Raunaq International Ltd Management Discussions

ECONOMIC OVERVIEW

Global Economy

Global recovery is steady but slow and differs by region. The baseline forecast is for the world economy to continue growing at 3.2 percent during 2024 and 2025, at the same pace as in 2023. A slight acceleration for advanced economies where growth is expected to rise from 1.6 percent in 2023 to 1.7 percent in 2024 and 1.8 percent in 2025 will be offset by a modest slowdown in emerging market and developing economies from 4.3 percent in 2023 to 4.2 percent in both 2024 and 2025. The forecast for global growth five years from now at 3.1 percent is at its lowest in decades. Global inflation is forecast to decline steadily, from 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. Core inflation is generally projected to decline more gradually.

The Global Economy has been surprisingly resilient, despite significant Central Bank Interest rate hikes to restore price stability. Changes in mortgage and housing markets over the pre pandemic decade of low interest rates moderated the near-term impact of policy rate hikes. The lower predicted growth in output per person stems, notably, from persistent structural frictions preventing capital and labour from moving to productive firms. Further, the dimmer prospects for growth in China and other large emerging market economies will weigh on trading partners.

Global Economic Growth

(in %)

Output	2023	2024P	2025P
World output	3.20	3.20	3.20
Advanced Economies	1.60	1.70	1.80
Emerging Market and Developing Economies (EMDEs)	4.30	4.20	4.20

P = Projections

Source:https://www.imf.org/en/Publications/WEO/ Is sues/2024/04/16/world-economic-outlook-april-2024

Indian Economy

The Asian Development Bank (ADB) upgrades Indias gross domestic product (GDP) growth forecast for fiscal year (FY) 2024 ending on 31 March, 2025 from 6.7% to 7% and 7.2% in FY 2025, driven by robust public and private investment and strong services sector. The triggers for growth in FY 2024 has come from higher capital expenditure on infrastructure development both by central and state governments, rise in private corporate investment, strong service sector performance and improved consumer confidence. Growth momentum will pick up in FY 2025 backed by improved goods exports and an increase in manufacturing productivity and agricultural output.

A senior official of ADB said "Notwithstanding global headwinds, India remains the fastest growing major economy on the strength of its strong domestic demand and supportive policies". The Government of Indias efforts to boost infrastructure development while undertaking fiscal consolidation and provide an enabling business environment will help in increased manufacturing competitiveness to augment exports and drive future growth.

A healthy rise of 17% in central government capital expenditure in FY 2024 compared to the previous fiscal year together with transfers to state governments will boost infrastructure investment. A new government initiative to support urban housing for middle-income households is expected to further spur housing growth. Private corporate investment is expected to get a boost with stable interest rates. With inflation moderating to 4.6% in FY 2024 and easing further to 4.5% in FY 2025, monetary policy may become less restrictive, which will facilitate rapid offtake of bank credit. Demand for financial, real estate and professional services will grow while manufacturing will benefit from muted input cost pressures that will boost industry sentiment. Expectations of a normal monsoon will help boost growth of the agriculture sector.

The governments focus on fiscal consolidation, with a targeted deficit of 5.1% of GDP for FY 2024 and 4.5% for FY 2025, will enable the government to reduce its gross marketing borrowing by 0.9% of GDP in FY 2024 and create further room for private sector credit. Indias current account deficit will widen moderately to 1.7% of GDP on rising imports for meeting domestic demand. Foreign direct investment will be affected in the near term due to tight global financial conditions but will pick up in FY 2025 with higher industry and infrastructure investment. Goods exports will also be affected by lower growth in advanced economies but pick up in FY 2025 as global growth improves.

Source: https://www.adb.org/news/adb-projects-indias-economy-grow-steadily-7-fy-2024

INDUSTRY OVERVIEW

Infrastructure Sector

Introduction

Indias high growth imperative in 2023 and beyond will significantly be driven by major strides in key sectors with infrastructure development being a critical force aiding the progress.

The governments focus on building infrastructure of the future has been evident given the slew of initiatives launched recently. The US$ 1.3 trillion national master plan for infrastructure, Gati Shakti, has been a forerunner to bring about systemic and effective reforms in the sector, and has already shown a significant headway.

Infrastructure support to the nations manufacturers also remains one of the top agendas as it will significantly transform goods and exports movement making freight delivery effective and economical.

The "Smart Cities Mission" and "Housing for All" programmes have benefited from these initiatives.

The infrastructure sector is a key driver of the Indian economy. The sector is highly responsible for propelling Indias overall development and enjoys intense focus from the Government for initiating policies that would ensure the time-bound creation of world-class infrastructure in the country. The infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development. In other words, 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.

To meet Indias aim of reaching a US$ 5 trillion economy by 2025, infrastructure development is the need of the hour. The government has launched the National Infrastructure Pipeline (NIP) combined with other initiatives such as ‘Make in India and the production-linked incentives (PLI) scheme to augment the growth of the infrastructure sector. Historically, more than 80% of the countrys infrastructure spending has gone towards funding for transportation, electricity, water and irrigation.

While these sectors still remain the key focus, the government has also started to focus on other sectors as Indias environment and demographics are evolving. There is a compelling need for enhanced and improved delivery across the whole infrastructure spectrum, from housing provision to water and sanitation services to digital and transportation demands, which will assure economic growth, increased quality of life, and boost sectoral competitiveness.

GOVERNMENT INITIATIVES

In Union Budget 2023-24, some key initiatives of the government 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 per cent of GDP and almost three times the outlay in 2019-20.

• In recent years, there has been a substantial increase in the pace of construction of national highways, from an average of 12 kilometres per day in 2014-15 to around 29 kilometres per day in 2021-22.

• As per the Union Budget 2023-24, 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.

• 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

Indias Infrastructure forms an integral part of the countrys economic ecosystem. There has been a significant shift in the industry that is leading to the development of world class facilities across the country in the areas of roads, waterways, railways, airports, and ports, among others. The country wide smart cities programmes have proven to be industry game changers. Given its critical role in the growth of the nation, the infrastructure sector has experienced a tremendous boom because of Indias necessity and desire for rapid development. The expansion has been aided by urbanisation and an increase in foreign investment in the sector.

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 among the most critical components of infrastructure, crucial for the economic growth and welfare of nations. The existence and development of adequate power infrastructure is essential for sustained growth of the Indian economy. The fundamental principle of Indias power industry has been to provide universal access to affordable power in a sustainable way. The Ministry of Power has made significant efforts over the past few years to turn the country from one with a power shortage to one with a surplus by establishing a single national grid, fortifying the distribution network, and achieving universal household electrification. 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, 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 capacity and solar power capacity 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 426.13 GW as of 30 November, 2023.

As of 30 November, 2023, Indias installed renewable energy capacity (including hydro) stood at 179.57 GW, representing 42.1% of the overall installed power capacity. As of 30 November, 2023, Solar energy contributed 72.31 GW, followed by 44.56 GW from wind power, 10.26 GW from biomass, 4.98 GW from small hydropower, 0.57 from waste to energy, and 46.88 GW from hydropower.

The non-hydro renewable energy capacity addition stood at 15.27 GW in FY 23, up from 14.07 GW in FY 22.

Indias power generation witnessed its highest growth rate in over 30 years in FY 23. Power generation in India increased by 8.87% to 1,624.15 billion kilowatt-hours (kWh) in FY 23. 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 243.27 GW in November, 2023.

The coal plants registered a PLF of 73.7% for the first nine months period in FY 23 compared to 68.5% in FY 22 for the same period.

Thermal power plant load is estimated to improve by 63% in FY 24, fuelled by strong demand growth along with subdued capacity addition in the sector.

Developments/Investments Scenario

Total FDI inflows in the power sector reached US$ 18.17 billion between April 2000-December 2023, accounting for 2.73% of the total FDI inflow in India.

Some major investments and developments in the Indian power sector are as follows:

• Cumulative FDI inflow in the power sector stood at US$ 18.17 billion between April 2000-December 2023.

• India has received a cumulative amount of US$ 3.8 billion in foreign direct investment (FDI) in the solar energy sector over the past three fiscal years and FY 2023-24 until September, 2023.

• India ranked fourth in the list of countries to make significant investments in renewable energy by allotting US$ 77.7 billion between 2015 and 2022.

• In FY 24 (until November 2023), the power generation in India was 1,176.13 BU.

• Indias electricity generation from renewable and non-renewable sources for FY 21, FY 22, and FY 23 was 1,373.08 BU, 1,484.36 BU, and 1,617.72 BU, respectively.

• The power generation industry in India will require a total investment of Rs. 33 lakh crore (US$ 400 billion) and 3.78 million power professionals by 2032 to meet the rising energy demands, as per the National Electricity Plan 2022-32.

• By 2031, the current installed nuclear power capacity is expected to rise from 7,480 MW to 22,480 MW because of the progressive completion of projects under construction and accorded sanction.

• India has the potential to attract an investment of over US$ 20 billion in renewables in 2023.

The Road Ahead

In the current decade (2020-29), 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 towards more environment 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

During the year under review, there is a downturn in the total revenue of the Company from 778.96 Lakhs in FY 2022-23 to 465.11 Lakhs in FY 2023-24. During the Financial Year 2023-24, despite the Companys difficulty to arrange for Bank Guarantees due to strict Banking Norms for EPC Industry, the Company has quoted for few tenders and out of them, the Company has successfully secured a work order for "2x800 MW (Phase-II) Mahan Ultra Supercritical Thermal Power Project, Village: Bandhaura, District: Singrauli, Madhya Pradesh" amounting 14.98 Crores.

Due to unavailability of banking facilities, the Company was unable to bid for more new jobs during the year. Further, the Company has continued its trading and machining activities alongside EPC projects during the year to sustain a level of revenues and profitability of the Company.

Significant Changes in Key Financial Ratios during the Financial Year 2023-24

PARTICULARS	2023-24	2022-23	% Change in Ratios	Remarks
Debtor Turnover Ratio	1.24	0.72	71%	Company realised/ settled majority of its debtors during the year.
Inventory Turnover Ratio	20.67	6.23	232%	Closing inventory is Nil.
Current Ratio	1.64	1.70	4%	Company realized from trade receivables increased during the year.
Debt Equity Ratio	-	0.03	-	During the year, Company paid all the borrowings.
Operating Profit Margin	19.94%	18.74%	6%	Operation margin increased during the year.
Net Profit/Loss Margin	-29.14%	-41.25%	29%	Companys losses have declined during the year.

OUTLOOK

Going forward, Raunaq International intends to tactfully approach new EPC tenders while leveraging its extensive experience in the field. The Company has successfully secured a work order for "2x800 MW Phase-II) Mahan Ultra Supercritical Thermal Power Project, Village: Bandhaura, District: Singrauli, Madhya Pradesh" amounting 14.98 Crores. The Company is confident of getting similar jobs for which the Company is in the process of bidding. The Company also seeks to explore opportunities within the trading and machining sectors, particularly in the auto component industry. Our commitment lies in timely project execution, fueled by top-notch engineering capabilities. We are equally dedicated to advancing our trading and machining activities alongside our EPC projects, all within the confines of our available banking facilities.

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 not only applying for new jobs in thermal power cautiously but also diversified in the steel trading.

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.

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. Due to covid few jobs had been completed with delay and now the progress is back on track.

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 Irrigation and water system project wherein the Bankers can support with extended credit facilities.

Fraud risk:

RIL can not eliminate fraud entirely however, the 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 RIL 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 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 auditor of the Company regularly carry out reviews of the internal control system to detect deviations. The report of the internal auditor is submitted to the management on a quarterly 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 expressed or implied. Important developments that could affect the Companys operations include a downtrend in the infrastructure sector, significant changes in Indias political and economic environment, exchange rate fluctuations, tax laws, litigation, labour relations, and interest costs.