Sattva Engineering Construction Ltd Management Discussions

OPERATIONS

You should read the following discussion of our financial condition and results of operations together with our restated financial information for the financial years ended March 31, 2025, March 31, 2024, and March 31, 2023. Our Restated Financial Statements have been derived from our audited financial statements and restated in accordance with the SEBIICDR Regulations and the ICAI Guidance Note. Our financial statements are prepared in accordance with Indian GAAP, including the schedules, annexures and notes thereto and the reports thereon, included in the section titled "Restated Financial Information" on page 239 of this Red Herring Prospectus. Unless otherwise stated, the financial information used in this section is derived from the restated financial statements of our Company.

This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those set forth in the sections titled "Risk Factors " and "ForwardLooking Statements" on pages 31 and 21 respectively, of this Red Herring Prospectus.

These financial statements have been prepared in accordance with Indian GAAP. Indian GAAP differs in certain significant respects from U.S. GAAP, IFRS and Ind AS. We have neither attempted to quantify the impact of IFRS or U.S. GAAP on the financial data included in this Red Herring Prospectus nor do we provide a reconciliation of our financial statements to those under U.S. GAAP or IFRS or Ind AS. Accordingly, the degree to which the Indian GAAP financial statements included in this Red Herring Prospectus will provide meaningful information is entirely dependent on the reader’s level of familiarity with the Companies Act, Indian GAAP and the SEBI ICDR Regulations. Any reliance on the financial disclosure in this Red Herring Prospectus, by persons not familiar with Indian Accounting Practices, should accordingly be limited.

References to the "Company", "we", "us" and "our" in this chapter refer to Sattva Engineering Construction Limited (formerly known as Sattva Engineering Construction Private Limited) as applicable in the relevant fiscal period, unless otherwise stated.

OVERVIEW OF OUR BUSINESS

We are an ISO 9001:2015, ISO 45001:2018 and ISO 14001:2015 certified engineering, procurement and construction ("EPC") company engaged in the business of providing water resource management solutions which includes the Water Supply Scheme ("WSS") with underground and overhead tank, Under Ground Sewerage System ("UGSS"), Sewage Treatment Plants ("STP") and Water Treatment Plants ("WTP") primarily for government authorities/bodies. We also offer operation and maintenance services for the STP projects as a part of the EPC contract.

Under the WSS, we design and construct large underground and overhead water tanks for storage and supply of potable/drinking water along with pump house, laying the pipeline from the water tank and achieving house service connections including electromechanical works.

Under the UGSS, the sewage is drawn through the house service connection, laying the sewage pipeline connected to machine holes (pre-cast or cast-in-situ), collection wells and pump house including amongst other civil structures, electromechanical equipments and instrumentation.

Under the STP, we design, engineer, build, commission and operate sewage treatment plant of varying capacities which typically includes construction of inlet chamber, screen and grit chamber, primary clarifier, sequential batch reactor ("SBR"), chlorine contact tank, sludge thickener, digestor, bio-gas holder amongst other civil structures, electromechanical equipments and instrumentation.

Under the WTP, we design, engineer, build and commission water treatment plant of varying capacities for treatment of river water which typically includes construction of raw water pumping station, inlet chamber, screen chamber, clariflocculator, filter press, rapid gravity sand filter beds, chlorinator amongst other civil structures, electromechanical equipments and instrumentation.

For further details, please see "Our Business" on page 172 of this Red Herring Prospectus.

SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our financial condition and results of operations are affected by numerous factors and uncertainties, including those discussed in the section entitled "RiskFactors" on page 31 of this Red Herring Prospectus. The following are certain factors that have had, and we expect will continue to have, a significant effect on our financial condition and results of operations:

Government policies, initiatives and fund allocation towards water supply & distribution and wastewater treatment industry.

Our business is substantially dependent on water supply & distribution and wastewater treatment funded by the Central and State Governments and we derive our revenues from the contracts awarded to us. These are primarily dependent on budgetary allocations of Government. Our Company intends to capitalise on various Central Government schemes like the Atal Mission for Rejuvenation and Urban Transformation ("AMRUT") and the Jal Jeevan Mission ("JJM") along with contribution from states or ULBs under their respective schemes.

We believe that sustained increase in budgetary allocation for these plans and the development of comprehensive infrastructure policies that encourage greater private sector participation will also contribute to the growth of our Company.

Our bidding and execution capabilities

The projects are awarded to us through a competitive bidding process. This process therefore involves prequalifying for bids based on our technical and financial strengths, and an evaluation of the nature and value of contracts executed in the past to determine a company’s eligibility to bid for new projects. We bid for selective government projects where we see value and long-term growth prospects. A contract is awarded based on our ability to meet the qualification criteria, whether independently or together with other consortium partners and on the quote of the work order submitted. We would be required to continuously improve our operational and technical efficiency which includes amongst others efficient equipment and material sources, good communication between the site office and head office and project planning. Our ability to qualify for bidding larger projects, efficient project planning and timely execution would enable growth of our business and would determine our overall performance, which is likely to impact on our profitability.

Order Book and new orders and timing and terms of contract awarded

Our Order Book and the new orders that we receive have a significant effect on our future revenue. Our Order Book as of any particular date consists of the value of our outstanding orders, that is, the total contract value of the existing contracts secured by us as reduced by the value of work executed (excluding cost escalation) and billed until the date of such Order Book. The value of the orders we receive has an impact on our future performance. We accept orders based on several factors such as the profit margin we expect to achieve after considering various factors including costs involved and execution timelines. Therefore, any cancellation of orders or premature foreclosure or termination of projects under construction by our customers may result in a reduction of our future revenue.

Project portfolio/ geographical distribution of projects

Our current portfolio predominantly comprises of projects located in the state of Tamil Nadu. Our ability to bid for and secure new projects in Tamil Nadu and expand our presence to cover other geographies will determine further growth in order booking and revenues. While we have expanded our operations outside Tamil Nadu, and our geographical footprint continues to grow, our project portfolio continues to be concentrated in Tamil Nadu. While majority of our clients are Urban Local Bodies and government authorities as of now, we intend to bid for contracts in the private sector. We believe that our ability to bid for and undertake EPC projects for select private sector clients in and around our current area of operations will determine further growth in our Order Book and revenues. Further, we intend to increase the number of projects to be executed on a design-built basis, wherein our scope of work includes services in relation to designing elements of the project in addition to our construction and finishing services, which we believe is margin accretive.

Cost Management

Our project costs mainly comprise construction expenses and other direct expenses. Our direct contract expenses and cost of material consumed together accounts for 83.22%, 74.65% and 80.92% of the total income for the financial years 2025, 2024 and 2023, respectively. The key raw materials required for our business are cement, steel, sand, ready-mix concrete, pipes, electromechanical, instrumentation and other construction related materials which form a predominant part of the material cost, and these items are generally covered under the price adjustment mechanism in our contracts. Even though we factor in cost escalations for other construction expenses in our contract values, there may be an unanticipated increase in input costs, more than our estimates thereby adversely impacting on our profitability. Material waste and the costs of procurement of materials not covered by price adjustment mechanism are important factors that affect the cost of construction and our project budget. Our ability to restrict the material wastages, optimize the employee costs and the labor costs directly impact our profitability

Access to capital and cost of financing

Our business is working capital intensive. In many cases, significant amounts of working capital are required to finance the purchase of materials, the performance of engineering, construction and other work on projects before payments are received from clients. We have typically financed our capital requirements through bank borrowings, issuance of securities, client advances against bank guarantees and internal accruals. Access to adequate capital from bank borrowings is on such terms and conditions which are mutually acceptable to our Company and the lender. Further, our Company has been purchasing immovable assets in order to provide for and maintain sufficient collateral for such bank borrowings.

Seasonality and weather conditions

Our business operations may be adversely affected by severe weather conditions, which may require us to evacuate personnel or curtail services, may result in damage to a portion of our fleet of equipment or facilities resulting in the suspension of operations, and may prevent us from delivering materials to our project sites or prevent us from executing the works in accordance with contract schedules or generally reduce our productivity. Our operations are also adversely affected by difficult working conditions during the monsoon season. During the monsoons, local authorities imposes certain restrictions on executing pipeline works or any other civil works upto the ground level for which road cut permission is not provided. The heavy rains particularly impact the construction works up to ground level and heavy winds impact the works particularly at heights. These weather conditions may restrict our ability to carry on construction activities and fully utilize our resources. During periods of curtailed activity due to adverse weather conditions, we may continue to incur overhead and financing expenses and other fixed costs, but our revenues from operations may be delayed or reduced. Revenues recorded in the third quarter of our financial year between October to December are traditionally less compared to revenues recorded during the rest of our financial year. As a result, our revenues and profits may vary significantly during different financial periods, and certain periods are not indicative of our financial position for the year.

Competition

The construction industry is extremely competitive where the key factors of competition primarily comprise of quality, cost and time taken for completion of the project. The level and intensity of competition varies depending on the scope, scale and complexity of the project and on the geographical region where the project is executed.

Our net worth and track record help us qualify to bid for a large number of projects. The selection process in the private sector typically involves technical qualification followed by evaluation of pricing, which is generally subject to negotiations subsequently by the client with the shortlisted bidders. We, therefore, may not get a project solely on the basis of pricing of our proposal and this is generally consequent upon negotiations with the clients. Our competition includes entities that have been in the industry for decades, are well known in the market and may enjoy working relationships with our potential customers. Smaller and local entities may compete at a lower price due to difference in the value proposition.

Project implementation risks and other risks uncertainties

The construction or development of our projects involves various implementation risks including construction delays, delay or disruption in supply of raw materials, unanticipated cost increases, force majeure events, cost overruns or disputes with our counterparties. Increases in the prices of construction materials, fuel, labor and equipment, their availability and cost overruns could have an adverse effect on us. Further the timely availability of working capital is crucial and if we are not able to arrange for funds, we may be unable to source the requisite raw materials in a timely manner or at all and we may not receive bulk discounts on our purchases. The cost of construction materials, fuel, labor and equipment constitutes a significant part of our operating expenses. Our construction operations require various bulk construction materials including pipes, steel, cement, sand, electromechanical items and aggregates. At certain times, there can be a scarcity of raw materials, which may cause substantial increases in the prices of such raw materials. Further, few of our contracts are on the basis of a fixed price or a lump sum for the project as a whole, which may not always include escalation clauses covering any increased costs we may incur. We may suffer significant cost overruns or even losses in these projects due to any unanticipated cost increases. If any of these risks materialize, they could adversely affect our profitability, which may in turn have an adverse effect on our overall results of operation.

Dependence on our in-house designing, engineering and construction teams for project execution

We have a team of 39 employees for project execution activities who are supported by third-party consultants and industry experts to ensure compliance and quality standards laid down by the industry and government agencies & departments. Our ability to effectively execute and manage projects is crucial to our continued success. The designing and engineering of projects in this segment is technically complex, time consuming and resource intensive because of unique project requirements. We are therefore required to constantly upgrade our technical abilities to offer our clients the full range of services at lower cost and without compromising on quality. In the event of any change in the requirement by the government authorities/bodies of any technology presently used for the water supply & distribution and waste-water treatment industry which we are not able to provide or we lack sufficient expertise in that technology, we will not be in a position to bid for such projects for lack of technical qualification and our competitors may get an advantage due to our incapability in bidding for projects requiring technologies which we are not capable of providing. Also, loss of skilled employees from our designing, engineering and construction teams may affect our ability and capability to execute projects and may also affect our growth prospects.

SIGNIFICANT ACCOUNTING POLICIES

The accounting policies have been applied consistently to the periods presented in the Restated Financial Statements. For details of our significant accounting policies, please refer section titled "Restated Financial Information" on page 239 of this Red Herring Prospectus.

RESULTS OF OUR OPERATIONS

The following discussion on results of operations should be read in conjunction with the Restated Financial Statements of Company for the financial years ended March 31, 2025, March 31, 2024, and March 31, 2023:

(Rs. in lakhs, except ratios)

Particulars	Financial Year 2025		Financial Year 2024		Financial Year 2023
	Amount	% of Total Income	Amount	% of Total Income	Amount	% of Total Income
Revenue from Operations	9,365.04	98.74%	7,693.07	99.35%	8,363.89	99.65%
Other Income	119.94	1.26%	50.56	0.65%	29.57	0.35%
Total Income	9,484.97	100.00%	7,743.63	100.00%	8,393.46	100.00%
Direct Contract Expenses	2,777.92	29.29%	1,941.36	25.07%	3,032.86	36.13%
Cost of materials consumed	5,115.16	53.93%	3,839.45	49.58%	3,758.89	44.78%
Changes in inventories of work-in-progress and other materials	(1,491.57)	-15.73%	(246.73)	-3.19%	1.27	0.02%
Employee Benefits expenses	626.66	6.61%	602.50	7.78%	509.57	6.07%
Other expenses	480.61	5.07%	292.18	3.77%	303.38	3.61%
EBITDA	1,976.19	20.84%	1,314.87	16.98%	787.49	9.38%

 

Particulars	Financial Year 2025		Financial Year 2024		Financial Year 2023
	Amount	% of Total Income	Amount	% of Total Income	Amount	% of Total Income
Finance costs	679.31	7.16%	659.00	8.51%	603.20	7.19%
Depreciation and Amortization	35.54	0.37%	27.64	0.36%	46.12	0.55%
Total Expenses	8,223.63	86.70%	7,115.40	91.89%	8,255.29	98.35%
Profit /(Loss) before tax	1,261.35	13.30%	628.23	8.11%	138.17	1.65%
Tax expense:
- Current Tax	348.08	3.67%	182.78	2.36%	44.39	0.53%
- Deferred Tax	-0.64	-0.01%	(10.90)	-0.14%	(10.06)	-0.12%
Net Tax expenses	347.44	13.30%	171.88	2.22%	34.33	0.41%
Profit/(Loss) after tax	913.91	9.64%	456.35	5.89%	103.84	1.24%

PRINCIPAL COMPONENTS OF OUR STATEMENT OF PROFIT AND LOSS ACCOUNT TOTAL INCOME

Our total income for the financial years ended March 31,2025, March 31, 2024 and March 31, 2023, amounted to t 9,484.97 lakhs, t 7,743.63 lakhs and t 8,393.46 lakhs respectively. Our revenue comprises of:

Revenue from operations

Our revenue from operations comprises of contract income. Our revenue from operations amounted to t 9,365.04 lakhs, t 7,693.07 lakhs and t 8,363.89 lakhs accounted for 98.74%, 99.35%, 99.65% of our total income for the financial years ended March 31, 2025, March 31, 2024 and March 31, 2023 respectively.

Other income

Other income comprises of profit from sale of mutual funds, interest received, rent received, miscellaneous income. Our other income amounted to t 119.94 lakhs, t 50.56 lakhs and t 29.57 lakhs accounted for 1.26%, 0.65%, 0.35%, of our total income for the financial years ended March 31,2025, March 31, 2024 and March 31, 2023, respectively.

EXPENSES

Our total expenses for the financial years ended March 31, 2025, March 31, 2024, and March 31, 2023, amounted to t 8,223.63 lakhs, t 7,115.40 lakhs, t 8,255.29 lakhs and t 8,704.77 lakhs respectively. Our expenses primarily consist of the following:

Direct Contract Expense

Direct Contract Expense amounted to t 2,777.92 lakhs, t 1,941.36 lakhs and t 3,032.86 lakhs for the financial years ended March 31,2025, March 31, 2024 and March 31, 2023 respectively accounted for 29.29%, 25.07%, 36.13%, of the total income, respectively.

Cost of materials consumed

Cost of materials consumed amounted to t 5,115.16 lakhs, t 3,839.45 lakhs and t 3,758.89 lakhs for the financial years ended March 31,2025, March 31, 2024 and March 31, 2023, respectively accounted for 53.93%, 49.58%, 44.78% of the total income, respectively.

Changes in inventories of work-in-progress and other materials

Change in inventories of finished goods and work-in-progress amounted to t (1,491.57) lakhs, t (246.73) lakhs and t 1.28 lakhs for the financial years ended March 31,2025, March 31, 2024 and March 31, 2023, respectively accounted for -15.73%, -3.19%, 0.02% of the total income respectively.

Employee benefits expense

Employee benefits expenses consist of salaries and wages, contribution to provident funds and other funds, gratuity, directors’ remuneration and staff welfare expenses. Employee benefits expenses for the financial years ended March 31,2025, March 31, 2024 and March 31, 2023, amounted to Rs. 626.66 lakhs, Rs. 602.50 lakhs and Rs. 509.57 lakhs, respectively which accounted for 6.61%, 7.78% and 6.07% of our total income, respectively.

Finance Costs

Finance cost consists of interest on term loans, interest on overdraft cash credits and demand loans and interest on Other loans amounted to Rs. 679.31 lakhs, Rs. 566.82 lakhs and Rs. 572.97 lakhs for the financial years ended March 31,2025, March 31, 2024, and March 31, 2023, which accounted for 7.16%, 7.32% and 6.83% of our total income, respectively.

Depreciation and Amortization

Depreciation and amortization represent depreciation on property, plant & equipment. Depreciation and amortization expense amounted to Rs. 35.54 lakhs, Rs. 27.64 lakhs and Rs. 46.11 lakhs for the financial years ended March 31,2025, March 31, 2024 and March 31, 2023, respectively which accounted for 0.37%, 0.36% and 0.55%of our total income, respectively.

FINANCIAL YEAR 2025 COMPARED TO FINANCIAL YEAR 2024 TOTAL INCOME

Our total income increased by 22.49% from Rs. 7,743.63 lakhs in the financial year ended March 31, 2024, to Rs. 9,484.97 lakhs in financial year ended March 31, 2025, primarily due to reasons as discussed below:

Revenue from operations

Our revenue from operations increased by 21.73% from Rs. 7,693.07 lakhs in the financial year ended March 31, 2024, to Rs. 9,365.04 lakhs in financial year ended March 31, 2025, primarily because of the increase in project executed during the year and execution of higher value projects during the year. This also resulted in increase in the order book of the Company from Rs. 24,211.17 lakhs as on March 31, 2024, to Rs. 30,809.84 lakhs as on March 31, 2025.

Other Income

Other income increased by 137.23% from Rs. 50.56 lakhs in financial year ended March 31, 2024, to Rs. 119.94 lakhs in financial year ended March 31,2025 primarily due to increase in interest income.

EXPENSES

Total expenses increased by 15.58 % from Rs. 7,115.40 lakhs in financial year ended March 31, 2023, to Rs. 8,223.63 lakhs in financial year ended March 31,2025 primarily due to reasons as discussed below:

Direct Contract Expense

Direct Contract Expense increased by 43.09% from Rs. 1,941.36 lakhs in financial year ended March 31, 2024, to Rs. 2,777.92 lakhs in financial year ended March 31, 2025, primarily because shift in contract execution model from sub-contracting to internal execution model. Earlier, the Company sub-contracted the execution of projects to third party sub-contractors, however, in order to improve execution capabilities, reduction in reliance on outside vendors, reduce cost, increase efficiency and to exercise better control over core functions of construction activities, the Company started to execute the projects using in-house capabilities which resulted in reduction in direct contract expenses. This also resulted in a reduction of labour charges paid to third party sub-contractors.

Cost of Materials Consumed

Cost of materials consumed increased by 33.23% from Rs. 3,839.45 lakhs in financial year ended March 31, 2024, to Rs. 5,115.16 lakhs in financial year ended March 31, 2025, primarily due to increase in purchases of raw material during for the current year to support the increase in business operations.

Changes in inventories of work-in-progress and other materials

Changes in inventories of work-in-progress and other materials increased from Rs. (246.74) lakhs in financial year ended March 31, 2024, to Rs. (1,491.57) lakhs in financial year ended March 31, 2025, primarily because of an increase in the stock of inventories at the various project sites at the end and unbilled revenue which led to increase in closing stock of work-in-progress materials.

Employee benefits expense

Employee benefits expense increased by 4.01% from Rs. 602.50 lakhs in the financial year ended March 31, 2024, to Rs. 626.66 lakhs in the financial year ended March 31, 2025, primarily due to increase in salaries & wages, gratuity and staff welfare expenses.

Finance costs

Finance costs increased by 19.85% from Rs. 566.82 lakhs in financial year ended March 31, 2024, to Rs. 679.31 lakhs in financial year ended March 31, 2025, primarily due to increase in utilization of BG Limit, which has impacted in the increase in the BG commission.

Depreciation and amortization

Depreciation and amortization expenses increased by 28.56% from Rs. 27.64 lakhs in the financial year ended March 31, 2024, to Rs. 35.54 lakhs in financial year ended March 31, 2024due increase in asset base.

Profit after tax

The profit after tax increase from Rs. 456.35 lakhs in financial year ended March 31, 2024, to Rs. 913.91 lakhs for financial year ended March 31,2025, primarily on account of increase in direct contract expense, increase in closing stock of work-in-progress materials costs and increase in other income during the financial year ended March 31, 2024 as compared to financial year ended March 31, 2025.

FINANCIAL YEAR 2024 COMPARED TO FINANCIAL YEAR 2023

TOTAL INCOME

Our total income decreased by 7.74% from Rs. 8,393.46 lakhs in the financial year ended March 31, 2023, to Rs. 7,743.63 lakhs in financial year ended March 31, 2024, primarily due to reasons as discussed below:

Revenue from operations

Our revenue from operations decreased by 8.02 % from Rs. 8,363.89 lakhs in the financial year ended March 31, 2023, to Rs. 7,693.07 lakhs in financial year ended March 31, 2024, primarily because of the delay in receipt of award of few projects during the year and receipt on work completion certificate for few ongoing projects, resulting in delay in accrual of revenue from these projects. This also resulted in increase in the order book of the Company from Rs.21,743.53 lakhs as on March 31, 2023 to Rs.24,211.17 lakhs as on March 31, 2024.

Other Income

Other income increased by 70.98% from Rs. 29.57 lakhs in financial year ended March 31, 2023, to Rs. 50.56 lakhs in financial year ended March 31,2024 primarily due to increase in interest income.

EXPENSES

Total expenses decreased by 13.81 % from t 8,255.29 lakhs in financial year ended March 31, 2023, to t 7,115.40 lakhs in financial year ended March 31,2024 primarily due to reasons as discussed below:

Direct Contract Expense

Direct Contract Expense decreased by 36% from t 3,032.86 lakhs in financial year ended March 31, 2023, to t 1,941.36 lakhs in financial year ended March 31, 2024. primarily because shift in contract execution model from sub-contracting to internal execution model. Earlier, the Company sub-contracted the execution of projects to third party sub-contractors, however, in order to improve execution capabilities, reduction in reliance on outside vendors, reduce cost, increase efficiency and to exercise better control over core functions of construction activities, the Company started to execute the projects using in-house capabilities which resulted in reduction in direct contract expenses. This also resulted in a reduction of labour charges paid to third party sub-contractors.

Cost of Materials Consumed

Cost of materials consumed increased by 2.14% from t 3,758.89 lakhs in financial year ended March 31, 2023, to t 3,839.45 lakhs in financial year ended March 31, 2024, primarily due to increase in purchases of raw material during for the current year to support the increase in business operations.

Changes in inventories of work-in-progress and other materials

Changes in inventories of work-in-progress and other materials increased from t 1.27 lakhs in financial year ended March 31, 2023, to t (246.73) lakhs in financial year ended March 31, 2024, primarily because of an increase in the stock of inventories at the various project sites at the end and unbilled revenue which led to increase in closing stock of work-in-progress materials.

Employee benefits expense

Employee benefits expense increased by 18.24% from t 509.57 lakhs in the financial year ended March 31, 2023, to t 602.50 lakhs in the financial year ended March 31, 2024, primarily due to increase in salaries & wages, gratuity and staff welfare expenses.

Finance costs

Finance costs increased by 9.25% from t 603.20 lakhs in financial year ended March 31, 2023, to t 659.00 lakhs in financial year ended March 31, 2024, primarily due to increase in utilization of BG Limit to the extent of t 15.41 crores, which has impacted in the increase in the BG commission to the extent of t 39 lakhs. There was also an increase in the average rate of interest from 11.95% to 13.65% with Union Bank of India for cash credit limit which has impacted the finance cost by approximately t 15 lakhs.

Depreciation and amortization

Depreciation and amortization expenses reduced by 40.07% from t 46.12 lakhs in the financial year ended March 31, 2023, to t 27.64 lakhs in financial year ended March 31, 2024, as certain fixed assets of the Company reached its residual value and company ceased to charge depreciation on such assets.

Profit after tax

The profit after tax increase from t 103.84 lakhs in financial year ended March 31, 2023, to t 456.35 for financial year ended March 31,2024, primarily on account of decrease in direct contract expense, increase in closing stock of work-in-progress materials costs and increase in other income during the financial year ended March 31, 2024 as compared to financial year ended March 31, 2023.

RATIONALE FOR INCREASE IN REVENUE AND PROFITABILITY

Revenue From Operations

The revenue from operations of the Company is primarily dependent on the projects executed for the client,primarily in our case, the government agencies. In the financial year 2021-22, the Company had achieved a revenue of Rs. 8,806.92 lakhs, which included revenue of Rs. 1,167.43 lakhs representing around 13.26% of the total revenue from operations, for executing standalone miscellaneous civil, electromechanical and infrastructure works which reduced to Rs. 1,064.66 lakhs in financial year 2022-23 and Rs. 262.98 lakhs in financial year 2023-24. The reason for this reduction is to increase focus on core business segments of the Company i.e., WSS, UGSS, STP and WTP. The client for these core business segments are government agencies and bodies and hence, the Company’s dependency has increased on government projects in recent years. Government projects, by their very nature, are characterized by long bid-to-award cycles and stringent pre-qualification criteria. Further, delays in the award of contracts and time over-run (beyond the control of the Company) are very common in government projects. For instance, in the financial year 2022-23, the Company received only one project namely Water Supply Scheme to Nagapattinam in the month of February 2023, for which the bids were submitted in November 22 and the award of the said project was expected by December 2022. Due to delay in receipt of award, the Company could not execute much work on the project in financial year 2022-23 which resulted in lower revenue as compared to financial year 2021-22.

In the financial year 2023-24, the Company had achieved a turnover of Rs. 7,693.07 lakhs. During this year, around 73.82% of revenue from operation were from WSS and UGSS projects as compared to 56.09% and 39.08% for fiscal 2023 and fiscal 2022, respectively. A significant component of WSS and UGSS projects involve laying of pipelines. The execution of these projects involve road cutting permission from the local bodies, and during rainy seasons in Tamil Nadu (i.e., during October to December period), the road cutting permissions are restricted by government authorities. In EPC and construction industry involving government agencies, a significant portion of revenue is booked and received in last quarter of fiscal year, particularly the month of March. Due to these factors, the Company could not realise expected revenue in March 2024 which contributed to lower revenue from operations for fiscal 2024.

Profitability

The Company has shifted from sub-contracting model of project execution to in-house project execution from financial year 2024 onwards. Under the sub-contracting model, the Company did not have complete control over material, labour and other overheads which were controlled by the sub-contractors. Sub-contracting model also includes profit mark-up and overheads of sub-contractor which increases overall cost of project execution. As Company shifted to in-house project execution, the Company has full control over resource allocation along with removal of profit mark-up and additional overheads charged by the sub-contractor. This also resulted in increase in employee benefit expense from Rs. 509.57 lakhs representing 6.07% of revenue from operation in fiscal 2023 to Rs. 602.50 lakhs representing 7.78% of revenue from operation in fiscal 2023.

Further, the Company completed 50 MLD STP project in Nesapakkam during this period amounting to Rs. 8,513.00 lakhs which was a higher profit margin project for the Company. This STP project was a specialised project hence the Company had to enter into consortium agreement with another infrastructure company, Khilari Infrastructure Private Limited, in order to be eligible to take up the project. These kind of specialised project, by their nature, are higher margin projects as compared to regular EPC projects. The Company, off late, has also started receiving higher profit margin projects on its own due to enhanced technical and financial qualifications, including track record of executing complex projects in past (i.e., 50MLD STP project).

This has resulted in higher profit after tax margin for fiscal 2024 and fiscal 2025 which were 5.89% and 9.64%, respectively, as compared to 1.24% for fiscal 2023.

SELECTED RESTATED STATEMENT OF ASSETS AND LIABILITIES

The table below sets forth the principal components of our total assets, equity and liabilities as at the periods indicated in the table below:

(Rs. in lakhs)

Particulars	March 31, 2025	March 31, 2024	March 31, 2023
Total Shareholder’s funds	4,342.00	2,403.10	1,946.73
Total Non-Current Liabilities	85.71	158.11	322.52
Total Current Liabilities	7,053.95	6,186.56	6,068.32
Total Equity and Liabilities	11,481.67	8,747.77	8,337.59
Total Non-current Assets	1,074.25	894.56	669.91

 

Particulars	March 31, 2025	March 31, 2024	March 31, 2023
Total Current Assets	10,407.42	7,853.21	7,667.68
Total Assets	11,481.67	8,747.77	8,337.59

Our shareholder’s fund increased from Rs. 1,946.73 lakhs as of March 31, 2023, Rs. 2,403.10 lakhs as of March 31,2024, and to Rs. 4,342.00 lakhs as of March 31, 2025. Increase in fiscal 2024 was primarily on account of profit after tax for the financial year ended March 31, 2023, amounting to Rs. 103.84 lakhs and profit after tax for the financial year ended March 31, 2024, amounting to Rs.456.37 lakhs. Increase in shareholder’s fund for Fiscal year 2025 is due to increase in paid-up share capital by Rs. 1,175.28 lakhs, security premium of Rs. 1,008.97 lakhs and profit after tax as on March 31, 2025 amounting to Rs. 913.91 lakhs.

Our total non-current liabilities decreased from Rs. 322.52 lakhs as of March 31, 2023 to Rs. 85.71 lakhs as of March 31,2025, primarily on account of decrease in long term borrowings from Rs.322.52 lakhs as of March 31, 2023, to Rs. 138.08 lakhs as of March 31, 2024 . Our total non-current liabilities decreased to Rs. 85.71 lakhs as of March 31, 2025 as compared to Rs. 158.11 lakhs, which was primarily on account of decrease in long term borrowings from Rs.138.08 lakhs to Rs. 85.71 lakhs.

Our total current liabilities

(i) increased from Rs. 6,068.32 lakhs as of March 31, 2023, to Rs. 6,186.56 lakhs as of March 31, 2024;

(ii) increased from Rs. 6,186.56 lakhs as of March 31, 2024, to Rs. 7,053.95 lakhs as on March 31,2025. The principal components of short-term borrowings include cash credit facilities from banks. During the financial year ended March 31, 2023, the Company has been sanctioned additional cash credit facility of Rs. 400 lakhs, increase in mobilization advance from Rs. 70.92 lakhs as of March 31, 2023 to Rs. 1008.74 lakhs as of March 31, 2024 and reduction in mobilization advance to Rs. 380.31 lakhs as of March 31, 2022. The reason for availing these borrowings was to support the growth in business of the Company. The trades payables of the company

(i) decreased from Rs. 1,786.38 lakhs as on March 31, 2023, to Rs. 1,402.05 lakhs as of March 31, 2024; and

(ii) increased from Rs. 1,402.05 lakhs as of March 31, 2024, to Rs. 1,915.33 lakhs as on March 31 2025.

Our total non-current assets increased from Rs. 669.91 lakhs as of March 31, 2023, to Rs. 894.56 lakhs as of March 31, 2024, and increased to Rs. 1,074.25 lakhs as of March 31, 2025. Increase from fiscal 2023 to fiscal 2024, was primarily on account of increase in other non current assets which increased to Rs. 464.29 lakhs as of March 31,2024 from Rs. 241.90 lakhs as of March 31,2023 . As of March 31,2025, other non current assets further increased to Rs. 410.72 lakhs.

Our total current assets increased from Rs. 7,667.68 lakhs as of March 31, 2023, Rs. 7,853.21 lakhs as of March 31, 2024, and to Rs. 10,407.42 lakhs as of March 31,2025. The increase was primarily on account of the increase in inventories from Rs. 1,845.82 lakhs as of March 31, 2023, to Rs. 2,521.30 lakhs as of March 31, 2024 to Rs. 4342.35 lakhs as of March 31,2025, increase in trade receivables from Rs. 3,042.11 lakhs as of March 31, 2023, to Rs. 3,128.96 lakhs as of March 31, 2024 to Rs. 3,235.36 lakhs as of March 31,2025

CASH FLOWS

The following table sets forth our cash flows for the period indicated:

(Rs. in lakhs)

Particulars	Fiscal 2025	Fiscal 2024	Fiscal 2023
Net cash flow from/ (used in) operating activities	(563.26)	572.04	778.15
Net cash flow from/ (used in) investing activities	(5.11)	(262.61)	9.98
Net cash flow from/ (used in) financing activities	743.30	(610.78)	(437.26)
Net increase/decrease) in cash and cash equivalents	174.93	(301.34)	350.87
Cash and cash equivalents at the beginning of the year	161.47	362.26	11.39
Cash and cash equivalents at the end of the year	336.41	161.47	391.05

Operating Activities Financial Year 2024-25

Our net cash used in operating activities was Rs. 563.26 lakhs for the financial year ended March 31, 2025. Our operating profit before changes in working capital was Rs. 1,855.80 lakhs which was primarily adjusted against an increase in inventories by Rs.1,821.05 lakhs, trade receivables by Rs. 106.40 lakhs, short term loans and advances by Rs. 329.86 lakhs, other current assets by Rs. 231.08 lakhs, trade payables by Rs. 513.28 lakhs, and decrease in other current liabilities by Rs. 95.87 lakhs, respectively.

Financial Year 2023-24

Our net cash generated from operating activities was Rs. 572.04 lakhs for the financial year ended March 31, 2024. Our operating profit before changes in working capital was Rs. 1,192.18 lakhs which was primarily adjusted against increase in inventories by Rs. 675.48 lakhs, trade receivables by Rs. 86.85 lakhs, short term loans and advances by Rs. 26.36 lakhs, other current assets by Rs. 84.74 lakhs, decrease in trade payables by Rs. 384.33 lakhs, and increase in other current liabilities by Rs. 712.85 lakhs, respectively.

Financial Year 2022-23

Our net cash generated from operating activities was Rs. 778.15 lakhs for the financial year March 31, 2023. Our operating profit before changes in working capital was Rs. 728.60 lakhs which was primarily adjusted against decrease in inventories by Rs. 533.74 lakhs, increase in trade receivables by Rs. 1,091.30 lakhs, decrease in short term loans and advances by Rs. 111.17 lakhs, other current assets by Rs. 90.45 lakhs, increase in trade payables by Rs. 605.49 lakhs, and decrease in other current liabilities by Rs. 257.56 lakhs, respectively.

Investing Activities

Financial Year 2024-25

Our net cash used in investing activities was Rs. 5.11 lakhs for the year ended March 31, 2025. It was on account of capital expenditure incurred on fixed assets by Rs. 67.34 lakhs, purchase of investment of Rs.23.46 lakhs, increase in non-current assets Rs.123.47 lakhs, which was offsetted against interest income, Rent Income and Redemption of mutual fund of Rs.61.23 lakhs, Rs.15.23 lakhs and Rs.132.70 lakhs, respectively.

Financial Year 2023-24

Our net cash used in investing activities was Rs. 190.84 lakhs for the year ended March 31, 2024. It was on account of capital expenditure incurred on fixed assets by Rs. 17.70 lakhs, increase in non-current assets of Rs. 222.40 lakhs which was off setted by interest income and rent income of Rs. 34.03 lakhs, and Rs. 15.23 lakhs, respectively.

Financial Year 2022-23

Our net cash generated from investing activities was Rs. 2.15 lakhs for the year ended March 31, 2023. It was on account of capital expenditure incurred on fixed assets including capital advances by Rs. 4.46 lakhs, which was offsetted by increase in non-current assets, interest income and Rent Income of Rs. 22.05 lakhs, Rs. 13.43 lakhs, and Rs. 15.23 lakhs, respectively.

Financing Activities

Financial Year 2024-24

Net cash generated from financing activities for the financial year ended March 31, 2025, was Rs. 743.30 lakhs which was on account of net proceeds from short term borrowings, net proceeds from issuance of fresh equity shares and loan taken from directors amounting to Rs. 449.98 lakhs, Rs. 1,025.00 lakhs and Rs. 4.00 lakhs respectively which were offsetted by finance cost, repayment of long-term borrowings of Rs. 679.31 lakhs and Rs. 56.37 lakhs respectively.

Financial Year 2023-24

Net cash used in financing activities for the financial year ended March 31,2024 was Rs. 610.78 lakhs which was on account of net repayment of long-term borrowings and finance cost of Rs. 260.91 lakhs and Rs. 566.82 lakhs, respectively which was offsetted by proceeds from short term borrowings and Directors Loan of Rs.215.45 lakhs and Rs.1.5 lakhs.

Financial Year 2022-23

Net cash used in financing activities for the financial year ended March 31, 2023, was Rs. 437.27 lakhs which was on account of repayment of long-term borrowings, finance cost and Loan from director of Rs.200.20 lakhs and Rs.572.97 lakhs and 45.78 lakhs, respectively which was offsetted by proceeds from short-term borrowings of Rs.381.69 lakhs.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss related to adverse changes in market prices, including interest rates. In the normal course of business, we are exposed to certain market risks including interest risks.

Interest rate risk

Interest rate risk results from changes in prevailing market interest rates, which can cause a change in the fair value of fixed-rate instruments and changes in the interest payments of the variable-rate instruments. Our operations are funded to a certain extent by borrowings. Our current loan facilities carry interest at variable rates as well as fixed rates. We mitigate risk by structuring our borrowings to achieve a reasonable, competitive cost of funding. There can be no assurance that we will be able to do so on commercially reasonable terms, that our counterparties will perform their obligations, or that these agreements, if entered, will protect us adequately against interest rate risks.

Liquidity risk

Adequate and timely cash availability for our operations is the liquidity risk associated with our operations. Our Company’s objective is to all time maintain optimum levels of liquidity to meet its cash and collateral requirements. We employ prudent liquidity risk management practices which inter-alia means maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities.

Credit Risk

We are exposed to the risk that our counterparties may not comply with their obligations under a financial instrument or customer contract, leading to a financial loss. We are exposed to credit risk from our operating activities, primarily from trade receivables.

We consider our customers to be creditworthy counterparties, which limits the credit risk, however, there can be no assurance that our counterparties may not default on their obligations, which may adversely affect our business and financial condition.

MATERIAL FRAUDS

There is no material frauds committed against our Company in the last three financials year.

UNUSUAL OR INFREQUENT EVENTS OR TRANSACTIONS

Except as described elsewhere in this Red Herring Prospectus, there have been no events or transactions to our knowledge which may be described as "unusual" or "infrequent".

SIGNIFICANT ECONOMIC/REGULATORY CHANGES

Government policies governing the sector in which we operate as well as the overall growth of the Indian economy has a significant bearing on our operations. Major changes in these factors can significantly impact income from continuing operations.

There are no significant economic changes that materially affected our Company’s operations or are likely to affect income except as mentioned in the section titled "Risk Factors" on page 31 of this Red Herring Prospectus.

KNOWN TRENDS OR UNCERTAINTIES THAT HAVE HAD OR ARE EXPECTED TO HAVE A MATERIAL ADVERSE IMPACT ON SALES, REVENUE OR INCOME FROM CONTINUING OPERATIONS

Other than as described in the section titled "Risk Factors" and chapter titled "Managements Discussion and Analysis of Financial Conditions and Results of Operations" on pages 31 and 273, respectively, of this Red Herring Prospectus, to our knowledge there are no known trends or uncertainties that have or are expected to have a material adverse impact on our income from continuing operations.

FUTURE CHANGES IN THE RELATIONSHIP BETWEEN COSTS AND REVENUES

Other than as described in the section titled "Risk Factors" and chapter titled "Management’s Discussion and Analysis of Financial Conditions and Results of Operations" on pages 31 and 273 respectively, and elsewhere in this Red Herring Prospectus, there are no known factors to our knowledge which would have a material adverse impact on the relationship between costs and income of our Company. Our Company’s future costs and revenues will be determined by demand/supply situation, government policies and other economic factors.

NEW PRODUCTS OR BUSINESS SEGMENTS

Except as disclosed in this Red Herring Prospectus, we have not announced and do not expect to announce in the near future any new products/ services or business segment.

SEASONALITY OF BUSINESS

Except as mentioned in this chapter, our business is not subject to seasonal variations.

SIGNIFICANT DEPENDENCE ON A SINGLE OR FEW SUPPLIERS OR CUSTOMERS

For financial year ended March 31, 2025, March 31, 2024 and March 31,2023, our top five clients accounted for 99.45%, 100.00% and 99.90%, respectively, and our largest customer accounted for 59.37%, 62.53% and 70.24% of our revenue from operations, respectively.

For financial year ended March 31, 2025, March 31, 2024 and March 31,2023, our top five suppliers accounted for 60.65%, 72.40% and 72.40%, respectively, and our largest supplier accounted for 41.14%, 26.32% and 11.57% of our purchases, respectively.

RELATED PARTY TRANSACTIONS

We enter into various transactions with related parties in the ordinary course of business. For further information relating to our related party transactions see "Restated Financial Statements" on page 239 of this Red Herring Prospectus.

MATERIAL DEVELOPMENTS SUBSEQUENT TO MARCH 31, 2025

Except as disclosed below and elsewhere in this Red Herring Prospectus, no circumstances have arisen since March 31, 2025, the date of the latest financial statements as disclosed in this Red Herring Prospectus which materially or adversely affect or are likely to affect our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next twelve months:

1. The Company has received a work order from a local urban body for design, Build, operate and transfer of 47 MLD capacity Water Treatment Plant at Surapet including comprehensive Operation and Maintenance for 10 Years LOA dated 23-07-2025 . The total order Value is Rs 125.33 Crores (including GST) issued by local urban body.

2. Balaji Srinivasan resigned as the Company Secretary of the Company on 11-07-2025 and Laxmikanth Tangudu was appointed as Company Secretary with effect from 11-07-2025.

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FINANCIAL INDEBTEDNESS

(Rs. in lakhs)

Category of Borrowings	Sanction Amount	Amount outstanding as on March 31, 2025
A) Long-term borrowings
Secured
Term Loans from Banks & Financial Institutions	213.00	43.94
Vehicle / Equipment Loans from Banks & Financial Institutions	41.42	29.48
Unsecured
Term Loans from Banks & Financial Institutions
Loans from Related Parties		12.29
Sub Total (A)	254.42	85.70
B) Short-term borrowings
Secured
Working Capital facilities from Banks & Financial Institutions
a) Fund Based	3,099	3,019.01
b) Non Fund Based	5,200	4,172.14
Current Maturity of Long-Term Debts	-	86.58
Unsecured
Loans from Others	774.40	426.00
Sub Total (B)	9,073.40	7,703.73
TOTAL (A)+(B)	9,327.82	7,789.43

 

Sr Name No of the . Lender	Nature of Borrowings	Sanction ed Amount as on March 31, 2025	Nature of loan (Secured/ Unsecured)	Purpose for which the loan was availed	Outstanding Amount as on March 31, 2025		Interest Rate p.a.	Security \ Margin	Period of Repayment
					(Rs. in lakhs)
					Fund Based	Non-Fund Based
		(Rs. in lakhs)
1. Union Bank	Various fund-based and non-fund based working capital facilities including Cash Credit, Term Loan, Bank Guarantee and Letter of credit	4,538.00	Secured	For working capital purposes	1217.06	2,522.71	Interest Rate - EBLR +5.15% -.5%	Appendix 1	Repayable On Demand
2 HDFC Bank	Various fund-based and non-fund based working capital facilities including Cash Credit, Term Loan, Bank Guarantee and Letter of credit	3,474.00	Secured	For working capital purposes	1453.53	1,649.43	9.25 - 9.5%	Appendix 1	Repayable on Demand
3. NSIC Limited	Raw Material Assistance Scheme	500.00	Unsecured	For working capital purposes	473.52		10.75%	Bank Guaranteed equivalent to value of limit sanction from any nationalized bank / approved bank of NSIC	Repayable withing 90 days from date of disburseme nt
4. Union Bank	Vehicle loans	41.42	Secured	To purchase motor vehicles (car)	34.90	-	8.85% - 9%	Hypothecation of Car	2 to 7 years
5. Loan from Directors	Loan from Directors	-	Unsecured	Business Loan	12.29	-	-	-	-
6. Others	Loan from Others	-	Unsecured	Business Loan	426.00	-	10.00%	-	-
Total		9,327.82			3,617.30	4,172.14

Appendix I

Sr No Name of Lender	Security Provided
1. Union Bank	Primary Security:
	Paripassu first charge on stocks of RM, WIP, Receivables etc. on all the floating / current assets of the company along with HDFC bank
	Collateral Security :
	(1) Paripassu first charge on EMG of Residential Flat no 3, 2nd floor, Sri Kanagadhara Apartments, Located at Plot no 16, door no 3,93rd street, 21st avenue ashok nagar, CH 83 with Plinth area of 2637sft along with UDS of 1903 sft in the name of Mr S Seshadri.
	(2) Paripassu first charge on EMG of Flat no 4, 3rd floor, Sri Kanagadhara Apartments, Located at Plot no 16, door no 3,93rd street, 21st avenue ashok nagar, CH 83 with Plinth area of 2100 sft along with UDS of 1903 sft in the name of Mr R Shekar.
	(3) Paripassu first charge on EMG of Commercial Property located at Kanrathur Road, RS NO 32/2B4 & 40/2D, Kovur, SriperumudurTaluk, Kancheepuram district, in the name of Mr R Sekar.
	(4) Paripassu first charge on EMG of Commercial Property located at Kanrathur Road, RS NO 32/2B4 & 40/2D, Kovur, SriperumudurTaluk, Kancheepuram district, in the name of Mr S Seshadri.
	(5) Paripassu first charge on EMG of Land and Warehouse building located near Pondicherry RS No. 40/1, 40/2, 40/3 part, thuthipet road Thondamanatham Pondicherry in the name of M/S Sattva Engineering Construction Pvt Ltd and Mr R Sekar.
	(6) Exclusive charge on Land and Building located at Old SNO 35/3, as per patta SNO. 35/13, PlotNo 32, Sno 35/13 Moogambigai Nagar, Chikkarayapuram, Sriperumbudur Taluk, Chennai in the name of Mrs S Rama w/o Mr S Seshadri.
	(7) Exclusive charge on Land and Building located at Old SNO 25/1, as per patta SNO. 25/1E, PlotNo 144, Sno 25/1E Moogambigai Nagar, Chikkarayapuram, Sriperumbudur Taluk, Chennai in the name of Mrs S Uthara w/o Mr R Sekar.
	(8) Personal Guarantee of Mr S. Seshadri, Mr. R. Sekar, Mrs. Rama Seshadri and Mrs. S.Uthara.
2. HDFC Bank	Primary Security :
	25% on stock, 50 % on debtors, 10% cash margin for performance BG/LC, 20% cash margin for advanced BG/LC
	Collateral Security :
	1. Office Building Old No 149 New No 64 4th Floorgreams Road Thousand Lights Greams Dugar 600006 Greams Road Thousand Lights
	2. Commercial Property No 40/1, Pondicherry- 605502 Thuthipet, Thondamanatham 605002 Near HP Petrol Pump Vijay
	3. Commercial Property No. 9/102 Kovur- 600122 KundrathurRoad 600118 Near by RJCC Church
	4. Residential Property Plot No 16, No . 3/SF 2, Third Floor Ashok Nagar Sri Kanakadhara Apartnments, 93rd Street, 21st Avenue 600083 Near to R3 Police Station Ashok Nagar
	5. Residential Property Plot No 16, No 3 SF 1, Second Floor Ashok nagar Sri
Sr No Name of Lender		Security Provided
		Kanakadhara Apartments, 93rd Street , 21st station Ashok Nagar 6. Personal Guarantee of Directors

Restrictive Covenants:

Many of the financing agreements of the Company include various restrictive conditions and covenants restricting certain corporate actions and the Company is required to take prior approval of the lender before carrying out such activities. For instance, the Company, inter alia, is required to obtain prior written consent in the following instances:

1. to declare and/or pay dividend to any of its shareholders during the financial year unless the Company has paid to the lender the dues payable by the Company;

2. to borrow or obtain credit facilities from any bank or financial institution;

3. sell, assign, mortgage or otherwise dispose of any of the assets charged by the bank;

4. to alter its capital structure