Supreme Infrastructure India Ltd Management Discussions

GLOBAL ECONOMY OVERVIEW

The Economic Survey 2022-23 projects a baseline GDP expansion of 6.5% for FY24, which is similar to assessments by the Asian Development Bank, and the Reserve Bank of India. Controlled inflation and increased private sector investments are among the key factors supporting Indias GDP growth. The Emergency Credit Linked Guarantee Scheme (ECLGS) has aided the Micro, Small, and Medium Enterprises (MSME) sector, which has witnessed substantial credit expansion. Apart from boosting infrastructure, the central governments capital expenditure has also helped improve rural living conditions, boosting overall demand. Employment generation and food security measures have been aided by better implantation of the Mahatma Gandhi National Rural

Employment Guarantee Scheme (MGNREGS), PM-Kisan, and PM Garib Kalyan Yojana. Despite some global economic headwinds, the Indian economy, now the fifth largest, will persist in its trajectory and regain its pre-pandemic growth rate.

The outlook for the global economy took a positive turn in the first half of 2023 as inflationary pressures began to ease, but ongoing geopolitical tensions and domestic challenges in key markets have slowed down any return to sustained growth. Global energy prices returning to levels last seen prior to the invasion of Ukraine, combined with easing commodity and food prices, have helped put further downward pressure on inflation for the rest of 2023. Despite the positive news, major economies throughout the world are facing their own domestic pressures, delaying any hopes of improving market conditions and a drop in inflation. Globally it is forecasted that GDP growth of 2.1% in 2023 and 2.6% in 2024 with inflation forecast at 5.3% in 2023 and 3.2% in 2024, and global unemployment levels of 5.2% in 2023 and 5.4% in 2024. The global economy has been through a series of significant shocks over the past three years– the COVID-19 pandemic and the Russia-Ukraine conflict and saw a major expansion to government debt and a significant hike in policy interest rates by central banks. The ramifications of some of these headwinds may not have surfaced yet and we are still to see their full impact and how they interact.

INDIAN ECONOMY OVERVIEW

Despite the global economic slowdown, India maintains a robust growth rate in the FY. 2022-23, outperforming many peer economies. This resilience is attributed to strong domestic consumption and reduced dependence on global demand. The Government of Indias ambitious infrastructure initiatives, such as the Prime Ministers Gati Shakti (National Master Plan for Multimodal Connectivity), logistics development, and industrial corridor projects, are poised to significantly enhance industrial competitiveness and stimulate future growth. Improvements in labor market conditions and consumer confidence are expected to drive growth in private consumption. Furthermore, the governments commitment to substantially increase capital expenditure in FY 2023, despite targeting a lower fiscal deficit of 5.9% of GDP, will further bolster demand. As the impact of COVID-19 recedes, the services sector, including tourism and other contact services, is anticipated to experience strong growth in FY 2023 and FY 2024. In FY 2022-23, the Indian economy witnessed notable advancements in various sectors, buoyed by government policies and strategic investments. The agriculture sector benefited from favorable monsoon conditions and supportive government schemes, contributing to rural income growth. The manufacturing sector saw increased activity, aided by initiatives such as Production-Linked Incentive (PLI) schemes aimed at promoting domestic manufacturing and exports. Additionally, the digital economy continued to expand rapidly, driven by increasing internet penetration and digital adoption across sectors. The fintech industry, in particular, experienced significant growth, transforming the landscape of financial services and fostering financial inclusion. Moreover, Indias renewable energy sector made significant strides, with increased investments in solar and wind power projects, aligning with the countrys sustainable development goals.

Overall, the Indian economy demonstrated resilience and adaptability in the face of challenges, laying a strong foundation for sustainable growth and development in the years ahead.

INDIAS INFRASTRUCTURE SECTOR OVERVIEW

The Infrastructure Sector is recognized as a key driver of the Indian economy. However, it faces challenges such as rapid urbanization, energy demand, and the need for sustainable living.

Infrastructure, both its presence and absence, is identified as a primary constraint on growth, yet also as a crucial facilitator of development. In the face of supply chain disruptions, technological advancements, and financial restructuring, it is imperative for infrastructure growth to match demand. The government is keenly focused on introducing policies that ensure the timely establishment of world- class infrastructure in the country. The sector is pivotal in propelling Indias overall development and has garnered significant attention from policymakers. Opportunities within the infrastructure sector have witnessed steady growth, positioning it as a key driver in Indias development narrative.

To support this growth trajectory, the Government of India has allocated substantial funds for key infrastructure sectors, notably highways. The total allocation for the highways sector has increased to 1.99 lakh crore from 1.18 lakh crore in the Union Budget for the financial year 2022-23. This investment underscores the governments commitment to fostering infrastructure development and driving the nation towards sustained economic prosperity. (Source: Government of India, Ministry of Finance, Union Budget 2022-2023). Indias commitment to infrastructure development remains steadfast, with plans to invest USD 1.4 trillion through the ‘National Infrastructure Pipeline over the next five years. In FY 2021, infrastructure activities constituted 13% of the total FDI inflows, amounting to USD 81.72 billion. A significant focus lies on achieving the vision of ‘Housing for All by 2022, necessitating the construction of 43,000 houses daily. As of August 22, 2022, substantial progress has been made under the Pradhan Mantri Awas Yojna scheme, with 122.69 Lakh houses sanctioned, 103.01 Lakh grounded, and 62.21 Lakh completed. The imperative for infrastructure development extends to urbanization, with the requirement to develop hundreds of new cities over the next decade. Urban freight demand is predicted to surge by 140% in the next 10 years, with final- mile freight transit constituting 50% of total logistics expenditures, particularly in the burgeoning e- commerce supply chains. By 2022, India is poised to become the third-largest construction market globally, while the logistics market is estimated to reach USD 320 billion by 2025.

Infrastructure expenditure is forecasted to grow at a CAGR of 11.4% over FY 21-26, propelled by investments in water supply, transport, and urban infrastructure. Despite these ambitious plans, investment in infrastructure contributed only 5% of GDP in the 10th five-year plan, a notable decline from 9% in the 11th five-year plan. To bridge this gap, the India Planning Commission proposed USD 1 trillion investment during the 12th five-year plan, with 40% of funds sourced from the private sector.

Strengths

• EPC and Operational experience in diverse range of infrastructure projects such as Roads, Bridges, Buildings, Railways, Power, Water, Housing, etc.

• Sizable order book helping Company to survive through difficult times

Weakness

• Concentrated mainly in the state of Maharashtra

• Mainly concentrated n Road and Highways segment

• Liquidity crunch affecting operations

• Reduced capabilities to raise funds to limit future expansion and growth

• Higher working capital blockage (particularly, receivables)

• Difficulty in obtaining the required NFB Limits

• Time and Cost overruns in project execution

• Due to the current pandemic situation, restrictions on construction activities, workforce and supply chain disruptions had a cascading impact on the Company,

Opportunities

• Successful Debt Restructuring will augment business operations and revive order book Opportunities in private sector infra projects.

• Opportunities to expand in segments other than roads and bridges

• Expand in other geographies

Threats

• Unfavorable working capital situation poses a serious risk.

• The private sector is reliant on commercial banks in a bid to raise debts for PPP projects. The banks being in constrained by sectoral. Exposure limits and lever. Aging for large Indian infrastructure companies, it has become difficult for SUL to finance the PPP projects.

• Time consuming regulatory approvals such as land acquisition, environment clearances, etc.

• High level of contingent liabilities and commitments, if materializes, can derail the revival

• Risk of insolvency in case of unsuccessful debt restructuring

• Risk of insolvency in case of unsuccessful debt restructuring costs for workers are expected to rise due

• Revised standard operating procedures? duly incorporating social distancing, personal protective equipment and hygiene would drive up the project cost in the short term.

RISK MANAGEMENT

The Company identifies that evaluation and effective management of their risks is crucial for keeping its performance steady and delivering adequate value to its shareholders. The Company keeps assessing risks at regular intervals and takes measures to mitigate the same.

Land acquisition is a critical factor. Very often, there are delays in handing over encumbrance-free land and Right of Way, impacting progress of work and idling of resources. Commercial terms in the business are getting tougher, resulting in working capital pressures.

The sector is also exposed to delays in various approvals, leading to a domino effect. Extreme environmental events (such as unprecedented rainfall), National Green Tribunal bans and construction bans due to pollution pose an adverse risk to the business.

INTERNAL CONTROLS

The Company has sufficient and commensurate internal control systems to match the size and the sector it is in. The Company has well-defined and clearly laid out policies, processes and systems. These are strictly and regularly monitored by the top management and any digression or discrepancy is immediately flagged off and corrected. All requisite regulations, rules and laws of the land are strictly followed. The Company has a sound system for financial reporting and well-defined management reporting systems. These are supported by Management Information System (MIS) that regularly checks, monitors and controls all operational expenditure against budgeted allocations. The Company also has a regular internal audit process that is monitored and reviewed by the Audit Committee.

The Company maintains a robust framework of internal controls sized appropriately with the nature of business, size of operations, geographical spread and changing risk complexity, which are impacted by varying internal and external factors. This framework forms the building blocks of a strong corporate culture of good governance.

The Corporate Governance is strengthened by a ‘Code of Conduct applicable to the employees and implementation of a separate ‘Code of Conduct for Business Partners, which reinforces ethical behaviour by aligning them to the unique corporate culture and values of the Company. The whistle-blower mechanism forms another integral component of the internal control system, which is overseen by the Audit Committee. It is available to both employees and business partners, to enable them to raise genuine concerns about any actual or suspected ethical / legal violations or misconduct or fraud, with adequate safeguards against victimisation, fear of punishment or unfair treatment. The Company also has an institutionalised mechanism of dealing with complaints of sexual harassment through a formal committee constituted in line with the Companys Policy on ‘Protection of Womens Rights at Workplace under relevant statutory guidelines. This policy has been widely disseminated across the Company and all complaints are addressed in a time bound manner.

TRAINING AND TALENT MANAGEMENT

People are at the heart of our successes and our continuing endeavours to do better. Our HR policies are crafted to ensure professional growth while contributing to the employees sense of pride and well-being. We also leverage technologies as we anticipate and adapt to changing requirements. For instance, our digitalisation initiatives enabled us to provide learning experience to our employees, even as they worked remotely during multiple lockdowns.

SUSTAINABLE DEVELOPMENT

I am very happy to inform you that this is the maiden issue of our Integrated Annual Report, bringing together our financial and sustainability performance across multiple parameters. While the world seems to have suddenly woken up to the perils of climate change, for our Company sustainability is nothing new. We have been at the forefront of many sustainability initiatives long before they were mandated by law. Since 2008, we have maintained an annual reporting cycle for our sustainability performance. These reports are accessible on the Companys website.

OUTLOOK

We live in an age of unpredictability. Just when it appeared that the world had come to terms with the pandemic and that the worst was behind us, war broke out in Europe, dashing hopes of achieving the stability essential for growth. In the interdependent world we live in, conflagrations are no longer confined to the boundaries of the combatant countries. This has disrupted the global supply chains and triggered an alarming spike in prices. The consensus view is that prices of various commodities would remain elevated in the near term.

Amid all this, there is good news on the technology front. Paradoxically, it took a pandemic to open our eyes to the latent benefits of digital technologies. These technologies are irrevocably changing the way we work and interact with each other. Also, the IT spends are possibly the only deflationary force in todays inflationary world. Another positive result has been a heightened awareness of sustainability and a more rigorous emphasis on Environment Protection, Social Responsibility and Governance frameworks.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous FY) in key financial ratios, along with detailed explanations thereof, including: Debtors Turnover, Inventory Turnover, Interest Coverage Ratio, Current Ratio, Debt Equity Ratio, Operating Profit Margin, Net Profit Margin or sector-specific equivalent ratios, as applicable.

Details of any change in Return on Net Worth as compared to the immediately previous FY along with a detailed explanation thereof.

CONCLUSION

I would like to thank our employees, our customers, supply chain partners and the Government for their contribution, directly and indirectly, to our growth. I also thank my fellow Board Members for their invaluable support in guiding the Company through turbulent times. My special thanks to all our shareholders for the trust you have reposed in us. You remain an invaluable pillar of strength, and I look forward to your continued support in our journey towards setting higher levels of excellence.