Shashijit Infra. Management Discussions


INDIAN ECONOMY

The FY 2022-23 commenced with the Indian economy facing headwinds in the form of inflationary pressures. Despite a challenging start, the Indian economy has displayed resilience and grew 7.2% in FY 2022-23, aided by sound macroeconomic fundamentals and improved high frequency indicators. Sustained efforts taken by the Reserve Bank of India (RBI) to rein in inflation by increasing the repo rate by 250 basis points (bps) over the past year have been reasonably successful. The Governments continued thrust on infrastructure-driven, capex-led economic growth, together with signs of a revival of private sector investment in manufacturing and an improvement in capacity utilisation, has maintained the growth momentum.

The Governments push for growth through larger infrastructure spends continues in FY 2023-24. Indias GDP growth is expected to remain robust in FY24. GDP forecast for FY24 to be in the range of 6.5% as per RBI in its latest Monetary Policy Statement. Recovering from pandemic-induced contraction, Russian-Ukraine conflict and inflation, the Indian economy is staging a broad-based recovery across sectors, positioning to ascend to the pre-pandemic growth path in FY23. The private capex continues to provide tailwinds to the growth momentum. A healthy balance sheet of private players, improving consumer confidence and investment activity, as well as growing demand conditions, will provide support to economic growth in the near term. It is expected that the prolonged geopolitical conflict in Europe could continue to impact supply chain dynamics and keep commodity prices volatile for a longer period. Finally, India, due to the structural reforms and the infrastructure-strengthening efforts of the Government and the monetary support from the RBI, is in a better position to counter the challenges and sustain its growth agenda.

INFRASTRUCTURE AND CONSTRUCTION SECTOR OVERVIEW

This sector is a key driver for the Indian economy, and contributes to Indias overall development. Despite the surge in construction costs, government spending on infrastructure projects has remained strong in 2022-23, and the trend is projected to further continue in 2023-24. This along with the spending on commercial projects, including the construction of new data centers across the country, will keep supporting the growth of the construction industry over the next three to four years.

Furthermore, the demand for residential units is also driving the residential construction market in India. Despite the surge in construction costs and rate hikes announced by the Reserve Bank of India, the growing residential sales volume has led to a recovery in the real estate market.

The government has announced a strong pipeline of infrastructure projects across different sectors. The spending on these projects is projected to keep assisting the growth of the overall construction industry in India over the next three to four years. To fund the infrastructure construction projects, the government has also entered into loan agreements with the Asia Development Bank.

We shall continue to explore new opportunities in construction of various EPC based project in different geography. Currently, the Company is evaluating a few proposals and is looking forward to add some value-accretive projects to its portfolio in financial year 2023-24.

GOVERNMENT INFRASTRUCTURE (HOSPITALITY SECTOR)

The hospitality sector in India encompasses a wide range of services, including hotels, resorts, restaurants, event venues, and recreational parks. Indias tourism industry has been growing steadily, both in terms of domestic and international travelers, which has a direct impact on the hospitality sector.

Recreational parks that offer various activities such as amusement rides, water rides, adventure sports, and entertainment have also been evolving after easing of COVID related restrictions.

This segment is really lucrative with people going out with their family and friends without any hassle. Our findings suggest that if this trend continues, then this segment will create boom in the market.

We shall continue to explore new opportunities in this segment. Currently, the Company is evaluating a few proposals and is looking forward to add some value addition to its portfolio in financial year 2023-24.

OPERATIONAL OVERVIEW

Shashijit is an established name in industrial and infrastructural Contracting headquartered at Vapi, Gujarat. The company is in to Civil Project Management as well as Constructs, Designs, Procurements, Builds and Develops Industrial, Commercial, Residential, Public Utility Building & Infrastructure Development Projects.

In Industrial and Civil Construction sector, which is the groups forte Shashijit Infraprojects Ltd offers services in general contracting, pre-construction management and turnkey development. Today Shashijit Infraprojects Limited has diversified into various sectors like they offers its commendable expertise in building and developing Residential and Commercial complexes, and turnkey Industrial projects.

The Company has second segment of business which is to manage Government Infrastructure taken on lease and provide various recreational activity at lake property. The Company is equipped with a sound team of professionals and logistics support for executing of any such projects. We are also open to foray into newer geographies for any such opportunity coming our way. The Company has extensive experience in construction management and has inherent skills and resources to develop and deliver any type of Real estate projects.

STRENGTHS AND OPPORTUNITIES

1) Strong execution track record and demonstrated ability to grow competitively and profitably.

2) Experienced management team including engineers, project managers and technical staffs with strong understanding of the business complexities.

3) A proven track record of successfully completed projects enhances the companys reputation and builds client trust. Experience demonstrates the ability to handle challenges and deliver results.

4) As a veteran in the industry, Company is having potential in getting more projects in the industrial and especially textile sector.

5) Higher budgetary allocation for infrastructure sector

6) As the education sector expands, theres a need for constructing schools, colleges, universities, and training centers across the country.

7) The tourism and hospitality sector in India continues to expand. Opportunities exist for constructing hotels, resorts, convention centers, and other facilities to cater to both domestic and international tourists.

8) The Indian governments "Smart Cities Mission" involves transforming existing cities and building new smart cities with advanced infrastructure and technology. Construction companies can participate in projects related to smart infrastructure, waste management, efficient transportation, and more.

9) The Company will continue to explore opportunities to add prudent EPC projects to its order book.

SEGMENT-WISE PERFORMANCEL:

Segment FY 23 (In Lakhs) Contribution (%) FY 22 (In Lakhs) Contribution (%) YoY growth (%)
Construction and Development of Immovable Properties 3506.58 99.22% 2815.59 98.89% +24.54%
Operate and maintain Government Infrastructure 27.43 0.78% 31.62 1.11% -13.25%

CONSTRUCTION AND DEVELOPMENT OF IMMOVABLE PROPERTIES:

The Companys business of Civil Project Management as well as business of construction of residential and industrial immovable properties, infrastructure facilities, driveways, public utilities, powerhouse buildings, factories and other Infrastructure Development Projects. This segment grew by 24.54% and contributed 99.22% to the total revenue comparing to last financial year.

The Company serve to a vast range of clients Heavy & Light Engineering Industry, Textile, Chemical, Healthcare & Pharma, Paper & Packaging, Hospitality, and Educational Institutions & Residential Premises. In this segment Company has taken several initiatives. This category is a key growth driver for the Company as it continues to expand its geographical reach and have been focusing on venturing into new foray of Infrastructural development viz. Roads and rail infrastructure, bridges, dams and other government contracting related activities.

OPERATE AND MAINTAIN GOVERNMENT INFRASTRUCTURE:

The Companys has started running the business of operation and maintenance of lakes taken on lease from Government where Company has started various recreational activities for the general public for the entertainment during the year under review but since the execution of the lease agreement, many of the basic facilities as mentioned in the tender and as per the lease agreements of Chala, Lakhamdev and Dungra Lake were not being provided by the lessor which was agreed by them at the time of execution of the lease agreements and which has impacted the revenue growth.

In the absence of basic facilities, as stipulated in our lease agreement with the lessor, has begun to significantly impact our ability to operate effectively in that segment and provide a satisfactory experience to our customers. The lessor is responsible for providing certain basic facilities that are integral to our recreational activities. Unfortunately, despite multiple attempts to address the issue, the lessor has not fulfilled their obligation to provide these facilities. The absence of these facilities is directly affecting our operational efficiency, customer satisfaction, and revenue generation and due to that this segment has contributed only 0.78% of the total revenue during the financial year under review.

We have made diligent efforts to engage in constructive communication with the lessor by submitting various intimation letters and by conducting meetings from time to time, bringing to their attention the urgency of the matter and the repercussions it is having on our business and your Company is trying their best to resolve the issue and work towards earning more from this segment.

OUTLOOK:

The Indian economy has risen from being 10th to the 5th largest economy globally. The per capita income has doubled and increased to 1.97 lakh in 9 years. Indian economy is expected to grow by 6.5% in FY 2023 24 and by an average rate of 6.1% over the next five years. The economy has been on a recovery path after the impact of the pandemic.

In the Financial year 2023-24, India has budgeted the capital investment outlay for infrastructure sector to 10 lakh crores, which would be 3.3% of GDP and almost three times the outlay in 2019-20. Infrastructure Finance Secretariat is being established to enhance opportunities for private investment in infrastructure that will assist all stakeholders for more private investment in infrastructure, including railways, roads, urban infrastructure, and power. This depicts the upward trajectory of the Indian infrastructure space which is on the rise. Also, India has to enhance its infrastructure to reach its 2025 economic growth target of US$ 5 trillion. The economy boost is only possible with the infra development at the forefront.

Looking at the various opportunity in government projects, Company is in a process to apply for registered as Government Contractor. Going forward, the Company remains confident that with the turnaround in economic activity, it is well positioned to sustain its growth momentum over the next few years. Company is driven by an experienced management team with deep understanding of business complexities and is well positioned to capitalize on the countrys significant growth potential. With strong future growth prediction our Company is confident of its ability to tide over the challenges arising from subdued demand and executional challenges through its customer centric approach, construction expertise and technology leadership in the industry.

THREATS/RISKS AND CONCERNS

The Companys Risk Management Framework incorporates leading risk management standards and practices. In developing the Risk Management Framework, the focus has been to design a process that addresses the Companys business needs while being simple and pragmatic. The Risk Management Framework outlines the series of activities that will be used in identifying, assessing, managing and reporting risks.

The Company works in an environment which is affected by various factors, some of which are controllable while some are outside the control of the Company. At SIPL, we have developed a robust risk management framework that reduces the volatility due to unfavorable internal and external events, facilitates risk assessment and mitigation procedure, lays down reporting procedure and enables timely reviews by the management. Type of risks are as under;

1) Margin erosion due to higher costs:

Risk: Exposure to price volatility can impact the costs, leading to margin erosion. The Company focus on timely pricing actions.

Mitigation Plan: Constant monitoring of competitor price in the market has been taken up by the Company.

2) Execution Risk

Risk: Construction projects are subject to various execution risks like regulatory hurdles, delay in receipt of approvals, availability of labour and raw material, etc. Any such delay may result in cost overruns and impact the Companys operations unfavorably.

Mitigation Plan: For that The Company deploys a well-defined standard operating procedure from project planning to delivery and adheres to internal checks and balances with regard to every project. Extensive diligence is carried out.

3) Skilled/Unskilled Labour Shortage:

Risk: Companys main business is labour centric business and any shortage in skilled/unskilled labour can slow down the construction activity.

Mitigation Plan: The Company is planning for additional machinery purchase to overcome shortage of skilled/unskilled labour and reduce the dependency of the labour.

4) Project delay risk

Risk: If projects are not finished on time, then the company is susceptible to increased cost and loss of reputation which can hurt the order book.

Mitigation Plan: The Company has processes, systems and strong human capital which continuously improves the project management capabilities of the organization and engages in careful bid preparation to avoid any over utilization of resources.

5) Environment, Health, and Safety

Risk: EHS incidents can impact business continuity. It can also hinder the abilities and morale of employees, associates and business partners.

Mitigation Plan: The Company has adopted an EHS compliance framework, where adequate preventive measures for fire safety, electrical safety and working on heights are in place at all sites.

6) Geopolitical events impacting supply

Risk: Supply disruptions due to geopolitical events may impact input costs and supply chain. Focus is placed on

Mitigation Plan: Planning well ahead in advance to stock the necessary materials.

7) Liquidity Risk

Risk: Liquidity crunch has been prevailing in the infrastructure market, and many owners / developers are financially stressed.

Mitigation Plan: To avoid any liquidity risk, robust screening of customer profiles, proper due diligence and their liquidity position is undertaken before bidding for any construction contract as well as during execution.

8) Dispute with Vapi Nagar Palika

Risk: Any dispute with Vapi Nagar Palika can be impacted negatively and can impact on the revenue generation of the Company from that segment where as of now Company is generating less than 1% of total revenue.

Mitigation Plan: To avoid any dispute risk, Company has already made various submissions to Vapi Nagar Palika to prove the stand time to time and already exploring legal ways to resolve the dispute if required.

Our projects are exposed to various implementation and other risks and uncertainties. We may be further subject to regulatory risks, financing risks and the risks that these projects may ultimately prove to be unprofitable.

INTERNAL CONTROL SYSTEMS & ADEQUACY

The Company has Internal Control Systems commensurate with the nature of its business, size, and complexities which is integrated with Company policies. The key objective of the internal control systems is to manage business risks, enhance shareholder value and safeguarding of the assets. This helps in identifying, assessing and mitigating the risk that could impact the Companys performance and achievement of its business objectives. The risks are reviewed on an ongoing basis by respective business heads and functional heads across the organization.

The internal financial controls for all the significant processes have been identified based on the risk evaluation in the business process and same have been embedded/ implemented in the business processes. These processes and controls have been documented. Professional internal audit firms review the systems and processes of the Company and provide independent and professional opinion on the internal control systems. The Audit Committee of the Board reviews the internal audit reports, adequacy of internal controls and risk management framework periodically. These systems provide reasonable assurance that our internal financial controls are designed effectively and are operating as intended.

The internal control commensurate with the activities is supplemented by continuous review by the management.

The internal control system is designed to ensure that every aspect of the companys activity is properly monitored.

Further, the Statutory Auditors of the Company also carried out audit of the Internal Financial Controls over Financial Reporting of the Company as on March 31, 2023 and issued their report which forms part of the Independent Auditors report.

FINANCIAL PERFORMANCE

Your Company recorded Net Revenue from Operations of Rs. 3534.01 Lakhs on standalone basis, for the Financial Year ended March 31, 2023. Revenue grew by 24.12% compared to Rs. 2847.22 Lakhs recorded during the previous Financial Year.

Company has achieved net profit of Rs. 45.07 Lakhs in FY 2022-23 as against net profit of Rs. 12.84 Lakhs in the previous year and the comprehensive income is Rs. 47.20 Lakhs in FY 2022-23 as against Rs. 18.04 Lakhs in the previous year.

Earnings per Share (EPS) of the Company is Rs. 0.44 comparing to Earning per Share (EPS) of the Company of Rs. 0.12 of previous financial year.

Overall, the Company has delivered a strong business performance in a challenging environment. The Company remains confident that its business built on the edifice of a strong brand, high quality products, widespread distribution and deep consumer relationships has the potential to sustain healthy and profitable growth in the years to come.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES

The Company believes that its capability to preserve and continue its growth depends largely on its strength of developing, motivating and retaining talent. It firmly believes that highly motivated and empowered employees are its best assets to maintain a competitive edge in the market. The management is committed to continuously upgrading skills and competency at all levels with the aid of extensive training. The Company is committed to ensure employees safe working conditions and social awareness. The employee strength of the SIPL consists of 49 permanent employees as on 31st March 2023.

The Companys employees possess requisite qualifications and technical expertise to execute projects across the construction services domain. The Companys HR continues to focus on maintaining excellent work culture, employee development and competitive compensation to ensure a motivated and empowered workforce.

The company continuous to lay emphasis on developing and facilitating optimum human performance. The Company has maintained excellent relations with its employees across all levels of the organization during the period under review. All efforts were made to ensure a high employee satisfaction. Adequate measures were undertaken to enhance the skill sets of the employees. The Company has always aimed to create a workplace where every person can achieve their optimum potential and add value to the organizational growth. Company has really good relation with industries by which Company can get leads for the Constructions.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS AND RETURN ON NETWORTH

As per the amendment made under Schedule V to the Listing Regulations read with Regulation 34(3) of the Listing Regulations, details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios and any changes in Return on Net Worth of the Company including explanations therefor are given below:

Ratio March 31, 2023 March 31, 2022 % Change Reason for Variance
Current ratio 1.19 1.39 -14.09% N.A.
Debt - Equity ratio 1.02 0.91 11.42% N.A.
Debt service coverage ratio 0.18 0.20 -8.14% N.A.
Return on equity ratio 0.04 0.01 241.05% Due to increase in profit Shareholders equity increased
Inventory turnover ratio 1.50 1.55 -3.20% N.A.
Trade receivable turnover ratio 4.47 3.96 12.66% N.A.
Trade payable turnover ratio 1.70 1.99 -14.51% N.A.
Net capital turnover ratio 6.27 4.54 38.03% Due to increase in turnover in the current year.
Net profit ratio 1.28% 0.45% 182.74% Due to increase in turnover and cost cutting and better management, net profit ratio increased
Return on capital employed -0.02 -0.04 -55.00% Due to increase in turnover, cost cutting and better management, Return on capital employed increased.
Return on investment 0.00 19.32% 100.00% There is no sale of Investment property during the year.

DISCLOSURES BY MANAGEMENT TO THE BOARD

All disclosures relating to financial and commercial transactions where Directors may have a potential interest are provided to the Board and the interested directors do not participate in the discussion nor do they vote on such matters.

CAUTIONARY STATEMENT

Forward Looking Statement in this Management Discussion and Analysis of financial condition and results of operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company assumes no responsibility to publicly amend, modify or revise forward-looking statements on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in Government regulations, tax laws, economic developments within the country and such other factors globally.

For and on behalf of the Board of Directors

Shashijit Infraprojects Limited

Sd/-
(Ajit Jain)
Place: Vapi Chairman & Managing Director
Dated: 5th September, 2023 DIN: 01846992