Global Economy
The global economic market today is myriad of challenges and
roadblocks; however, various growth catalysts deliver hope, too. One of the biggest
challenges is the ongoing trade tensions between major economies, such as the United
States and China, which have led to increased uncertainty and unpredictability in the
markets. As per data published on the World Economic Outlook, there has been a slightly
higher economic performance than predictions; however, the overall performance remains
weak when compared to historical data. Headline inflation is anticipated to decrease
globally, with a projected drop from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2
percent in 2024. However, underlying (core) inflation is expected to decline at a slower
pace, and the estimations for inflation in 2024 have been adjusted upward. There is an
increase in technological adoption, scale-up in technology, and the era of artificial
intelligence and blockchain that can help businesses boost, grow, and innovate. While the
overall global economic market is complex and dynamic, there is a lot of untapped
potential for businesses looking to navigate these roadblocks effectively.
If there is an escalation of the conflict in Ukraine or a surge in
weather-related disasters, it could lead to an intensification of the economic volatility.
This may include measures such as increasing interest rates or tightening lending
standards, which can help to control inflation and stabilize the economy, but may also
lead to slower economic growth and higher borrowing costs for businesses and individuals.
However, growing economies within emerging markets of India and South
East Asia present growth opportunities. While the overall global economic market is
complex and dynamic, there is a lot of untapped potential for businesses looking to
navigate these roadblocks effectively.
Indian Economy
According to the India Development Update published by the World Bank,
Indias growth has shown resilience despite some signs of slowing down. Despite the
significant posed by the global environment, India has remained one of the fastest-growing
economies in the world. The growth rate is estimated to remain robust, with an expected
growth of 6.9 percent for the full year, and a real GDP growth of
7.7 percent year-on-year during the first three quarters of fiscal year
2022/23. However, there were some signs of moderation in the second half of FY 22/23.
Investment activity was strong, boosted by the governments capex push and buoyant
private consumption, especially among higher-income earners. Though inflation remained
high, averaging around 6.7 percent in FY22/23, the current account deficit narrowed in Q3
due to strong growth in service exports and easing global commodity prices.
To control inflation, the Reserve Bank of India has withdrawn
accommodative measures by hiking the policy interest rate.
Despite this, the financial sector in India remains strong, supported
by improvements in asset quality and robust private-sector credit growth. The World Bank
projects that India will remain the fastest-growing major economy in the world between
2021 and 2024.
Despite the challenges posed by the COVID-19 pandemic, Indias
economy has continued to grow, albeit at a slower pace. The government has implemented
various measures to boost growth, such as tax cuts and infrastructure spending. The Indian
government also announced various measures that can help boost growth; this includes tax
cuts and reforms, increased spending on infrastructure capabilities, improved technology,
and supporting businesses with the right policies. In addition, there has been a focus on
ease of doing business in India with the help of various government initiatives such as
‘Make in India and other such favorable initiatives.
Industry Overview
Infrastructure is widely recognized as a crucial driver of economic
growth, and it traditionally refers to physical assets such as roads, ports, and power
transmission lines. However, in recent years, Indias growth trajectory has been
closely linked to a strong emphasis on not only physical but also social and digital
infrastructure.
The Budget 2023 has given a significant dimensions of infrastructure
development, which collectively accelerate inclusive growth. The targeted investments will
not only challenges create essential physical infrastructure and improve connectivity,
which will fast-track the movement of passengers and freight but also generate employment
opportunities, stimulate private investments, and provide a buffer against global
challenges.
Highlights of Budget 2023-2024
In the previous Budget, i.e., Budget 2022-23, India focused on reviving
the economy by investing in various infrastructure projects. In the upcoming Budget, the
infrastructure sector is expected to receive a similar amount of investment to support
Indias goal of becoming a USD 5 trillion economy by 2025.
If there is an escalation of the conflict in Ukraine or a surge in
weather-related disasters, it could lead to an intensification of the wars economic
volatility. This may include measures such as increasing interest rates or tightening
lending standards, which can help to control inflation and stabilize the economy but may
also lead to slower economic growth and higher borrowing costs for businesses and
individuals.
The total net budget allocation for the currentfiscalyear,
2023-24, is INR 764.32 billion, with the highest share allocated
towards PMAY (U) (33 percent) and MRTS/Metro projects (30 percent). This includes metro
rail, transport planning, capacity building in urban transport, and the National Capital
Region Transport Corporation. Over 60 percent of the total net allocation has been
earmarked for these two activities. The Ministry of Railways received a record allocation
of Rs
2.4 lakh crore in the current fiscal year, which is roughly nine times
the allocation in 2013-14. This is the highest-ever budgetary allocation for the ministry.
Similarly, the Ministry of Road Transport and Highways received a 36% increase in its
Budget, with an allocation of about Rs 2.7 lakh crore. This allocation will help to
accelerate the development of road infrastructure across the country, including the
construction of highways, bridges, and expressways.
The government reforms and initiatives offer tax relief measures for
development agencies engaged in urban planning and development, including housing, and
will now be entitled to exemption on their income. This is a welcome move towards
incentivizing planned development and encouraging a paradigm change in urban planning
practices. It is essential to emphasize the need for a shift in urban planning practices
to guide future urban growth. The proposed measures include improving urban planning
knowledge and offering certified training to ensure a skilled workforce that can deliver
well-planned urban development projects.
PM Gati Scheme:
The PM Gati Shakti Scheme is aimed at ensuring integrated planning and
implementation of infrastructure projects over the next four years. The scheme is designed
to expedite work on the ground, save costs, and create employment opportunities. This
initiative will help to improve the connectivity of various regions and sectors of the
country, which, in turn, will help to drive economic growth.
The Bharatmala Scheme:
Bharatmala Pariyojana envisages 60% of projects on Hybrid Annuity Mode,
10% of projects on BOT(Toll) Mode, and 30% projects on EPC mode, respectively. The total
aggregate length of 25,713 km with a total capital cost of Rs. 7,81,845 crores have been
approved and awarded till date under Bharatmala Pariyojana (including 6,649 km length of
residual NHDP with a total capital cost of Rs. 1,51,991 crore). Out of the total approved
25,713 km, an aggregate length of 14,317 km have been approved on EPC mode, an aggregate
length of 10,989 km on HAM mode and an aggregate length of 408 km on BOT(Toll) mode.
Road Transport Budget 2023-34 Highlights
• The highest-ever budget allocation of Rs 2.7 lakh crore for the
Ministry of Road Transport and Highways, with a focus on improving road infrastructure
across the country.
• The development of 8,500 km of highways and 3.5 lakh crore under
the Bharatmala Pariyojana Phase II, with an investment of Rs 3.5 lakh crore and 1.03 lakh
crore respectively.
• The development of 2,000 km of coastal and port connectivity
highways under the Sagarmala Pariyojana, with an investment of Rs 60,000 crore.
• The development of greenfield expressways, with an investment of
Rs 20,000 crore under the Bharatmala Pariyojana.
• The launch of the National Monetization Pipeline, which aims to
leverage infrastructure assets, including highways, for monetization.
Road Maintenance Budget Highlights 2023-2024
• The allocation of Rs 50,000 crore for the Pradhan Mantri Gram
Sadak Yojana, which is aimed at providing all-weather road connectivity to rural areas.
• The allocation of Rs 5,000 crore for the set-up of the National
Road Safety Board, which will focus on improving road safety measures.
• The allocation of Rs 100 crore for the development of the
National Road Safety Policy.
• The allocation of Rs 200 crore for the development of the
National Highways Excellence Awards which will recognize and encourage excellence in the
development and maintenance of national highways in India.
Company Overview
Markolines Pavement Technologies Limited is a company that operates and
maintains highways in India. The Company is known for its innovative approach and
commitment to adopting new technologies in pavement preservation, which has helped it
pioneer the introduction of the latest technologies in the
Indian market. By offering higher efficiency, cost-effectiveness, and
environmentally friendly solutions, Markolines has managed to stay ahead of the
competition and maintain its leadership position. The Company provides specialized
maintenance services that further enhance its competitive edge.
Business Overview
Markolines has played an integral role in empowering the highway
maintenance that helps strengths Indias infrastructure network.
Financial Performance and Analysis
The Company has seen a surge in the overall revenue percentage and an
improved topline that has translated into our success this year. An excellent team coupled
with a seamless implementation strategy has been a game-changer for the firms
performance. We have worked with resilience to maintain operational excellence and
maximize shareholder value.
Order inflow and order book:
Markolines commitment to maintaining order book visibility
promotes transparency and trust, making us a preferred partner in the industry. Our
emphasis on these values has made us an industry leader in O&M services.
The Company secured new orders worth 3850 Mn for the year 2022-23,
reflecting an increase of 1.2% over the previous year. The unexecuted order book stood at
3850 Mn as of 31 March 2023.
Revenue from operations
The Company revenue rose by 67% y-o-y to 3118 Mn for the financial
year2022-23from 1866.43Mnforfinancialyear 2021-22.
Operating Cost PDBIT
In line with revenue growth. These expenses mainly comprise changes in
inventories, employee benefit expenses, finance costs and other expenses. The increase in
other expenses is mainly on account of subcontracting charges for a certain work. Staff
expenses for the financial year 2022-23 at 426.68 Mn increased by 6% as compared to the
previous year, amounted to 400.97 Mn mainly due to Salaries, wages, and bonus. The
orderbook of the Company is a testament to the increase in growth potential that the
Company is on a growth trajectory resulting in a consequent revenue increase. Operating
profit (PBDIT) grew by 22.6% y-o-y at 282.30 Mn for the financial year 2022- 23 as
compared to 230.30 Mn in the previous year. Depreciation and Amortization Expenses for the
financial year 2022-23 decreased by 14.5% at 22.62 Mn as compared to 26.47 Mn in the
previous year.
Other Income
Other income for the financial year 2022-23 increased as compared to
the previous year witnessing a difference by 145% growth at 6.26 Mn as compared to 2.55 Mn
of the previous year.
Finance Cost
The interest expense for the financial year 2022-23 at 32.98 Mn saw an
decrease by 40% comparison to 54.94 Mn for the previous year due to (reduction in stamp
duty, processing charges). The average borrowing cost for the year 2022-23 was contained
at 9.5% p.a. through effective financing and judicious selection of type & tenor of
the fresh borrowings
Profit After Tax
Profit after Tax (PAT) at financialyear 157.45 Mn for the 2022- 23 saw
a growth by 55.77% as compared to 101.08 Mn in the previous year.
Earnings Per Share
Earnings pershare(EPS)forthefinancialyear 2022-23 at
8.24 recorded an increase of 36% from 6.08 in the previous year.
Net Worth and Returns
The Net Worth of the shareholders stood at 858.20 Mn as at March 31,
2023. Return on Net worth (RONW) for the financial year 2022-23 is 18.35% as compared to
14.23% in the previous year.
Liquidity and Gearing
Total short term and long-term borrowings during the year stood at
305.47 Mn, out of total borrowings, non-current borrowings and current borrowings are
amounting to 148.97 Mn n and 156.50 Mn respectively. Cash balances decreased to 3.43 Mn in
the financial year 2022-23 as compared to 16.03 Mn in the previous year.
Cashflow Statement
| Particular |
2022-23 |
2021-22 |
| Net Profit Before Tax |
223.79 |
146.74 |
| Operating Profit Before Work - |
276.33 |
229.02 |
| ing Capital Changes |
|
|
| A.Operation Activities |
201.24 |
195.53 |
| B.Investment Activities |
222.36 |
15.18 |
| C.Financing Activities |
8.52 |
223.50 |
| Cash & Cash Equivalents |
(12.60) |
12.79 |
| (A+B+C) |
|
|
| Add: Cash and Cash Equiva- |
16.04 |
3.25 |
| lents at the begining |
|
|
| Cash and Cash Equivalents at |
3.45 |
16.04 |
| the end |
|
|
The total borrowings as at March 31, 2023 stood at 305.67 Mn as
compared to 268.39 Mn. in March 2022. The gross Debt Equity ratio is 0.36:1 as at March
31, 2023 as compared to 0.38:1 at March 31, 2022.
Outlook
The roads and highway construction sector in India is set to see a
surge in opportunities worth trillions of dollars on the Public-Private-Partnership (PPP)
mode in the coming years. The PPP Vertical is driving the recycling and monetization of
various core infrastructure assets, resulting in significant progress in developing a
sustainable asset pipeline and rolling out structured and risk-managed transactions. The
PPP models used in road projects include BOT toll, TOT, and HAM. The government has
already begun developing new, flexible policies to create investor-friendly highway
development initiatives by monetizing highway assets under TOT and InvIT. Infrastructure
companies are also selling their assets to InvITs as a means to monetize their
cash-generating infrastructure assets. Investors, including several foreign investors, are
acquiring road assets and operating them successfully for long-term annuity income on
their investments. For these investors, road construction, highway maintenance, toll
collection, and allied activities are not part of their core business, and hence they look
to outsource these activities to O&M players. This opens new doors for O&M
companies and will continue to grow over time. There has also been a lot of merger and
acquisition activity in the highway and other infrastructure companies recently. Some of
the reasons for this M&A activity include the need for companies to consolidate to
reduce costs, the desire to expand into new markets, and the need to acquire new
technology and expertise. These activities are expected to continue in the future as
companies strive to remain competitive.
Our Company recognizes the huge potential that tunnel boring has in
India due to its varied terrain and ease of traffic movement, especially with the limited
number of players in the industry. As such, we are excited to explore this opportunity.
Additionally, we are promoting highway base stabilization technology in Maharashtra to
improve the quality of roads in the state, which involves strengthening the foundation,
improving load-bearing capacity, and increasing resistance to stress and strain that can
cause road deformations and loss of materials. The UP government has already adopted a
similar program, and many other states are following suit. Given the vast road network in
the country, this has enormous potential in the coming years, and we are eager to seize
this opportunity. As a market leader in the
Highway O&M sector, we started with just one product and have now
grown to offer a complete bouquet of services. We hope to further solidify our position in
the near future. Our Company has already made strides in exploring this segment, and we
are committed to further exploration, innovation, and expertise in this field.
Risk and Concern (Risk & Mitigation)
1.Capital Intensive
Risk : The Company is a part of an industry that demands high capital
investment to operate smoothly. Capital investment in equipment and manpower is inevitable
in nature, thus needing debt financing. In addition, daily operations, purchase of raw
materials, mobilization of resources, and other project work before receiving payment from
clients is core business working. Mitigation : The Company has taken strides to optimise
its working capital and improve cash flow processes to ensure maximum flexibility. The
Company has continued to manage to raise funds at par with its market potential
2.Rising Competition
Risk: Owing to its nature of business, companies can expect attractive
return on investment, making it a lucrative business opportunity that attracts many
competitors. This has led to increase in market players within this industry. Mitigation:
Markolines has been one of the pioneers that has empowered this industry, and we are
confident in maintain this leadership position owing to our innovation, expertise, skills
and capabilities.
3.Input Costs
Risk: The Company is dependent upon various commodity such as steel,
bitumen, cement and fuel that are subject to global market volatilities and supply chain
inconsistencies. The geopolitical situation further strains costs of these materials
resulting in steep increase in cost and shortage issues.
Mitigation: The Company has incorporated escalation clause in contract
to buffer these flu cations and has ensured a pass through for input cost escalation is
required. Thus cushioning the blow and keeping the margins steady.
4.Skilled Workforce Demand
Risk: This industry demands highly skilled workforce which is currently
impacted due to a high demand in workforce.
Thus there could be an unmet need in this crucial aspect of business.
Mitigation: The Company ensures it fosters a conducive working
environment that encourages growth and a sense of community thus helping employees reach
their full potential.
This makes Markolines a lucrative company to work with that empowers
employee career growth.
Internal Control and Risk Management:
As a company that operates in a dynamic business environment, there are
inherent risks that we need to identify, monitor, and mitigate. These risks can be related
to our business, operations, finance, unauthorized use of assets, and compliance. To
address these risks, we have a system-based approach to risk management, where we
continuously work to mitigate risks. Our internal control systems are designed to
correspond with the nature of our business, as well as the size and complexity of our
operations. We regularly test and certify these risks with the help of our statutory and
internal auditors. Our audit committee also reviews the adequacy and effectiveness of our
internal control process and systems. We monitor the implementation of audit
recommendations to strengthen our risk management systems. Our management team conducts
periodic reviews to assess the internal control environment, checks the adequacy
concerning the business, and makes relevant recommendations.
Material Developments in Human Resources
Human resources have always been a vital component of our Company. As
of March 31, 2023, we employed 1458 permanent employees. We continuously invest in people
and people processes to improve human capital for the organization and provide better
service to stakeholders. At Markolines, we strive to keep our employees updated with
capitalrequirementfor the latest technologies and technical training related to the
construction of roads & highways, toll operations, collection processes, and road
maintenance activities. Our management team creates a conducive and supportive work
environment to help employees learn through various employee engagement programs. We
strengthen human capital by providing better processes, technology, and techniques at the
workplace to help exploit the best and improve individual and
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