shri krishna devcon ltd share price Management discussions


Global Economic Outlook

Confluence of multiple crises unleashes one of the lowest global economic growth rates in recent decades, according to UN flagship report. A series of severe and mutually reinforcing shocks the COVID-19 pandemic, the war in Ukraine and resulting food and energy crises, surging inflation, debt tightening, as well as the climate emergency battered the world economy in 2022. Against this backdrop, world output growth is projected to decelerate from an estimated 3.0 per cent in 2022 to 1.9 per cent in 2023, marking one of the lowest growth rates in recent decades, according to the United Nations World Economic Situation and Prospects (WESP) 2023. The report presents a gloomy and uncertain economic outlook for the near term. Global growth is forecast to moderately pick up to 2.7 per cent in 2024 as some of the headwinds will begin to subside. However, this is highly dependent on the pace and sequence of further monetary tightening, the course and consequences of the war in Ukraine, and the possibility of further supply-chain disruptions.

Amid high inflation, aggressive monetary tightening and heightened uncertainties, the current downturn has slowed the pace of economic recovery from the COVID-19 crisis, threatening several countries both developed and developing with the prospects of recession in 2023. Growth momentum significantly weakened in the United States, the European Union and other developed economies in 2022, adversely impacting the rest of the global economy through a number of channels. Most developing countries have seen a slower job recovery in 2022 and continue to face considerable employment slack.

Disproportionate losses in womens employment during the initial phase of the pandemic have not been fully reversed, with improvements mainly arising from a recovery in informal jobs.

The report calls for Governments to avoid fiscal austerity which would stifle growth and disproportionately affect the most vulnerable groups, affect progress in gender equality and stymie development prospects across generations. It recommends reallocation and reprioritization of public expenditures through direct policy interventions that will create jobs and reinvigorate growth. This will require strengthening of social protection systems, ensuring continued support through targeted and temporary subsidies, cash transfers, and discounts on utility bills, which can be complemented with reductions in consumption taxes or custom duties. Strategic public investments in education, health, digital infrastructure, new technologies and climate change mitigation and adaptation can offer large social returns, accelerate productivity growth, and strengthen resilience to economic, social and environmental shocks.

Industry Structure and Development

In India, the real estate sector is the second-highest employment generator, after the agriculture sector. According to a report of www.livemint.com: Despite rising construction costs and a record hike in the repo rate (225 bps) in 2022, the real estate sector has seen a considerable upswing. After a protracted period of economic stagnation, the real estate industry was able to breathe easier this fiscal year. After two long years of pandemic-related lockdowns and subsequent economic turmoil, the industry has experienced a comprehensive recovery this year throughout Tier I, II, and III cities. According to a report of PWC: The real estate industry is moving beyond what it perceives as cyclical headwinds i.e., rising interest rates, declining gross domestic product (GDP), sinking deal flows and taking a long-term approach to real estate assets.

Strong and positive momentums are expected to continue prevailing in Indian real estate in the financial year 2023 (FY 23) backed by the solid structural foundation, gain in demand despite increased home loan rates. By all means, FY 23 will be the fiscal year, the industry has been hoping for long. The upswing in the market will also stem from a favorable economic outlook. Most of the rating agencies have estimated the growth of India in the comfortable range of 8-9%. The surge in commercial activities alongside a rise in the job market and income levels will naturally translate into increased housing demand.

Government Initiatives

The Union Budget has been the cynosure of all eyes not just because it coincides with arduous internal efforts to revive the economy, but also the enormous uncertainties that surround a post-pandemic global economy. The Budget for 2023 24 has been all about inclusive and holistic growth with a heroic approach to green growth. It is a viable and fail-safe solution to fight inflation, boost demand, and create jobs. Since the beginning of time, real estate has played a significant role in the Indian economy. Now that India has the worlds largest population, it has become ever more important to invest in, and develop real estate, which also bears responsibility for the environment and sustainability. The Union Budget 2023 encourages optimism in real estate as a reliable ally for long-term growth. Further, with landmark acts like RERA proving invaluable in building a strong foundation, further reforms that will catalyse growth in the domestic real estate sector are needed in 2023 (source: timesofindia.indiatimes.com).

During the financial year 2022-23, total revenue on standalone as well as on consolidated basis increased to Rs. 3219.21 Lakhs as against Rs. 2128.62 Lakhs in the previous year a rise of 51.23% recorded; Profit before Tax for the current year is Rs. 661.49 Lakhs as against Rs. 360.83 Lakhs in the previous year a rise of 83.32% recorded and the total comprehensive income stood at Rs. 482.26 Lakhs as against Rs. 277.17 Lakhs for the previous year a rise of 73.99% recorded. The Companys operations span covers all aspects of real estate development from the identification and acquisition of land to the planning, execution and marketing of its projects. The Company is developing projects mainly in Indore (Madhya Pradesh) and Mumbai (Maharashtra). During the year, the Company has the following projects which are at various stage of progress;

Name of Project Project Type Location
Shrikrishna Corridor Colony Indore (MP)
Shri Krishna Enclave Colony Indore (MP)
Shri Krishna Emerald Greens Colony Indore (MP)
Shrikrishna Premium Corridor Colony Indore (MP)
Shri Krishna Residence Colony Indore (MP)
Shri Krishna Divine Greens Colony Indore (MP)
Shri Krishna Leela Greens Colony Indore (MP)
Shri Krishna Enclave Premium Colony Indore (MP)
Avani Signature Commercial Mumbai (MH)

Opportunities, Threats, Risks and Concerns

Cost of capital slowing investment flows

The rising cost of capital and conservative underwriting are subduing transaction markets. Fundraising is more challenging in the current climate, as the denominator effect limits capital inflows to commercial real estate.

Cost of Construction

The effects of challenging economic conditions and an uncertain outlook continued to be reflected in office markets during the second quarter of 2023, with lengthy decision-making and limited large-scale requirements as occupiers maintained a cautious stance.

Infrastructure: The key focus area

In budget 2023 the continued focus on infrastructure development saw capital expenditure enhanced to an effective amount of INR 13.7 lakh crore which is 4.5% of the GDP. Increased allocation to railways and a significant focus on seamless connectivity through road, rail, port, and airports will support multi-modal connectivity, while reducing the overall transportation and logistics costs. This will also boost supply chain efficiencies on an overall basis.

Income tax announcements

The direct income tax benefits will bring more money into the hands of the middle- and higher-income class. This will support homebuying activity as it will ease the pressure of increased EMIs and higher home prices for prospective homebuyers. The revision in Section 54 and 54F has now capped the deduction of capital gains from house property to INR 10 crore. This will create a higher tax incidence for high-value transactions.

Source: JLL Internal Cost Benchmarking Data Base

The growth pattern saw a significant upsurge by end of 2022 enabling positive prospects for 2023. India continues to be a lucrative market for foreign direct investments due to comparatively low setting-up costs, improved government support and availability of well-qualified professionals.

Segment Wise Performance

At present, the Company is engaged in the business of real estate development and there is no separate reportable segment.

Internal Control Systems and their Adequacy

The Company has a comprehensive Internal Financial Control system commensurate with the size, scale and complexity of its operations. Your Company lays great importance on internal control systems across the organization. The Company has adequate system of internal control which helps the management to review the effectiveness of financial and operating control as well as to ensure that all the assets are safeguarded and more productive. The system encompasses the major processes to ensure reliability of financial reporting, compliance with policies, procedures, laws, and regulations, safeguarding of assets and economical and efficient use of resources. We have a qualified and independent Audit Committee which comprises of our Board of Directors. The Audit Committee reviews the adequacy and efficiency of internal controls and recommends any improvements or corrections. These internal controls ensure efficiency in operations, compliance with internal policies of the Company, applicable laws and regulations, protection of resources and the accurate reporting of financial transactions.

Disclosure of Accounting Treatment

In the preparation of the financial statements for the year ended March 31, 2023, the applicable Indian Accounting Standards (Ind AS) have been followed. Pursuant to the notification dated February 16, 2015 issued by the Ministry of Corporate Affairs, the

Company has adopted the Indian Accounting Standards ("Ind AS") notified under the Companies (Indian Accounting Standards) Rules, 2015 with effect from April 1, 2017.

Human Resource Development

The Company comprises a small team of professionals & managers, who are result oriented, committed and loyal. The number of permanent employees on the rolls of company as on 31.03.2023 was 9. The Company is in real estate sector and for the development of projects we engage the services of consultants, contractors and sub-contractors who work on our projects, employ a significant Labour force which includes skilled, unskilled and semi-skilled workers. We like to thank all our employees for their dedication, and their families for their unfailing support. Your hard work has carried the company through its difficult time. We would also like to thank our customers for their ongoing trust, as well as our contractors, sub-contractors for their tremendous support.

Key Financial Ratios

In the key financial ratios for the Financial Year ended March 31, 2023 there were no significant changes (i.e., change of 25% or more) as compared to the immediately preceding Financial Year except as mentioned below.

Ratios Calculation 2023 2022 Explanations
Trade Receivable Turnover Revenue from operations 4.56 3.15 Increase in revenue from operations
Ratio Average trade receivables
Inventory Turnover Ratio Revenue from operations 0.26 0.17 Increase in revenue from operations
Average inventory
Interest Coverage Ratio EBITDA 3.31 2.43 Increase in revenue from operations
Interest expenses
Current Ratio Total current assets 1.80 1.94 Approx. at same level
Total current liabilities
Debt Equity Ratio Total debt 0.70 0.73 Approx. at same level
Total equity
Operating Profit Margin EBITDA 31.21% 32.27% Approx. at same level
Revenue from operations
Net Profit Margin Net income after tax 15.41% 13.76% Increase in revenue from operations
Revenue from operations
Return on Net Worth Profit after tax 6.25% 3.83% Increase in profit
Shareholders equity

Cautionary Statement

Certain statements contained in this Managements Discussion and Analysis and Boards Report may be "forward-looking statements". These include statements about Managements expectations, beliefs, intentions or strategies for the future. All forward-looking statements reflect Managements current views with respect to future events, and are subject to numerous risks, uncertainties and assumptions that have been made. Actual results could differ materially from those expressed or implied, depending upon global and Indian demand-supply conditions, changes in Government regulations, tax regimes and economic developments within India and overseas.