Scope Industries India Ltd Management Discussions

:

INDUSTRY STRUCTURE AND DEVELOPMENTS

India’s infrastructure growth has been exponential over the past decade. Today, we are the fourth largest and probably the second-fastest growing economy, with infrastructure being one of the cornerstones. The infrastructure industry in India is highly fragmented and hence difficult to tell its exact size and the jobs it generates each year in absolute terms.

Over the next 10 years, the infrastructure sector in India will need to continue its growth momentum and is likely to maintain a growth rate anywhere between 7-10%, which is a very healthy sign. The government claims that India is a global leader in public-private partnerships in infrastructure. The private sector financed 36% of infrastructure in the 11th Plan (2007-12), and is expected to finance fully 50% in the 12th Plan (2013-17).

GOVERNMENT INTIATIVES:

The government plans to draw an even mix of public and private sector investments in the 12th Five Year Plan through PPP and other initiatives. A number of PPP projects were initiated at both the centre and state levels during the 10th and 11th Five Year Plans, most of which are already completed.

The central government focuses on the development of national highways, while the state government focuses on the development of roads and urban infrastructure. With the help of PPPs, the state government has completed 340 projects, with 432 in the implementation stage and about 850 in the pipeline, at a net project cost of Rs 7,20,597 crore (US$ 133 billion).

OPPORTUNITIES AND THREATS OPPORTUNITIES:

The Planning Commission of India, Govt. of India has stressed on the need and requirement of infrastructural development in India through a number of policies and initiatives for a growing economy of India. The initial projections for infrastructure in the 12th Five Year Plan (FY 2013-17) is at US $ 1 trillion. This indicates that there is huge investment potential in infrastructure and this certainly translates into a huge scope for careers and employment in this sector. Infrastructure is truly a dynamic sector where, exciting job openings are coming up like never before, which has started to surpass the IT boom witnessed 10 years ago. The growing population and rising economy will increase the demand of infrastructure in the near future. Moreover, the plan of Government of India for extensive expansion in the roads and highways, ports, civil aviation and airports, and power infrastructure segments – all of which provide substantial opportunities for the infrastructure companies.

THREATS:

Infrastructure projects are highly capital intensive, and as such run the risks of (i) longer development period than planned due to delay in statutory clearances, delayed supply of equipment or non-availability of land, non-availability of skilled manpower, etc., (ii) Financial and infrastructural bottlenecks, (iii) execution delay and performance risk, and (iv) cost over-run. The past experience of the Company in implementing projects without signifcant time overruns provides confidence about the timely completion of these projects. Bureaucracy and lack of transparency can be a threat to the five-year plan implementation.

As the demand is increasing there will be a sharp rise in competition in infrastructure sector. To maintain the co-ordination between private sector and Government is also a big challenge in this sector.

INDUSTRY OUTLOOK:

In recent years India is consistently increasing infrastructure spending. Indian government is also offering various incentives such as liberlisation of FDI norms, tax holidays to mobilise resources from domestic as well as foreign sources. Currently India’s infrastructure spending is 8% of GDP which is required to augment further to sustain economic growth. India’s investments in infrastructure in past ten years has made it second fastest growing economy of the world after China.

A slew of policy initiatives announced by the federal government in 2012, particularly in the last quarter, have kindled a sense of optimism among market participants. The policy initiatives include a presidential directive to the state-owned Coal India to sign fuel supply agreements, restructuring of distribution utilities, constitution of the Cabinet Committee on Investments and the approval of Land Acquisition bill 2013 by Rajya Sabha.

The development of adequate infrastructure has been identified as the most critical pre-requisite for sustaining the growth momentum of the economy and to ensure inclusiveness of the growth process. Hence, the Government of India has set massive target by more than doubling the investments in infrastructure from Rs. 20.5 trillion in the 11th Five Year Plan (11th Plan) to Rs.56.3 trillion during the 12th Five Year Plan (12th Plan) i.e. 2012-17.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an adequate system of management supervised internal control which is aimed at achieving efficiency in operations, optimum utilization of resources and compliance with all applicable laws and regulations. The internal control mechanism comprises a well-defined organization structure, pre-determined authority levels with segregation of duties, risk assessment and management framework.

The Company stores and maintains on a regular basis, all the relevant data and information as a back up to avoid any possible risk of losing important business data. Qualified and independent audit committee of the Board comprising of all independent directors of the Company reviews the internal audit reports, adequacy of internal controls and risk management framework every quarter.

The Company’s Internal Control System is supported by an adequate programme of internal audit, conducted by the Auditors of the Company, reviewed periodically by the management together with the Audit Committee of the Board. The management also ensures that all the assets are safeguarded and protected against any loss from unauthorized use or disposition and that all transactions are authorized, recorded and reported correctly.

COMPANY OUTLOOK:

The Company has been on increasing trend during the financial year under review. The efforts of the management team have enabled the Company to sustain and achieve profits even in the recessionary and down trend economic conditions.

The turnover of the Company has increased from Rs. 5440.69 lakhs in F.Y 2011-12 to Rs. 9821.08 lakhs in F.Y 2012-13. Inspite of stiff competition and increasing inflation, the Company has witnessed profitability during the financial year under review. The Company has recorded profit of Rs. 520.28 lakhs during the financial year under review when compared to the last year of Rs. 116.87 lakhs during the F.Y 2011-12.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS:

The Company firmly believes that without man power nothing can be accomplished. Its strength is its employees which have enabled it to complete the projects within time lines and achieve success. The Company has established robust processes and policies to ensure health, safety and welfare of its employees. The Company has undertaken various safety measures like job safety assessment and construction methodologies, adherence to safety norms at project sites, hands-on training on safety, amongst others.

The Company has established proactive and harmonious relations with all employees. It also conducts various interactive sessions with the employees and gives them liberty to participate in various discussions, thereby improving the overall efficiency.

Our client’s contracts are often conditioned upon our performance, which if unsatisfactory, may result in fewer revenues. We maintain healthy industrial relations with all our clients and ensure that our quality service gives them immense satisfaction.

Annexure-II-A Disclosure under Clause 12 & 19 of the Securities and Exchange Board of India (Employee Stock Option Scheme) Guidelines 1999

Annexure-II-B Disclosure under Clause 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme) Guidelines 1999