RKEC Projects Management Discussions


India Construction Market Report Overview

The India construction market size was valued at $701.7 billion in 2022 and is expected to achieve an AAGR of more than 6% from 2024 to 2027, supported by investment in the construction of transport, electricity and housing projects.

The India construction market research report provides a detailed analysis of the construction industry?s growth prospects in India by market, project type, and construction activity. The report also delivers critical insight into the impact of industry trends and issues, as well as an analysis of key risks and opportunities in the India construction industry. Moreover, it also provides an analysis of the mega-project pipeline, focusing on development stages and participants, in addition to listings of major projects in the pipeline.

India Construction Market Segmentation by Sectors

The key sectors in the India construction market are commercial construction, industrial construction, infrastructure construction, energy and utilities construction, institutional construction, and residential construction. The residential construction sector was the largest in India?s construction market in 2022, followed by energy and utilities construction, infrastructure construction, and others.

Residential construction: The project types in this sector include single- and multi-family housing. Forecast-period growth in the residential construction sector?s output will be supported by the continuation of the Pradhan Mantri Awas Yojana-Urban (PMAY-U) "Housing for All" Mission to 31st December 2024.

Energy and utilities construction: The project types in this sector include electricity and power, oil and gas, telecommunications, sewage infrastructure, and water infrastructure. The sector?s growth over the forecast period will be supported by the government?s aim to increase renewable energy capacity from 145.2GW in

2021 to 500GW by 2030 and reduce carbon emissions to less than 50% by 2030 and net zero by the end of 2070.

Infrastructure construction: The project types in this sector include rail infrastructure, road infrastructure, and other infrastructure projects. Forecast-period growth in the segment will be supported by the government?s focus on completing major infrastructure projects before the 2024 elections.

Industrial construction: The project types in this sector include chemical and pharmaceutical plants, manufacturing plants, metal and material production and processing plants, and waste processing plants. Forecast-period growth in the industrial construction sector?s output will be supported by a rebound in manufacturing and export activity, coupled with the government?s aim of attracting FDI of INR8.2 trillion ($100 billion) in the manufacturing sector by 2028.

Commercial construction: The project types in this sector include leisure and hospitality buildings, office buildings, outdoor leisure facilities, retail buildings, and other commercial construction. Forecast-period growth in the commercial construction sector?s output will be supported by the construction of office and data center projects, coupled with the expansion of tourism and travel business activities.

Institutional construction: The project types in this sector include educational buildings, healthcare buildings, institutional buildings, research facilities, and religious buildings. Forecast-period growth in the institutional construction sector?s output will be supported by investment in health, education, and research projects.

Construction and Engineering Industry outlook

Preparation is key for the year ahead

2022 got off to a strong start for the engineering and construction (E&C) industry but was met with several strong headwinds, including rising costs and labor shortages. How can businesses navigate continuing volatility to thrive in a competitive market? Our 2023 outlook explores five engineering and construction industry trends that can help companies differentiate themselves and capture growth in the year ahead.

Driving growth as challenges and competition increase

The US engineering and construction industry began 2022 on a bright note after achieving strong growth of 8% in construction spending in 2021.1 But a closer look at current market dynamics suggests that 2023 will likely experience differentiated growth rates across different industry segments.

On the one hand, the nonresidential segment is likely to be buoyed by funds entering the market from the Infrastructure Investment and Jobs Act and the CHIPS and Science Act of 2022. On the other hand, residential construction companies are relatively more pessimistic about the industry outlook for the next year compared to other segments. So, while some segments may be more bullish than others, there are headwinds from inflation to supply chain issues which may continue to affect the industry overall in the coming year. Our 2023 outlook explores five key trends to watch closely.

Five and construction and engineering industry trends to watch

Market dynamics

Industry segments experience different growth trajectories and increased competition

2023 could be a different year for the industry, with heightened uncertainty due to high inflation, rising interest rates, and bifurcation across various industry segments. Companies are keeping an eye on how their backlogs will play out in 2023, especially during the second half of the year. While many companies have substantial backlogs (specifically in energy-related construction and data centers), as they get through the back half of 2023, they may see the impact of a potential economic slowdown on their deliveries.

Supply chain

Increased lead times and volatile material costs pressure margins

Over the last two years, the COVID-19 pandemic, transport bottlenecks, and geopolitical uncertainties have exposed vulnerabilities in the E&C supply chain. These ongoing disruptions are expected to drive the E&C industry toward new business models, supported by new ecosystems that bring innovative products and services to serve the unique needs of different end markets.

Future of work

Talent pressures and shifting talent models force industry to rethink workforce strategies

The E&C industry remains significantly short of skilled workers, further exacerbated by a tight labor market. Even though the construction industry has a strong pipeline of projects and spending, especially the infrastructure buildouts, it?s challenged to meet the demand due to a persistent shortage of workers and high turnover. With rising inflation and a tight labor market, companies may have to raise wages and expand benefits to attract and retain employees in 2023.

Emerging technologies

Developers and contractors further invest in emerging technologies to drive efficiencies While the E&C sector has been historically slow to integrate and adopt digital technologies, industry players are now increasingly paying attention to and leveraging emerging technologies. Most E&C companies are utilizing digital technologies to expand business opportunities and boost profits by reducing costs in the long run and enhancing project execution. Further, with increased global supply chain disruptions, increased competition, worker shortages, and skyrocketing material prices, the need for digital transformation in construction has become much stronger.

ESG and sustainability

Industry evaluates new practices to deliver positive societal impacts Many customers are becoming more sustainability conscious and placing greater pressure on developers to lower the carbon footprint of new construction. The increasing global focus on climate change could incentivize construction companies to factor sustainability into their projects, construction processes, and designs.

Outlook in India and road ahead

Indias construction industry is expected to grow at an annual average of 6.6% between 2019 and 2028. The share of the urban population is expected to be 50% of the total population by 2050. Present levels of urban infrastructure are inadequate to meet the demands of the existing urban population.

Consequently, the construction industry needs to always change and evolve. Every year new trends appear within the industry, from technological advancements to a stronger focus on sustainability. If you run a construction company and you want to make sure you stay ahead of the game, it can be useful to be aware of emerging trends that could prepare you for the future.

Technological trends are shaping the future of construction. Every construction company today is convinced that technology is poised to impact the construction industry like never before. From cloud-based collaboration to robots and artificial intelligence an incredible array of developments are helping or poised to help and improve the way buildings and infrastructure development happens in India.

Also, the construction industry in India suffers from major time and cost overruns. Data from government and industry reports suggest that projects suffer from 20 to 25 percent time and cost overruns. Waste of resources has been identified as a major source of inefficiency. Despite a substantial increase in the past few years, demand for professionals and contractors still exceeds supply by a large margin. The traditional methods adopted in the Indian construction industry may not suffice the needs of this dynamic environment, as they have produced large inefficiencies. Innovative ways of procurement and project management can satisfy the needs aspired to as well as bring added value.

Facts indicate that by 2025 the country?s construction sector will be the third-largest in the world, behind China and America, with an overall value of $1 trillion, with construction output expected to grow on average by 7.1% each year. In this year?s budget, the government increased its expenditure towards infrastructure development by 20.9% from Rs 4.9 trillion (US$75.9 billion) in its financial year.

Expected to account for 30.1% of the industry?s total value in 2023, it is thought that residential construction will remain the largest market over the forecast period. It is also predicted that greater demand for residential construction will be created over the forecast period, due to the country?s rising population, urbanization, and positive developments in regional economic conditions.

The construction industry locally is fast embracing a centrally managed construction process bringing design, manufacturing, material sourcing, and construction together into one streamlined system thus making it possible to build high-quality, amazing building structures on time and more cost-efficiently. The next few years are going to be the moment of reckoning for the construction industry to demonstrate its managerial, financial, and technical prowess to establish new benchmarks in construction management, construction quality, and imparting value addition to its products and services.

Company?s Operational & Financial Overview

RKEC Projects? core business is designing and undertaking construction projects such as Bridges, Ports,

Dams, high-rise structures, Airports, cross water, roads, Highways, Oil and Gas Pipelines, complexes and environmental structures across India.

On Standalone basis Revenue for financial year 2023 stood at Rs. 299.97 Crores, EBITDA of Rs 32.95 crore . PAT of the Company is Rs 12.30 crores. The Company was able to achieve such profitability by better execution of projects and focus on operational efficiencies.

The Company has been able to maintain an efficient capital structure and has a healthy interest coverage ratio. The Company?s net worth as on 31st March 2023 on standalone basis is Rs303.68 crores .

During the year under review, the Company was awarded 1 project worth Rs 266.68 crore. It is currently working on total 8 projects amounting to Rs. 1578 crore. The un-executed order book as on 31 Mar 2023 stands at Rs 1070.38 crore.

With the unexecuted order-book of Rs 1070.38 crore, the Company has a strong revenue visibility for the coming years. Moreover, the Company has been exploring bids for projects and expected to add good amount of fresh orders going ahead. This makes the Company well placed to better execute its projects and further look for opportunities in this space leading to increase in profitability.

The Company has attained good reputation among our clients because of track record, experienced members and a proven strength on delivery norms across its all spectrum of services. RKEC Projects has marked its presence into states like Andhra Pradesh, Tamil Nadu, Gujarat, Odisha, Rajasthan, Maharashtra,

Kerala, Karnataka, West Bengal and Manipur. The Company has successful completion of 104 projects in total till now.

Key Competitive Advantage

RKEC has an experience of more than 3 decades in the industry and has emerged one of leading construction company engaged in the construction of Bridges, Ports, Dams, high-rise structures, Airports, cross water, roads, Highways, Oil and Gas Pipelines, complexes and environmental structures across India. Our strong execution, timely completion capabilities and long-term relations with the stakeholders have been the main growth riders. We have proven track record of completing all projects within in timeline along with strong financial track record; healthy relationships with leading banks/financial institutions . We posses integrated and efficient project execution skills, supported by a comprehensive equipment pool

Opportunities

There is a huge scope with increasing Government focus on increasing reforms in the infrastructural and industrial sector. The industry is at the verge of expansion of key industry sector like power, steel, petrochemicals, telecom and others. The Country being on faster pace of development, Infrastructural development is the core area of development in the Country.

Risk Mitigation Strategy

Competition risks - Competing with several other companies for the acquisition of concessions for projects.

Mitigation: The Company is continuously focusing on building competitive advantage in its core business areas to ensure that it is competitively well positioned. The Company?s rich experience in the infrastructure sector, continuous operational improvements, process excellence, financial discipline and timely completion of projects has strengthened the Company?s overall competitive position in the sector.

Project Completion risk - On-time completion of the project is very necessary for maintaining the reputation and financial viability.

Mitigation: On time completion of the projects is the top priority of the company. Proper steps are undertaken at each stage of the projects to meet the completion deadlines.

Capital-intensive business risk - The infrastructure sector depends heavily on capital investment.

Mitigation: We enjoy good credit ratings in the Industry, which helps us in obtaining better terms on various loans for financing our construction equipment, term debt for projects and working capital facilities. We also endeavor to keep our debt-equity ratio low by utilizing our internal accruals in an efficient manner which has enabled us to maintain better profitability from project.

Input cost risk Acquisition of the right material with the required quantity at the project site is very important for the timely completion of the projects.

Mitigation: Raw materials are purchased directly for the company nominated vendors which have been tested over time which leads the right quality, price, and on-time supply.

Geographical Risk: The Company is operating in multiple states and is exposed to risks on account of different site conditions, labour requirement and related regulatory compliances.

Mitigation:The Company has in place mitigation strategies to perform detailed risk assessment of each site, robust manpower planning, site mobilization and de-mobilisation standard operating procedures and compliance checklist to mitigate such risks.

Internal Control System and their Adequacy

The Company has adequate system of internal control commensurate with its size and operations to ensure orderly and efficient conduct of the business. These controls ensure safeguard of assets, reduction and detection of frauds and error, adequacy and completeness of the accounting record and timely preparation of reliable financial information.

Material Developments in Human Resources/Industrial Relations Front, including the Number of People Employed

During the year under review, no such initiatives and/or developments in Human Resources/Industrial Relations front has been taken by the Company.

Cautionary Statement

Statement in this Management Discussion and Analysis describing the Company?s objectives, projections, estimated and expectations are "forward looking statements". Actual results might differ, materially from those anticipated because of changing ground realities. Forward-looking statements are based on certain assumptions and expectations of future events. The achievement of such results is subject to risks, uncertainties and even less than assumptions. Market data and information gathered from various published and unpublished reports and sources, their accuracy, reliability and completeness cannot be assured. We do not undertake to make any announcement in case any of economic scenarios, industry developments and the forward-looking statements become materially incorrect in future or update any development and forward-looking statements made from time to time by or on behalf of the Company.