Orbit Corporation Ltd Management Discussions

BUSINESS ENVIRONMENT

Indian Economy and Industry Status

The real estate sector is one of the most globally recognized sectors. In India, real estate is the second largest employer after agriculture.

The real estate sector comprises four sub sectors - housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations.

The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.

The Indian real estate market is expected to touch US$ 180 billion by 2020. The housing sector alone contributes 5-6 per cent to the countrys Gross Domestic Product (GDP). Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for Indias growing needs.

The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces. According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 24.1 billion in the period April 2000-June 2015.

REAL ESTATE SCENARIO -MUMBAI

Mumbai real estate is the most volatile real estate market. Apartments that used to cost 2 crores in 2008 are now selling in excess of 7 crores. More than 300% appreciation in 7 years. This kind of appreciation has been unheard off. On the other hand, even the slightest doubt of uncertainty brings entire system to a complete standstill.

Mumbai is the best city in India for commercial real estate investment, with returns of 12-19 per cent likely in the next five years, followed by Bengaluru and Delhi-National Capital Region (NCR).

Mumbais commercial relevance has been a key driver for the real estate industry.

Projects nearing completion (3 to 6 months) or completed (with all approvals) will sell quickly. Projects that are currently under construction that have all the approvals will sell but at a slow pace. Resale properties that are in the market will get absorbed as long as they are priced correct. Mumbai real estate will get absorbed at discounted prices. It is a buyers market right now and will continue to be so till 2016.

BUSINESS OVERVIEW AND OPERATING PERFORMANCE

Orbit Corporation Ltd. is engaged in the business of real estate development in Mumbai Metropolitan Region (MMR), with significant operations in the Island City of Mumbai. We target the premium realty market in Mumbai on the strength of our brand and project execution skills, providing international quality to our customers.

Our customers are from the higher strata of the society and comprise of High Net-worth Individuals and Eminent Personalities from Corporate Houses. Our business model is primarily driven by redevelopment of cessed and dilapidated buildings in the Island City of Mumbai.

We believe that the demand in areas of our operation is inelastic to price, but at the same time we constantly strive to deliver value to our customers by providing them with innovative and premium housing solutions thereby helping us differentiate our product offerings.

KEY PROJECTS

Orbits projects portfolio, consists of luxury residential apartments being developed in South Mumbai, South Central Mumbai and suburban areas.

South Mumbai

Orbit commands the highest market share in terms of area under development in premium locations such as Napeansea Road, Malabar Hill, Kemps Corner. These projects are ultra-luxury projects with unmatched values of Quality Luxury and Neighbourhood in South Mumbai.

Orbit has delivered two award winning projects at Napeansea Road, viz. Villa Orb and Orbit Arya. It has also executed projects like Shivam and Orbit Heights in neighbouring area.

Orbit Haven, another ultra luxury project in the same area is in an advanced stage of construction. Villa Orb Annexe is at an initial stage of development under this category.

Orbit has super luxury projects at Prarthana Samaj, Babulnath, NanaChowk and Gamdevi which provides with modern features in true sense. Orbit Enclave is at an advance stage of construction.

We have a strong future pipeline of projects in South Mumbai and we will continue evaluating various proposals for redevelopments in these localities and identify opportunities for value creation for our shareholders while delivering exquisite residential solutions to our customers.

South Central Mumbai

We have two ongoing luxury projects in the Business District, Lower Parel viz. Orbit Terraces and Orbit Grand. Construction at Orbit Terrace is expected to restart soon. Another project namely, Orbit Eternia has been delivered in the year 2012.

We are planning to exits few of our investments at Lalbaug and will launch the balance in a phased manner in due course.

Mumbai Suburbs

As part of extension of the Companys strategy to leverage its brand value in the premium mid-segment residential market, we have initiated projects in the Mumbai suburban areas like Andheri and Bandra Kurla Complex (BKC). Orbit Residency Park in Sakinaka, Andheri, (being executed by our Subsidiary Ahinsa Buildtech Pvt. Ltd).

OPERATING PERFORMANCE

Sales (Volume & Value)

No new projects were launched during the year under review in view of the uncertainty pertaining to DCR guidelines. We have slowed down the pace of execution of the ongoing projects, which in turn affected our revenue recognition. In view of revision in the DCR, the approvals have started flowing in the system. However it is yet to gain momentum.

Financial Highlights

Profitability

Financial year 2015-16 saw further abnormal dip, as compared to previous, in revenues due to reasons explained above viz. activity was meager in view of new DCR regulations and slow approvals, no new launches of projects, higher input / finance cost aggravated the problems and relatively lower sales prices coupled with abnormal events in the form of revenue write offs affected the EBIDTA / PAT margins substantially.

Particulars	UoM	FY16	FY15
Total Income	Mn	128
			1,411
EBIDTA	Mn	(1,779)	1,003
EBIDTA Margin	%	(1,389)	71
Profit Before Tax	Mn	(3,623)	(808)
PAT (attributable to OCL)	Mn	(3,591)	(1,023)
PAT Margin	%	(2,803)	(73)

SEGMENT REPORTING

The Companys business activities fall within single segment, viz. real estate and redevelopment and predominantly operates in domestic market. Accordingly, disclosure requirements under Accounting Standard (AS) 17 segment reporting, is not applicable.

RISK & CONCERNS

The recent unprecedented recession has resulted in major long term distress across the real estate industry, and has had severe implications for owners, developers, managers and investors alike. Environmental and construction exposures, catastrophic modeling, stricter lender requirements, and complex requirements involving distressed banks are just some of the issues facing the real estate industry.

Such risks and uncertainties include, but are not limited to our ability to manage growth, competition, attracting and retaining skilled professionals, time and cost overruns, regulatory approvals, market risks, domestic and international economic conditions, changes in laws governing the Company including the tax regimes and exchange control regulations.

Internal Control Systems

Orbit has a team of professionals including Chartered Accountants, Company Secretary, and Lawyers, to ensure systems in place as per applicable laws and regulations. The Audit Committee and the Board of Directors review the internal control system. A dedicated team of professionals ensure compliances are adhered to by employees, contractors, suppliers, vendors, and any other person connected to the project operations. Orbit implements a culture of continuous improvement, sponsored by top management and supported by technology excellence and innovation. The Company has an efficient system of internal controls for achieving the following business objectives of the Company:

• Efficiency of operations by implementation of SAP application in business processes

• Protection of resources

• Accuracy and promptness of financial reporting

• Compliance with the laid down policies and procedures

• Compliance with various laws and regulations

OUTLOOK AND FORWARD LOOKING STATEMENT

Indias real estate sector has been witnessing weakness in sales momentum, rising inventory and debt levels for the last three years. The year 2016 would be a combination of beneficial turns in terms of interest rates cycles, and various steps being taken by new government to boost economy in the country. The year would be introduction of the New Development Plan for Mumbai and the proposed Real Estate Bill. This will have a positive impact on the customer and investor sentiment leading to far enhanced demand atmosphere. Economists expect Indias GDP growth in the range of 7.0%-7.5% for FY 2016. Your company will continue to focus to deliver high quality projects in the times to come.

The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013 and the Generally Accepted Accounting Principles (GAAP) in India. Readers are advised that this discussion may contain "Forward-Looking Statements" by Orbit Corporation Limited (the Company) that is not historical in nature. These forward-looking statements, which may include statements relating to future results of operations, financial conditions, business prospects and projects etc, are based on the current assumptions, estimates, expectations about the business, industry and markets in which your Company operates. These statements do not guarantee any future performance and are subject to known and unknown risks, uncertainties and other factors, many of which are beyond Companys control and difficult to predict, that could cause actual results, performance or achievements to differ materially from those in the forward-looking statements. Such statements are not and should not be construed as a representation of future performance or achievements of the Company nor be regarded as a projection of future performance of the Company.

It should be noted that the actual performance or achievements of the Company may vary significantly from such statements and the Company takes no responsibility for any consequences of decisions made which are based on such statements and also holds no obligation to update these in the future. This report should be read in conjunction with the financial statements included herein and the notes thereto.

Human Resource Development and Industrial Relations:

The Company continued the welfare activities for the employees, which include Medical Care, Group Insurance, and Canteen Facility. To enrich the skills of employees and enrich their experience, the Company arranges, Practical Training Courses by Internal and External Faculty.

The Company has constituted an Internal Complaint Committee (ICC) in pursuant to the provisions of Companies Act, 2013 for prevention, prohibition and redressal of complaints / grievances on the sexual harassment of women at work places.