Man Infraconstruction Ltd Management Discussions.

Indian Economy:

Indias Gross Domestic Product (GDP) grew at a rate of 7.2% in the third quarter (October-December) from 6.3% in the second quarter (July-September) of the fiscal year 2017-18, surpassing expectations on the back of a rebound in industrial activity, especially manufacturing and construction, and an expansion in agriculture.

indias FY18 growth projection was revised marginally upward to 6.6% from 6.5% estimated earlier, compared with 7.1% in FY17, according to data released by the ministry of Statistics and Programme Implementation. The combined index of the eight core industries rose 6.7% in January 2018 compared with 4.2% in December 2017, according to data released separately by the government. The numbers indicate that the economy had shaken off the effects of demonetization and is recovering from the implementation of goods and services tax (GST).

The International Monetary Fund (IMF), in its biannual World Economic outlook (WEo), projected indias GDp growth rate at 7.4% in 2018 and 7.8% in 2019 as against Chinas 6.8% and 6.4% during the same period, making it the fastest growing economy among emerging economies.

in addition to the introduction of GST the year also witnessed significant steps being undertaken towards resolution of problems associated with non-performing assets of the banks, further liberalization of FDI, etc., thus strengthening the momentum of reforms.

The Economic Survey 2017-18, tabled in the Parliament, by Mr Arun Jaitley, Union minister for finance, Government of india, suggests that, there are signs of revival of investment activity in the economy and the reform measures undertaken in 2017-18 can be expected to strengthen further in 2018-19 and reinforce growth momentum.

CONSTRUCTION & INFRASTRUCTURE SECTOR:

infrastructure segment has been one of the focus areas of the Narendra modi led NDA Government. at the outset, in his Budget speech, finance minister, Mt Arun Jaitley, stated that "india needed investments over 50 lakh crore in infrastructure to increase growth of GDP, connect and integrate the nation with a network of roads, airports, railways, ports and inland waterways and to provide good quality service". The total capital outlay for the infrastructure sector has been budgeted to increase by 20.8% to 5.97 lakh crore for 2018-19. The special focus of the Budget 2018-19 was on rural infrastructure through development of rural roads, houses, sanitation, irrigation and water supply. A total of 14.34 lakh crore has been budgeted to be spent for creation of livelihood and infrastructure in rural areas. The Government and market regulators have taken necessary measures for development of monetizing vehicles like Infrastructure Investment Trust (InvIT) and Real investment Trust (ReiTs) in india.

Roads and Railways:

As part of the new integrated infrastructure planning model, the Government announced the largest-ever rail and road budget of 1.48 lakh crore and 1.21 lakh crore, respectively in 2018-19. For road infrastructure, the Bharatmala Program has been approved for providing connectivity to interior and backward areas and borders of the country by developing about 35,000 km of roads in phase-i at an estimated cost of 5,35,000 crore.

Smart Cities Mission and the AMRUT:

Urbanization has been another focus area where the Government has rolled out two interlinked programmes - Smart Cities mission and the AMRUT. Smart Cities mission aims at building 100 Smart Cities with state-of-the-art amenities of which 99 Cities have already been selected with an outlay of 2.04 lakh crore. The AMRUT programme focuses on providing water supply to all households in 500 cities. State level plans of 77,640 crore for 500 cities have been approved.

Affordable Housing:

The government has been consistent with its efforts in addressing affordable housing from giving infrastructure status to expanding the Qualifying criteria to Extension of tenure of loans under Credit Linked Subsidy Scheme (CLSS) in previous Budgets. Budget 201819 has further given impetus to affordable housing by creating a dedicated fund under the National Housing Bank (NHB).

Under the pradhan Mantri Awas Yojana (pMAY), the targets for construction of houses in the year 2018-19 were outlined in Budget 2018-19. Under the pMAY (Gramin), 49 lakh houses will be constructed and the outlay for the programme stands at Rs 33,000 crore. The budgeted estimate for the capital outlay under the PMAY (Urban) programme is 31,500 crore. All these measures are likely to spur growth in the Affordable Housing segment in India.

Ports:

The governments flagship Sagarmala projects, aimed at creating mega coastal economic zones (CEZs), got a big push with finance minister Arun Jaitley earmarking Rs 168.57 crore for port development and modernisation of major ports for 2018-19. As part of Sagarmala programme, more than 400 projects have been identified for implementation, during 2015-2035. According to government data, 415 projects will be undertaken of which 189 will be for port modernisation, 170 will be for connectivity enhancement, 33 will be for port-linked industrialisation and 23 will be for coastal community development.

Weak consumer sentiment, led by factors such as the demonetization-led drag, the full implementation of the RERA Act, from may 1, 2017, and the implementation of the GST from July 1, 2017, weighed upon the performance of the construction sector as it stood out as the slowest growing of the industrial sub-sectors in the second quarter of FY2018. However, the introduction of GST is expected to ease tax-related complexities in the construction sector and bring with it a major spurt in activity and growth. increased impetus to the creation of affordable housing mission, along with quicker approvals and other supportive policy changes is expected to result in an increase in construction activity.

This is evident from the fact that the construction sector is estimated to grow by 4.3% in 2017-18 as compared to growth of 1.3% in 2016-17 as per the Advance Estimates of GDP by Central Statistics Office (CSO).

Real Estate Sector:

The Government has been actively regulating the real estate industry over the last several quarters. From demonetization aimed at curbing the effect of unaccounted money; to RERA and GST, the Real estate sector has seen significant regulatory influence in the past year. The implementation of these reforms within a short span of time kept the developers on a back-foot in 2017. A report by ANARoCK property Consultants says that the indian residential real estate sector was shattered in 2017 by fewer launches, subdued sales and muted property prices. The sector witnessed an annual decline of almost 50% in new launches and 15% decline in sales across top 7 cities in India. However, these measures have lead to the sector evolving into a more mature, consolidated and highly transparent industry. In the long term, all these are certain to make the industry more transparent which will boost investors confidence in India.

According to ANAROCK Property Consultants research, 2018 has started on a positive note with residential unit launches making a comeback and recording a 27% increase in Q1 2018 from the previous quarter across top 7 cities of India. With policy reforms and structural changes now in place, developers are intent on making up for the lost ground. In Q1 2018, sales across top 7 cities of India also rose by 12% compared to Q4 2017. MMR sales rose by 12% - from 11,000 units in Q4 2017 to 12,300 units in Q1 2018. This signals fresh optimism in the sector.

regulatory reforms, steady demand generated through rapid urbanisation, rising household income and the emergence of affordable and nuclear housing are some of the key drivers of growth for the sector.

The investments into the real estate sector have risen a whopping 52% since 2014 aided by better ease of doing business, relaxation in FDI norms, introduction of GST, and defining norms for REITs listing. During 2017, private equity inflows into Indian real estate touched a new high since 2008, at USD 6.6 Billion registering a 17% increase from the previous year, as per global real estate consultancy Cushman & Wakefield. Mumbai witnessed the highest investments during the year with almost USD 2.32 Billion worth of funds being pumped into the market, a massive 41% increase over the previous year. According to property consultant JLL, in the next 10 years, private equity (PE) inflow in the Indian real estate sector is likely to grow at 10% CAGR to USD 100 billion by 2026, with tier-1 and tier-2 cities being the prime beneficiaries of it.

With several positive signs emerging on the horizon, the sector is likely to witness renewed momentum and grow much faster. Our core sector is the Mumbai/MMR Real estate market. With a healthy balance sheet and experience of decades to back us, we

are well placed to capture the incremental opportunities in the Housing space.

City

Sales (in units)

% Change
Q1 2018 Q4 2017 Q-o-Q
NCR 9,100 8,200 11%
MMR 12,300 11,000 12%
Bengaluru 11,500 10,000 15%
Pune 6,800 5,900 15%
Hyderabad 3,800 3,700 3%
Chennai 2,300 2,600 -12%
Kolkata 3,400 2,400 42%
Total 49,200 43,800 12%

Source: Anarock Property Consultants Real Estate Report. Operational Review:

Man infraconstruction Ltd. (Man infra) is an integrated EPC (Engineering, procurement and Construction) company with several decades of experience and execution capabilities in port, residential / Commercial and industrial & road construction segments. The Company increased its focus as a Real Estate developer since 2013. The current portfolio of the Group includes 2 ongoing and 3 upcoming residential development projects in Mumbai/MMR with an approximate saleable area of 7.5 million sq. ft. The Company has robust experience in construction management and has inherent skills and resources to develop and deliver real estate projects.

During the year, man infra received order under the pradhan mantri Awas Yojna (pMAY) scheme from pimpri Chinchwad municipal Corporation (pCMC) for constructing residential units at Pune, Maharshtra; worth approximately 220.75 crores. The total outstanding EpC order book stood at 584.20 crores as on March 31, 2018. Out of the total order book, 25% was contributed by Infrastructure segment and balance 75% was contributed by EpC Work for residential and Commercial Buildings.

man projects Limited, a subsidiary of man infraconstruction Limited had been awarded a work order to execute port infrastructure works at Nhava Sheva for development of the 4th container terminal - phase 1 at Jawaharlal Nehru port (JNpT), Navi mumbai in June 2016. As on march 31, 2018, man projects Limited has executed infrastructure work worth approximately 800 crores at site in 22 months.

man infra continued to focus on expediting its real Estate Development Projects as well as scout for new opportunities. The Group completed two real Estate projects Aaradhya Signature and Aaradhya residency within the stipulated timeframe.

The construction work on Aaradhya Nine which is being developed by MICL Realty LLP (where Man Infra holds 46.00% stake) has commenced and is progressing as per the delivery schedule. The Company is expecting to start recognizing revenue for Aaradhya Nine in the financial year 2018-19.

The Residential project Atmosphere having a total potential of approximately 2.3 million sq. ft. of saleable area is being developed in a joint venture with The Wadhwa Group and Chandak Developers. The construction of the project is being executed by man infra. it is considered as one of the fastest developing projects in mulund. phase 1 of the project is estimated to get completed by December 2018.

Sales progress for both these projects (Aaradhya Nine and Atmosphere) has been satisfactory.

The Group has three upcoming residential projects which include -

(i) The Phase II of the MHADA Redevelopment project which is being developed by Man Realtors and Holdings Pvt. Ltd. (where Man Infra holds 66.00%). This project is located at Ghatkopar East, mumbai and has a potential of developing approximately 1.0 million sq.ft. of saleable area.

(ii) Man Vastucon LLP (where Man Infra holds 99.99%) is developing a Residential project near Dahisar, Thane which is currently under the Approval Stage. This project has a potential of developing approximately 3.8 million sq.ft. of saleable area.

(iii) MICL Developers LLP (where Man Infra holds 99.99%) is developing a MHADA redevelopment project at Vikhroli, mumbai having a potential of developing approximately 0.2 million sq.ft. of saleable area.

The Company expects to launch the Phase II of the MHADA project in Ghatkopar and the residential project near Dahisar in Financial Year 2018-19.

The Companys financial performance for the year 2017-18 was robust with consolidated Profit after tax growing by 25% year- on-year. As on march 31, 2018, the holding company man infra continues to remain debt free with a cash & cash equivalent of 141.31 crores approximately.

Going ahead, the Company will focus on expediting the launch of its upcoming projects and completing the ongoing projects in time. The Company will continue to explore opportunities to add prudent EpC and real Estate projects to its portfolio.

Financial Performance - Consolidated

• Total income stood at 69,575.32 lakhs for FY18

• Profit after tax and minority interest stood at 6,652.58 lakhs in FY18 as compared 5,301.13 lakhs in FY17

• The Company achieved a PAT margin of 9.56% in FY18 Financial Performance - Standalone

• Total income stood at 28,311.84 lakhs for FY18

• Profit after tax stood at 7,367.04 lakhs in FY18 as compared to 5,962.15 lakhs in FY17

• The Company achieved a PAT margin of 26.02% in FY18

Risk Management:

The Company works in an environment which is affected by various factors, some of which are controllable while some are outside the control of the Company. At Man infra, we are developing a risk management framework that reduces the volatility due to unfavorable internal and external events, facilitates risk assessment and mitigation procedure, lays down reporting procedure and enables timely reviews by the management. The following section discusses some of these risks and steps taken by man infra to mitigate such risks.

1. Economic Risk

a. Risk: an unexpected development in any of the macroeconomic variables that may adversely impact the Companys profitability or viability. Both Infrastructure and real estate are cyclical industry and they get impacted more by the changes in macroeconomic variables like interest rate, GDp Growth, purchasing power, inflation, among others.

b. mitigation plan: man infra continues to be conservative and follows well defined internal prudential norms. The Company has attempted to hedge against the inherent risks of real Estate business by following joint development model. It maintains a very low debt equity ratio, high liquidity and strong clientele with broadly timely payment track-record which helps in minimizing the impact of any downturn in economy.

2. Policy Risk

a. Risk: Maharashtra finalized the rules under the Real Estate Regulation and Development Act (RERA), 2016; its Housing Regulatory Authority has started operating from May 1, 2017. The Authority has been setup to bring in more transparency and accountability from developers, protect the interests of the buyer and also penalize the non-compliant builders. RERA seeks to address issues like delays, price, quality of construction and title among others.

any such non-compliance with RERA regulations or delay in project delivery may result in cost overruns and impact the Companys operations unfavorably.

b. mitigation plan: man infra has put in place processes that include milestone based time & quality checks that help to ensure adherence to quality, cost and delivery as per the plan. all the ongoing projects of the Group are registered under RERA. The Company maintains financial discipline with regards to the investment and subsequent cash flow generation from a project. The Company has a past track record of delivering the projects before time and maintaining high quality standards.

3. Execution Risk

a. risk: real estate and construction projects are subject to various execution risks like regulatory hurdles, delay in receipt of approvals, availability of labour and raw material, etc. any such delay may result in cost overruns and impact the Companys operations unfavorably.

b. mitigation plan: man infra has put in place processes that include milestone based time & quality checks that help to ensure adherence to quality, cost and delivery as per the plan. The Company deploys a well-defined standard operating procedure - from project planning to delivery - and adheres to internal checks and balances with regard to every project. Extensive diligence is carried out before entering into partnerships for joint development.

4. Liquidity Risk

a. Risk: The Real estate business has significant initial outflow with staggered and long-term inflows. As per RERA, the developer is required to set aside 70% of the funds received for a particular project, in a dedicated escrow (bank) account and can only be used for construction activities. Delays in project cycle; inadequate funding resources may have an impact on the liquidity position of the Company.

b. Mitigation Plan: Man Infra has a sound liquidity position with approximately 14,130.68 lakhs in cash & cash equivalent as on March 31, 2018. On the consolidated level, the Groups balance sheet is low geared with a Debt:Equity ratio of 0.63x as on March 31, 2018. The Company maintains financial discipline with regards to the investment and subsequent cash flow generation from a project. moreover, the Company has also been taking adequate measures to manage working capital cycles like monitoring and closely following up with debtors. For the EPC business, the Company also receives mobilization advances, which aids liquidity management.

5. Input Price Risk

a. Risk: The Groups Real estate operations as well as EPC contracts are subject to cost overruns due to increase in material cost or labour cost. The Companys earnings may be affected from the volatility in the price of input.

b. mitigation Plan: For EPC projects, man infra has a price escalation clause where the increase in the input cost is directly passed to the client. For development projects, man infra takes this risk into account at the time of launch. AIso, the Company usually sells the projects in a phased manner which aids in covering the rise in cost of construction in subsequent sale.

5. Sales Volume

a. Risk: The performance of the Company may be affected if there is substantial difference between the estimated and actual sales volume of the Real Estate development projects.

b. Mitigation: The volume of sales in the Real Estate business depends on the nature and location of the project, design & layout and the reputation of the developer. Man infra strives to build a worthy reputation in the industry by delivering superior quality product and maintaining long-binding relationships with all its clients and stakeholders. The Company constantly focuses on deploying latest technologies for projects and cost effective measures to enhance operational efficiency resulting in timely delivery. Man Infra also strives to offer distinctive features in its projects to stand out from competition.

Human Resources

The Company believes that its capability to preserve and continue its growth depends largely on its strength of developing, motivating and retaining talent. It firmly believes that highly motivated and empowered employees are its best assets to maintain a competitive edge in the market. The management is committed to continuously upgrading skills and competency at all levels with the aid of extensive training. The Company is committed to ensure employees safe working conditions and social awareness. man Group has a team of more than 650 employees as on 31st march, 2018.

The Companys employees possess requisite qualifications and technical expertise to execute projects across the Real Estate and construction services domain. The Companys HR continues to focus on maintaining excellent work culture, employee development and competitive compensation to ensure a motivated and empowered workforce.

Internal Control Systems

The Company has an adequate internal control system to safeguard all assets and ensure their efficient productivity. The Company practices quality management system for design, planning and construction that complies with International quality standards. The Company has a suitable internal control system for the business processes, operations, financial reporting, compliance with applicable laws and regulations. enterprise resource Planning Software is in implementation for Head Office and most of the Sites. The Internal Audit firm conducts periodical audits to ensure adequacy of internal control systems and adherence to management policies. Wherever deemed necessary, internal control systems are also reassessed and corrective action is taken, if required.

Cautionary Statement

This management discussion and analysis may contain statements which could be construed and forward looking that reflects your Companys performance with respect to future events. The actual results may differ materially from those anticipated in the forward looking statements as a result of many factors.