Satra Properties (India) Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENT

The Indian economy has lost its space at a faster rate and has being marked bottommost in the five years. Not surprisingly, the liquidity constraint of Banks and NBFCs due to the default/bubble burst of IL& FS, Amrapali has hit the industry badly and impacted the consumer demand and trust leading to the slowdown and stagnancy in the real estate sector. Though the start of 2018 remained positive, as and by way of major reforms, such as Goods and Services Tax (GST), Insolvency and Bankruptcy Code, 2016; but ultimately shredded the roots as days passed.

Adding fuel to the fire, the curb of Banks and NBFCs lending finance to the real estate players has halted the growth of the industry, which has squeezed the construction progress of various ongoing projects. This non-availability of funds, has immobilized the performance of mid-sized developers who relied solely upon the bank finance for the running of their project. Not only, the small sized developers are struggling to meet the possession deadlines, but likewise is the same with established players in the market. This will eventually categorize the entire industry into few handpicked consolidated big players in the market down the line if this liquidity pressure environment continues.

Secondly, another foremost reform that indirectly and widely impacts the real estate industry is that the developers are liable to pay tax on the notional rent of the unsold inventory post one year of project completion. Real Estate industry is the key player of the Indian economy and drives major employment and working of the MSEB division of the economy. Nevertheless, with lift of ban by the Supreme Court on the construction of new building in BMC region, the sector visualized significant launches in Mumbai in the early 2018. An additional change by the modification and approval of lower GST for the real estate developers with an option to opt for 12% or 5% for ongoing project has created optimism in sales in this quarter.

OPPORTUNITIES

Your Company perceives that with the introduction of new reforms and privilege being given to the sector of affordable housing by the government through various subsidies, lower rate of GST, announcement of NIL property tax for homes under 500 sq. ft area, availability of low-cost home loans etc; the concept of affordable housing shall remain a key driver for residential segment in 2019-2020.

The introduction of reduction in the percentage of Goods and Service Tax from 12% to 5% is also a major boon to attract the consumers and enhance the sales. Furthermore, with the improving transparency and rising consumer activism through implementation of Real Estate (Regulation and Development) Act, 2016 [RERA] has led to improvement in confidence among the buyers. The Company relies that these reforms shall improve the control and governance in the real estate sector. Whilst focusing on the growth of the Company and also maintain lower debt ,the Company shall carry on its operations by enhancing its portfolio in terms of new projects being categorized in the class of smaller redevelopment and by way of developing existing land banks through the Project Development Model on a fee basis or through joint development agreement.

RISKS AND THREATS

As and by way of major reforms, the real estate sector has fallen through which has resulted into loss of confidence particularly amongst the investors and also midst the consumers. Adding fuel to the fire, with the increased activism and people opting for litigations through the new Insolvency and Bankruptcy Code, 2016, the business has come to stagnant situation where in your Company is not an exception o this. The effect of delay in approvals, higher interest rates, falling consumer demands, increased litigation and continuous pressure from the banks has resulted into decelerate the real-estate industry.

Nonetheless, your Company continues to believe that these reforms are stepping stones to success and shall lead to enhanced and value-added governancewith increasing transparency and strained/consolidated real estate played in the sector. Also the Company residues positive approach through a mixture of thoughtfulness, keeping cost under control and and speedy execution of projects with an aim to achieve a debt free Company.

SEGMENT WISE OR PRODUCT WISE PERFORMANCE

Your Company as always is focused in operating only in a single viz Real Estate Development and trading into properties and Transferable Development Rights and has domestic sales. Therefore there is only one reportable segment in accordance with the Indian Accounting Standard (Ind As) 108 on "Operating Segments".

FUTURE PLANS AND OUTLOOK

Similar to that in the financial year 2017-2018, this year as well the consumer demand remained persistently slow-moving. Moreover, with the current depraved liquidity crunch in the global economy and particular with the banks and NBFCs after the bubble burst of IL & FS, the pressure on the Company to pay the debts has increased. Incessant change in the taxation and accounting standard with the implementation of IND-AS 115 has led to short term uncertainty. Thus this time and particularly for this financial year, the Companys outlook is to predominantly sell the inventory available in hand and complete the projects undertaken in previous years either through joint-ventures or development management model and thereby reducing the risk involved in upfront financing the projects and incurring continuous substantial overhead costs. Alike is the approach towards developing the land banks of the Company through joint ventures assignments. Furthermore with the increase in the amount of compliance and new amendments required to be maintained under the Companies Act, 2013 and with SEBI/ROC, the Company shall emphasis on divestment of its shares from the subsidiaries and/or sell/strike off the non-operating Companies.

With the government promoting the sector of affordable housing with plenty of incentives, the Company looks forward to explore the options of redeveloping the small-size standalone dilapidated buildings, housing societies. Besides this, the Company shall remain to discover innovations in construction technology for amplifying the productivity and quality of the work. In order to be a debt-free Company and creating value to the Companys portfolio and its stakeholders, the Company is in the process of passing over the existing loans including the project by collaborating with other players in the market and selling of the assets/ projects and Company subsidiaries.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has an appropriate internal control system for its various functions with the ultimate objective of improving efficiency in its operations, better financial management and Compliance with regulations and applicable laws and providing protection against misuse or losses from unauthorized use or deposition.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATION PERFORMANCE:

Indian Accounting Standards (Ind AS) - IFRS Converged Standards Satra Properties (India) Limited and its subsidiaries have adopted Ind AS with effect from 1st April 2016 pursuant to Ministry of Corporate Affairs notification dated 16 February, 2015 notifying the Companies (Indian Accounting Standard) Rules, 2015. In 2018-19, Company has substantially completed the assessment of the impact of the change to Ind AS on reported reserves and surplus and on the reported profit for the relevant periods. Company has also completed the modification of accounting and reporting systems to facilitate the changes.

1. Income:

Revenue is recognized when significant cost has been incurred on the project as compared to total estimated cost of project. During the year, your Company has booked total income of Rs. 3,629.87 Lakhs. On consolidated basis, the total income decreased by 52.99% from Rs.13,225.85 Lakhs in the year 2017-18 to Rs. 6,216.69 Lakhs in the year 2018-19. The said decrease was due to no operations in subsidiaries.

2. Expenses:

Cost of material consumed for the project includes land cost, TDR, construction cost, finance cost and other incidental cost directly associated to a project. When revenue is not recognized for the undivided shares of land, it is transferred to work-in-progress. During the year, the Company has booked cost of construction of Rs.3,269.56 Lakhs due to in comparison to Rs. -4296.9 Lakhs in the year 2017- 18. On consolidated basis, the construction cost decreased by 91.53% from Rs. 19,159.77 Lakhs in the year 2017-18 to Rs.1623.19Lakhs in the year 2018- 19. Financial cost not attributable to specific projects are charged to statement of profit and loss after capitalizing some portion to inventories as per the Accounting Standards. During the year, there was decrease in finance cost by 99.51% from Rs. 2754.20 Lakhs in the year 2017-18 to Rs. 13.52 Lakhs in the year 2018-19. On consolidation basis, the finance cost has decreased by 100.63% from Rs. 4,519.66 Lakhs in the year 2017-18 to Rs. -28.51 Lakhs in the year 2018-19.Your Companys employees cost was at Rs. 155.13 Lakhs for the previous year 2017-18 as against Rs. 152.64 Lakhs in the for F.Y.18-19. On consolidated basis, the employee cost was at Rs. 430.90 Lakhs for the previous year 2017-18 year as against Rs. 201.27 Lakhs in the F.Y.18-19. Other expenses of the Company were at Rs. 196.20 Lakhs for the current year as against Rs. 332.36 Lakhs in the previous year and on consolidated basis, the other expenses were at Rs. 5980.08 Lakhs for the current year as against Rs. 1698.79 Lakhs in the previous year.

3. Profit and margin growth:

The Company registered net loss before tax of Rs. 23.83 Lakhs in year 2018-19 as against net loss before tax of Rs. 3919.98 Lakhs in the previous year. Net loss after tax is Rs.23.83Lakhs in year 2018-19 as against Net loss after tax of Rs. 4882.97 Lakhs in the previous year on standalone basis. Net loss after tax is Rs. 1588.42 Lakhs in year 2018-19 as against net loss after tax of Rs. 12614.73 Lakhs on consolidation basis.

The management is taking effective steps to improve overall performance of the Group by concentrating on executing the on-going and new projects at fast pace and reduction of debt to minimize the burden of financial cost.

4. Shareholders funds:

Shareholders funds represent equity share capital and other equity. The shareholders funds decreased from Rs.4466.20 Lakhs to Rs. 4,444.41 Lakhs for the year 18-19. Shareholders funds comprises of Rs. 3,567.16 Lakhs equity share capital and other equity of Rs.877.25 Lakhs for the year 18-19.

5. Current liabilities and non-current liabilities:

Current liabilities include financial liabilities, other current liabilities, provision andcurrent tax liabilities. Non-current liabilities include financial liabilities and long-term provisions. During the year, current liabilities marginally increased by 6.20% from Rs.36,899.25 Lakhs to Rs.37,546.09 Lakhs.

6. Current assets and non-current assets:

Current assets comprises of inventories, financial assets and other current assets. Non-current assets include property, plant and equipment, capital work-in-progress, financial assets, deferred tax asset and other non-current assets. Inventories represent construction work-in-progress and stock of materials, the said cost is transferred to cost of construction at the time of recognizing revenues. During the year trade receivables have decreased by 56.42% from Rs.4,344.14 Lakhs to Rs.1,893.33 Lakhs. The short-term loans and advances have decreased by 34.78% from Rs. 2,719.90 Lakhs to Rs. 1,773.85 Lakhs in the current year.

7. Disclosure of Accounting Treatment:

Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the managements explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction.

HUMAN RESOURCES DEVELOPMENT

As part of the Satra Group, the legacy continues and we are privileged and lucky to have our human resource being built on the strong values of loyalty, trust, and respect for each other. Although the recession in the real estate sector and overall Indian economy has led to lay-off of many employees, we continue to have our best talents and retain the industry-specific professionals for the better performance as the Company strongly believes thats its intrinsic strength lies in the quality of its dedicated employees. The flexi work hours, comfortable friendly working environment along with lively work place has augmented the performance as well as promote individual development. The Company strongly values and maintains gender equality, diversity across all religions and delivers equal opportunities to all. Currently in the financial year 2018-2019, the Company has an employee strength of 30 numbers.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR):

Ratio Mar-2019 Mar-2018 % Change
Debtors Turnover 106.31 -73.95 243.76
Inventory Turnover 16.23 -28.05 157.86
Interest coverage ratio -76.12 -42.33 -79.83
Current ratio 81.61 79.91 2.13
Debt Equity Ratio 9.45 9.27 1.94
Operating profit Margin 0.32 -23.24 101.38
Net Profit Margin -0.66 -98.39 99.33
Return on net worth -0.54 -109.33 99.51

Reason for change in 25% or more in key financial ratios as compared to the immediately previous financial year:

a) Debtors Turnover Ratio: During the year under Report, Companys Debtors ratio increases by 243.76% due to higher sales to similar debtors.

b) Inventory Turnover Ratio: During the year under Report, Companys increases by 157.86 due to higher COGS on similar inventory level.

c) Interest coverage ratio: During the year under Report, Companys Interest coverage ratio decreases by 79.83% due to less profit.

d) Operating profit Margin: During the year under Report, Companys Operating profit Margin improved to 0.32% as compared to negative 23.24 in previous year due to change in sales mix.

e) Net Profit Margin: During the year under Report, Companys Net Profit Margin was negative 0.66% as Compared to negative 98.39% in the previous year due to change in sales mix.

f) Return on net worth: During the year under Report, Companys Return on net worth was negative 0.54% as Compared to negative 109.33% in the previous year due to change in Profit after tax.

CAUTIONARY STATEMENT

The statements in this Report, particularly which relate to management discussion and analysis describing the Companys objectives, plans, projections, estimates, expectations or prediction, may constitute "forward looking statements" within the meaning of applicable securities laws and regulations. These statements being based on certain assumptions and expectations of future events, actual results may differ substantially or materially from those expressed or implied in the statement depending on the circumstances, which are beyond the control of the Company like economic conditions, change in government regulations and tax regime etc. The Company assumes no responsibility to publically amend, modify or revise in respect of forward looking statements on the basis of subsequent developments, information or events.