Raunaq International Ltd Management Discussions

ECONOMIC REVIEW

Global Economy

After enduring a prolonged and unprecedented series of shocks, the global economy appeared to have stabilized, with steady yet underwhelming growth rates. However, the landscape has changed as governments around the world reorder policy priorities and uncertainties have climbed to new highs. Forecasts for global growth have been revised markedly down compared with the January 2025 World Economic Outlook (WEO) Update, reflecting effective tariff rates at levels not seen in a century and a highly unpredictable environment. Global headline inflation is expected to decline at a slightly slower pace than what was expected in January.

Intensifying downside risks dominate the outlook, amid escalating trade tensions and financial market adjustments. Divergent and swiftly changing policy positions or deteriorating sentiment could lead to even tighter global financial conditions. Ratcheting up a trade war and heightened trade policy uncertainty may further hinder both short-term and long-term growth prospects. Scaling back international cooperation could jeopardize progress toward a more resilient global economy.

At this critical juncture, countries should work constructively to promote a stable and predictable trade environment and to facilitate international cooperation, while addressing policy gaps and structural imbalances at home. This will help secure both internal and external economic stability. To stimulate growth and ease fiscal pressures, policies that promote healthy aging and enhance labor force participation among older individuals and women could be implemented. Additionally, productivity growth can be fostered with better integration of migrants and refugees and mitigation of skill mismatches.

Global Economic Growth

(in %)

			(in %)
Output	2024	2025P	2026P
World output	3.30	2.80	3.00
Advanced Economies	1.80	1.40	1.50
Emerging Market and Developing Economies(EMDEs)	4.30	3.70	3.90

P = Projections

Source:https://www.imf.org/en/Publications/WEO/ Issues/2025/04/22/world-economic-outlook-april-2025

Indian Economy

The Asian Development Bank (ADB) forecasts Indias gross domestic product (GDP) to expand by 6.7% in fiscal year (FY) 2025 (ending 31 March 2026) spurred by higher domestic demand, rising rural incomes, a strong services sector, and moderating inflation that will boost consumer confidence.

Favorable monetary and fiscal policies are expected to sustain the growth momentum, with GDP projected to increase by 6.8% in FY 2026.

A senior official of ADB said "India continues to show resilient growth despite global uncertainties, driven by the Government of Indias focus on infrastructure development and job creation. The further strengthening of the manufacturing sector through regulatory reforms, combined with the already robust services and agriculture sectors and the recently announced tax incentives for the middle class, will help sustain Indias strong economic growth trajectory." The report underscores that consumption will be a major growth driver, fueled by rising rural incomes and increased demand from urban middle-class and affluent households thanks to reductions in personal income tax rates. Additionally, moderating inflation is expected to further boost consumer sentiment with rates projected at 4.3% in FY 2025 before declining slightly to 4.0% in FY 2026. Falling inflation would create policy space for more cuts to repo rate even with global financial uncertainty. The services sector will remain a key growth driver, supported by the expansion of business services exports, education, and health services. The agriculture sector is expected to maintain strong growth in FY 2025, driven by robust winter crop sowing, particularly wheat and pulses. Meanwhile, the manufacturing sector is anticipated to rebound after experiencing tepid growth in FY 2024. Investment in urban infrastructure will increase, supported by a new government fund with an initial allocation of 100 billion Indian rupees ($1.17 billion). While global economic uncertainties may hinder private investment prospects in the short term, they are expected to improve with the gradual lowering of borrowing costs and planned regulatory reforms aimed at spurring investment.

The report notes a range of near-term growth risks, including uncertainties created by the recent increase in US tariffs on Indian exports and broader global developments that could lead to higher commodity prices. However, some of these risks are expected to be mitigated by Indias relatively stable macroeconomic position. Source:https://www.adb.org/news/adb-forecasts-india-economy-grow-6-7-fy2025

INDUSTRY OVERVIEW

Infrastructure Sector Introduction

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

Infrastructure is a key enabler in helping India become a US$ 26 trillion economy. Investments in building and upgrading physical infrastructure, especially in synergy with the ease of doing business initiatives, remain pivotal to increase efficiency and costs. Prime Minister Mr. Narendra Modi also recently reiterated that infrastructure is a crucial pillar to ensure good governance across sectors.

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. Saudi Arabia seeks to spend up to US$ 100 billion in India in energy, petrochemicals, refinery, infrastructure, agriculture, minerals, and mining.

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 2027, 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 toward funding for transportation, electricity, and 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, increase quality of life, and boost sectoral competitiveness.

Robust Demand

India has to enhance its infrastructure to reach its 2027 economic growth target of US$ 5 trillion.Cement demand in India is projected to remain robust in the coming years, with a compound annual growth rate (CAGR) of 7-8% over FY 25E-27E, according to a report by JM Financial. As per the Reserve Bank of India (RBI) in the past 4 years until March 2024, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have amassed US$ 15.60 billion (Rs. 1.3 lakh crore). According to a Cushman & Wakefield report, Indias real estate market saw a surge in investments during the second quarter of 2024, attracting US$ 2.77 billion. India road logistics industry will grow at 3-6% in FY 25 as per ICRA. Indias logistics market is estimated to be US$ 317.26 billion in 2024 and is expected to reach US$ 484.43 billion by 2029, growing at a CAGR of 8.8%.

Attractive Opportunities

Development of infrastructure has a multiplier effect on demand and efficiency of transport and increases commercial and entrepreneurship opportunities. In March 2024, Prime Minister, Mr. Narendra Modi inaugurated multiple connectivity projects in Kolkata, totaling US$ 1.8 billion. Union Minister of Finance Ms. Nirmala Sitharaman announced plans to connect 120 new airports over the next 10 years, benefiting four crore additional passengers. As per a report of Morgan Stanley Indias infrastructure investment to steadily increase from 5.3% of GDP in FY 24 to 6.5% of GDP by FY 29. Government has approved 56 new Watershed Development Projects across 10 high-performing states, with a budget of Rs. 700 crore (US$ 80.9 million). Indian Railways will achieve 100% electrification by FY 26, with over 97% already completed, and is rapidly adopting renewable energy, says Union Minister of Railways Mr. Ashwini Vaishnaw.

Policy Support

As a part of the Union Budget 2025-26 is complemented with a continuation of the 50-year interest-free loan states for capital expenditure and incentives for reforms, with a significantly enhanced outlay of Rs. 1.5 lakh crore (US$ 17.30 billion). As per the Union Budget 2025-26 access to relevant data and maps from the PM Gati Shakti portal will be provided to private sector in project planning. The Pradhan Mantri Kisan SAMPADA Yojana (PMKSY) is a government initiative aimed at developing modern infrastructure and efficient supply chain management to boost the food processing sector in India. The scheme aims to reduce agricultural wastage, increase the processing level, improve farmers returns, and create rural employment opportunities.

Increasing Investments

In the Union Budget 2025-26, capital investment outlay for infrastructure has been increased to Rs.11.21 lakh crore (US$ 128.64 billion), which would be 3.1% of GDP. *FDI in construction development (townships, housing, built-up infrastructure and construction development projects) and construction (infrastructure) activity sectors stood at Rs. 1,32,601.17 crore (US$ 26.76 billion and Rs. 2,50,628.61 crore (US$ 35.24 billion), respectively, between April 2000-September 2024.

Adani Group has announced an investment of Rs. 30,237 crore (US$ 3.46 billion) in Kerala over the next five years, focusing on infrastructure, logistics, and manufacturing. This significant investment presents attractive opportunities for growth and development in the region. Indias ambitious plan calls for spending US$ 1.723 trillion (approximately Rs. 143 trillion) on infrastructure between FY 24 and FY 30, with a particular emphasis on power,10 roads, and developing industries like renewable energy and electric vehicles.

The Road Ahead

With a 37% increase in the current fiscal year, capital expenditures (CAPEX) are on the rise, which bolsters ongoing infrastructure development and fits with 2027 goals for Indias economic growth to become a US$ 5 trillion economy. In order to anticipate private sector investment and to address employment and consumption in rural India, the budget places a strong emphasis on the development of roads, shipping, and railways.

Global investment and partnerships in infrastructure, such as the India-Japan forum for development in the Northeast are also indicative of more investments. These initiatives come at a momentous juncture as the country aims for self-reliance in future-ready and sustainable critical infrastructure.

India, it is estimated, needs to invest US$ 840 billion over the next 15 years into urban infrastructure to meet the needs of its fast-growing population.

This investment will only be rational as well as sustainable, if we additionally focus on long-term maintenance and strength of our buildings, bridges, ports, and airports. As a result of digitalisation and opportunities that tier II and III cities present for economic growth, the divide between metro and non-metros is blurring, moving to the new era of infrastructure growth. Commercial real estate properties have witnessed exponential growth in demand across Tier II & III cities as Information technology and Information technology enabled services and banking financial services and insurance focused organizations are increasingly decentralizing their operations to adapt to the new normal.

Civil Aviation Ministrys "Vision 2040" report states that there will be 190-200 functioning airports in India by 2040. Delhi and Mumbai will have three international airports each, while top 31 Indian cities will have two operational airports each.

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 infrastructure sector has become the biggest focus area for the Government of India. 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. India being a developing nation is set to take full advantage of the opportunity for the expansion of the infrastructure sector, and it is reasonable to conclude that Indias infrastructure has a bright future ahead of it. Source:https://www.ibef.org/industry/infrastructure-sector-india

POWER SECTOR

Introduction

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

Infrastructure is a key enabler in helping India become a US$ 26 trillion economy. Investments in building and upgrading physical infrastructure, especially in synergy with the ease of doing business initiatives, remain pivotal to increase efficiency and costs. Prime Minister Mr. Narendra Modi also recently reiterated that infrastructure is a crucial pillar to ensure good governance across sectors.

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. Saudi Arabia seeks to spend up to US$ 100 billion in India in energy, petrochemicals, refinery, infrastructure, agriculture, minerals, and mining.

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 2027, 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 toward funding for transportation, electricity, and 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, increase quality of life, and boost sectoral competitiveness.

Growing Demand

India is the third-largest producer and consumer of electricity worldwide, with an installed power capacity of 442.85 GW as of April 30, 2024. Growing population along with increasing electrification and per-capita usage will provide further impetus. Power consumption in India in FY 23 logged a 9.5% growth to 1,503.65 Billion Units (BU). India has committed to augment non fossil fuel based installed electricity generation capacity to over 5,00,000 MW by 2031-32.

Attractive Opportunities

According to a report by Motilal Oswal, the Indian power sector presents an investment opportunity worth Rs. 40,00,000 crore (US$ 461.95 billion) over the next decade, driven by rising demand, infrastructure upgrades, and the transition to clean energy. Renewable energy and transmission infrastructure offer attractive prospects, such as Power Grids Rs. 2,00,000 crore (US$ 23.10 billion) Capital Expenditure (capex) opportunity. In the Budget for 2024, the governments power sector initiatives have been allocated funds that are 50% higher. Increased funds have been allocated to green hydrogen, solar power, and green-energy corridors in line with the renewable energy target for 2030. In order to meet Indias 500 GW renewable energy target and tackle the annual issue of coal demand supply mismatch, the Ministry of Power has identified 81 thermal units which will replace coal with renewable energy generation by 2026.

Policy Support

India has unveiled a comprehensive plan worth Rs. 9.15 lakh crore (US$ 109.50 billion) to enhance its power infrastructure and meet a projected demand of 458 GW by 2032. This initiative, led by the Ministry of Power under Prime Minister Narendra Modi, aims to strengthen the national power grid and boost energy security. Cabinet approves PM-Surya Ghar: Muft Bijli Yojana for installing rooftop solar in One Crore households.

Higher Investments

GEAPP plans to scale decarbonisation technologies in India, investing Rs. 861.10 crore (US$ 100 million) for clean energy projects, including AI-driven grid optimization in Rajasthan. The nation plans to invest Rs. 9,15,920 crore (US$ 107 billion) by 2032 to develop additional transmission lines, supporting its goal to nearly triple its clean power capacity. Indias power sector is expected to attract investment worth Rs. 17 lakh crore (US$ 205.31 billion) in next five to seven years. 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 India has the potential to attract an investment of over US$ 20 billion in renewables in 2023. As per the National Infrastructure Pipeline 2019-2025, energy sector projects accounted for the highest share (24%) out of the total expected capital expenditure of Rs. 111 lakh crore (US$ 1.4 trillion).

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 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

Business Performance and Outlook

During the Financial Year 2024-25, the Company witnessed a significant turnaround in its financial performance. Total revenue increased sharply from Rs. 465.11 Lakhs in the previous year to Rs. 2,206.43 Lakhs in FY 2024-25, reflecting the successful execution of strategic initiatives and operational focus.

Despite facing constraints in obtaining Bank Guarantees due to tightened norms in the banking sector-particularly affecting the EPC industry-the Company continued to actively pursue select, high-value tenders. As a result, the Company was awarded a prestigious work order by Adani Power Limited for the 2x800 MW Ultra Supercritical Thermal Power Plant (Phase-II) project, located at Village Chote Bhandar, Post Bade Bandar, Tehsil Pussore, Raigarh, Chhattisgarh. This contract, valued at Rs. 16.80 Crores, was secured during the year under review.

Further reinforcing its market presence, the Company has also secured an additional work order in the current Financial Year 2025-26 from Adani Power Limited for the 2x800 MW (Phase-III) Mahan Ultra Supercritical Thermal Power Project, at Village Bandhaura, District Singrauli, Madhya Pradesh, amounting to Rs. 15.40 Crores. In addition to EPC activities, the Company recorded a revenue of Rs. 899.92 Lakhs (inclusive of the total revenue) from its trading operations in alloy steel for auto components. This segment has demonstrated promising growth potential and is expected to contribute meaningfully alongside the EPC business in the coming years.

With this improved financial and operational performance, the Company is optimistic about obtaining the necessary banking facilities, which will further enhance its ability to bid for additional EPC contracts and strengthen working capital for its trading operations. The management remains confident that the Company will continue to improve its performance and achieve progressive growth in both revenue and profitability across its core business segments.

Significant Changes in Key Financial the Financial Year 2024-25

			%
PARTICULARS	2024-25	2023-24	Change in Ratios	Remarks
Debtor Turnover Ratio	3.22	1.24	160%	Company realised/ settled majority of its debtors during the year.
Inventory Turnover Ratio	14.95	20.67	-28%	Due to increase in closing stock.
Current Ratio	1.47	1.64	-10%	Change < 25%
Debt Equity Ratio	0.22	-	100%	During the year, Company borrowed the funds.
Operating Profit Margin	14.88%	-5.17%	388.00%	Improvement 12 in business & reduction in percentage of expenses.
Net Profit/Loss Margin	5.69%	-29.14%	120%	Company has earned profit during the year.

OUTLOOK

Going forward, having successfully transitioned from a loss-making to a profit-generating entity, the Company is now strategically positioned to pursue new EPC tenders. The Company plans to leverage its extensive industry experience while actively exploring opportunities to enhance bank guarantee limits, supported by its improved financial credentials. 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 and obtaining EPC contracts but also doing a sizeable growth 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 arranged 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 with improved performance both in EPC contracts and auto components trading business the Company is confident of the Bankers support with extended credit facilities.

Fraud risk:

RIL cannot 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.