Technofab Engineering Ltd Management Discussions.

The management of Technofab Engineering presents its analysis report covering performance and outlook of the Company. The report has been prepared in compliance with the Corporate Governance requirement pre?scribed in the SEBI (LODR) Regulations, 2015 . The management accepts responsibility for the integrity and objectivity of the financial statements.

COMPANY OVERVIEW

TECHNOFAB Engineering Limited is one of Indias premier engineering and construction companies specialized in providing complete engineering, procurement and construction (EPC) services on a turnkey basis across a number of industrial and infrastructure sectors which includes power, oil and gas, water & waste water, Electrical Transmission & Distribution and other industrial and infra structure sectors.

With "Excellence in Project Management" as its core characteristic, the company has developed complete in house capabilities necessary to provide turnkey responsibilities to its customers. At the heart of the companys organizations are its project managers, industry veterans with vast experience in the construction sector backed by experienced engineering and procurement specialists and dedicated staff for managing project logistics. Consequently the company is in the unique position of being able to provide end to end services in an economical and effective manner under one roof for a very wide range of projects. It has a diversified blue chip customer list and is recognised by virtually all leading consultants. Since 1993 it has extended its operations to the African continent having successfully executed several turnkey assignments in Kenya, Zambia, Ghana and Ethiopia. In recent years around a third of its operating income is from overseas projects.

BUSINESS STRUCTURE & DEVELOPMENTS

The Company serves customers, domestic as well as overseas, who operate in diverse sectors like Power, Industrial, Oil & Gas, Electrical, Water and Infrastructure Sectors in India, Africa & Asia Paci_c Regions Through Turnkey EPC Contracts for a wide spectrum of packages. The business opportunities are linked with investments taking place in these sectors. Companys recent rapid growth has been built around its core competence of providing turnkey composite

EPC services covering all aspect of Civil Engineering, Electrical Engineering, Mechanical Engineering and Instrumentation Engineering. All recent diversification has been achieved around this core competence and no unrelated diversification is planned unless there is a strong strategic _t. Due to the multifaceted services being offered by the company, the company is able to provide EPC services to virtually all infrastructure industrial sector and it is no longer dependent on the thermal power sector as was the case a few years ago. In order to spread the company geographically, company targeted the overseas market and the success of these endeavours have enabled the company to grow in a profitable manner. The Company intends to continue with this market diversification strategy as it is an effective antidote to the business cycle in some geography. In order to sustain a singular objective of profitable growth the Company has made imperative to redouble our marketing efforts as the strike rate is expected to go down.

POWER SECTOR

Electricity Act 2003 enacted and came into force with effect from 15 June 2003 with an objective to introduce competition, protect consumers interests and provide power for all. The electricity generation target of conventional sources for the year 2018-19 has been fixed as 1265 Billion Unit (BU). i.e. growth of around 4.87% over actual conventional generation of 1206.306 BU for the previous year (2017-18). The conventional generation during 2017-18 was 1206.306 BU as compared to 1160.141 BU generated during 2016-17, representing a growth of about 3.98%.

The electricity generation target of conventional sources for the year 2018-19 was _xed at 1265 BU comprising of 1091.500 BU thermal; 130.000 BU hydro; 38.500 nuclear; and 5.000 BU import from Bhutan.

However, this Sector has been witnessing slow down in capacity addition. This is due to world vide emphasis in renewable and solar power the cost of which have come down to the levels that enable to compete the coal _red power generation. However, it is well known that renewable power are source of infirm power and the only norm source of power providing power on demand is thermo electric power generation. Therefore, once the capacity addition in renewable reaches its logical peak, there would be great emphasis on coal fired power generation to augment and supplement the renewable power generation. We expect that over next 3 to 4 years investment in thermoelectric power generation will pick up, thus a_ording business opportunities to the company, which has traditionally been a strong player in coal fired power generating sector.

The 5 year plan (2012-2017) has seen record new capacity being set up and the next one (2017-2022) has even larger target of around 93000 MW. Despite the recent hiccups in this sector culminating in the cancellation of coal mines, the actual new capacity added at around 50000 mw is the largest ever. Over 25000 mw of capacity is there in the clogged pipeline. The successful auction of coal mines and the more objective approach to environmental clearances means that this pipeline should soon unclog. These projects will be in both State/PSU and Private Sectors.

Hence, over the next 7 years an investment of over Rs. 600000 Crores is expected in new domestic thermal power plants apart from investment in Renovation and Modernization. In contrast the Nuclear Power Sector which is also of interest to the Company presents a bright future. While many issues including the availability of nuclear fuel have been resolved, the issues relating to the nuclear accident liability law close to resolution, most of the plant investments is likely to see the light of day sooner than later with a successful commission of 2 units of 1000 MW each light water reactor at Kudamkulam, based on Russian design, the Govt is ready to adopt technology from select countries having expertise and pushing ahead with construction phase.

WATER SECTOR

This sector encompasses several elements viz. pumping and distribution, treatment of raw and waste water including recycling and desalination. It covers urban and rural water supply, industrial water, sewage treatment and industrial waste water treatment.

Government Plans recognize the special challenges of water resources management facing India and the likelihood that these would only intensify over time due to rising population, expected growth in agricultural and industrial demand, the danger of pollution of water bodies and, over the longer term, the effect of climate stress on water availability in many parts of the country. The Eleventh Plan strategy for urban development included a departure from exclusive public sector monopoly over urban infrastructure and opening up possibilities of private investment in this area. While private sector investment in water supply and sanitation has so far been quite insignificant, this is now expected to change.

The broad contours of the action plan for cleaning up of Ganga and other rivers along with Swachh Bharat programmes are now beginning to emerge.

The magnitude of investments that will be required is stupendous. The capability to implement the projects may be beyond the abilities of municipal bodies. The Prime Minister has given broad and clear directions for the projects to be taken up in Mission Mode. For this new Institution are expected to be created.

The scarcity of water resources is compelling use of water that was hitherto not considered because of its poor quality like brackish water and sea water. With economically competitive technologies now being available for processing such water, use of desalination is expected to exponentially grow.

Already many projects have begun recycling of both their own waste water as well as nearby available municipal waste water. In fact the UMPPs are all expected to be designed for zero discharge and all waste water will be treated and recycled for internal use. This trend will also extend to other industries. All in all, the water sector therefore has the greatest long term potential. The Water sector already provides, at an average, over the last five years, over 40% of our business as well as revenue, much of it overseas. Seeing the huge investments domestically, the Company is well placed to secure significant new business in this sector for several consecutive years. In recent years the Company has identified water and waste water treatment as a focus area. As per the Govt. efforts to rejuvenate water bodies, in order that they are able to provide fresh potable water to the public (ever increasing) considerable investment is being directed to provision of proper treatment and disposal of waste water/sewage /drainage. Towards this end, Government has also availed of USD 1 billion line of credits from the World Bank. In order to ensure that the project waste water/sewage/drainage are built to international standard and also operates to its design capacity of production of afluent which complies with the non specified by the Pollution Control authorities these projects are being plant on PPP mode. Leveraging existing experience in water and waste water infrastructure, the Company is bidding for several treatment plants, both on its own, and where pre qualification requirements do not permit it to bid on its own then the Company is forging tie ups on a case by case basis.

The company has already tied up with several technology providers, specialising in sewage /waste water treatment system and participating few projects.

The company was successful in bagging technologically advanced Sewage Treatment Project in Bhutan; efforts are being made to acquire many more such projects either on DBO or PPP mode.

ELECTRICAL SECTOR

This sector provides multiple opportunities.

The most important ones are those emerging from rural electrification which aims at getting grid electricity to all except those villages which are too remote to be connected to the grid. This is already the source of the Companys major business and will ample provide further opportunities.

Apart from above, Government has come out with certain schemes which provides an ample of opportunities to the Company like us. Some of them are mentioned below:

Deen Dayal Upadhyaya Gram Jyoti Yojana (abbr. DDUGJY) is a Government of India scheme designed to provide continuous power supply to rural India. The government plans to invest 756 billion (US$11 billion) for rural electrification under this scheme. The scheme will replace the existing Rajiv Gandhi Grameen Vidyutikaran Yojana

(RGGVY).

The DDUGJY scheme will enable to initiate much awaited reforms in the rural areas. It focuses on feeder separation

(rural households & agricultural) and strengthening of sub-transmission & distribution infrastructure including metering at all levels in rural areas. This will help in providing round the clock power to rural households and adequate power to agricultural consumers .The earlier scheme for rural electrification viz. Rajiv Gandhi Grameen

Vidyutikaran Yojana (RGGVY) has been subsumed in the new scheme as its rural electrification component. The Saubhagya Scheme or Pradhan Mantri Sahaj Bijli Har Ghar Yojana is an Indian government project to provide electricity to all households. The project was announced in September 2017 by Prime Minister Narendra Modi. Certain households identified via the Socio-economic and Caste Census (SECC) of 2011 will be eligible for free electricity connections, while others will be charged 500 Rs. The total outlay of the project is Rs. 16, 320 crore while the Gross Budgetary Support (GBS) is Rs. 12,320 crore. Integrated Power Development Scheme (IPDS) was announced by the Government of India with the objectives of:

1. Strengthening of sub-transmission and distribution network in the urban areas;

2. Metering of distribution transformers /feeders / consumers in the urban areas.

3. IT enablement of distribution sector and strengthening of distribution network as per CCEA approval dated 21.06.2013 for completion of targets laid down under Restructured Accelerated Power

Development and Reforms Programme (RAPDRP) for 12th and 13th Plans by carrying forward the approved outlay for RAPDRP to IPDS. The scheme will help in reduction in AT&C losses, establishment of IT enabled energy accounting / auditing system, improvement in billed energy based on metered consumption and improvement in collection eficiency. The estimated cost of the present scheme with the components of strengthening of sub-transmission and distribution networks, including metering of consumers in the urban areas is Rs. 32,612 crore which includes the requirement of budgetary support from Government of India of Rs. 25,354 crore over the entire implementation period. Further the Company is also exploring opportunities in the AIS/GIS Substation Space.

The modernization and expansion of the Indian Railways opens up an entirely new, though related, sector. While opportunities will emerge in many types of project work, the Company will mainly target the railway electrification business.

Industrial electrification is another area, though largely a small niche covering those customers who seek a single turnkey EPC solution for their electrification needs.

INDUSTRIAL SECTOR

A sector where the Company has traditionally secured and executed a fairly large volume of business in last 7 years, lately it has not been providing any significant opportunities, on account of the economic slowdown. The higher economic growth expected from FY 2018 onwards is expected to result in several new investments in this sector and thereby provide fresh business opportunities to the Company. These opportunities would relate to various Balance of Plant Systems like LP Piping, Fuel Oil Systems, Water supply etc.

COMPARISON OF PERFORMANCE FOR THE FINANCIAL YEAR ENDED MARCH 31, 2018 VIS--VIS FINANCIAL YEAR ENDED MARCH 31, 2017

The overall performance of the Company has been much satisfactory during the year. Brief performance of the Company is as follows:

Rs. In Crore

Particulars FY 2017-18 FY 2016-17 Variation
Total Income 437.46 403.51 8.41%
PBDIT 55.65 39.50 40.89%
Interest and 29.58 20.44 44.71%
Financial Charges
Depreciation 4.14 4.93 ? (16.02%)
Profit Before Tax 20.93 14.14 48.02%
Profit After Tax 14.44 8.62 67.52%
EPS 13.77 8.22 67.52%

It is to be noted that EBIDTA margin which has been gradually rising over the past four years has reached its all-time high level of 12.57% for the current year (against 9.82% during the preceding year).

It may be seen from the above table that PAT & EPS has also shown a significant growth as compared to the previous year.

Finance costs which amounted to 49.3 million in the year ended 31 March, 2017 decreased by 16.02% to Rs 41.4 million in the year ended 31 March, 2018.

PERFORMANCE: SEGMENTWISE –GEOGRAPHICAL BREAKUP

While considering the revenue from different verticals, the Company treats all its operations as a single vertical. However for the benefit of investors, the contribution of individual sectors to revenue and its comparison with previous years is given below:

SECTOR FY 2015-16 FY 2016-17 FY 2017-18
Conventional 4% 5% 3.00%
Power
Oil & Gas 3% 6% negligible
Water & Waste 28% 32% 30.00%
Water Treatment
Industrial & 2% 3% 11.50%
Infrastructure
Sectors
Electrical sub 63% 55% 55.50%
stations and
Distribution
Other Sales negligible
TOTAL 100% 100% 100%

Internationally, company is focused on Sub Saharan Africa and South Asia. As we see in the above table that there is a continuous churning in the relative contribution of individual sector. Similarly the revenue from overseas business has also been continuously varying as the chart below demonstrates:

In Overseas, the Company mainly, but not solely, pursues projects funded by multilateral funding bodies like World Bank, African Development Bank, Asian Bank, EXIM Bank etc. By their very nature such projects are in the social sector and cover areas like Water and Sanitation, Electricity Distribution.

Such projects are largely in Africa and to an extent in South Asia and Asia Paci_c Region. So far the Company is executing/has executed projects in 11/12 countries in Africa, Viz. Kenya, Tanzania, Ethiopia, Malawi, ,Zambia, Ghana,

Bhutan and Liberia apart from one country in Asia Paci_c Region i.e. Fiji. Sub Saharan Africa alone provides good opportunities not only in the eight countries that Company has already worked in but also in the remaining over two dozen countries.

As regards projects in the private sector, these are approached with caution due to concerns on funding and payment issues. So far the Company has done only one project for the private sector overseas and this incidentally is in the

Oil and Gas Sector and is also the Companys largest completed project to date.

Internationally, we continue to see good opportunities particularly in Africa and South Asia. We have developed a dedicated marketing team for International business, which identi_es a few countries where we are focussing. Indian governments recent enhanced focus on Africa in terms of economic cooperation is an encouraging factor. Apart from Multilateral Agency funded projects we are identifying projects being funded by Indian government and Exim Bank for pursuing business opportunities. Our efforts have yielded satisfactory results so far.

ORDER BOOK

The Company has secured new business worth Rs. 613 Cr during the financial year 2017-18. All orders were from the water sector out of which the overseas orders accounted for approx. 33%. The average order size continues to be large in accordance with the Companys strategy of focussing on fewer but larger sized orders. The Company has a robust order book of about Rs. 2,000 Cr that is largely comprised of orders from the Water & Electrical Sectors. The following charts depict %age breakup of the order backlog considering various aspects:

The Board of Directors on record thanks to all of the employees for their valuable contribution towards the growth of the company. Technofab Engineering encourages its team members to go beyond the scope of their work, undertake voluntary projects that enable to learn and contribute innovative ideas in meeting goals of the company.

CONTINGENT LIABILITY

The Contingent Liability may be primarily due to the performance and bank guarantees given by the Company to its Clients at the time of award of the project which continues to exist till the completion of the project as per the terms of the agreement with the Client. The track record of the Company does not reffect any threat on the financial stability of the Company due to such contingent liabilities and the management does not foresee any substantial threat of such contingent liabilities becoming real liability. There has not been any major increase in the Contingent Liability during the year under review.

FORWARD LOOKING STATEMENTS

Statements in this Management Discussion and Analysis of Financial Conditions and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of the future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company assumes no responsibility to publicly amend, modify or revise forward-looking statements, on the basis of any subsequent developments, information or events.

Actual results may di_er materially from those expressed in the statements. Important factors that could in_uence the Companys operations include interconnect usage charges, determination of tari_ and such other charges and levies by the regulatory authority, changes in government regulations, tax laws, economic developments within the country and such other factors globally.

The financial statements are prepared under historical cost convention, on accrual basis of accounting, and in accordance with the provisions of the Companies Act,

2013 (the Act) and comply with the Accounting Standards notified under Section 133 of the Act. The management of Technofab Engineering Limited has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements reffect, in a true and fair manner, the state of affiairs for the year.