Shriniwas Power & Infrastructure Ltd Management Discussions

SHRINIWAS POWER AND INFRASTRUCTURE LIMITED (FORMERLY KNOWN AS CONCURRENT (INDIA) INFRASTRUCTURE LIMITED) ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS Your Directors are pleased to present the Management Discussion and Analysis Report for the year ended 31st March 2012. DISCUSSION ON OPERATIONS OF THE COMPANY: PERFORMANCE HIGHLIGHTS: Revenue from operations decreased by 86.11% in the year 2011-12. The Revenue for the year 2011-12 stands at Rs. 1992.52 Lakhs while for the year 2010-11 revenue from operation was Rs. 14344.48 Lakhs. EBITDA dropped by 83.89% in the year 2011-12. The EBIDTA for the year stands at Rs 259.37 lakhs whereas in the year 2010-11 it was Rs. 1609.6 Lakhs. PAT dropped substantially by 98.36% in the year 2011-12. The Net Profit after tax for the year stands at Rs. 25.44 Lakhs whereas in the year 2009- 10. Net Profit was Rs. 1551.15 Lakhs. Financial Analysis: Particulars Year 2011-12 Year 2010-11 No. of shares (in lakhs) 430.59 430.59 EPS - Rs. 0.06 3.60 EPS Growth (%) (98.36)% 249.51% Book value in Rs. per share 16.16 16.11 P/BV 0.21 0.69 EBIDTA (as a % of revenue) 13.02% 11.22% PBT (as a % of revenue) 1.70% 10.81% PAT (as a % of revenue) 1.28% 10.81% Debt-Equity Ratio 0.34% 0.32% Current Ratio 10.90 2.88 Net Worth (Rs. in Lakhs) 6960.51 6935.07 The Net Worth of the company stands at Rs. 6960.51 lakhs in the year 2011- 12 as compared to Rs. 6935.07 lakhs in the year 2010-11. The Debt to Equity ratio of the company is 0.34:1. The Company has shown a steep fall in Earnings Per Share. The EPS for the year 2011-12 stands at Rs. 0.06. GLOBAL ECONOMIC OVERVIEW: The world economy continues to face challenges on the road to sustained recovery. Advanced Economies that seemed to be shaping well at the start of 2011 lost steam towards the fag-end of the year and this uncertainty is clouding the prospects for global growth during 2012. The growth momentum was impacted as the protracted debt crisis in the euro area and fiscal fragilities dampened business and consumer confidence. The economic crisis and its ramifications have accelerated the shift of economic power from the developed to the emerging nations and exposed a fragile world with limited capacity to respond to systemic risks. The consequence has been volatile and low growth which is likely to stay for some time to come. Near term, the growth prospects for 2012-2013 remain uncertain, with growth petering out in the euro area and moderating in the emerging markets, while a better-than expected recovery is shaping up in the US. The baseline scenario suggests that global growth may continue to be low in 2012, with a recession in the euro area as the region makes the much needed fiscal adjustment. In addition, there is the risk of large potential spillovers to the region from Europe. The year 2011-2012 was abetted by the continuing global volatility and challenges. These uncertainties led to widespread risk aversion and adversely affected capital flows to new projects. The competition for limited opportunities, led to socio-political tensions, increasing protectionism, reassessment of regulation and more importantly, heightened competition for scarce natural resources. INDIAN ECONOMIC OVERVIEW: After a rebound in growth in 2010-2011, the Indian economy slowed down to 6.5% in fiscal 2011-2012. This was the lowest annual growth in the last 9 years and was sub-par in comparison to not just the pre-crisis years up to 2008 but also compared to immediate post crisis period. With increasing global integration, the Indian economy was impacted by global uncertainties, while at the same time faced significant domestic challenges of persistent and high inflation, tight monetary conditions, low investment and delays in policy making. The slowdown in 2011-12 was seen in all the major sectors of the economy as compared with the previous year. The Services sector grew by 8.9%, Industry by 3.4% and Agriculture by 2.8% as compared with 9.3%, 7.2% and 7% respectively in 2010-2011. Industrial growth remained subdued due to supply-side bottlenecks, particularly in the mining sector, and moderation in investment demand. The most dismal picture has been presented by capital goods segment which has been in a negative territory during the fiscal. Significantly, slowdown was witnessed in capacity addition as defined by capital formation which decelerated to 5.5% in 2011-2012 as against 7.5% achieved in 2010-2011. BUSINESS OVERVIEW: Despite the prevailing economic uncertainties, the year 2012-2013 holds prospects of gradual build-up in the growth momentum of the Indian economy. Infrastructure development assumes prominence in the Governments budget proposals for the year 2012-2013. In the long-term, India continues to offer considerable opportunities aided by its favourable demographic profile. Its large consumer market has attracted global companies, many of whom have made India their manufacturing hub. However, in order to harness this potential and achieve sustainable growth, the country needs to push forward critical reforms and build innovative public-private partnerships to deliver rapid and inclusive growth as also provide an enabling environment for upgrading infrastructure. POWER & INFRASTRUCTURE: The 11th Plan laid emphasis on development of physical infrastructure including transport to support the accelerated growth of the countrys economy. The thrust in the sector has been on augmenting capacity through technology upgradation and modernisation. In this regard, improving accessibility to remote and rural areas and enhancing mobility through various programmes with enlarged participation of private sector have been the objectives of the 11th Plan. Roads carry about 65 per cent of the freight and 80 per cent of the passenger traffic. While national highways/expressways constitute only about 66,590 kms (2 per cent of all roads), they carry 40 per cent of the road traffic. This signifies the huge potential for highways development in the country. The number of vehicles has been growing at an average pace of 10.16 per cent per annum over the last five years. For the purpose of management and administration, roads in India are divided into the following categories: 1. National Highways (NH) which are intended to facilitate medium and long distance intercity/state passenger and freight traffic across the country. 2. State Highways (SH) which carry traffic along major centers within the state. 3. Major District Roads (MDR) having the secondary function of linkage between main roads and rural roads. 4. Other district roads and village roads which provide accessibility to villages to meet their social needs, as also the means to transport agricultural produce from villages to nearby markets. Some of the key initiatives taken by the Government in the private sector are as follows: 1. The Government of India would carry out initial preparatory work including land acquisition and utility removal. Rights of way to be made available to concessionaires free from all encumbrances. 2. NHAI/The Government of India may provide capital grant up to 40% (maximum) of project cost to enhance viability on a case to case basis. 3. 100% tax exemption for any consecutive 10 out of 20 years from the Commercial Operation Date. 4. Concession period allowed for up to 30 years. 5. Duty free import of specified modern high capacity equipment for highway construction. 6. The Government of India has approved 100% Foreign Direct Investments for road and highway construction through the automatic route. 7. In BOT projects concession holder s are allowed to collect and retain tolls. 8. Planning Commission, NHAI and Ministry of Road Transport and Highways have introduced the model concession agreement to mitigate the traffic risks of toll based projects -pursuant to which the concession period will be extended or reduced based on actual traffic. Infrastructure covers design, engineering and construction of projects in Roads and Runways, Elevated Corridors, Metros, Tunnels, Ports, Special Bridges, Hydro Power, Nuclear Power, Defence and Railway infrastructure sectors. Given the huge gap between infrastructure demand and supply in a growing economy like India, all business relating to urban infrastructure, power, roads and water would witness attractive growth over a sustained period. The Union Budget 2012-2013 also lays greater emphasis on infrastructure development. The realisation of order prospects in infrastructure, power, defence and railways sectors, however, largely depend upon the governments ability to implement the policy decision and finance large scale projects. DISCUSSIONS ON OPERATION OF THE COMPANY: To exploit the various opportunities in Power sector, the Company has taken a long-term strategic view to focus on execution of projects under development. The company has been executing EPC contracts for Power Transmission and Distribution Projects in domestic markets. The Company is focusing on contracts, sub-contracts and collaborations for road development and BOT projects during 2012-13. The company is clearly focusing in capitalising the current market trend. With the specific and continuous thrust on business development, the company is looking at new opportunities across various business segments in India. The business of the Company is focusing on harnessing domestic prospects. Margins would remain under pressure during 2012-2013 with inflationary conditions and continuing competition from domestic players. Conditions of tight iquidity and elevated interest rates are expected to prevail in 2012- 2013. The working capital levels unless managed well are likely to trend higher. KEY RISKS: Increasing competition: Competition is expected to intensify in the domestic infrastructure and construction sectors, post the revival of growth trajectory of the economy. We expect competition to intensify due to possible new entrants (both national and international players) in various segments including construction (which includes EPC), existing competitors further expanding their operations. Increasing prices of commodities/raw materials: Inflationary conditions have erupted in the economy due to supply side constraints. This would have a snowballing effect on the raw materials and input prices , which may imp act the profitability of net margins in the near to medium term. Dependence on Government policies: The growth of the infrastructure industry in India and our infrastructure development business is dependent on the establishment of stable Government policies and prudent regulation. Infrastructure development in India has historically been the preserve of the Central and St ate Governments, and has been constrained by various factors such as shortages of public funding, political considerations and issues of transparency and accountability. More recently, policy changes in the transportation, energy, urban infrastructure and industrial and commercial infrastructure sectors have begun to attract significant private sector interest. Changes in Government policy and support for the infrastructure sector will affect our growth prospects and operational results. Decrease in margins on account of bidding for large projects: Infrastructure project developments on a public private partnership basis in India involve pre-qualifying interested companies based on their technical and financial strengths. The nature of the Government of Indias process is such that the relevant experience in the infrastructure sector plays an important role in allowing companies to bid for new projects. Further, the ability to strategically partner with other players will also determine our success in being awarded projects for which we bid. Our project management capability will also affect our financial condition and operations. Maintaining execution and operating costs at a competitive rate is crucial to the profitability of our construction (which includes EPC), property development and power (comprising power generation and power trading) businesses. Investment in our new projects: We plan to make significant investments in a number of new projects over the next several years, and we intend to bid for new projects. If the development of these projects costs substantially less than what we have budgeted, or if we are able to complete these projects ahead of schedule, our financial condition and earnings could improve. Conversely, if we are unable to complete these projects in accordance with our budgets and within the scheduled time or, once completed, these projects do not operate profitably, our financial condition and operational results could be adversely affected. Delay in execution of Order Book: Its an inherent risk factor, where sub-contracting works are procured by the company, as the subcontracted works always need to be synchronized with the main contracting party and their cash flows. Delay in execution of overseas projects: Execution of overseas projects is dependent on all local conditions like physical, economical and environmental. Management view on risk factors: Management of the company transparently presented the key risks associated with the industry and the company in general. All companies in the industry are working within the given framework. Your company is also confident to perform well amidst the risk factors discussed in general over here. INTERNAL CONTROL SYSTEMS: The Company has strong Internal Control System which involves various systems and procedures which are time tested and tried at both the Operational as well as the Managerial Level. CAUTIONARY STATEMENTS: This report contains forward-looking statements, which may be identified by their use of words like plans, expects, will, anticipates, believes, intends, projects, estimates or other words of similar meaning. All statements that address expectations or projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market position, expenditures and financial results, are forward looking statements. 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 realized. The Companys actual results, performance or achievements could thus differ materially from those projected in any such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events.