Shree Krishna Infrastructure Ltd Management Discussions.

We submit herewith our Management Discussion & Analysis Report on the Companys Business for the year ended 31st March, 2019. We have attempted to include on all specified matters to the extent relevant or within limits that in our opinion are imposed by the Companys competitive position.

• ECONOMIC & INDUSTRY OVERVIEW:

Introduction

India has emerged as the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and International Monetary Fund (IMF) and it is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. India’s GDP is estimated to have increased 6.6 per cent in 2017-18 and is expected to grow 7.3 per cent in 2018-19.

Market size

Indias gross domestic product (GDP) at constant prices grew by 7.2 per cent in September-December 2017 quarter as per the Central Statistics Organisation (CSO). Corporate earnings in India are expected to grow by 15-20 per cent in FY 2018-19 supported by recovery in capital expenditure, according to JM Financial. The tax collection figures between April 2017- February 2018 show an increase in net direct taxes by 19.5 per cent year-on -year and an increase in net direct taxes by 22.2 per cent year-on-year.

India has retained its position as the third largest startup base in the world with over 4,750 technology startups, with about 1,400 new start-ups being founded in 2016, according to a report by NASSCOM.

Indias labour force is expected to touch 160-170 million by 2020, based on rate of population growth, increased labour force participation, and higher education enrolment, among other factors, according to a study by ASSOCHAM and Thought Arbitrage Research Institute. Indias foreign exchange reserves were US$ 422.53 billion in the week up to March 23, 2018, according to data from the RBI.

Recent Developments

With the improvement in the economic scenario, there have been various investments in various sectors of the economy. The M&A activity in India increased 53.3 per cent to US$ 77.6 billion in 2017 while private equity (PE) deals reached US$ 24.4 billion. Some of the important recent developments in Indian economy are as follows:

Indias merchandise exports and imports grew 11.02 per cent and 21.04 per cent on a y-o-y basis to US$ 273.73 billion and US$ 416.87 billion, respectively, during April-February 2017-18.

Indias Foreign Direct Investment (FDI) inflows reached US$ 208.99 billion during April 2014 - December 2017, with maximum contribution from services, computer software and hardware, telecommunications, construction, trading and automobiles.

Indias Index of Industrial Production (IIP) rose 7.5 per cent year-on-year in January 2018 while retail inflation reached a four month low of 4.4 per cent in February 2018.

Employment on net basis in eight key sectors in India including manufacturing, IT and transport increased by 136,000 in July-September quarter of 2017-18.

The average salary hike of Indian employees is estimated to be 9.4 per cent and that of key talents is estimated to be nearly 15.4 per cent in 2018, backed by increased focus on performance by companies, according to Aon Hewitt.

Indian merchandise exports in dollar terms registered a growth of 4.48 per cent year-on-year in February 2018 at US$ 25.83 billion, according to the data from Ministry of Commerce & Industry.

Indian companies raised Rs 1.6 trillion (US$ 24.96 billion) through primary market in 2017.

Moody’s upgraded India’s sovereign rating after 14 years to Baa2 with a stable economic outlook.

The top 100 companies in India are leading in the world in terms of disclosing their spending on corporate social responsibility (CSR), according to a 49-country study by global consultancy giant, KPMG.

The bank recapitalisation plan by Government of India is expected to push credit growth in the country to 15 per cent, according to a report by Ambit Capital.

India has improved its ranking in the World Banks Doing Business Report by 30 spots over its 2017 ranking and is ranked 100 among 190 countries in 2018 edition of the report.

Indias ranking in the world has improved to 126 in terms of its per capita GDP, based on purchasing power parity (PPP) as it increased to US$ 7,170 in 2017, as per data from the International Monetary Fund (IMF).

India is expected to have 100,000 startups by 2025, which will create employment for 3.25 million people and US$ 500 billion in value, as per Mr T V Mohan Das Pai, Chairman, Manipal Global Education.

The World Bank has stated that private investments in India is expected to grow by 8.8 per cent in FY 2018-19 to overtake private consumption growth of 7.4 per cent, and thereby drive the growth in Indias gross domestic product (GDP) in FY 2018-19.

The Niti Aayog has predicted that rapid adoption of green mobility solutions like public transport, electric vehicles and car-pooling could likely help India save around Rs 3.9 trillion (US$ 60 billion) in 2030.

Indian impact investments may grow 25 per cent annually to US$ 40 billion from US$ 4 billion by 2025, as per Mr Anil Sinha, Global Impact Investing Networks (GIIN’s) advisor for South Asia.

The Union Cabinet, Government of India, has approved the Central Goods and Services Tax (CGST), Integrated GST (IGST), Union Territory GST (UTGST), and Compensation Bill.

The Nikkei India manufacturing Purchasing Managers’ Index increased at the fastest pace in December 2017 to reach 54.7, signaling a recovery in the economy.

Government Initiatives

The Union Budget for 2018-19 was announced by Mr Arun Jaitley, Union Minister for Finance, Government of India, in Parliament on February 1, 2018. This year’s budget will focus on uplifting the rural economy and strengthening of the agriculture sector, healthcare for the economically less privileged, infrastructure creation and improvement in the quality of education of the country. As per the budget, the government is committed towards doubling the farmers’ income by 2022. A total of Rs 14.34 lakh crore (US$ 225.43 billion) will be spent for creation of livelihood and infrastructure in rural areas. Budgetary allocation for infrastructure is set at Rs 5.97 lakh crore (US$ 93.85 billion) for 2018-19. All-time high allocations have been made to the rail and road sectors. Indias unemployment rate is expected to be 3.5 per cent in 2018, according to the International Labour Organisation (ILO).

Numerous foreign companies are setting up their facilities in India on account of various government initiatives like Make in India and Digital India. Mr. Narendra Modi, Prime Minister of India, has launched the Make in India initiative with an aim to boost the manufacturing sector of Indian economy, to increase the purchasing power of an average Indian consumer, which would further boost demand, and hence spur development, in addition to benefiting investors. The Government of India, under the Make in India initiative, is trying to give boost to the contribution made by the manufacturing sector and aims to take it up to 25 per cent of the GDP from the current 17 per cent. Besides, the Government has also come up with Digital India initiative, which focuses on three core components: creation of digital infrastructure, delivering services digitally and to increase the digital literacy. Some of the recent initiatives and developments undertaken by the government are listed below:

The Union Cabinet gave its approval to the North-East Industrial Development Scheme (NEIDS) 2017 in March 2018 with an outlay of Rs 3,000 crores (US$ 460 million) up to March 2020.

In March 2018, construction of 321,567 additional houses across 523 cities under the Pradhan Mantri Awas Yojana (Urban) has been approved by the Ministry of Housing and Urban Poverty Alleviation, Government of India with an allocation of Rs 18,203 crore.

The Ministry of Power, Government of India has partnered with the Ministry of Skill Development & Entrepreneurship to provide training to the manpower in six states in an effort to speed up the implementation of SAUBHAGYA (Pradhan Mantri Sahaj Bijli Har Ghar Yojna).

Prime Ministers Employment Generation Programme (PMEGP) will be continued with an outlay of Rs 5,500 crore (US$ 844.81 million) for three years from 2017-18 to 2019-20, according to the Cabinet Committee on Economic Affairs (CCEA).

In February 2018, The Union Cabinet Committee has approved setting up of National Urban Housing Fund (NUHF) for Rs 60,000 crore (US$ 9.3 billion) which will help in raising requisite funds in the next four years.

The target of an Open Defecation Free (ODF) India will be achieved by October 2, 2019 as adequate funding is available to the Swachh Bharat Mission (Gramin), according to Ms Uma Bharti, Minister of Drinking Water and Sanitation, Government of India.

The Government of India has succeeded in providing road connectivity to 85 per cent of the 178,184 eligible rural habitations in the country under its Pradhan Mantri Gram Sadak Yojana (PMGSY) since its launch in 2014.

A total of 15,183 villages have been electrified in India between April 2015-November 2017 and complete electrification of all villages is expected by May 2018, according to Mr Raj Kumar Singh, Minister of State (IC) for Power and New & Renewable Energy, Government of India.

The Government of India has decided to invest Rs 2.11 trillion (US$ 32.9 billion) to recapitalise public sector banks over the next two years and Rs 7 trillion (US$ 109.31billion) for construction of new roads and highways over the next five years.

The mid-term review of In dias Foreign Trade Policy (FTP) 2015-20 has been released by Ministry of Commerce & Industry, Government of India, under which annual incentives for labour intensive MSME sectors have been increased by 2 per cent.

The India-Japan Act East Forum, under which India and Japan will work on development projects in the North-East Region of India will be a milestone for bilateral relations between the two countries, according to Mr Kenji Hiramatsu, Ambassador of Japan to India.

The Government of India will spend around Rs 1 lakh crore (US$ 15.62 billion) during FY 18-20 to build roads in the country under Pradhan Mantri Gram Sadak Yojana (PMGSY).

The Government of India plans to facilitate partnerships between gram panchayats, private companies and other social organisations, to push for rural development under its Mission Antyodaya and has already selected 50,000 panchayats across the country for the same.

The Government of India and the Government of Portugal have signed 11 bilateral agreements in areas of outer space, double taxation, and nano technology, among others, which will help in strengthening the economic ties between the two countries.

Indias revenue receipts are estimated to touch Rs 28-30 trillion (US$ 436- 467 billion) by 2019, owing to Government of Indias measures to strengthen infrastructure and reforms like demonetisation and Goods and Services Tax (GST).

Road Ahead

Indias gross domestic product (GDP) is expected to reach US$ 6 trillion by FY27 and achieve upper-middle income status on the back of digitisation, globalisation, favourable demographics, and reforms.

India is also focusing on renewable sources to generate energy. It is planning to achieve 40 per cent of its energy from non-fossil sources by 2030 which is currently 30 per cent and also have plans to increase its renewable energy capacity from 57 GW to 175 GW by 2022.

India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group (BCG) report; and is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by the year 2040, according to a report by PricewaterhouseCoopers.

Exchange Rate Used: INR 1 = US$ 0.0153 as on March 29, 2018

OVERVIEW AGRICULTURE INDUSTRY:

Agriculture is the primary source of livelihood for about 58 per cent of India’s population. Gross Value Added by agriculture, forestry and fishing is estimated at Rs 17.67 trillion (US$ 274.23 billion) in FY18**.Agriculture and allied sector’s GVA at constant 2011-12 prices grew a CAGR of 2.75 per cent between FY12-18. As per Union Budget 2018-19, allocation of Rs 57,600 crore (US$ 8.9 billion) was made for The Agriculture Ministry.

India is among the 15 leading exporters of agricultural products in the world. Total agricultural exports from India grew at a CAGR of 16.45 per cent over FY10-18 to reach US$ 38.21 billion in FY18. In April 2018 agriculture exports were US$ 3.15 billion. As per the agriculture export policy, the Government of India is aiming to achieve US$ 60 billion in exports by 2022. India benefits from a large agriculture sector, abundant livestock and cost competitiveness. High proportion of agricultural land (157 million hectares). Diverse agro-climatic conditions encourage cultivation of different crops. Schemes like Paramparagat Krishi Vikas Yojana helps in developing organic clusters and make available chemical free inputs to farmers. Setting up of National Mission on Food Processing. Investment opportunities to arise in agriculture, food infrastructure and contract farming. Contract farming has been operational in India for a long time now; however, the experience of the private sector players involved therein has been a mixed bag of successes and failures. Largely, it has helped both the processing companies, via increasing sales and therefore augmenting their incomes, as well as providing access to better technology and fetching better prices by securing an assured market for Indian farmers. In 2017, agriculture sector in India witnessed 18 M&A deals worth US$ 251 million.

100 per cent Foreign Direct Investment (FDI) is allowed under automatic route in storage and ware housing including cold storages and in development of seeds. With the recent clearance of Foreign Direct Investment (FDI) in multi-brand food retail, the government is looking to double food processing levels to 20 per cent. Cumulative FDI inflow to the food processing industries reached US$ 8.37 billion between April 2000 and December 2017.

In February 2017, as an effort to protect the farmers against price volatility, Niti Aayog has come up with a law on contract farming, to protect the farmer’s interest. The law on contract farming is considered important for private players, as it would induce competition, while ensuring better price of horticulture produce to farmers through advance agreement.

Import duty scrapped on capital goods and raw materials for 100 per cent export-oriented units. Full excise duty exemption for goods that are used in installation of cold storage facilities. Services like pre conditioning, ripening, waxing, retail packing, precooling, labelling of fruits and vegetables have been exempted from service tax.

Agriculture storage capacity in India increased at 4 per cent CAGR between 2014-17 to reach 131.8 million metric tonnes. Cold storage capacity needs to grow rapidly from the current level of 24 million tonnes. Private warehouse operators are supported by multiple income streams, subsidy and available of credit. It is expected that 4 per cent growth in the food grain storage capacity would restructure agricultural sector over the next few years. Both firms and the government are eager to boost efficiency and access to markets. Investment potential of US$ 22 billion in food processing infrastructure; 100 per cent FDI in this area. Firms increasingly taking recourse to contract farming in order to secure supply. Supply chain infrastructure – this niche has investment potential in food processing infrastructure, the government’s main focus is on supply chain related infrastructure like cold storage, abattoirs and food parks.

CONTRACT FARMING:

Contract farming is the process of agricultural production carried out according to an agreement between unequal parties, companies, government bodies or individual entrepreneurs on one side and economically weaker farmers on the other which establishes conditions for the production and marketing of farm products.

In this process, the farmer agrees to provide established quantities of a specific agricultural product, meeting the quality standards and delivery schedule set by the purchaser. In turn, the buyer commits to purchase the product, often at a pre-determined price. In some cases , the buyer also commits to support production through supplying farm inputs, land preparation, providing technical advice and arranging transport of produce to the buyer’s premises.

Today, contract farming is emerging as a preferred mechanism through which agri-businesses can directly engage with farmers. An expanding urban middle class and increasing commercial investment in agricultural retailing and processing are creating demand for more standardized, higher-quality agricultural produce. But underdeveloped supply chains and small farm sizes make sourcing such produce difficult.

PepsiCo was one of the earliest promoters of the contract-farming model in India. In 1997, it set up a tomato processing plant in Punjab, not a traditional tomato growing area, and started tying up with local farmers to grow tomato varieties needed for ketchup.

Although PepsiCo has since exited tomato processing, it still works with 12,000 farmers, primarily to procure potatoes for potato chips.

Models of contract farming:

• Centralized Model (Out-grower Schemes): Under this, contracting company provides necessary support to the farmers for production of required crops; purchases the crop from the farmers, and then processes, packages and markets the product by tightly controlling its quality. This type of farming is quite famous in developing countries for high value crops such as tobacco, cotton, paprika, sugar cane, banana, coffee, tea, cocoa or rubber etc. It may involve tens of thousands of farmers and level of participation of the contracting company in production may vary.

• Nucleus Estate Model: Under this, company own and manages an estate plantation to ensure the limited guarantee of required output. This type of contract farming is highly used for tree crops such as palm oil etc. and also sometimes used in case of export of fresh vegetables.

• Multipartite Model: It is a common joint venture approach in between statutory bodies or state agencies and private companies; those are jointly participating with farmers. Multipartite arrangements may include different specialized organizations for purpose of credit provision, production, management, processing, distribution or marketing etc. In Mexico, Kenya, and West Africa, among other countries, governments have actively invested in contract farming through joint ventures with the private sector.

• Informal model: It usually includes small entrepreneurs or companies who enter into informal contracts with farmers on a seasonal basis which mainly includes crops like fresh vegetables, watermelons or tropical fruits etc. Material inputs are mainly limited to fertilizers and seeds. A common example of the informal model is where the sponsor, after purchasing the crop, simply grades and packages it for resale to the retail trade such as supermarkets, etc.

• Intermediary Model: Under this model, companies make formal sub-contracts with intermediaries (like agents, farmer groups or NGOs) for production of crops. The intermediaries generally enter into informal contracts with farmers to meet the obligations under formal contract with companies. This is a common practice in South-East Asia region.

OVERVIEW CONSULTANCY SECTOR:

Consultancy is a process which involves consultants, whether self-employed or employed, individually or collectively using their knowledge, experience and analytical and/or problem-solving skills to add value to organisations for improvement in their existing operational, financial or marketing efficiency and/or for their expansion plans. Consultancy industry cover a very broad gamut of services which range from being financial, technical to management consultancy and thus can be categorized on basis of various factors such as services provided, sectors catered to, management approaches etc.

Management consultancy includes providing advice and assistance relating to strategy, structure, management and operations of an organisation in pursuit of its long-term purposes and objectives. Such assistance may include the identification of options with recommendations; the provision of an additional resource and/or the implementation of solutions. Consultancy projects have varied completion periods and can last a few hours, months or even several years depending on the nature of the advice and the demands of the client. They can involve the consultant in just providing advice or they can involve the consultant in completing the implementation. Indian consultancy story marked its existence more than two decades ago. Economic reforms, increased global integration leading to rapid growth of the companies which resulted in higher complexity and stiff competition from multinational players. This fuelled the need for specialised consultancy firms to provide services to cater to the complex business needs in the form of corporate advisory, human resource management, feasibility studies, IT advisory, organizational restructuring etc. Major strengths of Indian consultancy organizations include professional competence, low cost structure, diverse capabilities, high adaptability and quick learning capability. Their weaknesses include low quality assurance, little presence overseas and lack of global market intelligence. Capabilities of Indian consultants are strong in several areas which include civil engineering and construction, telecommunication, power, metallurgy, chemical, petrochemicals and IT.

OPPORTUNITIES

Various initiatives are being taken by the government for the growth of this industry. Currently, the residential property market is dominated by end-users - speculative investors are making a beeline out of real estate as an investment category. Residential demand is expected to pick up only towards the end of 2019 but the recovery will be sustainable and based on much sounder market fundamentals than transient sentiment.

Technologies are being used for the promotion of low cost and affordable housing construction development in residential segment.

THREATS

Planning oriented issues:

There is a significant shortfall in planned investments.

Several of the announced projects are yet to be completed.

Delay in Implementation and execution.

Not able to get Land-acquisition and environmental clearances.

Lack of co-ordination between various Government agencies

Improper and Inappropriate structuring of the projects, with no demarcation of risks between Government and private sector

Absence of a proper dispute resolution mechanism between private players and government agencies

Other issues:

There is a great need for improved transparency.

Improved access to key natural resources like coal and iron

Reduction of regulatory uncertainty and delays

Creating a mechanism for single window clearance for approvals

Strict ensuring of enforcement of contracts in a time bound manner.

A need to relook at risk profiles of projects and a better share of private players.

• RISKS AND CONCERNS

Uncertainty about demand conditions given sluggish global economic recovery and its likely contagion effects, regulatory issues regarding environment clearance and land acquisitions as well as sector specific issues like high cost of capital have stagnated the growth in the economy of our country.

• HUMAN RESOURCES

Your Company’s business is managed by a team of competent and passionate leaders, capable of enhancing your Company’s standing in the sector. With trust being the critical part of our business belief, we lay strong emphasis on integrity, teamwork, innovation, performance and partnership.

• INTERNAL CONTROL AND THEIR ADEQUACY

SKIFL maintains adequate internal control systems including internal financial control systems, which provide, among other things, reasonable assurance of recording the transactions of its operations in all material aspects. This system also protects against significant misuse or loss of Company assets. SKIFL has a strong and independent internal audit function. The Internal Auditor reports directly to the Chairman of the Audit Committee. Periodic audits by the professionally qualified, technical and financial personnel of the internal audit function ensure that the Company’s internal control systems are adequate and are complied with.

• CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Company’s objectives, projections, estimates, expectations may be "forward looking statements" within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the Company’s operations include economic developments within the country, demand and supply conditions in the industry, input prices, interest rates, currency rates, changes in Government regulations, tax laws and other factors such as litigation and industrial relations.

Your Company has always placed major thrust on managing its affairs with diligence, transparency, responsibility and accountability.

Disclaimer: All the data used in the initial sections of this report has been taken from publicly available resources and discrepancies, if, any, are incidental and unintentional.