ECONOMIC OVERVIEW
Global Economy
The outlook is uncertain again amid financial sector turmoil, high inflation, ongoing
effects of Russias invasion of Ukraine, and three years of COVID.
The baseline forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent in
2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an
especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In
a plausible alternative scenario with further financial sector stress, global growth
declines to about 2.5 percent in 2023 with advanced economy growth falling below 1
percent. Global headline inflation in the baseline is set to fall from 8.7 percent in 2022
to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core)
inflation is likely to decline more slowly. Inflations return to target is unlikely
before 2025 in most cases.
The natural rate of interest is important for both monetary and fiscal policy as it is
a reference level to gauge the stance of monetary policy and a key determinant of the
sustainability of public debt. Chapter 2 aims to study the evolution of the natural rate
of interest across several large advanced and emerging market economies. Public debt as a
ratio to GDP soared across the world during COVID-19 and is expected to remain elevated.
Chapter 3 examines the effectiveness of different approaches to reducing debt-to-GDP
ratios. Supply-chain disruptions and rising geopolitical tensions have brought the risks
and potential benefits and costs of geoeconomic fragmentation to the center of the policy
debate. Chapter 4 studies how such fragmentation can reshape the geography of foreign
direct investment FDI and how it can affect the global economy.
Source:https://www.imf.org/en/Publications/WEO/
Issues/2022/04/19/world-economic-outlook-april-2022 cent in the current financial year and
the growth would accelerate to 6.7 per cent in 2024-25.
The growth moderation for India in current financial year is premised on an ongoing
global economic slowdown, tight monetary conditions, and elevated oil prices. However,
faster growth in investment is expected for the financial year 2024-25. A senior official
of ADB said "Despite the global slowdown, Indias economic growth rate is stronger
than in many peer economies and reflects relatively robust domestic consumption and lesser
dependence on global demand". "The Government of Indias strong
infrastructurepushunderthePrimeMinistersGatiShakti (National Master Plan for Multimodal
Connectivity) initiative, logistics development, and industrial corridor development will
contribute significantly to raising industrial competitiveness and boosting future
growth." Inflation will likely moderate to 5% in FY 2023, assuming moderation in oil
and food prices, and slow further to 4.5% in FY 2024 as inflationary pressures subside. In
tandem, monetary policy in FY 2023 is expected to be tighter as core inflation persists,
while becoming more accommodative in FY 2024. The current account deficit is projected to
decline to 2.2% of GDP in FY 2023 and 1.9% in FY 2024. Growth in goods exports is forecast
to moderate in FY 2023 before improving in 2024, as production-linked incentive schemes
and efforts to improve the business environment, such as streamlined labour regulations,
improved performance in electronics and other areas of manufacturing growth. Services
exports growth has been robust and is expected to continue to strengthen Indias overall
balance of payments position.
Source: https://www.adb.org/news/india-economy-grow-6-4-fy2023-rise-6-7-fy2024
Global Economic Growth
(in %)
Output |
2021 |
2022 |
2023P |
2024P |
World output |
6.10 |
3.40 |
2.80 |
3.00 |
Advanced |
5.20 |
2.70 |
1.30 |
1.40 |
Economies |
|
|
|
|
Emerging Markets and Developing |
6.80 |
4.00 |
3.90 |
4.20 |
Economies(EMDEs) |
|
|
|
|
Source: IMF World Economic Outlook, April 2023, P = Projections
Indian Economy
According to Asian Development Bank (ADB), the Indian economy is projected to be
moderated to 6.4 per
INDUSTRY OVERVIEW
Infrastructure Sector
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
and urban infrastructure development. The infrastructure sector acts as a catalyst for
Indias economic growth as it drives the growth of the allied sectors like townships,
housing, built-up infrastructure and construction development projects.
Market Size
India plans to spend US$ 1.4 trillion on infrastructure through ‘National
Infrastructure Pipeline in the next five years. In FY 2021, infrastructure activities
accounted for 13% share of the total FDI inflows of US$ 81.72 billion. India will need to
construct 43,000 houses every day until 2022 to achieve the vision of Housing for All by
2022. As of 22 August, 2022, 122.69 lakh houses have been sanctioned, 103.01 lakh houses
have been grounded, and 62.21 lakh houses have been completed, under the Pradhan Mantri
Awas Yojna scheme (PMAY-Urban).
Investment Scenario
In Union Budget 2023, capital investment outlay for infrastructure is being increased
by 33% to Rs.10 lakh crore (US$ 122 billion), which would be 3.3% of GDP.
• In Budget 2022-23, the government initiatives and investments in the
Infrastructure sector are as follows:
• Capital investment outlay for infrastructure is being increased by 33% to Rs. 10
lakh crore (US$ 122 billion), which would be 3.3% of GDP and almost three times the outlay
in 2019-20.
• Infrastructure Finance Secretariat is being established to enhance opportunities
for private investment in infrastructure that will assist all stakeholders for more
private investment in infrastructure, including railways, roads, urban infrastructure, and
power.
• The Government has decided to continue the 50-year interest free loan to state
governments for one more year to spur investment in infrastructure and to incentivize them
for complementary policy actions, with a significantly enhanced outlay of Rs 1.3 lakh
crore (US$ 16 billion).
• A capital outlay of Rs 2.40 lakh crore (US$ 29 billion) has been provided for
the Railways, which is the highest ever outlay and about 9 times the outlay made in
2013-14.
• 100 critical transport infrastructure projects, for last and first mile
connectivity for ports, coal, steel, fertilizer, and food grains sectors have been
identified and will be taken up on priority with investment of Rs. 75,000 crore (US$ 9
billion), including Rs. 15,000 crore (US$ 1.8 billion) from private sources.
• 50 additional airports, heliports, water aerodromes and advance landing grounds
will be revived for improving regional air connectivity.
• An Urban Infrastructure Development Fund (UIDF) will be established through use
of priority sector lending shortfall, which will be managed by the National Housing Bank,
and will be used by public agencies to create urban infrastructure in Tier 2 and Tier 3
cities.
• States will be encouraged to leverage resources from the grants of the 15th
Finance Commission, as well as existing schemes, to adopt appropriate user charges while
accessing the UIDF.
• For realizing the vision of "Make A-I in India and Make A-I work for
India", three centers of excellence for Artificial Intelligence will be set-up in top
educational institutions.
• The Digital Public infrastructure for agriculture will be built as an open
source, open standard and inter operable public good that will enable inclusive,
farmer-centric solutions through relevant information services for crop planning and
health, improved access to farm inputs, credit, and insurance, help for crop estimation,
market intelligence, and support for growth of agri-tech industry and start-ups.
• 157 new nursing colleges will be established in co-location with the existing
157 medical colleges established since 2014.
• National Digital Library for Children and Adolescents will be set-up for
facilitating availability of quality books across geographies, languages, genres and
levels, and device agnostic accessibility. States will be encouraged to set up physical
libraries for them at panchayat and ward levels and provide infrastructure for accessing
the National Digital Library resources.
• Skill India International Centres to be set up across different States to skill
youth for international opportunities.
• Central Processing Centre to be setup for faster response to companies through
centralized handling of various forms filed with field offices under the Companies Act.
• District Institutes of Education and Training to be developed as vibrant
institutes of excellence for Teachers Training.
• States will be encouraged to set up a Unity Mall in their state capital or most
prominent tourism centre or the financial capital for promotion and sale of their own
ODOPs (one district, one product), GI products and other handicraft products, and for
providing space for such products of all other States.
• Since 2016-17, the budget for the Pradhan Mantri Awas Yojana, the flagship
housing scheme of the government, has increased 280% from Rs. 20,936 crore (US$ 2.5
billion) in the revised estimates of 2016-17 to Rs. 79,590 crore (US$ 9.6 billion) in the
latest 2023-24 budget.
• The Awas Yojana budget estimate for 2023-24 constitutes an allocation of Rs.
25,103 crore (US$ 3 billion) to Pradhan Mantri Awas Yojana-Urban and Rs. 54,487 crore (US$
6.5 billion) to Pradhan Mantri Awas Yojana-Gramin.
The Road Ahead
The infrastructure sector has become the biggest focus area for the Government of
India. India plans to spend US$ 1.4 trillion on infrastructure during 2019-23 to have a
sustainable development of the country. The Government has suggested investment of Rs.
5,000,000 crore (US$ 750 billion) for railways infrastructure from 2018-30.
Indias GDP is expected to grow by 8% over the next three fiscal years, one of the
quickest rates among major, developing economies, according to S&P Global Ratings.
India and Japan have joined hands for infrastructure development in Indias Northeast
states and are also setting up an India-Japan Coordination Forum for development of
Northeast to undertake strategic infrastructure projects for the region.
Source:https://www.ibef.org/industry/infrastructure-sector-india
POWER SECTOR
Introduction
Power is one of the most important infrastructure elements, essential to national
wellbeing and economic development. For the Indian economy to grow steadily, enough
electrical infrastructure must exist and be developed. Indias power generation sources
range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear
power to viable non-conventional sources such as wind, solar, and agricultural and
domestic waste.
Indias power sector is one of the most diversified in the world. Sources of power
generation range from conventional sources such as coal, lignite, natural gas, oil, hydro
and nuclear power to viable non-conventional sources such as wind, solar, and agricultural
and domestic waste. Electricity demand in the country has increased rapidly and is
expected to rise further in the years to come. In order to meet the increasing demand for
electricity in the country, massive addition to the installed generating capacity is
required.
India was ranked fourth in wind power, fifth in solar power and fourth in renewable
power installed capacity, as of 2021. India is the only country among the G20 nations that
is on track to achieve the targets under the Paris Agreement.
Market Size
India is the third-largest producer and consumer of electricity worldwide, with an
installed power capacity of 416.59 GW as of 30 April , 2023.
As of 30 April, 2023, Indias installed renewable energy capacity (including hydro)
stood at 172.54 GW, representing 41.4% of the overall installed power capacity. Solar
energy contributed 67.07 GW, followed by 42.86 GW from wind power, 10.24 GW from biomass,
4.94 GW from small hydropower, 0.55 from waste to energy, and 46.85 GW from hydropower.
The non-hydro renewable energy capacity addition stood at 4.2 GW for the first three
months of FY23 against 2.6 GW for the first three months of FY 2022.
Indias power generation witnessed its highest growth rate in over 30 years in FY 2023.
Power generation in India increased by 8.87% to 1,624.15 billion kilowatt-hours (kWh) in
FY23. According to data from the Ministry of Power, Indias power consumption stood at
130.57 BU in April, 2023. The peak power demand in the country stood at 226.87 GW in
April, 2023.
The coal plants registered a PLF of 73.7% for the first nine-months period in FY23
compared to 68.5% in FY22 for the same period.
Thermal power plant load is estimated to improve by 63% in FY24, fuelled by strong
demand growth along with subdued capacity addition in the sector.
Investment Scenario
Total FDI inflows in the power sector reached US$ 16.57 billion between April
2000-December 2022.
Some major investments and developments in the Indian power sector are as follows:
• In February 2023, Tata Power inaugurated ‘Divyang a managed customer
relations centre in Mumbai, which is a first among Indian power utilities.
• In January 2023, the Union Cabinet (CCEA) approved investment of US$ 315 million
(Rs. 2,614 crores) for SJVNs 382 MW Sunni Dam Hydro Project.
• In January 2023, President of India laid foundation stone of SJVNs 1000 MW
Bikaner Solar Power Project in Rajasthan.
• In January 2023, the President of India dedicated transmission system built by
Powergrid for 8.9 GW of solar power in Rajasthan.
• In August 2022, Tata Power Green Energy Limited (TPGEL), a wholly-owned
subsidiary of Tata Power, commissioned a 225MW hybrid power project in Rajasthan.
• Mumbai headquartered Essar Group has formed the Essar Energy Transition (EET)
with the objective to invest a total of US$ 3.6 billion in developing a range of low
carbon energy transition projects over the next five years.
• In November 2022, the Maharashtra State Electricity Distribution Corporation
Limited (MSEDCL) granted the "Letter of Award" (LoA) to Tata Power Renewable
Energy Limited (TPREL), a Tata Power subsidiary, to build a 150 MW solar project in
Solapur, Maharashtra.
• In October 2022, SJVN started commissioning its 75 MW Solar Power Project in
Parasan Solar Park which is located at Tehsil Kalpi, District Jalaun near Kanpur, Uttar
Pradesh.
• In August 2022, NHPC Limited and the Government of Himachal Pradesh inked an
implementation agreement for the 500 MW Dugar Hydroelectric Project in the Chamba District
of Himachal Pradesh.
• In August 2022, Norfund, who manage the Norwegian Climate Investment Fund, and
KLP, Norways biggest pension company, signed an agreement to buy a 49% share of a 420 MW
solar power plant in Rajasthan for Rs. 2.8 billion (US$ 35.05 million).
• In August 2022, Tata Power Green Energy Limited (TPGEL), a wholly-owned
subsidiary of Tata Power, commissioned a 225MW hybrid power project in Rajasthan.
• In August 2022, NHPC signed a MoU with the Investment Board Nepal (IBN) to
develop 750 MW West Seti and 450 MW SR-6 Hydroelectric Projects in Nepal.
• In July 2022, NTPC signed a MoU with MASEN (Moroccan Agency for Sustainable
Energy) for cooperation in the renewable energy sector.
• In June 2022, SJVN announced a collaboration with the Assam government for the
development of hydro and renewable energy projects in the state.
• In June 2022, SJVN signed investment agreements worth Rs. 80,000 crore (US$
10.24 billion) with the Uttar Pradesh government for implementing three solar power
projects in the state.
• In May 2022, SJVN signed a pact with Tata Power Solar Systems to build a 1,000
MW solar project worth Rs. 5,500 crore (US$ 704.38 million) in Bikaner, Rajasthan.
• In June 2022, NTPC declared commercial operation of second part capacity of 15
MW out of 56 MW Kawas Solar PV project in Gujarat.
• SJVN Limited is looking to develop 10,000 MW solar power projects inviting
investment of Rs. 50,000 crore (US$ 6.56 billion) in the next five years in Rajasthan.
• In June 2022, NHPC signed an engineering, procurement, and construction (EPC)
contract with Adani Infra Limited to develop a 600 MW solar project under the Central
Public Sector Undertaking program (Phase-II).
• Investment in Indias renewable energy sector grew more than 125% YoY to touch a
record US$ 14.5 billion in FY22.
• In March 2022, NTPC announced that it was ready to start partial power
generation of 10 GW from a
92 MW floating solar energy plant being set up at NTPCs unit at Kayamkulam in Kerala.
• In March 2022, NTPC announced that it will start commercial operations of 74.88
MW capacity of its 296 MW Fatehgarh solar project in Rajasthan.
• In March 2022, Adani Solar and Smart Power India (SPI), a subsidiary of
Rockefeller Foundation, signed a non-financial and non-commercial MoU promote the usage of
solar rooftop panels in rural India.
• In February 2022, Kolkata-based Eminent Electricity Distribution Ltd., a
subsidiary of CESC Limited, bid Rs. 871 crore (US$ 113.24 million) to take over
Chandigarhs power supply department, which was approved and the transition will happen by
the end of March.
• SJVN Limited is looking to develop 10,000 MW solar power projects inviting
investment of Rs. 50,000 crore (US$ 6.56 billion) in the next five years in Rajasthan.
• In November 2021, NTPC announced that its 80 MW solar power-generation capacity
in Jetsar (Rajasthan) has started commercial operations from October 22, 2021. The total
capacity of the project is 160 MW.
• In November 2021, SJVN began the second unit work of the 1,320 MW Buxar thermal
power plant in Bihar.
The Road Ahead
In the current decade (2020-2029), the Indian electricity sector is likely to witness a
major transformation with respect to demand growth, energy mix and market operations.
India wants to ensure that everyone has reliable access to sufficient electricity at all
times, while also accelerating the clean energy transition by lowering its reliance on
dirty fossil fuels and moving toward more environmentally friendly, renewable sources of
energy. Future investments will benefit from strong demand fundamentals, policy support
and increasing government focus on infrastructure.
The Government of India is preparing a ‘rent a roof policy for supporting its
target of generating 40 GW of power through solar rooftop projects by 2022. It also plans
to set up 21 new nuclear power reactors with a total installed capacity of 15,700 MW by
2031.
The Central Electricity Authority (CEA) estimates Indias power requirement to grow to
reach 817 GW by 2030. Also, by 2029-30, CEA estimates that the share of renewable energy
generation would increase from 18% to 44%, while that of thermal energy is expected to
reduce from 78% to 52%.
The government plans to establish renewable energy capacity of 500 GW by 2030.
Source: https://www.ibef.org/industry/power-sector-india
COMPANY REVIEW
Raunaq EPC International Limited (REIL)
Due to lack of Banking facilities, the Company was unable to Bid for any new jobs
during the year. The Company has only executed the current projects, delayed/disrupted due
to covid, which has impacted the revenues and financials of the Company. On standalone
basis, the Company has registered total revenue of Rs. 778.96 Lakhs in FY 2022-23 as
compare to the total revenue of the Company of Rs. 1024.28 Lakhs in FY 2021-22,
which is 24% down from the previous year. In terms of the execution, Company has completed
all the work at following projects in FY 2022-23:
• Large Dia CW piping system at NUPPL Ghatampur 3x660MW for GE Power Systems has
been completed.
• Additional ash water re-circulation project at NTPC Ramagundam 2600 MW.
• Work of LP Piping & FOHS at NTPC/BRBCL - Nabinagar has been completed and
closing activities have been started.
Significant Changes in the Financial Year 2022-23
PARTICULARS |
2022- 23 |
2021- 22 |
% Change in Ratios |
Remarks |
Debtor Turnover Ratio |
0.72 |
0.50 |
45% |
Company realised/settle majority of its debtor during the year |
Inventory Turnover Ratio |
6.23 |
1.65 |
278% |
Closing inventory is down and majority of revenue is from erection
work. |
Current Ratio |
1.70 |
1.13 |
50% |
Current ratios is improved due to payout of current liabilities |
PARTICULARS |
2022- 23 |
2021- 22 |
% Change in Ratios |
Remarks |
Debt Equity Ratio |
0.03 |
1.48 |
-98% |
During the year, company payout its majority of debts |
Operating Profit Margin |
18.74 |
17.03 |
10% |
The reason of improvement is due to reducion in operting expenses and
Financial cost |
Net Profit/Loss Margin |
-41.25 |
-48.86 |
-16% |
The reason of decrease in loss is due to increase in fair value of
investment |
OUTLOOK
The Company will cautiously quote for new tenders in EPC business going forward and
would utilize the long drawn experience of the EPC business. Simultaneously the Company
will further explore possibilities in the trading business and machining activities which
cater to the auto component business.
Risk and Concerns
Some of the possible key risks for the Company are given below with corresponding
mitigation measures.
Macroeconomic risk:
A downturn in the macroeconomic scenario along with unfavorable regulatory policies can
negatively impact on business.
Mitigation: The Company has been cautiously quoting for the new comparatively small
EPC projects and simultaneously will further explore possibilities in the trading business
and machining activities which cater to the auto component business.
Competition risk:
The increasing competition within the EPC space may coerce the Company to tender at
lower prices leading to compressed margins.
Mitigation: The Companys focus on quality, timely delivery, projects brand value
and successful track record give a competitive edge over others. Further, its vast
experience, technology investments and competent work force enable to manage the project
costs allowing it to provide customers the most competitive rates.
Financial Ratios during
Project execution risk:
Inability of the Company to effectively manage projects may lead to cost/time overruns
and reputation loss. Mitigation: The Company has adequate modern equipments and
experienced manpower which leads to high productivity at project sites.
Liquidity risk:
Inability of the Company to recover payments in time may hamper its working capital
which in turn may impact funding of other on-going projects. Further banks/Financial
Institutions adopts strict guidelines to extend credit limits to the Companies in EPC and
Power Business due to the prolong downturn in the sector for quiet sometime.
Mitigation: The Company conducts a judicious risk-return evaluation of each project
and rigorous follow up for the outstanding balances over 180 days. The Company is shifting
its focus to the EPC Jobs wherein the Bankers can support with extended credit facilities.
Further the Company has paid off its debts by offloading its investment in the subsidiary
Company and from the retention money refunded.
Fraud risk:
REIL cannot eliminate fraud entirely however, company is trying to prevent some things
from happening to lessen the financial impact to it.
Mitigation: We have put in place and strengthen anti-fraud measures. The Company
has adopted following measures to tranquillize the risk:
• Carry out fraud risk assessment including results from past reviews and audits.
• Improve controls.
• An effective governance structure including appropriate lines of authority and
Board oversight.
• Independent check on performance and compliance.
• Segregation of duties so that no employee has control over whole process.
Legal risk:
The traditional mechanisms for project risk allocation that are available in other
countries are not suitable in India due to differences in legal systems. Moreover we
strive upon to develop a compliance structure which can be carefully studied and
processed.
Mitigation: The management has a team of advisors for deep study of contractual
terms and access the risk associated with it and make out strategies accordingly and
provide legal proactive support and contingency planning.
Information risk:
Information risk is the probability that the information circulated by the company can
be leaked or destroyed. This may affect the companys ongoing and upcoming operations. Mitigation:
The information risk mitigation process developed by our company includes:
• Establishing information risk management practices that will help to make the
organization successful.
• Regular re-evaluation of the nature and extent of the risks to which the
organization is exposed, plus periodic adjustment to ensure that the company continues to
steer the line between allowing risks to grow out of hand and constraining operational
effectiveness.
Natural calamity/crisis risks:
Natural calamities or any global/national crises such as a pandemic, cyclones, major
earthquakes, political upheavals, wars, etc. would not only disrupt the Companys
operations at various sites.
Mitigation: The Companys focus in such scenarios is to do everything to first
ensure business survival and protection of life and limbs of its stakeholder community. It
would then focus on adopting strategies to revive business fortunes under the new
circumstances. Some of the survival strategies that REIL has adopted in the past during
such a crisis include deferring capex, liquidity management and cutting costs.
Internal Control Systems and their Adequacy
Every successful company needs to have certain controls in place for function
effectively. Raunaq EPC as well has sufficient internal controls in accordance with the
nature and magnanimity of its business.
These have been designed to ensure that:
• Assets of the Company are acquired in an economical manner and safeguards are in
place for their upkeep and to ensure their protection against any damage or destruction.
• Controls relating to the financial and operational aspects of the business
remain in place and are working satisfactorily to detect exceptions and raise alerts.
• The Company enforces stringent compliance with all applicable laws and internal
policies.
The internal auditors of the Company regularly carry out reviews of the internal
control system to detect deviations. The report of the internal auditors is submitted to
the management on a monthly basis and is helpful in the prevention and detection of fraud
and to report any discrepancies in the day-today activities of the Company. Further,
internal control systems are periodically review by the Audit Committee and are kept
updated and consistent with the requirements of the organization.
Cautionary Statement
Statements in this Management Discussion and Analysis describing the Companys
objectives, projections, estimates and expectations may be ‘forward-looking
statements within the meaning of applicable laws and regulations. Actual results might
differ substantially or materially from those downtrend in the infrastructure and power
industry globally or domestic or both due to significant changes in political and economic
environment in India or key markets abroad, tax laws, litigation, labour relations,
exchange rate fluctuations, interest and other costs.
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