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Ramky Infrastructure Ltd Management Discussions

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Ramky Infrastructure Ltd Share Price Management Discussions

INTRODUCTION

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling Indias overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads, urban infrastructure, rural infrastructure, waste management among others. In lieu of the above, your company is concentrating more of water & waste water management and urban sanitation where your company has the advantage of being one of the first movers.

On the other hand, your company will be focusing to reduce the dependence on Banks and Financial Institutions and will be driving organizational change that is aimed to deliver operational robustness and sustained long-term profitability.

CURRENT SCENARIO:

Current Dimension of Infrastructure in India: Demand:

Our Country intends to become a 5 Trillion USD economy by 2025. In order to achieve this, the requisite infrastructure comprising of roads, railways, aviation and shipping are to be adequately developed.

Opportunities:

In order to achieve this, the government believes that development of infrastructure will have a multiplier effect of increasing the efficiency of transportation and reduction of time of transportation thereby enabling optimal utilization of the resources of the country which would in turn increase employability and entrepreneurship. In F.Y. 2021-22, the Dubai government has entered into MOU followed by contracts for development of Infrastructure in Jammu and Kashmir comprising of Industrial Parks, IT Towers, Logistic centres etc. This has helped many Infrastructure Projects being undertaken post F.Y. 2021-22.

Government Policy:

India with the current trend is poised to become 3rd largest consumer economy by 2023 with consumption potential of USD 4 Trillion.

The Government of India keeping in view the ever growing urban infrastructure basic necessity in mind has launched Atal Mission for Rejuvenation and Urban Transformation (AMRUT) mission, to provide basic urban infrastructure in all sectors of water, sewerage and septage management, storm water drainage, non-motorized urban transport and development of green spaces and parks in 500 selected cities across India. Furthermore, the Pradhan Mantri Awas Yojana – Urban (PMAY) has slum re-developmet as one of its important components.

However, Government of India, through various programmatic interventions, assists the States/UTs in their effort to provide basic amenities required to improve quality of life, such as shelter, water supply, sewage and toilets facilities to urban population. Such programmes, which are under implementation at present, are - Pradhan Mantri Awas Yojana – Urban (PMAY-U), Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Swachh Bharat Mission – Urban (SBM-U). A significantly increased outlay in infra space to the extent of

Rs. 1.3 Lakh Crores and correspondingly increasing the interest free loan scheme to state government for one more year thereby providing them the requisite incentive.

Under the National Infrastructure Pipeline (NIP) projects worth

Rs. 108 Trillion are at different stages of implementation.

In 2022, National Investment and Infrastructure Fund (NIIF) between Government of India and Multilateral financial institutions and implementation agencies for implementation of projects through the India Japan Fund.

Government Initiatives:

The Capital Investment outlay has been increased to Rs. 10 Lakhs Crores in Budget 2023-24.

An Investment Finance secretariat is also being established to act as a single point for attracting and enhancing the opportunities for the private infrastructure players to enable them to invest in Railways, Road and Urban Infrastructure. Initiatives by 8 Core Infrastructure Sectors includes coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, electricity. Their combined performance has increased by 7% by December 2022.

IIT Bombay in collaboration with NETRA NTPC and National Centre of Excellence in carbon capture and utilization has Geological Storage Potential" launched the assessment of "Co2 at NITI Aayog.

Infrastructure sector initiatives:

Green energy initiative has been launched by Indian Railway to source its energy requirements from renewable sources.

Due to the various initiatives taken by the government, the cement production has increased by 10%. By 2022,

Ministry of Road Transport and Highways has completed 1,41,190 Kms of National Highways out of 2 Lakhs Kms Target for 2023-25.

Dept. of Telecommunication has created Optical Fibre Cable Network (OFC) of 33,00,000 Kms against target of 50,00,000 Kms by 2024-25.

Ministry of Petroleum has completed pipeline of 20,000 Kms against target of 35,000 Kms by 2024-25.

Ministry of Power has surpassed its target and already completed laying of 4,54,000 Kms of transmission Network. Railways has achieved laying of solar panels on railway station roof tops for 1100 Stations generating 121.47 Mega Watts of solar power.

Indian Roadways Initiatives:

The allocation to Ministry of Roads Transport and Highway (MoRTH) in Union Budget has increased to Rs. 2.7 Lakh Crores, an increase of 36%.

Our country has a Highway Network of 1.41 Lakh Kms.

The construction of road and rope way project worth Rs. 3,400 Crores in Uttarakhand is underway.

Multi Model Logistic Park under Bharat Mala scheme with investment of Rs. 46,000 Crores to provide the requisite infrastructure for handling of 700 million Metric Tonnes of cargo is underway.

Affordable Housing:

Under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart Cities Mission, Government has opened up arena for development of urban infrastructure comprising of road, sanitation and water treatment and waste water treatment.

Sustainable Development:

The Namami Ganga Mission, a key program of the Government towards achieving the Sustainable Developed Goals (SDG-6) was launched as a priority program in the year 2015-20 with outlay of Rs. 20,000 Crores. Major components include sewerage project management, urban and rural sanitation, tackling industrial pollution, water use efficiency and quality improvement, ecosystem conservation and Clean Ganga Fund among other. As per "National Policy on Resource Efficiency" a need to build upon existing policies to address multiple sectors should be devised for mainstreaming Resource Efficiency, in helping India achieve Sustainable Development Goals (SDGs). The survey notes that the Paris agreement emphasises that Climate finance in strengthening the global response to climate change.

Bulk Drug Parks:

Indias Contribution is 3rd largest by Volume and 14th Largest by Value. India globally contributes 3.5% of total drugs and medicines exported globally. In view of this, with the intention to bring down the manufacturing cost of Bulk Drug and increase the marketability of the products and provide easy testing and infrastructure facilities, the government has come up with a Scheme called "Promotion of Bulk Drug Parks" in 2020 with the intention to provide world class "Common Infrastructure Facilities" (CIF) and ensure that CIF Meets with the standards of environment and innovative methods adoption in common waste management systems.

COMPANY PERSPECTIVE

The flagship company of the Ramky Group, Ramky Infrastructure Limited. is one of the leading infrastructure companies in India with a wide sectoral presence. Determined continually to foray into fast-growing infrastructure segments across India, the Company has diverse and extensive execution experience across key sectors of growth. Over the years, core competence has been further developed by the engineering, planning and project execution skills. Your company has diversified its business portfolio which helps us to mitigate risk of slowdown in any segment. The Company is professionally managed with a well-qualified and experienced personnel in all following areas including but not limited to planning, engineering, supply chain management, legal, finance and administration combined with a full-fledged MIS system.

Ramky Infra operates through the following principal business modes: i. Engineering, Procurement & Construction (EPC) Business, which is operated by the Company, ii. Developer Business, which is operated mainly through the special purpose vehicles (SPV).

EPC BUSINESS

The Company operates the EPC business in the following sectors: i. Water and Waste-Water projects such as water treatment plants, water transmission and distribution systems, elevated and ground level service reservoirs, sewage treatment plants, common effluent treatment plants, tertiary treatment plants, underground drainage systems and lake restorations; ii. Building Construction, which includes commercial, residential, public, institutional and corporate buildings, mass housing, high-rise, healthcare infrastructure, integrated townships projects and related infrastructure facilities such as hospitals and shopping malls; and iii. Irrigation projects such as cross-drainage works, barrages, lift irrigation projects, canals, feeder channels; iv. Roads and Bridges: This sector includes expressways, highways, bridges, flyovers, rural roads, terminals and dedicated service corridors v. Industrial: This includes parks, Industrial Infrastructure, SEZ etc. vi. Power: This includes electricity transmission networks, sub stations, feeder lines, high and low tension distribution lines.

DEVELOPER BUSINESS

Development projects undertaken on a Public-Private partnership basis with the Government and are typically awarded after qualifying through a competitive bidding process. Sectors Includes: i. Transportation & Transportation Terminals ii. Industrial Parks iii. Integrated Townships iv. Industrial and Urban Solutions

Risks:

Your Company since its inception has been actively involving in EPC Contracts. Over the period of time, due to various experiences the management is of the understanding that EPC contracts are inherent to many risks.

As the stakeholders are well aware that in the past your company took up many projects simultaneously, which required huge fund outflow which correspondingly led to cash flow mismatch. Due to this, your company has faced financial problems which resulted in implementation of Stress Resolution mechanism notified by RBI. Therefore, keeping the past difficulties in mind and the current working scenarios the entity faces the undermentioned risks in general.

Tender Risk: The very first risk faced by the entity is in the nature of contract. Many EPC Contracts being awarded by the Government are fixed price contracts with no Cost overrun or Time overrun clause into it. This is making bidding for the contract highly risky. Any deviation or un-foreseen event is having an impact on entitys margin and risk faced.

Financial Risk: Huge Financial Commitment are being required at the time of tendering which includes mobilization advances and Bank guarantees. Since this has significant impact on the working capital requirements which has to be serviced regularly, the risk of cash generation mismatch between the financial obligation becoming due and the corresponding inability to generate revenue is evident.

Material Risk: The EPC Contracts from the Government are not including Cost escalation due to which the contractee faces great risk of not being able to procure the raw materials required for executing of contract from the market which is highly dynamic.

Manpower Risk: The construction faces a severe deployment of Labour. Many a times labour from inter-state are brought in for execution of the work.

Compliance Risk: Execution of the Infra projects requires compliances at holistic level. Many a times the release of corresponding funds from the government is coupled with the status of compliances done. Since, the legislations in our country are numerous there is risk associated with the execution.

Unforeseen Risk: Many a times the company specifically in areas of underground works have faced a risk wherein even after seismological test, the terrain has turned unfavourable and execution of contract has incurred huge cost which were not accommodated by the Government authorities.

Clearances Risk: In majority of the EPC contracts the requisite clearances have to be obtained. But the company has faced challenges many a times due to which, there has been delay in execution.

Due to these risks, which the company has faced over the years, it is selective in bidding process. Unless the Contract has reasonable cash flow and is having Cost overrun reimbursement clause in it, the company is sceptical in bidding for such projects the same would have an impact on execution of the project.

A LIST OF THE KEY OPERATING SPVS / SUBSIDIARIES ALONG WITH THE DETAILS OF PROJECTS:

Sl.

Name of SPV

Nature of business

No

1 Visakha Pharmacity Limited

A joint venture with Government of Andhra Pradesh to build, operate and maintain Pharma industrial park at Visakhapatnam, Andhra Pradesh.

2 MDDA-Ramky ISBus Terminal Limited

A joint venture with Mussorie Dehradun Development Authority (MDDA) to operate Bus Terminal and Commercial Mall, in Dehradun, Uttarakhand.

3 Ramky Elsamex Hyderabad Ring Road Limited

A subsidiary company which developed the Outer Ring Road Project in State of Telangana under Built-Operate & Transfer model.

4 Pantnagar CETP Limited

A Combined Effluent treatment plant set up in Uttarakhand to treat the industrial effluents generating from Automobile sector in Uttarakhand.

5 Srinagar Banihal Expressway Limited

A subsidiary company which developed the Road project to NHAI in the State of Jammu & Kashmir.

6 Hyderabad STPS Limited

A subsidiary of the company incorporated for the construction of STPs of various capacities and sewer pipe network along South of Musi River Hyderabad under Hybrid Annuity Mode (HAM) including O&M for 15 years.

7 Ever Blooming Eco Solutions Limited

It is a subsidiary incorporated in F.Y. 2022-23 with the purpose of construction and O&M of environmental infrastructure. It is in nascent stage and the company expects reasonable revenue from this projects in future.

FINANCIAL PERFORMANCE:

DISCUSSION ON FINANCIAL PERFORMANCE - STANDALONE Revenues

Your Company recorded a standalone revenue of Rs. 14,739.94 million during 2022-23 as compared to Rs. 12,979.10 million in 2021-22. This increase is on account of revenue generated which is attributable to Leachate treatment and Hyderabad STPs project works.

Other Incomes

The Other incomes for 2022-23 of Rs. 972.74 million has reduced, compared to Rs. 2,352.46 million in 2021-22. There was a onetime non-operating income taken into account in 2021-22 which didnt replicate in 2022-23.

Expenditure

The expenses for 2022-23 of Rs. 12,702.10 million has increased, compared to Rs. 12,666.50 million in 2021-22 as volumes went up.

Finance Costs

The finance costs for 2022-23 of Rs. 717.47 million which was decreased compared to Rs. 963.66 million in 2021-22.

Profit before Tax

There is Profit before Tax for 2022-23 of Rs. 3010.58 million compared to Profit before Tax of Rs. 2,665.06 million in 2021-22. The increase is commensurate to the increase in revenue during the year under review.

Profits after Tax

The Profit after Tax for 2022-23 is Rs. 2,144.70 million as against Profit after Tax of Rs. 1,183.68 million in the previous year 2021-22. The increase is commensurate to the increase in revenue during the year under review.

Earnings per Share

The EPS for 2022-23 increased to Rs. 30.99 as compared to Rs. 17.11 in the previous year.

DISCUSSION ON FINANCIAL PERFORMANCE – CONSOLIDATED

The consolidated financial statements have been prepared and presented in accordance with Indian Accounting Standards (IND AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under section 133 of the Companies Act, 2013 and other relevant provisions of the Act. The Current year results include the results of 19 Companies including 18 subsidiaries. These companies broadly operate in Roads, Bus Terminal, Industrial Parks and others sectors.

Revenue

The consolidated turnover of the company for 2022-23 is Rs. 17,051.28 million has increased as compared to Rs. 14,586.55 million in 2021-22. This increase is on account of revenue generated which is attributable to Visakha Pharmacity Limited and Hyderabad STPS.

Profit / Loss after Tax

The consolidated Profit after Tax for 2022-23 is Rs. 11,526.35 million compared to consolidated Profit of Rs. 400.25 million in 2021-22. This increase in PAT is due to the exceptional gain of Rs. 12,944.02 million arising due to extinguishment of borrowings under One Time Settlement entered by Srinagar Banihal Expressway Limited (SBEL) with its lenders.

Earnings per Share

The consolidated EPS for 2022-23 has increased to Rs. 164.83 from

Rs. 3.41 in Previous Year.

OPPORTUNITIES & THREATS Strengths & Opportunities

Ramky Infra is an Integrated Infrastructure company with inherent strengths of experienced management team with broad geographic and operational base. It has an execution expertise over diversified array of projects and being considered as one stop shop for end to end project execution.

Growing Competition of Indian industry due to focus on efficiency and quality.

Vast export marked to explore.

Growing recognition of "Made in India" brand in global market

Major growth through outscoring opportunities

Support from the Government and better financial support from players of the Financial Eco System.

Awareness among the society at large for a better sustainable growth of the economy and pressure from world institutions to enable the economy move towards clean and green energy.

RISKS AND CONCERNS:

Risk is the concept of actual outcome deviating from the expected outcome.

As an Infrastructure company following are the risks faced by the entity.

Construction Risk

Design Risk

Environmental Risk

Procurement Risk

Sub-Contractors Risk

Technology Risk

Design Risk

Disputes between labours

Changing sequences in construction activity

Non availability of resources

Change in quantities of work

In Time work permissions for executing work Safety of workers

Stoppage of work due to Medical outbreak

Delay in Land acquisitions and hand over

Legal battles for disputes

Environmental Risk:

Impact of weather condition on completion of project

Pollution by construction waste

Procedure to facilitate construction waste clean-up or disposal

Financial Risk:

Delay from clients to release funds

Unprecedented delay in executing the project

Interest service costs.

Change in Legislation leading to considerable financial outflow.

Delay in procurement of funds for taking up the project

Political Risk:

Political uncertainty.

The construction companies need to include risk as an integral part of their project management. Decision making such as risk assessment in construction projects is very important in the construction management. The identification and assessment of project risk are the critical procedures for projecting success. Your company has robust risk management mechanism at place.

INTERNAL FINANCIAL CONTROL AND THEIR ADVOCACY

The Company has adequate Internal Financial Controls consistent with the nature of business and size of the operations, to effectively provide for safety of its assets, reliability of financial transactions with adequate checks and balances, adherence to applicable statutes, accounting policies, approval procedures and to ensure optimum use of available resources. These systems are reviewed and improved on a regular basis. It has a comprehensive budgetary control system to monitor revenue and expenditure against approved budget on an ongoing basis.

Material developments in Human Resources / Industrial Relations front, including number of people employed

Ramky Infrastructure Limited believes in creating an environment, wherein human resources derive a sense of purpose, passion and personal growth at work, leading to better organizational performance. Towards realizing this, the company relies on the four pillars, namely, talent engagement, performance management, capability development and maintaining cordial industrial relations. It also believes in constant review of its HR processes and systems on an ongoing basis to optimize costs, time and labour.

FORWARD LOOKING STATEMENTS

With the COVID Pandemic brought under control and lives and businesses bounced back to normalcy, your company is hopeful that the projects will be executed with full potential.

Substantial efforts are being made to complete and close down all the old projects.

With the various measures taken up by the Governments for reviving the economy and various sectoral financial assistance from the Banking and financial sectors your company is hoping for head way in operations of the entity.

For and on behalf of the Board of

Ramky Infrastructure Limited

Sd/- Sd/-
Y.R. Nagaraja P. Ravi Prasad
Managing Director Wholetime Director
DIN: 00009810 DIN: 07872103

Place: Hyderabad

Date : 10.08.2023

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