Man Infraconstruction Ltd Management Discussions.

Indian Economy:

The outbreak of Coronavirus disease 2019 (COVID-19), first identified in Wuhan, the capital of Hubei, China, in December 2019 and since then having spread globally, has been recognized as a pandemic by the World Health Organization (WHO) on 11th March, 2020.3In a bid to prevent the spread of this pandemic, a nationwide lockdown was imposed since 25th March, 20203among the many other measures being taken by the Indian Government to contain the spread of the virus. Resultantly, every activity, barring the activities relating to and concerning with the essential supplies came to a halt. 3 is however impacted the growth of the Indian Economy.

The Q4FY20 GDP growth number offers the first indication of the impact of the COVID-19 led lockdowns on the Indian economy. The countrys GDP grew by 3.1% in Q4FY20, the slowest pace of growth under the new series (base year 2011-12). The lower growth in the last quarter was a drag on growth for the full year. GDP growth for FY20 at 4.2% was the lowest under the new series (introduced in year 2015).

3 e3Government of India3announced a variety of measures to tackle the situation, from3food security3and extra funds for healthcare to sector related incentives and tax deadline extensions. On 26th March, a number of economic relief measures for the poor were announced totaling over Rs.170,0003 crore. The 3 Reserve Bank of India3 also announced a number of measures which would make available Rs. 374,0003crore3to the countrys financial system.3On 12th May, the Prime Minister announced an3 overall3 economic package worth Rs. 203lakh3crore, 10% of Indias GDP, with emphasis on India as a self-reliant nation. The global economic slowdown and lower income levels are expected to constrain consumption demand in the current fiscal year. As per a report (Global Economic Prospects) released by the World Bank, it expects Indias gross domestic product (GDP) to contract by 3.2% in 2020-21. The re will be a moderate recovery to 3.1% growth in 2021-22.

However, economists believe that India will be in a better position to wither the economic crisis created by the pandemic as compared to most economies of the world as India has a strong domestic market to capitalize on once the economic engine starts moving. The crude oil prices have dropped considerably and if the crude oil prices continue to remain low, India could see its overall import bill come down.3India can make the most of the changed world order in which manufacturers around the world may look for cost-effective alternatives to China for outsourcing the large-scale manufacturing activity or/and sourcing of raw material or parts. Agricultural sector remains the foundation of the Indian economy and with a forecast of a normal monsoon; agriculture is likely to fl ourish and support the rebooting of the Indian economy.

Infrastructure and Construction:

Manufacturing, construction and the service sector has seen a sharp decline in growth in Q4FY20. 3 is can be attributed to halt in activities in these sectors consequent to the lockdown announced in March20. Manufacturing and construction registered negative growth in Q4FY20. For FY20, construction registered a growth rate of 1.3% from 6.1% in the previous year.

The lockdown has resulted in various infrastructure project sites staring at closure. In the construction industry alone, migrant workers comprise a large part of the workforce and typically stay in labour camps at the construction sites. The lockdown has led to reverse migration with workers leaving cities and returning to their hometowns. With thousands of migrant workers returning to their home the construction sector has been facing shortage of skilled labour. Further, due to a delay in the construction period from lockdown, there will be an additional cost on the working capital loans taken by the Developers and Contractors. However, in order to provide relief to the borrowers, the Reserve Bank of India (RBI) announced a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020 which was further extended by another three months, i.e., from June 1, 2020 to August 31, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across by a total of six months. 3 is will infuse the much needed liquidity and help companies in managing their cashfl ow. The Reserve Bank of India (RBI) has also cut rates sharply since the lockdown and has unveiled massive liquidity injection to help the economy gather momentum.

3 ere has been a significant push from the Government on Indias infrastructure development ever since it came to power in 2014. As infrastructure is highly responsible for propelling growth of other sectors and Indias overall development, Government of India is giving huge impetus for development of infrastructure and construction services through focused policies and large budget allocation to boost the infrastructure sector. It is estimated that India would need to spend USD 4.51 trillion on infrastructure by 2030 to realize its3vision of a USD 5 trillion economy by 2025, and to continue on an escalated trajectory until 2030.3 Union Finance Minister Smt. Nirmala Sitharaman, in her Budget speech 2019-20, announced that Rs. 100 lakh crore would be invested under The National Infrastructure Pipeline (NIP), which will be implemented in the next five years as part of the governments spending push in the infrastructure sector.

Sector-wise break-up of capital expenditure of Rs. 111 lakh crore during fiscals 2020-2025 under The National Infrastructure Pipeline (NIP)

With states staring at huge revenue deficits in the wake of significant contraction of gross tax collections due to the disruption caused by the COVID-19 pandemic, the overall infrastructure capex budgeted by these governments is likely to witness a reasonable cut, thus impacting the construction industry.

Port Infrastructure

3 e3 coronavirus3 outbreak stalled the continuous growth of cargo volumes, which registered positive growth for the period December 2019 to February 2020, to a negative year-on-year growth of 2.01% in March 2020, dragged lower by a significant drop in container and liquid cargo volumes. In FY20, cargo handling at Indias major ports grew by a meager 0.82% as against 2.90% growth achieved in the previous financial year.

The COVID-19 pandemic has made business tougher for domestic3 ports3 and3 logistics3 companies, which were already grappling with falling earnings amid the global economic slowdown. The COVID-19 outbreak has had an adverse impact on Indian export-import trade, given the scale of bilateral trade between India and China. The Shipping Ministry is drafting a new blueprint for ‘Maritime India — Vision 2030 for the next decade.3 3 is comes after the coronavirus pandemic decimated the previously laid down assumptions and projections on trade that formed the basis for Sagarmala, the fl agship maritime programme of the Narendra Modi-led government. The Centre is planning to set up a ‘National Port Authority of India for major ports in lieu of the Indian Ports Association — for planning, project development, recruitment policies and procurement. The Government intends to make maritime logistics cost-competitive by promoting port-led industrialisation and coastal cargo development, and also make Indian ports affordable and competitive for EXIM and coastal trade. The vision includes building new ports to cater to trade requirements, develop India as a trans-shipment hub, and lift at least two ports to the worlds top 10 list.

Various Government initiatives and progressive policies point towards a healthy outlook for the Indian ports sector. A strong turnaround is anticipated as the industrial activities resume globally.

Residential Real Estate :

The unprecedented crisis put across by the current COVID-19 outbreak has surely impacted the Indian residential real estate significantly. The project sites had to shut operations and the site visits came to a halt, eventually impacting the housing sales. Labour shortage has emerged as a major challenge for the Developers as the immigrant workers returned to their hometowns. The homebuyer community deferred their purchase decisions in light of the lower income and uncertainty of job security. According toff ANAROCK Property Consultants research, the top 7 cities saw around 41,200 new units launched in Q1 2020, as opposed to 70,480 units in the corresponding period of 2019 and 51,850 units in Q4 2019. Around3 45,2003 units were sold in Q1 2020 - a3significant3decline of 42%3y-o-y, and of324% over the preceding quarter3 due to the COVID-19 pandemic.3 NCR, MMR, Bengaluru and3Pune3together accounted for 84% of the sales in the first quarter of the year.

City - wise Supply (in units)

Cities Q1 2020 Q4 2019 Q1 2019 Q-o-Q Change Y-o-Y Change
No. of units % %
NCR 6,190 7,890 8,030 -22% -23%
MMR 10,480 14,050 26,850 -25% -61%
Bengaluru 8,600 10,490 9,060 -18% -5%
Pune 7,790 9,570 17,520 -19% -56%
Hyderabad 3,380 3,790 4,850 -11% -30%
Chennai 3,680 3,420 3,170 8% 16%
Kolkata 1,080 2,640 1,000 -59% 8%
Total 41,200 51,850 70,480 -21% -42%

Source: ANAROCK Research

City - wise Absorption (in units)

Cities Q1 2020 Q4 2019 Q1 2019 Q-o-Q Change Y-o-Y Change

No. of units

% %
NCR 8,150 10,710 13,740 -24% -41%
MMR 13,910 18,320 24,000 -24% -42%
Bengaluru 8,630 11,210 15,580 -23% -45%
Pune 7,200 9,410 12,340 -23% -42%
Hyderabad 2,680 3,480 5,400 -23% -50%
Chennai 2,190 2,780 3,430 -21% -36%
Kolkata 2,440 3,260 4,020 -25% -39%
Total 45,200 59,170 78,510 -24% -42%

Source: ANAROCK Research

The recovery in the market will depend primarily on the intensity, spread and duration of the outbreak in our country. 3 is crisis has definitely led people to rethink on the idea of owning a house which is set to bring out changes in the industry trends. The biggest learning is the change in perception of owning ones house which embeds a deep sense of safety and security in the period of crisis. Also, those living in rental homes have realized the importance of being in their own homes while NRIs facing challenging times in their present domiciles are looking at creating a safe haven ‘back home in India. The se, shall become the next driving forces in generating long term and sustainable housing demand in the country.

The sector has been successful in overcoming many challenges in the past and has stood up in the most turbulent times. Indias improved rank on Ease of Doing Business and the courage to implement reforms such as Demonetization, RERA, and GST are indeed creditworthy. The se are expected to yield fruitful results in the future and help establish Indian real estate as a preferred investment for global investors, occupiers, and homebuyers. The Government of India announced a slew of measures for the Real Estate sector as under:

• Notable reduction by RBI in repo rate to 4.0%, reverse repo to 3.75% and cash reserve ratio (CRR) to 3.0% to give incentives to banks to infuse credit into the economy and reduce the interest burden on Home Loans

• The credit-linked subsidy scheme (CLSS) for the housing sector up to3March 2021, providing an incentive of INR 700 billion (USD 9.3 billion) to homebuyers

• COVID-19 disruption would be treated as force majeure under Real Estate (Regulation and Development) Act provisions, and registration and project completion timelines would be extended by six months

• Rs 30,000 crore Special Liquidity Scheme for non-banking finance companies (NBFCs), and housing finance companies (HFCs) to help with their liquidity position, which now carry a guarantee by the Government of India

• National Housing Bank (NHB) has been provided with a special refinance facility of3 Rs.10,0003 crore for Housing Finance Companies (HFCs) as additional liquidity for individual housing loans The se measures are expected to bring the much needed relief to the cash-starved real estate developers and boost buyer sentiments by making homes more affordable. Sales are expected to gain traction towards the end of year 2020, with the onset of the festive season, auguring well for companies like Man Infra that are on both sides of business - Real Estate Development and Construction services.

Operational Review:

Man Infraconstruction Ltd. (Man Infra) has two business verticals viz., Construction and Real Estate Development. Man Infra is an integrated EPC (Engineering, Procurement and Construction) company with five decades of experience and execution capabilities in Port, Residential, Commercial & Industrial and Road construction segments with projects spanning across India. As a Real Estate Developer, Man Infra has delivered 7 Residential projects in Mumbai and is recognized for its superior quality3 construction and3timely3project3delivery.3The Company has extensive experience in construction management and has inherent skills and resources to develop and deliver Real estate projects.

To prevent the spread of the coronavirus pandemic, and in accordance with directives received from the Central & State Governments and local bodies, the Company had temporarily suspended operations at all sites from the date of nationwide lockdown.

EPC –

During the year, Man Infra received construction work orders worth Rs. 282.1 crore across Residential, Commercial & Infrastructure segments. The total outstanding EPC order book stands at Rs. 800.5 crore as on March 31, 2020. Out of the total order book, 86.9% was contributed by Residential & Government Residential segment, 2.8% was contributed by Commercial Buildings Segment and balance 10.3% was contributed by Infrastructure segment.

Going ahead, the Company will continue to explore opportunities to add prudent EPC projects to its order book.

Real Estate –

The current portfolio of the Group includes 4 residential development projects/phases (ongoing and upcoming) in Mumbai/ MMR region.

During the year, MICL Developers LLP (where Man Infra holds 99.99%) launched a premium Residential project ‘Aaradhya Eastwind, at Vikhroli, Mumbai. It is a 34 storey tower having an approximate RERA Carpet area of 1.02 Lakh sq.ft. The construction work is going on as per schedule.

Phase 2 of the Residential project ‘Atmosphere having a RERA Carpet area of approximately 6 Lakh sq. ft. was launched in November 2019. The project ‘Atmosphere is being developed by Atmosphere Realty Pvt. Ltd. (where Man Infra holds 17.50% stake). It is in joint venture with The Wadhwa Group and Chandak Developers. The launch of the Phase 2 received an overwhelming response from the market. As on 31st March, 2020, approximately 94% of total inventory has been sold in Phase 1 (Atmosphere). The construction work for project ‘Aaradhya Nine which is being developed by MICL Realty LLP (where Man Infra holds 46.00% stake) was completed and the project received Occupation Certificate (OC) in December 2019. The project was delivered before the scheduled delivery date. As on 31st March, 2020, approximately 87% of total inventory has been sold.

The construction work for 4 towers from total 6 towers of Phase 1 of the Project ‘Aaradhya Highpark near Dahisar, 3 ane is progressing as per schedule. Approximately 82% inventory of total 4 Towers has been sold as on 31st March, 2020. The planning of launching the remaining 2 towers from Phase 1 is in progress.

Man Realtors and Holdings Pvt. Ltd. (where Man Infra holds 66.00%) had planned to launch the MHADA Redevelopment project which is being developed in Ghatkopar East, Mumbai in March 2020. However, the launch had to be postponed due to the spread of coronavirus and subsequent nationwide lockdown. The project is a planned Residential township with an estimated carpet area of 5.18 Lakh sq.ft. and is proposed to be developed in 3 phases. The project has received all necessary approvals and Phase 1 and 2 has been registered on RERA. The project will be launched soon. Going ahead, the Company will focus on completing the ongoing projects in time, meticulously plan the launch of upcoming projects/phases and add value-accretive projects to its portfolio.

Financial Performance:

Rs. In Lakhs

Particulars

Consolidated

Standalone

FY2019-20 FY2018-19 FY2019-20 FY2018-19
Total Revenue 26,697.83 37,135.67 10,697.53 16,648.47
Total Income 29,418.73 40,278.22 20,329.93 27,398.12
Profit before tax (3,438.66) 8,545.36 8,857.96 14,276.60
Profit after tax (712.47) 4,178.99 6,872.60 10,851.58

As on March 31, 2020, the holding company Man Infra has a Cash & cash equivalent of Rs. 6,118.82 Lakhs and Networth of Rs. 86,073.53 Lakhs.

The standalone revenue from operations for FY19-20 at Rs. 10,697.53 Lakhs was lower than previous year by 35.7% on account of lower than expected infl flow of new orders as well as some delay in execution of orders in hand caused by delay in receiving approvals by client. The consolidated revenue from operations for FY19-20 at Rs. 26,697.83 Lakhs was lower than previous year by 28.1% on account of decrease in revenue from the Holding Company. On standalone basis, the Company reported a profit of Rs. 6,872.60 Lakhs for FY19-20, lower by 36.7% compared to previous year. The decline in profitability has been primarily due to decrease in revenues and decline in dividend income from subsidiaries compared to previous year. On consolidated basis, the company reported a loss of Rs. 712.47 Lakhs for FY19-20 compared to a profit of Rs. 4,178.99 Lakhs in the previous year. In addition to decline in profits in the Holding Company, the profitability on consolidated basis was further dragged down by the losses reported in Real Estate subsidiaries on account of projects being in initial stage of project life-cycle.

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 have developed a robust 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, infl ation, 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 low debt equity ratio, adequate 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: 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 outfl flow with staggered and long-term infl flows. 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: 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. On the consolidated level, the Groups balance sheet is low geared with a Debt:Equity ratio of 0.59x as on March 31, 2020.

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. Also, the Company usually sells the projects in a phased manner which aids in covering the rise in cost of construction in subsequent sale.

6. 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. During COVID times, the Company has worked on its digital3 marketing strategy so as to give customers real experiences and aid decision making when they cannot visit the site in person.

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 430 employees as on 31st March, 2020.

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

3 is management discussion and analysis may contain forward looking statements 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.