Vascon Engineers Ltd Management Discussions.

Company Overview

Vascon Engineers Ltd, established in 1986,is one of the leading

Construction Engineering Company in India with presence inReal Estate business having an asset light model and Clean

Room Partition manufacturing business. With a strong track record of 33 years, your Company has created a number of projects of eminence and splendor on a timely basis. The Company has executed over 200 projects with construction area of over 50 mnSqft and is known for maintaining high quality standards and timely execution of projects. Your Company has a track record of successful & timely execution of Landmark projects such as Ruby Mills (Mumbai), Suzlon One Earth (Pune), Symbiosis College (Pune), IGI Airport Multilevel Car Parking (New Delhi), and many more.

Macro-Economic Review

Fiscal year 2019-20 had started on a weaker note, Indias GDP grew at 5 percent in the first quarter of FY19-20, the slowest since the fourth quarter of FY2012 13. All the major growth engines private consumption, private investment, and. exports had experienced a significant Consumption, the biggest contributor of growth, fell to an 18-quarter low of 3.1 percent in Q1 FY2019 20, pointing to fragile consumer sentiment and purchasing ability. Investments grew 4 percent, marginally up from 3.6 percent in the previous quarter. Exports remained volatile owing to global uncertainties around trade and investments and geopolitical tensions. The fourth engine, government consumption and investment, is running out of steam because of the limited elbow room the government has for counter-cyclical spending as the budget deficit remains under pressure. In FY2019-20, GDP is expected to grow at 5.2% due to weak domestic demand and external uncertainties. To combat the slowing economic growth, the government made a flurry of policy announcements to boost demand and supply. Including liberalization of FDI norms for select sectors; rollback of recently introduced and much debated tax surcharge on foreign portfolio investors; incentives to support several industries; bank consolidation; and the blockbuster cut in the corporate tax rate. These measures are expected to improve credit growth, increase capital inflows, reinvigorate private investments and hiring, and thereby boost economic growth.

When the economy is battling to get back on track, the pandemic all over the globe has triggered a slowdown in the economies world over. Indias GDP is expected to fall to 1.9 % in FY21 as against 5.8 % estimated amid the lockdown due to coronavirus pandemic. Reserve Bank of India (RBI) undertook slew of measures to boost liquidity to NBFCs and other financial institutions to aid support during slowdown amid lockdown, also Reserve Bank of India expects the Indian economy to experience a sharp turnaround and resume its pre-Covid trajectory by growing at 7.4 % in 2021-22. India is the only country other than China to register a positive growth rate in 2020.

(Source: IMF Report)

Indias Civil Construction & Real Estate Sector

Indias GDP is expected to gradually move upwards in the next five years anchored on the clean-up of financial sector balance sheets, reversing the deleveraging phase with corporates starting to leverage for funding capex, leading to growth and payoff from policies and reforms such as Goods and Services Tax and Insolvency and Bankruptcy Code, 2016. Capacity utilisation is expected to catch up, resulting in an improvement in the investment cycle. It is a given that infrastructure development is a critical factor for boosting the economy, providing improved growth prospects. In order to improve

Indias global competitiveness, creating new and upgrading existing infrastructure will be critical along with introducing a slew of reforms. Infrastructure development is labour intensive, leading to increase in employment opportunities and thus, fueling domestic demand. All of this together can aid in initiating a virtuous cycle of higher investments, growth and employment generation in the economy.

The above envisaged economic growth will be accompanied by a shift in the underlying demographics of the country increase in urbanization levels, growing workable population and increase in the share of employed individuals in the services sector in urban areas. In the last decade, Indias urban population has increased at an annual rate of ~2.4%, which is expected to increase in the near future, given the focus on urban infrastructure and increase in employment opportunities in the urban areas. Indias urbanization levels are estimated to improve to ~42% in 2030 from 34% as of 2018. These transformed demographics will require development of a host of infrastructure facilities, thus increasing the demand for increase in coverage and quality of service delivery across the entire infrastructure spectrum.

To fuel the growth in the sector, Government of India has launched the ‘National Infrastructure Pipeline (NIP), an investment plan with an outlay of Rs.111 lakh Crore for enhancing infrastructure in identified sectors for a period of five years from 2020-25. This is a first-of-its-kind exercise to efficiently and improve the quality of life for all citizens. NIP will enable a forward outlook on both economic and social infrastructure projects, which will create jobs, improve ease of living and provide equitable access to infrastructure for all, thereby making growth more inclusive.

It is envisaged that during the fiscals 2020 to 2025, sectors such as energy (24%), roads (18%), urban (17%) and railways (12%) amount to ~71% of the projected infrastructure investments in India, with a total capital expenditure projected at ~Rs. 111 lakh crore. The Centre (39%) and states (40%) are expected to have an almost equal share in implementing the

NIP in India, followed by the private sector (21%). The governments ambitious infrastructure development programmes is the key enabler to achieve ambitious $5 trillion economy by 2025 target. It provide significant opportunities for investors and market players to help transform the sector and partner Indias socio-economic progress. Robust demand, higher investments, attractive opportunities and policy support changed the face of the sector in the country in coming years.

(Source: NIP Taskforce Report)

Real Estate Sector

Real Estate Sector is the second largest sector after agriculture, contributing 6-7 percent to the Indian Gross Domestic Product. Indian Real Estate sector is estimated to grow to USD 1 trillion by 2030 and it is expected to be 13 percent of the countrys GDP By 2025. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for Indias growing needs. Indian real estate is projected to increase by 19.5 percent CAGR from 2017 to 2028.

In the last few years, Indian Real Estate sector has been struggling to overcome several landmark reforms such as

RERA, GST, Insolvency and Bankruptcy Code, adoption of REITs, etc;structured by the Government to build a healthy ecosystem with greatest transparency, accountability and customer assurance.

To provide respite to the sector Government have taken major steps like, raising liquidity to housing finance companies, relaxation of ECB funds, and approval of a Rs. 25,000-crore fund have all been made in positive stride. Covering 1,600 projects with 458,000 dwelling units under the announcement will help to boost buyers confidence in near term.

Also, In Union Budget 2020-21, Government has taken few steps which will push the Real Estate Growth

1. The Government has proposed the new tax slabs format. The amended tax slabs will ensure more disposable income in the hands of the people. This could aid to revive the consumption cycle in the realty sector and kick-starting the economy

2. Extended the support to affordable housing, by extending the tax benefit for affordable home buyers under section 80EEA till March 31, 2021, which is expected to positively impact demand in the affordable housing segment

3. Guarantee scheme for NBFC and HFCs, Government proposed to further enhance the credit guarantee scheme for NBFCs and HFCs, which is expected to provide some respite to market

With this, the sector was moving back on a growth trajectory and was likely to emerge stronger than before, however, the current global pandemic (COVID-19) has put brakes on its growth momentum. It has aggravated the problems of the real estate sector, which was already reeling under the pressure of a challenging economic environment and liquidity starved crisis. The residential sector which was already adjusting to the structural reforms and reeling under inventory overhang and lack of consumer confidence, is headed for an overall slump in demand. The affordable housing sector in particular which was earlier expected to drive the volumes in the sector - will be also be impacted. The Government of

India and Reserve Bank of India have announced several measures like Lowering of interest rates, Reduction in cash reserve ratio (CRR), Loan moratorium, and Special liquidity schemes for HFCs and NBFCs to combat economic crisis arising around of the COVID-19.

Factors Driving Growth in the Sector:

To accelerate the pace of infrastructure, a large number of initiatives have been undertaken: Union Budget: The Union budget 2020-21 had key focus on infrastructure sector. The Governments total allocation for infrastructure in Budget of 2020-21 stands at USD 63.20 billion. Indias infrastructure spend has been in the range of

5.3%-6.2% of Nominal GDP between FY13-FY19. As primary focus on improving the physical quality of life and growth, the

Government came up with an infrastructure investment plan till

FY25 which entails investment worth Rs 102.5 lakh crore with highest investment in roads, urban infrastructure, railways and power. Allocation of Rs. 888 crore for the upgradation of state government medical colleges at the district hospitals and Rs.

1,361 crore for government medical colleges and government health institutions. Furthermore, the Government proclaimed to invest Rs. 10,000,000 crore in infrastructure over the next five years.

Funding of Infrastructure Projects (FY20-25) in %
Sector Centre State Private
Road 25 36 39
Energy 37 57 6
Petroleum & natural gas 74 11 15
Renewable energy 0 0 100
Atomic 100 0 0
Railways 87 1 12
Port 50 39 11


Funding of Infrastructure Projects (FY20-25) in %
Sector Centre State Private
Airport 23 38 39
Urban 31 68 1
Digital Infrastructure 24 5 71
Irrigation 22 78 0
Rural 76 24 0
Agriculture 54 46 0
Health 29 71 0
Higher education Source: SBI Research 38 62 0

Airports Infrastructure Development: Governments impetus to develop 100 more airports by 2025 to support UDAN scheme will boost airport construction demand. The Airports Authority of India (AAI) to develop city-side infrastructure at 13 regional airports across India, with help from private players for building of hotels, car parks and other facilities, and there by boost its non-aeronautical revenues. Furthermore, to focus on Non-metro airports the AAI projected to dedicate over Rs. 21,000 crore between 2018-22 to build new terminal and expand capacity of existing ones. ~ 22 airports to get connected under regional connectivity scheme andover 30 airport development projects are under progress across various regions in Northeast India. AAI to develop over

20 airports in tier II and III cities in next 5 years.

Development of Healthcare: In the Budget 2020-21, the Government allocated Rs. 69,000 crore for the health sector, an increase of about 8% ascompared to the previous year. The expansion of Ayushman Bharat scheme will bring opportunities for Indian EPC contractors as this scheme eyes to setting up more hospitals in Tier-II and Tier-III cities under thePPP model. Furthermore, with emphasis to overcome the shortage of medical professionals in the country the government proposed to convert existing district hospitals to medical colleges through PPP mode under Niti Aayog. Metro Rail Development: Metro rail projects worth over Rs. 500 billion are underway in India and this is poised to continue growing trail. Currently ~10 Indian cities are working on metro railway projects and the government is contemplating the feasibility of network sin all cities with a population of more than 2 million.

Housing for All by

2020: India will need to construct 43,000 houses every day until 2022 to achieve the vision of Housing for All by 2022. This has the potential for propelling India to 3rd largest construction market globally. The sector is expected to contribute 15% to the Indian economy by 2030 (source: IBEF). The Governments recent push towards Affordable Rental launched under the Pradhan Mantri Awas Yojana (PMAY); Government-funded housing in cities will be converted in Affordable Rental Housing Complexes (ARHC) through the public-private partnership (PPP) model. Growth in Warehousing: Investment in the logistics sector is expected to reach USD 500 billion annually by 2025.Ware housing in India is expected to get investment of Rs. 50,000 crore between 2018-20 (source: IBEF).

Opportunities for Growth

Infrastructure development is critical to spur economic growth and achieve $5 trillion economy by 2025, India. The Indian construction sector is expected to reach Rs. 50,000 billion by 2020, expanding at a CAGR of around 16%, since 2018. Rapid urbanization, government-led infrastructure enhancement across smart cities, housing, healthcare, transportation, combined with increasing foreign investor spend, shared economy model and improved regulatory reforms are the key drivers fueling the overall sector growth. The Government effort through policy reforms is expected to drive the growth in Indian Construction and Real Estate Industry. Vascon Engineers has prepared a comprehensive strategy to capture opportunity in both the EPC and Real Estate Development



The global economy is witnessing challenges arising due to Covid-19 Pandemic and the Infrastructure sector & Real Estate is not isolated. The Pandemic, and the ensuing lockdown has adversely impacted the sector primarily attributable to the halting of construction activities across the country, lack of availability of labor, softening demand for real estate, amongst others. To provide the desired thrust to the sector government has announced various slew of measures like extensionof construction period,special liquidity scheme to protect/ safeguard liquidity, loan restructuring window for corporates, reduction interest rates to support demand amongst others.

The current crisis has led to reduction in consumption demand in the Country, government spendingin social sectors to be the key driver for economic growth. Governments key initiatives like Building Industrial corridors, Housing for all, Udaan, Metro Rail Development, Ayushman Bharat, Transport infrastructure, amongst others to drive growth.The current crisis expected to trigger opportunity for growth in the Building

& Factories segment, as major companies are working towards diversifying their manufacturing facilities beyond

China, India being one of the fastest growing economy to be benefitted of this step thus, translating into huge opportunity for growth in the sector. Also, government is likely to increase in Healthcare Industry in the upcoming year, providing an opportunity for growth.

The Companys order book stands atRs. 2,060 Crore, ensuring strong visibility for the EPC segment for foreseeable future. Also, your Company have identified new real-estate launched worth aroundRs. 2,000 crores, proving further visibility for growth. With adequate liquidity in place your Company is well-prepared to capitalize on the arising opportunities going forward.

Financial Performance with respect to operational performance COMPANY PERFORMANCE

During the Financial Year 2019-20, Company witnessed the strong order intake worth Rs. 1,650 crores, Highest-Ever EPC order inflow in a year leading to Total Order book of Rs 2,060 crores; providing higher-visibility for growth in coming years. Also, Company have successfully monetized a land parcel measuring approximately 8 acres situated at Kharadi, Pune for gross consideration of Rs. 170 Crore. The transaction has been executed through Ajanta Enterprises, a Joint Venture firm, where your Company holds the 50% shares. Your

Company generated Net Cash Flow post expenses and tax of Rs. 52.5 Crores through liquidation of the non-core assets. The proceeds are used for working capital requirement for ongoing projects and de-leveraging of Balance Sheet.

Consolidated Financial Performance

Total Consolidated Revenue stood at Rs. 540.89 crores as against Rs. 561.0 crores in FY2018-19.

EBITDA increased from Rs. 43.99 crores in FY2018-19 toRs73.87FY 2019-2020

Profit After Tax stood atRs39.74 crores in FY2019-20 as against Rs 5.28 crores in FY2018-19; primarily due to higher execution higher, resulting in an increase in turnover

As on March 31, 2020, Total consolidated debt stood at Rs. 255.32 crores as against Rs. 263.33 crores on

March 31, 2019

Net worthRs. 743.67 crores as on March 31, 2020 compared to Rs. 699.59 crores as on March 31, 2019

Working Capital Management

Current assets as on March 31, 2020 stood at Rs. 930 crores compared to Rs. 897 crores as on March 31, 2019

Current ratio as on March 31, 2020 stood at 2.17 times compared to 2.24 times as on March 31, 2019

Inventories decreased from Rs.483 crores as on March 31, 2019 to Rs.463 crores as on March 31, 2020

Short-term loans and advances increased to Rs. 67 crores in FY2019-20 compared to Rs. 61 crores in FY2018-19

Current liabilities stood at Rs. 429 crores on March 31, 2020 compared to Rs. 400 crores as on March 31, 2019

Cash and bank balances stood at Rs. 57 crores as on March 31, 2020 compared to Rs. 55 crores as on March 31, 2019.

Key Ratios

Debtors turnover: The Companys debtors turnover stood at 127 days in FY2019-20 as compared to 151 days in FY2018-19; reduction in debtors is on account of increase in debtor realization

Inventory turnover: Inventory turnover improved to 456 days FY2019-20 compared to 478 days FY2018-19; major inventory is related to Real Estate Division and it also includes inventory for project which are not yet launched

Interest coverage ratio: The Companys interest coverage ratio stood at 3.46 times in FY2019-20 against 1.63 in FY2018-19; primarily on account of improvement in profitability; Company expect to maintain the same consistency in coming years

Current ratio: The Companys current ratio stood at 2.17 in FY2019-20 compared to 2.24 in the previous year

Debt to Equity ratio: Debt to Equity Ratio stood at 0.33

On standalone basis, Operating profit: The operating profit of the Company stood at Rs. 62 crores in FY2019-20 compared to Rs. 45 crores in FY2018-19

Net profit: The net profit stood at Rs. 38 crores in FY2019-20 as compared to Rs. 15 crores in FY2018-19; primarily due to higher execution higher, resulting in an increase in turnover

Return on net worth: The return on net worth stood at 5% in FY2019-20.


In FY2019-20, your Company has received highest ever EPC Contracts (Third Party Contracts). In year under consideration, your Company received orders exceeding a sum of over

Rs1,650 crores. The orders are from reputed developers and from various Government institutions. In addition to this, the EPC arm of your Company also received internal orders of around Rs107 crores from its recently launched real estate projects. Total order book stands at Rs 2,060 crores which includes the Third Party contracts as well as internal order intake. In FY19-20,EPC segment contributed Rs 277.05 crores to consolidated revenues as against Rs. 248.55 in previous year.


In FY19-20, Real Estate segment contributed Rs 161.12 crores to consolidated revenues as against Rs. 81.20 crores in previous year. Your Company is pleased to share during the period under review; real estate segment of the Company has turned EBITDA positive it is an outcome of the strong marketing efforts, which has resulted in faster liquidation of the inventory. Your Company did new sale bookings of

1,35,412 square feet amounting to a total sales value of Rs 116 crores in FY19-20 against new sale bookings of 420,998 square feet for a total sales value of Rs 272 crores for the full Financial Year 20180-19. In Financial Year 2019-20, your Company adopted a cautious approach for project launch; launched ~1,10,000 square feet projects resulting in lower new sales booking.

During the year, your Company has successfully launched Phase II of Forest Edge, a residential project of 76 units of ultra-modern health-tech 2BHK, Kharadi, Pune in Sep 2019 and Citron Phase II, a morden lifestyle residential project consisting 1BHK and 2BHK, Wagholi, Pune in Nov 2019. Furthermore, this year your Company has identified various real estate launches of around 2.5 million square feet amounting to a total sale value of around Rs. 2,000 crores over the next 2-3 years, this will also add up to the internal order book of the Company.

During May 2018, your Company had successfully forayed into the affordable housing segment through the launch of Vascon Goodlife, the project is progressing well and witnessing fair uptick.


Forest Edge Residential Project in Kharadi, Pune After the grand success of Phase-I, Company has launched Phase-II of the project in this year. Forest Edge is an advance lifestyle project with carefully chosen health bounties and cutting edge technological features. The project is spread over ~ 3.4 acres, will be developed as a modern residential development comprising of 2 BHK apartments, and modelled as Health Tech Homes, one of its kind in Pune. Forest County- Residential Project in Kharadi, Pune Residential Project located in the most rapidly developing area of Pune Kharadi. Last year, Company has launched two towers with 132 units comprises 2 and 3 BHK apartments with sizes of 1,150 sqft to 1,685 sqft. The total saleable area of the project is 0.18msft.

Windermere A Signature Luxury Residential Project in Koregaon Park, Pune Windermere is a thoughtfully designed, premium quality home at Koregaon Park, Pune. The total area of the site is 4.75 acres and will be developed in 2 phases. The project has total saleable area of around 0.42 msft, which will be developed in phases. The saleable area of phase 1 of the project is of 0.38 msft.

The quality apartment comprises apartments of 3,000 Sq.ft, 3,800 Sq.ft& 8,500 sq. ft with its own private swimming pool. The project has latest amenities such as renewable energy system, architectural design that ensure good ventilation and maximum natural light, water, conservation through maximumrecycling organic waste management, rain water harvesting, etc. The Project is certified as platinum rating project from by ‘The Indian green building council (ICBG) green home the project is designed as a five star rated Eco housing project.

Vascon Goodlife First Ever Value Housing Project in Katvi, Talegaon Spread across 10 acres of land, the project that offers 1RK, 1BHK and 2BHK homes aims at providing not just affordable, but value homes with a strong focus on nurturing learning and growth making it a first-of-its kind learning infrastructure in a residential project. The project boasts of amenities for all age groups, such as library, study rooms in each tower, online education room with computers

Xotech Phase II, Hinjewadi, Pune

Residential Project amidst of IT Hub of the city with total saleable area of the project is 0.04 msft. The project comprises of 71 exclusive smart 2 BHK apartments, which intends to provide quality living and premium housing. The project is sprawled across 2 acres, offers over 85% of open space for a spacious, congestion free, living experience. Well surrounded by IT/BT companies, schools, colleges, bank, shopping arcades and Hotels. The project is developed with corner apartment which are vastu complaint to fit-in the criteria of new home buyers. Citron Phase II, Wagholi, Pune Citron is a modern lifestyle Residential Project at Wagholi, Pune. The project comprises of 1BHK &2 BHK apartments, with an endeavor to offer the best-in-class housing, to ultimately become the landmark project of Wagholi. GMP TECHNICALS - CLEAN ROOM PARTITION BUSINESS

As a part of backward integration your Company hadacquired

GMP technical solutions, anintegrated providerof engineering services, in August 2010. GMP is one of thelargest manufacturers of Clean Room Partitioning Systemsand Turnkey Solution Provider.

GMP has a good top line growth in recent years. In FY18-19, your Company received an order from Tata Solutions Pvt. Ltd. to supply 1.24 lakh steel doors over a period of three years.

The execution of the order has been started and expect to pick-up in the future.

During the FY19-20, GMP Technicals contributed Rs 152.82 crores to consolidated revenues as against Rs. 161.79crores in previous year.


Your Company continues to focus on core business that is

Engineering, Procurement & Construction (EPC) and Real

Estate Development business. With the Government impetus on Infrastructure growth by Housing for all, modernization of railways, development of airports, smart cities, Vascon is well-prepared to capitalize on this growth opportunity both in EPC and Real Estate Segment. Your Company continues to make efforts to improve the cash-flow through liquidation of non-core assets identified for the growth of EPC & Real Estate division. Inthis year, your

Company generated Net Cash Flow post expenses and tax of Rs. 52.5 Crores through liquidation of the non-core assets. Your Company have successfully monetized a land parcel measuring approximately 8 acres situated at Kharadi, Pune for gross consideration of Rs. 170 Crore. The transaction has been executed through Ajanta Enterprises, a Joint Venture firm, where your Company holds the 50% shares. The proceeds are used for working capital requirement for ongoing projects and de-leveraging of Balance Sheet. The Company will continue to focus on improving operational efficiencies and strengthening of Balance Sheet. It is committed towards cash flow generation through monetization of identified non-core assets to improve liquidity and achieve higher growth.


In EPC business delay in projects execution, stall of projects due to non-payment by developers, steep cost escalation in inputs affects the execution of project and results in significant cost overrun.

In Real Estate business financing, uncertainty on monetary and fiscal policy, changes in government regulations, foreign direct investments, approval processes, environment clearances and legal hassles & proceedings affects the execution project and results in significant cost overrun.


With capital infusion in the Company, we have strengthened our team across functions with industry leaders to reap the large opportunities available in front of us. In addition to leadership position, we are building team across function and across levels of both business verticals. Finally, it has been imperative to have appropriate persons for each role for their contribution to the organisation is maximized.


The Company has deployed a vigorous Internal Controls and

Audit mechanism to facilitate an accurate and fair presentation of its financial results. The internal audit system has been continuously monitored and updated to ensure that assets are safeguarded, established regulations are complied with and pending issues are addressed promptly. The Audit

Committee reviews reports presented by the internal auditors on a routine basis. The Committee makes note of the audit observations and takes corrective actions, if necessary.

It maintains a constant dialogue with statutory and internal auditors to ensure that internal control systems are operating effectively.


The Company has developed a robust risk management framework. It has been identified as one of key enablers to achieve the company‘s objectives. Increased competition,pressures on cost and deliveries, forex & commodity price variations, impact of recessionary trends on the award of jobs and manpower attrition are some of the major risks faced by the Industry. The measures such as advanced quantitative tools, global sourcing, standard operating procedures, and operational excellence initiatives have been implemented so as to protect the profitability of the business.