Sadbhav Engineering Ltd Management Discussions.


Certain statements in this report are "forward-looking statements" that reflect managements expectations regarding Sadbhav Engineerings future growth, results of operations, performance and business prospects and opportunities. These forward-looking statements are presented for the purpose of assisting the stakeholders and financial analysts in understanding the Companys operating environment and may not be appropriate for other purposes. Such forward-looking statements reflect managements current beliefs and are based on information currently available to management. However, such forward-looking statements involve a certain number of risks and uncertainties, including those discussed under the heading "Risks and Uncertainties" and elsewhere in this report. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Although the forward-looking statements contained in this report are based on what management believes to be reasonable assumptions, Sadbhav Engineering Limited can not assure investors that actual results will be consistent with these forward looking statements. Actual results, performances, achievements or subsequence of events may differ materially from those expressed or implied. The case of data and information external to the Company, though the same are based on sources believed to be reliable, no representation is made on its accuracy or comprehensiveness. Therefore, all concerned are requested to caution themselves from putting undue reliance on these statements and are advised to conduct their own investigation and analysis of the information contained or referred to in this section before taking any action with regards to their own specific objective.

Furthermore, the discussion following herein reflects the perception on major issues that could influence the Companys operations substantial downside risks are as on date and the opinions expressed herewith are subjected to change without prior notice. The Company undertakes no obligation to publicly update or revise any of the opinions or forward-looking statements expressed in this report, consequent to any new information, future events or otherwise. Hereby, we at Sadbhav Engineering Limited present our report for the financial year 2018-19.


Since its inception in 1988, SEL has implemented and executed projects of national significance including construction of roads and highways, bridges, mining and irrigation supporting infrastructure. SEL has successfully constructed 9283 lane kms. (till date) of roads and highways (both state and national highways) and are among the top most infrastructure companies in India. SEL is also listed on both National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) and have had privilege to work for and with NHAI, Coal India, GIPCL, GHCL, L&T, HCC, Punj Lloyd, Sardar Sarovar Narmada Nigam, among various others. SELs foundation moves on the growth chart keeping in view various factors, such as patterns of key emerging markets in advanced economies, rising policy, geopolitical uncertainties, additional growth disappointments, and many more.


Global growth has continued to soften this year. Momentum remains weak and policy space is limited. A subdued recovery in investment growth in emerging market and developing economies (EMDEs) dampens potential growth prospects and hampers progress toward achieving the Sustainable Development Goals. Risks remain firmly on the downside, including the possibility of escalating trade tensions, sharper-than-expected slowdowns in major economies, and renewed financial stress in EMDEs. Meanwhile, rising debt constrains the ability of EMDE governments to support economic activity in the event of adverse developments, as well as finance growth-enhancing investments. This highlights the need for policy actions to undertake reforms to boost private investment and productivity growth. These reforms are particularly urgent in low-income countries, which face more significant challenges today than they did in the early 2000s.


During the last five years, Indias economy has performed well. By opening up several pathways for trickle-down, the government has ensured that the benefits of growth and macroeconomic stability reach the bottom of the pyramid. Indias economy is set to grow at 7.0 percent in 2019, picking up to 7.2 percent in 2020. India will continue to be the fastest growing large economy in the world. The closest competitor, in terms of growth China was projected to grow by 6.2 per cent in 2019 and 6 per cent in 2020 by IMF. Increase of Indias GDP growth to 7.2 per cent in 2020-21 would make the economy expand at the same rate as was witnessed in 2017-18. This means it would take three years for the economy to come back to just 7.2 per cent growth. However, IBEF report indicates the positive outlook for India for the years to come. As per the IBEF forecast, Indias gross domestic product (GDP) is expected to reach US$ 6 trillion by FY27 and achieve upper-middle income status on the back of digitisation, globalisation, favourable demographics, and reforms. Indias revenue receipts are estimated to touch Rs. 28-30 trillion (US$ 385-412 billion) by 2019, owing to Government of Indias measures to strengthen infrastructure and reforms like demonetisation and Goods and Services Tax (GST). The country is also focusing on renewable sources to generate energy. It is planning to achieve 40 per cent of its energy from non-fossil sources by 2030 which is currently 30 per cent and also have plans to increase its renewable energy capacity from to 175 GW by 2022. India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group (BCG) report; and is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by the year 2040, according to a report by Price water house Coopers.


Roads and Highways

India has one of the largest road networks in the world, which measures 5,482,809 kms. National Highways/Expressway measure 120,543 km and the State Highways measure 155,222 km as of December 2018. The construction of national highways (NH) proceeded at a rapid pace with more than 20 per cent of the existing highway length of 132,000 km being constructed in the last four years alone. Eastern states was a special focus and there has been a significant improvement in connectivity with the building of key bridges, and the expansion of railways/highways.

The Bharatmala Pariyojana is the countrys largest ever highways development programme. It aims to optimize the efficiency of road traffic movement across the country by bridging critical infrastructure gaps. Multi-nodal integration is one of the key focuses of this programme. Around 53,000 km of National Highways (NH) have been identified to improve the efficiency of the National Corridors, out of which 24,800 km of NH are to be taken up in Phase 1. Phase 1 is being implemented over 2017-2022. The total fund provision for Phase 1 is US$ 80.4 bn. Furthermore, implementation of Hybrid Annuity Model (HAM) in Public Private Partnership (PPP) projects in roads and highways sector in the country, is further anticipated to increase participation of project developers in the bidding process, which is further forecast to drive Indias roads and highways sector in times to come.

Private sector is playing a key role in Govt. of Indias objective to build the robust infrastructure of roads and highways to connect the remotest parts in the country. We, at Sadbhav Engineering Limited, are resolute to keep pace with overall growth of the sector and have already acquired 40 Projects that includes transport, EPC and BOT contracts, across the country.


The Economic Survey 2018-19 has suggested that focus should shift from land productivity to irrigation water productivity. Devising policies to incentivise farmers to improve water use should become a national priority. The Government of India is working to provide water to the areas facing water scarcity through irrigation systems and covering more and more areas under the ambitious projects like Accelerated Irrigation Benefit Programme (AIBP) of the Ministry of Water Resources, River Development & Ganga Rejuvenation (MoWR, RD&GR), Integrated Watershed Management Programme (IWMP) of Department of Land Resources (DoLR) and the On Farm Water Management (OFWM) of Department of Agriculture and Cooperation (DAC). Irrigation projects prioritized for completion(AIBP) keeping in view the irrigation potential for the year 2018-19 under PMSKY was 11.37 Thousands Hectares and outlay for the year 2019-20 is 7.42 Thousand Hectares. The ‘National Commission for Integrated Water Resources Development (NCIWRD) has assessed the projected demand of water for the years 2025 and 2050. By the year 2050, the total demand for water is expected to be 973 BCM for low demand scenario and 1,180 BCM for high demand scenario out of which irrigation sector are 611 BCM and 807 for 2025 and 2050 respectively. While this overshooting demand is a challenge for the nation as a whole, it would also require irrigation sector to invest in its best efforts and resources, opening doors of new opportunities for growth.


India produces 95 minerals 4 fuel-related minerals, 10 metallic minerals, 23 non-metallic minerals, 3 atomic minerals and 55 minor minerals (including building and other minerals). Rise in infrastructure development and automotive production are driving growth in the sector. Power and cement industries are also aiding growth in the metals and mining sector. Also 100 % FDI allowed in the mining sector and exploration of metal and non-metal ores under automatic route. National Mineral Policy 2019 has also been launched to bring in transparency, better regulation and enforcement, balanced social and economic growth into the sector. In July 2018, Union Minister of Coal, Railways, Finance & Corporate Affairs launched a mobile application ‘Khan Prahari and Coal Mine Surveillance & Management System (CMSMS) developed by Central Mine Planning and Design Institute (CMPDI). There is significant scope for new mining capacities in iron ore, bauxite and coal and considerable opportunities for future discoveries of sub- surface deposits.

Your Company has balance work orders of Rs. 2,179 Crores that includes activities ranging from removal of overburden by hiring HEMM (Heavy Earth Moving Machinery) to the excavation and transportation and up to the extraction of ores like Coal, lignite and uranium. The Company also has developed requisite talent pool to execute these projects.


The management of company has identified risks in two categories i.e. (1) Internal and Business Risk and (2) External Risk.

Internal and Business Risks: These are the risks that arise out of processes which are managed internally.

(1) The successful completion of projects also depends upon the performance of entire value chain that includes our joint-venture partners and/or sub-contractors. Therefore, before entering into any such agreement, we thoroughly analyse their credentials and maintain real time monitoring through systems like SAP S/4 HANA. Irrespective of the partners and/or contractors status of association (old as well as new), we always insist on having a performance guarantee and quality assurance from our collaborators.

(2) Various situations such as; cost overrun of projects due to problems of land acquisitions, removal of encroachment, compliance with environmental standard, penalty for delay in completion of the project in time, insurance coverage and other provisional measures may not adequately protect us against all possible risk of losses. Therefore, we elaborately plan to execute all our projects before the scheduled time. Also, we have contractors all risk insurance policy and workmens compensation polices as a precautionary measure at our disposal. We take Advance Loss of Profit (ALOP) Policy for each project and always appoint an Insurance Consultant / Professional to assess all at stake.

(3) The estimates of increase of raw materials for BOT projects are made at the time of bidding, since there is no provision for cost escalations. However, our vast experience in the infrastructural sector enables us to keep the associated risks to a minimum.

(4) With respect to risk of shortage in supply of raw materials, we ensure continuous supply of raw-materials through our supply value chain by entering into long term arrangement with our suppliers before every single project.

(5) Preventive Maintenance is less costlier than the non-maintenance or break-down costs of equipment that cause a major hindrance in complete execution of projects. Therefore, our team of technical experts regularly overhauls and repairs the machines, thereby minimising the chances of any break-downs. We also set up mechanical divisions at each project site, wherein the regular maintenance and interim repairs are undertaken.

(6) Mishandling of machines and equipment can result in being a liability. Therefore, we have Standard Operating Procedures (SOPs) in place and have designed training programmes for handling the sophisticated equipment and machinery used at our project sites. We have taken insurance coverage for any mishap claims that may arise under the Workmans Compensation Act.

(7) Any negligence in employees health, safety and regulatory measures can affect our performance. We, therefore, have an HSE

Policy monitored and adhered religiously by central HR Team. In case of mining projects, we are required to provide a proper medical certification under the Medical Certificate Form ‘O as prescribed by DGMS. All employees are, thereby, sufficiently covered by Workman Compensation Insurance. We also provide the employees with necessary safety gadgets such as helmets, boots, and more.

(8) Being a broad organisation with personnel in abundance, we have strong systems to ensure minimal dependence on any individual. Our operations may suffer a temporary setback if any of our key managerial personnel were to leave. Therefore, successful completion of projects is ensured by properly planning the delegation of work and succession planning among teams.

(9) Sadbhav uses a mix of debt and equity to finance its fund requirements as it needs substantial working capital and financing to meet the requirements of large scale operations. Over the years, we have built a healthy relationship with our lenders which consolidate the difficulty in the process of obtaining debt for our business needs.

External Risks:

Risks that arise out of changes in the external environment are classified under this head. These are mostly outside our control. E.g. changes in interest and exchange rates, increase in material cost, and various others. Our efforts has always been in taking proactive measures to mitigate these by creating sufficient barriers in the pricing, making suitable provisions in books, and providing insurance cover upon entering derivative transaction for hedging our obligation in foreign currencies.

Any further change in government policies, tax structure, geopolitical and political situation, and civil disturbances may have adverse effect on SELs business. Mitigation of insurance coverage for natural risks (for example: adverse weather condition, fire, floods, and earthquakes) has been worked. A manifold competition from large national as well as international organisations and deviation from estimated traffic volume is also an area of concern for the Company.

This risk management exercise identifies risks, and also mitigates risks to an acceptable level. Your Company has risk management policies to manage and overcome these risks to ensure smooth functioning of its business operations which are reviewed periodically by the Directors of the Company.

Risk Mitigation:

Identifying risk is an important first step. It is not sufficient though. Taking steps to deal with risk is an essential step. Knowing about and thinking about risk is not the same as doing something about risk. Your Company is aware of such risks, and all our strategies, policies and SOPs (Standard Operating Procedures) have been designed with risk mitigation as an intrinsic element. This approach helps to avert undesirable situations to arise rather than troubleshooting later. Our equipment maintenance policies designed to avoid the project delays due to break down, procurement policies are framed to mitigate the sudden hikes in the procurement or acquisition costs. We meticulously study each and every contract, document or legal paper to avoid litigations later. Our financial strategies have been formulated keeping in view the long term and short term financial risks. Our top management, investor communication and corporate communication professionals meticulously plan communication with stakeholders, government and public to avert the reputation risk. Before entering into any joint venture agreement we thoroughly analyse the prospective venture partners past performances and credentials. We plan elaborately to execute all our projects before the scheduled time. We have a proven track record of completing work within the stipulated time. Work without stoppages or no significant labour disruptions during its operational history was paved way for by our extensive employee welfare scheme which looks after their health and safety. We have taken contractors all risk insurance policy in respect of projects and workmens compensation polices to protect against losses caused to workmen through accident. Most of the critical work during the operation period is done by us and only very minimal portion of the work is sub-contracted. We always insist to have a performance guarantee and quality assurance from them. As a company, our ability to foresee and manage business risks plays a crucial role in achieving positive results even from the downturn of economic situations. We also regularly conduct third audits of the toll management systems and toll collection systems in order to identify lacunas and improve our operational performance.


As on March 31, 2019 the Company has a reportable business segment of construction, engineering and infrastructure development on Stand Alone basis. A segment wise performance on consolidated basis is given in the note no. 54 to the consolidated financial statements.


An internal control for business processes across departments is required to not only ensure efficient operations but to also comply with internal policies, applicable laws and regulations, protection of resources and assets as well as accurate reporting of the financial transactions. Aiding the effectively of this system of internal control is extensive internal audits, regular reviews by the management team and standard policies and guidelines to ensure the reliability of financial and all other records. Therefore, the ERP-SAP system of the company, which is already operative, was established. It connects all the project sites with the corporate office by providing real time information to the top management of the Company. Ideation to centralise the entire data process is being acted upon by Sadbhav Engineering Limited so as to assure transparency to each and every stakeholder of the Company.


(a) Income Analysis:

The Companys revenues for the current year stood at Rs. 3649.54 crores as against Rs. 3594.89 crores in the previous year, thereby registering an increase of 1.52 %.

(b) Expense Analysis:

Manufacturing and Construction expenses

Material consumed for the year ended March 31, 2019 amounted to Rs. 769.17 crores, construction expenses increased from 1734.74 crores incurred during 2017-18 to Rs. 2082.94 crores in the year 2018-2019.

Depreciation, Interest and Finance cost

Depreciation during 2018-19 amounted to Rs. 95.76 crores as against Rs. 97.90 crores recorded in 2017-18. Finance cost decreased from Rs. 190.80 crores in 2017-18 to 174.92 crores in 2018-19.

(c) Profit Analysis:

Profit Before Tax during 2018-19 stood at Rs. 257.53 crores as against Rs. 216.27 crores recorded during 2017-18. Profit after tax for 2018-19 stood at Rs. 186.85 crores as compared to Rs. 220.66 crores during 2017-18.

(d) Net Worth:

The company also saw a rise in the Net worth from Rs. 1866.79 crores in 2017-18 to Rs. 2033.67 crores in 2018-19.

(e) Dividend:

The Company declared a final dividend of 100% this year.

Key Financial Ratios: Stand Alone Basis

Debtors Turnover 2.28 2.20
Inventory Turnover 19.81 21.34
Interest Coverage Ratio 3.02 2.65
Current Ratio 1.69 1.40
Debt Equity Ratio 0.50 0.25
Operating Profit Margin 7.26% 6.17%
Net Profit Margin 5.26% 6.32%
Return on Networth 9.00% 12.00%

Consolidated Financial

On consolidated basis, the Total revenue stood at Rs. 5504.62 crores during the financial year under review as compared to Rs. 5093.38 crores in the previous year, Profit before tax was Rs. 79.08 crores as compare to loss of Rs. 76.04 crores in the previous year and Loss after tax was Rs. 54.08 crores as compare to loss of Rs. 114.02 crores in the previous financial year. The Consolidated Networth of the Company stand to Rs. 835 crores as of 31 March, 2019 as compared to Rs. 891.31 crores as on 31 March, 2018.


Employees are one of the most important stakeholders for Sadbhav Engineering Limited. Sadbhav considers its Human Capital as its core strength in achieving the sustainable growth path charted by our strategic apex. Sadbhav is among a very few companies having implemented SAP Success Factors, world renowned system to manage core HR activities. We have systems in place for identifying the right talent, training them, performance management, monitoring, appraisals, rewards and recognitions for our employees. Our policy entails all our employees to the benefits like Medical Expense, Provident Fund, Gratuity, and Leave Travel Allowance etc. We frequently organise medical check-up camps and safety training, mock drills across all project sites as per our health and safety policy. A dedicated Human Resource team at Sadbhav Engineering Limited, keep on engaging with employees at sites and address their concerns. We put major thrust on ergonomics for their comfort while they perform their duties and invest in latest technologies and amenities as well as safety gadgets. We continuously upgrade employees skills and knowledge to keep them updated on the best practices from across the world. Our growth strategy and value driven approach and congenital environment has led us build an excellent team. We are 5307 people strong organization as on March 31, 2019.