SSPDL Ltd Management Discussions.

1. ECONOMY OVERVIEW Global Economy:

The global economy in FY19 was characterised by ongoing volatility and uncertainty, fueled largely by geopolitical developments, regional conflicts and potential disruption to the global trade regime. Against a difficult backdrop that included intensified US-China trade and technology tensions as well as prolonged uncertainty on Brexit, momentum in global activity remained soft in the first half of 2019. The increase in US-China trade tensions caused a rapid deterioration in global risk appetite.

The global economy is expected to slow down to 3.3 percent in 2019 from 3.6 percent in 2018 as per IMF estimates. The downward revision is primarily on account of the negative effects of tariff increases enacted in the United States and China. With global growth subdued and downside risks dominating the outlook, the global economy remains at a delicate juncture.

The pickup in global growth in 2020 relies importantly on several factors: (1) financial market sentiment staying generally supportive; (2) continued fading of temporary drags, notably in the euro area; (3) stabilization in some stressed emerging market economies, etc. At the multilateral level, the pressing needs are, first, to reduce trade and technology tensions. Specifically, countries should not use tariffs to target bilateral trade balances. More fundamentally, trade disputes.

The outlook for the global economy from various sources for 2019 shows clear indications of GDP growth slowdown in aggregate terms, and in most major economies.

The Indian Economy

In FY19, Indias GDP at 6.8% (Source: CSO) is reflective of the sluggish economic environment led by a slowdown in demand driven by dampening purchasing power, drop in employment rate and inactivity and liquidity crisis in the NBFC sector. The situation was accentuated by the crisis in the aviation industry as well. Going forward, GDP performance, according to International Monetary Fund (IMF) in its World Economic Outlook report, is projected at 7.3% in FY20 and 7.5% in FY21, supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy.

Also, India has been witnessing some downside on the domestic front since April 2019. Primarily, these were weakness in consumption led by automobiles and two-wheelers, reduction in non-banking financial companies credit funding, impact on exports from moderating global demand, which has led to mixed views on whether the downside is transient or structural.

Improving the ease of doing business, moving towards digital governance and a stable economy helps in attracting foreign direct investment. India has improved its ranking in terms of Ease of Doing Business by leaping 23 spots over its 2018 ranking of 100. Going forward, the structural reforms will aid business investment and exports. These reforms include the new Insolvency and Bankruptcy Code, smoother implementation of the Goods and Services Tax (GST), better roads and electricity and bank recapitalisation. India is expected to lean towards domestic factors to drive its progress owing to a weak global economic environment.

The headwinds that the global economy is facing, including faster-than-anticipated deceleration in global growth, volatility in financial markets, geo-political events and worsening trade disputes could further impact businesses in developed markets as well as emerging markets and cause a plateauing of growth.

But we expect some of that to improve in the near term, and that along with the more accommodative monetary policy and fiscal policy of the Indian Government should remove some of the downside risks.

India remains the fastest growing major economy in the world.


It comprises four sub-sectors - housing, retail, hospitality, and commercial. Housing sector contributes to about six percent of Indias gross domestic product (GDP). The total realty market in the country is expected to touch US$ 180 billion by 2020. Real estate is a highly fragmented sector with only a few organized players. Now, the presence of large corporations in across the country is increasing. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for Indias growing needs.

A demographic trend reveals that India is on the verge of massive urbanization over the next couple of decades. Every year, more than one crore people relocate to urban areas in India and the nations total urban population is expected to reach about 81 crore by 2050. Availability of low cost credit is driving the demand for housing, policies like, Real Estate (Regulation and Development) Act infuse fresh buyers interest in real estate sector.

The year 2018 was an eventful one for Indian real estate as it gradually recovered from the twin effect of GST and demonetization. The last couple of years were all about the developers trying to find a footing in the market post the currency ban and aligning their way of business and product line as per RERA. This meant more focus on project completions, alterations in product offering with respect to size and pricing and lesser focus on launching new projects.

The major policy reform to be passed in 2018 was the IBC Code amendment wherein home buyers were recognized as lenders to developers under the Code. The real estate industry is a very important part of the overall economy of India. The central government has taken up the task of restructuring the real estate industry. Initiatives such as RERA, GST and demonetisation have resulted in a clean-up of the system.

Realty sector, like most other sectors, is growing its dependency on technology and innovations. Considering the busy lifestyles of the millennials, the concept of smart homes is slated to become the deciding factor in home buying. Co-working and Co-living is the emerging asset classes in India.

Affordable Housing segment

Developers finally realised the importance of aligning their product offering as per the market demand. This was reflected in the significant rise in the supply of the affordable housing category across cities in 2018. And, the developers took a conscious effort to align their product categories in line the with the governments mission of housing for all by 2022 backed by multiple incentives and industry status for affordable housing.

According to a report by CARE, affordable housing offers opportunity up to 6-8 million sq. ft. in next 3-4 years. The affordable housing segment is further set to gain traction in 2019, given the presence of its significant demand. On the other hand, more public-private partnership in real estate projects would drive the supply side of the affordable housing segment.

Accounting Standards and its impact:

Another important development that took place in 2018 was the implementation of the Indian Accounting Standard (Ind AS) 115. It came into effect from April 1, 2018. This meant that real estate developers would now be required to show home buyers all payments, especially advances made towards ongoing projects, as loans and not as income from sales.

Under the previous norm, home buyer payments toward the purchase of under construction flats were declared as turnover by companies and net income generated from such projects was treated as profit. Under the new rule, home buyer payments toward ongoing projects will be treated as advances or loans and not as income from sales. "Any change from Percentage of Completion (POC) accounting to accounting on Completion of Project would have a very significant revenues and cost reversal as at the opening balance sheet and rerecognition of the same in ensuing period

Government Initiatives: The Governments focus on the Housing for All by 2022 mission, infrastructure status to affordable housing and easing Foreign Direct Investment (FDI) norms in the construction sector have started to yield results, improving investor and end user sentiments in the Indian realty sector. Concessional GST rate of 5% (1% in case of affordable housing) was notified and the same applicable from 01.04.2019 for construction of residential real estate projects, without input tax credit. The government announced major tax benefits that will help stimulate demand for affordable housing. Interest deduction up to 3.5 lakh for affordable housing (priced at 45 lakh) as against 2 lakh earlier will now be available until March 31, 2020. This can help attract first-time homebuyers.


Industry experts are of the opinion that for the growth momentum to be sustained, liquidity issues owing to non-banking financing crisis and banks reduced lending to the sector needs to be addressed.

Considering the stable governments and initiatives taken by the Governments help in growth of real estate markets.



Indias current population of 1.3 billion is projected to rise to 1.4 billion by 2025, 1.5 billion by 2030 and 1.6 billion by 2050, accompanied by major demographic changes in terms of age profile of the people resulting from rising life expectancy and falling fertility (UN, 2019).

The high urbanisation rate, rising young population base, increasing disposable income levels, rising aspirations and increasing proportion of nuclear families, which influence urban consumption base and subsequent rapid growth of the retail industry, offers huge potential for demand for residential real estate and growth in the retail sector.

The government has taken major policy initiatives to bring about dynamism in the real estate sector which has maximum linkages to other industries after agriculture. These include: Pradhan Mantri Awas Yojana (PMAY), Atal Mission for Rejuvenation and Urban Transformation (AMRUT), Real Estate (Regulation and Development) Act 2016 (RERA), Smart Cities Mission, Affordable Housing, Benami Transactions Act, Real Estate Investment Trusts (REITs), and easing of FDI norms.

Above all will energize and boost the sector and have positive impact in the long run. Also, the initiatives of the government will give impetus to employment opportunities in real estate sector and the growth of industries ancillary to the real estate sector.

Threats / Risks and Concerns:

Real estate being a cyclical industry and projects have a long gestation period, gets impacted more by the changes in macroeconomic variables like global and countrys economy, changes in the market dynamics, availability of capital, interest rate, GDP Growth, employment, purchasing power, inflation, availability of skilled labour, etc., and the same directly impacts the project sales and profitability of the Company.

Execution delay may result in cost overruns and it can cost dearly in the form of higher than expected input cost and higher than anticipated interest burden. Further, such delays also negatively impact the Companys reputation and returns.

Also, intrinsic challenges that hinder growth of the sector and performance of your Company, factors such as high borrowing costs, lack of funding, liquidity issues and slow (and uneven) development of urban infrastructure.

At present, the major issue is slowdown witnessed in economic growth and which will adversely affects the real estate industry. Due to which a large number of projects are stalled and have unsold inventory.


The Company is engaged in construction and development of Commercial, residential properties in metropolitan and Tier II cities.

The projects under taken by the Company on its own and through other partners are under various stages of execution and the details of the status of these projects are mentioned in the Directors Report.


Your company is currently executing housing projects in Hyderabad and Chennai. Considering the past experiences, your Company primarily focusing on the development of property, mid-size houses, etc. and reduced the construction contracts work. However, on finding better opportunities it will take up and execute the construction contracts.

Based on the opportunities available in real estate sector, the management being optimistic about the growth in real estate sector, your company will undertake projects suiting the market requirement.


Your Company has reasonably sound system of controls in the operational areas. Internal controls are in line with the size of the operations and organizational requirements. Which are adequate to protect the Companys resources. The Audit Committee reviews the adequacy of internal financial control and risk management systems from time to time.

The Company focuses on quality control in its operations and projects. Adhering to quality norms and standards will help minimizing risks and improve the efficiency of operations.


Total Revenue: During the year under review is Rs. 3529.35 lakhs, against Rs. 5037.91 lakhs in 2017-18.

Total Expenses: During the year under review is Rs. 6327.41 lakhs, as against Rs. 6283.56 lakhs for 2017-18.

Profit/(Loss) Before Tax: During the year under review is Rs. (2798.05) lakhs, as against Rs. (1245.65) lakhs in 2017-18.

Profit/(Loss) After Tax: During the year under review is Rs. (2196.18) lakhs as against Rs. (966.98) lakhs in 2017-18.


The Company continues to maintain cordial relations with its employees, vendors and other agencies. The Company strives to provide congenial atmosphere to the employees to enable them to offer their best in terms of performance. As on 31st March, 2019 your company has 43 employees on its payroll.


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 ("FY")) in Key Financial Ratios with explanations therefor are given below along with details of any change in Return on Net worth (based on the standalone financial statements of the Company):

Key Financial Ratios & Return on Net worth FY ended 31.03.2019 FY ended 31.03.2018 Changes in key ratios % Change in ratios Explanation
(i) Debtors Turnover Ratio 0.9257 1.1117 -0.1860 -16.73 Lower since Revenue from Real Estate Sales are Recognised on Project completion method
(ii) Inventory Turnover Ratio 1.1051 1.6441 -0.5390 -32.78 Lower since Revenue from Real Estate Sales are Recognised on Project completion method
(iii) Interest Coverage Ratio -4.8103 -2.0508 -2.7595 134.56 Due to higher Losses
(iv) Current Ratio 1.0622 1.3852 -0.3230 -23.32 Due to deferral of revenue recognition to project completion and increase in current liabilities
(v) Debt Equity Ratio 0.1604 0.0957 0.0647 67.64 Due to higher Losses
(vi) Operating Profit Margin (%) -0.6424 -0.1583 -0.4840 305.68 Due to higher Losses and deferral of revenue recognition to Project Completion
(vii) Net Profit Margin (%) or sector-specific equivalent ratios, as applicable. -0.5991 -0.1767 -0.4225 239.11 Due to higher Losses and deferral of revenue recognition to Project Completion
(viii) Return on Net worth -0.5908 -0.1325 -0.4583 345.75 Due to higher Losses


Statements in the Management Discussions and Analysis, the Directors Report, describing the Companys objectives, projections, estimates, expectations are "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors/developments that could affect the companys operations include a downward trend in the real estate sector, includes political and economic conditions of the country, in which the Company operates, and the changes in the Government regulations, tax laws, corporate and other laws, interest and other costs and other incidental factors.