI plans to give out construction contracts for 7,300 kms of roads in the current financial year. This is likely to turnout an opportunity of more than Rs.65, 000 crores for the developers. According to NHAI, it will put 10,000 km out to tender for guaranteeing the award target of 7,300 kms, which is 44% more than the last years 5,059 km of work. In the recent times, NHAI has taken various initiatives of fast tracking the award of projects to achieve the ambitious target of construction 20km/a day as against 6km/day achieved during the previous financial year. The initiatives include among others, a. Annual pre-qualification aiming to evaluate the Technical and Financial Capacity of Applicants and deciding their eligibility of qualification for a specified threshold of project cost valid till December 2011 or such date as may be decided by the NHAI. b. Calling for NHAI tenders from August through e-tendering mechanism in a phased manner. c. Apex committee has been constituted to carry forward the process of Electronic Tolling Collection (ETC) which will facilitate thorough movement of vehicles, save fuel and time and plug revenue leakages and to improve better level of service to the commuters. d. Updating the existing GIS & Road Information System (RIS) based satellites imagery for planning and monitoring of national highways. e. 4000 km roads will be covered by March 2012 under Operation. Maintenance and Tolling (OMT) through PPP Concessions. The list of initiatives mentioned above will yield encouraging results for speedy award of the projects and thereby resulting in timely construction of the projects. This further requires NHAI to be efficient in clearing regulatory issues like land acquisition, utility shifting and environmental clearances which still remain a concern for project execution. With the encouraging participation and active role of the Ministry of Road, Transport and Highways in bringing changes to improve the efficiency of project award and completion, it paves the way for profitable partnership with the private sector to bridge the gap in the Road Infrastructure. State Level Initiatives The majority of the states including Andhra Pradesh, Gujarat, Karnataka, Maharashtra & Madhya Pradesh have recorded increased development of roads to keep in pace with the need for integrating its state road infrastructure aligned with that of the record number of road projects awarded under the NHDP. The pace of activity has also increased in state roads and some state governments have recorded good performance. ENVIRONMENT & WATER India to sustain its robust economic growth, it needs to address its growing water challenges and the private sector has an important role to play. The reforms in the water sector includes improving the efficiency of water usage in agriculture, industrial water and its reuse and urban water projects and decentralised distribution for rural areas by financing small water treatment plants. Over the next two to three years more participation from the private sector is expected to increase. The I1h Plan planned outlay for the water and sanitation sector was Rs.1.44 lakh crore which is an increase of 122 percent over the outlay for the 10th Plan of Rs. 0.65 lakh crore. As per the High-powered Expert Committee (HPEC) estimates on Indian Urban Infrastructure and Services, the share for water supply, sewerage, and storm water drainage and solid waste management sectors will be Rs. 8.04 lakh core for the 20 year period from 2012 to 2031. This is more than the 11th Plan outlay. In addition, the committee has separately estimated another Rs. 10.92 lakh crore for operation & maintenance during the period. RAILWAYS The Indian Railways (IR) is one of the largest railway systems in the world under a single management and manages more than 64,000 km of railway tracks. Railway infrastructure development includes new lines, doubling, gauge conversion and electrification works, rolling stock, safety works and information and communication technology (ICT) projects. It also involves development of stations, terminal, multi functional complexes, logistics parks and cold storage facilities. The projected investment in railways, including metro railways in the Eleventh Plan is expected to be about Rs.200.8 billion. The railway ministry has identified 50 stations to be promoted as world class stations. It is expected that the Indian Railways will shortly initiate projects worth Rs. 10 billion to kick-start one of Indias most ambitious infrastructure projects to build dedicated freight corridors to connect North India with Mumbai and West Bengal. The freight corridor is integral to the Rs. 4000 billion project to build an industrial corridor between Delhi and Mumbai with a series of industrial parks, airports, power plants and new townships. The eastern freight corridor would ease movement of coal and other commodities to the North and the Delhi-Mumbai route would facilitate container movement. IRs vision 2020 aims to enable growth in the container business from the current 25 mt to 210 mt by 2020. The urban rail-based mass rapid transit (MRT) system has witnessed major developments in the past one year. Metro projects worth over Rs. 460 billion with a total route length of over 240 km are currently in the planning stage in Ahmedabad, Ludhiana, Lucknow, Jaipur etc. URBAN INFRASTRUCTURE Urban transport projects involve building new facilities for public use like metro rail system, a new expressway, or a multi-level car parking facility. The people who directly benefit from such facilities, the potential users, create the primary demand for these facilities. When Urban Local bodies structure such projects, they regard the future payments by users for availing of these facilities as their primary revenue source for funding the development, operations and maintenance of these facilities. The direct beneficiaries of the transport system would include the potential users of a facility, that is, the people who would travel by the new public transport system, vehicle owners who would use a multilevel car park, commuters who would use the new expressway etc. The HPEC which was formed in 2008 by the Ministry of Urban Development (MoUD) has recently submitted its report on Indian urban infrastructure and services. The report estimates an investment requirement of Rs.39.2 trillion in the urban infrastructure sector over the next 20 years (2012- 31). Of the total amount, Rs.34.1 trillion will be invested in creating assets. The eight major civic sectors identified by the committee - Water supply, sewerage, solid water management, storm water drainage, urban roads, urban transport, traffic support infrastructure, and street lighting will corner Rs.31 trillion. Another Rs.4.1 trillion has been allocated for the renewal and redevelopment of slums and the remaining Rs. 1 trillion for capacity building. POWER The Indian Power generation industry achieved a significant milestone in fiscal year 2010-11 by recording its highest ever capacity addition. The power sector added record conventional capacities of 12,160 MW during 2010- 11. This takes the total capacity addition of 34,462 MW during the Eleventh Plan period so far. The planning commission, which is currently preparing the approach paper for the Twelfth Plan, is considering increasing the target to 125,000-130,000 MW. A key source of peaking power, hydro contributes significantly to the countrys energy mix. Indias current installed hydro capacity is 37,367 MW against the total hydro potential of 145,320 MW. The Twelfth Plan target has been tentatively set at 20,334 MW. The private sector contribution in the total installed capacity has risen consistently since the passage of the Electricity Act, 2003 from 8.66% in March 2003, to 21% in March 2011. This share is expected to rise further, given that private projects aggregating over 80,000 MW are under various stages of development. The private sector is expected to contribute over 30% (19796 MW) of total additions during the Eleventh plan. Going forward the contribution during the Twelfth Plan Period is expected to be about 55- 60% of total capacity addition. Through the Union Government initiative of Ultra mega power projects (UMPPs), 15880 MW of private power capacity has been tied up in four projects so far. This is expected to further increase by another 48000 MW across 12 projects. In line with the Tariff Policy, 2006, the power ministry notified that all generation and transmission projects, both public and private, have to be awarded through a competitive bidding process from January 2011. A robust transmission system is of crucial importance for evacuating power from energy-surplus to energy-deficit regions, providing ample justification for strengthening the system and creating a national grid. Given expected generation capacity additions of 100 GW in the next seven years, the transmission system must meet the challenge of dealing with increased load and network complexity. Private investment in transmission has risen with tariff-based competitive bidding now mandatory for all future projects. Over the past four years, the sector has witnessed higher growth in transmission line length and transformer capacity at the 400 kV level compared to the 220 kV level. Currently a 765 kV network is being constructed, and 1,200 kV and 800 kV HVDC lines will be set up over the next few years. The Company is closely monitoring the Hydro Power Generation and Transmission system projects released for private sector participation on concession basis and has begun to participate into the hydro power generation and power transmission bids. PORTS India has an extensive coastline of around 7,500 km. There are 13 major ports and 187 non-major ports strategically located on the worlds shipping routes. India has one of the largest merchant shipping fleet and is ranked 16th among the maritime countries. Ports play a vital role in the overall economic development of the country. Traditionally, ports all over the world have been owned and developed by government entities. Similarly, the Government of India dominated port development in the past but presently encourages investments from the private sector and foreign entities in port development activities and operations. About 95% by volume and 70% by Value of the countrys international trade is carried on through maritime transport. The traffic handled at major ports is projected at 615.70 MT during 2011-12 as per National Maritime Development Programme (NMDP). Development of Indias ports and trade related infrastructure will continue to be critical to sustain the success of accelerated growth in the Indian economy. The Government of India is focussing on port infrastructure development in the country and is promoting private participation and foreign direct investment (FDI). Driven by the growth in international trade, the cargo handled at Indian ports is projected to grow at 7.7 per cent per annum until 2013-14. The Maritime Agenda 2010-2020 is a perspective plan of the Ministry of Shipping for the present decade which has set the goals including to create a port capacity of around 3,200 MT to handle the expected traffic of about 2,500 MT by 2020, to bring ports at par with the best international ports in terms of performance and capacity & Implementation of the Port development projects. The Union Government identified 23 PPP projects in port sector during the year 2011 -12 with an estimated investment of Rs. 16,743.92 crore and the corresponding capacity addition of 231.63 mn mtpa. The National Maritime Development Programme has envisaged setting up of two international size shipyards. Maritime states have been requested by the Ministry of Shipping to identify suitable location for setting up of international size shipyards, one each on the East Coast and West Coast of India respectively. OIL & GAS Efficient and reliable energy supplies are a precondition for accelerated growth of the Indian economy. While the energy needs of the country, especially oil and gas, are going to increase at a rapid rate in the coming decades, the indigenous energy resources are limited. Oil and gas constitute around 45 per cent of total energy consumption. At the same time, the dependence on imports of petroleum and petroleum products continues to be around 80 per cent of total oil consumption in the country. Over the period 2000-2009, oil and gas consumption grew at a 5 per cent CAGR to reach 184 million metric tonnes (MMT). This is projected to reach 368 MMT by 2025. To support the requirement of import & refining capacities, proper storage facilities and transport infrastructure are a must to meet the energy needs of our economy. The proportion of natural gas in the total energy mix has increased to 10 per cent in 2009 from 4 per cent in 1999. The same is expected to increase to 20 per cent in 2025, playing a vital role in the countrys total energy- mix. The projected production for natural gas, including coal bed methane (CBM), for 2010-11 is 53.59 billion cubic metres (BCM). The increase in natural gas production is primarily from the KG deepwater block. An adequate pipeline network would play a key role in the transmission of the Gas. ASSETS UNDER OPERATION HIGHWAYS During the year Highways vertical performed well for the Company. It was awarded three new highways projects and achieved financial closure for two highway projects. During the year the Company started tolling for two national highway projects. The Company currently has 2900 Lane km under its fold with 604 Lane Kms under Operation. Salem Tollways Limited Design, Construction, Development, Finance, Operation and Maintenance of existing 2-lane road into 4-lane road from KM 00.00 (Salem) to KM 53.00 (Kumarapalayam) on NH-47 in the state of Tamil Nadu. The project commenced operations from 1st July, 2010. Kumarapalayam Tollways Limited Design, Construction, Operation and Maintenance of existing 2-lane road into 4-lane road from KM 53.00 (Kumarapalayam) to KM 100.00 (After Chengapally) on NH-47 in the state of Tamil Nadu. The project commenced operations from 26th August, 2009. Jalandhar Amritsar Tollways Limited Improvement, Operation and Maintenance including strengthening and widening of existing 2-lane road into 4-lane dual carriageway from KM 407.100 to KM 456.100 of NH-1 Galandhar - Amritsar section) in the state of Punjab. The project commenced operations from 30th April, 2010. ENVIRONMENT & WATER Chennai Water Desalination Limited The Company has, through its subsidiary, Chennai Water Desalination Limited (CWDL), completed the development of 100 MLD sea water desalination and is currently operating the Chennai Water Desalination Project, which was awarded by the CMWSSB. The primary function of the project is to draw raw sea water from the Bay of Bengal and treat and process the water to make it potable as per the specifications laid down by CMWSSB. The plant had begun the operations on 25th July, 2010. First STP Private Limited 12 MLD sewage treatment plant was constructed for Alandur Muncipality in Tamil Nadu. The plant commenced operations from the year 2002. ASSETS UNDER CONSTRUCTION HIGHWAYS IVRCL Indore Gujarat Tollways Limited Design, Engineering, Construction, Development, Finance, Operation and Maintenance of Indore - Gujarat - MP Border section of NH-59 of existing 2 lane road to 4 lane road from KM 9.500 to km 171.100, in the state of Madhya Pradesh. The total length of the project highway is 155 Km. The project is awarded by the NHAI and the concession period is for 25 years. IVRCL Chengapally Tollways Limited Maintenance and Management of NH-47 including section from KM 102.035 to KM 144.680 from existing 2 Lane road to 6 Lane road & 2 lane road to 4 lane road from KM 170.880 to KM 183.010, in the state of Tamil Nadu. The total length of the project highways is 54.76 Kms. The project is awarded by the NHAI and the concession period is for 27 years. SPB Developers Private Limited Government of Maharashtra (PWD) has awarded the project of four laning of Baramati to Phaltan road SH10 (Km. 42/400 to Km. 64/300) and Phaltan - Lonad to Shirwal Road SH70 (Km. 136/000 to Km. 80/000) Pune & Satara District of Maharashtra State. The total length of the project highway is 77.90 Kms and the concession period is for 25 years. IVRCL Chandrapur Tollways Limited Government of Maharashtra (PWD) has awarded the project of four laning and improvement of Karanji-Wani-Ghuggus-Chandrapur (upto Padoli Junction) road of MSH-6 & 7 in Yavatmal & Chandrapur District of Maharashtra State. The total length of the project highway is 85.11 Kms and the concession period is for 30 years. OIL & GAS Indian Oil Tankages IVRCL Assets & Holdings has taken a 37.5 per cent stake in the concession project for development, operation & maintenance of crude/product tankages facilities at Paradip Refinery Project, Pradip, Orissa of Indian Oil Corporation Limited (IOC) on Build, Own, Operate and Transfer (BOOT) basis and IOT Utkal Energy Services Ltd. Will be the Joint Venture Partner. The project involves installation, operation and maintenance of approx. 1.4 million kilolitres of tankages for crude oil, petroleum products. ASSETS UNDER INITIAL DEVELOPMENT HIGHWAYS Sion Panvel Tollways Private Limited Government of Maharashtra (PWD) has awarded the project of improving and maintaining the stretch between Kalamboli Junction and BARC Junction of Sion Panvel Highway (Project Highway) from 115/800 km to 140/690 km in the State of Maharashtra to be executed as BOT (Toll) project. The scope of work includes improving the stretch to a 5+5 lane divided carriageway from the existing 3+3 lane road. The total length of the project highway is 23.09 Km and the concession period is for 17 years and 5 months. IVRCL Goa Tollways Limited Design, Engineering, Construction, Development, Finance, Operation and Maintenance of 4/6 laning of Maharashtra/ Goa border to Panaji - Goa/ Karnataka Border section of NH 17 from Km 475.040 to Km 611.00 in the state of Goa under NHDP Phase III on Design, Build, Finance, Operate & Transfer (DBFOT) Basis . We have received the Letter of Award (LOA) from the NHAI and Concession Agreement is yet to be signed. URBAN INFRASTRUCTURE IVRCL Multi Level Car Parking Private Limited Corporation of Chennai (CoC) awarded the project to develop a Multi Level Car Parking Facility (Parking Facility) in Zone III of Chennai City at Broadway Bus Stand on a Design, Build, Operate and Transfer (DBOT) basis to cater to the parking demand in the area. The Concessionaire shall have to develop a Parking Facility with a minimum capacity of 610 Equivalent Car Spaces (ECS) on the Project Site. In addition to the Parking Facility the Concessionaire is provided development rights for commercial development on the Project Site in accordance with the terms and conditions of this Agreement. The Company has signed the Concession Agreement and is under the process of achieving Financial Closure. HOUSING IVRCL Lanka Housing (Private) Limited IVRCL Assets & Holdings Limited has recently been awarded a project for Construction of Housing for relocation of underserved settlements in the city of Colombo, by the Urban Development Authority (UDA), Government of Srilanka. The project relates to Design and Construction of total 15,000 housing units in the city of Colombo valued at approximately USD 330 million. The Company has received an order for the 1st Phase of the project for construction of 4100 housing units valued at USD 90 million. Contract Agreement has been signed with the UDA and the project is currently in the process of achieving financial closure. STRATEGY We acknowledge the fact that this Company needs large amounts to fund as equity for various ongoing PPP projects as well as preparing to make available sufficient funds for new projects that are expected to be awarded in the near future. Therefore it is imperative that efforts be made to unlock value which is created at various stages of project development and operation relating to the existing projects on hand. In addition the Company intends to focus on certain pre requisites which would result in prudent assessment of the opportunities, competitive bidding and efficient implementation of the projects through the following. Continue to identify and be involved in new business opportunities: The Company will continually seek to identify and enter into business activities that we consider to be of high growth potential and that will complement our existing infrastructure portfolio. The Company intends to continue to expand its focus and undertake projects among various segments in the infrastructure sector, including seeking opportunities to develop ports and undertake power projects. The Company will continue to rely on its Promoter Company, for its expertise to enable us to ensure quality and timely completion. The Company believe that the ability to seek out and identify new business opportunities will result in significant synergies across its business verticals. Continue to diversify and expand our portfolio in sectors where we have existing projects. The Company intends to continue to diversify the portfolio of projects undertaken by us in PPP Infrastructure space. The strategy is to position the Company to capitalize on the ever increasing infrastructure development opportunity in India. The Company believes that it has achieved sufficient economies of scale to improve the competitiveness of existing businesses, and along with the experience of the Promoter Company, it is well positioned for the diversification of business and the sharing of resources. Maintain high standards of quality and project execution capabilities. The Company intends to develop a reputation for consistently developing infrastructure development projects known for innovation, quality and delivery in a timely manner. The Company also intends to continue to focus on reducing cost and time overruns to maximize client satisfaction. The Company also intends to continue to further enhance design, construction, and development capabilities to adapt to the technological changes and minimize operational costs. Attract, train and retain qualified personnel The Company appreciates that maintaining quality, minimizing costs and ensuring timely completion of construction projects depends largely on the skill and workmanship of our employees. As competition for qualified personnel and skilled labourers is increasing among construction companies in India, and as the Company pursues greater growth opportunities, the Company seeks to attract, train and retain qualified personnel and skilled labourers by increasing the focus on training the staff in advanced and basic engineering and construction technology. RISK AND CONCERNS -Essentially a Company like IVRCL Assets & Holdings Limited is exposed to economic risk, market risks and operational risks. The Company is in the process of implementing a framework that adopts an integrated approach managing all the three types of risks across all the entities in IVRCL Assets & Holdings Limited. In the current scenario, the Company looks at the following risks and concerns. i) Economy: The Economic growth of the country moves in cycles of growth and downturn. The Company has a framework to address the possible downturn in the economy with the focus in containing cost through implementation of strict budgetary controls supported by the efficient Management Information System (MIS) to check the variances. ii) Slowdown of Spending The outlay for the XIIth five year plan is estimated to be increased from Rs. 21,000 billion to anticipated Rs. 41,000 billion symbolising the increased commitment of the Government in spending towards Infrastructure. This is an encouraging budget from the Government and the Company looks forward to participate in these opportunities available. iii) Price Inflation Risk The Company maintains the Project Monitoring Committee for verifying the project estimates and suggests suitable measures to hedge the input raw material prices from inflationary pressures thereby eliminating the price increase impact on the project. iv) Increased cost of borrowing Currently countrys apex banking authority in order to check the increasing inflationary trend is tightening the monetary policy through measure of increasing cost of debt borrowed from the banks. The Company adopts the strong risk management framework with a focus on loan portfolio assessment, assets liability management & loan pricing. The Company is considering the impact of such increased cost of borrowing in the projects to be bid for the future. v) Retention of experienced manpower The Company is adopting the employee friendly measures in retaining the skilled manpower resources by providing conducive work environment, necessary trainings and leadership development. The Company follows a holistic approach in retaining the talent from possible attrition. Internal Control systems and their adequacy The Company installed internal control systems which are considered adequate for controlling the operations of the Company. The Company is in the process of further strengthening the internal control systems through its Finance, legal, contractual and project monitoring functions to ensure that the operations adhere to the defined and established procedures and meet statutory or regulatory requirements with the underlying concession agreements. Operational Performance The Operational performance has been dealt within the Directors report which forms part of the Annual Report. Human Resources & Industrial Relations Human Resources continued to be one of the biggest assets of the Company. The Management has been paying special attention to various aspects like training, welfare and safety and thereby strengthening the human resources. Relations with the employees remained cordial throughout the year. Outlook While the demand for infrastructure through PPP mode for govt, continues to remain high, however the pace at which the same is thrown open has proved fairly volatile due to the fact that the world economy substantially influences the demand supply situation in our country. In addition a mature regulatory authority specific to the various sectors of infrastructures continues to evolve. Nevertheless the Company is well positioned to equip itself with a continuous stream of infrastructure development projects especially due to the vast reservoir of opportunities being made available by the Government in the medium term. Cautionary Statement The statements made in the Management Discussion and Analysis Report relating to the Company Vision, Sector review, projections, outlook may be defined as forward looking statements within the meaning of applicable laws and regulations. The actual results may differ from what has been projected, whether expressed or implied, owing to the influence of the several factors impacting the Companys operations. These include Economic conditions, Government regulations, taxation, natural calamities etc. wherein the Company does not have any direct control.